-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VSn8CA5SnlR3HxnP88fXdwW0QO4pd6luKbZv3HPl2jSinKE/iS8xcHiWGqxq1IM5 PPRTbnkVXCoixm5mpWSqeg== 0000950134-95-002748.txt : 19951118 0000950134-95-002748.hdr.sgml : 19951118 ACCESSION NUMBER: 0000950134-95-002748 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19951109 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEVERLY ENTERPRISES INC /DE/ CENTRAL INDEX KEY: 0000812305 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 954100309 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-64111 FILM NUMBER: 95588842 BUSINESS ADDRESS: STREET 1: 1200 S WALDRON RD STREET 2: STE 155 CITY: FORT SMITH STATE: AR ZIP: 72903 BUSINESS PHONE: 5014526712 S-3 1 FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1995 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BEVERLY ENTERPRISES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4100309 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5111 ROGERS AVENUE, SUITE 40-A FORT SMITH, ARKANSAS 72919-0155 (501) 452-6712 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ SEE TABLE OF ADDITIONAL CO-REGISTRANTS INCLUDED HEREWITH ------------------------ ROBERT W. POMMERVILLE EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY 5111 ROGERS AVENUE, SUITE 40-A FORT SMITH, ARKANSAS 72919-0155 (501) 452-6712 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO: GARY OLSON, ESQ. MARK C. SMITH, ESQ. LATHAM & WATKINS SKADDEN, ARPS, SLATE, MEAGHER & FLOM 633 WEST FIFTH STREET, SUITE 4000 919 THIRD AVENUE LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10022 (213) 485-1234 (212) 735-3000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement from the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement from the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
==================================================================================================================================== AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED(1) REGISTERED PER UNIT OFFERING PRICE(1) FEE - ------------------------------------------------------------------------------------------------------------------------------------ Senior Notes $150,000,000 100% $150,000,000 $51,725 ====================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. The amount of the filing fee, calculated in accordance with Rule 457(o) of the rules and regulations under the Securities Act. ------------------------ THE REGISTRANT AND THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT AND THE CO-REGISTRANTS 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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF ADDITIONAL CO-REGISTRANTS
(STATE OR OTHER (EXACT NAME OF JURISDICTION OF CO-REGISTRANT AS INCORPORATION OR (I.R.S. EMPLOYER SPECIFIED IN ITS CHARTER) ORGANIZATION) IDENTIFICATION NO.) - ------------------------------------------------ --------------------- --------------------- A.B.C. Health Equipment Corp.................... New York 13-3043192 AdviNet, Inc.................................... Delaware 71-0758986 AGI-Camelot, Inc................................ Missouri 43-1253376 AGI-McDonald County Health Care, Inc............ Missouri 43-1253385 Alliance Health Services, Inc................... Delaware 22-3226432 Alliance Home Health Care, Inc.................. Connecticut 06-1341698 Amco Medical Service, Inc....................... Texas 75-1288363 American Transitional Care Centers of Texas, Inc........................................... Texas 76-0298534 American Transitional Care Dallas -- Ft. Worth, Inc........................................... Texas 76-0322331 American Transitional Health Care, Inc.......... Delaware 76-0292237 American Transitional Hospitals, Inc............ Delaware 76-0232151 American Transitional Hospitals of Indiana, Inc........................................... Indiana 35-1903972 American Transitional Hospitals of Oklahoma, Inc........................................... Oklahoma 74-2689039 American Transitional Hospitals of Tennessee, Inc........................................... Tennessee 62-1562740 American Transitional Hospitals -- Texas Medical Center, Inc................................... Delaware 71-0779078 ATH -- Clear Lake, Inc.......................... Delaware 71-0776296 ATH Columbus, Inc............................... Delaware 71-0776295 ATH Del Oro, Inc................................ Texas 62-1578954 ATH Heights, Inc................................ Texas 76-0442017 ATH Oklahoma City, Inc.......................... Oklahoma 73-1465199 ATH Tucson, Inc................................. Arizona 71-0765364 Beverly Acquisition Corporation................. Delaware 71-0765364 Beverly Assisted Living, Inc.................... Delaware 71-0777901 Beverly Health and Rehabilitation Services, Inc. ......................................... California 95-2301514 Beverly Enterprises -- Alabama, Inc............. California 95-3742145 Beverly Enterprises -- Arizona, Inc............. California 95-3750871 Beverly Enterprises -- Arkansas, Inc............ California 95-3751272 Beverly Enterprises -- California, Inc.......... California 95-3750879 Beverly Enterprises -- Colorado, Inc............ California 95-3750882 Beverly Enterprises -- Connecticut, Inc......... California 95-3849642 Beverly Enterprises -- Delaware, Inc............ California 95-3849628 Beverly Enterprises -- Distribution Services, Inc........................................... California 95-4081567 Beverly Enterprises -- District of Columbia, Inc........................................... California 95-3750889 Beverly Enterprises -- Florida, Inc............. California 95-3742251 Beverly Enterprises -- Garden Terrace, Inc...... California 95-3849648 Beverly Enterprises -- Georgia, Inc............. California 95-3750880 Beverly Enterprises -- Hawaii, Inc.............. California 95-3750890 Beverly Enterprises -- Idaho, Inc............... California 95-3750886 Beverly Enterprises -- Illinois, Inc............ California 95-3750883 Beverly Enterprises -- Indiana, Inc............. California 95-3744258 Beverly Enterprises -- Iowa, Inc................ California 95-3751271 Beverly Enterprises -- Kansas, Inc.............. California 95-3751269 Beverly Enterprises -- Kentucky, Inc............ California 95-3750894 Beverly Enterprises -- Louisiana, Inc........... California 95-3849633 Beverly Enterprises -- Maine, Inc............... California 95-3849627 Beverly Enterprises -- Maryland, Inc............ California 95-3750892 Beverly Enterprises -- Massachusetts, Inc....... California 95-3750893
3
(STATE OR OTHER (EXACT NAME OF JURISDICTION OF CO-REGISTRANT AS INCORPORATION OR (I.R.S. EMPLOYER SPECIFIED IN ITS CHARTER) ORGANIZATION) IDENTIFICATION NO.) - ------------------------------------------------ --------------------- --------------------- Beverly Enterprises -- Michigan, Inc............ California 95-3898661 Beverly Enterprises -- Minnesota, Inc........... California 95-3742698 Beverly Enterprises -- Mississippi, Inc......... California 95-3742144 Beverly Enterprises -- Missouri, Inc............ California 95-3750895 Beverly Enterprises -- Montana, Inc............. California 95-3849636 Beverly Enterprises -- Nebraska, Inc............ California 95-3750873 Beverly Enterprises -- Nevada, Inc.............. California 95-3750896 Beverly Enterprises -- New Hampshire, Inc....... California 95-3849630 Beverly Enterprises -- New Jersey, Inc.......... California 95-3750884 Beverly Enterprises -- New Mexico, Inc.......... California 95-3750869 Beverly Enterprises -- North Carolina, Inc...... California 95-3742257 Beverly Enterprises -- North Dakota, Inc........ California 95-3751270 Beverly Enterprises -- Ohio, Inc................ California 95-3750867 Beverly Enterprises -- Oklahoma, Inc............ California 95-3849624 Beverly Enterprises -- Oregon, Inc.............. California 95-3750881 Beverly Enterprises -- Pennsylvania, Inc........ California 95-3750870 Beverly Enterprises -- Rhode Island, Inc........ California 95-3849621 Beverly Enterprises -- South Carolina, Inc...... California 95-3750866 Beverly Enterprises -- Tennessee, Inc........... California 95-3742261 Beverly Enterprises -- Texas, Inc............... California 95-3744256 Beverly Enterprises -- Utah, Inc................ California 95-3751089 Beverly Enterprises -- Vermont, Inc............. California 95-3750885 Beverly Enterprises -- Virginia, Inc............ California 95-3742694 Beverly Enterprises -- Washington, Inc.......... California 95-3750868 Beverly Enterprises -- West Virginia, Inc....... California 95-3750888 Beverly Enterprises -- Wisconsin, Inc........... California 95-3742696 Beverly Enterprises -- Wyoming, Inc............. California 95-3849638 Beverly Enterprises Japan Limited............... California 95-3982125 Beverly Enterprises Medical Equipment Corporation................................... California 95-3849617 Beverly Enterprises Rehabilitation Corporation................................... California 95-3849619 Beverly Holdings I, Inc......................... Delaware 71-0768985 Beverly Manor Inc. of Hawaii.................... California 99-0144750 Beverly Real Estate Holdings, Inc............... Delaware 71-0768984 Beverly REMIC Depositor, Inc.................... California 95-4183372 Beverly Savana Cay Manor, Inc................... California 95-4217381 Brownstone Pharmacy, Inc........................ Connecticut 06-0760884 Columbia-Valley Nursing Home, Inc............... Ohio 34-1262298 Commercial Management, Inc...................... Iowa 42-0891358 Computran Systems, Inc.......................... Oregon 93-0675109 Continental Care Centers of Council Bluffs, Inc........................................... Iowa 41-1413442 DD Wholesale, Inc............................... Massachusetts 04-3133621 Dunnington Drug, Inc............................ Delaware 22-3122469 Dunnington Rx Services of Rhode Island, Inc..... Rhode Island 05-0460848 Dunnington Rx Services of Massachusetts, Inc.... Massachusetts 04-3128047 Forest City Building Ltd........................ Missouri 43-1102460 Hallmark Convalescent Homes, Inc................ Michigan 41-1413478 Healthcare Prescription Services, Inc........... Indiana 35-1868731 Home Medical Systems, Inc....................... Delaware 23-2271050 Hospice Preferred Choice, Inc................... Delaware 71-0761314 Hospital Facilities Corporation................. California 95-2499218
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(STATE OR OTHER (EXACT NAME OF JURISDICTION OF CO-REGISTRANT AS INCORPORATION OR (I.R.S. EMPLOYER SPECIFIED IN ITS CHARTER) ORGANIZATION) IDENTIFICATION NO.) - ------------------------------------------------ --------------------- --------------------- Insta-Care Holdings, Inc........................ Florida 59-2213553 Insta-Care Pharmacy Services Corporation........ Texas 59-1817412 Insurance Software Packages, Inc................ Florida 59-3090233 Kenwood View Nursing Home, Inc.................. Kansas 48-6111286 Liberty Nursing Homes, Incorporated............. Virginia 54-0784334 Medical Arts Health Facility of Lawrenceville, Inc........................................... Georgia 58-1329700 Medical Health Industries, Inc.................. Delaware 39-1140633 MedView Services, Incorporated.................. Florida 59-3090223 Moderncare of Lumberton, Inc.................... North Carolina 56-1217025 Nebraska City S-C-H, Inc........................ Nebraska 41-1413481 Nursing Home Operators, Inc..................... Ohio 34-0949279 Omni Med B, Inc................................. Connecticut 06-1303450 Petersen Health Care, Inc....................... Florida 59-2043392 Pharmacy Corporation of America................. California 95-3849613 Pharmacy Corporation of America -- Massachusetts, Inc................. Delaware 71-0776297 Pharmacy Dynamics Group, Inc.................... Florida 65-0166808 Phymedsco, Inc.................................. West Virginia 55-0582953 Resource Opportunities, Inc..................... Florida 58-1930884 Salem No. 1, Inc................................ Missouri 43-1130257 South Alabama Nursing Home, Inc................. Alabama 95-3809397 South Dakota -- Beverly Enterprises, Inc........ California 95-3750887 Spectra Rehab Alliance, Inc..................... Delaware 71-0759298 Synergos, Inc................................... California 33-0203515 Synergos -- North Hollywood, Inc................ California 33-0242556 Synergos -- Pleasant Hill, Inc.................. California 33-0256657 Synergos -- Scottsdale, Inc..................... Arizona 94-3085083 Taylor County Health Facility, Inc.............. Florida 59-1779865 TMD Disposition Company......................... Florida 59-3151568 Vantage Healthcare Corporation.................. Delaware 35-1572998
5 *************************************************************************** * * * 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 NOVEMBER 9, 1995 PROSPECTUS , 1995 [LOGO] $150,000,000 BEVERLY ENTERPRISES, INC. % SENIOR NOTES DUE 2005 The Senior Notes (the "Senior Notes") are being offered (the "Offering") by Beverly Enterprises, Inc. ("Beverly"). Interest on the Senior Notes will be payable semi-annually on and of each year, commencing , 1996. The Senior Notes will not be redeemable by Beverly until , 2000. In addition, upon the occurrence of a Change of Control Triggering Event (as defined herein), each holder of Senior Notes may require Beverly to repurchase such Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. The Senior Notes will be general unsecured obligations of Beverly ranking senior to all subordinated indebtedness of Beverly and will rank pari passu in right of payment to all other indebtedness of Beverly. The Senior Notes will be fully and unconditionally guaranteed on a senior unsecured and joint and several basis (the "Guarantees") by substantially all of Beverly's present and future subsidiaries (collectively, the "Guarantors"). The Guarantees will rank senior to all subordinated indebtedness of the Guarantors and will rank pari passu in right of payment to all other indebtedness of the Guarantors. As of June 30, 1995, on a pro forma basis after giving effect to the issuance and sale of the Senior Notes and the use of estimated net proceeds therefrom and certain other transactions described herein, the aggregate outstanding principal amount of senior indebtedness of Beverly and its subsidiaries would have been approximately $969,000,000, of which approximately $ would have been secured indebtedness. Application has been made to list the Senior Notes on the New York Stock Exchange. SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES OFFERED HEREBY. 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 COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - ------------------------------------------------------------------------------------------------------------------------------------ PRICE UNDERWRITING PROCEEDS TO THE DISCOUNTS AND TO THE PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3) - ------------------------------------------------------------------------------------------------------------------------------------ Per Senior Note................... % % % - ------------------------------------------------------------------------------------------------------------------------------------ Total............................. $ $ $ - ------------------------------------------------------------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of issuance. (2) Beverly and the Guarantors have agreed to indemnify the Underwriters (as defined herein) against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by Beverly, estimated at $650,000. The Senior Notes are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to certain prior conditions, including the right of the Underwriter to reject any order in whole or part. It is expected that delivery of the Senior Notes will be made in New York, New York on or about , 1995. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. STEPHENS INC. J.P. MORGAN SECURITIES INC. CHEMICAL SECURITIES INC. 6 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR THE OVER-THE-COUNTER MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. --------------------- AVAILABLE INFORMATION Beverly and the Guarantors have filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (the "Registration Statement") (of which this Prospectus is a part) under the Securities Act of 1933, as amended (the "Securities Act"), for registration of the Senior Notes offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference and the exhibits and schedules thereto. For further information regarding Beverly, the Guarantors and the Senior Notes, reference is hereby made to the Registration Statement and such exhibits and schedules which may be obtained from the Commission at its principal office in Washington, D.C. upon payment of the fees prescribed by the Commission. Beverly 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 Commission. The Registration Statement, the exhibits and schedules forming a part thereof and the reports, proxy statements and other information filed by Beverly with the Commission in accordance with the Exchange Act can be inspected and copied at the Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, Beverly's Common Stock is listed on the New York and Pacific Stock Exchanges and similar information concerning Beverly can be inspected and copied at the offices of the New York and Pacific Stock Exchanges. --------------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The documents listed below have been filed by Beverly with the Commission and are incorporated herein by reference: 1. Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended May 19, 1995 on Form 10-K/A (the "1994 Beverly 10-K"); 2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995; 3. The portions of the Proxy Statement for the Annual Meeting of Stockholders held May 18, 1995 that have been incorporated by reference in the 1994 Beverly 10-K; 4. Current Report on Form 8-K dated June 27, 1995; 5. Current Report on Form 8-K dated May 30, 1995; 6. Current Report on Form 8-K dated April 6, 1995; and 7. Current Report on Form 8-K dated December 14, 1994, as amended February 10, 1995, on Form 8-K/A. All documents filed by Beverly pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the Offering shall be deemed to be incorporated by reference in this Prospectus and to be part hereof from the date of filing such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Copies of all documents which are incorporated herein by reference (not including the exhibits to such information, unless such exhibits are specifically incorporated by reference in such information) will be provided without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, upon written or oral request. Copies of this Prospectus, as amended or supplemented from time to time, and any other documents (or parts of documents) that constitute part of this Prospectus under Section 10(a) of the Securities Act will also be provided without charge to each such person, upon written or oral request. Requests should be directed to Beverly Enterprises, Inc., Attention: Robert W. Pommerville, Esq., 5111 Rogers Avenue, Suite 40-A, Fort Smith, Arkansas 72919-0155, telephone (501) 452-6712. 2 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this Prospectus or incorporated by reference. Unless the context otherwise requires, the term "Company" refers to Beverly Enterprises, Inc., its subsidiaries and their respective operations and the term "Beverly" refers to Beverly Enterprises, Inc. THE COMPANY The Company is the largest operator of nursing facilities in the United States, providing care to more of the nation's elderly than any other long-term care company in the United States. At September 30, 1995, the Company operated 706 nursing facilities with 75,890 licensed beds. The facilities are located in 33 states and the District of Columbia, and range in capacity from 20 to 388 beds. At September 30, 1995, the Company also operated 54 institutional pharmacies and pharmacy-related outlets, 34 assisted living centers (containing 1,401 units), 10 transitional hospitals (containing 443 beds), six hospices and four home health care entities. The Company's facilities had average occupancy of 88.2% for the nine months ended September 30, 1995 and 88.5%, 88.5% and 88.4% during the years ended December 31, 1994, 1993 and 1992, respectively. See "Business." In order to serve the growing and increasingly diverse needs of the health care patient population, the Company has broadened its range of services to include: (i) skilled nursing and basic patient care services; (ii) rehabilitation services including physical, occupational, speech and respiratory therapy; (iii) institutional and mail order pharmacy services including the delivery of drugs and related products, infusion therapy services and enteral and urological products; (iv) subacute care services; (v) transitional care services; (vi) assisted living services; (vii) hospice and home health care services; and (viii) case management and other cost containment services with respect to workers' compensation payors, claimants and their employers. To serve its markets most effectively, the Company has developed the following services: Long-Term and Subacute Care. The Company's facilities provide residents with routine long-term care services, including daily dietary, social and recreational services and a full range of pharmacy services and medical supplies. The Company's highly skilled staff also offers complex and intensive medical services to patients with higher acuity disorders (i.e., "subacute care") outside the traditional acute care hospital setting. Rehabilitation Therapies. The Company has developed and expanded its health care expertise in rehabilitation and provides skilled rehabilitation (occupational, physical, speech and respiratory) therapies in substantially all of its nursing facilities. Transitional Care. The Company operates transitional hospitals which address the needs of patients requiring intense therapy regimens, but not necessarily the breadth of services provided within traditional acute care hospitals. Pharmacy Services. Pharmacy Corporation of America ("PCA"), a wholly-owned subsidiary of Beverly, is the nation's largest institutional pharmacy delivering drugs and related products and services, infusion therapy and other health care products (enteral and urological) to nursing facilities, acute care hospitals, home care providers, psychiatric facilities, correctional facilities, assisted living centers, retirement homes and their patients. Other Services. The Company offers other health care related services to payors and patients, including workers' compensation case management, assisted living and home health care services, and information and referral systems that link payors and employees to long-term care providers. The Company's strategy is to be the low cost provider of long-term, subacute, transitional and related specialty health care services, while maintaining superior standards of care. The Company believes that implementation of this strategy will position it to meet the standards of care and the cost containment objectives of government and private payors. The key elements of the Company's strategy are to: Capitalize on National Scope and Breadth of Services. The Company intends to capitalize on its national presence by contracting for its comprehensive services with a variety of payors. The Company is positioning itself to provide its full complement of services to payors on a national basis, thereby providing such payors with the cost savings, consistency of quality and efficiency of contracting with one provider. 3 8 Further Expand Product Line. The Company believes that offering a broad range of high quality services in its network of facilities provides the Company with a greater opportunity to serve its patients from the time those patients enter the health care system until those patients' needs are met. Consequently, the Company continues to expand its traditional "mix" of services to include rehabilitative, subacute, pharmaceutical and medical services in a variety of settings. Expand Internal Capabilities. The Company believes that expanding its internal capabilities will enable it to control the quality of care and cost of its services and will allow the Company a high degree of flexibility in adapting its service programs to meet the changing needs of its markets. The Company intends to: (i) develop and own certain ancillary service providers or enter into strategic alliances for such services; (ii) pursue strategic acquisitions; and (iii) strive to capture increasing market share through value added and proprietary service offerings. Actively Manage Portfolio of Properties. Management continually evaluates the prospects and opportunities for each of the Company's businesses in the various markets which it serves. Pursue Growth and Diversification Through Strategic Acquisitions. Through strategic acquisitions, the Company intends to own more of the components of its specialty services delivery system, enabling the Company to maximize its cost effectiveness and quality of care and to be more responsive to the changing needs of its customers. The Company's principal executive offices are located at 5111 Rogers Avenue, Suite 40-A, Fort Smith, Arkansas 72919-0155, and its telephone number is (501) 452-6712. Beverly is a Delaware corporation. RECENT DEVELOPMENTS THIRD QUARTER OPERATING RESULTS On October 19, 1995, the Company announced its operating results for the third quarter of 1995, a summary of which is presented below (dollars in thousands).
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- ------------------------- 1994 1995 1994 1995 Net operating revenues....................... $763,327 $834,905 $2,204,527 $2,420,899 Interest expense, net........................ 12,743 18,093 36,588 53,605 Income before provision for income taxes..... 35,069 39,965 86,034 89,731 Net income................................... 23,496 24,778 57,643 55,633 EBITDA....................................... 70,552 84,049 187,658 221,318
Net operating revenues increased 9.4% and 9.8% for the three and nine months ended September 30, 1995, respectively, as compared to comparable periods of the prior year, primarily due to growth in ancillary services and pharmacy revenues associated with recent acquisitions. Income before provision for income taxes increased 14.0% and 4.3% for the three and nine months ended September 30, 1995, respectively. Control over operating expenses and improvements in patient mix in the core nursing and rehabilitation business helped to increase the Company's EBITDA margin to 10.1% in the third quarter of 1995 compared to 9.2% for the same period in 1994. The strong performance of the Company's core nursing and rehabilitation operations was somewhat offset by that of PCA, which experienced after-tax operating shortfalls, as compared to budget, for the three and nine months ended September 30, 1995. ISSUANCE OF SUBORDINATED DEBENTURES IN EXCHANGE FOR PREFERRED STOCK Effective November 1, 1995, Beverly exercised its option to exchange (the "Exchange") all of the outstanding shares of its $2.75 Cumulative Convertible Exchangeable Preferred Stock (liquidation preference $50 per share) (the "Preferred Stock") for its 5 1/2% Convertible Subordinated Debentures due August 1, 2018 (the "Subordinated Debentures"). Beverly issued $50 principal amount of Subordinated Debentures in exchange for each share of Preferred Stock. All holders of Preferred Stock were required to participate in the Exchange. The Subordinated Debentures contain conversion and optional redemption provisions substantially identical to those of the Preferred Stock. 4 9 PROPOSED SPIN-OFF OF PHARMACY CORPORATION OF AMERICA In April 1995, Beverly announced that its Board of Directors had preliminarily approved a plan to spin-off approximately 80% of PCA's common stock to Beverly's stockholders. In addition, the Company announced that it was also contemplating a public offering of up to 19.9% of PCA's common stock. Beverly subsequently disclosed that certain operational difficulties at PCA were adversely affecting PCA's operating results and that it had made changes in PCA's management and certain of its operating and pricing policies to address these difficulties. Beverly is evaluating the PCA spin-off in light of these developments and is considering other strategic alternatives for PCA. The PCA spin-off is permitted by the terms of the Indenture, subject to certain limitations and conditions. See "Description of Senior Notes -- Repurchase at the Option of Holders -- Asset Sales." The Board of Directors has made no commitment to a formal plan to dispose of the stock of PCA. There can be no assurance that the PCA spin-off or any other strategic transaction will occur. For the year ended December 31, 1994 and the three and nine month periods ended September 30, 1995, PCA's revenues were approximately $247,400,000, $122,100,000 and $333,200,000, respectively, and its EBITDA was approximately $36,300,000, $10,900,000 and $35,800,000, respectively. At September 30, 1995, PCA's total assets and liabilities were approximately $442,200,000 and $293,400,000, respectively. The foregoing PCA financial data is unaudited and does not reflect certain intercompany allocations, eliminations and adjustments. See "-- Third Quarter Operating Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." RECENT HEALTH CARE BILLS APPROVED BY CONGRESS Health care system reform and concerns over rising Medicare and Medicaid costs continue to be high priorities for the federal and certain state governments. Although no comprehensive health care, Medicare or Medicaid reform legislation has yet been implemented, pressures to contain costs and the active discussion and issues raised by the Clinton Administration, Congress and various other groups have impacted the health care delivery system. In October 1995, both the U.S. House of Representatives and the U.S. Senate approved bills that would reshape the Medicare and Medicaid programs. These complex bills as currently passed propose significant reductions in the overall rate of Medicare and Medicaid spending growth. There is active discussion concerning these proposals and the form of any final legislation signed into law could differ significantly from current proposals. The impact of currently proposed legislation on the Company is not readily determinable. However, in their currently proposed form, such legislation and proposals could have a material adverse effect on the Company's future financial position, results of operations and cash flows. 5 10 THE OFFERING ISSUER..................Beverly Enterprises, Inc. ("Beverly") SECURITIES OFFERED......$150,000,000 principal amount of % Senior Notes due 2005 (the "Senior Notes"). MATURITY DATE........... , 2005. INTEREST PAYMENT DATES................... and , commencing , 1996. GUARANTEES..............The Senior Notes will be fully and unconditionally guaranteed on a senior unsecured and joint and several basis (the "Guarantees") by substantially all of Beverly's present and future subsidiaries (collectively, the "Guarantors"). MANDATORY REDEMPTION....None. OPTIONAL REDEMPTION.....The Senior Notes may not be redeemed prior to , 2000. At any time on or after , 2000, the Senior Notes may be redeemed at the option of Beverly, in whole or in part, at the redemption prices set forth herein, plus accrued interest to the date of redemption, in the manner set forth in "Description of Senior Notes -- Optional Redemption." CHANGE OF CONTROL.......Upon a Change of Control Triggering Event, each holder of Senior Notes will have the right to require Beverly to repurchase such holder's Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. The terms of substantially all of the Company's Debt Instruments (as defined) require that the Company repay or refinance indebtedness under such Debt Instruments in the event of a change of control, as defined in such Debt Instruments. Such change of control provisions may be triggered under such Debt Instruments prior to the occurrence of a Change of Control Triggering Event, thereby requiring that the indebtedness under such Debt Instruments be repaid or refinanced prior to Beverly repurchasing any Senior Notes upon the occurrence of a Change of Control Triggering Event. There can be no assurance that Beverly will have the financial resources to repurchase the Senior Notes in the event of a Change of Control Triggering Event. See "Description of Certain Indebtedness" and "Description of Senior Notes -- Repurchase at the Option of Holders -- Change of Control." RANKING.................The Senior Notes will be general unsecured obligations of Beverly ranking senior to all subordinated indebtedness of Beverly and will rank pari passu in right of payment with all other indebtedness of Beverly. The Guarantees will rank senior to all subordinated indebtedness of the Guarantors and will rank pari passu in right of payment to all other indebtedness of the Guarantors. As of June 30, 1995, on a pro forma basis after giving effect to the issuance and sale of the Senior Notes and the use of the estimated net proceeds therefrom and certain other transactions described herein, the aggregate outstanding principal amount of senior indebtedness of Beverly and its subsidiaries would have been approximately $969,000,000 of which approximately $ would have been secured indebtedness. See "Capitalization" and "Description of Certain Indebtedness." CERTAIN COVENANTS.......The Indenture governing the Senior Notes (the "Indenture") will contain certain covenants, including, but not limited to, covenants limiting: (i) the incurrence by Beverly and its subsidiaries of additional indebtedness; (ii) the payment of dividends on and the redemption of capital stock by Beverly; (iii) the creation of liens securing indebtedness; (iv) restrictions on the ability of subsidiaries to pay dividends; (v) transactions with affiliates; (vi) the sale of assets; and (vii) Beverly's ability to consolidate or merge with or into, or to transfer all or substantially all of its assets to, another person. See "Description of Senior Notes -- Certain Covenants." USE OF PROCEEDS.........The net proceeds to Beverly from the sale of the Senior Notes are estimated to be approximately $145,600,000 (after deducting estimated expenses and underwriting discounts and commissions). Beverly intends to use such net proceeds to prepay certain secured indebtedness of Beverly and its subsidiaries and for general corporate purposes. See "Use of Proceeds." 6 11 SUMMARY FINANCIAL INFORMATION The following summary consolidated statement of operations data and summary consolidated balance sheet data for the periods ended and as of December 31, 1990, 1991, 1992, 1993 and 1994 are derived from consolidated financial statements of the Company, as adjusted to give effect to a merger in September 1994 between the Company and American Transitional Hospitals, Inc. ("ATH"). The merger was accounted for as a pooling of interests, and therefore, the Company's consolidated financial statements have been restated to reflect ATH's financial position, results of operations and cash flows for each period prior to the merger. The consolidated statement of operations data for the six months ended June 30, 1994 and 1995 and the consolidated balance sheet data as of June 30, 1995 are derived from Beverly's unaudited condensed consolidated financial statements. All dollar amounts are presented in thousands.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------------- ----------------------- 1990 1991 1992 1993 1994 1994 1995 CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net operating revenues............... $2,117,868 $2,308,307 $2,607,756 $2,884,451 $2,969,239 $1,441,200 $1,585,994 Operating income(1).................. 82,958 100,863 62,589 138,567 165,009 74,810 85,278 Depreciation and amortization........ 63,566 78,057 80,226 82,938 88,734 42,296 51,991 Interest expense, net................ 62,536 59,195 56,441 50,927 50,214 23,845 35,512 Income (loss) from continuing operations: Before income taxes, extraordinary charge and cumulative effect of accounting change................ 20,422 41,668 6,148 87,640 114,795 50,965 49,766 Before extraordinary charge and cumulative effect of accounting change........................... 13,143 29,238 1,945 57,956 76,913 34,147 30,855 Before cumulative effect of accounting change................ 13,143 29,238 (6,890) 55,611 74,501 34,147 30,855 Net income (loss).................... 13,143 29,238 (12,344) 55,611 74,501 34,147 30,855 Net income (loss) applicable to common shares...................... 12,143 29,238 (13,344) 31,173 66,251 30,022 26,730
JUNE 30, 1995 ----------------------- AS ACTUAL ADJUSTED(2) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............ $ 48,470 $ 52,123 Working capital...................... 239,894 271,047 Total assets......................... 2,573,172 2,581,225 Current portion of long-term obligations........................ 57,090 29,590 Long-term obligations, excluding current portion.................... 962,768 1,148,321 Stockholders' equity................. 1,006,472 856,472
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------------- ----------------------- 1990 1991 1992 1993 1994 1994 1995 OPERATING DATA: Patient days (in thousands).......... 30,139 29,334 29,341 29,041 26,766 13,403 12,757 Average occupancy percentage......... 87.3% 88.1% 88.4% 88.5% 88.5% 88.3% 88.4% Number of nursing home beds.......... 91,414 90,228 89,298 85,001 78,058 81,259 76,440 OTHER FINANCIAL DATA: Adjusted EBITDA(3)................... $146,524 $178,920 $199,815 $221,505 $253,743 $117,106 $137,269 Capital additions and improvements... 41,979 60,760 77,808 95,542 108,653 52,522 60,147 Rent expense......................... 143,163 141,155 140,168 135,262 127,187 63,413 63,400 Ratio of Adjusted EBITDA to interest expense, net(3).................... 2.3x 3.0x 3.5x 4.3x 5.1x 4.9x 3.9x Ratio of earnings to fixed charges(4)......................... 1.1x 1.3x 1.0x 1.6x 1.9x 1.8x 1.7x
- ------------------------------ (1) Represents earnings before net interest expense, income taxes, extraordinary items and cumulative effect of an accounting change. (2) As adjusted to reflect the Exchange and the Offering. (3) Adjusted EBITDA represents earnings before net interest expense, income taxes, depreciation and amortization, extraordinary items and cumulative effect of an accounting change, as adjusted to exclude a $57,000 restructuring charge in 1992. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Operating Results -- 1993 Compared to 1992." Adjusted EBITDA is included herein because management believes that certain investors find it to be a useful tool for measuring a company's ability to service its debt. Adjusted EBITDA does not represent cash flow from operations, as defined by generally accepted accounting principles, and should not be considered as a substitute for net earnings as an indicator of the Company's operating performance or cash flow as a measure of liquidity. The Company also believes that the ratio of Adjusted EBITDA to net interest expense is an accepted measure of debt service ability; however, such ratio should not be considered a substitute for the ratio of earnings to fixed charges as a measure of debt service ability. (4) The ratio of earnings to fixed charges is computed by dividing fixed charges into earnings from continuing operations before income taxes and extraordinary items plus fixed charges. Fixed charges include interest, expensed or capitalized, amortization of debt discounts and issuance costs and the estimated interest component of rent expense. 7 12 RISK FACTORS Prospective investors should consider carefully, in addition to the other information contained or incorporated by reference in this Prospectus, the following factors before purchasing the Senior Notes offered hereby. SUBSTANTIAL INDEBTEDNESS The Company has substantial indebtedness. As of September 30, 1995, the Company had total indebtedness of approximately $897,100,000, constituting 47% of its total capitalization, and stockholders' equity of approximately $1,031,000,000. As of September 30, 1995, after giving effect to the Exchange, the Offering and the application of the estimated net proceeds therefrom, such consolidated indebtedness would have accounted for 55% of the Company's total capitalization, and the Company would have had stockholders' equity of approximately $881,000,000. In addition to such indebtedness, the Company has substantial obligations under operating leases. For the nine months ended September 30, 1995, the Company's rent expense was approximately $94,900,000. The ability of the Company to satisfy its debt and operating lease obligations will be dependent upon its future performance, which will be subject to prevailing economic conditions and to financial, business and other factors, including factors beyond the Company's control such as federal and state health care reform. The Company's level of debt, and the covenants contained in the debt instruments governing such obligations (the "Debt Instruments"), might impair the Company's ability to take certain actions (including the incurrence of additional debt and the disposition of assets). POTENTIAL ADVERSE EFFECT OF HEALTH CARE REFORM Health care system reform and concerns over rising Medicare and Medicaid costs continue to be high priorities for the federal and certain state governments. Although no comprehensive health care, Medicare or Medicaid reform legislation has yet been implemented, pressures to contain costs and the active discussion and issues raised by the Clinton Administration, Congress and various other groups have impacted the health care delivery system. In October 1995, both the U.S. House of Representatives and the U.S. Senate approved bills that would reshape the Medicare and Medicaid programs. These complex bills as currently passed propose significant reductions in the overall rate of Medicare and Medicaid spending growth. There is active discussion concerning these proposals and the form of any final legislation signed into law could differ significantly from current proposals. The impact of currently proposed legislation on the Company is not readily determinable. However, in their currently proposed form, such legislation and proposals could have a material adverse effect on the Company's future financial position, results of operations and cash flows. GOVERNMENTAL REGULATION AND REIMBURSEMENT Approximately 77%, 80% and 80% of the Company's net operating revenues were derived from federal and state health care programs for the nine months ended September 30, 1995 and the years ended December 31, 1994 and 1993, respectively. These programs are highly regulated and are subject to budgetary constraints and other developments. The Company's operations could be adversely affected by regulatory developments such as mandatory increases in the scope and quality of care to be afforded nursing home residents and revisions in annual licensing standards and criteria for certification to participate in Medicare and Medicaid. Furthermore, governmental reimbursement programs are subject to statutory and regulatory changes, retroactive rate adjustments, administrative rulings and governmental 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 or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. In addition, there can be no assurance that facilities owned, leased or managed by the Company, or the provision of services and supplies by the Company, now or in the future, will initially meet or 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 contain the amount of reimbursement for health care services. In an attempt to reduce federal and state expenditures, there have been, and the Company expects that there will continue to 8 13 be, a number of proposals to limit Medicaid and Medicare reimbursement for health care services. See "-- Potential Adverse Effect of Health Care Reform." The Health Care Financing Administration of the Department of Health and Human Services ("HCFA") has adopted new survey, certification and enforcement procedures by regulations effective July 1, 1995 to implement certain Medicare and Medicaid provisions of the Omnibus Budget Reconciliation Act of 1987 ("OBRA 1987"). The Company is currently undertaking an analysis of the procedures in respect of its programs and facilities covered by the revised HCFA regulations and is unable to predict at this time the degree to which its programs and facilities will be determined to be in compliance with such regulations. Preliminary results of HCFA surveys for a significant number of the Company's facilities indicate that approximately 73% of such facilities surveyed have been determined to be out of compliance with one or more of the revised HCFA compliance criteria. HCFA has reported that of all facilities surveyed nationally (Company and non-Company), approximately 74% were determined to be similarly out of compliance. Although the Company could be adversely affected if a substantial portion of its programs or facilities were eventually determined not to be in compliance with revised HCFA regulations, the Company believes its programs and facilities are generally consistent with industry standards. The Medicaid and Medicare programs provide criminal penalties for entities that knowingly and willfully offer, pay, solicit or receive remuneration in order to induce business that is reimbursed under these programs. The illegal remuneration provisions of the Social Security Act, also known as the "anti-kickback" statute, prohibit the payment or receipt of remuneration intended to induce the purchasing, leasing, ordering or arranging for any good, facility, service or item paid by Medicaid or Medicare programs. In addition, certain states in which the Company's facilities are located have enacted statutes which prohibit the payment of kickbacks, bribes and rebates for the referral of such patients. Although the Company has contractual arrangements with some health care providers, management believes it is in compliance with the anti-kickback statute, and other provisions of the Social Security Act and the state statutes. However, there can be no assurance that government officials responsible for enforcing these statutes will not assert that the Company or certain transactions in which it is involved are in violation of these statutes. LIMITATIONS ON REPURCHASE OF SENIOR NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT The terms of substantially all of the Company's Debt Instruments require that the Company repay or refinance indebtedness under such Debt Instruments in the event of a change of control, as defined in such Debt Instruments. Such change of control provisions may be triggered under such Debt Instruments prior to the occurrence of a Change of Control Triggering Event, thereby requiring that the indebtedness under such Debt Instruments be repaid or refinanced prior to Beverly repurchasing any Senior Notes upon the occurrence of a Change of Control Triggering Event. As such, Beverly may not be able to satisfy its obligations to repurchase the Senior Notes unless the Company is able to refinance or obtain waivers with respect to such Debt Instruments. There can be no assurance that Beverly will have the financial resources to repurchase the Senior Notes in the event of a Change of Control Triggering Event. See "Description of Certain Indebtedness" and "Description of Senior Notes -- Repurchase at the Option of Holders -- Change of Control." The change of control provisions of the Indenture may not, in all instances, obligate Beverly to repurchase the Senior Notes at the option of the holder thereof in the event the Company incurs additional leverage through certain types of recapitalizations, leveraged buy-outs or similar transactions that could increase the indebtedness of the Company or decrease the value of the Senior Notes. RANKING OF THE SENIOR NOTES The Senior Notes will be general unsecured obligations of Beverly ranking senior to all subordinated indebtedness of Beverly and will rank pari passu in right of payment with all other indebtedness of Beverly. The Guarantees will rank senior to all subordinated indebtedness of the Guarantors and will rank pari passu in right of payment to all other indebtedness of the Guarantors. However, the Senior Notes and the Guarantees will be effectively subordinated to secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness. In the event of the dissolution, liquidation or reorganization of, or similar 9 14 proceedings relating to Beverly, secured lenders would be entitled to receive payment at least equal to the value of their collateral, which could exceed the amount recoverable by unsecured creditors, including the holders of the Senior Notes. As of June 30, 1995, on a pro forma basis after giving effect to the issuance and sale of the Senior Notes and the use of the estimated net proceeds therefrom and certain other transactions described herein, there would have been approximately $969,000,000 of senior indebtedness of Beverly and its subsidiaries outstanding of which approximately $ would have been secured indebtedness. See "Use of Proceeds," "Capitalization," "Description of Certain Indebtedness" and "Description of Senior Notes." ENFORCEABILITY OF GUARANTEES The guaranty provisions of the Indenture provide that if Beverly fails to satisfy any payment obligation under the Senior Notes, the holders of the Senior Notes would have a direct claim against the Guarantors. However, if a court were to invalidate any one or more of the Guarantees under fraudulent conveyance laws or other legal or equitable principles or if, by the terms of such Guarantees, the obligations thereunder were limited as necessary to prevent such avoidance, the claims of other creditors of the Guarantors, including claims of trade creditors, would, to such extent, have priority as to the assets of the Guarantors over the claims of the holders of the Senior Notes. In addition, the Indenture provides that upon the sale or other disposition of a Guarantor, which transaction is otherwise in compliance with the Indenture, such Guarantor shall be deemed released from its Guarantee. See "Description of Senior Notes -- Certain Covenants -- Release of Guarantors." INCREASED LABOR COSTS AND AVAILABILITY OF PERSONNEL In recent years, the Company has experienced increases in its labor costs primarily due to higher wages and greater benefits required to attract and retain qualified personnel, increased staffing levels in its nursing facilities due to greater patient acuity and the hiring of therapists on staff. Although the Company expects labor costs to continue to increase in the future, it is anticipated that any increase in costs will generally result in higher patient rates in subsequent periods, subject to the time lag in most states of up to 18 months between increases in reimbursable costs and the receipt of related reimbursement rate increases. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General." In the past, the health care industry, including the Company's long-term care facilities, has experienced a shortage of nurses to staff health care operations, and, more recently, the health care industry has experienced a shortage of therapists. The Company is not currently experiencing a nursing or therapist shortage, but it competes with other health care providers for nursing and therapist personnel and may compete with other service industries for persons serving the Company in other capacities, such as nurses' aides. A nursing, therapist or nursing aide shortage could force the Company to pay higher salaries and make greater use of higher cost temporary personnel. A lack of qualified personnel might also require the Company to reduce its census or admit patients requiring a lower level of care, both of which could adversely affect operating results. COMPETITION The long-term care industry is highly competitive. The Company's competitive position varies from facility to facility, from community to community and from state to state. Some of the significant competitive factors for the placing of patients in a nursing facility include quality of care, reputation, physical appearance of facilities, services offered, family preferences, physician services and price. The Company's operations supplement and compete with services provided by nursing facilities, acute care hospitals, subacute facilities, transitional hospitals, rehabilitation facilities, institutional pharmacies and home health care entities. The Company also competes with other providers in the acquisition and development of additional facilities. In this regard, the Company competes with a number of tax-exempt nonprofit organizations which can finance acquisitions and capital expenditures on a tax-exempt basis or receive charitable contributions unavailable to the Company. There can be no assurance that the Company will not encounter increased competition which could adversely affect its business, results of operations or financial condition. 10 15 DEPENDENCE ON KEY PERSONNEL The Company's operations are dependent on the efforts, ability and experience of its key executive officers. The Company's continued growth and success depends on its ability to attract and retain skilled employees and on the ability of its officers and key employees to manage growth successfully. The loss of some or all of these key executive officers and skilled employees could have a material adverse impact on the Company's future results of operations. NO PRIOR PUBLIC MARKET There has been no public market for the Senior Notes prior to this Offering. Beverly has been advised by the Underwriters that, following the completion of this Offering, the Underwriters presently intend to make a market in the Senior Notes as permitted by applicable laws and regulations. The Underwriters, however, are under no obligation to do so and may discontinue any market making activities at any time at the sole discretion of the Underwriters. No assurance can be given as to the liquidity of any trading market for the Senior Notes, the ability of holders of the Senior Notes to sell their Senior Notes or the prices at which holders would be able to sell their Senior Notes. The Senior Notes could trade at prices that may be higher or lower than the initial offering price thereof depending on many factors, including prevailing interest rates, the Company's operating results and the markets for similar securities. Application has been made to list the Senior Notes on the New York Stock Exchange. 11 16 USE OF PROCEEDS The net proceeds to Beverly from the sale of the Senior Notes in this Offering are estimated to be approximately $145,600,000 (after deducting estimated expenses and underwriting discounts and commissions). Beverly intends to use (i) approximately $87,500,000 of such net proceeds to prepay certain scheduled maturities under the term loan portion of the Morgan Credit Agreement (as defined herein); (ii) approximately $28,000,000 to prepay certain scheduled maturities under the LTCB Credit Agreement (as defined herein); (iii) approximately $17,750,000 to redeem all of Beverly's outstanding 14 1/4% Senior Secured Fixed Rate Notes due 1997; (iv) approximately $8,750,000 to prepay certain scheduled maturities under the Nippon Credit Agreement (as defined herein); and (v) the remaining net proceeds for general corporate purposes. The amounts outstanding under the term loan portion of the Morgan Credit Agreement bear interest at a floating rate (6.93% at September 30, 1995) and have a final scheduled maturity of October 31, 1999; the amounts outstanding under the LTCB Credit Agreement bear interest at a floating rate (7.19% at September 30, 1995) and have a final scheduled maturity of March 24, 1999; and the amounts outstanding under the Nippon Credit Agreement bear interest at a floating rate (6.75% at September 30, 1995) and have a final scheduled maturity of March 3, 2000. See "Description of Certain Indebtedness." CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1995, pro forma to give effect to the Exchange and pro forma as adjusted to give effect to the sale of the Senior Notes offered hereby and the application of the estimated net proceeds therefrom as described under "Use of Proceeds."
AS OF JUNE 30, 1995 ------------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED (DOLLARS IN THOUSANDS) Cash and cash equivalents.............................. $ 48,470 $ 48,470 $ 52,123 ========== =========== =========== Short-term borrowings and current portion of long-term debt................................................. $ 66,090 $ 66,090 $ 38,590 ========== =========== =========== Long-term debt, net of current portion: Industrial development revenue bonds................. $ 260,455 $ 260,455 $ 260,455 Notes, mortgages and other bonds payable............. 324,824 324,824 324,824 Bank term loans...................................... 262,500 262,500 165,750 % Senior Notes due 2005........................... -- -- 150,000 7 5/8% Convertible subordinated debentures due 2003.............................................. 67,924 67,924 67,924 5 1/2% Convertible subordinated debentures due 2018.............................................. -- 150,000 150,000 Capital lease obligations............................ 29,368 29,368 29,368 14 1/4% Senior secured notes due 1997................ 17,697 17,697 -- ---------- ----------- ----------- Total long-term debt......................... 962,768 1,112,768 1,148,321 Stockholders' equity: Preferred stock, $50 stated value; 3,000,000 shares issued and outstanding............................ 150,000 -- -- Common stock, $0.10 par value; 300,000,000 shares authorized; 102,149,511 issued; 98,177,303 shares outstanding....................................... 10,215 10,215 10,215 Additional paid-in capital........................... 761,007 761,007 761,007 Retained earnings.................................... 125,385 125,385 125,385 Treasury stock, at cost; 3,972,208 shares............ (40,135) (40,135) (40,135) ---------- ----------- ----------- Total stockholders' equity................... 1,006,472 856,472 856,472 ---------- ----------- ----------- Total capitalization................................... $1,969,240 $ 1,969,240 $ 2,004,793 ========== =========== ===========
12 17 SELECTED HISTORICAL FINANCIAL INFORMATION The following selected consolidated statement of operations data and selected consolidated balance sheet data for the periods ended and as of December 31, 1990, 1991, 1992, 1993 and 1994 are derived from consolidated financial statements of the Company, as adjusted to give effect to a merger in September 1994 between the Company and ATH. The merger was accounted for as a pooling of interests, and therefore, the Company's consolidated financial statements have been restated to reflect ATH's financial position, results of operations and cash flows for each period prior to the merger. The consolidated statement of operations data and selected balance sheet data for the six month periods ended and as of June 30, 1994 and 1995 are derived from Beverly's unaudited condensed consolidated financial statements. Operating results for the six months ended June 30, 1995 are not necessarily indicative of results that may be expected for the full calendar year ending December 31, 1995. All dollar amounts are presented in thousands.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------------- ------------------------- 1990 1991 1992 1993 1994 1994 1995 CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net operating revenues........... $ 2,117,868 $ 2,308,307 $ 2,607,756 $ 2,884,451 $ 2,969,239 $ 1,441,200 $ 1,585,994 Interest income.................. 24,455 20,048 14,502 15,269 14,578 7,369 6,762 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenues........... 2,142,323 2,328,355 2,622,258 2,899,720 2,983,817 1,448,569 1,592,756 Costs and expenses: Wages and related.............. 1,258,758 1,358,639 1,486,191 1,593,410 1,600,580 777,674 842,412 Other operating and administrative............... 712,586 770,748 921,750 1,069,536 1,114,916 546,420 606,313 Interest....................... 86,991 79,243 70,943 66,196 64,792 31,214 42,274 Depreciation and amortization................. 63,566 78,057 80,226 82,938 88,734 42,296 51,991 Restructuring costs............ -- -- 57,000 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total costs and expenses............... 2,121,901 2,286,687 2,616,110 2,812,080 2,869,022 1,397,604 1,542,990 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income before income taxes, extraordinary charge and cumulative effect of accounting change......................... 20,422 41,668 6,148 87,640 114,795 50,965 49,766 Provision for income taxes....... 7,279 12,430 4,203 29,684 37,882 16,818 18,911 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income before extraordinary charge and cumulative effect of accounting change.............. 13,143 29,238 1,945 57,956 76,913 34,147 30,855 Extraordinary charge, net of income taxes of $5,415 in 1992, $1,155 in 1993 and $1,188 in 1994........................... -- -- (8,835) (2,345) (2,412) -- -- Cumulative effect of accounting change......................... -- -- (5,454) -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)................ $ 13,143 $ 29,238 $ (12,344) $ 55,611 $ 74,501 $ 34,147 $ 30,855 =========== =========== =========== =========== =========== =========== =========== Net income (loss) applicable to common shares.................. $ 12,143 $ 29,238 $ (13,344) $ 31,173 $ 66,251 $ 30,022 $ 26,730 =========== =========== =========== =========== =========== =========== =========== CONSOLIDATED BALANCE SHEET DATA: Total assets..................... $ 1,625,781 $ 1,677,851 $ 1,859,361 $ 2,000,804 $ 2,322,578 $ 2,046,422 $ 2,573,172 Current portion of long-term obligations.................... 50,918 35,846 30,466 43,125 60,199 41,922 57,090 Long-term obligations, excluding current portion................ 694,689 629,245 712,896 706,917 918,018 713,177 962,768 Stockholders' equity............. 499,490 600,443 593,505 742,862 827,244 786,813 1,006,472 OPERATING DATA: Patient days (in thousands)...... 30,139 29,334 29,341 29,041 26,766 13,403 12,757 Average occupancy percentage..... 87.3% 88.1% 88.4% 88.5% 88.5% 88.3% 88.4% Number of nursing home beds...... 91,414 90,228 89,298 85,001 78,058 81,259 76,440 OTHER FINANCIAL DATA: Adjusted EBITDA(1)............... $ 146,524 $ 178,920 $ 199,815 $ 221,505 $ 253,743 $ 117,106 $ 137,269 Capital additions and improvements................... 41,979 60,760 77,808 95,542 108,653 52,522 60,147 Rent expense..................... 143,163 141,155 140,168 135,262 127,187 63,413 63,400 Ratio of Adjusted EBITDA to interest expense, net(1)....... 2.3x 3.0x 3.5x 4.3x 5.1x 4.9x 3.9x Ratio of earnings to fixed charges(2)..................... 1.1x 1.3x 1.0x 1.6x 1.9x 1.8x 1.7x
- ------------------------------ (1) Adjusted EBITDA represents earnings before net interest expense, income taxes, depreciation and amortization, extraordinary items and cumulative effect of an accounting change, as adjusted to exclude a $57,000 restructuring charge in 1992. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Operating Results -- 1993 Compared to 1992." Adjusted EBITDA is included herein because management believes that certain investors find it to be a useful tool for measuring a company's ability to service its debt. Adjusted EBITDA does not represent cash flow from operations, as defined by generally accepted accounting principles, and should not be considered as a substitute for net earnings as an indicator of the Company's operating performance or cash flow as a measure of liquidity. The Company also believes that the ratio of Adjusted EBITDA to net interest expense is an accepted measure of debt service ability; however, such ratio should not be considered a substitute for the ratio of earnings to fixed charges as a measure of debt service ability. (2) The ratio of earnings to fixed charges is computed by dividing fixed charges into earnings from continuing operations before income taxes and extraordinary items plus fixed charges. Fixed charges include interest, expensed or capitalized, amortization of debt discounts and issuance costs and the estimated interest component of rent expense. 13 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL During the third quarter of 1994, the Company completed the merger of ATH in exchange for 2,400,000 shares of Common Stock. The merger was accounted for as a pooling of interests, and accordingly, the Company's consolidated financial statements have been restated ("as restated") to reflect ATH's financial position, results of operations and cash flows for each period prior to the merger. The merger of ATH was not material to the Company's financial position or results of operations. The Company's future operating performance will continue to be affected by the issues facing the long-term health care industry as a whole, including the maintenance of occupancy, its ability to continue to expand higher margin business from Medicare, managed care and private-pay payors, the availability of nursing, therapy and other personnel, the adequacy of funding of governmental reimbursement programs, the demand for nursing home care and the nature of any health care reform measures that may be taken by the federal government, as discussed below, as well as by any state governments. The Company's ability to control costs, including its wages and related expenses which continue to rise and represent the largest component of the Company's operating and administrative expenses, will also significantly impact its future operating results. As a general matter, increases in the Company's operating costs result in higher patient rates under Medicaid programs in subsequent periods. However, the Company's results of operations will continue to be affected by the time lag in most states between increases in reimbursable costs and the receipt of related reimbursement rate increases. Medicaid rate increases, adjusted for inflation, are generally based upon changes in costs for a full calendar year period. The time lag before such costs are reflected in permitted rates varies from state to state, with a substantial portion of the increases taking effect up to 18 months after the related cost increases. OPERATING RESULTS SIX MONTHS 1995 COMPARED TO SIX MONTHS 1994 Net income was $30,855,000 for the six months ended June 30, 1995, as compared to net income of $34,147,000, as restated, for the same period in 1994. Income before provision for income taxes was $49,766,000 for the six months ended June 30, 1995, as compared to $50,965,000, as restated, for the same period in 1994. Net operating revenues and operating and administrative costs increased approximately $144,800,000 and $124,600,000, respectively, for the six months ended June 30, 1995, as compared to the same period in 1994. These increases consist of the following: increases in net operating revenues and operating and administrative costs for facilities which the Company operated during each of the six-month periods ended June 30, 1995 and 1994 ("same facility operations") of approximately $103,200,000 and $81,400,000, respectively; increases in net operating revenues and operating and administrative costs of approximately $106,800,000 and $99,100,000, respectively, related to the operations of ATH and the acquisition of Insta-Care Holdings, Inc. ("Insta-Care"), the institutional pharmacy subsidiaries of Synetic, Inc. ("Synetic") in late 1994 and Pharmacy Management Services, Inc. ("PMSI") in June 1995; and decreases in net operating revenues and operating and administrative costs of approximately $65,200,000 and $55,900,000, respectively, due to the disposition of, or lease terminations on, 16 facilities in 1995 and 77 facilities in 1994. The increase in net operating revenues for same facility operations for the six months ended June 30, 1995, as compared to the same period in 1994, was due to the following: approximately $62,100,000 due primarily to increases in Medicaid room and board rates, and to a lesser extent, private and Medicare room and board rates; approximately $26,500,000 due to increased ancillary revenues as a result of providing additional ancillary services to the Company's Medicare and private-pay patients; approximately $15,200,000 due primarily to increases in pharmacy-related revenues; and approximately $6,600,000 due to various other items. These increases in net operating revenues were partially offset by approximately $7,200,000 due to a 14 19 decrease in same facility occupancy to 88.4% for the six months ended June 30, 1995, as compared to 89.1% for the same period in 1994. The increase in operating and administrative costs for same facility operations for the six months ended June 30, 1995, as compared to the same period in 1994, was due to the following: approximately $66,200,000 due to increased wages and related expenses (excluding pharmacy) principally due to higher wages and greater benefits intended to attract and retain qualified personnel and the hiring of therapists on staff as opposed to contracting for their services; approximately $18,900,000 due to increases in nursing supplies and other variable costs; and approximately $9,700,000 due primarily to increases in pharmacy-related costs and various other items. These increases in operating and administrative costs were partially offset by approximately $13,400,000 due to a decrease in contracted therapy services as a result of hiring therapists on staff as opposed to contracting for their services. The Company's overall ancillary revenues for the six months ended June 30, 1995 were approximately $462,900,000 and represented 29.2% of net operating revenues, as compared to approximately $346,200,000 of ancillary revenues for the same period in 1994 which represented 24.0% of net operating revenues for the six months ended June 30, 1994. Interest expense increased approximately $11,100,000 as compared to the same period in 1994 primarily due to additional interest related to the issuance of approximately $306,000,000 of long-term obligations primarily in conjunction with certain acquisitions. Depreciation and amortization expense increased approximately $9,700,000 as compared to the same period in 1994 primarily due to acquisitions, capital additions and improvements and the opening of newly constructed facilities, partially offset by a decrease due to the disposition of, or lease terminations on, certain nursing facilities. 1994 COMPARED TO 1993 Net income was $74,501,000 for the year ended December 31, 1994, as compared to net income of $55,611,000, as restated per discussion below, for the same period in 1993. Net income for 1994 includes a $2,412,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized deferred financing costs related to the refinancings of the Company's Commercial Paper Program and 1992 Credit Agreement, as well as certain bond refundings. Net income for 1993 includes a $2,345,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized deferred financing costs associated with certain debt that was repaid or refinanced in 1993. The Company's annual effective tax rate was 33% for the year ended December 31, 1994, compared to 34%, as restated, for the same period in 1993. The 1994 and 1993 annual effective tax rates were lower than the statutory rate primarily due to the utilization of certain tax credit carryforwards, partially offset by the impact of state income taxes. At December 31, 1994, the Company had targeted jobs tax credit carryforwards of $21,658,000 for income tax purposes which expire in years 2004 through 2008. For financial reporting purposes, the targeted jobs tax credit carryforwards have been utilized to offset existing net taxable temporary differences reversing during the carryforward periods. However, due to taxable losses in prior years, future taxable income has not been assumed and a valuation allowance of $198,000 and $15,097,000 for the years ended December 31, 1994 and 1993, respectively, has been recognized to offset the deferred tax assets related to those carryforwards. The valuation allowance decreased $14,899,000 from January 1, 1994 due to the utilization of targeted jobs tax credits. Net operating revenues and operating and administrative costs increased approximately $84,800,000 and $52,600,000, respectively, for the year ended December 31, 1994, as compared to the same period in 1993. These increases consist of the following: increases in net operating revenues and operating and administrative costs for facilities which the Company operated during each of the years ended December 31, 1994 and 1993 ("same facility operations") of approximately $215,200,000 and $176,900,000, respectively; increases in net operating revenues and operating and administrative costs of approximately $34,800,000 and $35,200,000, respectively, related to the operations of ATH, the acquisition of three nursing facilities in 1993 and the acquisitions of Insta-Care and Synetic in 1994; and decreases in net operating revenues and operating and 15 20 administrative costs of approximately $165,200,000 and $159,500,000, respectively, due to the disposition of, or lease terminations on, 77 facilities in 1994 and 43 facilities in 1993. The increase in net operating revenues for same facility operations for the year ended December 31, 1994, as compared to the same period in 1993, was due to the following: approximately $114,100,000 due primarily to increases in Medicaid room and board rates, and to a lesser extent, private and Medicare room and board rates; approximately $95,800,000 due to increased ancillary revenues as a result of providing additional ancillary services to the Company's Medicare and private-pay patients; approximately $7,600,000 due to a shift in the Company's patient mix to a higher Medicare census; and approximately $21,000,000 due primarily to an increase in pharmacy-related revenues and various other items. The Company's Medicare, private and Medicaid census for same facility operations was 12%, 19%, and 68%, respectively, for the year ended December 31, 1994, as compared to 11%, 19%, and 69%, respectively, for the same period in 1993. These increases in net operating revenues were partially offset by approximately $23,300,000 due to a decrease in same facility occupancy to 89.2% for the year ended December 31, 1994, as compared to 90.2% for the same period in 1993. The increase in operating and administrative costs for same facility operations for the year ended December 31, 1994, as compared to the same period in 1993, was due to the following: approximately $88,700,000 due to increased wages and related expenses principally due to higher wages and greater benefits required to attract and retain qualified personnel, the hiring of therapists on staff as opposed to contracting for their services, and increased staffing levels in the Company's nursing facilities to cover higher acuity patients; approximately $62,400,000 due to additional ancillary costs (excluding wages and related expenses) associated with the increase in ancillary services provided to the Company's Medicare and private-pay patients; approximately $5,200,000 due primarily to an increase in supplies purchased to meet the needs of the Company's higher acuity patients; and approximately $20,600,000 due primarily to increases in pharmacy-related costs and various other items. Ancillary revenues are derived from providing services to residents beyond room, board and custodial care. These services include occupational, physical, speech, respiratory and IV therapy, as well as sales of pharmaceuticals and other services. The Company's overall ancillary revenues for the year ended December 31, 1994 were $728,408,000 and represented 24.5% of net operating revenues, as compared to $618,804,000 of ancillary revenues for the same period in 1993 which represented 21.5% of 1993 net operating revenues. Although the Company is pursuing further growth of ancillary revenues through expansion of specialty services, such as rehabilitation and sales of pharmaceuticals, there can be no assurance that such growth will continue. Growth in ancillary revenues, as well as increases in Medicare census, have also resulted in higher costs for the Company due to the higher acuity services being provided to these patients. The Company's overall ancillary costs (excluding wages and related expenses) were $384,480,000 for the year ended December 31, 1994, compared to $347,951,000 for the same period in 1993. Interest expense for the year ended December 31, 1994 decreased approximately $1,400,000 as compared to the same period in 1993 primarily due to the following: repayment of approximately $45,000,000 of debt in 1993 with a portion of the proceeds from issuance of the Preferred Stock and the conversion of approximately $46,000,000 in principal amount of the Company's 9% convertible subordinated debentures into shares of Common Stock in 1993, net of additional interest related to the issuance or assumption of approximately $243,000,000 of long-term obligations during 1994 in conjunction with certain acquisitions. Depreciation and amortization expense for the year ended December 31, 1994 increased approximately $5,800,000 as compared to the same period in 1993 primarily due to acquisitions, the opening of newly constructed facilities and over $100,000,000 of capital additions and improvements, partially offset by a decrease due to the disposition of, or lease terminations on, certain facilities. 1993 COMPARED TO 1992 Net income was $55,611,000, as restated, for the year ended December 31, 1993, compared to a net loss of $12,344,000, as restated, for the same period in 1992. Income before income taxes and extraordinary charge for 1993 was $87,640,000, as restated, compared to income before income taxes, extraordinary charge and 16 21 cumulative effect of a change in accounting for income taxes in 1992 of $6,148,000, as restated. The results for 1992 included a $57,000,000 pre-tax restructuring charge, discussed below. During 1993, the Company recorded a $2,345,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized deferred financing costs associated with certain debt that was repaid with a portion of the net proceeds from issuance of Preferred Stock, as well as certain bond refundings. During 1992, the Company recorded $8,835,000 of extraordinary charges, net of income taxes, related to the acceleration of unamortized deferred financing costs associated with the repayment of certain debt. In addition, during 1992, the Company adopted Financial Accounting Standards Statement No. 109, "Accounting for Income Taxes," which resulted in the recording of a $5,454,000 cumulative effect adjustment. During 1992, the Company recognized a $57,000,000 pre-tax restructuring charge related to a program to discontinue the Company's operation of 33 nursing facilities with historically poor financial performance, and to replace, relocate or sell certain other assets (the "1992 restructuring program"). The $57,000,000 pre-tax restructuring charge was comprised of the following: $28,000,000 related to the anticipated loss on disposal of 33 nursing facilities; $12,200,000 related to operating losses on such 33 nursing facilities during the anticipated one-year disposal period; $6,500,000 write-down to net realizable value of four facilities expected to be replaced; $3,000,000 write-down of corporate headquarters; and $7,300,000 related to relocation, severance and other costs associated with the centralization of the Company's accounting, finance and management information systems functions. The Company's annual effective tax rate was 34% for the year ended December 31, 1993, as restated, compared to 68%, as restated, for the same period in 1992. The higher annual effective tax rate in 1992 resulted from the $57,000,000 pre-tax charge mentioned above which reduced the Company's pre-tax income to a level where the impact of permanent tax differences and state income taxes had a more significant impact on the effective tax rate. In addition, the 1993 annual effective tax rate was lower than the statutory rate primarily due to the utilization of certain tax credit carryforwards. Net operating revenues and operating and administrative costs increased approximately $276,700,000 and $255,000,000, respectively, for the year ended December 31, 1993, as compared to the same period in 1992. These increases consist of the following: increases in net operating revenues and operating and administrative costs for facilities which the Company operated during each of the years ended December 31, 1993 and 1992 ("same facility operations") of approximately $265,700,000 and $261,700,000, respectively; increases in net operating revenues and operating and administrative costs of approximately $74,100,000 and $66,900,000, respectively, related to ATH operations and the acquisition of 14 facilities in 1993 and 16 facilities in 1992; and decreases in net operating revenues and operating and administrative costs of approximately $63,100,000 and $73,600,000, respectively, due to the disposition of, or lease terminations on, 43 facilities in 1993 and 23 facilities in 1992. The increase in net operating revenues for same facility operations for the year ended December 31, 1993, as compared to the same period in 1992, was due to the following: approximately $143,200,000 due to increased ancillary revenues as a result of providing additional ancillary services to the Company's private and Medicare patients; approximately $103,200,000 due primarily to increases in Medicaid room and board rates, and to a lesser extent, private and Medicare room and board rates; approximately $12,900,000 due to an improvement in the Company's patient mix; and approximately $11,900,000 due to increases in pharmacy-related revenues and various other items. The Company's Medicare, private and Medicaid census for same facility operations was 11%, 19%, and 69%, respectively, for the year ended December 31, 1993, compared to 10%, 19%, and 70%, respectively, for the same period in 1992. These increases in net operating revenues were partially offset by approximately $5,500,000 due to one less calendar day during 1993, as compared to 1992. The increase in operating and administrative costs for same facility operations for the year ended December 31, 1993, as compared to the same period in 1992, was due to the following: approximately $106,700,000 due to increased wages and related expenses principally due to higher wages and greater benefits required to attract and retain qualified personnel and the hiring of therapists on staff as opposed to contracting for their services; approximately $117,100,000 due to additional ancillary costs (excluding wages and related expenses) associated with the increase in ancillary services provided to the Company's private and Medicare 17 22 patients; approximately $15,100,000 due to an increase in the provision for reserves on patient, notes and other receivables primarily as a result of an increase in the Company's private and Medicare revenues, as well as reductions in the provision for doubtful notes in 1992, which did not recur in 1993; approximately $5,300,000 due to increases in supplies and other variable costs required to meet the needs of the Company's higher acuity patients; and approximately $17,500,000 due primarily to increases in pharmacy-related costs and various other items. The Company's overall ancillary revenues for the year ended December 31, 1993, were $618,804,000, as restated, and represented 21.5% of net operating revenues, as compared to $458,281,000, as restated, of ancillary revenues for the same period in 1992 which represented 17.6% of 1992 net operating revenues. The Company's overall ancillary costs, excluding wages and related expenses, were $347,951,000, as restated, for the year ended December 31, 1993, compared to $249,509,000, as restated, for the same period in 1992. Although there was no significant overall fluctuation in interest income in 1993 as compared to 1992, several offsetting items influenced the amounts. Interest income for the year ended December 31, 1993 increased approximately $800,000 primarily due to interest earned on $100,000,000 of the net proceeds from issuance of the Preferred Stock, which was significantly offset by lower investment yield rates and a decrease in the Company's notes receivable. Interest expense decreased approximately $4,700,000 primarily due to the repayment of approximately $45,000,000 of debt with a portion of the net proceeds from issuance of the Preferred Stock, the conversion of approximately $46,000,000 in principal amount of the Company's 9% convertible subordinated debentures into Common Stock and a reduction in deferred financing costs associated with the repayment of certain debt. Depreciation and amortization expense for the year ended December 31, 1993 increased approximately $2,700,000 as compared to the same period in 1992 primarily due to the acquisition of facilities and over $80,000,000 of capital additions and improvements in 1993. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1995, the Company had approximately $48,500,000 in cash and cash equivalents and net working capital of approximately $239,900,000. The Company anticipates that approximately $26,700,000 of its existing cash at June 30, 1995, while not legally restricted, will be utilized to fund certain workers' compensation and general liability claims, and the Company does not expect to use such cash for other purposes. The Company had approximately $102,000,000 of unused commitments under its Revolver/LOC Facility (as defined) as of June 30, 1995. Net cash provided by operating activities for the six months ended June 30, 1995 was approximately $55,500,000, an increase of approximately $6,400,000 from the same period of the prior year. Net cash used for investing activities was approximately $79,900,000 and net cash provided by financing activities was approximately $4,900,000 for the six months ended June 30, 1995. The Company primarily used cash generated from operations and borrowings under its Revolver/LOC Facility to fund capital expenditures and construction totaling approximately $80,800,000. The Company received cash proceeds of approximately $14,100,000 from the dispositions of facilities and other assets and approximately $25,000,000 from the issuance of long-term obligations. Such proceeds were used primarily to repay approximately $24,900,000 of long-term obligations and to fund acquisitions of approximately $18,200,000. In June 1995, the Company completed the previously announced acquisition of PMSI in exchange for approximately 12,361,000 shares of the Company's $0.10 par value Common Stock plus closing and related costs. PMSI is a leading nationwide provider of medical cost containment and managed care services to workers' compensation payors and claimants. The acquisition was accounted for as a purchase. In June 1995, the Company issued $25,000,000 aggregate principal amount of taxable revenue bonds ("Series 1995 Bonds"), which require semi-annual interest-only payments at the rate of 6.88% per annum with respect to $7,000,000 of such bonds and interest-only payments at the rate of 7.24% per annum with respect to $18,000,000 of such bonds. The Series 1995 Bonds require a $7,000,000 principal payment in June 2000, mature in June 2005 and are secured by a letter of credit. 18 23 In April 1995, Beverly announced that its Board of Directors had approved preliminarily a plan to spin-off approximately 80% of PCA's common stock to Beverly's stockholders. In addition, the Company announced that it was also contemplating a public offering of up to 19.9% of PCA's common stock. Beverly subsequently disclosed that certain operational difficulties at PCA were adversely affecting PCA's operating results and that it had made changes in PCA's management and certain of its operating and pricing policies to address these difficulties. Beverly is evaluating the PCA spin-off in light of these developments and is considering other strategic alternatives for PCA. The PCA spin-off is permitted by the terms of the Indenture, subject to certain limitations and conditions. See "Description of Senior Notes -- Repurchase at the Option of Holders -- Asset Sales." The Board of Directors has made no commitment to a formal plan to dispose of the stock of PCA. There can be no assurance that the PCA spin-off or any other strategic transaction will occur. Pursuant to the Exchange, effective November 1, 1995, Beverly exercised its option to exchange all of the outstanding shares of its Preferred Stock for Subordinated Debentures. Beverly issued $50 principal amount of Subordinated Debentures in exchange for each share of Preferred Stock. All holders of Preferred Stock were required to participate in the Exchange. The Debentures contain conversion and optional redemption provisions substantially identical to those of the Preferred Stock. Beverly intends to use the net proceeds from this Offering (estimated to be approximately $145,600,000) (i) to prepay certain scheduled maturities under the term loan portion of the Morgan Credit Agreement (as defined herein); (ii) to prepay certain scheduled maturities under the LTCB Credit Agreement (as defined herein); (iii) to redeem all of Beverly's outstanding 14 1/4% Senior Secured Fixed Rate Notes due 1997; (iv) to prepay certain scheduled maturities under the Nippon Credit Agreement (as defined herein); and (v) for general corporate purposes. See "Use of Proceeds." The Company believes that its existing cash and cash equivalents, working capital from operations, borrowings under its banking arrangements, issuance of certain debt securities, refinancings of certain existing indebtedness and the estimated net proceeds of this Offering will be adequate to repay its debts due within one year of approximately $57,100,000 ($29,600,000 after giving effect to the Offering and the application of the estimated net proceeds therefrom), to make normal recurring capital additions and improvements for the twelve months ending June 30, 1996 of approximately $118,000,000 (approximately $30,000,000 of which is for ongoing maintenance), to make selective acquisitions, including the purchase of previously leased facilities, and to meet working capital requirements. 19 24 BUSINESS THE COMPANY The Company is the largest operator of nursing facilities in the United States, providing care to more of the nation's elderly than any other long-term care company in the United States. At September 30, 1995, the Company operated 706 nursing facilities with 75,890 licensed beds. The facilities are located in 33 states and the District of Columbia, and range in capacity from 20 to 388 beds. At September 30, 1995, the Company also operated 54 institutional pharmacies and pharmacy-related outlets, 34 assisted living centers (containing 1,401 units), 10 transitional hospitals (containing 443 beds), six hospices and four home health care entities. The Company's facilities had average occupancy of 88.2% for the nine months ended September 30, 1995 and 88.5%, 88.5% and 88.4% during the years ended December 31, 1994, 1993 and 1992, respectively. See "-- Properties." In order to serve the growing and increasingly diverse needs of the health care patient population, the Company has broadened its range of services to include: (i) skilled nursing and basic patient care services; (ii) rehabilitation services including physical, occupational, speech and respiratory therapy; (iii) institutional and mail order pharmacy services including the delivery of drugs and related products, infusion therapy services and enteral and urological products; (iv) subacute care services; (v) transitional care services; (vi) assisted living services; (vii) hospice and home health care services; and (viii) case management and other cost containment services with respect to workers' compensation payors, claimants and their employers. STRATEGY The Company's strategy is to be the low cost provider of long-term, subacute, transitional and related specialty health care services, while maintaining superior standards of care. The Company believes that implementation of this strategy will position it to meet the standards of care and the cost containment objectives of government and private payors. By developing programs to meet these objectives, the Company believes it will be positioned to serve not only elderly patient populations, but also workers' compensation, sports injury, post acute, home health and other patient populations. The key elements of the Company's strategy are to: Capitalize on National Scope and Breadth of Services. The Company intends to capitalize on its national presence by contracting for its comprehensive services with a variety of payors. The Company is positioning itself to provide its full complement of services to payors on a national basis, thereby providing such payors with the cost savings, consistency of quality and efficiency of contracting with one provider. In addition, the Company believes it has a significant advantage in its ability to develop, support and monitor specialized high quality service programs at a national level, while tailoring these programs to meet the needs of each local market. Further Expand Product Line. The Company believes that offering a broad range of high quality services in its network of facilities provides the Company with a greater opportunity to serve its patients from the time those patients enter the health care system until those patients' needs are met. Consequently, the Company continues to expand its traditional "mix" of services to include rehabilitative, subacute, pharmaceutical and medical services in a variety of settings. The Company intends to continue to expand its high quality specialty services through ongoing investment in the development and implementation of programs in markets where such programs will give the Company a competitive advantage. The Company believes that providing a higher level of care through the expansion of its specialty medical services will further diversify the Company's payor mix, expand its customer base and generate increased operating revenues. Expand Internal Capabilities. The Company believes that expanding its internal capabilities will enable it to control the quality of care and cost of its services and will allow the Company a high degree of flexibility in adapting its service programs to meet the changing needs of its markets. The Company intends to: (i) develop and own certain ancillary service providers or enter into strategic alliances for such services; (ii) pursue strategic acquisitions; and (iii) strive to capture increasing market share through value added and proprietary service offerings. 20 25 Actively Manage Portfolio of Properties. Management continually evaluates the prospects and opportunities for each of the Company's businesses in the various markets that it serves. Since 1992, Beverly Health and Rehabilitation Services, Inc. ("Beverly Health") has divested 139 nursing facilities and acquired 61 nursing facilities which were previously leased. Beverly Health currently owns approximately 60% of its facilities and intends to continue to acquire leased facilities because owning facilities generally results in lower overall operating costs. In addition, the Company recently divested nine of its retirement living centers and all of its facilities for the mentally retarded and developmentally disabled. Pursue Growth and Diversification Through Strategic Acquisitions. Through strategic acquisitions, the Company intends to own more of the components of its specialty health care services delivery system, enabling the Company to maximize its cost effectiveness and quality of care and to be more responsive to the changing needs of its customers. - The Company has made several major pharmacy acquisitions in the past year including the purchase of Insta-Care and three subsidiaries of Synetic, which together served approximately 110,000 patients in various institutions. The Company will continue to pursue smaller pharmacy acquisitions, strive to capture increased market share through value added and proprietary service offerings and continue to invest in the integration of the Insta-Care and Synetic pharmacy operations. - In June 1995, the Company acquired PMSI, a leading nationwide provider of medical cost containment and managed care services to workers' compensation payors, claimants and their employers. Its services include first notice of injury reporting, case management, a preferred provider organization and pharmacy benefit management through both a national retail pharmacy network and home delivery of prescription drugs, medical supplies and medical equipment. - In September 1994, the Company acquired ATH, which then operated six transitional hospitals. At September 30, 1995, ATH operated ten transitional hospitals with a total of 443 transitional beds. The Company intends to continue its expansion in the transitional health care market. INDUSTRY As the number of people over the age of 65 continues to grow faster than the overall population and as advances in medicine and technology continue to increase life expectancies, national health care costs are expected to rise faster than the availability of resources from government sponsored health care programs. Accordingly, health care system reform proposals being considered by the federal and certain state governments have an increasing nationwide focus on cost containment. Moreover, payors of health care services, led by managed care networks, are demanding high quality patient care at a low cost, regardless of the setting. These demographic changes and cost containment pressures by government and managed care payors are changing medical practices, resulting in an increasing proportion of complex medical care being delivered outside the hospital setting. The health care industry now offers a broad spectrum of services in nursing homes, home health care and outpatient facilities, hospices and assisted living centers. In addition, many health care providers offer an increasing amount of intensive nursing services -- beyond the traditional custodial care services of a nursing facility -- by providing subacute care to higher acuity patients once those patients leave the acute care hospital setting. Despite these demographic and care driven dynamics, most states currently maintain either moratoriums on new capacity or Certificate of Need restrictions limiting the growth of services. OPERATIONS SERVICE OFFERINGS To serve its markets most effectively, the Company has developed the following services: Long-Term and Subacute Care. The Company's facilities provide residents with routine long-term care services, including daily dietary, social and recreational services and a full range of pharmacy services and medical supplies. The Company's highly skilled staff also offers complex and intensive medical services to patients with higher acuity disorders (i.e., "subacute care") outside the traditional acute care hospital setting. 21 26 Since substantially all of the Company's facilities are Medicare certified and, as such, are required to maintain a highly skilled nursing and related staff, the Company is able to provide a full range of subacute programs to Medicare and other patients. As of September 30, 1995, the Company operated a total of 706 nursing facilities in 33 states and the District of Columbia with 75,890 licensed beds. Rehabilitation Therapies. The Company has developed and expanded its health care expertise in rehabilitation and provides skilled rehabilitation (occupational, physical, speech and respiratory) therapies in substantially all of its nursing facilities. Through Spectra Rehab Alliance, Inc. ("Spectra"), the Company offers industrial rehabilitation, outpatient therapy clinics, acute hospital therapy contracts and management/consulting rehabilitation programs within the Company's network of facilities and to other health care providers. Transitional Care. The Company operates transitional hospitals which address the needs of patients requiring intense therapy regimens, but not necessarily the breadth of services provided within traditional acute care hospitals. In September 1994, the Company acquired ATH, which then operated six transitional hospitals. At September 30, 1995, ATH operated ten transitional hospitals with a total of 443 transitional beds. The typical ATH patient requires an average of six hours of nursing care per day for 30 to 45 days. Pharmacy Services. PCA is the nation's largest institutional pharmacy delivering drugs and related products and services, infusion therapy and other health care products (enteral and urological) to nursing facilities, acute care hospitals, home care providers, psychiatric facilities, correctional facilities, assisted living centers, retirement homes and their patients. PCA also provides consultant pharmacist services, which include evaluations of patient drug therapy, and drug handling, distribution and administration within a nursing facility as well as assistance with state and federal regulatory compliance. PCA's mail order pharmacy services workers' compensation payors, claimants and employers. As of September 30, 1995, the Company operated 54 licensed pharmacies in 24 states, and provided products or services to an estimated 190,000 beds. Other Services. The Company offers other health care related services to payors and patients. These services are provided by MedView Services, Incorporated, a preferred provider organization of approximately 120,000 providers serving workers' compensation claimants nationally; Resource Opportunities, Inc., a workers' compensation injury case management company utilizing approximately 250 vocational nurses; First Notice, a workers' compensation incident reporting system; Beverly Assisted Living, Inc., a provider of health care services to residents generally requiring a lower level of care than the Company's traditional nursing home patients; Hospice Preferred Choice, Inc., a provider of palliative care and nursing services to terminally ill patients, primarily in patients' homes and nursing facilities; and AdviNet, an information and referral system that links payors and employees to long-term care providers. ORGANIZATIONAL OVERVIEW The Company is organized into four operating units: (i) Beverly Health and its subsidiaries operate nursing facilities, assisted living centers and hospices; (ii) Spectra and its subsidiaries manage the Company's rehabilitation services and cost containment businesses; (iii) ATH and its subsidiaries operate the Company's transitional hospitals; and (iv) PCA and its subsidiaries operate the Company's institutional and mail order pharmacy businesses. Each operating unit is headed by a President who is also a senior officer of Beverly and reports directly to the President of Beverly. Each of the four operating units also has a separate Board of Directors consisting of four senior Beverly executives and the President of the unit. Beverly Health's long-term care operations are grouped into seven regions, each headed by a regional Vice President of Operations, reporting to the President of Beverly Health. Each Vice President of Operations supervises from seven to fifteen directors of operations within a region. Each director of operations is, in turn, responsible for five to seventeen facilities. In addition, three physicians, located throughout the country, act as Corporate Medical Directors and provide consulting services to all Beverly Health facilities. Beverly Health's seven regional offices provide operational, financial and human resources oversight to their respective regions, in addition to dietary, nursing and social services through an internal regional consulting staff. Senior management oversight and centralized accounting and reimbursement services for Beverly Health's entire network are provided by personnel located in Fort Smith, Arkansas. 22 27 Each of Beverly Health's nursing facilities is operated under the immediate supervision of a licensed administrator, a registered nurse serving as the Director of Nursing, a Business Office Manager and the part-time assistance of a consulting physician acting as the Medical Director or advisory physician. The facility administrators report directly to the directors of operations. The Company's transitional hospitals are managed by ATH, headquartered in Franklin, Tennessee. The Franklin based staff provides accounting, reimbursement, human resources, hospital development and clinical services to the hospitals. Management oversight of the operation of the transitional hospitals is provided by two Group Vice Presidents. Each transitional hospital is operated under the immediate supervision of an administrator, a registered nurse serving as the Director of Patient Services and a contracted physician acting as the Medical Director. PCA and its subsidiaries operate the Company's pharmacy business from headquarters in Longmont, Colorado and Tampa, Florida. The Longmont office provides operations management of institutional pharmacies headed by an Executive Vice President of Operations, who reports directly to the President of PCA. The Longmont office also provides human resources, purchasing, development and billing and collection support. Two Senior Vice Presidents of Operations, reporting to the Executive Vice President, provide management oversight to the 53 licensed institutional pharmacies. Financial and MIS services as well as operations management of PCA's mail order pharmacy business are provided at its Tampa headquarters. A Vice President of Operations, reporting directly to the President of PCA, provides the management oversight of the mail order pharmacy business. MARKETING The Company believes that the selection of a long-term care facility is strongly influenced by referrals from physicians, hospital discharge planners, community leaders, residents and families. As a result, marketing has traditionally been facility based. The Company's marketing efforts have been directed locally, on a service-by-service basis, toward strengthening relationships between each local facility and those referral sources. These efforts have been supplemented by the corporate marketing department through strategy development and support materials. Recently, in recognition of the development of the Company's expanded service offerings and the significant opportunities for cross-selling its capabilities within its existing patient and payor populations, the Company has begun to augment its facility based efforts with dedicated corporate and regional marketing representatives who will be trained in each of the Company's product areas. As a result, each marketing representative and regional marketing director will focus upon capturing a greater share of all health care expenditures in each market. In addition, the regional marketing representatives', directors' and facility administrators' compensation plans will be structured to maximize overall business development through cross-selling of services. The Company is in the process of hiring a marketing manager in charge of developing relationships nationally with leading managed care payors. PCA directs its marketing activities toward nursing facility owners, operators, administrators and directors of nursing, managed care companies and state and federal agencies and associations. PCA markets a fully integrated package of services tailored to the individual nursing facility's needs. In addition to adding new accounts, it is PCA's strategy to further penetrate each account by expanding and cross-selling its other services to the facility and its residents. PCA's marketing activities include sales efforts that are usually conducted by designated salespersons and pharmacy managers. PCA's consultant pharmacists and nurse consultants, because of their direct and ongoing personal contact with client facility staff, are also instrumental in developing and gaining additional business. PCA also participates in industry trade shows and provides seminars on specialized topics offered to the nursing home community in its regional service. PCA believes that these seminars enhance its professional image and credibility among the owners, administrators and staff of nursing facilities and accordingly, serve as an indirect source of additional business. FINANCIAL AND MANAGERIAL CONTROLS Financial control is maintained through financial and accounting policies that are established at the corporate level for use at and with respect to each facility. Managerial control is maintained through standard operating procedures which establish and promote consistency of operations. Onsite computer systems are 23 28 utilized by administrators in planning, implementing and monitoring resident care as well as enhancing facility operating performance. New computer software systems are being developed to provide an interface between the clinical and financial reporting functions and to allow administrators, regional managers and corporate financial executives to evaluate financial performance on a timely basis by providing certain key financial data such as payor mix, admissions and discharges, cash collections, net patient care revenues and staffing levels. The Company's overall reimbursement controls are coordinated by the Vice President of Reimbursement who reports to the President of Beverly Health. He is supported by finance and reimbursement professionals in each region who are operationally aligned to support the nursing facilities. The responsibilities of these finance/reimbursement teams include coordination of all Medicare, Medicaid and managed care billing and payment activities for the facilities in each state within the respective region. ATH has a separate reimbursement staff of three professionals, located in Franklin, Tennessee, whose responsibilities relate primarily to its transitional hospitals. Similarly, PCA maintains a separate staff of reimbursement professionals responsible for coordinating the regulatory, billing/payment and coverage issues particular to PCA's operations. The Company recently developed Beverly Enterprises Automated Clearing House ("BEACH"), an on-line nursing and general health care product supply system, which has allowed the Company to significantly reduce the number of vendors it depends upon, ensure compliance with corporate procurement guidelines and realize cost savings through maximizing vendor discounts. QUALITY MANAGEMENT AND TRAINING The Company has a Quality Management ("QM") program to help ensure that high quality care is provided in each of its nursing, subacute, transitional and outpatient facilities. The Company's QM program has been a key factor in helping the Company to exceed the industry's nationwide average compliance statistics, as determined by HCFA. The Company's nationwide QM network of health care professionals includes physician Medical Directors, registered nurses, dieticians, social workers and other specialists who work in conjunction with regional and facility based QM professionals. Facility based QM is structured through the Company's Quality Assessment and Assurance committee. With a philosophy of continuous quality improvement, Company-wide clinical indicators are utilized as a database to set goals and monitor thresholds in critical areas directly related to the delivery of health care related services. These continuous internal evaluations, in conjunction with random audits of facility procedures by an audit team headed by the Senior Vice President of QM, are used to identify and correct possible problems. The Senior Vice President of QM reports directly to the President of the Company and the QM Committee of Beverly's Board of Directors. The Company provides continuing education programs to its staff, including self-directed learning modules for its licensed (registered and practical) nurses, which are approved for continuing education credits by the National League of Nursing. In addition, the Company provides tuition reimbursement to all levels of staff to encourage continuing education in each employee's area of expertise. The Company believes that these education and training programs, combined with the Company's Magical Moments(TM) philosophy, an initiative designed to recognize and reinforce the importance of customer service, individual care and personal attention, collectively position the Company and its employees to provide superior health care. 24 29 REVENUE SOURCES The Company receives payments for services rendered to patients from: (a) each of the states in which its nursing facilities are located under the Medicaid program; (b) the federal government under the Medicare program; and (c) private payors, including commercial insurers and managed care payors. The following table sets forth: (i) patient days derived from the indicated sources of payment as a percentage of total patient days, (ii) room and board revenues derived from the indicated sources of payment as a percentage of net operating revenues, and (iii) ancillary and other revenues derived from all sources of payment as a percentage of net operating revenues, for the periods indicated:
MEDICAID MEDICARE PRIVATE ------------------ ------------------ ------------------ ROOM AND ROOM AND ROOM AND ANCILLARY PATIENT BOARD PATIENT BOARD PATIENT BOARD AND OTHER DAYS REVENUES DAYS REVENUES DAYS REVENUES REVENUES YEARS ENDED: December 31, 1993................ 69% 50% 11% 11% 20% 16% 23% December 31, 1994................ 68 47 12 11 20 16 26 NINE MONTHS ENDED: September 30, 1995............... 68 43 12 11 20 15 31
Consistent with the long-term care industry in general, changes in the mix of the Company's patient population among the Medicaid, Medicare and private categories can significantly affect the revenue and profitability of the Company's operations. Although the level of cost reimbursement for Medicare patients typically generates the highest revenue per patient day, profitability is not proportionally increased due to the additional costs associated with the required higher level of nursing care and other services for such patients. In most states, private patients generally constitute the most profitable category and Medicaid patients constitute the least profitable category. The Company has experienced significant growth in ancillary revenues over the past several years. Ancillary revenues are derived from providing services to residents beyond room, board and custodial care and include occupational, physical, speech, respiratory and IV therapy, as well as sales of pharmaceuticals and other services. Such services are currently provided primarily to Medicare and private pay patients, consistent with the trend in health care of providing a broader range of services in a lower cost setting, such as the Company's nursing facilities. Although the Company is pursuing further growth of ancillary revenues, through acquisitions as well as internal expansion of specialty services such as rehabilitation and sales of pharmaceuticals, there can be no assurance that such growth will continue. Medicaid programs are currently in existence in all of the states in which the Company operates nursing facilities. While these programs differ in certain respects from state to state, they are all subject to federally-imposed requirements, and at least 50% of the funds available under these programs is provided by the federal government under a matching program. Medicare and most state Medicaid programs utilize a cost-based reimbursement system for nursing facilities, which reimburses facilities for the reasonable direct and indirect allowable costs incurred in providing routine patient care services (as defined by the programs) plus, in certain states, efficiency incentives or a return on equity, subject to certain cost ceilings. These costs normally include allowances for administrative and general costs as well as the costs of property and equipment (e.g., depreciation and interest, fair rental allowance or rental expense). In some states, cost-based reimbursement is subject to retrospective adjustment through cost report settlement. In other states, payments made to a facility on an interim basis that are subsequently determined to be less than or in excess of allowable costs may be adjusted through future payments to the affected facility and to other facilities owned by the same owner. State Medicaid reimbursement programs vary as to methodology used to determine the level of allowable costs which are reimbursed to operators. Arkansas, California, Louisiana and Texas provide for reimbursement at a flat daily rate, as determined by the responsible state agency. In all other states with a Medicaid program in which the Company operates in 25 30 1995, payments are based upon facility-specific cost reimbursement formulas established by the applicable state. The Medicaid and Medicare programs each contain specific requirements which must be adhered to by health care facilities in order to qualify under the programs. PROPERTIES At September 30, 1995, the Company operated 706 nursing facilities, 34 assisted living centers, 10 transitional hospitals, 54 pharmacies and six hospices in 37 states and the District of Columbia. Most of the Company's 291 leased nursing facilities are subject to "net" leases which require the Company to pay all taxes, insurance and maintenance costs. Most of the Company's leases have original terms from ten to fifteen years and contain at least one renewal option, which could extend the original term of the leases by five to fifteen years. Many of the Company's leases also contain purchase options. The Company considers its physical properties to be in good operating condition and suitable for the purposes for which they are being used. Certain of the nursing facilities and assisted living centers owned by the Company are included in the collateral securing the obligations under its various banking arrangements. 26 31 The following is a summary of the Company's nationwide network of nursing home facilities, assisted living centers, transitional hospitals, pharmacies and hospices at September 30, 1995:
NURSING HOME ASSISTED TRANSITIONAL FACILITIES LIVING CENTERS HOSPITALS PHARMACIES HOSPICES ----------------- ---------------- ------------- ---------- -------- TOTAL TOTAL LICENSED TOTAL LICENSED LOCATION NUMBER BEDS NUMBER UNITS NUMBER BEDS NUMBER NUMBER Alabama....................... 21 2,623 1 24 -- -- 2 -- Arizona....................... 3 480 1 77 2 101 -- -- Arkansas...................... 38 4,550 3 49 -- -- 1 1 California.................... 73 7,615 1 121 -- -- 6 -- Colorado...................... -- -- -- -- -- -- 1 -- Connecticut................... 3 427 -- -- -- -- 2 -- District of Columbia.......... 1 355 -- -- -- -- -- -- Florida....................... 66 7,909 5 482 -- -- 8 -- Georgia....................... 23 2,656 2 48 -- -- 4 -- Hawaii........................ 2 396 -- -- -- -- -- -- Idaho......................... 4 329 -- -- -- -- -- -- Illinois...................... 7 597 -- -- -- -- -- -- Indiana....................... 71 5,696 1 16 1 40 1 1 Kansas........................ 27 1,825 3 39 -- -- 2 -- Kentucky...................... 8 1,047 -- -- -- -- 1 -- Louisiana..................... 1 200 -- -- -- -- -- -- Maryland...................... 4 585 1 16 -- -- 1 -- Massachusetts................. 25 2,420 -- -- -- -- 2 -- Michigan...................... 2 206 -- -- -- -- -- -- Minnesota..................... 37 3,280 2 28 -- -- 1 1 Mississippi................... 22 2,504 -- -- -- -- 1 -- Missouri...................... 33 3,337 3 101 -- -- 1 -- Nebraska...................... 24 2,210 1 16 -- -- -- -- New Jersey.................... 1 150 -- -- -- -- -- -- North Carolina................ 12 1,514 1 16 -- -- 2 -- Ohio.......................... 13 1,525 2 225 1 44 1 -- Oklahoma...................... -- -- -- -- 2 64 -- -- Oregon........................ -- -- -- -- -- -- 1 -- Pennsylvania.................. 42 4,907 3 55 -- -- 2 -- Rhode Island.................. -- -- -- -- -- -- 1 -- South Carolina................ 3 302 -- -- -- -- -- -- South Dakota.................. 17 1,236 -- -- -- -- -- -- Tennessee..................... 8 1,066 2 56 -- -- 2 -- Texas......................... 49 6,196 -- -- 4 194 7 2 Virginia...................... 17 2,353 2 32 -- -- -- -- Washington.................... 13 1,121 -- -- -- -- 2 -- West Virginia................. 3 318 -- -- -- -- -- -- Wisconsin..................... 33 3,955 -- -- -- -- 2 1 --- ------ -- ----- -- --- -- -- 706 75,890 34 1,401 10 443 54 6 === ====== == ===== == === == == CLASSIFICATION Owned......................... 411 45,428 27 691 1 69 -- -- Leased........................ 291 30,059 3 200 9 374 54 6 Managed....................... 4 403 4 510 -- -- -- -- --- ------ -- ----- -- --- -- -- 706 75,890 34 1,401 10 443 54 6 === ====== == ===== == === == ==
27 32 GOVERNMENTAL REGULATIONS The Company's nursing facilities are subject to compliance with various federal, state and local health care statutes and regulations. Compliance with state licensing requirements imposed upon all health care facilities is a prerequisite for the operation of the facilities and for participation in government-sponsored health care funding programs, such as Medicaid and Medicare. Medicaid is a medical assistance program for the indigent, operated by individual states with the financial participation of the federal government. Medicare is a health insurance program for the aged and certain other chronically disabled individuals, operated by the federal government. Changes in the reimbursement policies of such funding programs as a result of budget cuts by federal and state governments or other legislative and regulatory actions could adversely affect the revenues of the Company. Governmental funding for health care programs is subject to statutory and regulatory changes, administrative rulings, interpretations of policy, intermediary determinations and governmental funding restrictions, all of which may materially increase or decrease program reimbursement to health care facilities. Health care system reform and concerns over rising Medicare and Medicaid costs continue to be high priorities for the federal and certain state governments. Although no comprehensive health care, Medicare or Medicaid reform legislation has yet been implemented, pressures to contain costs and the active discussion and issues raised by the Clinton Administration, Congress and various other groups have impacted the health care delivery system. In October 1995, both the U.S. House of Representatives and the U.S. Senate have approved bills that would reshape the Medicare and Medicaid programs. These complex bills as currently passed propose significant reductions in the overall rate of Medicare and Medicaid spending growth. There is active discussion concerning these proposals and the form of any final legislation signed into law could differ significantly from current proposals. The impact of currently proposed legislation on the Company is not readily determinable. However, in their currently proposed form, such legislation and proposals could have a material adverse effect on the Company's future financial position, results of operations and cash flows. In addition to the requirements to be met by the Company's facilities for annual licensure renewal, the Company's health care facilities are also subject to annual surveys and inspections in order to certify their participation in the Medicare and Medicaid programs. In order to maintain their operator's licenses and their certification of participation in Medicare and Medicaid, the nursing facilities must meet certain statutory and administrative requirements. These requirements relate to the condition of the facilities and the adequacy and condition of the equipment used therein, the quality and adequacy of personnel, and the quality of medical care. Such requirements are subject to change. There can be no assurance that, in the future, the Company will be able to maintain such licenses and certifications for its facilities or that the Company will not be required to expend significant sums in order to do so. HCFA has adopted new survey, certification and enforcement procedures by regulations effective July 1, 1995 to implement the Medicare and Medicaid provisions of OBRA 1987 governing survey, certification and enforcement of the requirements for contract participation by skilled nursing facilities under Medicare and nursing facilities under Medicaid. Among the provisions that HCFA has adopted are requirements (i) that surveys focus on residents' outcomes; (ii) that all deviations from the participation requirements will be considered deficiencies, but that all deficiencies will not constitute noncompliance, and; (iii) that certain types of deficiencies must result in the imposition of a sanction. The regulations also identify alternative remedies and specify the categories of deficiencies for which they will be applied. These remedies include: temporary management; denial of payment for new admissions; denial of payment for all residents; civil money penalties of $50 to $10,000 per day of violation; closure of facility and/or transfer of residents in emergencies; directed plans of correction; and directed inservice training. The regulations also specify under what circumstances alternative enforcement remedies or termination, or both, will be imposed on facilities which are not in compliance with the participation requirements. The Company is currently undertaking an analysis of the procedures in respect of its programs and facilities covered by the revised HCFA regulations and is unable to predict at this time the degree to which its programs and facilities will be determined to be in compliance with regulations. Preliminary results of HCF surveys for a significant number of the Company's facilities indicate that approximately 73% of such facilities surveyed have been determined to be out of compliance with one or more of the revised HCFA compliance criteria. HCFA has reported that of all facilities surveyed nationally (Company and non-Company), approximately 74% were determined to be similarly out of compliance. 28 33 Although the Company could be adversely affected if a substantial portion of its programs or facilities were eventually determined not to be in compliance with revised HCFA regulations, the Company believes its programs and facilities are generally consistent with industry standards. The Company believes that its facilities are in substantial compliance with the various Medicaid and Medicare regulatory requirements currently applicable to them. In the ordinary course of its business, however, 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 steps to be taken to bring the facility into compliance with regulatory requirements. In some cases or upon repeat violations, the reviewing agency may take a number of adverse actions against a facility. These adverse actions can include the imposition of fines, temporary suspension of admission of new patients to the facility, decertification from participation in the Medicaid or Medicare programs and, in extreme circumstances, revocation of a facility's license. The Medicaid and Medicare programs provide criminal penalties for entities that knowingly and willfully offer, pay, solicit or receive remuneration in order to induce business that is reimbursed under these programs. The illegal remuneration provisions of the Social Security Act, also known as the "anti-kickback" statute, prohibit the payment or receipt of remuneration intended to induce the purchasing, leasing, ordering or arranging for any good, facility, service or item paid by Medicaid or Medicare programs. The violation of the illegal remuneration provisions is a felony and can result in the imposition of fines of up to $25,000 per occurrence. In addition, certain states in which the Company's facilities are located have enacted statutes which prohibit the payment of kickbacks, bribes and rebates for the referral of patients. The Medicare program has published certain "Safe Harbor" regulations which describe various criteria and guidelines for transactions which are deemed to be in compliance with the anti-remuneration provisions. Although the Company has contractual arrangements with some health care providers, management believes it is in compliance with the anti-kickback statute and other provisions of the Social Security Act and with the state statutes. However, there can be no assurance that government officials responsible for enforcing these statutes will not assert that the Company or certain transactions in which it is involved are in violation of these statutes. The Social Security Act also imposes criminal and civil penalties for making false claims to the Medicaid and Medicare programs for services not rendered or for misrepresenting actual services rendered in order to obtain higher reimbursement. The Medicare and Medicaid programs also provide for the mandatory and/or permissive exclusion of providers of services who are convicted of certain offenses or who have been found to have violated certain laws or regulations. In certain circumstances, conviction of abusive or fraudulent behavior with respect to one facility may subject other facilities under common control or ownership to disqualification from participation in Medicaid and Medicare programs. In addition, some federal and state regulations provide that all facilities under common control or ownership licensed to do business within a state are subject to delicensure if any one or more of such facilities is delicensed. While federal regulations do not provide states with grounds to curtail funding of their Medicaid cost reimbursement programs due to state budget deficiencies, states have nevertheless curtailed funding in such circumstances in the past. No assurance can be given that states will not do so in the future or that the future funding of Medicaid programs will remain at levels comparable to the present levels. The United States Supreme Court ruled in 1990 that health care providers may bring suit in federal court to enforce the Medicaid Act requirement that the states reimburse nursing facilities at rates which are reasonable and adequate. Nursing facility operators, such as the Company, have utilized and should continue to be able to utilize the federal courts to require states to comply with their legal obligation to adequately fund Medicaid programs. Certain of the legislative proposals discussed above contain provisions which would repeal the provisions of the Medicaid Act which require states to pay reasonable and adequate rates and which would also eliminate the right to judicial review of certain aspects of the reimbursement systems of state Medicaid programs. COMPETITION The long term care industry is highly competitive. The Company's competitive position varies from facility to facility, from community to community and from state to state. Some of the significant competitive 29 34 factors for the placing of patients in a nursing facility include quality of care, reputation, physical appearance of facilities, services offered, family preferences, physician services and price. The Company's operations supplement and compete with services provided by nursing facilities, acute care hospitals, subacute facilities, transitional hospitals, rehabilitation facilities, institutional pharmacies and home health care entities. In this regard, the Company competes with a number of tax-exempt nonprofit organizations which can finance acquisitions and capital expenditures on a tax-exempt basis or receive charitable contributions unavailable to the Company. There can be no assurance that the Company will not encounter increased competition which could adversely affect its business, results of operations or financial condition. EMPLOYEES At September 30, 1995, the Company had more than 80,000 employees. The Company is subject to both federal minimum wage and applicable federal and state wage and hour laws and maintains various employee benefit plans. In recent years, the Company has experienced increases in its labor costs primarily due to higher wages and greater benefits intended to attract and retain qualified personnel, increased staffing levels in its nursing facilities due to greater patient acuity and the hiring of therapists on staff. Although the Company expects labor costs to increase in the future, it is anticipated that any increase in costs will generally result in higher patient rates in subsequent periods, subject to the time lag in most states, of up to 18 months, between increases in reimbursable costs and the receipt of related reimbursement rate increases. In the past, the health care industry, including the Company's long-term care facilities, has experienced a shortage of nurses to staff health care operations, and, more recently, the health care industry has experienced a shortage of therapists. The Company is not currently experiencing a nursing or therapist shortage, but it competes with other health care providers for nursing and therapist personnel and may compete with other service industries for persons serving the Company in other capacities, such as nurses aides. A nursing, therapist or nursing aide shortage could force the Company to pay higher salaries and make greater use of higher cost temporary personnel. A lack of qualified personnel might also require the Company to reduce its census or admit patients requiring a lower level of care, both of which could adversely affect operating results. Approximately 10% of the Company's employees are represented by various labor unions. Certain labor unions have publicly stated that they are concentrating their organizing efforts within the long-term health care industry. The Company, being one of the largest employers within the long-term health care industry, has been the target of a "corporate campaign" by two AFL-CIO affiliated unions attempting to organize certain of the Company's facilities. Although the Company has never experienced any material work stoppages and believes that its relations with its employees (and the existing unions that represent certain of them) are generally good, the Company cannot predict the effect continued union representation or organizational activities will have on the Company's future activities, but the Company does not believe it will have a material adverse effect on the Company's operations. On January 29, 1993, the National Labor Relations Board ("NLRB") found that the Company had violated the National Labor Relations Act (the "Act") at 32 of its facilities prior to 1989 and issued a corporate-wide order requiring that the Company cease and desist from such violations and that it take certain remedial actions. The Company viewed the NLRB's order as incorrect and overly broad and appealed to the U.S. Court of Appeals. On February 28, 1994, the U.S. Court of Appeals for the Second Circuit upheld the Company's appeal and reversed several of the NLRB's findings, holding that the violations were minimal in nature and number and that the corporate-wide and other extraordinary remedies sought by the NLRB and the unions were inappropriate. The NLRB instituted two subsequent consolidated administrative proceedings against the Company alleging the commission of additional unfair labor practices under the Act at 31 of the Company's facilities. Such proceedings are in various stages of litigation, and the NLRB's General Counsel is seeking the same kind of corporate-wide order denied by the Second Circuit in the earlier case. The Company is vigorously defending the proceedings and believes that the request for a corporate-wide remedy is wholly without merit. 30 35 MANAGEMENT The table below sets forth, as to each executive officer and director of Beverly, his name, positions with Beverly and age. Each executive officer and director of Beverly holds office until a successor is elected, or until the earliest of death, resignation or removal. Each executive officer is elected or appointed by the Board of Directors. The information below is given as of November 6, 1995.
NAME POSITION AGE David R. Banks(1).................... Chairman of the Board, Chief Executive 58 Officer and Director Boyd W. Hendrickson.................. President, Chief Operating Officer and 51 Director William A. Mathies................... Executive Vice President and President of 36 Beverly Health T. Jerald Moore...................... Executive Vice President 54 Robert W. Pommerville................ Executive Vice President, General Counsel 55 and Secretary Bobby W. Stephens.................... Executive Vice President 50 Robert D. Woltil..................... Executive Vice President and President of 41 PCA Eugene B. Clarke..................... Senior Vice President -- Quality 55 Management Robert C. Crosby..................... Senior Vice President and President of ATH 56 Schuyler Hollingsworth, Jr........... Senior Vice President and Treasurer 49 Scott M. Tabakin..................... Senior Vice President, Controller, Chief 37 Accounting Officer and Acting Chief Financial Officer Mark D. Wortley...................... Senior Vice President and President of 40 Spectra Beryl F. Anthony, Jr.(2)(3)(5)....... Director 57 James R. Greene(2)(4)................ Director 74 Edith E. Holiday(3)(4)(5)............ Director 43 Jon E. M. Jacoby(1)(2)............... Director 57 Risa J. Lavizzo-Mourey, M.D.(2)(4)... Director 41 Louis W. Menk(3)(4)(5)............... Director 77 Marilyn R. Seymann(1)(3)(4)(5)....... Director 52
- ------------------------------ (1) Member of the Executive Committee. (2) Member of the Audit Committee. (3) Member of the Compensation Committee. (4) Member of the Quality Management Committee. (5) Member of the Nominating Committee. Mr. Banks has been a director of Beverly since 1979 and has served as Chief Executive Officer since May 1989 and Chairman of the Board since March 1990. Mr. Banks was President of Beverly from 1979 to September 1995. Mr. Banks is a director of Nationwide Health Properties, Inc., Ralston Purina Company, Wellpoint Health Networks, Inc., and trustee for the University of the Ozarks and Occidental College. Mr. Hendrickson joined Beverly in 1988 as a Division President. He was elected Vice President of Marketing in May 1989, Executive Vice President of Operations and Marketing in February 1990, President of Beverly Health in January 1995 and President, Chief Operating Officer and a director of Beverly in September 1995. Mr. Mathies joined Beverly in 1981 as an Administrator in training. He was an Administrator until 1986 at which time he became a Regional Manager. In 1988, Mr. Mathies was elected Vice President of Operations for the California region and was elected Executive Vice President of Beverly and President of Beverly Health in September 1995. 31 36 Mr. Moore joined Beverly as Executive Vice President in December 1992. Mr. Moore was employed at Aetna Life and Casualty from 1963 to 1992 and was elected Senior Vice President in 1990. Mr. Pommerville first joined Beverly in 1970 and left in 1976. Mr. Pommerville rejoined Beverly as Vice President and General Counsel in 1984 and was elected Secretary in February 1990, Senior Vice President in March 1990 and Executive Vice President in February 1995. Mr. Stephens joined Beverly as a staff accountant in 1969. He was elected Assistant Vice President in 1978, Vice President of Beverly and President of Beverly's Central Division in 1980, and Executive Vice President in February 1990. Mr. Stephens is a director of City National Bank in Fort Smith, Arkansas, Beverly Japan Corporation, Western Arkansas Counseling and Guidance Center, Inc. and Harbortown Properties, Inc. Mr. Woltil joined Beverly in 1982 as Technical Accounting Manager. From 1984 to 1990 he served in various financial positions. He was elected Vice President -- Financial Planning and Control in January 1990, Senior Vice President and Chief Financial Officer in March 1992, Executive Vice President, Finance in January 1993, and President of PCA in May 1995. Mr. Clarke joined Beverly in 1987 as a Director of Government Program Compliance. He was elected Vice President in 1989 and Senior Vice President -- Quality Management in December 1991. Mr. Clarke is a director of St. Edward Mercy Medical Center. Mr. Crosby joined Beverly in 1994 with the acquisition of ATH. He was elected Senior Vice President of Beverly and President of ATH in September 1994. Mr. Crosby was Chairman of the Board, President and Chief Executive Officer of ATH from 1992 to 1994 and President and Chief Executive Officer of StatCorp, Inc. from 1989 to 1991. Mr. Hollingsworth joined Beverly in June 1985 as Assistant Treasurer. He was elected Treasurer in 1988, Vice President in 1990 and Senior Vice President in March 1992. Mr. Hollingsworth is a director of Sparks Regional Medical Center. Mr. Tabakin joined Beverly in October 1992 as Vice President, Controller and Chief Accounting Officer. He was elected Senior Vice President in May 1995 and acting Chief Financial Officer in September 1995. From 1980 to 1992, Mr. Tabakin was with Ernst & Young LLP, in Norfolk, Virginia. Mr. Wortley joined Beverly as Senior Vice President and President of Spectra in September 1994. From 1988 to 1994, Mr. Wortley was an officer of Therapy Management Innovations, which provides rehabilitation consulting services to Beverly under contract. Mr. Anthony served as a member of the United States Congress and was Chairman of the Democratic Congressional Campaign Committee from 1987 through 1990. In 1993, he became a partner in the Winston & Strawn law firm. He has been a director of Beverly since January 1993. Mr. Greene's principal occupation has been that of a director and consultant to various U.S. and international businesses since 1986. He is a director of a number of mutual funds of Alliance Capital Management Corporation, Buck Engineering Company and Bank Leumi. He has been a director of Beverly since January 1991. Ms. Holiday is an attorney. She served as White House Liaison for the Cabinet to all federal agencies during the Bush administration. Prior to that, Ms. Holiday served as General Counsel of the U.S. Treasury Department, as well as its Assistant Secretary of Treasury for Public Affairs and Public Liaison. She is a director of Amerada Hess Corporation, Bessemer Trust Company, N.A., Bessemer Trust Company of New Jersey, Hercules Incorporated and H.J. Heinz Company. She has been a director of Beverly since March 1995. Mr. Jacoby is Executive Vice President, Chief Financial Officer and a director of Stephens Group, Inc. Mr. Jacoby has held the indicated positions with Stephens Group, Inc. since 1986, and prior to that time, served as Manager of the Corporate Finance Department and Assistant to the President of Stephens Inc. Mr. Jacoby is a director of the American Classic Voyages Company, Delta and Pine Land Company, Inc., 32 37 Medicus Systems, Inc. and Southwestern Life Corporation. He has been a director of Beverly since February 1987. Dr. Lavizzo-Mourey is Director of the Institute of Aging, Chief of the Division of Geriatric Medicine and Associate Executive Vice President for health policy at the University of Pennsylvania, Ralston-Penn Center. From 1992 to 1994, Dr. Lavizzo-Mourey was in the Senior Executive Service in the Agency for Health Care Policy and Research, U.S. Public Health Service of the Department of Health and Human Services. She is a director of Medicus Systems, Inc., and has been a director of Beverly since March 1995. Mr. Menk is Chairman of Black Mountain Gas Company. He retired in 1982 as Chairman and Chief Executive Officer of International Harvester Company, the predecessor to Navistar International Corporation. He has been a director of Beverly since July 1989. Ms. Seymann is President and Chief Executive Officer of M One, Inc., a management and information systems consulting firm specializing in the financial services industry. From 1990 to 1993, Ms. Seymann was Director and Vice Chairman of the Federal Housing Finance Board. Prior to that, she served as Managing Director of Andersen Asset Based Services, a unit of Arthur Andersen LLP. From 1986 to 1990, Ms. Seymann was Executive Vice President of Chase Bank of Arizona and served as President, Private Banking of Chase Trust Company from 1987 to 1990. She has been a director of Beverly since March 1995. 33 38 DESCRIPTION OF SENIOR NOTES The Senior Notes will be issued pursuant to an Indenture (the "Indenture") among Beverly, the Guarantors and Chemical Bank, as Trustee (the "Trustee"). The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Senior Notes are subject to all such terms, and Holders of Senior Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. A copy of the proposed form of Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." GENERAL The Senior Notes will be unsecured senior obligations of Beverly limited in aggregate principal amount to $150.0 million and will mature on , 2005. The Senior Notes will be general unsecured obligations of Beverly ranking senior to all existing and future subordinated Indebtedness of Beverly, and pari passu in right of payment with all other existing and future Indebtedness of Beverly. The Senior Notes will be guaranteed on a senior unsecured basis by substantially all of the present and future Subsidiaries of Beverly. Interest on the Senior Notes will accrue at the rate per annum set forth on the cover page of this Prospectus and will be payable semi annually in arrears on and of each year, commencing on , 1996, to Holders of record on the immediately preceding and , respectively. Interest on the Senior Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest on the Senior Notes will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest on the Senior Notes will be payable at the office or agency of Beverly maintained for such purpose within the City and State of New York or, at the option of Beverly, payment of interest may be made by check mailed to the Holders of the Senior Notes at their respective addresses set forth in the register of Holders of Senior Notes; provided that all payments with respect to Senior Notes, the Holders of which have given wire transfer instructions to the paying agent on or prior to the relevant record date will be required to be made by wire transfer of immediately available funds to the accounts specified by such Holders. Until otherwise designated by Beverly, Beverly's office or agency in New York will be the office of the Trustee maintained for such purpose. The Senior Notes will be issued in denominations of $1,000 and integral multiples thereof. OPTIONAL REDEMPTION Beverly will not have the right to redeem any Senior Notes prior to , 2000. The Senior Notes will be redeemable at the option of Beverly, in whole or in part, at any time on or after , 2000 upon not less than 30 days nor more than 60 days notice to each Holder of Senior Notes, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the 12-month period commencing of the years indicated below, in each case (subject to the right of Holders of record on a Record Date to receive interest due on an Interest Payment Date that is on or prior to such Redemption Date) together with accrued and unpaid interest thereon to the Redemption Date:
YEAR PERCENTAGE 2000...................................................................... % 2001...................................................................... 2002...................................................................... 2003 and thereafter....................................................... 100%
In the case of a partial redemption, the Trustee shall select the Senior Notes or portions thereof for redemption on a pro rata basis, by lot or in such other manner it deems appropriate and fair. The Senior Notes may be redeemed in part in multiples of $1,000 only. 34 39 Notice of any redemption will be sent, by first class mail, at least 30 days and not more than 60 days prior to the Redemption Date to the Holder of each Senior Note to be redeemed to such Holder's last address as then shown upon the registry books of the Registrar. Any notice which relates to a Senior Note to be redeemed in part only must state the portion of the principal amount equal to the unredeemed portion thereof and must state that upon surrender of such Senior Note, a new Senior Note or Senior Notes in a principal amount equal to the unredeemed portion thereof will be issued. On and after the Redemption Date, interest will cease to accrue on the Senior Notes or portions thereof called for redemption. MANDATORY REDEMPTION Except as set forth below under "-- Repurchase at the Option of Holders," Beverly will not be required to make any mandatory redemption or sinking fund payments with respect to the Senior Notes. REPURCHASE AT THE OPTION OF HOLDERS Change of Control Upon the occurrence of a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require Beverly to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the date of purchase (the "Change of Control Payment") on a date that is not more than 90 days after the occurrence of such Change of Control Triggering Event (the "Change of Control Payment Date"). Within 30 days following any Change of Control Triggering Event, Beverly will mail, or at Beverly's request the Trustee will mail, a notice to each Holder offering to repurchase the Senior Notes held by such Holder pursuant to the procedures specified in such notice. Beverly will comply with the requirements of 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 connection with the repurchase of the Senior Notes as a result of a Change of Control Triggering Event. On the Change of Control Payment Date, Beverly will, to the extent lawful, (1) accept for payment all Senior Notes or portions thereof properly tendered and not withdrawn pursuant to the Change of Control Offer, (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Senior Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Senior Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Senior Notes or portions thereof being purchased by Beverly. The paying agent will promptly mail to each Holder of Senior Notes so tendered the Change of Control Payment for such Senior Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Senior Note equal in principal amount to any unpurchased portion of the Senior Notes surrendered, if any; provided that each such new Senior Note will be in a principal amount of $1,000 or an integral multiple thereof. Beverly will publicly announce the results of the Change of Control offer on or as soon as practicable after the Change of Control Payment Date. A failure by Beverly to comply with the provisions of the two preceding paragraphs will constitute an Event of Default. Except as described above with respect to a Change of Control, the Indenture will not contain provisions that permit the Holders of the Senior Notes to require that Beverly repurchase or redeem the Senior Notes in the event of a takeover, recapitalization or similar transaction. See "-- Certain Covenants -- Events of Defaults and Remedies." The terms of substantially all of the Company's Debt Instruments require that the Company repay or refinance indebtedness under such Debt Instruments in the event of a change of control, as defined in such Debt Instruments. Such change of control provisions may be triggered under such Debt Instruments prior to the occurrence of a Change of Control Triggering Event, thereby requiring that the indebtedness under such Debt Instruments be repaid or refinanced prior to Beverly repurchasing any Senior Notes upon the occurrence of a Change of Control Triggering Event. As such, Beverly may not be able to satisfy its obligations to repurchase the Senior Notes unless the Company is able to refinance or obtain waivers with respect to such 35 40 Debt Instruments. There can be no assurance that Beverly will have the financial resources to repurchase the Senior Notes in the event of a Change of Control Triggering Event. See "Description of Certain Indebtedness." Asset Sales The Indenture will provide that Beverly will not, and will not permit any of its Subsidiaries to, consummate an Asset Sale unless (i) Beverly (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (as conclusively determined by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by Beverly or such Subsidiary is in the form of cash or Cash Equivalents, provided that for purposes of this provision, (x) the amount of (A) any liabilities (as shown on the most recent balance sheet of Beverly or such Subsidiary or in the notes thereto), of Beverly or such Subsidiary (other than liabilities that are by their terms subordinated to the Senior Notes or the Guarantees) that are assumed by the transferee of any such assets and (B) any securities or other obligations received by Beverly or any such Subsidiary from such transferee that are immediately converted by Beverly or such Subsidiary into cash (or as to which Beverly or such Subsidiary has received at or prior to the consummation of the Asset Sale a commitment (which may be subject to customary conditions) from a nationally recognized investment, merchant or commercial bank to convert into cash or Cash Equivalents within 90 days of the consummation of such Asset Sale and which are thereafter actually converted into cash or Cash Equivalents within such 90-day period) will be deemed to be cash (but shall not be deemed to be Net Proceeds for purposes of the following provisions until reduced to cash) and (y) the fair market value of any Non-Cash Consideration received by Beverly or a Subsidiary in any Non-Qualified Asset Sale shall be deemed to be cash to the extent that the aggregate fair market value (as conclusively determined by resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of all Non-Cash Consideration (measured at the time received and without giving effect to any subsequent changes in value) received by Beverly or any of its Subsidiaries since the date of the Indenture in all Non-Qualified Asset Sales does not exceed 6% of Beverly's Stockholders' Equity as of the date of such consummation. Notwithstanding the foregoing, to the extent Beverly or any of its Subsidiaries receives Non-Cash Consideration as proceeds of an Asset Sale, such Non-Cash Consideration shall be deemed to be Net Proceeds for purposes of (and shall be applied in accordance with) the following provisions when Beverly or such Subsidiary receives cash or Cash Equivalents from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such Non-Cash Consideration. The provisions of clauses (i) and (ii) of the immediately preceding paragraph shall not apply to the Spinoff Transaction if, after giving pro forma effect to such transaction, including the application by Beverly of the net proceeds, if any, of any such transaction, as if it had occurred at the beginning of the Reference Period immediately preceding the date on which such transaction occurs, (i) Beverly would have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant in the Indenture described below under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock", (ii) Beverly's Fixed Charge Coverage Ratio would not be reduced by % or more from Beverly's actual Fixed Charge Coverage Ratio for such Reference Period, (iii) Beverly's Debt to Consolidated Cash Flow Ratio as of the date such transaction occurs would not be increased by % or more from Beverly's actual Debt to Consolidated Cash Flow Ratio as of such date and (iv) no Default or Event of Default would exist. If the Spinoff Transaction (including Beverly's proposed application of the net proceeds thereof, if any) satisfies the requirements of the immediately preceding sentence, Beverly shall be entitled to (i) distribute all or a portion of the capital stock of PCA to the stockholders of Beverly and (ii) use up to $ million of the Net Proceeds of such transaction to make Restricted Payments or for any other purpose not prohibited by the Indenture; provided that (x) any Net Proceeds in excess of $ million shall be applied in accordance with the following provisions and (y) all Non-Cash Consideration received by Beverly or any Subsidiary of Beverly as a result of or in connection with the Spinoff Transaction will be deemed to be Net Proceeds for purposes of (and shall be applied in accordance with) the following provisions when Beverly or such Subsidiary receives cash or Cash Equivalents from a sale, 36 41 repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such Non-Cash Consideration. Pursuant to the Indenture, within 365 days after the receipt of any Net Proceeds from an Asset Sale, Beverly or such Subsidiary may apply such Net Proceeds (w) to purchase one or more Nursing Facilities or Related Businesses and/or a controlling interest in the Capital Stock of a Person owning one or more Nursing Facilities and/or one or more Related Businesses, (x) to make a capital expenditure or to acquire other tangible assets, in each case, that are used or useful in any business in which Beverly is permitted to be engaged pursuant to the covenant described below under the caption "-- Certain Covenants -- Line of Business," (y) to permanently reduce Indebtedness (other than Subordinated Indebtedness) of Beverly or its Subsidiaries or (z) to permanently reduce Senior Revolving Debt (and to correspondingly reduce commitments with respect thereto, except that up to an aggregate of $20 million of Net Proceeds from Asset Sales may be applied after the date of the Indenture to reduce Senior Revolving Debt without a corresponding reduction in commitments with respect thereto). Pending the final application of any such Net Proceeds, Beverly may temporarily reduce Senior Revolving Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $25 million, Beverly will be required to make an offer to all Holders of Senior Notes and holders of any other indebtedness of Beverly ranking on a parity with the Senior Notes from time to time outstanding with similar provisions requiring Beverly to make an offer to purchase or to redeem such Indebtedness with the proceeds from any asset sales, pro rata in proportion to the respective principal amounts of Senior Notes and such other Indebtedness then outstanding (a "Senior Asset Sale Offer") to purchase the maximum principal amount of the Senior Notes and such other Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Senior Notes and such other Indebtedness tendered pursuant to a Senior Asset Sale Offer is less than the Excess Proceeds, Beverly may use any remaining Excess Proceeds for general corporate purposes not prohibited at the time under the Indenture. If the aggregate principal amount of Senior Notes and such other Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Senior Notes and such other Indebtedness will be purchased on a pro rata basis. Upon completion of a Senior Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. CERTAIN COVENANTS Restricted Payments The Indenture will provide that Beverly will not, and will not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Equity Interests of Beverly or any of its Subsidiaries (other than (x) dividends or distributions payable in Qualified Equity Interests of Beverly, (y) dividends or distributions payable to Beverly or any Subsidiary of Beverly, and (z) dividends or distributions by any Subsidiary of Beverly payable to all holders of a class of Equity Interests of such Subsidiary on a pro rata basis); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of Beverly or any of its Subsidiaries; (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness, except at the original final maturity date thereof; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment (the amount of any such Restricted Payment, if other than cash or Cash Equivalents, shall be the fair market value (as conclusively evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee within 60 days prior to the date of such Restricted Payment) of the asset(s) proposed to be transferred by Beverly or such Subsidiary, as the case may be, pursuant to such Restricted Payment): (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and 37 42 (b) Beverly would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the Reference Period immediately preceding the date of such Restricted Payment, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant in the Indenture described below under the caption "-- Incurrence of Indebtedness"; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by Beverly and its Subsidiaries after , 1995 (excluding Restricted Payments permitted by clauses (v), (w), (x) and (z) of the next succeeding paragraph), is less than the sum (without duplication) of (i) 50% of the Consolidated Net Income of Beverly for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after , 1995 to the end of Beverly's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale (other than to a Subsidiary of Beverly) since , 1995 of Qualified Equity Interests of Beverly or of debt securities of Beverly or any of its Subsidiaries that have been converted into or exchanged for such Qualified Equity Interests of Beverly, plus (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (net of taxes and the cost of disposition, if any) or (B) the initial amount of such Restricted Investment, plus (iv) $20 million. The foregoing provisions will not prohibit the following Restricted Payments: (u) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have otherwise complied with the provisions of the Indenture; (v) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company or any Subsidiary in exchange for, or out of the net cash proceeds of, the substantially concurrent sale (other than to a Subsidiary of Beverly) of Qualified Equity Interests of Beverly; provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (w) the defeasance, redemption or repurchase of Subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or in exchange for or out of the net cash proceeds from the substantially concurrent sale (other than to a Subsidiary of Beverly) of Qualified Equity Interests of Beverly; provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (x) any purchase or defeasance of Subordinated Indebtedness to the extent required upon a change of control or asset sale (as defined therein) by the indenture or other agreement or instrument pursuant to which such Subordinated Indebtedness was issued, but only if Beverly (i) in the case of a Change of Control, has complied with its obligations under the provisions described under the covenant entitled "Repurchase at the Option of the Holders -- Change of Control" or (ii) in the case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance with the provisions under the covenant entitled "Repurchase at the Option of the Holders -- Asset Sales", (y) any Restricted Payment permitted in accordance with the provisions of the second paragraph of the covenant entitled "Repurchase at the Option of the Holders -- Asset Sales" and (z) a pro rata dividend or other distribution by Beverly to its stockholders of all or a portion of the common stock of PCA in connection with the Spinoff Transaction; provided, however, in the case of each of clauses (v), (w), (x), (y) and (z) of this paragraph no Default or Event of Default shall have occurred or be continuing at the time of such Restricted Payment or would occur as a consequence thereof. Not later than the date of making any Restricted Payment, Beverly shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed. Incurrence of Indebtedness and Issuance of Preferred Stock The Indenture will provide that Beverly will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contin- 38 43 gently or otherwise, with respect to (collectively, "incur") after the date of the Indenture any Indebtedness (including Acquired Debt) and Beverly will not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that Beverly and its Subsidiaries may incur Indebtedness (including Acquired Debt) if the Fixed Charge Coverage Ratio for the Reference Period immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2.5 to 1, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, at the beginning of such Reference Period. Indebtedness consisting of reimbursement obligations in respect of a letter of credit will be deemed to be incurred when the letter of credit is first issued. The foregoing provisions will not apply to: (i) the incurrence by Beverly or the Subsidiaries of Senior Revolving Debt pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding (with letters of credit being deemed to have a principal amount equal to the maximum potential reimbursement obligation of Beverly or any Subsidiary with respect thereto) not to exceed an amount equal to $150.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to permanently reduce the commitments with respect to such Indebtedness pursuant to the covenant described above under the caption "Repurchase at the Option of the Holders -- Asset Sales" after , 1995; (ii) the incurrence by Beverly and the Guarantors of Indebtedness represented by the Senior Notes; (iii) the incurrence by Beverly or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness that was permitted by the Indenture to be incurred (including, without limitation, Existing Indebtedness); (iv) the incurrence by Beverly or any of its Subsidiaries of intercompany Indebtedness between or among Beverly and any of its Subsidiaries: provided that in the case of such Indebtedness of Beverly, such obligations shall be unsecured; (v) the incurrence by Beverly or any of its Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the Indenture to be outstanding or any receivable or liability the payment of which is determined by reference to a foreign currency; provided that the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness or the amount of such receivable or liability to which such Hedging Obligation relates; (vi) the incurrence by Beverly or any of its Subsidiaries of Indebtedness represented by performance bonds, warranty or contractual service obligations, standby letters of credit or appeal bonds, in each case to the extent incurred in the ordinary course of business of Beverly or such Subsidiary; and (vii) the incurrence by Beverly or any of its Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount at any time outstanding not to exceed $100 million. For purposes of determining any particular amount of Indebtedness under this covenant, 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. For purposes of determining compliance with this covenant, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness permitted by the first paragraph above of this covenant, Beverly shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the categories of permitted Indebtedness described above and (ii) the outstanding principal amount on any date 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 on such date. 39 44 Liens The Indenture will provide that Beverly will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien (except Permitted Liens) on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom unless all payments due under the Indenture and the Senior Notes are secured on an equal and ratable basis with the Obligations so secured until such time as such Obligations are no longer secured by a Lien. Dividend and Other Payment Restrictions Affecting Subsidiaries The Indenture will provide that Beverly will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to Beverly or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to Beverly or any of its Subsidiaries, (ii) make loans or advances to Beverly or any of its Subsidiaries or (iii) transfer any of its properties or assets to Beverly or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of the Indenture, (b) the Indenture, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by Beverly or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition or in violation of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that the Consolidated Cash Flow of such Person is not taken into account in determining whether such acquisition was permitted by the terms of the Indenture except to the extent that such Consolidated Cash Flow would be permitted to be dividends to Beverly without the prior consent or approval of any third party, (e) customary non-assignment provisions in leases entered into in the ordinary course of business, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (g) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, or (h) the Credit Agreement and related documentation as the same is in effect on the date of the Indenture and as amended or replaced from time to time, provided that no such amendment or replacement is more restrictive as to the matters enumerated above than the Credit Agreement and related documentation as in effect on the date of the Indenture. Nothing contained in this "Dividend and Other Payment Restrictions Affecting Subsidiaries" covenant shall prevent Beverly or any Subsidiary of Beverly from creating, incurring, assuming or suffering to exist any Permitted Liens. Line of Business The Indenture will provide that Beverly will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than the ownership, operation and management of Nursing Facilities and Related Businesses. Merger, Consolidation or Sale of Assets The Indenture will provide that Beverly may not consolidate or merge with or into (whether or not Beverly is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) Beverly is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than Beverly) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than Beverly) or the entity or Person to which such sale, 40 45 assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of Beverly under the Senior Notes and the Indenture pursuant to a supplemental Indenture in form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) Beverly or the entity or Person formed by or surviving any such consolidation or merger (if other than Beverly), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of Beverly immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the Reference Period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant in the Indenture described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" Transactions with Affiliates The Indenture will provide that neither Beverly nor any of its Subsidiaries will sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make any contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to Beverly or the relevant Subsidiary than those that could have been obtained in a comparable transaction by Beverly or such Guarantor or Subsidiary with an unrelated Person and (ii) Beverly delivers to the Trustee (a) with respect to an Affiliate Transaction involving aggregate consideration in excess of $5 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to an Affiliate Transaction involving all aggregate consideration in excess of $10 million, an opinion as to the fairness to Beverly or such Subsidiary of such Affiliate Transaction from a financial point of view issued by an investment banking firm of national standing; provided that (x) transactions or payments pursuant to any employment arrangements, director or officer indemnification agreements or employee or director benefit plans entered into by Beverly or any of its Subsidiaries in the ordinary course of business of Beverly or such Subsidiary, (y) transactions between or among Beverly and/or its Subsidiaries and (z) Restricted Payments permitted by the provisions of the Indenture described above under the caption "-- Restricted Payments," in each case, shall not be deemed to be Affiliate Transactions. Release of Guarantors Upon the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Guarantor (or all of its assets), to an entity which is not a Subsidiary of Beverly, which transaction is otherwise in compliance with the Indenture, such Guarantor shall be deemed released from its obligations under its Guarantee of the Senior Notes; provided, however, that any such termination shall occur only to the extent that all obligations of such Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure any Indebtedness of Beverly shall also terminate upon such release, sale or transfer. Notwithstanding the foregoing, if upon consummation of the Spinoff Transaction PCA ceases to satisfy the conditions necessary to be a Subsidiary of Beverly under the definition of "Subsidiary", PCA shall be deemed released from its Guarantee of the Senior Notes. REPORTS The Indenture will provide that, whether or not required by the rules and regulations of the Commission, so long as any Senior Notes are outstanding, Beverly will furnish to the Holders of Senior Notes all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if Beverly were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by Beverly's certified independent accountants. In addition, whether or not required by the rules and regulations of the Commission, Beverly will file a copy of all such information and reports with the 41 46 Commission for public availability and make such information available to securities analysts and prospective investors upon request. EVENTS OF DEFAULT AND REMEDIES The Indenture will provide that each of the following constitutes an Event of Default: (i) default for 30 days in the payment, when due, of interest on the Senior Notes; (ii) default in payment when due of the principal of or premium, if any, on the Senior Notes; (iii) failure by Beverly or any Guarantor to comply with the provisions described under the captions "-- Repurchase at the Option of Holders -- Change of Control" or "-- Repurchase at the Option of Holders -- Asset Sales,"; (iv) failure by Beverly or any Guarantor for 30 days after notice to comply with the provisions described under the captions "-- Certain Covenants -- Restricted Payments" or "-- Certain Covenants -- Incurrence of Indebtedness"; (v) failure by Beverly or any Guarantor for 60 days after notice to comply with any of its other agreements in the Indenture or the Senior Notes; (vi) any default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Beverly or any of its Significant Subsidiaries (or the payment of which is guaranteed by Beverly or any of its Significant Subsidiaries), whether such Indebtedness or guarantee exists on the date of the Indenture or is thereafter created, which default (a) constitutes a Payment Default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or that has been so accelerated, aggregates $20 million or more; (vii) failure by Beverly or any of its Significant Subsidiaries to pay final judgments aggregating in excess of $20 million, which judgments are not paid, discharged or stayed for a period of 60 days; (viii) any Guarantee shall cease for any reason not permitted by the Indenture to be in full force and effect or any Guarantor, or any person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to Beverly or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to Beverly, all outstanding Senior Notes will become due and payable without further action or notice. Holders of the Senior Notes may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee on behalf of the Holders of all of the Senior Notes, may waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal of premium, if any, or interest on the Senior Notes. Beverly is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and Beverly is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of Beverly, as such, shall have any liability for any obligations of Beverly under the Senior Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Senior Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Senior Notes. Such waiver may not be effective to waive liabilities under the Federal securities laws and it is the view of the Commission that such a waiver is against public policy. 42 47 LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations and the obligations of the Guarantors discharged with respect to the outstanding Senior Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Senior Notes to receive payments in respect of the principal of, premium, if any, and interest on such Senior Notes when such payments are due from the trust referred to below, (ii) Beverly's obligations with respect to the Senior Notes concerning issuing temporary Senior Notes, registration of Senior Notes, mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and Beverly's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, Beverly may, at its option and at any time, elect to have its obligations and the obligations of the Guarantors released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Senior Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Senior Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) Beverly must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Senior Notes, cash in U.S. dollars, U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on such outstanding Senior Notes on the Maturity Date; (ii) in the case of Legal Defeasance, Beverly shall have delivered to the Trustee an opinion of counsel in the United States confirming that (A) Beverly has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of such outstanding Senior Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such Legal Defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, Beverly shall have delivered to the Trustee an opinion of counsel in the United States confirming that the Holders of such outstanding Senior Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such Covenant Defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which Beverly or any of its Subsidiaries is a party or by which Beverly or any of its Subsidiaries is bound (other than a breach, violation or default resulting from the borrowing of funds to be applied to such deposit); (vi) Beverly must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) Beverly must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by Beverly with the intent of preferring the Holders of such Senior Notes over the other creditors of Beverly with the intent of defeating, hindering, delaying or defrauding creditors of Beverly or others; and (viii) Beverly must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance, as the case may be, have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange Senior Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer 43 48 documents and Beverly may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The registered Holder of a Senior Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture or the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Senior Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Senior Notes), and any existing default or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes (including consents obtained in connection with a tender offer or exchange offer for such Senior Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Senior Notes held by a non-consenting Holder): (i) reduce the principal amount of Senior Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Senior Note, (iii) reduce the rate of or change the time for payment of interest on any Senior Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Senior Notes (except a rescission of acceleration of the Senior Notes by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration), (v) make any Senior Note payable in money other than that stated in the Senior Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Senior Notes to receive payments of principal of or premium, if any, or interest on the Senior Notes, (vii) make any change in the foregoing amendment and waiver provisions or (viii) except for the termination or release of any Guarantee pursuant to the terms of the Indenture, the release of any Guarantor from its obligation under its Guarantee, or any change in a Guarantee that would adversely affect the Holders. Notwithstanding the foregoing, without the consent of any Holder of Senior Notes, Beverly and the Trustee may amend or supplement the Indenture or the Senior Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Senior Notes in addition to or in place of certificated Senior Notes, to provide for additional Guarantors of the Senior Notes or the release, in accordance with the Indenture, of any Guarantor to provide for the assumption of the obligations of Beverly or any Guarantor to Holders of Senior Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to evidence and provide for the acceptance of the appointment of a successor Trustee with respect to the Securities, or in any other case, pursuant to the provisions of the Indenture, where a supplemental indenture is required or permitted to be entered into without the consent of any Holder of Senior Notes. CONCERNING THE TRUSTEE The Indenture will contain certain limitations on the rights of the Trustee, should the Trustee become a creditor of Beverly, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Senior Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will not be under any obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Senior Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. 44 49 The Trustee also serves as trustee under the indenture governing Beverly's Subordinated Debentures and is an affiliate of Chemical Securities Inc., an underwriter in this Offering. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback or by merger or consolidation) other than in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of Beverly and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "-- Change of Control" and/or the provisions described above under the caption "-- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issuance or sale by Beverly or any of its Subsidiaries of Equity Interests of any of Beverly's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $10 million or (b) for net proceeds in excess of $10 million. Notwithstanding the foregoing: (a) a transfer of assets by Beverly to a Subsidiary or by a Subsidiary to Beverly or to another Subsidiary, (b) an issuance of Equity Interests by a Subsidiary to Beverly or to another Subsidiary, (c) a Restricted Payment that is permitted by the covenant described above under the caption "-- Restricted Payments" and (d) a Nursing Facility Swap will not be deemed to be an Asset Sale. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit with maturities of one year or less from the date of acquisition, bankers' acceptances (or, with respect to foreign banks, similar instruments) with maturities not exceeding one year and overnight bank deposits, in each case with any domestic commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia, or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $100.0 million, (iv) repurchase obligations with a term 45 50 of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's or S&P and in each case maturing within one year after the date of acquisition, and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in the foregoing clauses (i) through (v). "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of Beverly and its Subsidiaries taken as a whole to any Person or group (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than to a Person or group who, prior to such transaction, held a majority of the voting power of the voting stock of Beverly, (ii) the acquisition by any Person or group (as defined above) of a direct or indirect interest in more than 50% of the voting power of the voting stock of Beverly, by way of merger or consolidation or otherwise, or (iii) the first day on which a majority of the members of the Board of Directors of Beverly are not Continuing Directors. The phrase "all or substantially all" of the assets of Beverly will likely be interpreted under applicable state law and will be dependent upon particular facts and circumstances. As a result, there may be a degree of uncertainty in ascertaining whether a sale or transfer of "all or substantially all" of the assets of the Company has occurred, in which case a Holder's ability to obtain the benefit of a Change of Control Offer may be impaired. In addition, no assurances can be given that Beverly will be able to acquire Senior Notes tendered upon the occurrence of a Change of Control Triggering Event. "Change of Control Triggering Event" means the occurrence of both a Change of Control and a Rating Decline. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent such provision for taxes was included in computing such Consolidated Net Income, plus (ii) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income, plus (iii) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, plus (iv) the other non-cash expenses of such Person and its Subsidiaries for such period to the extent such non-cash expenses were deducted in computing such Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, the depreciation and amortization of, and the other non-cash expenses of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to Beverly by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis; provided that, (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period 46 51 prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Redeemable Stock), less all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made in accordance with GAAP as a result of the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, and excluding the cumulative effect of a change in accounting principles, all as determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of Beverly who (i) was a member of such Board of Directors on the date of the Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Credit Agreement" means that certain Credit Agreement, dated as of November 1, 1994, by and among Beverly California Corporation, now known as Beverly Health, Beverly and Morgan Guaranty Trust Company of New York and the other banks that are parties thereto, providing for $225 million in aggregate principal amount of Senior Term Debt and up to $150 million in aggregate principal amount of Senior Revolving Debt, including any related notes, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "Debt to Consolidated Cash Flow Ratio" means with respect to any Person as of any date of determination (the "Debt Ratio Calculation Date"), the ratio of (i) the aggregate amount of Indebtedness of such Person and its Subsidiaries, on a consolidated basis, outstanding as of the Debt Ratio Calculation Date to (ii) the Consolidated Cash Flow of such Person for the Reference Period immediately preceding such Debt Ratio Calculation Date. For purposes of making the computation referred to above, (i) acquisitions that have been made by such Person or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the Reference Period or subsequent to such Reference Period and on or prior to the Debt Ratio Calculation Date shall be deemed to have occurred on the first day of the Reference Period, and (ii) the Consolidated Cash Flow and Fixed Charges attributable to operations or businesses disposed of prior to the Debt Ration Calculation Date shall be excluded. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Collateral" means property or assets of Beverly or its Subsidiaries that are subject to one or more Permitted Liens. "Existing Indebtedness" means Indebtedness of Beverly and its Subsidiaries in existence on the date of the Indenture until such amounts are repaid. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that Beverly or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable Reference Period. In addition, for purposes of making the 47 52 computation referred to above, (i) acquisitions that have been made by Beverly or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the Reference Period or subsequent to such Reference Period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the Reference Period, and (ii) the Consolidated Cash Flow and Fixed Charges attributable to operations or businesses disposed of prior to the Calculation Date shall be excluded. "Fixed Charges" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letters of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, and (iii) interest actually paid by such Person or any of its Subsidiaries under any guarantee of Indebtedness or other obligation of any other Person and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, as in effect from time to time. "guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, (ii) foreign exchange contracts or currency swap agreements and (iii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency values. "Indebtedness" means, with respect to any Person, (i) any Redeemable Stock of such Person, (ii) any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (iii) all indebtedness of other secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, (iv) to the extent not otherwise included, the guarantee by such Person of any indebtedness of any other Person. "Investment Grade" means a rating of BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that Beverly shall select any other Rating Agency, the equivalent of such ratings by such Rating Agency shall be used. "Investment" by any Person in any other Person means (without duplication) (a) the acquisition (whether by purchase, merger, consolidation or otherwise) by such Person (whether for cash, property, services, securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities, including any options or warrants, of such other Person or any agreement to make any such acquisition; (b) the making by such Person of any deposit with, or advance, loan or other extension 48 53 of credit to, such other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such other Person) or any commitment to make any such advance, loan or extension (but excluding accounts receivable or deposits arising in the ordinary course of business); (c) other than guarantees of Indebtedness of Beverly or any Subsidiary to the extent permitted by the covenant "Incurrence of Indebtedness," the entering into by such Person of any guarantee of, or other credit support or contingent obligation with respect to, Indebtedness or other liability of such other Person; provided, however, Investments shall not be deemed to include extensions of trade credit by such Person or any of its Subsidiaries on commercially reasonable terms in accordance with normal trade practices of such Person or such Subsidiary, as the case may be. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset given to secure Indebtedness, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any such lien, pledge, charge or security interest). "Moody's" means Moody's Investors Services, Inc. and its successors. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP, however, together with any related provision for taxes on such extraordinary gain or loss. "Net Proceeds" means the aggregate cash or Cash Equivalent proceeds received by Beverly or any of its Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any other expenses incurred or to be incurred by Beverly or a Subsidiary as a direct result of the sale of such assets (including, without limitation, severance, relocation, lease termination and other similar expenses), taxes actually paid or payable as a result thereof, amounts required to be applied to the repayment of Indebtedness (other than Subordinated Indebtedness or Senior Revolving Debt) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Cash Consideration" means any non-cash consideration received by Beverly or a Subsidiary of Beverly in connection with an Asset Sale and any non-cash consideration received by Beverly or any of its Subsidiaries upon disposition thereof. "Non-Qualified Asset Sale" means an Asset Sale in which the Non-Cash Consideration received by Beverly or its Subsidiaries exceeds 25% of the total consideration received in connection with such Asset Sale. The Spinoff Transaction shall be deemed not to constitute a Non-Qualified Asset Sale. "Nursing Facility" means a nursing facility, hospital, outpatient clinic, assisted living center, hospice, long-term care facility or other facility that is used or useful in the provision of healthcare services. "Nursing Facility Swap" means an exchange of assets by Beverly or one or more Subsidiaries of Beverly for one or more Nursing Facilities and/or one or more Related Businesses or for the Capital Stock of any Person owning one or more Nursing Facilities and/or one or more Related Businesses. "Obligations" means any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "PCA" means Pharmacy Corporation of America, a California corporation. "Payment Default" means any failure to pay any scheduled installment of interest or principal on any Indebtedness within the grace period provided for such payment in the documentation governing such Indebtedness. "Permitted Liens" means (i) Liens in favor of Beverly; (ii) Liens on property of a Person existing at the time such Person is merged into or consolidated with Beverly or any Subsidiary of Beverly or becomes a Subsidiary of Beverly; provided that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person merged into or consolidated with Beverly or that becomes a Subsidiary of Beverly; (iii) Liens on property existing at the time 49 54 of acquisition thereof by Beverly or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (iv) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens existing on the date of the Indenture; (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) other Liens on assets of Beverly or any Subsidiary of the Company securing Indebtedness that is permitted by the terms of the Indenture to be outstanding having an aggregate principal amount at any one time outstanding not to exceed $ million; (viii) Liens to secure Permitted Refinancing Indebtedness incurred to refinance Indebtedness that was secured by a Lien permitted under the Indenture and that was incurred in accordance with the provisions of the Indenture [(it being understood that if any property or assets of Beverly or such Subsidiary that is subject to a Lien securing the Indebtedness being so refinanced is not subject to a Lien securing such Permitted Refinancing Indebtedness ("Prior Collateral"), then any Lien securing such Permitted Refinancing Indebtedness may extend to or cover any property or assets of Beverly or any of its Subsidiaries that were not secured by the Indebtedness so refinanced (the "Replacement Collateral") so long as the fair market value of such Replacement Collateral (determined in good faith by the Board of Directors of Beverly or such Subsidiary) does not exceed the fair market value of the Prior Collateral (determined in good faith by the Board of Directors of Beverly or such Subsidiary)]; (ix) Purchase Money Liens; (x) Liens on Medicare, Medicaid or other patient accounts receivable of Beverly or its Subsidiaries and any other Liens granted by a Receivables Subsidiary, in each case in connection with a Receivables Financing; provided, that the aggregate principal or redemption amount of Receivables Financing outstanding shall not exceed 50% of the net amount of the uncollected Medicare, Medicaid or other patient accounts receivable then owing to the Company or its Subsidiaries; (xi) Liens to secure Indebtedness permitted under the Indenture, the net proceeds of which are used to permanently reduce an equivalent principal amount of other secured Indebtedness of Beverly or its Subsidiaries less any premiums and reasonable expenses incurred in connection therewith; (xii) [in the event any Permitted Lien is removed from Existing Collateral, Liens to secure property or assets of Beverly or its Subsidiaries, so long as the fair market value of such property or assets (determined in good faith by the Board of Directors of Beverly or such Subsidiary) does not exceed the fair market value of such Existing Collateral (determined in good faith by the Board of Directors of Beverly or such Subsidiary)]; (xiii) Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business; (xiv) easements, rights-of-way, zoning restrictions, reservations, encroachments and other similar encumbrances in respect of real property; (xv) any interest or title of a lessor under any Capitalized Lease Obligation; (xvi) Liens upon specific items of inventory or equipment and proceeds of the Company or any subsidiary securing its obligations in respect of bankers' acceptances issued or created for its account (whether or not under the Credit) to facilitate the purchase, shipment, or storage of such inventory and equipment; (xvii) Liens securing reimbursement obligations with respect to letters of credit (whether or not issued under the Credit Agreement) otherwise permitted under the Indenture and issued in connection with the purchase of inventory or equipment by the Company or any Subsidiary in the ordinary course of business; (xviii) Liens to secure (or encumbering deposits securing) obligations arising from warranty or contractual service obligations of the Company or any Subsidiary, including rights of offset and set-of; (xix) Liens securing Acquired Debt or acquisition Indebtedness otherwise permitted by the Indenture; provided that (A) the Indebtedness secured shall not exceed the fair market value of the assets so acquired (such fair market value to be determined in good faith by the Board of Directors of the Company at the time of such acquisition) and (B) such Indebtedness shall be incurred, and the Lien securing such Indebtedness shall be created, within 12 months after such acquisition; (xx) Liens securing Hedging Obligations Agreements relating to Indebtedness otherwise permitted under the Indenture; and (xxi) Liens securing stay and appeal bonds or judgment Liens in connection with any judgment not giving rise to a Default under the Indenture. "Permitted Refinancing Indebtedness" means any Indebtedness of Beverly or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, other Indebtedness of Beverly or any of its Subsidiaries; provided that: (i) the principal 50 55 amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of any premiums paid and reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is Subordinated Indebtedness, such Permitted Refinancing Indebtedness has a final maturity date of, and is subordinated in right of payment to, the Senior Notes on terms at least as favorable to the Holders of the Senior Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and [(iv) such Indebtedness is incurred either by Beverly or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.] "Purchase Money Indebtedness" means any Indebtedness of a Person to any seller or other Person incurred to finance the acquisition or construction (including in the case of a Capital Lease Obligation, the lease) of any real or personal tangible property which is incurred within 180 days of such acquisition or completion of construction and is secured only by the assets so financed. "Purchase Money Lien" means a Lien granted on an asset or property to secure Purchase Money Indebtedness permitted to be incurred under the Indenture and incurred solely to finance the acquisition or construction of such asset or property; provided, however, that such Lien encumbers only such asset or property and is granted within 180 days of such acquisition or completion of construction. "Qualified Equity Interests" shall mean all Equity Interests of Beverly other than Redeemable Stock of Beverly. "Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's or both shall not make a rating of the Senior Notes publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by Beverly, which shall be substituted for S&P or Moody's or both, as the case may be. "Rating Category" means (i) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such category of S&P or Moody's used by another Rating Agency. In determining whether the rating of the Senior Notes has decreased by one or more gradations, gradations within Rating Categories (+ and - for S&P, 1, 2 and 3 for Moody's; or the equivalent gradations for another Rating Agency) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one gradation). "Rating Date" means the date which is 90 days prior to the earlier of (i) a Change of Control and (ii) the first public notice of the occurrence of a Change of Control or of the intention by Beverly to effect a Change of Control. "Rating Decline" means the occurrence on or within 90 days after the date of the first public notice of the occurrence of a Change of Control or of the intention by Beverly to effect a Change of Control (which period shall be extended so long as the rating of the Senior Notes is under publicly announced consideration for possible downgrade by any of the Rating Agencies) of: (a) in the event the Senior Notes are rated by either Moody's or S&P on the Rating Date as Investment Grade, a decrease in the rating of the Senior Notes by both Rating Agencies to a rating that is below Investment Grade, or (b) in the event the Senior Notes are rated below Investment Grade by both Rating Agencies on the Rating Date, a decrease in the rating of the Senior Notes by either Rating Agency by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "Receivables Financing" means the sale or other disposition of Medicare, Medicaid or other patient accounts receivable of Beverly or any of its Subsidiaries to a Receivables Subsidiary followed by a financing transaction in connection with such sale or disposition of such accounts receivable. 51 56 "Receivables Subsidiary" means a Subsidiary of Beverly exclusively engaged in Receivables Financing and activities reasonably related thereto. "Redeemable Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date on which the Senior Notes mature. "Reference Period" with regard to any Person means the four full fiscal quarters (or such lesser period during which such Person has been in existence) for which internal financial statements are available ended immediately preceding any date upon which any determination is to be made pursuant to the terms of the Senior Notes or the Indenture. "Related Business" means the business conducted by Beverly and its Subsidiaries as of the date of the Indenture and any and all healthcare service businesses that in the good faith judgment of the Board of Directors of Beverly are materially related businesses. Without limiting the generality of the foregoing, Related Business shall include the operation of long-term and specialty healthcare services, skilled nursing care, subacute care, rehabilitation programs, pharmaceutical services, geriatric care and home healthcare. "Restricted Investment" means, in one or a series of related transactions, any Investment, other than (i) Investments in Cash Equivalents, (ii) Investments in a Subsidiary, (iii) Investments in any Person that as a consequence of such Investment becomes a Subsidiary, (iv) Investments existing on the date of the Indenture, (v) accounts receivable, advances, loans, extensions of credit created or acquired in the ordinary course of business, (vi) Investments made as a result of the receipt of Non-Cash Consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "Repurchase at the Option of the Holders -- Asset Sales" and (vii) Investments made as the result of the guarantee by Beverly or any of its Subsidiaries of Indebtedness secured by Liens on assets sold or otherwise disposed of by Beverly or such Subsidiary; provided, that such Indebtedness was in existence prior to the contemplation of such sale or other disposition and that the terms of such guarantee permit the Company or such Subsidiary to foreclose on the pledged or mortgaged assets if Beverly or such Subsidiary are required to perform under such guarantee; provided, however, that a merger of another person with or into Beverly or a Guarantor shall not be deemed to be a Restricted Investment so long as the surviving entity is Beverly or a direct wholly owned Guarantor. "Senior Revolving Debt" means revolving credit loans and letters of credit outstanding from time to time under the Credit Agreement. "Significant Subsidiary" mans any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 or Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date of the Indenture. "S&P" means Standard & Poor's Corporation and its successors. "Spinoff Transaction" means a pro rata distribution by Beverly to its shareholders of all or a portion of the shares of PCA or a sale to an unaffiliated Person or Persons of shares of PCA or all or substantially all of the assets of PCA. "Stockholders' Equity" means, with respect to any Person as of any date, the stockholders' equity of such Person determined in accordance with GAAP as of the date of the most recent available internal financial statements of such Person, and calculated on a pro forma basis to give effect to any acquisition or disposition by such person consummated or to be consummated since the date of such financial statements and on or prior to the date of such calculation. "Subordinated Indebtedness" means (i) Indebtedness of Beverly or a Guarantor that is subordinated in right of payment to the Senior Notes or such Subsidiary's Guarantee of the Senior Notes, as applicable, or (ii) Indebtedness of Beverly or a Guarantor (other than secured Indebtedness) that has a stated maturity on or after the stated maturity of the Senior Notes. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time 52 57 owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of the Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity, or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. DESCRIPTION OF CERTAIN INDEBTEDNESS The following is a summary of the terms of various of the Company's financing arrangements. This summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of each particular agreement, including the definitions therein of certain terms used below. MORGAN CREDIT AGREEMENT In November 1994, Beverly Health entered into a $375,000,000 secured bank credit agreement with Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), and certain other lenders party thereto (the "Morgan Credit Agreement") which provides for a five year $225,000,000 term loan (the "1994 Term Loan") and a $150,000,000 revolver/letter of credit facility (the "Revolver/LOC Facility"). The proceeds from the 1994 Term Loan were used to consummate the acquisition by PCA of certain companies. The Revolver/LOC Facility replaced Beverly Health's revolving credit facility and letter of credit facility originally entered into in 1993. Currently, the 1994 Term Loan and any Revolver/LOC borrowings bear interest at adjusted LIBOR plus 1%, the Prime Rate, as defined, or the adjusted CD rate, as defined, plus 1.125%, at Beverly Health's option. Such interest rates may be adjusted quarterly based on certain financial ratio calculations. At September 30, 1995, the amount outstanding under the Revolver/LOC Facility was approximately $51,400,000. Beverly Health pays certain commitment fees and commissions with respect to the Revolver/LOC Facility and had approximately $98,600,000 of unused commitments under such facility as of September 30, 1995. The Morgan Credit Agreement is secured by a security interest in the stock of PCA and certain of its subsidiaries, is guaranteed by Beverly and its subsidiaries and imposes on the Company certain financial tests and restrictive covenants. NIPPON CREDIT AGREEMENT In March 1993, Beverly Health entered into a secured bank credit agreement with The Nippon Credit Bank, Ltd., and certain other lenders party thereto (the "Nippon Credit Agreement") which provides for a seven year $20,000,000 term loan. Currently, the loan under the Nippon Credit Agreement bears interest at adjusted LIBOR plus 0.875% or the Prime Rate, as defined, at Beverly Health's option. Such interest rates may be adjusted quarterly based on certain financial ratio calculations. The Nippon Credit Agreement is secured by a mortgage interest in certain nursing facilities. At September 30, 1995, the amount outstanding under the Nippon Credit Agreement was approximately $20,000,000. The Nippon Credit Agreement is guaranteed by Beverly and its subsidiaries and imposes on the Company certain financial tests and restrictive covenants. 53 58 LTCB CREDIT AGREEMENT In March 1992, Beverly Health entered into a $100,000,000 secured bank credit agreement with the Long Term Credit Bank of Japan, Ltd., and certain other lenders party thereto (the "LTCB Credit Agreement") which provides for a seven year term loan (the "Term Loan"). Currently, the loan under the LTCB Credit Agreement bears interest at adjusted LIBOR plus 0.875% or the Prime Rate. Such interest rates may be adjusted quarterly based on certain financial ratio calculations. The LTCB Credit Agreement is secured by a mortgage interest in certain nursing facilities and assisted living centers. At September 30, 1995, the amount outstanding under the LTCB Credit Agreement was approximately $55,000,000. The LTCB Credit Agreement is guaranteed by Beverly and its subsidiaries and imposes on the Company certain financial tests and restrictive covenants. OTHER INDEBTEDNESS In November 1995, Beverly issued $150,000,000 aggregate principal amount of Subordinated Debentures in exchange for all outstanding shares of Preferred Stock. The Subordinated Debentures bear interest at the rate of 5 1/2% per annum, mature in August 2018 and contain conversion and optional redemption provisions substantially identical to those of the Preferred Stock. In June 1995, Beverly issued $25,000,000 aggregate principal amount of Series 1995 Bonds, which require semi-annual interest-only payments at the rate of 6.88% per annum with respect to $7,000,000 of such bonds and interest-only payments at the rate of 7.24% per annum with respect to $18,000,000 of such bonds. The Series 1995 Bonds require a $7,000,000 principal payment in June 2000, mature in June 2005 and are secured by a letter of credit. In December 1994, Beverly, through a special purpose wholly owned subsidiary Beverly Funding Corporation ("Beverly Funding"), issued $50,000,000 of medium term notes (the "Medium Term Notes") that bear interest at LIBOR, as defined, plus 0.35%. Pursuant to the Medium Term Notes documents, eligible receivables of selected nursing facilities are sold to Beverly Funding. At September 30, 1995, Beverly Funding had total assets of approximately $71,500,000 which cannot be used to satisfy claims of Beverly or any of its other subsidiaries. In May 1994, certain subsidiaries of Beverly Health entered into a $25,000,000 promissory note (the "7.75% Note"), the proceeds from which were used to repay higher interest rate debt. The 7.75% Note is secured by a mortgage interest in 11 nursing facilities, one retirement center and certain personal property. In 1993, Beverly registered with the Securities and Exchange Commission $100,000,000 aggregate principal amount of certain debt securities ("Debt Securities"), which are to be offered from time to time as separate series in amounts, at prices and on terms to be determined at the time of sale. During 1993, Beverly issued $20,000,000 of 8.75% First Mortgage Bonds, $30,000,000 of 8.625% First Mortgage Bonds and $25,000,000 of 8.75% Notes under such registration. As of September 30, 1995, $25,000,000 of aggregate principal amount of Debt Securities under such registration remained unissued. Beverly has tax exempt industrial development revenue bonds outstanding which were originally issued prior to 1985 primarily for the construction or acquisition of nursing facilities. As of September 30, 1995, approximately $216,700,000 aggregate principal amount of such bonds were outstanding. 54 59 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement (the "Underwriting Agreement") between Beverly and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Stephens Inc. ("Stephens"), J.P. Morgan Securities Inc. ("J.P. Morgan") and Chemical Securities Inc. ("Chemical Securities" and, together with DLJ, Merrill Lynch, Stephens and J.P. Morgan, the "Underwriters"), each of the Underwriters has severally agreed to purchase from Beverly, and Beverly has agreed to sell to each of the Underwriters, the respective principal amounts of Senior Notes set forth opposite its name below, at the public offering price set forth on the cover page of this Prospectus, less the underwriting discount:
PRINCIPAL AMOUNT OF UNDERWRITERS SENIOR NOTES Donaldson, Lufkin & Jenrette Securities Corporation............ $ Merrill Lynch, Pierce, Fenner & Smith Incorporated...................................... Stephens Inc. ................................................. J.P. Morgan Securities Inc. ................................... Chemical Securities Inc. ...................................... ------------ $150,000,000 ============
The Underwriting Agreement provides that the obligations of the several Underwriters are subject to certain conditions precedent, including the approval of certain legal matters by counsel. Beverly and the Guarantors have agreed to indemnify the Underwriters against certain liabilities and expenses, including liabilities under the Securities Act or to contribute to payments that the Underwriters may be required to make in respect thereof. The nature of the Underwriters' obligations is such that the Underwriters are committed to purchase all of the Senior Notes if any of the Senior Notes are purchased by them. The Underwriters have advised Beverly that they propose to offer the Senior Notes directly to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such offering price less a concession not to exceed % of the principal amount of the Senior Notes. The Underwriters may reallow, discounts not in excess of % of the principal amount of the Senior Notes to certain other dealers. After the initial public offering of the Senior Notes, the offering price and other selling terms may be changed by the Underwriters. The Senior Notes are a new issue of securities, have no established trading market and may not be widely distributed. Beverly has been advised by the Underwriters that, following the completion of this Offering, the Underwriters presently intend to make a market in the Senior Notes as permitted by applicable laws and regulations. The Underwriters, however, are under no obligation to do so and may discontinue any market making activities at any time at the sole discretion of the Underwriters. No assurance can be given as to the liquidity of any trading market for the Senior Notes. From time to time, each of the Underwriters (or in certain circumstances an affiliate thereof) performs investment banking, commercial banking and/or other financial services for the Company in return for customary fees. Additionally, Jon E. M. Jacoby, Executive Vice President, Chief Financial Officer and a director of Stephens Group, Inc., an affiliate of Stephens, serves as a director of Beverly. In addition, Morgan Guaranty, an affiliate of J.P. Morgan, is an arranging agent and lender under the Morgan Credit Agreement and Chemical Bank, an affiliate of Chemical Securities, is a lender under the Morgan Credit Agreement, for which each received usual and customary fees. Chemical Bank is also acting as Trustee under the Indenture relating to the Senior Notes. Under the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (the "NASD"), when more than 10% of the net proceeds of a public offering of debt securities are to be paid to a member of the NASD or an affiliate of a member the yield at which the debt securities are distributed to the public must 55 60 be no lower than that recommended by a "qualified independent underwriter" meeting certain standards. Morgan Guaranty, an affiliate of J.P. Morgan and Chemical Bank, an affiliate of Chemical Securities, will in the aggregate receive more than 10% of the net proceeds from the Offering as a result of the use of proceeds by Beverly to prepay the term loan portion of the Morgan Credit Agreement. See "Use of Proceeds." As a result, this Offering is being made subject to paragraph (8) of Section 44(c) of The Corporate Financing Rules of the NASD which relates to offerings where proceeds are directed to a member of the NASD. DLJ will act as a qualified independent underwriter in connection with this offering and assume the usual responsibilities of acting as a qualified independent underwriter in pricing and conducting due diligence for this Offering. The yield at which the Notes will be distributed to the public will be no less than that recommended by such qualified independent underwriter. LEGAL MATTERS Certain legal matters as to the validity of the Senior Notes and the Guaranty will be passed upon for the Company by Latham & Watkins, Los Angeles, California and certain other legal matters in connection with this Offering will be passed upon for Beverly by John W. MacKenzie, Deputy General Counsel of Beverly. Certain legal matters in connection with this Offering will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New York. EXPERTS The consolidated financial statements of Beverly Enterprises, Inc. at December 31, 1994 and for each of the three years in the period ended December 31, 1994, appearing in Beverly Enterprises, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 56 61 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SENIOR NOTES OFFERED HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SENIOR NOTES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE Available Information................. 2 Incorporation of Certain Documents by Reference........................... 2 Prospectus Summary.................... 3 Risk Factors.......................... 8 Use of Proceeds....................... 12 Capitalization........................ 13 Selected Historical Financial Information......................... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15 Business.............................. 21 Management............................ 32 Description of Senior Notes........... 35 Description of Certain Indebtedness... 54 Underwriting.......................... 56 Legal Matters......................... 57 Experts............................... 57
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $150,000,000 BEVERLY ENTERPRISES, INC. % SENIOR NOTES DUE 2005 -------------------- PROSPECTUS -------------------- DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. STEPHENS INC. J.P. MORGAN SECURITIES INC. CHEMICAL SECURITIES INC. , 1995 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 62 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses in connection with the issuance and distribution of the securities being registered, other than underwriting discount, are as follows: Securities and Exchange Commission registration fee....................... $ 51,725 National Association of Securities Dealers, Inc. filing fee............... 15,500 Rating Agency fees........................................................ 30,000 Printing and engraving expenses........................................... 200,000 Legal fees and expenses................................................... 200,000 Accounting fees and expenses.............................................. 75,000 Blue Sky fees and expenses................................................ 20,000 Trustees' fees and expenses............................................... 25,000 Miscellaneous............................................................. 32,775 -------- Total........................................................... $650,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides that a director, officer, employee or agent of a corporation (i) must be indemnified by the corporation for all expenses actually and reasonably incurred in connection with any action, suit or proceeding when such individual is successful on the merits or otherwise in such litigation or proceedings, (ii) may be indemnified by the corporation for the expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in any action, suit or proceeding (other than any action by or in the right of the corporation, which hereinafter will be referred to as a "derivative action") even if such individual is not successful, if he acted in good faith and in a manner such individual reasonably believed to be in or not opposed to the best interests of the corporation (and, in the case of a criminal proceeding, had no reasonable cause to believe his conduct was unlawful), and (iii) may be indemnified by the corporation for expenses actually and reasonably incurred in a derivative action, even if such individual is not successful, if he or she acted in good faith and in a manner such individual reasonably believed to be in or not opposed to the best interests of the corporation, provided that indemnification may not be made in the case of derivative actions if the director or officer is adjudged liable to the corporation, unless and only to the extent the court determines that, despite such adjudication but in view of all of the circumstances, such individual is duly and reasonably entitled to indemnification of such expenses. The indemnification described in (ii) and (iii) above may be made only upon a determination by (i) a majority of a quorum of directors who are not parties to such action, suit or proceeding, (ii) under certain circumstances, independent legal counsel, or (iii) the stockholders, that indemnification is proper because the applicable standard of conduct is met. Expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding may be advanced by the corporation prior to the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such expenses if it is ultimately determined that the individual is not entitled to be indemnified in connection with the proceeding to which the expenses relate. Under Section 145, except in the case in which a director or officer is successful on the merits or otherwise, indemnification is discretionary. The Restated Certificate of Incorporation and the Amended By-Laws of Beverly and the indemnification agreements between Beverly and its officers and directors (the "Indemnification Agreements") contain provisions regarding the indemnification of officers and directors. II-1 63 The Restated Certificate of Incorporation of Beverly states: ARTICLE XIII The Corporation shall indemnify to the full extent permitted by law (such as it presently exists or may hereafter be amended) any person made, or threatened to be made, a defendant or witness to any action, suit or proceeding (whether civil, criminal, administrative or investigative), by reason of the fact that such person is or was a director or officer of the Corporation or by reason of the fact that such director or officer, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. Any amendment, repeal, or modification of the foregoing paragraph shall not adversely affect any right or protection of such person existing hereunder with respect to any act or omission occurring prior to such amendment, repeal, or modification. The Amended By-Laws of Beverly state: ARTICLE VI INDEMNIFICATION Section 1. Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a Director or Officer of the Corporation (or a Director or Officer of Beverly Enterprises, a California corporation ("Beverly California"), prior to the merger of Beverly Merger, Inc., a subsidiary of the Corporation organized under California law, into Beverly California) or is or was serving at the request of the Corporation as a Director, Officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise, or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. Section 2. Prepayment of Expenses. The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director or Officer in his or her capacity as a Director or Officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or Officer to repay all amounts advanced if it should be ultimately determined that the Director or Officer is not entitled to be indemnified under this Article or otherwise. Section 3. Claims. If a claim for indemnification or payment of expenses under this Article VI is not paid in full within ninety (90) days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. Section 4. Nonexclusivity of Rights. The rights conferred on any person by this Article VI shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Restated Certificate of Incorporation of the Corporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise. Section 5. Contracts and Arrangements. The Corporation may enter into contracts providing indemnification to the full extent authorized or permitted by the General Corporation Law of the State of Delaware and may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters II-2 64 of credit, surety bonds and other similar arrangements) to ensure the payment of such amounts as may become necessary to effect indemnification pursuant to such contracts or otherwise. Section 6. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection of any person in respect of any act or omission occurring prior to the time of such repeal or modification. The Indemnification Agreements provide (a) for indemnification to the fullest extent permitted by law against any and all expenses (including attorneys' fees and all other costs and obligations of any nature whatever), judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection therewith) of any claim, unless a person or body appointed by the Board of Directors of Beverly, (or, under certain circumstances discussed below, Independent Legal Counsel) determines that such indemnification is not permitted under applicable law; (b) for the prompt advancement of expenses to the director or officer, including attorneys' fees and all other costs, fees, expenses and obligations paid or incurred in connection with investigating, defending, being a witness or participating in, or preparing to defend, be a witness in or participate in any threatened, pending or completed action, suit or proceeding, alternate dispute resolution mechanism or any inquiry, hearing or investigation related to the fact that such director or officer is or was a director, officer, employee, agent or fiduciary of Beverly or is or was serving at the request of Beverly as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, and for repayment to Beverly if it is found that such director or officer is not entitled to such indemnification under applicable law; (c) a mechanism through which the director or officer may seek court relief in the event the Board of Directors of Beverly (or other person or body appointed by such Board) determines that the director or officer would not be permitted to be indemnified under applicable law (and therefore is not entitled to indemnification under the Indemnification Agreement); (d) indemnification against expenses (including attorneys' fees) incurred in seeking to collect from Beverly an indemnity claim or advancement of expenses to the extent successful; (e) that after a change in control of Beverly all determinations by Beverly regarding a right to indemnity and the right to advancement of expenses shall be made by Independent Legal Counsel (as defined in the Indemnification Agreements) to be selected by the director or officer and approved by the Board (which approval cannot be unreasonably withheld); and (f) Beverly may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and other similar agreements) to ensure payment of indemnifiable amounts. Among other things, the Indemnification Agreements provide the indemnified directors and officers with a specific contractual assurance that the rights to indemnification currently provided to them will remain available, regardless of, among other things, any amendment to or revocation of the indemnification provisions in the Restated Certificate of Incorporation or the Amended By-Laws or any change in composition or philosophy of the Board of Directors of Beverly such as might occur following an acquisition or change in control of Beverly. The Indemnification Agreements ensure, in the event of a change of control, that a determination of whether a director or officer is entitled to indemnification and advancement of expenses will not be made by a possibly hostile board. If court assistance to obtain such indemnity is required, the director or officer can receive indemnity against costs incurred in pursuing his or her rights to indemnification. In addition, the Indemnification Agreements guarantee to directors and officers that they will realize the benefit of any subsequent changes in Delaware law relating to indemnification. The Indemnification Agreements impose upon Beverly if a change in control has occurred, the burden of proving that the director or officer is not entitled to indemnification in any particular case, and the Indemnification Agreements negate certain presumptions which might otherwise be drawn against a director or officer in connection with the termination of actions in certain circumstances. The Indemnification Agreements also provide that a director's or officer's rights thereunder are not exclusive of any other rights he or she may have under Delaware law, directors' and officers' insurance, the Restated Certificate of Incorporation, the Amended By-Laws or otherwise; however, the Indemnification Agreements do prevent double payment. Notwithstanding the above discussion, all terms and rights under the Indemnification Agreements exist only to the extent permitted by applicable law. II-3 65 Beverly has in force directors' and officers' liability and company reimbursement insurance covering liability for error, misstatement, misleading statement, act or omission, and neglect or breach of duty claimed against them solely by reason of their being directors or officers of Beverly. ITEM 16. EXHIBITS (a) Exhibits *1.1 -- Form of Underwriting Agreement 4.1 -- Form of Indenture 4.2 -- Form of specimen Senior Note (included in Exhibit 4.1) 5.1 -- Opinion of Latham & Watkins as to validity of Senior Notes 12.1 -- Computation of Ratio of Earnings to Fixed Charges 23.1 -- Consent of Ernst & Young LLP 23.2 -- Consent of Latham & Watkins (included in its opinion filed as Exhibit 5.1) 24.1 -- Power of Attorney of Beverly's Directors and Officers (incorporated in the signature page on page II-5 in this Registration Statement) 25.1 -- Statement of Eligibility of Trustee on Form T-1
- --------------- * To be filed by amendment. ITEM 17. UNDERTAKINGS (a) Each of undersigned Registrants hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of such Registrant's annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of any Registrant pursuant to the foregoing provisions, or otherwise, each Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. (c) Each of the undersigned Registrants hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus 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. II-4 66 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fort Smith, State of Arkansas on November 9, 1995. For the Registrants set forth in the facing page and on the table of additional Co-Registrants By: /s/ DAVID R. BANKS ---------------------------- David R. Banks Chairman of the Board and Chief Executive Officer of Beverly Enterprises, Inc. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David R. Banks, Robert W. Pommerville, Scott M. Tabakin, John W. MacKenzie and Pamela M. Daniels, and each or any of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, 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 or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- --------------------------- ------------------ /s/ DAVID R. BANKS Chairman of the Board, November 9, 1995 -------------------------- Chief Executive Officer and David R. Banks Director /s/ SCOTT M. TABAKIN Senior Vice President, November 9, 1995 -------------------------- Acting Chief Financial Scott M. Tabakin Officer, Controller and Chief Accounting Officer -------------------------- Director November 9, 1995 Beryl F. Anthony, Jr. /s/ JAMES R. GREENE Director November 9, 1995 -------------------------- James R. Greene /s/ EDITH E. HOLIDAY Director November 9, 1995 -------------------------- Edith E. Holiday -------------------------- Director November 9, 1995 Jon E. M. Jacoby -------------------------- Director November 9, 1995 Risa J. Lavizzo-Mourey /s/ LOUIS W. MENK Director November 9, 1995 -------------------------- Louis W. Menk /s/ MARILYN R. SEYMANN Director November 9, 1995 -------------------------- Marilyn R. Seymann /s/ BOYD W. HENDRICKSON Director November 9, 1995 -------------------------- Boyd W. Hendrickson
II-5 67 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - -------------- ------------------------------------------------------- --------------------- *1.1 Form of Underwriting Agreement................................. 4.1 Form of Indenture.............................................. 4.2 Form of Specimen Senior Note (included in Exhibit 4.1)......... 5.1 Opinion of Latham & Watkins as to validity of Senior Notes..... 12.1 Computation of Ratio of Earnings to Fixed Charges.............. 23.1 Consent of Ernst & Young LLP................................... 23.2 Consent of Latham & Watkins (included in its opinion filed as Exhibit 5.1)................................................... 24.1 Power of Attorney of Beverly's Directors and Officers (incorporated in the signature page on page II-5 in this Registration Statement)..................................................... 25.1 Statement of Eligibility of Trustee on Form T-1................
- --------------- * To be filed by amendment. EX-4.1 2 FORM OF INDENTURE 1 DRAFT ================================================================================ BEVERLY ENTERPRISES, INC. __________________________ $150,000,000 % SENIOR NOTES DUE 2005 __________________________ __________________________ INDENTURE DATED AS OF ________, 1995 __________________________ __________________________ CHEMICAL BANK __________________________ AS TRUSTEE ================================================================================ 2 CROSS-REFERENCE TABLE*
TRUST INDENTURE INDENTURE ACT SECTION SECTION - --------------- ------- 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 10.2 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3; 10.2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(iii)(b) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 10.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(i) (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(iii) (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13; 9.4 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
N.A. means not applicable. ___________________________ *THIS CROSS-REFERENCE TABLE IS NOT PART OF THE INDENTURE. i 3 TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 1.3. Incorporation By Reference of TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 1.4. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE 2 THE SECURITIES; OFFER TO PURCHASE PROCEDURES SECTION 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 2.4. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 2.5. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 2.13. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 2.14. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 2.15. Offer to Purchase by Application of Excess Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 3 REDEMPTION SECTION 3.1. Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 3.2. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 3.3. Selection of Securities to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 3.4. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 3.5. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 3.6. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 3.7. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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Page ---- ARTICLE 4 COVENANTS SECTION 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 4.3. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 4.4. Compliance Certificate; Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 4.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.6. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.7. Limitations on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.8. Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . 45 SECTION 4.9. Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock . . . . . . . . . . . . . . 46 SECTION 4.10. Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 4.11. Limitations on Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 4.12. Limitations on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 4.13. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 4.14. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 4.15. Line of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 5 SUCCESSORS SECTION 5.1. Limitations on Mergers, Consolidations or Sales of Assets . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 6.7. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 ARTICLE 7 TRUSTEE SECTION 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 SECTION 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
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Page ---- SECTION 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 7.6. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 7.9. Successor Trustee or Agent by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . . . 74 ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.1. Defeasance and Discharge of This Indenture and the Securities . . . . . . . . . . . . . . . . . . . . 75 SECTION 8.2. Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SECTION 8.5. Deposited Cash and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. . 80 SECTION 8.6. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 9.3. Compliance With TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 9.5. Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 9.6. Trustee to Sign Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 ARTICLE 10 GUARANTEE SECTION 10.1. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 10.2. Execution and Delivery of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 10.3. Future Subsidiary Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 10.4. Guarantor May Consolidate, etc., on Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 10.5. Release of Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 SECTION 10.6. Certain Bankruptcy Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 ARTICLE 11 MISCELLANEOUS SECTION 11.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 SECTION 11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 SECTION 11.3. Communication by Holders With Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
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Page ---- SECTION 11.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . 95 SECTION 11.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 SECTION 11.6. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 11.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 11.8. No Personal Liability of Directors, Officers, Employees and Shareholders . . . . . . . . . . . . . . 97 SECTION 11.9. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 11.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 11.11. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 11.12. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 11.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 11.14. Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 11.15. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
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Page ---- EXHIBITS Exhibit A FORM OF SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Exhibit B FORM OF SUPPLEMENTAL INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B
v 8 INDENTURE dated as of ________ __, 1995, among Beverly Enterprises, Inc., a Delaware corporation (the "Company"), the corporations listed on the signature page hereto (the "Guarantors") and Chemical Bank, a New York corporation, as trustee (the "Trustee"). Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the __% Senior Notes due 2005 (the "Securities"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. Definitions. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. 9 "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback or by merger or consolidation) other than in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by Section 4.13 and/or Section 5.1 hereof and not by Section 4.10 hereof), and (ii) the issuance or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $10.0 million or (b) for net proceeds in excess of $10.0 million. Notwithstanding the foregoing: (a) a transfer of assets by the Company to a Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (b) an issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, (c) a Restricted Payment that is permitted by Section 4.7 hereof and (d) a Nursing Facility Swap shall not be deemed to be an Asset Sale. "Board of Directors" means the Board of Directors of the Company or any authorized committee thereof. "Business Day" means any day other than a Legal Holiday. "Capital Lease" means, at the time any determination thereof is to be made, any lease of property, real or personal, in respect of which the present value of the minimum rental commitment would be capitalized on a balance sheet of the lessee in accordance with GAAP. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a Capital Lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the 2 10 case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "cash" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit with maturities of one year or less from the date of acquisition, bankers' acceptances (or, with respect to foreign banks, similar instruments) with maturities not exceeding one year and overnight bank deposits, in each case with any domestic commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia, or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $100.0 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's or S&P and in each case maturing within one year after the date of acquisition, and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in the foregoing clauses (i) through (v). "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any Person or group (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than to a Person or group who, prior to such transaction, held a majority of the voting power of the voting stock of the 3 11 Company, (ii) the acquisition by any Person or group, as defined above, of a direct or indirect interest in more than 50% of the voting power of the voting stock of the Company, by way of merger, consolidation or otherwise, or (iii) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Change of Control Triggering Event" means the occurrence of both a Change of Control and a Rating Decline. "Commission" means the Securities and Exchange Commission. "Company" means Beverly Enterprises, Inc., as obligor under the Securities, unless and until a successor replaces Beverly Enterprises, Inc., in accordance with Article 5 hereof and thereafter includes such successor. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period, plus (i) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent such provision for taxes was included in computing such Consolidated Net Income, plus (ii) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income, plus (iii) depreciation and amortization (including amortization of goodwill and other intangibles, but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, plus (iv) the other non-cash expenses of such Person and its subsidiaries for such period to the extent such non-cash expenses were deducted in computing such Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, the depreciation and amortization of, and the other non-cash expenses of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) 4 12 that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis; provided that (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Redeemable Stock), less all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made in accordance with GAAP as a result of the acquisition of such business) subsequent to the date hereof in the book value of any asset owned by such Person or a consolidated Subsidiary of such 5 13 Person, and excluding the cumulative effect of a change in accounting principles, all as determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date hereof or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 10.2 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Agreement" means that certain Credit Agreement, dated as of November 1, 1994, by and among Beverly California Corporation, a California corporation, the Company and Morgan Guaranty Trust Company of New York and the other banks that are party thereto, providing for $225,000,000 in aggregate principal amount of Senior Term Debt and up to $150,000,000 in aggregate principal amount of Senior Revolving Debt, including any related notes, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "Debt to Consolidated Cash Flow Ratio" means with respect to any Person as of any date of determination (the "Debt Ratio Calculation Date"), the ratio of (i) the aggregate amount of Indebtedness of such Person and its Subsidiaries, on a consolidated basis, outstanding as of the Debt Ratio Calculation Date to (ii) the Consolidated Cash Flow of such Person for the Reference Period immediately preceding such Debt Ratio Calculation Date. For purposes of making the computation referred to above, (i) acquisitions that have been made by such Person or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the Reference Period or subsequent to such Reference Period and on or prior to the Debt Ratio Calculation Date shall be deemed to have occurred on the first day of the Reference Period, and 6 14 (ii) the Consolidated Cash Flow and Fixed Charges attributable to operations or businesses disposed of prior to the Debt Ratio Calculation Date shall be excluded. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Guarantee Subsidiary" shall have the meaning specified in Section 10.3. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries in existence on the date hereof, until such amounts are repaid. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable Reference Period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the Reference Period or subsequent to such Reference Period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the Refer- 7 15 ence Period, and (ii) the Consolidated Cash Flow and Fixed Charges attributable to operations or businesses disposed of prior to the Calculation Date, shall be excluded. "Fixed Charges" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letters of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, and (iii) interest actually paid by such Person or any of its Subsidiaries under any guarantee of Indebtedness or other obligation of any other Person and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, as in effect from time to time. "guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. 8 16 "Guarantors" means (i) the Subsidiaries designated as such on the signature pages hereof, and its successors and assigns and (ii) Future Subsidiary Guarantors that became Guarantors pursuant to the terms of this Indenture, but excluding Beverly Funding Corporation and Beverly Indemnity, Ltd., any Persons whose guarantees have been released pursuant to the terms of this Indenture, and any Excluded Guarantee Subsidiary. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, (ii) foreign exchange contracts or currency swap agreements and (iii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency values. "Holder" means a Person in whose name a Security is registered. "Indebtedness" means with respect to any Person, (i) any Redeemable Stock of such Person, (ii) any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (iii) all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, (iv) to the extent not otherwise included, the guarantee by such Person of any indebtedness of any other Person. "Indenture" means this Indenture, as amended or supplemented from time to time. "Interest Payment Date" means the stated due date of an installment of interest on the Securities. 9 17 "Investment" by any Person in any other Person means (without duplication) (a) the acquisition (whether by purchase, merger, consolidation or otherwise) by such Person (whether for cash, property, services, securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities, including any options or warrants, of such other Person or any agreement to make any such acquisition; (b) the making by such Person of any deposit with, or advance, loan or other extension of credit to, such other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such other Person) or any commitment to make any such advance, loan or extension (but excluding accounts receivable or deposits arising in the ordinary course of business); (c) other than guarantees of Indebtedness of the Company or any Subsidiary to the extent permitted by the covenant "Incurrence of Indebtedness," the entering into by such Person of any guarantee of, or other credit support or contingent obligation with respect to, Indebtedness or other liability of such other Person; provided, however, Investments shall not be deemed to include extensions of trade credit by such Person or any of its Subsidiaries on commercially reasonable terms in accordance with normal trade practices of such Person or such Subsidiary, as the case may be. "Investment Grade" means a rating of BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that the Company shall select any other Rating Agency, the equivalent of such ratings by such Rating Agency shall be used. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset given to secure Indebtedness, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any such lien, pledge, charge or security interest). 10 18 "Maturity Date" means, when used with respect to any Security, the date specified on such Security as the fixed date on which the final installment of principal of such Security is due and payable (in the absence of any acceleration thereof pursuant to the provisions of the Indenture regarding acceleration of Indebtedness or any Change of Control Offer or Senior Asset Sale Offer). "Moody's" means Moody's Investors Services, Inc. and its successors. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP, excluding, however, all extraordinary gains or losses, together with any related provision for taxes on such extraordinary gain or loss. "Net Proceeds" means the aggregate cash or Cash Equivalent proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions) and any other expenses incurred or to be incurred by the Company or a Subsidiary as a direct result of the sale of such assets (including, without limitation, severance, relocation, lease termination and other similar expenses), taxes actually paid or payable as a result thereof, amounts required to be applied to the repayment of Indebtedness (other than Subordinated Indebtedness or Senior Revolving Debt) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Cash Consideration" means any non-cash consideration received by the Company or a Subsidiary of the Company in connection with an Asset Sale and any non-cash consideration received by the Company or any of its Subsidiaries upon disposition thereof. "Non-Qualified Asset Sale" means an Asset Sale in which the Non-Cash Consideration received by the Company or its Subsidiaries exceeds 25% of the total consideration received in connection with such Asset 11 19 Sale. The Spinoff Transaction shall be deemed not to constitute a Non-Qualified Asset Sale. "Nursing Facility" means a nursing facility, hospital, outpatient clinic, assisted living center, hospice, long-term care facility or other facility that is used or useful in the provision of healthcare services. "Nursing Facility Swap" means an exchange of assets by the Company or one or more Subsidiaries of the Company for one or more Nursing Facilities and/or one or more Related Businesses or for the Capital Stock of any Person owning one or more Nursing Facilities and/or one or more Related Businesses. "Obligations" means any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officers" means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary and any Vice President of the Company or any Subsidiary, as the case may be. "Officers' Certificate" means a certificate signed by two Officers, one of whom must be the principal executive officer, principal financial officer or principal accounting officer of the Company. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company, any Subsidiary or the Trustee. "Payment Default" means any failure to pay any scheduled installment of interest or principal on any Indebtedness within the grace period provided for such payment in the documentation governing such Indebtedness. "PCA" means Pharmacy Corporation of America, a California corporation. 12 20 "Permitted Liens" means (i) Liens in favor of the Company; (ii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company or becomes a Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person merged into or consolidated with the Company or that becomes a Subsidiary of the Company; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (iv) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens existing on the date hereof; (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) other Liens on assets of the Company or any Subsidiary of the Company securing Indebtedness that is permitted by the terms hereof to be outstanding having an aggregate principal amount at any one time outstanding not to exceed $5.0 million; (viii) Liens to secure Permitted Refinancing Indebtedness incurred to refinance Indebtedness that was secured by a Lien permitted hereunder and that was incurred in accordance with the provisions hereof; pro-vided that such Liens do not extend to or cover any property or assets of the Company or any Subsidiary other than assets or property securing the Indebtedness so refinanced; (ix) Purchase Money Liens; (x) Liens on Medicare, Medicaid or other patient accounts receivable of the Company or its Subsidiaries and any other Liens granted by a Receivables Subsidiary, in each case in connection with a Receivables Financing; provided that the aggregate principal or redemption amount of Receivables Financing outstanding shall not exceed 50% of the net amount of the uncollected Medicare, Medicaid or other patient accounts receivable then owing to the Company or its Subsidiaries; (xi) Liens to secure Indebtedness permitted under the Indenture, the net proceeds of which are used to permanently reduce an equivalent principal 13 21 amount of other secured Indebtedness of the Company or its Subsidiaries less any premiums and reasonable expenses incurred in connection therewith; (xii) [collateral substitution provision to be proposed by Beverly]; (xiii) Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business; (xiv) easements, rights-of-way, zoning restrictions, reservations, encroachments and other similar encumbrances in respect of real property; (xv) any interest or title of a lessor under any Capitalized Lease Obligation; (xvi) Liens upon specific items of inventory or equipment and proceeds of the Company or any Subsidiary securing its obligations in respect of bankers' acceptances issued or created for its account (whether or not under the Credit Agreement) to facilitate the purchase, shipment, or storage of such inventory and equipment; (xvii) Liens securing reimbursement obligations with respect to letters of credit (whether or not issued under the Credit Agreement) otherwise permitted under the Indenture and issued in connection with the purchase of inventory or equipment by the Company or any Subsidiary in the ordinary course of business; (xviii) Liens to secure (or encumbering deposits securing) obligations arising from warranty or contractual service obligations of the Company or any Subsidiary, including rights of offset and setoff; (ix) Liens securing Acquired Debt or acquisition Indebtedness otherwise permitted by the Indenture; provided that (A) the Indebtedness secured shall not exceed the fair market value of the assets so acquired (such fair market value to be determined in good faith by the Board of Directors of the Company at the time of such acquisition) and (B) such Indebtedness shall be incurred, and the Lien securing such Indebtedness shall be created, within 12 months after such acquisition; (xx) Liens securing Hedging Obligations Agreements relating to Indebtedness otherwise permitted under the Indenture; and (xxi) Liens securing stay and appeal bonds or judgment Liens in connection with any judgment not giving rise to a Default under the Indenture. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the principal amount 14 22 of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of any premiums paid and reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is Subordinated Indebtedness, such Permitted Refinancing Indebtedness has a final maturity date of, and is subordinated in right of payment to, the Securities on terms at least as favorable to the Holders of Securities as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and [(iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.] "Person" means an individual, corporation, partnership, joint venture, association, joint-stock company, trust or unincorporated organization (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Purchase Money Indebtedness" means any Indebtedness of a Person to any seller or other Person incurred to finance the acquisition or construction (including in the case of a Capital Lease Obligation, the lease) of any real or personal tangible property which is incurred within 180 days of such acquisition or completion of construction and is secured only by the assets so financed. "Purchase Money Lien" means a Lien granted on an asset or property to secure Purchase Money Indebtedness permitted to be incurred under the Indenture and incurred solely to finance the acquisition or construction of such asset or property; provided, however, that such Lien encumbers only such asset or property and is 15 23 granted within 180 days of such acquisition or completion of construction. "Qualified Equity Interests" shall mean all Equity Interests of the Company other than Redeemable Stock of the Company. "Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's or both shall not make a rating of the Securities publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by the Company, shall be substituted for S&P or Moody's or both, as the case may be. "Rating Category" means (i) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such category of S&P or Moody's used by another Rating Agency. In determining whether the rating of the Securities has decreased by one or more gradations, gradations within Rating Categories (+ and - for S&P, 1, 2 and 3 for Moody's; or the equivalent gradations for another Rating Agency) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, shall constitute a decrease of one gradation). "Rating Date" means the date which is 90 days prior to the earlier of (i) a Change of Control and (ii) the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control. "Rating Decline" means the occurrence on or within 90 days after the date of the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control (which period shall be extended so long as the rating of the Securities is under publicly announced consideration for possible downgrade by any of the Rating Agencies) of: (a) in the event the Securities are rated by either Moody's or S&P on the Rating Date as Invest- 16 24 ment Grade, a decrease in the rating of the Securities by both Rating Agencies to a rating that is below Investment Grade, or (b) in the event the Securities are rated below Investment Grade by both Rating Agencies on the Rating Date, a decrease in the rating of the Securities by either Rating Agency by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "Receivables Financing" means the sale or other disposition of Medicare, Medicaid or other patient accounts receivable of the Company or any of its Subsidiaries to a Receivables Subsidiary followed by a financing transaction in connection with such sale or disposition of such accounts receivable. "Receivables Subsidiary" means a Subsidiary of the Company exclusively engaged in Receivables Financing and activities reasonably related thereto. "Record Date" means a Record Date specified in the Securities whether or not such Record Date is a Business Day. "Redeemable Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date on which the Senior Notes mature. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to Article 3 of this Indenture and Paragraph 5 in the form of Security. "Redemption Price," when used with respect to any Security to be redeemed, means the redemption price for such redemption pursuant to Paragraph 5 in the form of Security, which shall include, without duplication, in each case, accrued and unpaid interest to the Redemption Date (subject to the provisions of Section 3.5). "Reference Period" with regard to any Person means the four full fiscal quarters (or such lesser period during which such Person has been in existence) for which internal financial statements are available ended immediately preceding any date upon which any 17 25 determination is to be made pursuant to the terms of the Senior Notes or the Indenture. "Related Business" means the business conducted by the Company and its Subsidiaries as of the date of the Indenture and any and all healthcare service businesses that in the good faith judgment of the Board of Directors of the Company are materially related businesses. Without limiting the generality of the foregoing, Related Business shall include the operation of long-term and specialty healthcare services, skilled nursing care, subacute care, rehabilitation programs, pharmaceutical services, geriatric care and home healthcare. "Responsible Officer" when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means, in one or a series of related transactions, any Investment, other than (i) Investments in Cash Equivalents, (ii) Investments in a Subsidiary, (iii) Investments in any Person that as a consequence of such Investment becomes a Subsidiary, (iv) Investments existing on the date of the Indenture, (v) accounts receivable, advances, loans, extensions of credit created or acquired in the ordinary course of business, (vi) Investments made as a result of the receipt of Non-Cash Consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof, and (vii) Investments made as the result of the guarantee by the Company or any of its Subsidiaries of Indebtedness secured by Liens on assets sold or otherwise disposed of by the Company or such Subsidiary; provided that such Indebtedness was in existence prior to the contemplation of such sale or other disposition and that the terms of such guarantee permit the Company or such Subsidiary to foreclose on the pledged or mortgaged assets if the Company or such Subsidiary are required to perform under such guarantee; provided, however, that a merger of another Person with or into the Company or a Guarantor shall not be deemed to be a Restricted Invest- 18 26 ment so long as the surviving entity is the Company or a direct wholly owned Guarantor. "Securities" means the securities described above, issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Senior Revolving Debt" means revolving credit loans and letters of credit outstanding from time to time under the Credit Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "S&P" means Standard & Poor's Corporation and its successors. "Spinoff Transaction" means a pro rata distribution by the Company to its shareholders of all or a portion of the shares of PCA or a sale to an unaffiliated Person or Persons of shares of PCA or all or substantially all of the assets of PCA. "Stockholders' Equity" means, with respect to any Person as of any date, the stockholders' equity of such Person determined in accordance with GAAP as of the date of the most recent available internal financial statements of such Person, and calculated on a pro forma basis to give effect to any acquisition or disposition by such Person consummated or to be consummated since the date of such financial statements and on or prior to the date of such calculation. "Subordinated Indebtedness" means (i) Indebtedness of the Company or a Guarantor that is subordinated in right of payment to the Securities or such Subsidiary's guarantee of the Securities, as applicable, or (ii) Indebtedness of the Company or a Guarantor (other than secured Indebtedness) that has a stated maturity on or after the stated maturity of the Securities. 19 27 "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.3 hereof. "Transfer Restriction" means, with respect to the Company's Subsidiaries, any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries, or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "U.S. Government Obligations" means direct noncallable obligations of, or noncallable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then 20 28 remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.2. Other Definitions.
DEFINED IN TERM SECTION "Affiliate Transaction" . . . . . . . . . . . . . . . 4.11 "Bankruptcy Law" . . . . . . . . . . . . . . . . . . . 6.1 "Change of Control Offer" . . . . . . . . . . . . . . 4.13 "Change of Control Payment" . . . . . . . . . . . . . 4.13 "Change of Control Payment Date" . . . . . . . . . . . 4.13 "Commencement Date" . . . . . . . . . . . . . . . . . 2.15 "Covenant Defeasance" . . . . . . . . . . . . . . . . 8.3 "Custodian" . . . . . . . . . . . . . . . . . . . . . 6.1 "Event of Default" . . . . . . . . . . . . . . . . . . 6.1 "Excess Proceeds" . . . . . . . . . . . . . . . . . . 4.10 "Guarantee" . . . . . . . . . . . . . . . . . . . . . 10.1 "incur" . . . . . . . . . . . . . . . . . . . . . . . 4.9 "Legal Defeasance" . . . . . . . . . . . . . . . . . . 8.2 "Legal Holiday" . . . . . . . . . . . . . . . . . . . 10.7 "Notice of Default" . . . . . . . . . . . . . . . . . 6.1 "Offer Amount" . . . . . . . . . . . . . . . . . . . . 2.15 "Offer Period" . . . . . . . . . . . . . . . . . . . . 2.15 "Paying Agent" . . . . . . . . . . . . . . . . . . . . 2.3 "Purchase Date" . . . . . . . . . . . . . . . . . . . 2.15 "Purchase Price" . . . . . . . . . . . . . . . . . . . 4.10 "Registrar" . . . . . . . . . . . . . . . . . . . . . 2.3 "Restricted Payments" . . . . . . . . . . . . . . . . 4.7 "Senior Asset Sale Offer" . . . . . . . . . . . . . . 4.10
21 29 SECTION 1.3. Incorporation By Reference of TIA. 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 Securities; "Indenture Security Holder" means a Holder; "Indenture to be Qualified" means this Inden ture; "Indenture Trustee" or "Institutional Trustee" means the Trustee; "Obligor" on the Securities means the Company and any successor obligor upon the Securities. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by the Commission rule under the TIA have the meanings so assigned to them. SECTION 1.4. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. 22 30 ARTICLE 2 THE SECURITIES; OFFER TO PURCHASE PROCEDURES SECTION 2.1. Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made a part of this Indenture. The Securities may have notations, legends or endorsements approved as to form by the Company and required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. The Securities shall be issuable only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof. SECTION 2.2. Execution and Authentication. An Officer of the Company shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Security has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Securities shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Securities for original issue up to the aggregate principal amount stated in paragraph 4 of the Securities. The aggregate principal amount of Securities outstanding at any time shall not exceed the amount set forth herein except as provided in Section 2.7 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an au- 23 31 thenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. SECTION 2.3. Registrar and Paying Agent. The Company shall maintain (i) an office or agency where Securities may be presented for registration of transfer or for exchange (including any co-registrar, the "Registrar") and (ii) an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent, Registrar or co- registrar without prior notice to any Holder. The Company shall notify the Trustee and the Trustee shall notify the Holders of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 7.7 hereof. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the securities. SECTION 2.4. Paying Agent to Hold Money in Trust. On or prior to the due date of principal of, premium, if any, and interest on any Securities, the 24 32 Company shall deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and interest becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that the 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 Securities, and shall notify the Trustee of any Default by the Company in making any such payment. While any such Default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. SECTION 2.5. Holder Lists. 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 Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment 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 the Securities held by each thereof, and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.6. Transfer and Exchange. When Securities are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; provided, however, that any Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to 25 33 the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue and the Trustee shall authenticate Securities at the Registrar's request, subject to such rules as the Trustee may reasonably require. Neither the Company nor the Registrar shall be required to register the transfer or exchange of a Security between the record date and the next succeeding Interest Payment Date. No service charge shall be made to any Holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.10 or 9.5 hereof, which shall be paid by the Company). Prior to due presentment for registration of transfer of any Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of, premium, if any, and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. SECTION 2.7. Replacement Securities. If any mutilated Security is surrendered to the Trustee or the Company, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Security if the Trustee's requirements for replacements of Securities are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss which any of 26 34 them may suffer if a Security is replaced. Each of the Company and the Trustee may charge for its expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. SECTION 2.8. Outstanding Securities. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. If a Security is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the principal amount of any Security is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. Subject to Section 2.9 hereof, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. SECTION 2.9. Treasury Securities. In determining whether the Holders of the required principal amount of Securities then outstanding have concurred in any demand, direction, waiver or consent, Securities owned by the Company or any Affiliate of the Company shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such demand, direction, waiver or consent, only Securities that a Responsible Officer actually knows to be so owned shall be so considered. Notwithstanding the foregoing, Securities that are to be acquired by the Company or an Affiliate of the Company pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by the Company or an Affiliate of the Company until legal title to such Securities passes to the Company or such Affiliate, as the case may be. 27 35 SECTION 2.10. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company and the Trustee consider appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate definitive securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. SECTION 2.11. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them or registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return such cancelled Securities to the Company. The Company may not issue new Securities to replace Securities that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the related payment date, in each case at the rate provided in the Securities and in Section 4.1 hereof. The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the ex- 28 36 pense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. SECTION 2.13. Record Date. The record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA Section 316(c). SECTION 2.14. CUSIP Number. The Company in issuing the Securities may use a "CUSIP" number, and if it does so, the Trustee shall use the CUSIP number in notices to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP number. SECTION 2.15. Offer to Purchase by Application of Excess Proceeds. In the event that the Company shall commence a Senior Asset Sale Offer pursuant to Section 4.10 hereof, it shall follow the procedures specified below. No later than the date on which the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall notify the Trustee of such Senior Asset Sale Offer and provide the Trustee with an Officers' Certificate setting forth, in addition to the information to be included therein pursuant to Section 4.10 hereof, the calculations used in determining the amount of Net Proceeds to be applied to the purchase of Securities. The Company shall commence or cause to be commenced the Senior Asset Sale Offer on a date no later than 10 Business Days after such notice (the "Commencement Date"). The Senior Asset Sale Offer shall remain open for at least 20 Business Days after the Commencement Date relating to such Senior Asset Sale Offer and shall remain open for no more than such 20 Business Days, except to 29 37 the extent required by applicable law (as so extended, the "Offer Period"). No later than one Business Day after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount (the "Offer Amount") of Securities required to be purchased in such Senior Asset Sale Offer pursuant to Section 4.10 hereof or, if less than the Offer Amount has been tendered, all Securities tendered in response to the Senior Asset Sale Offer, in each case for an amount in cash equal to the Purchase Price. If the Purchase Date is on or after an interest payment record date and on or before the related interest payment date, any accrued interest shall be paid to the Person in whose name a Security is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Securities pursuant to the Senior Asset Sale Offer. On the Commencement Date of any Senior Asset Sale Offer, the Company shall send, or at the Company's request the Trustee shall send, by first class mail, a notice to each of the Holders at their last registered address, with a copy to the Trustee and the Paying Agent, offering to repurchase the Securities held by such Holder pursuant to the procedure specified in such notice. Such notice, which shall govern the terms of the Senior Asset Sale Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Senior Asset Sale Offer and shall state: (1) that the Senior Asset Sale Offer is being made pursuant to this Section 2.15 and Section 4.10 hereof and the length of time the Senior Asset Sale Offer shall remain open; (2) the Offer Amount, the Purchase Price and the Purchase Date; (3) that any Security not tendered or accepted for payment shall continue to accrue interest; (4) that, unless the Company defaults in the payment of the Purchase Price, any Security accepted for payment pursuant to the 30 38 Senior Asset Sale Offer shall cease to accrue interest after the Purchase Date; (5) that Holders electing to have a Security purchased pursuant to any Senior Asset Sale Offer shall be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day next preceding the Purchase Date; (6) that Holders shall be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the Business Day next preceding the termination of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that, if the aggregate principal amount of Securities surrendered by Holders exceeds the Offer Amount, the Trustee shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Trustee so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased); (8) that Holders whose Securities were purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; and (9) the circumstances and relevant facts regarding such Asset Sale and any other information that would be material to a de- 31 39 cision as to whether to tender a Security pursuant to the Senior Asset Sale Offer. On the Purchase Date, the Company shall, to the extent lawful, (i) accept for payment, on a pro rata basis to the extent necessary, an aggregate principal amount equal to the Offer Amount of Securities and other Indebtedness ranking on a parity with the Securities whose provisions require the Company to make an offer to purchase or redeem such Indebtedness with proceeds from any asset sales tendered pursuant to the Senior Asset Sale Offer, or if less than the Offer Amount has been tendered, all Securities and other Indebtedness or portions thereof so tendered, (ii) deposit with the Paying Agent an amount equal to the Purchase Price in respect of all Securities and other Indebtedness or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities and other Indebtedness so accepted together with an Officers' Certificate stating the aggregate principal amount of Securities and other Indebtedness or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Securities so tendered payment in an amount equal to the Purchase Price for such Securities and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) a new Security to such Holder equal in principal amount to any unpurchased portion of the Securities surrendered, if any; provided that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Senior Asset Sale Offer on or as soon as practicable after the Purchase Date. The Company shall comply with the requirements of 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 connection with the purchase of Securities and other Indebtedness as a result of the Senior Asset Sale Offer. 32 40 ARTICLE 3 REDEMPTION SECTION 3.1. Right of Redemption. Redemption of Securities, as permitted by any provision of this Indenture, shall be made in accordance with such provision and this Article 3. The Company will not have the right to redeem any Securities prior to _______ __, 2000. On or after __________, 2000, the Company will have the right to redeem all or any part of the Securities at the Redemption Prices specified in the form of Security attached as Exhibit A set forth therein under the caption "Optional Redemption," in each case (subject to the right of Holders of record on a Record Date to receive interest due on an Interest Payment Date that is on or prior to such Redemption Date, and subject to the provisions set forth in Section 3.5) including accrued and unpaid interest to the Redemption Date. SECTION 3.2. Notices to Trustee. If the Company elects to redeem Securities pursuant to Paragraph 5 of the Securities, it shall notify the Trustee in writing of the Redemption Date and the principal amount of Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders. If the Company elects to reduce the principal amount of Securities to be redeemed pursuant to Paragraph 5 of the Securities by crediting against any such redemption Securities it has not previously delivered to the Trustee for cancellation, it shall so notify the Trustee of the amount of the reduction and deliver such Securities with such notice. The Company shall give each notice to the Trustee provided for in this Section 3.2 at least 45 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee). Any such notice may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. 33 41 SECTION 3.3. Selection of Securities to be Redeemed. If less than all of the Securities are to be redeemed pursuant to Paragraph 5 thereof, the Trustee shall select the Securities to be redeemed on a pro rata basis, by lot or by such other method as the Trustee shall determine to be fair and appropriate. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.4. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail, postage prepaid, to the Trustee and each Holder whose Securities are to be redeemed to such Holder's last address as then shown on the registry books of the Registrar. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price, including the amount of accrued and unpaid interest to be paid upon such redemption; (3) the name, address and telephone number of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent at 34 42 the address specified in such notice to collect the Redemption Price; (5) that, unless the Company defaults in its obligation to deposit cash or U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, cash in an amount to fund the Redemption Price with the Paying Agent in accordance with Section 3.6 hereof or such redemption payment is otherwise prohibited, interest on Securities called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price, including accrued and unpaid interest to the Redemption Date, upon surrender to the Paying Agent of the Securities called for redemption and to be redeemed; (6) if any Security is being redeemed in part, the portion of the principal amount equal to the unredeemed portion thereof, of such Security to be redeemed and that, on or after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; (7) if less than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to be redeemed, as well as the aggregate principal amount of such Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption; (8) the CUSIP number of the Securities to be redeemed; and (9) that the notice is being sent pursuant to this Section 3.4 and pursuant to the optional redemption provisions of Paragraph 5 of the Securities. 35 43 SECTION 3.5. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.4, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price, including accrued and unpaid interest to the Redemption Date. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price, including interest, if any, accrued and unpaid to the Redemption Date; provided that if the Redemption Date is after a regular Record Date and on or prior to the Interest Payment Date to which such Record Date relates, the accrued interest shall be payable to the Holder of the redeemed Securities registered on the relevant Record Date; and provided further that if a Redemption Date is a non-Business Day, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such Redemption Date to such succeeding Business Day. SECTION 3.6. Deposit of Redemption Price. On or prior to the Redemption Date, the Company shall deposit with the Paying Agent (other than the Company or an Affiliate of the Company) cash or U.S. Government Obligations sufficient to pay the Redemption Price of, including accrued and unpaid interest on, all Securities to be redeemed on such Redemption Date (other than Securities or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation). The Paying Agent shall promptly return to the Company any cash or U.S. Government Obligations so deposited which is not required for that purpose upon the written request of the Company. If the Company complies with the preceding paragraph and the other provisions of this Article 3 and payment of the Securities called for redemption is not otherwise prohibited, interest on the Securities to be redeemed will cease to accrue on the applicable Redemption Date, whether or not such Securities are presented for payment. Notwithstanding anything herein to the contrary, if any Security surrendered for redemption in the manner provided in the Securities shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall continue to accrue and be paid from the 36 44 Redemption Date until such payment is made on the unpaid principal, and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate and in the manner provided in Section 4.1 hereof and the Security. SECTION 3.7. Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder, without service charge to the Holder, a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE 4 COVENANTS SECTION 4.1. Payment of Securities. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Securities on the dates and in the manner provided in this Indenture and the Securities. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary of the Company, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Such Paying Agent shall return to the Company, no later than five days following the date of payment, any money (including accrued interest) that exceeds such amount of principal, premium, if any, and interest to be paid on the Securities. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the interest rate then applicable to the Securities to the extent lawful. In addition, it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. 37 45 SECTION 4.2. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall 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 Company 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 Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall 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 Company hereby designates Chemical Bank, Corporate Trust Department, 450 West 33rd Street, New York, New York 10001 as one such office or agency of the Company in accordance with Section 2.3 hereof. SECTION 4.3. Reports. (a) Whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the Trustee, within 15 days after it files or would have been required to file such with the Commission, annual and quarterly financial statements substantially equivalent to financial statements that would have been included in a report filed with the Commission on Forms 10-Q and 10-K, if the Company were subject to the requirements of Section 13 or 38 46 15(d) of the Exchange Act, including, with respect to annual information only, a report thereon by the Company's certified independent public accountants as such would be required in such reports to the Commission, and, in each case, together with "Management's Discussion" and Analysis of Financial Condition and Results of Operations which would be so required. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and will make such information available to securities analysts and prospective investors upon request. All obligors on the Securities shall comply with the provisions of TIA Section 314(a). (b) The Trustee, at the Company's expense, shall promptly mail copies of all such annual reports, information, documents and other reports provided to the Trustee pursuant to Section 4.3(a) hereof to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to the Holders under this Section 4.3. SECTION 4.4. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate complying with Section 3.4(a)(4) of the TIA and stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each entity has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have 39 47 knowledge and what action each is taking or proposes to take with respect thereto, all without regard to periods of grace or notice requirements, and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Securities is prohibited or if such event has occurred, a description of the event and what action each is taking or proposes to take with respect thereto. The Officers' Certificate shall also notify the Trustee should the relevant fiscal year end on any date other than the current fiscal year end date. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.3 above shall be accompanied by a written statement of the Company's certified independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company or any Subsidiary of the Company has violated any provisions of Article 4 or of Article 5 of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of (a) any Default or Event of Default or (b) any event of default under any other mortgage, indenture or instrument referred to in Section 6.1(vi) hereof, an Officers' Certificate specifying such Default, Event of Default or event of default and what action the Company is taking or proposes to take with respect thereto. The Trustee shall not be deemed to have knowledge of any Default or any event of Default unless one of its Trust Officers receives written notice thereof from the company or any of the Holders. 40 48 SECTION 4.5. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except (i) as contested in good faith by appropriate proceedings and with respect to which appropriate reserves have been taken in accordance with GAAP or (ii) where the failure to effect such payment is not adverse in any material respect to the Holders. SECTION 4.6. Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.7. Limitations on Restricted Payments. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Equity Interests of the Company or any of its Subsidiaries (other than (x) dividends or distributions payable in Qualified Equity Interests of the Company, (y) dividends or distributions payable to the Company or any Subsidiary of the Company, and (z) dividends or distributions by any Subsidiary of the Company payable to all holders of a class of Equity Interests of such Subsidiary on a pro rata basis); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any of its Subsidiaries; (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness, except at the original final maturity date thereof; or (iv) make any Restricted In- 41 49 vestment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment (the amount of any such Restricted Payment, if other than cash or Cash Equivalent, shall be the fair market value (as conclusively evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee within 60 days prior to the date of such Restricted Payment) of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to such Restricted Payment): (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the Reference Period immediately preceding the date of such Restricted Payment, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after _______ ___, 1995 (excluding Restricted Payments permitted by clauses (ii), (iii), (iv) and (vi) of the next succeeding paragraph), is less than the sum (without duplication) of (1) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after _________ ___, 1995 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Con- 42 50 solidated Net Income for such period is a deficit, less 100% of such deficit), plus (2) 100% of the aggregate net cash proceeds received by the Company from the issue or sale (other than to a Subsidiary of the Company) since _______ ___, 1995 of Qualified Equity Interests of the Company or of debt securities of the Company or any of its Subsidiaries that have been converted into or exchanged for such Qualified Equity Interests of the Company, plus (3) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (net of taxes and the cost of disposition, if any) or (B) the initial amount of such Restricted Investment, plus (iv) $20.0 million. The foregoing provisions shall not prohibit the following Restricted Payments: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have otherwise complied with the provisions hereof; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company or any Subsidiary in exchange for, or out of the net cash proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; (iii) the defeasance, redemption or repurchase of Subordinated Indebtedness with the net 43 51 cash proceeds from an incurrence of Permitted Refinancing Indebtedness or in exchange for or out of the net cash proceeds from the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; (iv) any purchase or defeasance of Subordinated Indebtedness to the extent required upon a change of control or asset sale (as defined therein) by the indenture or other agreement or instrument pursuant to which such Subordinated Indebtedness was issued, but only if the Company (i) in the case of a Change of Control, has complied with its obligations under the provisions described under Section 4.13 of this Indenture or (ii) in the case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance with the provisions under Sections 2.15 and 4.10 of this Indenture; (v) any Restricted Payment permitted in accordance with the provisions of the second paragraph of Section 4.10 of this Indenture; and (vi) a pro rata dividend or other distribution by the Company to its stockholders of all or a portion of the common stock of PCA in connection with the Spinoff Transaction; provided, however, in the case of each of clauses (ii), (iii), (iv), (v) and (vi) of the paragraph, no Default or Event of Default shall have occurred or be continuing at the time of such Restricted Payment or would occur as a consequence thereof. 44 52 Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed. SECTION 4.8. Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual Transfer Restriction, except for such Transfer Restrictions existing under or by reason of: (a) Existing Indebtedness as in effect on the date hereof, (b) this Indenture, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition or in violation of Section 4.9 hereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that the Consolidated Cash Flow of such Person shall not be taken into account in determining whether such acquisition was permitted by the terms hereof except to the extent that such Consolidated Cash Flow would be permitted to be dividends to the Company without the prior consent or approval of any third party, 45 53 (e) customary non-assignment provisions in leases entered into in the ordinary course of business, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the ability of any of the Company's Subsidiaries to transfer the property so acquired to the Company or any of its Subsidiaries, (g) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, or (h) the Credit Agreement and related documentation as the same is in effect on the date hereof and as amended or replaced from time to time, provided that no such amendment or replacement is more restrictive as to Transfer Restrictions than the Credit Agreement and related documentation as in effect on the date hereof. Nothing contained in this Section 4.8 shall prevent the Company or any subsidiary of the Company from creating, incurring, assuming or suffering to exist any Permitted Liens. SECTION 4.9. Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") after the date hereof any Indebtedness (including Acquired Debt) and the Company will not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company and its Subsidiaries may incur Indebtedness (including Acquired Debt) if the Fixed Charge Coverage 46 54 Ratio for the Reference Period immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2.5 to 1, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred at the beginning of such Reference Period. Indebtedness consisting of reimbursement obligations in respect of a letter of credit shall be deemed to be incurred when the letter of credit is first issued. The foregoing provisions shall not apply to: (a) the incurrence by the Company or the Subsidiaries of Senior Revolving Debt pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding (with letters of credit being deemed to have a principal amount equal to the maximum potential reimbursement obligation of the Company or any Subsidiary with respect thereto) not to exceed an amount equal to $150.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to permanently reduce the commitments with respect to such Indebtedness pursuant to Sections 2.15 and 4.10 hereof after ________ ___, 1995; (b) the incurrence by the Company and the Guarantors of Indebtedness represented by the Securities; (c) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness that was permitted by this Indenture to be incurred (including, without limitation, Existing Indebtedness); (d) the incurrence by the Company or any of the Subsidiaries of intercompany Indebtedness between or among the Company and 47 55 any of its Subsidiaries; provided that in the case of such Indebtedness of Company, such obligations shall be unsecured; (e) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the terms hereof to be outstanding or any receivable or liability the payment of which is determined by reference to a foreign currency; provided that the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness or the amount of such receivable or liability to which such Hedging Obligation relates; (f) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by perfor- mance bonds, warranty or contractual service obligations, standby letters of credit or appeal bonds, in each case to the extent incurred in the ordinary course of business of the Company or such Subsidiary; and (g) the incurrence by the Company or any of its Subsidiaries of Indebtedness (in addition to Indebt- edness permitted by any other clause of this paragraph) in an aggregate principal amount at any time outstanding not to exceed $100.0 million. For purposes of determining any particular amount of Indebtedness under this covenant, 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. For purposes of determining compliance with this covenant, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness permitted by the first paragraph above of this covenant, the Company shall classify such item of Indebtedness and only be required to include the amount and 48 56 type of such Indebtedness in one of the categories of permitted Indebtedness described above and (ii) the outstanding principal amount on any date 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 on such date. SECTION 4.10. Asset Sales. The Company shall not, and shall not permit any of its Subsidiaries to, consummate an Asset Sale, unless (i) the Company (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (as conclusively determined by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Subsidiary is in the form of cash or Cash Equivalents; provided that for purposes of this provision, (x) the amount of (A) any liabilities (as shown on the most recent balance sheet of the Company or such Subsidiary or in the notes thereto), of the Company or such Subsidiary (other than liabilities that are by their terms subordinated to the Securities or the Guarantees) that are assumed by the transferee of any such assets and (B) any securities or other obligations received by the Company or any such Subsidiary from such transferee that are immediately converted by the Company or such Subsidiary into cash (or as to which the Company or such Subsidiary has received at or prior to the consummation of the Asset Sale a commitment (which may be subject to customary conditions) from a nationally recognized investment, merchant or commercial bank to convert into cash or Cash Equivalents within 90 days of the consummation of such Asset Sale and which are thereafter actually converted into cash or Cash Equivalents within such 90-day period) shall be deemed to be cash (but shall not be deemed to be Net Proceeds for purposes of the following provisions until reduced to cash) and (y) the fair market value of any Non-Cash Consideration received by Beverly or a Subsidiary in any Non-Qualified Asset Sale shall be deemed to be cash to the extent that the aggregate fair market value (as conclusively determined by resolution of the Board of Directors set forth in any Officers' Certif- 49 57 icate delivered to the Trustee) of all Non-Cash Consideration (measured at the time received and without giving effect to any subsequent changes in value) received by Beverly or any of its Subsidiaries since the date hereof in all Non- Qualified Asset Sales does not exceed 6% of Beverly's Stockholders' Equity as of the date of such consummation. Notwithstanding the foregoing, to the extent the Company or any of its Subsidiaries receives Non-Cash Consideration as proceeds of an Asset Sale, such Non-Cash Consideration shall be deemed to be Net Proceeds for purposes of (and shall be applied in accordance with) the following provisions when the Company or such Subsidiary receives cash or Cash Equivalents from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such Non-Cash Consideration. The provisions of clauses (i) and (ii) of the immediately preceding paragraph shall not apply to the Spinoff Transaction if, after giving pro forma effect to such transaction, including the application by the Company of the net proceeds, if any, of any such transaction, as if it had occurred at the beginning of the Reference Period immediately preceding the date on which such transaction occurs, (i) the Company would have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 of this Indenture, (ii) the Company's Fixed Charge Coverage Ratio would not be reduced by % or more from the Company's actual Fixed Charge Coverage Ratio for such Reference Period, (iii) the Company's Debt to Consolidated Cash Flow Ratio as of the date such transaction occurs would not be increased by % or more from the Company's actual Debt to Consolidated Cash Flow Ratio as of such date and (iv) no Default or Event of Default would exist. If the Spinoff Transaction (including the Company's proposed application of the net proceeds thereof, if any) satisfies the requirements of the immediately preceding sentence, the Company shall be entitled to (i) distribute all or a portion of the capital stock of PCA to the stockholders of the Company and (ii) use up to $ million of the Net Proceeds of such transaction to make Restricted Payments or for any other purpose not prohibited by the Indenture; provided that (x) any Net Proceeds in excess of $ million shall be applied in accordance with the following provisions and (y) all Non-Cash Con- 50 58 sideration received by the Company or any Subsidiary of the Company as a result of or in connection with the Spinoff Transaction will be deemed to be Net Proceeds for purposes of (and shall be applied in accordance with) the following provisions when the Company or such Subsidiary receives cash or Cash Equivalents from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such Non-Cash Consideration. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company or such Subsidiary may apply such Net Proceeds (i) to purchase one or more Nursing Facilities or Related Businesses and/or a controlling interest in the Capital Stock of a Person owning one or more Nursing Facilities and/or one or more Related Businesses, (ii) to make a capital expenditure or to acquire other tangible assets, in each case, that are used or useful in any business in which the Company is permitted to be engaged pursuant to Section 4.15 hereof, (iii) to perma- nently reduce Indebtedness (other than subordinated Indebtedness) of the company or its Subsidiaries, or (iv) to permanently reduce Senior Revolving Debt (and to correspondingly reduce commitments with respect thereto, except that up to an aggregate of $20.0 million of Net Proceeds from Asset Sales may be applied after the date hereof to reduce Senior Revolving Debt without a corresponding reduction in commitments with respect thereto). Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Revolving Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the terms hereof. Any Net Proceeds from Asset Sales that are not so invested or applied shall be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall make an offer to all Holders of Securities and holders of any other Indebtedness of the Company ranking on a parity with the Securities from time to time outstanding with similar provisions requiring the Company to make an offer to purchase or to redeem such Indebtedness with proceeds from any asset sales, pro rata in proportion to the respective principal amounts of the Securities and such other Indebtedness then outstanding (a "Senior Asset Sale Offer") to purchase the maximum principal amount of Securities and such other Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in 51 59 cash equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Purchase Price"), in accordance with the procedures set forth in Section 2.15 hereof. To the extent that the aggregate amount of Securities and such other Indebtedness tendered pursuant to a Senior Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes not prohibited at the time by the provisions of this Indenture. If the aggregate principal amount of Securities and such other Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Securities and such other Indebtedness shall be purchased on a pro rata basis. Upon completion of a Senior Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. SECTION 4.11. Limitations on Transactions With Affiliates. The Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of their properties or assets to, or purchase any property or assets from, or enter into or make any contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction") unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that could have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction was approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction involving all aggregate consideration in excess of $10.0 million, an opinion as to the fairness of such Affiliate Transaction to the Company or such Subsidiary from a financial point of view issued by an investment banking firm of national standing; provided that (x) transactions or payments pursuant to any employment arrangements, director or office indemnification agreements or employee or director 52 60 benefit plans entered into by the Company or any of its Subsidiaries in the ordinary course of business of the Company or such Subsidiary, (y) transactions between or among the Company and/or its Subsidiaries and (z) Restricted Payments permitted under Section 4.7 hereof, in each case, shall not be deemed to be Affiliate Transactions. SECTION 4.12. Limitations on Liens. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien (except Permitted Liens) on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom unless all payments due hereunder and under the Securities are secured on an equal and ratable basis with the Obligations so secured until such time as such Obligations are no longer secured by a Lien. SECTION 4.13. Change of Control. Upon the occurrence of a Change of Control Triggering Event, each Holder of Securities shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Securities pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment") on a date that is not more than 90 days after the occurrence of such Change of Control Triggering Event (the "Change of Control Payment Date"). Within 30 days following any Change of Control Triggering Event, the Company shall mail, or at the Company's request, the Trustee shall mail, a notice of a Change of Control to each Holder (at its last registered address with a copy to the Trustee and the Paying Agent) offering to repurchase the Securities held by such Holder pursuant to the procedures specified in such notice. The Change of Control Offer shall remain open from the time of mailing until the close of business on the Business Day next preceding the Change of Control Payment Date. The notice, which shall govern the terms of the Change of 53 61 Control Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Change of Control Offer and shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.13 and that all Securi- ties tendered will be accepted for payment; (2) the Change of Control Payment and the Change of Control Payment Date, which date shall be no ear- lier than 30 days nor later than 60 days from the date such notice is mailed; (3) that any Security not tendered will continue to accrue interest in accordance with the terms of this Indenture; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Securities accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to any Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day next preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the Business Day next preceding the Change of Control Payment Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for pur- 54 62 chase, and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof; and (8) the circumstances and relevant facts regarding such Change of Control (including, but not limited to, information with respect to pro forma historical financial information after giving effect to such Change of Control, information regarding the Person or Persons acquiring control and such Person's or Persons' business plans going forward) and any other information that would be material to a decision as to whether to tender a Security pursuant to the Change of Control Offer. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Securities or portions thereof properly tendered and not withdrawn pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers' Certificate stating the aggregate principal amount of Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Securities so tendered the Change of Control Payment for such Securities, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Security equal in principal amount to any unpurchased portion of the Securities surrendered, if any; provided that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. 55 63 The Company shall comply with the requirements of 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 connection with the repurchase of Securities as a result of a Change of Control Triggering Event. SECTION 4.14. Corporate Existence. Subject to Section 4.13 and Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of each Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. SECTION 4.15. Line of Business. The Company shall not, and shall not permit any of its Subsidiaries to, engage to any material extent in any business other than the ownership, operation and management of Nursing Facilities and Related Businesses. ARTICLE 5 SUCCESSORS SECTION 5.1. Limitations on Mergers, Consolidations or Sales of Assets. The Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its 56 64 properties or assets in one or more related transactions, to another corporation, Person or entity unless: (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the Obligations of the Company under this Indenture and the Securities pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, at the time of such transaction had occurred at the beginning of the Reference Period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof. 57 65 The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i) through (iv) above, stating that the proposed transaction and such supplemental indenture comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. SECTION 5.2. Successor Corporation Substituted. Upon any consolidation or merger or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation), and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person has been named as the Company, herein. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.1. Events of Default. Each of the following constitutes an "Event of Default": (i) default for 30 days in the payment when due of interest on the Securities; (ii) default in payment when due of the principal of, or premium, if any, on the Securities, at maturity or otherwise; 58 66 (iii) failure by the Company or any Guarantor to comply with the provisions of Sections 4.10 or 4.13 hereof; (iv) failure by the Company or any Guarantor for 30 days after notice to comply with the provisions of Sections 4.7 or 4.9 hereof; (v) failure by the Company or any Guarantor for 60 days after notice to comply with any or its agreements in the Indenture or the Securities; (vi) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is guaranteed by the Company or any of its Significant Subsidiaries), whether such Indebtedness or guarantee exists on the date hereof or is created after the date hereof, which default (a) constitutes a Payment Default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or that has been so accelerated, aggregates $20.0 million or more; (vii) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $20.0 million, which judgments are not paid, discharged or staged for a period of 60 days. (viii) if any Guarantee shall cease, for any reason not permitted by this Indenture, to be in full force and effect or any 59 67 Guarantor, or any person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Guarantee; (ix) the Company or any Significant Subsidiary thereof pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case in which it is the debtor, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, or (e) admits in writing its inability generally to pay its debts as the same become due; and (x) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary thereof in an in- voluntary case in which it is the debtor, (b) appoints a Custodian of the Company or any Significant Subsidiary thereof or for all or substantially all of the property of the Company or any Significant Subsidiary thereof, or (c) orders the liquidation of the Company or any Significant Subsidiary thereof, and the order or decree 60 68 remains unstayed and in effect for 60 days. The term "Bankruptcy Law" means title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (iv) or (v) is not an Event of Default until the Trustee notifies the Company in writing, or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities notify the Company and the Trustee in writing, of the Default and the Company does not cure the Default within 30 days, with respect to a Default under clause (iv), or 60 days, with respect to a Default under clause (v), after receipt of such notice. The written notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." SECTION 6.2. Acceleration. If any Event of Default occurs (other than an Event of Default with respect to the Company specified in clause (ix) or (x) of Section 6.1 hereof) and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare the unpaid principal of, premium, if any, and accrued and unpaid interest on all the Securities to be due and payable immediately. Upon such declaration the principal, premium, if any, and interest shall be due and payable immediately. If an Event of Default specified in clause (ix) or (x) of Section 6.1 hereof occurs with respect to the Company such an amount shall ipso facto become and be immediately due and payable without further action or notice on the part of the Trustee or any Holder. If an Event of Default occurs under this Indenture prior to the maturity of the Securities by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of such Securities prior to the date of maturity, then a premium with respect thereto (expressed as a percentage of the amount 61 69 that would otherwise be due but for the provisions of this sentence) shall become and be immediately due and payable to the extent permitted by law upon the acceleration of such Securities if such Event of Default occurs during the twelve- month period beginning on _______ __ of the years set forth below:
Year Percentage ---- ---------- 1995 . . . . . . . . . . . . . . . . . . . . . . % 1996 . . . . . . . . . . . . . . . . . . . . . . % 1997 . . . . . . . . . . . . . . . . . . . . . . % 1998 . . . . . . . . . . . . . . . . . . . . . . % 1999 . . . . . . . . . . . . . . . . . . . . . . % 2000 . . . . . . . . . . . . . . . . . . . . . . % 2001 . . . . . . . . . . . . . . . . . . . . . . % 2002 . . . . . . . . . . . . . . . . . . . . . . %
Any determination regarding the primary purpose of any such action or inaction, as the case may be, shall be made by and set forth in a resolution of the Board of Directors (including the concurrence of a majority of the independent directors of the Company then serving) delivered to the Trustee after consideration of the business reasons for such action or inaction, other than the avoidance of payment of such premium or prohibition on redemption. In the absence of fraud, each such determination shall be final and binding upon the Holders of Securities. Subject to Section 7.1 hereof, the Trustee shall be entitled to rely on the determination set forth in any such resolutions delivered to the Trustee. SECTION 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or 62 70 acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.4. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may, on behalf of the Holders of all of the Securities, waive any existing Default or Event of Default and its consequences under this Indenture except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on any Security. 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 impair any right consequent thereon. SECTION 6.5. Control by Majority. Holders of the Securities may not enforce this Indenture or the Securities except as provided in this Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities 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 it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders or that may involve the Trustee in personal liability. The Trustee may take any other action which it deems proper which is not inconsistent with any such direction. SECTION 6.6. Limitation on Suits. A Holder may pursue a remedy with respect to this Indenture or the Securities only if: (i) the Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in principal amount of the then outstanding Securi- 63 71 ties make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (v) during such 60-day period the Holders of a majority in principal amount of the then out- standing Securities do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 6.7. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal, premium, if any, and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 6.8. Collection Suit by Trustee. If an Event of Default specified in Section 6.1(i) or (ii) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any other obligor for the whole amount of principal, premium, if any, and interest remaining unpaid on the Securities and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover amounts due the Trustee under Section 7.7 hereof, including the costs and expenses of 64 72 collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.9. Trustee May File Proofs of Claim. The Trustee is authorized to 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 the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian 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 7.7 hereof. To the extent at the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of any and all distributions, dividends, money, securities and other properties which the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize 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 Securities 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. 65 73 SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.7, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Securities for principal, premium, if an , and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10 upon five Business Days prior notice to the Company. 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 by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, 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 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Securities. 66 74 ARTICLE 7 TRUSTEE SECTION 7.1. Duties of Trustee. (i) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (ii) Except during the continuance of an Event of Default known to the Trustee: (a) the duties of the Trustee shall be determined solely by the express provisions of this Indenture or the TIA and the Trustee need perform only those duties that are specifically set forth in this Indenture or the TIA and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee, and (b) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of an such certificates or opinions which by any provisions hereof are required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (iii) The Trustee may not be relieved from liabilities for its own negligent ac- 67 75 tion, its own negligent failure to act, or its own willful misconduct, except that: (a) this paragraph does not limit the effect of paragraph (ii) of this Section; (b) the Trustee shall not be liable for any (error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascer- taining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith accordance with a direction received by it pursuant to Section 6.5 hereof. (iv) Whether or not therein expressly so provided every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (i), (ii), and (iii) of this Section. (v) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives security and indemnity satisfactory to it against any loss, liability or expense. (vi) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Absent written instruction from the Company, the Trustee shall not be required to invest any such money. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. 68 76 (vii) The Trustee shall not be deemed to have knowledge of any matter unless such matter is actually known to a Responsible Officer. SECTION 7.2. Rights of Trustee. (i) The Trustee may conclusively rely upon any 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 the document. (ii) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (iii) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (iv) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. A permissive right granted to the Trustee hereunder shall not be deemed an obligation to act. (v) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company 69 77 shall be sufficient if signed by an Officer of the Company. SECTION 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11 hereof. SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, nor shall it be accountable for the Company's use of the proceeds from the Securities or any money paid to the Company or upon the Company's direction under any provision of this Indenture, nor shall it be responsible for the use or application of any money received by any Paying Agent other than the Trustee, nor shall it be responsible for any statement or recital herein or any statement in the Securities or any other document in connection with the sale of the Securities or pursuant to this Indenture other than its certificate of authentication. SECTION 7.5. Notice of Defaults. The Company is required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment on any Security, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders. 70 78 SECTION 7.6. Reports by Trustee to Holders. Within 60 days after each December 31 beginning with the December 31 following the date hereof, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313( a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders shall be mailed to the Company and filed with the Commission and each stock exchange on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.7. Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the Company and Trustee shall agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities, damages, claims or expenses incurred by it arising out of or in connection with the acceptance of its duties and the administration of the trusts under this Indenture, except as set forth below. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of 71 79 such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. In addition, the Trustee will not be under any obligation to exercise any of its rights or powers under this Indenture at the request of any Holder of Securities, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. The obligations of the Company under this Section 7.7 shall survive the satisfaction and discharge of this Indenture. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or bad faith. To secure the Company's patent obligations in this Section, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(ix) or (x) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.8. 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. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: 72 80 (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company 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 then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in 73 81 Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.9. Successor Trustee or Agent by Merger, etc. If the Trustee or any Agent consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee or Agent. SECTION 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state thereof authorized under such laws to exercise corporate trustee power, shall be subject to supervision or examination by federal or state authority and shall have a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. 74 82 ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.1. Defeasance and Discharge of This Indenture and the Securities. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, with respect to the Securities, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article 8. SECTION 8.2. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Company and the Guarantors shall be deemed to have been discharged from their respective obligations with respect to all outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) of this Section 8.2, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.4, 2.6, 2.7, 2.10 and 4.2 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 7.7 hereof, and the Company's obligations in connection therewith and (iv) this Article 8. Upon Legal Defeasance as provided here- 75 83 in, the Guarantee of each Guarantor shall be fully released and discharged and the Trustee shall promptly execute and deliver to the Company any documents reasonably requested by the Company to evidence or effect the foregoing. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof with respect to the Securities. SECTION 8.3. Covenant Defeasance. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Company and the Guarantor's shall be released from their respective obligations under the covenants contained in Sections 2.15, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13 and 4.15 and Article 5 hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, such Covenant Defeasance means that, with respect to the outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of a reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Sections 6.1(iii) and 6.1(iv) hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, Sections 6.1(v) through 6.1(viii) hereof shall not constitute Events of Default. 76 84 SECTION 8.4. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.2 or Section 8.3 hereof to the outstanding Securities: (i) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 who shall agree to comply with the provisions of this Article 8 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (a) cash in an amount, or (b) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, cash in an amount, or (c) a combination thereof, in such amounts as will be 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 and which shall be applied by the Paying Agent (or other qualifying trustee) to pay and discharge the principal of, premium, if any, and interest on such outstanding Securities on the Maturity Date or on the applicable Redemption Date, as the case may be, of such principal or installment of principal, premium, if any, or interest on the Securities, and the holders of the Securities must have a valid, perfected, exclusive security interest in such trust; provided that the Paying Agent shall have been irrevocably instructed to apply such cash and the proceeds of such U.S. Government Obligations to said payments 77 85 with respect to the Securities. The Paying Agent shall promptly advise the Trustee in writing of any cash or Securities deposited pursuant to this Section 8.4. (ii) In the case of an election under Section 8.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date hereof, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred. (iii) In the case of an election under Section 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred. (iv) No Default or Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the 78 86 borrowing of funds to be applied to such deposit) or, insofar as Section 6.1(ix) or 6.1(x) hereof is concerned, at any time in the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period, but in the case of Covenant Defeasance, the covenants which are defeased under Section 8.3 hereof will cease to be in effect unless an Event of Default under Section 6.1(ix) or Section 6.1(x) hereof occurs during such period). (v) Such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Inden- ture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound (other than a breach, violation or default resulting from the borrowing of funds to be applied to such deposit). (vi) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. (vii) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit made by the Company pursuant to its election under Section 8.2 or 8.3 hereof was not made by the Company with the intent of preferring the Holders of the Securities over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others. 79 87 (viii) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel in the United States, each stating that all conditions precedent provided for relating to either the Legal Defeasance under Section 8.2 hereof or the Covenant Defeasance under Section 8.3 hereof (as the case may be) have been complied with as contemplated by this Section 8.4. SECTION 8.5. Deposited Cash and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.6 hereof, all cash and U.S. Government Obligations (including the proceeds thereof) deposited with the Paying Agent (or other qualifying trustee, collectively for purposes of this Section 8.5, the "Paying Agent") pursuant to Section 8.4 hereof in respect of the outstanding Securities shall be held in trust and applied by the Paying Agent, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Obligations deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article 8 to the contrary notwithstanding, the Trustee or the Paying Agent, as applicable shall deliver or pay to the Company from time to time upon the Company's request any cash or U.S. Government Obligations held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a 80 88 written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(i) hereof), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.6. Repayment to Company. Any cash and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its written request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.7. Reinstatement. If the Trustee or Paying Agent is unable to apply any cash or U.S. Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and the Guarantors' obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; provided, however, that, if the Company makes any payment of prin- 81 89 cipal of, premium, if any, or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Security to receive such payment from the cash and U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.1. Without Consent of Holders. The Company and the Trustee may amend or supplement this Indenture or the Securities without the consent of any Holder: (i) to cure any ambiguity, defect or inconsistency; (ii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iii) to provide for the assumption of the Company's obligations to the Holders of the Securities in the case of a merger, consolidation or sale of assets pursuant to Article 5 hereof; (iv) to provide for the assumption of any Guarantor's obligations to the Holders of the Securities in the case of a merger consultation or sale of assets pursuant to Section 10.04 hereof; (v) to provide for additional Guarantors of the Securities; (vi) to evidence the release of any Guarantor in accordance with Article 10 hereof; (vii) to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights hereunder of any such Holder; 82 90 (viii) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; (ix) in any other case where a supplemental indenture is required or permitted to be entered into pursuant to the provisions of Article 10 hereof without the consent of any Holder; or (x) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into such supplemental indenture which affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.2. With Consent of Holders. Except as otherwise provided herein, this Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Securities), and any existing default or compliance with any provision of this Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for such Securities). Upon the request of the Company, accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon 83 91 the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of an such supplemental indenture or waiver. Subject to Sections 6.4 and 6.7 thereof the Holders of a majority in aggregate principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities. Without the consent of each Holder affected, however, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Security; (iii) reduce the rate of or change the time for payment of interest on any Security; (iv) waive a Default or Event of Default in the payment of principal of, or premium, if any, or interest, on the Securities (except a rescission of acceleration of the Securities by the Holders of at 84 92 least a majority an aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration); (v) make any Security payable in money other than that stated in the Securities; (vi) make any change in Section 6.4 or 6.7 hereof; (vii) make any change in this sentence of this Section 9.2; or (viii) except for the termination or release of any Guarantee pursuant to the terms of this Indentures, the release of the Guarantor from its obligations under its Guarantee, or any change in a Guarantee that would adversely affect the Holders. SECTION 9.3. Compliance With TIA. Every amendment to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 9.4. Revocation and Effect of Consents. 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 Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security if the Trustee receives written notice of revocation before the date the waiver or amendment becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for determining which Holders must consent to such amendment or waiver. If the Company fixes a record date, the record date shall be fixed at 85 93 (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.5 hereof or (ii) such other date as the Company shall designate. SECTION 9.5. Notation on or Exchange of Securities. The Trustee may place an appropriate notation about an amendment or waiver on any Security thereafter authenticated. The Company in exchange for all Securities may issue and the Trustee shall authenticate new Securities that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment or waiver. SECTION 9.6. Trustee to Sign Amendments, etc. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 7.1, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or Supplemental Indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it shall be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. ARTICLE 10 GUARANTEE SECTION 10.1. Guarantee. In consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of the Guarantors hereby irrevocably and 86 94 unconditionally guarantees (the "Guarantee"), jointly and severally, on a senior basis, to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Securities or the obligations of the Company under this Indenture or the Securities, that: (i) the principal and premium (if any) of and interest on the Securities will be paid in full when due, whether at the Maturity Date or Interest Payment Date, by acceleration, call for redemption or otherwise, (ii) the purchase price for all Securities properly and timely tendered for acceptance in response to a Change of Control Offer or a Senior Asset Sale Offer will be timely, or otherwise in accordance with the provisions of this Indenture, paid in full; (iii) all other obligations of the Company to the Holders or the Trustee under this Indenture or the Securities will be promptly paid in full or performed, all in accordance with the terms of this Indenture and the Securities; and (iv) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, they will be paid in full when due or performed in accordance with the terms of the extension or renewal, whether at the Maturity Date, as so extended, by acceleration, call for redemption, upon a Change of Control Offer, upon a Senior Asset Sale Offer or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, each Guarantor shall be jointly and severally obligated to pay the same before failure so to pay becomes an Event of Default. If the Company or a Guarantor defaults in the payment of the principal of, premium, if any, or interest on, the Securi- ties when and as the same shall become due, whether upon maturity, acceleration, call for redemption, upon a Change of Control Offer, Asset Sale Offer or otherwise, without the necessity of action by the Trustee or any Holder, each Guarantor shall be required, jointly and severally, to promptly make such payment in full. Each Guarantor hereby agrees that its obligations with regard to this Guarantee shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any delays in obtaining or realizing upon or failures to obtain or realize upon collateral, the recovery of any judgment against the Company, any action to enforce the same or any other 87 95 circumstances that might otherwise constitute a legal or equitable discharge or defense of a Guarantor (except as provided in Sections 10.4 and 10.5). Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company or right to require the prior disposition of the assets of the Company to meet its obligations, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged (except to the extent released pursuant to Sections 10.4 or 10.5) except by complete performance of the obligations contained in the Securities and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to either the Company or any Guarantor, or any Custodian, trustee, or similar official acting in relation to either the Company or such Guarantor, any amount paid by either the Company or such Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect (except to the extent released pursuant to Sections 10.4 or 10.5). Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration as to the Company of the obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of those obligations as provided in Article 6, those obligations (whether or not due and payable) will forthwith become due and payable by each of the Guarantors for the purpose of this Guarantee. Each Guarantor and by its acceptance of a Security issued hereunder each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor set forth in the first paragraph of this Section 10.1 not constitute a fraudulent transfer or conveyance for purpose of any Bankruptcy Law, the Uniform 88 96 Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under its Guarantee set forth in the first paragraph of this Section 10.1 shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to the following paragraph of this Section 10.1, result in the obligations of such Guarantor under such Guarantee not constituting such a fraudulent transfer or conveyance. Each Guarantor that makes any payment or distribution under the first paragraph of this Section 10.1 shall be entitled to a contribution from each other Guarantor equal to its Pro Rata Portion of such payment or distribution. For purposes of the foregoing, the "Pro Rata Portion" of any Guarantor means the percentage of the net assets of all Guarantors held by such Guarantor, determined in accordance with GAAP. It is the intention of each Guarantor and the Company that the obligations of each Guarantor hereunder shall be joint and several and in, but not in excess of, the maximum amount permitted by applicable law. Accordingly, if the obligations in respect of the Guarantee would be annulled, avoided or subordinated to the creditors of any Guarantor by a court of competent jurisdiction in a proceeding actually pending before such court as a result of a determination both that such Guarantee was made without fair consideration and, immediately after giving effect thereto, such Guarantor was insolvent or unable to pay its debts as they mature or left with an unreasonably small capital, then the obligations of such Guarantor under such Guarantee shall be reduced by such court if and to the extent such reduction would result in the avoidance of such annulment, avoidance or subordination; provided, however, that any reduction pursuant to this paragraph shall be made in the smallest amount as is strictly necessary to reach such result. For purposes of this paragraph, "fair consideration," "insolvency," "unable to pay its debts as they mature," "unreasonably small capital" and the effective times of reductions, if 89 97 any, required by this paragraph shall be determined in accordance with applicable law. SECTION 10.2. Execution and Delivery of Guarantee. Each Guarantor shall, by virtue of such Guarantor's execution and delivery of this Indenture or such Guarantor's execution and delivery of an indenture supplement pursuant to Section 10.3 hereof, be deemed to have signed on each Security issued hereunder the notation of guarantee set forth on the form of the Securities attached hereto as Exhibit A to the same extent as if the signature of such Guarantor appeared on such Security. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the guarantee set forth in Section 10.1 on behalf of each Guarantor. The notation of a guaranty set forth on any Security shall be null and void and of no further effect with respect to the guaranty of any Guarantor which, pursuant to Section 10.4 or Section 10.5, is released from such Guarantee. SECTION 10.3. Future Subsidiary Guarantors. Upon (i) the acquisition by the Company or Guarantor of the Capital Stock of any Person, if, as a result of such acquisition, such Person becomes a Subsidiary or (ii) the last day of any fiscal quarter during which any Subsidiary of the Company that is not a Guarantor as of such date and has not previously been released as a Guarantor pursuant to Section 10.4 or Section 10.5 of this Indenture becomes a Subsidiary, such Subsidiary (hereinafter any such Subsidiary, except any Excluded Guarantee Subsidiary (as defined below), being called a "Future Subsidiary Guarantor") shall unconditionally guarantee the obligations of the Company with respect to payment and performance of the Securities and the other obligations of the Company under this Indenture to the same extent that such obligations are guaranteed by the other Guarantors pursuant to Section 10.1; and, within 60 days of the date of such occurrence, such Future Subsidiary Guarantor shall execute and deliver to the Trustee a supplemental indenture making such Future Subsidiary Guarantor a party to this Indenture; provided, however, that the foregoing provisions shall not apply to (A) any 90 98 Subsidiary referenced in clause (i) or clause (ii) above that is prohibited by law or by the terms of any agreement from making the guarantee set forth in Section 10.1 (an "Excluded Guarantee Subsidiary") (provided that such Subsidiary will become a Future Subsidiary Guarantor as of the date such prohibition is removed or lapses), or (B) a Subsidiary which would have been released from its guarantee, by virtue of events set forth in Section 10.5, had such Subsidiary been a Guarantor at the time such events occurred, or (C) a Subsidiary of any Person which has been released as a Guarantor pursuant to Section 10.5. SECTION 10.4. Guarantor May Consolidate, etc., on Certain Terms. Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Guarantor with or into the Company or any other Guarantor. Upon any such consolidation or merger, the Guarantees (as set forth in Section 10.1) of the Guarantor which is not the survivor of the merger or consolidation, and of any Subsidiary of such Guarantor that is also a Guarantor, shall be released and shall no longer have any force or effect. Nothing contained in this Indenture shall prevent any sale or conveyance of assets of any Guarantor (whether or not constituting all or substantially all of the assets of such Guarantor) to any Person, provided that the Company shall comply with the provisions of Sections 2.15 and 4.10 hereof, and provided further that, in the event that all or substantially all of the assets of a Guarantor are sold or conveyed, the Guarantees of such Guarantor (as set forth in Section 10.1) shall be released and shall no longer have any force or effect. Except as provided in the first paragraph of Section 10.4 or Section 10.5, each Guarantor shall not, directly or indirectly, consolidate with or merge with or into another Person, unless (i) either (a) the Guarantor is the continuing entity or (b) the resulting or surviving entity is corporation organized under the laws of the United States, any state thereof or the District of Columbia and expressly assumes by supplemental indenture all of the obligations of the Guarantor in connection with the Securities and this Indenture; (ii) no Default 91 99 or Event of Default would occur as a consequence of (after giving effect, on a pro forma basis, to) such transaction; and (iii) the Guarantor has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation or merger and if a supplemental indenture is required, such supplemental indenture comply with this Indenture and that all conditions precedent herein relating to such transaction have been satisfied. Upon any consolidation or merger of the Guarantor in accordance with Section 10.4 hereof, the successor corporation formed by such consolidation or into which the Guarantor is merged shall succeed to, and be substituted for, and may exercise every right and power of, the Guarantor under this Indenture with the same effect as if such successor corporation had been named herein as the Guarantor, and when a successor corporation duly assumes all of the obligations of the Guarantor pursuant hereto and pursuant to the Securities, the Guarantor shall be released from such obligations. SECTION 10.5. Release of Guarantors. Without any further notice or action being required by any Person, any Guarantor, and each Subsidiary of such Guarantor that is also a Guarantor, shall be fully and conditionally released and discharged from all obligations under its Guarantee and this Indenture upon the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Guarantor (or all of its assets), to an entity which is not a Subsidiary of the Company, which transaction is otherwise in compliance with this Indenture, such Guarantor shall be deemed released from its obligations under its Guarantee of the Securities; provided, however, that any such termination shall occur only to the extent that all obligations of such Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure any Indebtedness of the Company shall also terminate upon such release, sale or transfer. Notwithstanding the foregoing, if upon consummation of the Spinoff Transaction, PCA ceases to satisfy the conditions necessary to be a subsidiary of the company under the definition of "Subsidiary," PCA shall be deemed released from its Guarantee of the Securities. 92 100 The releases and discharges set forth in the first paragraph of this Section 10.5 shall be effective on the date of consummation thereof. At the written request of the Company, the Trustee shall promptly execute and deliver appropriate instruments in forms reasonably acceptable to the Company evidencing and further implementing any releases and discharges pursuant to the foregoing provisions. If the Company desires the instruments evidencing or implementing any releases or discharges to be executed prior to the effectiveness of such releases and discharges as set forth above, such instruments may be made conditional upon the occurrence of the events necessary to cause the effectiveness of such releases and discharges, as specified in the first sentence of this Section 10.5. Notwithstanding the foregoing provisions of this Article 10, (i) any Guarantor whose Guarantee would otherwise be released pursuant to the provisions of this Section 10.5 may elect, by written notice to the Trustee, to maintain such Guarantee in effect notwithstanding the event or events that otherwise would cause the release of such Guarantee (which election to maintain such Guarantee in effect may be conditional or for a limited period of time), and (ii) any Subsidiary of the Company which is not a Guarantor may elect, by written notice to the Trustee, to become a Guarantor (which election may be conditional or for a limited period of time). SECTION 10.6. Certain Bankruptcy Events. Each Guarantor hereby covenants and agrees, to the fullest extent that it may do so under applicable law, that in the event of the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company, such Guarantor shall not file (or join in any filing of), or otherwise seek to participate in the filing of, any motion or request seeking to stay or to prohibit (even temporarily) execution on the Guarantee and hereby waives and agrees not to take the benefit of any such stay of execution, whether under the Bankruptcy Law or otherwise. 93 101 ARTICLE 11 MISCELLANEOUS SECTION 11.1. TIA Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 11.2. Notices. Any notice or communication to the Company or any Guarantor or the Trustee is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, addressed as follows: If to the Company or to any Guarantor: Beverly Enterprises, Inc. 5111 Rogers Avenue Suite 40-A Fort Smith, Arkansas 72919-1000 Telecopier Number: (501) [ - ] Attention: [Schuyler Hollingsworth, Jr.] With a copy to: Latham & Watkins 633 West Fifth Street Suite 4000 Los Angeles, California 90071 Telecopier No.: (213) 891-8763 Attention: Gary Olson If to the Trustee: Chemical Bank Corporate Agency Department 450 West 33rd Street New York, New York 10001 Telecopier No.: (212) [ - ] Attention: 94 102 The Company or the Trustee, by notice to the others 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. Unless otherwise set forth above, any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day, delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 11.3. Communication by Holders With Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 11.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: 95 103 (1) an Officers' Certificate (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 11.5. 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 include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of 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 satisfied; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been satisfied; provided, however, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. 96 104 SECTION 11.6. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 11.7. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.8. No Personal Liability of Directors, Officers, Employees and Shareholders. No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. SECTION 11.9. Duplicate Originals. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. SECTION 11.10. Governing Law. The internal law of the State of New York, shall govern and be used to construe this Indenture and the Securities, without regard to the conflict of laws provisions thereof. 97 105 SECTION 11.11. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.12. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.13. Severability. In case any provision in this Indenture or in the Securities 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, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 11.14. Counterpart 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 11.15. 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 of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. 98 106 SIGNATURES Dated as of __________________ BEVERLY ENTERPRISES, INC. By: ______________________________ Name: Title: Attest: ______________________________ (SEAL) Dated as of __________________ CHEMICAL BANK, as Trustee By: ______________________________ Name: Title: Attest: ______________________________ (SEAL) 99 107 [SIGNATURES OF THE GUARANTORS] 100 108 EXHIBIT A (Face of Security) ____ % Senior Note Due __________ ___, 2005 CUSIP: No. $___________ BEVERLY ENTERPRISES, INC. promises to pay to ________________ ______________ or its registered assigns, the principal sum of _____________ Dollars on _________ ___, 2005. Interest Payment Dates: ________ ___ and ________ ___, commencing ___________ ___, 1996 Record Dates: ___________ ___ and ___________ ___ (whether or not a Business Day). BEVERLY ENTERPRISES, INC. By:_____________________________ Dated: _____________, ____ (SEAL) Trustee's Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Indenture: CHEMICAL BANK, as Trustee By:_____________________________ Authorized Signatory A-1 109 (Back of Security) ____% SENIOR NOTE Due __________ ___, 2005 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. Interest. Beverly Enterprises, Inc., a Delaware corporation (the "Company"), promises to pay interest on the Principal amount of this Security at the rate and in the manner specified below. The Company shall pay interest in cash on the principal amount of this Security at the rate per annum of ______%. The Company shall pay interest semi-annually in arrears on _________ ___ and ________ ___ of each year, commencing ___________ ___, _____ to Holders of record on the immediately preceding __________ ___ and __________ ___, respectively, or if any such date of payment is not a Business Day on the next succeeding Business Day (each an "Interest Payment Date"). Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Securities. To the extent lawful, the Company shall pay interest on overdue principal at the rate of 1% per annum in excess of the interest rate then applicable to the Securities; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are cancelled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Security to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. A-2 110 Principal, premium, if any, and interest shall be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holder's registered address. Notwithstanding the foregoing, all payments with respect to Securities, the Holders of which have given wire transfer instructions to the Paying Agent on or before the relevant record date, shall be made by wire transfer of immediately available funds to the accounts specified by such Holders. 3. Paying Agent and Registrar. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company and any of its Subsidiaries may act in any such capacity. 4. Indenture. The Company issued the Securities under an Indenture, dated as of ________ __, 1995 (the "Indenture"), by and among the Company, the Guarantors named therein and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Securities. The Securities are unsecured senior obligations of the Company. The Securities are limited to $150,000,000 in aggregate principal amount. 5. Optional Redemption. The Securities may be redeemed, in whole or in part, at any time on or after ________ __, 2000, at the option of the Company, at the Redemption Price (expressed as a percentage of principal amount) set forth below with respect to the indicated Redemption Date, in each case (subject to the right of Holders of record on a Record Date that is on or prior to such Redemption Date to receive interest due on the Interest Payment Date to which such Record Date relates), plus any accrued but unpaid interest to the Redemption A-3 111 Date. The Securities may not be so redeemed prior to _________ __, 2000.
If redeemed during the 12-month period commencing Redemption Price ------------------- ---------------- 2000 % 2001 % 2002 % 2003 and % thereafter 100%
Any such redemption will comply with Article 3 of the Indenture. 6. Mandatory Redemption. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Sections 2.15, 4.10 and 4.13 of the Indenture (as described in paragraph 7 below), the Company shall have no mandatory redemption or sinking fund obligations with respect to the Securities. 7. Repurchase at Option of Holder. (i) If there is a Change of Control Triggering Event, the Company shall offer to repurchase on the Change of Control Payment Date all outstanding Securities at 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the Change of Control Payment Date. Holders that are subject to an offer to purchase shall receive a Change of Control Offer from the Company prior to any related Change of Control Payment Date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. (ii) If the Company or a Subsidiary consummates an Asset Sale, within 365 days after the receipt of any Net Proceeds from such Asset Sale, the Company may apply such Net Proceeds (a) to purchase one or more Nursing Facilities or Related Businesses and/or a controlling interest in the Capital Stock of a Person owning one or more Nursing Facilities and/or one or more Related Businesses, (b) to make a capital expenditure or to acquire other tangible assets, in each case, that are used or useful in any business in which the Company is A-4 112 permitted to be engaged pursuant to Section 4.15 of the Indenture, (c) to permanently reduce Indebtedness (other than Subordinated Indebtedness) of the Company or its Subsidiaries, or (d) to permanently reduce Senior Revolving Debt (and to correspondingly reduce commitments with respect thereto, except that up to an aggregate of $20.0 million of Net Proceeds from Asset Sales may be applied after the date of the Indenture to reduce Senior Revolving Debt without a corresponding reduction in commitments with respect thereto). Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Revolving Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from any Asset Sale that are not so invested or applied shall be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall make an offer to all Holders of Securities and holders of any other Indebtedness of the Company ranking on a parity with the Securities from time to time outstanding with similar provisions requiring the Company to make an offer to purchase or to redeem such Indebtedness with the proceeds from any asset sales, pro rata in proportion to the respective principal amounts of the Securities and such other Indebtedness then outstanding (a "Senior Asset Sale Offer") to purchase the maximum principal amount of Securities and such other Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the terms of the Indenture. To the extent that the aggregate amount of Securities and such other Indebtedness tendered pursuant to a Senior Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes not prohibited at the time under the Indenture. If the aggregate principal amount of Securities and such other Indebtedness surrendered by holders pursuant to a Senior Asset Sale Offer exceeds the amount of Excess Proceeds, the Securities and such other Indebtedness shall be purchased on a pro rata basis. Holders that are the subject of an offer to purchase shall receive a Senior Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. A-5 113 8. Denominations, Transfer, Exchange. The Securities are in registered form without coupons, and in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee 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 exchange or register the transfer of any Securities between a record date and the next succeeding Interest Payment Date. 9. Persons Deemed Owners. Prior to due presentment to the Trustee for registration of the transfer of this Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name this Security is registered as its absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Security and for all other purposes whatsoever, whether or not this Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Security shall be treated as its owner for all purposes. 10. Amendment, Supplement and Waivers. Except as provided in the next succeeding paragraphs, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for Securities) and any existing default or compliance with any provision of the Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for Securities). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder of Securities): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Security, (iii) reduce the rate of or change the time A-6 114 for payment of interest on any Security, (iv) waive a Default or Event of Default in the payment of principal of, or premium, if any, or interest on the Securities, (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration), (v) make an Security payable in money other than that stated in the Securities, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of, or premium, if any, or interest on the Securities, (vii) make any change in the foregoing amendment and waiver provisions or (viii) except for the termination or release or any Guarantee pursuant to the terms of the Indenture, the release of any Guarantor from its obligations under its Guarantee that would adversely affect the Holders. Notwithstanding the foregoing, without the consent of any Holder of Securities, the Company and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for additional Guarantors of the Securities or the release, in accordance with the Indenture, of any Guarantor, to provide for the assumption of the obligations of the Company or any Guarantor to Holders of the Securities in the case of a merger, consolidation or sale of assets, to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Securities and Exchange Commission (the "Commission") in order to effect or maintain the qualification of the Indenture under the TIA, to evidence and provide for the acceptance of the appointment of a successor Trustee with respect to the Securities, or in any other case, pursuant to the provisions of the Indenture, where a supplemental indenture is required or permitted to be entered into without the consent of any Holder of Senior Notes. 11. Defaults and Remedies. Events of Default under the Indenture include: (i) a default for 30 days in the payment when due of interest on the Securities; (ii) a default in payment when due of the principal of, or A-7 115 premium, if any, on the Securities, at maturity or otherwise; (iii) a failure by the Company or any Guarantor to comply with the provisions described under the covenants "Change of Control" or "Asset Sales"; (iv) a failure by the Company or any Guarantor for 30 days after notice to comply with the provisions under the covenants "Limitations on Restricted Payments," or "Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock"; (v) a failure by the Company or any Guarantor for 60 days after notice to comply with any of its other agreements in the Indenture or the Securities; (vi) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is guaranteed by the Company or any of its Significant Subsidiaries) whether such Indebtedness or guarantee exists on the date of the Indenture, or is created after the date of the Indenture, which default (a) constitutes a Payment Default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or that has been so accelerated, aggregates $20.0 million or more; (vii) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $20.0 million entered by a court or courts or competent jurisdiction against the Company or any of its Significant Subsidiaries if such final judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days after their entry; (viii) if any Guarantee shall cease, for any reason not permitted by the Indenture, to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare all the Securities to be due and payable immediately (plus, in the case of an Event of Default that is the result of willful actions (or inac- A-8 116 tions) by or on behalf of the Company intended to avoid prohibitions on redemptions of the Securities contained in the Indenture or the Securities, an amount of premium applicable pursuant to the Indenture). Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding Securities shall become due and payable without further action or notice. Holders of the Securities may not enforce the Indenture or the Securities except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Securities notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in such Holders' interest. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may, on behalf of the Holders of all of the Securities, waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Securities. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety, to the more complete Description thereof contained in the Indenture. 12. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, repurchase Equity Interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets of the Company A-9 117 or its Subsidiaries, issue or sell Equity Interests of the Company's Subsidiaries and enter into certain mergers and consolidations. 13. Notation of Guarantee. As set forth more fully in the Indenture, the Persons constituting Guarantors from time to time, in accordance with the provisions of the Indenture, unconditionally and jointly and severally guarantee, on a senior basis, in accordance with Section 10.1 of the Indenture, to the Holder and to the Trustee and its successors and assigns, that (i) the principal of, premium, if any, and interest on the Security will be paid in full when due, whether at the Maturity Date or Interest Payment Date, by acceleration, call for redemption or otherwise; (ii) the purchase price for all Securities properly and timely tendered for acceptance in response to a Change of Control Offer or a Senior Asset Sale Offer will be timely, or otherwise in accordance with the provisions of the Indenture, paid in full; (iii) all other obligations of the Company to the Holders or the Trustee under the Indenture of this Security will be promptly paid in full or performed, all in accordance with the terms of the Indenture and this Security; and (iv) in the case of any extension of time of payment or renewal of this Security or any of such other obligations, they will be paid in full when due or performed in accordance with the terms of such extension or renewal, whether at the Maturity Date, as so extended, by acceleration, call for redemption, upon a Change of Control Offer, upon a Senior Asset Sale Offer or otherwise. Such guarantees shall cease to apply, and shall be null and void, with respect to any Guarantor who, pursuant to Article 10 of the Indenture, is released from its Guarantees, or whose Guarantees otherwise cease to be applicable pursuant to the terms of the Indenture. 14. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 15. No Personal Liability of Directors, Officers, Employees and Stockholders. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the A-10 118 Company under the Securities, 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 Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 16. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. 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). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Beverly Enterprises, Inc. 5111 Rogers Avenue Suite 40-A Fort Smith, Arkansas 72919-1000 Attention: Schuyler Hollingsworth, Jr. A-11 119 ASSIGNMENT FORM To assign this Security, fill in the form below: For value received (I) or (we) hereby sell, assign and transfer this Security to ________________________________________________________________________________ (Insert assignee's Soc. Sec. or Tax I.D. No.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and do hereby irrevocably constitute and appoint ______________________________ Attorney to transfer this Security on the books of the Company with full power of substitution in the premises. ________________________________________________________________________________ Date:_____________________________ Your Signature:__________________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee* _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-12 120 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Security purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, check the appropriate box: [ ] Section 4.10 [ ] Section 4.13 (Asset Sale) (Change of Control) If you want to have only part of the Security purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the amount you elect to have purchased: $_________________________________ Date:_____________________________ Your Signature:_________________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee* _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-13 121 EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, among _______________ (the "Guarantor"), a subsidiary of Beverly Enterprises, Inc. (or its successor), a Delaware corporation (the "Company"), and [NAME OF TRUSTEE], as trustee under the indenture referred to below (the "Trustee"). W I T N E S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of _______ __, 1995, providing for the issuance of an aggregate principal amount of $150,000,000 of ______% Senior Notes due 2005 (the "Securities"); WHEREAS, Section 10.3 of the Indenture provides that under certain circumstances the Guarantor is required to execute and deliver to the Trustee a supplemental indenture pursuant to which the Guarantor shall guarantee the payment of the Securities pursuant to a Guarantee on the terms and conditions set forth therein and herein; and WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is 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 Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and B-1 122 to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the obligations of the Company hereunder and thereunder, that: (i) the principal of, premium, if any, and interest on the Securities will be promptly paid in full when due, whether at the Maturity Date or Interest Payment Date, by acceleration, call for redemption or otherwise; (ii) the purchase price for all Securities properly and timely tendered for acceptance in response to a Change of Control Offer or a Senior Asset Sale Offer will be timely, or otherwise in accordance with the provisions of the Indenture or hereof, paid in full; (iii) all other obligations of the Company to the Holders or the Trustee under the Indenture, the Securities or hereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (iv) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, they will be paid in full when due or performed in accordance with the terms of the extension or renewal, whether at the Maturity Date, as so extended, by acceleration, call for redemption, upon a Change of Control Offer, upon a Senior Asset Sale Offer or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, the Guarantor shall be obligated to pay before failure so to pay becomes an Event of Default. An Event of Default under the Indenture or the Securities shall constitute an event of default under this Guarantee, and shall entitle the Holders of Securities to accelerate the obligations of the Guarantor hereunder in the same manner and to the same extent as the obligations of the Company. The Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or the Indenture, the absence of any action to enforce the same, any delays in obtaining or realizing upon or failures to obtain or realize upon collateral, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor (except as provided in Sections 10.4 and 10.5 of the Indenture). The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company or right to require the prior disposition of B-2 123 the assets of the Company to meet its obligations, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged (except to the extent released pursuant to Sections 10.4 or 10.5 of the Indenture) except by complete performance of the obligations contained in the Securities and the Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantor, or any Custodian, trustee, or similar official acting in relation to either the Company or the Guarantor, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect (except to the extent released pursuant to Sections 10.4 or 10.5 of the Indenture). The Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of the obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. The Guarantor further agrees that, as between the Guarantor, on one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration as to the Company of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for the purpose of this Guarantee. 3. Execution and Delivery of Guarantee. To evidence its Guarantee set forth in Section 2, the Guarantor hereby agrees that a notation of such Guarantee substantially in the form of Exhibit A shall be endorsed by an officer of such Guarantor on each Security authenticated and delivered by the Trustee and that this Supplemental Indenture shall be executed on behalf of such Guarantor, by manual or facsimile signature, by its President or one of its Vice Presidents. The Guarantor hereby agrees that its Guarantee set forth in Section 2 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. B-3 124 If an Officer whose signature is on this Supplemental Indenture or on the Guarantee no longer holds that office at the time the Trustee authenticates the Security on which a Guarantee is endorsed, the Guarantee shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantors. 4. Guarantors May Consolidate, etc. on Certain Terms. (a) Nothing contained in this Supplemental Indenture or in the Securities shall prevent any consolidation or merger of the Guarantor with or into the Company or any other Guarantor or shall prevent any sale or conveyance of the assets of the Guarantor (whether or not constituting all or substantially all of the assets of the Guarantor) to any Person; provided that the Company shall comply with the provisions of Sections 2.15 and 4.10 of the Indenture; and provided further that, in the event that all or substantially all of the assets of the Guarantor are sold or conveyed, the Guarantees of such Guarantor shall be released and shall no longer have any force and effect. (b) Except as provided in Section 4(a) hereof or in a transaction referred to in Section 5 hereof, the Guarantor shall not, directly or indirectly, consolidate with or merge with or into another Person unless (1) either (x) the Guarantor shall be the continuing entity or (y) the resulting surviving entity is a corporation organized under the laws of the United States, any state thereof or the District of Columbia and expressly assumes all the obligations of the Guarantor under this Guarantee in connection with the Securities and the Indenture pursuant to a supplemental indenture substantially in the form hereof; (2) after giving effect, on a pro forma basis, to such transaction, no Default or Event of Default shall have occurred; and (3) the Guarantor has delivered to the Trustee an Officers' Certificate and Opinion of Counsel, each stating that this Supplemental Indenture and such consolidation or merger complies with the Indenture, and that all condi- B-4 125 tions precedent in the Indenture relating to such transaction have been satisfied. Upon any consolidation or merger of the Guarantor in accordance with this Section 4(b) hereof, the successor corporation shall succeed to and be substituted for, and may exercise every right and power of, the Guarantor with the same effect as if it had been named herein as a Guarantor, and when a successor corporation duly assumes all of the obligations of the Guarantor pursuant to the Indenture and the Securities, the Guarantor shall be released from such obligations. Such successor corporation thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Guarantees had been issued at the date of the execution hereof. 5. Release of Guarantors. Without any further notice or action being required by any Person, the Guarantor, and each Subsidiary of the Guarantor that is also a Guarantor, shall be fully and conditionally released and discharged from all obligations under its Guarantee and the Indenture upon the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of the Guarantor (or all of its assets), to an entity which is not a Subsidiary of the Company, which transaction is otherwise in compliance with the Indenture, such Guarantor shall be deemed released from its obligations under its Guarantee of the Securities; provided, however, that any such termination shall occur only to the extent that all obligations of the Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure any Indebtedness of the Company shall also terminate upon such release, sale or transfer; and provided further that in the event of an Asset Sale, such Asset Sale is effected, and the Net Proceeds therefrom are applied, in accordance with Sections 2.15 and 4.10 of the Indenture. The releases and discharges set forth in the first paragraph of this Section 5 shall be effective on the date of consummation thereof. At the written request of the Company, the Trustee shall promptly execute and deliver appropriate B-5 126 instruments in forms reasonably acceptable to the Company evidencing and further implementing any releases and discharges pursuant to the foregoing provisions. Nothing herein shall relieve the Company from its obligations to apply the proceeds of any Asset Sale as provided in Sections 2.15 and 4.10 of the Indenture. Any Guarantor whose Guarantee would otherwise be released pursuant to the provisions of this Section 5 may elect, by written notice to the Trustee, to maintain such Guarantee in effect notwithstanding the event or events that otherwise would cause the release of such Guarantee (which election to maintain such Guarantee in effect may be conditional or for a limited period of time), and (ii) any Subsidiary of the Company which is not a Guarantor may elect, by written notice to the Trustee, to become a Guarantor (which election may be conditional or for a limited period of time). 6. Certain Bankruptcy Events. The Guarantor hereby covenants and agrees, to the fullest extent that it may do so under applicable law, that in the event of the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company, the Guarantor shall not file (or join in any filing of), or otherwise seek to participate in the filing of, any motion or request seeking to stay or to prohibit (even temporarily) execution on the Guarantee and hereby waives and agrees not to take the benefit of any such stay of execution, whether under the Bankruptcy Law or otherwise. 7. Limitation on Guarantor Liability. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (A) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; provided that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant B-6 127 to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). In making any determination as to the solvency or sufficiency of capital of the Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries of the Company that have executed and delivered a supplemental indenture substantially in the form hereof and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. 8. "Trustee" to Include Paying Agent. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting under the Indenture, the term "Trustee" as used in his Supplemental Indenture shall in each case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Supplemental Indenture in place of the Trustee. 9. No Personal Liability of Directors, Officers, Employees and Stockholders. No director, officer, employee, incorporator or stockholder of the Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantor under the Securities, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 10. New York Law to Govern. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture. B-7 128 11. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 12. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated:____________________ __, ____ [GUARANTOR] By:________________________________ Name:___________________________ Title:__________________________ [NAME OF TRUSTEE], as Trustee By:________________________________ Name:___________________________ Title:__________________________ B-8 129 EXHIBIT A TO SUPPLEMENTAL INDENTURE GUARANTEE The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the obligations of the Company hereunder and thereunder, that: (i) the principal of, premium, if any, and interest on the Securities will be promptly paid in full when due, whether at the Maturity Date or Interest Payment Date, by acceleration, call for redemption or otherwise; (ii) the purchase price for all Securities properly and timely tendered for acceptance in response to a Change of Control Offer or a Senior Asset Sale Offer will be timely, or otherwise in accordance with the provisions of the Indenture or hereof, paid in full; (iii) all other obligations of the Company to the Holders or the Trustee under the Indenture, the Securities or hereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (iv) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, they will be paid in full when due or performed in accordance with the terms of the extension or renewal, whether at the Maturity Date, as so extended, by acceleration, call for redemption, upon a Change of Control Offer, upon a Senior Asset Sale Offer or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, the Guarantor shall be obligated to pay before failure so to pay becomes an Event of Default. The obligations of the Guarantor to the Holders of Securities and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in a Supplemental Indenture, dated as of _______________ ___, ___ to the Indenture, and reference is hereby made to the Indenture, as supplemented, for the precise terms of this Guarantee. This is a continuing Guarantee and shall remain in full force and effect and shall be binding upon the Guarantor and its respective successors and assigns to the extent set forth in the Indenture until full and final payment of all of the Company's obligations under the Securities and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders of Securities and, in the event of any transfer or assignment of rights by any Holder of Securities or the Trustee, the rights and privileges B-9 130 herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This a Guarantee of payment and not a guarantee of collection. This Guarantee shall not be valid or obligatory for an purpose until the certificate of authentication on the Security upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (A) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; provided that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise approves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). The Indenture provides that, in making any determination as to the solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries of the Company that have become Guarantors and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. [GUARANTOR] By: _________________________________ Name: Title: B-10 EX-5.1 3 OPINION OF LATHAM & WATKINS 1 EXHIBIT 5.1 LATHAM & WATKINS Attorneys at Law 633 West Fifth Street, Suite 4000 Los Angeles, California 90071-2007 Telephone (213) 485-1234 Fax (213) 891-8763 November 9, 1995 Beverly Enterprises, Inc. 5111 Rogers Ave., Suite 40-A Ft. Smith, Arkansas 72919-1000 Re: Registration Statement with respect to $150,000,000 Aggregate Principal Amount of Senior Notes Ladies and Gentlemen: In connection with the registration of $150,000,000 aggregate principal amount of ___% Senior Notes due 2005 (the "Securities"), by Beverly Enterprises, Inc., a Delaware corporation (the "Company"), and the guarantees of the Securities (the "Guarantees") by the entities listed under the heading "Table of Additional Co-Registrants" attached to the cover page of the Registration Statement (the "Guarantors"), under the Securities Act of 1933, as amended (the "Act"), on Form S-3 filed with the Securities and Exchange Commission (the "Commission") on the date hereof, File No. 33-________, (the "Registration Statement"), you have requested our opinion with respect to the matters set forth below. In our capacity as your special counsel in connection with such registration, we are familiar with the proceedings taken and proposed to be taken by the Company and the Guarantors in connection with the authorization and issuance of the Securities and the Guarantees, respectively, and for the purposes of this opinion, have assumed such proceedings will be timely completed in the manner presently proposed. In addition, we have made such legal and factual examinations and inquiries, including 2 Beverly Enterprises, Inc. November 9, 1995 Page 2 an examination of originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records and instruments, as we have deemed necessary or appropriate for purposes of this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. We are opining herein as to the effect on the subject transaction only of the internal laws of the State of New York and the General Corporation Law of the State of Delaware, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of Delaware, any other laws, or as to any matters of municipal law or the laws of any other local agencies within the state. Capitalized terms used herein without definition have the meanings ascribed to them in the Registration Statement. Subject to the foregoing and the other matters set forth herein, it is our opinion that as of the date hereof: (1) The Securities have been duly authorized by all necessary corporate action of the Company, and when executed, authenticated and delivered by or on behalf of the Company against payment therefor in accordance with the terms of the Indenture, will constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. (2) Each of the Guarantees has been duly authorized by all necessary corporate action of the respective Guarantor, and when executed in accordance with the terms of the Indenture and upon due execution, authentication and delivery of the Securities and upon payment therefor, will be the legally valid and binding obligation of the respective Guarantor, enforceable against such Guarantor in accordance with its terms. The opinions rendered in paragraphs 1 and 2 above relating to the enforceability of the Securities and the Guarantees are subject to the following exceptions, limitations 3 Beverly Enterprises, Inc. November 9, 1995 Page 3 and qualifications: (i) the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors, including, without limitation, the effect on the Guarantees of Section 547 or 548 of the federal Bankruptcy Code and comparable provisions of state law; (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; (iii) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy; and (iv) the unenforceability of any provision requiring the payment of attorney's fees, except to the extent that a court determines such fees to be reasonable. To the extent that the obligations of the Company and the Guarantors under the Indenture may be dependent upon such matters, we assume for purposes of this opinion that the Trustee is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; that the Trustee is duly qualified to engage in the activities contemplated by the Indenture; that the Indenture has been duly authorized, executed and delivered by the Trustee and constitutes the legally valid, binding and enforceable obligation of the Trustee enforceable against the Trustee in accordance with its terms; that the Trustee is in compliance, generally and with respect to acting as a trustee under the Indenture, with all applicable laws and regulations; and that the Trustee has the requisite organizational and legal power and authority to perform its obligations under the Indenture. This opinion is rendered only to you and is solely for your benefit in connection with the transactions covered hereby. This opinion may not be relied upon by you for any other purpose, or furnished to, quoted to, or relied upon by any other person, firm or corporation for any purpose, without our prior written consent. 4 Beverly Enterprises, Inc. November 9, 1995 Page 4 We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm contained under the heading "Experts." Very truly yours, /s/ LATHAM & WATKINS EX-12.1 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 BEVERLY ENTERPRISES, INC. EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------- ------------------- 1990 1991 1992 1993 1994 1994 1995 -------- -------- -------- -------- -------- -------- -------- Income before provision for income taxes, extraordinary charge and cumulative effect of change in accounting for income taxes . . . $ 20,422 $ 41,668 $ 6,148 $ 87,640 $114,795 $ 50,965 $ 49,766 Add fixed charges: Interest expense (including capitalized interest) . . . . . . . . . . . . . . . . . 84,119 66,982 62,077 62,614 60,268 29,208 40,887 Interest factor in rent expense . . . . . . . 93,028 85,304 77,372 67,916 55,831 28,898 24,515 Amortization of debt issue costs . . . . . . . 3,780 10,553 8,226 3,743 4,241 2,186 2,193 Amortization of debt discounts . . . . . . . . 311 2,661 2,126 1,794 2,206 1,003 73 -------- -------- -------- -------- -------- -------- -------- Total fixed charges . . . . . . . . . . . . . . 181,238 165,500 149,801 136,067 122,546 61,295 67,668 -------- -------- -------- -------- -------- -------- -------- Less capitalized interest . . . . . . . . . . . (1,219) (953) (1,486) (1,955) (1,923) (1,183) (879) -------- -------- -------- -------- -------- -------- -------- Total earnings . . . . . . . . . . . . . . . . $200,441 $206,215 $154,463 $221,752 $235,418 $111,077 $116,555 ======== ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges . . . . . . 1.1 1.3 1.0 1.6 1.9 1.8 1.7 ======== ======== ======== ======== ======== ======== ========
EX-23.1 5 CONSENT OF ERNST & YOUNG L.L.P 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3 No. 33- ) and related Prospectus of Beverly Enterprises, Inc. for the registration of $150,000,000 of its Senior Notes and to the incorporation by reference therein of our report dated February 3, 1995, with respect to the consolidated financial statements and schedule of Beverly Enterprises, Inc. included in its Annual Report on Form 10-K, as amended, for the year ended December 31, 1994, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP November 7, 1995 Little Rock, Arkansas EX-25.1 6 FORM T-1 1 ------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------------------------ FORM T-1 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) ____ ----------------------------- CHEMICAL BANK (Exact name of trustee as specified in its charter) NEW YORK 13-4994650 (State of incorporation (I.R.S. employer if not a national bank) identification No.) 270 PARK AVENUE NEW YORK, NEW YORK 10017 (Address of principal executive offices) (Zip Code) William H. McDavid General Counsel 270 Park Avenue New York, New York 10017 Tel: (212) 270-2611 (Name, address and telephone number of agent for service) ------------------------------------------------------- BEVERLY ENTERPRISES, INC. (Exact name of obligor as specified in its charter) DELAWARE 95-4100309 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 1200 SOUTH WALDRON ROAD, SUITE 155 FORT SMITH, ARKANSAS 72913-3324 (Address of principal executive offices) (Zip Code) ------------------------------------------ SENIOR NOTES DUE 2005 (Title of the indenture securities) ------------------------------------------------------------ 2 GENERAL 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. New York State Banking Department, State House, Albany, New York 12110. Board of Governors of the Federal Reserve System, Washington, D.C., 20551 Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New York, N.Y. Federal Deposit Insurance Corporation, Washington, D.C., 20429. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. -2- 3 Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Articles of Association of the Trustee as now in effect, including the Organization Certificate and the Certificates of Amendment dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982, February 28, 1985 and December 2, 1991 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). 2. A copy of the Certificate of Authority of the Trustee to Commence Business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1 filed in connection with Registration Statement No. 33-84460, which is incorporated by reference). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, Chemical Bank, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York, on the 27TH day of OCTOBER, 1995. CHEMICAL BANK By /s/ DAVID G. SAFER ----------------------------- David G. Safer Trust Officer -3- 4 Exhibit 7 to Form T-1 Bank Call Notice RESERVE DISTRICT NO. 2 CONSOLIDATED REPORT OF CONDITION OF Chemical Bank of 270 Park Avenue, New York, New York 10017 and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 1995, in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
DOLLAR AMOUNTS ASSETS IN MILLIONS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ................................. $ 5,573 Interest-bearing balances ......................... 2,681 Securities: .......................................... Held to maturity securities............................ 6,027 Available for sale securities.......................... 18,304 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 IBF's: Federal funds sold ................................ 1,516 Securities purchased under agreements to resell ... 287 Loans and lease financing receivables: Loans and leases, net of unearned income $73,829 Less: Allowance for loan and lease losses 1,885 Less: Allocated transfer risk reserve ... 104 ------ Loans and leases, net of unearned income, allowance, and reserve ............................ 71,840 Trading Assets ....................................... 25,315 Premises and fixed assets (including capitalized leases)............................................ 1,395 Other real estate owned ............................... 69 Investments in unconsolidated subsidiaries and associated companies............................... 158 Customer's liability to this bank on acceptances outstanding ....................................... 1,120 Intangible assets ..................................... 484 Other assets .......................................... 7,254 -------- TOTAL ASSETS .......................................... $142,023 ========
-4- 5 LIABILITIES Deposits In domestic offices ................................ $ 46,128 Noninterest-bearing .........................$16,282 Interest-bearing ............................ 29,846 ------ In foreign offices, Edge and Agreement subsidiaries, and IBF's .......................................... 30,833 Noninterest-bearing .........................$ 199 Interest-bearing ............................ 30,634 ------ Federal funds purchased and securities sold under agree- ments to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's Federal funds purchased ............................ 16,779 Securities sold under agreements to repurchase ..... 810 Demand notes issued to the U.S. Treasury .............. 1,001 Trading liabilities ................................... 20,888 Other Borrowed money: With original maturity of one year or less ......... 6,505 With original maturity of more than one year ....... 602 Mortgage indebtedness and obligations under capitalized leases ............................................. 18 Bank's liability on acceptances executed and outstanding 1,126 Subordinated notes and debentures ..................... 3,411 Other liabilities ..................................... 6,287 TOTAL LIABILITIES ..................................... 134,388 --------
EQUITY CAPITAL Common stock .......................................... 620 Surplus ............................................... 4,524 Undivided profits and capital reserves ................ 2,724 Net unrealized holding gains (Losses) on available-for-sale securities ...................... (241) Cumulative foreign currency translation adjustments ... 8 TOTAL EQUITY CAPITAL .................................. 7,635 -------- TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK AND EQUITY CAPITAL .......................... $142,023 ========
I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby declare that this Report of Condition has been prepared in conformance with the in- structions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. JOSEPH L. SCLAFANI We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the in- structions issued by the appropriate Federal regulatory authority and is true and correct. WALTER V. SHIPLEY ) EDWARD D. MILLER )DIRECTORS WILLIAM B. HARRISON ) -5- -----END PRIVACY-ENHANCED MESSAGE-----