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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 1-9550
BEVERLY ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 62-1691861
(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
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (501) 452-6712
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<C> <S>
Common Stock, $.10 par value New York Stock Exchange
Pacific Stock Exchange
9% Senior Notes due February 15, 2006 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
REGISTRANT WAS $526,153,242 AS OF FEBRUARY 26, 1999.
102,493,655
(NUMBER OF SHARES OF COMMON STOCK OUTSTANDING, NET OF TREASURY SHARES, AS OF
FEBRUARY 26, 1999)
PART III IS INCORPORATED BY REFERENCE FROM THE PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 27, 1999.
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PART I
ITEM 1. BUSINESS.
GENERAL
References herein to the Company include Beverly Enterprises, Inc. and its
wholly-owned subsidiaries.
Beverly Enterprises, Inc. (formerly known as New Beverly Holdings, Inc.),
which was incorporated on April 15, 1997 ("New Beverly"), is the successor to
the former Beverly Enterprises, Inc., which was incorporated on February 27,
1987 ("Old Beverly"), as the result of a tax-free reorganization completed
December 3, 1997 (the "Reorganization") in order to facilitate the merger of
Pharmacy Corporation of America ("PCA") with Capstone Pharmacy Services, Inc.
("Capstone") (the "Merger"). References to Beverly Enterprises, Inc., or the
Company, prior to December 3, 1997 means the predecessor corporation, Old
Beverly. References to Beverly Enterprises, Inc., or the Company, on or after
December 3, 1997 means New Beverly, and New Beverly is treated for accounting
purposes as the continuing reporting entity with respect to the historical and
future operations of the Company. See "Part II, Item 8 -- Note 3 of Notes to
Consolidated Financial Statements" for additional information.
The business of the Company consists principally of providing healthcare
services, including the operation of nursing facilities, rehabilitation therapy
services, assisted living centers, home care centers and outpatient clinics. In
addition, prior to June 30, 1998, the Company operated acute long-term
transitional hospitals and, prior to the Merger, institutional and mail service
pharmacies.
The Company is one of the largest operators of nursing facilities in the
United States. At January 31, 1999, the Company operated 561 nursing facilities
with 62,171 licensed beds. The facilities are located in 29 states and the
District of Columbia, and range in capacity from 20 to 355 beds. At January 31,
1999, the Company also operated 36 assisted living centers containing 1,039
units, 194 outpatient clinics, and 75 home care centers. The Company's
facilities had average occupancy of 88.7%, 88.9% and 87.4% during the years
ended December 31, 1998, 1997 and 1996, respectively. See "Item 2. Properties."
This Annual Report on Form 10-K, and other information provided by the
Company from time to time, contains certain "forward-looking" statements as that
term is defined by the Private Securities Litigation Reform Act of 1995. All
statements regarding the Company's expected future financial position, results
of operations, cash flows, continued performance improvements, ability to
service its debt obligations, ability to finance growth opportunities, response
to changes in government regulations, and similar statements including, without
limitation, those containing words such as "believes," "anticipates," "expects,"
"intends," "estimates," "plans," and other similar expressions are
forward-looking statements. Forward-looking statements involve known and unknown
risks and uncertainties that may cause the Company's actual results in future
periods to differ materially from those projected or contemplated in the
forward-looking statements as a result of, but not limited to, the following
factors: national and local economic conditions; the effect of government
regulation and changes in regulations governing the healthcare industry,
including the Company's compliance with such regulations; changes in Medicare
and Medicaid payment levels; liabilities and other claims asserted against the
Company, including the outcome of the federal government investigation (see
"Item 3. Legal Proceedings"); the ability to attract and retain qualified
personnel; the availability and terms of capital to fund acquisitions and
capital improvements; the competitive environment in which the Company operates;
demographic changes; the ability of the Company and its significant vendors,
suppliers and payors to timely locate and correct all relevant computer codes
and identify and remediate date-sensitive embedded chips prior to the year 2000;
and the availability and cost of labor and materials. Given these risks and
uncertainties, the Company can give no assurances that these forward-looking
statements will, in fact, transpire and, therefore, cautions investors not to
place undue reliance on them.
Healthcare service providers, such as the Company, operate in an industry
that is subject to significant changes from business combinations, new strategic
alliances, legislative reform, aggressive marketing practices by competitors and
market pressures. In this environment, the Company is frequently contacted by,
and
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otherwise engages in discussions with, other healthcare companies and financial
advisors regarding possible strategic alliances, joint ventures, business
combinations and other financial alternatives.
OPERATIONS
The Company is currently organized into two operating segments, which
support the Company's delivery of vertically integrated services to the
long-term healthcare market. These operating segments include: (i) Beverly
Healthcare, which provides long-term healthcare through the operation of nursing
facilities and assisted living centers; and (ii) Beverly Care Alliance, which
operates outpatient clinics, home care centers and a rehabilitation services
business. Business in each operating segment is conducted by one or more
corporations headed by a president who also is a senior officer of the Company
and reports directly to the President of the Company. The corporations
comprising each of the two operating segments also have separate boards of
directors consisting of four senior executives of the Company and the president
of the segment. See "Part II, Item 8 -- Note 10 of Notes to Consolidated
Financial Statements" for additional information.
Beverly Healthcare's nursing 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. Beverly
Healthcare's highly skilled staff also offers complex and intensive medical
services to patients with higher acuity disorders outside the traditional acute
care hospital setting. In addition, Beverly Healthcare provides assisted living
services. Approximately 90%, 80% and 82% of the Company's total net operating
revenues for the years ended December 31, 1998, 1997 and 1996, respectively,
were derived from services provided by Beverly Healthcare.
Beverly Care Alliance offers industrial rehabilitation, outpatient clinics,
acute hospital therapy contracts, management/consulting rehabilitation programs
and home care services within the Company's network of facilities and to other
healthcare providers. Approximately 7%, 2% and 2% of the Company's total net
operating revenues for the years ended December 31, 1998, 1997 and 1996,
respectively, were derived from services provided by Beverly Care Alliance.
GOVERNMENTAL REGULATION AND REIMBURSEMENT
The Company's nursing facilities are subject to compliance with various
federal, state and local healthcare statutes and regulations. Compliance with
state licensing requirements imposed upon all healthcare facilities is a
prerequisite for the operation of the facilities and for participation in
government-sponsored healthcare 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 have a material adverse effect on the Company's consolidated financial
position, results of operations and cash flows.
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, managed care payors and Veterans
Administration ("VA"). 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
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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:
<TABLE>
<CAPTION>
MEDICAID MEDICARE PRIVATE AND VA
------------------ ------------------ ------------------
ROOM AND ROOM AND ROOM AND
PATIENT BOARD PATIENT BOARD PATIENT BOARD ANCILLARY AND
DAYS REVENUES DAYS REVENUES DAYS REVENUES OTHER REVENUES
------- -------- ------- -------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended:
December 31, 1998............ 69% 46% 11% 13% 20% 18% 23%
December 31, 1997............ 68% 40% 12% 12% 20% 16% 32%
December 31, 1996............ 69% 42% 12% 12% 19% 14% 32%
</TABLE>
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 revenues and profitability. In most states,
private patients are the most profitable, and Medicaid patients are the least
profitable.
Ancillary revenues are derived from providing services to residents beyond
room, board and custodial care and include occupational, physical, speech,
respiratory and intravenous ("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 healthcare of providing a
broader range of services in a lower cost setting, such as the Company's nursing
facilities.
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.
The Medicaid and Medicare programs each contain specific requirements which
must be adhered to by healthcare facilities in order to qualify under the
programs. Currently, 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 the methodology used to determine the level of allowable costs which are
reimbursed to operators.
Arkansas and California provide for reimbursement at a flat daily rate, as
determined by the responsible state agency. Several states in which the Company
currently operates have enacted payment mechanisms which are based on patient
acuity versus traditional cost-based methodologies. Many other states are
actively developing similar payment systems. The Company is unable to estimate
the ultimate impact of these changes in payment mechanisms on the Company's
future consolidated financial position, results of operations, or cash flows.
Healthcare system reform and concerns over rising Medicare and Medicaid
costs continue to be high priorities for both the federal and state governments.
In August 1997, the President signed into law the Balanced Budget Act of 1997
(the "1997 Act") in which Congress included numerous program changes directed at
balancing the federal budget. The legislation changes Medicare and Medicaid
policy in a number of ways, including: (i) the phase in of a Medicare
prospective payment system ("PPS") for skilled nursing facilities effective July
1, 1998 (see below); (ii) establishment of limitations on Part B therapy charges
per beneficiary per year; (iii) a 10% reduction in Part B therapy costs for the
period from January 1, 1998 through July 1, 1998, at which time reimbursement
for these services will be based on fee schedules established by the Health Care
Financing Administration ("HCFA") of the Department of Health and Human Services
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("HHS"); (iv) development of new Medicare and Medicaid health plan options; (v)
creation of additional safeguards against healthcare fraud and abuse; and (vi)
repeal of the Medicaid "Boren Amendment" payment standard. The legislation
includes new opportunities for providers to focus further on patient outcomes by
creating alternative patient delivery structures. The Company currently
estimates a decrease in its 1999 net operating revenues of approximately
$70,000,000 related to the impact of PPS and estimates a decrease in its 1999
net operating revenues of approximately $30,000,000 related to the impact of
Part B therapy cost reductions, including the establishment of beneficiary
limits. Future federal budget legislation and federal and state regulatory
changes may negatively impact the Company.
PPS, which became effective for the Company on January 1, 1999,
significantly changes the manner in which its skilled nursing facilities are
paid for inpatient services provided to Medicare beneficiaries. PPS will be
phased in over a three year period. In year one (1999 for the Company), Medicare
PPS rates will be based 75% on 1995 facility-specific Medicare costs (as
adjusted for inflation) and 25% will be federally-determined based upon the
acuity level of Medicare patients served in the Company's skilled nursing
facilities. In year two, Medicare PPS rates will be based 50% on 1995
facility-specific costs (as adjusted for inflation) and 50% on the
federally-determined acuity-adjusted rate. In year three, Medicare PPS rates
will be based 25% on 1995 facility-specific costs (as adjusted for inflation)
and 75% on the federally-determined acuity-adjusted rate. In year four and
thereafter, Medicare PPS rates will be based entirely on the
federally-determined acuity-adjusted rate.
The Company has analyzed its 1995 facility-specific costs, as well as the
current acuity level of Medicare patients in its skilled nursing facilities. In
addition, the Company has identified the significant changes in its
facility-specific costs since 1995 to determine the major reasons for such
changes. Based on such analyses, the Company has implemented facility-specific
plans to deliver care to Medicare patients at a lower cost and in a manner
consistent with PPS requirements. Such plans resulted in material changes in
staffing in the Company's skilled nursing facilities, primarily in the area of
rehabilitation services. Such staffing changes also resulted in a fourth quarter
1998 charge of approximately $2,500,000. The Company has also determined that
other cost reductions can be achieved in its skilled nursing facilities. If the
Company is unable to carry out its facility-specific plans to reduce the cost of
care to Medicare patients, PPS could have a material adverse effect on the
Company's consolidated financial position and results of operations.
PPS also imposes significant documentation requirements on skilled nursing
facilities to demonstrate the acuity level of Medicare patients and other
factors which will directly impact billing and payment rates to the Company, as
well as compliance with PPS rules and regulations. The Company has implemented
new and enhanced information systems to help ensure compliance with PPS.
Company-wide training on PPS and other 1997 Act provisions has been conducted.
As a result of these and other preparations, the Company believes it will be
positioned to operate effectively under PPS.
In addition to the requirements to be met by the Company's facilities for
annual licensure renewal, the Company's healthcare facilities are subject to
annual surveys and inspections in order to be certified for participation in the
Medicare and Medicaid programs. In order to maintain their operator's licenses
and their certification for participation in Medicare and Medicaid programs, 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 for its facilities or that the Company will not be
required to expend significant sums in order to do so.
HCFA adopted survey, certification and enforcement procedures by
regulations effective July 1, 1995 to implement the Medicare and Medicaid
provisions of the Omnibus Budget Reconciliation Act of 1987 ("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 that (i) surveys focus on residents' outcomes; (ii) all deviations
from the participation requirements will be considered deficiencies, but all
deficiencies will not constitute noncompliance; and (iii) certain types of
deficiencies must result in the imposition of a sanction. The
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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 in service 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 has undertaken an analysis of the procedures with
respect to its programs and facilities covered by the final HCFA regulations.
Results of HCFA surveys for the past year have determined that the Company
continues to improve its regulatory compliance record. The Company's facilities
that are cited with deficiencies are cited less frequently than other
proprietary, chain facilities. 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 the HCFA regulations, the Company
believes its programs and facilities are generally in compliance.
The Company has a Quality Management ("QM") program to help ensure that
high quality care is provided in each of its nursing and outpatient facilities.
The Company's nationwide QM network of healthcare 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 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
healthcare related services. These internal evaluations are used by local
quality improvement teams, which include QM advisors, 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 the Company's Board of
Directors.
The Company believes that its facilities are in substantial compliance with
currently applicable Medicaid and Medicare conditions of participation. 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 Social Security Act and regulations of HHS provide for exclusion of
providers and related persons from participation in the Medicare and Medicaid
programs if they have been convicted of a criminal offense related to the
delivery of an item or service under either of these programs or if they have
been convicted, under state or federal law, of a criminal offense relating to
neglect or abuse of residents in connection with the delivery of a healthcare
item or service. Furthermore, individuals or entities and their affiliates may
be excluded from the Medicare and Medicaid programs under certain circumstances
including conviction relating to fraud, license revocation or suspension, or
failure to furnish services of adequate quality.
The "fraud and abuse" anti-kickback provisions of the Social Security Act
(presently codified in Section 1128B(b) of the Social Security Act, hereinafter
the "Antifraud Amendments") make it a criminal felony offense to knowingly and
willfully offer, pay, solicit or receive remuneration in order to induce
business for which reimbursement is provided under government health programs,
including Medicare and Medicaid. The Antifraud Amendments have been broadly
interpreted to make remuneration of any kind, including many types of business
and financial arrangements among providers, potentially illegal if any purpose
of the remuneration or financial arrangement is to induce a referral.
Accordingly, joint ventures, space and equipment rentals, management and
personal services contracts, and certain investment arrangements among providers
may be suspect.
In 1991, HHS promulgated regulations which describe certain arrangements
that would not be subject to enforcement action under the Social Security Act
(the "Safe Harbors"). The Safe Harbors described in the regulations are narrow,
leaving unprotected a wide range of economic relationships that many hospitals,
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physicians and other healthcare providers consider to be legitimate business
arrangements not prohibited by the Antifraud Amendments. The regulations do not
purport to describe comprehensively all lawful relationships between healthcare
providers and referral sources, and clearly provide that arrangements that do
not qualify for Safe Harbor protection are not automatically deemed to violate
the Antifraud Amendments. Thus, skilled nursing facilities and other healthcare
providers having arrangements or relationships that do not fall within a Safe
Harbor may not be required to alter them in order to ensure compliance with the
Social Security Act provisions. Although failure to qualify for a Safe Harbor
may subject a particular arrangement or relationship to increased regulatory
scrutiny, the fact that a particular relationship or arrangement does not fall
within one of the Safe Harbors does not, in and of itself, mean the relationship
or arrangement is unlawful. In 1993, HHS published proposed regulations for
comment in the Federal Register establishing additional Safe Harbors.
Additionally, in 1994, HHS published a proposed rule aimed at clarifying the
existing Safe Harbors. As of January 1, 1999, these regulations had not been
adopted in final form. The Company cannot predict the final form that these
regulations and rules will take or their effect, if any, on the Company's
business.
In addition to the Antifraud Amendments, Section 1877 of the Social
Security Act (known as the "Stark Law") imposes restrictions on financial
relationships between physicians and certain entities. The Stark Law provides
that if a physician (or an immediate family member of a physician) has a
financial relationship with an entity that furnishes certain designated health
services, the physician may not refer a Medicare or Medicaid patient to the
entity, and the entity may not bill for services provided unless an exception to
the financial relationship exists. Designated health services include certain
services furnished by the Company, such as physical therapy, occupational
therapy, prescription drugs and home health. The types of financial
relationships that can trigger the referral and billing prohibitions are broad
and include ownership or investment interests, as well as compensation
arrangements. Penalties for violating the law are severe, including denial of
payment for services furnished pursuant to prohibited referrals, civil monetary
penalties of $15,000 for each item claimed, assessments equal to 200% of the
dollar value of each such service provided, and exclusion from the Medicare and
Medicaid programs.
On August 14, 1995, final regulations were published interpreting the
original provisions of the Stark Law that became effective January 1, 1992.
These provisions relate to entities that furnish clinical laboratory services,
commonly referred to as "Stark I." Expanded restrictions as applied to the
additional designated health services (referred to as "Stark II") became
effective as of January 1, 1995. Proposed regulations implementing Stark II were
published on January 9, 1998. The Company cannot predict the final form that
such regulations will take or the effect that Stark II or the regulations
promulgated thereunder will have on the Company.
Many states in which the Company operates also have laws that prohibit
payments to physicians for patient referrals with statutory language similar to
the Antifraud Amendments, but with broader effect since they apply regardless of
the source of payment for care. These statutes typically provide criminal and
civil penalties, as well as loss of licensure. Many states also have passed
legislation similar to Stark, but with broader effect, since the legislation
applies regardless of the source of payment for care. The scope of these state
laws is broad and little precedent exists for their interpretation or
enforcement.
On August 21, 1996, President Clinton signed significant new federal health
reform legislation known as the Health Insurance Portability and Accountability
Act of 1996 ("HIPAA"). The new law includes comprehensive and far-reaching
revisions or supplements to the Antifraud Amendments. Under HIPAA, healthcare
fraud, now defined as knowingly and willfully executing or attempting to execute
a "scheme or device" to defraud any healthcare benefit program, is made a
federal criminal offense. In addition, for the first time, federal enforcement
officials will have the ability to exclude from the Medicare and Medicaid
programs any investors, officers and managing employees associated with business
entities that have committed healthcare fraud, even if the investor, officer or
employee had no actual knowledge of the fraud. HIPAA also establishes a new
violation for the payment of inducements to Medicare or Medicaid beneficiaries
in order to influence those beneficiaries to order or receive services from a
particular provider or practitioner. Most of the provisions of HIPAA became
effective January 1, 1997. HIPAA was followed by the 1997 Act. The 1997 Act also
contained a significant number of new fraud and abuse provisions. For example,
civil monetary penalties ("CMP") may now be imposed for violations of the
anti-kickback provisions of the Medicare and Medicaid
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statute (previously, exclusion or criminal prosecution were the only actions
under the anti-kickback statute), as well as contracting with an individual or
entity that the provider knows or should know is excluded from a federal
healthcare program. The 1997 Act provides for CMP of $50,000 and damages of not
more than three times the amount of remuneration in the prohibited activity.
In 1976, Congress established the Office of Inspector General ("OIG") at
HHS to identify and eliminate fraud, abuse and waste in HHS programs and to
promote efficiency and economy in HHS departmental operations. The OIG carries
out this mission through a nationwide program of audits, investigations and
inspections. In order to provide guidance to healthcare providers on ways to
engage in legitimate business practices and avoid scrutiny under the fraud and
abuse statutes, the OIG has from time to time issued "fraud alerts" identifying
segments of the healthcare industry and particular practices that are vulnerable
to abuse. The OIG has issued three fraud alerts targeting the skilled nursing
industry: an August 1995 alert relating to the provision of medical supplies to
nursing facilities, the fraudulent billing for medical supplies and equipment
and fraudulent supplier transactions; a May 1996 alert focusing on the provision
of fraudulent professional services to nursing facility residents; and a March
1998 alert addressing the interrelationship between hospice services and the
nursing home industry, and potentially illegal practices and arrangements. The
fraud alerts encourage persons having information about potentially abusive
practices or transactions to report such information to the OIG.
In addition to laws addressing referral relationships, several federal laws
impose criminal and civil sanctions for fraudulent and abusive billing
practices. The federal False Claims Act imposes sanctions, consisting of
monetary penalties of up to $10,000 for each claim and treble damages, on
entities and persons who knowingly present or cause to be presented a false or
fraudulent claim for payment to the United States. Section 1128B(a) of the
Social Security Act prohibits the knowingly and willful making of a false
statement or representation of a material fact in relation to the submission of
a claim for payment under government health programs (including the Medicare and
Medicaid programs). Violations of this provision constitute felony offenses
punishable by fines and imprisonment. The new HIPAA provisions establish
criminal penalties for fraud, theft, embezzlement, and the making of false
statements in relation to healthcare benefits programs (which includes private,
as well as government programs). Government prosecutors are increasing their use
of the federal False Claims Act to prosecute quality of care deficiencies in
nursing facilities and other healthcare facilities under the theory that the
submission of reimbursement claims for services provided in a manner which falls
short of quality of care standards can constitute the submission of a false
claim in violation of the federal False Claims Act.
A joint federal/state initiative, Operation Restore Trust, was created in
1995 to apply to nursing homes, home health agencies, and suppliers of medical
equipment to these providers in five states: New York, Florida, California,
Illinois and Texas. The program was subsequently expanded to hospices in these
states as well. The program is designed to focus audit and law enforcement
efforts on geographic areas and provider types receiving large concentrations of
Medicare and Medicaid funds. According to HHS statistics, the targeted states
account for nearly 40% of all Medicare and Medicaid beneficiaries. Under
Operation Restore Trust, the OIG and HCFA have undertaken a variety of
activities to address fraud and abuse by nursing homes, home health providers
and medical equipment suppliers. These activities include financial audits,
creation of a Fraud and Waste Report Hotline, and increased investigations and
enforcement activity.
On May 20, 1997, HHS announced that Operation Restore Trust would be
expanded during the next two years to include twelve additional states (Arizona,
Colorado, Georgia, Louisiana, Massachusetts, Missouri, New Jersey, Ohio,
Pennsylvania, Tennessee, Virginia and Washington), as well as several other
types of healthcare services. Over the longer term, it is anticipated that
Operation Restore Trust investigative techniques will be used in all 50 states,
and will be applied throughout the Medicare and Medicaid programs.
In addition to increasing the resources devoted to investigating
allegations of fraud and abuse in the Medicare and Medicaid programs, federal
and state regulatory and law enforcement authorities are taking an increasingly
strict view of the requirements imposed on healthcare providers by the Social
Security Act and Medicare and Medicaid regulations. Although the Company
believes that it is in material compliance with such laws, a determination that
the Company has violated such laws, or even the public announcement that
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the Company was being investigated concerning possible violations, could have a
material adverse effect on the Company. See "Item 3. Legal Proceedings."
The Nursing Home Resident Protection Amendments of 1999, which were signed
into law on March 25, 1999 and amend Section 1919(c)(2) of the Social Security
Act, are designed to protect Medicaid patients living in nursing facilities that
decide to withdraw from the Medicaid program. Under the amended version of
Section 1919(c)(2), a nursing facility is required to continue providing care to
residents currently qualifying for assistance under the Medicaid program, as
well as residents who may qualify under Medicaid in the future, even if the
facility decides to withdraw from the Medicaid program. In addition, if a
nursing facility decides to stop admitting Medicaid patients to its facility, it
must also notify any existing residents not currently relying on assistance from
the Medicaid program that they could potentially be denied services from the
facility if they eventually need to rely on Medicaid.
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
healthcare providers could use the Boren Amendment to require states to comply
with their legal obligation to adequately fund Medicaid programs. The 1997 Act
repeals the Boren Amendment and authorizes states to develop their own standards
for setting payment rates. It requires each state to use a public process for
establishing proposed rates whereby the methodologies and justifications used
for setting such rates are available for public review and comment. This
requires facilities to become more involved in the rate setting process since
failure to do so may interfere with a facility's ability to challenge rates
later.
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, location, physician services and price. The Company's operations
compete with services provided by nursing facilities, acute care hospitals,
subacute facilities, transitional hospitals, rehabilitation facilities, hospices
and home healthcare centers. The Company also 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 December 31, 1998, the Company had approximately 73,000 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 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. 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 significantly impact its future
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Operating Results."
In the past, the healthcare industry, including the Company's long-term
care facilities, has experienced a shortage of nurses to staff healthcare
operations, and, more recently, the healthcare industry has experienced a
shortage of therapists. The Company is not currently experiencing a nursing or
therapist shortage, but it competes with other healthcare providers for nursing
and therapist personnel. However, it is becoming more
8
<PAGE> 10
difficult to attract and retain certain other nursing home personnel, such as
certified nursing assistants and nurses' aides, for whom the Company competes
with other service industries. A nursing, therapist or nurse's aide shortage
could force the Company to pay even 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 100 of the Company's facilities, or 8% 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 healthcare industry. The Company, being one of the largest employers
within the long-term healthcare 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 are generally
good, the Company cannot predict the effect continued union representation or
organizational activities will have on the Company's future activities. There
can be no assurance that continued union representation and organizational
activities will not result in material work stoppages, which could have a
material adverse effect on the Company's operations.
Excessive litigation is a tactic common to "corporate campaigns" and one
that is being employed against the Company. There have been several proceedings
against facilities operated by the Company before the National Labor Relations
Board ("NLRB"). These proceedings consolidate individual cases from separate
facilities, and certain of these proceedings are currently pending before the
NLRB. The Company is vigorously defending these proceedings. The Company
believes, based on advice of its general counsel, that many of these cases are
without merit, and further, it is the Company's belief that the NLRB-related
proceedings, individually and in the aggregate, are not material to the
Company's consolidated financial position, results of operations, or cash flows.
ITEM 2. PROPERTIES.
At January 31, 1999, the Company operated 561 nursing facilities, 36
assisted living centers, 194 outpatient clinics and 75 home care centers in 33
states and the District of Columbia. Most of the Company's 190 leased nursing
facilities are subject to "net" leases which require the Company to pay all
taxes, insurance and maintenance costs. Most of these 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 these
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 debt agreements. See "Part II, Item 8 -- Note 5 of
Notes to Consolidated Financial Statements."
9
<PAGE> 11
The following is a summary of the Company's nursing facilities, assisted
living centers, outpatient clinics and home care centers at January 31, 1999:
<TABLE>
<CAPTION>
NURSING ASSISTED HOME
FACILITIES LIVING CENTERS OUTPATIENT CARE
---------------------- -------------- CLINICS CENTERS
TOTAL TOTAL ---------- -------
NUMBER LICENSED BEDS NUMBER UNITS NUMBER NUMBER
------ ------------- ------ ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
LOCATION
Alabama...................... 21 2,725 -- -- -- --
Arizona...................... 3 480 -- -- -- --
Arkansas..................... 36 4,256 4 80 1 2
California................... 69 7,423 2 113 36 20
Colorado..................... -- -- -- -- 17 --
Delaware..................... -- -- -- -- 4 --
District of Columbia......... 1 355 -- -- -- --
Florida...................... 51 6,311 5 311 -- --
Georgia...................... 18 2,147 3 72 24 2
Hawaii....................... 2 396 -- -- -- --
Illinois..................... 3 275 -- -- -- --
Indiana...................... 26 3,817 1 16 -- 1
Kansas....................... 32 2,059 3 39 -- --
Kentucky..................... 8 1,039 -- -- -- --
Maryland..................... 4 585 1 16 12 --
Massachusetts................ 24 2,402 -- -- -- --
Michigan..................... 2 206 -- -- -- --
Minnesota.................... 35 3,041 3 33 -- --
Mississippi.................. 21 2,466 -- -- -- --
Missouri..................... 29 3,038 3 101 -- 1
Nebraska..................... 24 2,161 1 16 -- 4
Nevada....................... -- -- -- -- -- 1
New Jersey................... 1 120 -- -- -- --
North Carolina............... 11 1,398 1 16 11 31
Ohio......................... 12 1,433 -- -- 4 --
Pennsylvania................. 42 4,791 3 53 9 4
South Carolina............... 3 302 -- -- 15 --
South Dakota................. 17 1,232 1 36 -- --
Tennessee.................... 7 948 2 57 -- 6
Texas........................ -- -- -- -- 49 2
Virginia..................... 16 2,113 3 80 -- --
Washington................... 10 1,000 -- -- 12 --
West Virginia................ 3 310 -- -- -- --
Wisconsin.................... 30 3,342 -- -- -- 1
--- ------ -- ----- --- --
561 62,171 36 1,039 194 75
=== ====== == ===== === ==
CLASSIFICATION
Owned........................ 369 40,315 31 815 -- --
Leased....................... 190 21,721 5 224 194 75
Managed...................... 2 135 -- -- -- --
--- ------ -- ----- --- --
561 62,171 36 1,039 194 75
=== ====== == ===== === ==
</TABLE>
10
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS.
On March 4, 1998, a jury in California returned a verdict of $95,100,000
against a nursing facility operated by a subsidiary of the Company. The verdict,
which was based on findings of fraud as well as negligence and abuse, consisted
of $365,580 in compensatory damages and $94,700,000 in punitive damages. At a
post-trial hearing on June 3, 1998, the trial judge reduced the compensatory
damages to $125,000 and reduced the punitive damages to $3,000,000. The Company
believes that these reduced damages are excessive and has appealed on this
basis. The plaintiff has cross-appealed. The Company intends to aggressively
pursue all appellate remedies available.
The Company is the subject of a federal government investigation relating
to the allocation to the Medicare program of certain nursing labor costs in its
skilled nursing facilities from 1990 to 1997. The federal government has not
disclosed the origin of this investigation or its intended scope. The
investigation is being conducted by the Office of Inspector General of the
Department of Health and Human Services and by the Department of Justice. The
Company has received subpoenas and has provided substantial information
voluntarily. The Company's independent auditors, Ernst & Young LLP, also
received a subpoena relating to its evaluation of the Company's internal
controls. In addition, the Company has been notified that a federal grand jury
in San Francisco is currently investigating practices which are the subject of
the above civil investigation. Two former employees of the Company have received
letters from the United States Attorney for the Northern District of California
indicating they are targets of the grand jury investigation. To date, four
current employees of the Company have served as witnesses before the grand jury.
The Company has cooperated with the United States Attorney's office in its
investigation. In addition, the Company's current Medicare fiscal intermediary,
Blue Cross of California, is examining cost reports of the Company's facilities
with respect to the areas that are the focus of the government investigation.
Skilled nursing facilities are required to allocate nursing labor costs to
Medicare-certified units on an equitable basis. The Company has relied on a
variety of internal and external processes and practices that are designed to
ensure compliance with this requirement. The Company believes that its cost
reporting policies and procedures are consistent with government regulations and
reflect industry norms for determination of these cost allocations. While it is
not possible to predict the outcome of this investigation, a determination that
the Company has violated these regulations could have a material adverse effect
on the Company's consolidated financial position and results of operations,
which could include the payment of fines and penalties and exclusion from
participation in the Medicare and Medicaid programs. See "Item 1. Business --
Governmental Regulation and Reimbursement".
On October 2, 1998, a purported class action lawsuit was filed in the
United States District Court for the Eastern District of Arkansas by Jack
Kushner against the Company and certain of its officers. The class action
lawsuit alleges, among other things, that the Company and certain of its
officers committed violations of the federal securities laws by materially
inflating the Company's revenues and earnings through practices that are the
subject of the federal government investigation (see above) and disseminating
false and misleading statements concerning compliance with Medicare regulations.
The class action lawsuit seeks damages, costs and expenses. The Company intends
to aggressively pursue all defenses available to it.
There are various other lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages that are generally not covered by insurance. The Company does not
believe that the ultimate resolution of such other matters will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
11
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended December 31, 1998.
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth, as to each executive officer and director of
the Company, such person's name, positions with the Company and age. Each
executive officer and director of the Company 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 March 18, 1999.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
David R. Banks(1)............................... Chairman of the Board, Chief Executive Officer
and Director 62
Boyd W. Hendrickson(1).......................... President, Chief Operating Officer and Director 54
William A. Mathies.............................. Executive Vice President and
President -- Beverly Healthcare 39
T. Jerald Moore................................. Executive Vice President 58
Robert W. Pommerville........................... Executive Vice President, General Counsel and
Secretary 58
Bobby W. Stephens............................... Executive Vice President -- Asset Management 54
Scott M. Tabakin................................ Executive Vice President and Chief Financial
Officer 40
Mark D. Wortley................................. Executive Vice President and
President -- Beverly Care Alliance 43
Philip W. Small................................. Executive Vice President -- Strategic Planning
and Operations Support 42
Schuyler Hollingsworth, Jr. .................... Senior Vice President and Treasurer 52
Pamela H. Daniels............................... Vice President, Controller and Chief Accounting
Officer 35
Beryl F. Anthony, Jr.(1)(3)(5).................. Director 61
Carolyne K. Davis, R.N., Ph.D.(1)(4)*........... Director 67
James R. Greene(2)(3)(4)........................ Director 77
Edith E. Holiday(2)(4)(5)....................... Director 47
Jon E.M. Jacoby(1)(2)........................... Director 60
Risa J. Lavizzo-Mourey, M.D.(3)(4)*............. Director 44
Marilyn R. Seymann(2)(4)(5)..................... Director 56
</TABLE>
- ---------------
(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.
* Dr. Davis and Dr. Lavizzo-Mourey were made honorary members of the Audit
Committee to deal with the oversight of the OIG investigation. In February
1999, the Board formed a separate Litigation and Compliance Committee which
now has oversight of the OIG investigation.
Mr. Banks has been a director of the Company 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 the Company from 1979 to September 1995. Mr.
Banks is a director of Nationwide Health Properties, Inc., Ralston Purina
Company, and trustee for Occidental College. Mr. Banks also serves as a director
of PharMerica, Inc., a major supplier of institutional pharmacy services to the
Company.
12
<PAGE> 14
Mr. Hendrickson joined the Company 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 the corporations within
Beverly Healthcare in January 1995 and President, Chief Operating Officer and a
director of the Company in September 1995. He is a director of PharMerica, Inc.
and Superior Financial Corp.
Mr. Mathies joined the Company 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 the Company and President of
the corporations within Beverly Healthcare in September 1995.
Mr. Moore joined the Company as Executive Vice President in December 1992
and served as President of the corporations within Beverly Specialty Hospitals
from June 1996 to June 1998. 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 the Company in 1970 and left in 1976. He
rejoined the Company 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 the Company as a staff accountant in 1969. He was
elected Assistant Vice President in 1978, Vice President of the Company and
President of the Company'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, and Harbortown Properties, Inc.
Mr. Tabakin joined the Company in October 1992 as Vice President,
Controller and Chief Accounting Officer. He was elected Senior Vice President in
May 1995, Acting Chief Financial Officer in September 1995 and Executive Vice
President and Chief Financial Officer in October 1996. From 1980 to 1992, Mr.
Tabakin was with Ernst & Young LLP.
Mr. Wortley joined the Company as Senior Vice President and President of
the corporations within Beverly Care Alliance in September 1994 and was elected
Executive Vice President in February 1996. From 1988 to 1994, Mr. Wortley was an
officer of Therapy Management Innovations.
Mr. Small joined the Company in January 1986 as Reimbursement Manager, was
promoted to Division Controller in September 1986 and Director of Finance for
the California Region in 1989. He was elected Vice President -- Reimbursement in
September 1990, Senior Vice President -- Finance in 1995 and Executive Vice
President -- Strategic Planning and Operations Support in August 1998.
Mr. Hollingsworth joined the Company 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.
Ms. Daniels joined the Company in May 1988 as Audit Coordinator. She was
promoted to Financial Reporting Senior Manager in 1991 and Director of Financial
Reporting in 1992. She was elected Vice President, Controller and Chief
Accounting Officer in October 1996. From 1985 to 1988, Ms. Daniels was with
Price Waterhouse LLP.
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 the Company since January 1993.
Dr. Davis is currently a part-time scholar in residence at the Sloan Health
Management Program at Cornell University, Ithaca, New York. She served as
Administrator of the Health Care Financing Administration of the U.S. Department
of Health and Human Services from 1981 to 1985. She was a director of the
Company from 1985 to 1989 and served as consultant and advisor to the Company's
Board of Directors from 1989 to 1997. She was a national and international
health care advisor to Ernst & Young LLP from 1985 to 1997. She is a member of
the Institute of Medicine and the National Academy of Science, a trustee for the
University of Pennsylvania Medical Center, a member of the board of directors
for Georgetown University, a
13
<PAGE> 15
director of Beckman Coulter, Inc., The Prudential Insurance Company of America,
Inc., Pharmaceutical Marketing Services, Inc. and MiniMed, Inc. She has been a
director of the Company since December 1997.
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 Buck Engineering Company and Bank Leumi. He has been a director of
the Company since January 1991.
Ms. Holiday is an attorney. She served as White House Liaison for the
Cabinet and 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, Hercules Incorporated and H.J.
Heinz Company and a director or trustee of various investment companies in the
Franklin Templeton Group of Funds. She has been a director of the Company 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 Power-One, Inc. and Delta and Pine Land
Company, Inc. He has been a director of the Company since February 1987.
Dr. Lavizzo-Mourey is Director of the Institute of Aging, Chief of the
Division of Geriatric Medicine, Associate Executive Vice President for health
policy and Professor of Medicine at the University of Pennsylvania. She is a
director of Managed Care Solutions, Inc. and Hanger Orthopedic Group, Inc. She
has been a director of the Company since March 1995.
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. She is a director of Community First Bankshares, Inc. and
True North Communications, Inc. She has been a director of the Company since
March 1995.
During 1998, there were six meetings of the Board of Directors. Each
director attended 75% or more of the meetings of the Board and committees on
which he or she served.
In 1998, directors, other than Mr. Banks and Mr. Hendrickson, received a
retainer fee of $25,000 for serving on the Board and an additional fee of $1,000
for each Board or committee meeting attended. The chairperson of each committee
received an additional $1,000 for each committee meeting attended. Such fees can
be deferred, at the option of the director, as provided for under the
Non-Employee Director Deferred Compensation Plan (discussed below). Mr. Banks,
the Company's current Chairman of the Board and Chief Executive Officer, and Mr.
Hendrickson, the Company's current President and Chief Operating Officer,
received no additional cash compensation for serving on the Board or its
committees.
During 1997, the Beverly Enterprises, Inc. Non-Employee Director Deferred
Compensation Plan was approved. Such plan provides each nonemployee director the
opportunity to receive awards equivalent to shares of Common Stock ("deferred
share units") and to defer receipt of compensation for services rendered to the
Company. There are three types of contributions available under the plan. First,
nonemployee directors can defer all or part of retainer and meeting fees to a
pre-tax deferred compensation account with two investment options. The first
investment option is a cash account which is credited with interest, and the
second investment option is a deferred share unit account, with each unit having
a value equivalent to one share of Common Stock. The second type of contribution
is a Company matching contribution whereby the Company matches 25% of the amount
of fees deferred, to the extent the deferral is in the deferred share unit
account. Third, as a replacement for the prior benefits under the retirement
plan for outside directors, each nonemployee director receives a grant of 675
deferred share units each year which is automatically credited to the deferred
share unit account. Distributions under the plan will commence upon retirement,
termination, death or disability and will be made in shares of Common Stock
unless the Board of Directors approves payment in cash.
14
<PAGE> 16
During 1997, the New Beverly Non-Employee Directors Stock Option Plan (the
"Non-Employee Directors Stock Option Plan") was approved. Such plan became
effective December 3, 1997 and will remain in effect until December 31, 2007,
subject to early termination by the Board of Directors. Such plan replaced the
Nonemployee Directors' Plan entered into in 1994. There are 300,000 shares of
the Company's $.10 par value common stock ("Common Stock") authorized for
issuance, subject to certain adjustments, under the Non-Employee Directors Stock
Option Plan. The Non-Employee Directors Stock Option Plan was amended by the
Board of Directors on December 11, 1997 to provide that 3,375 stock options be
granted to each nonemployee director on June 1 of each year until the plan is
terminated, subject to the availability of shares. Stock option grants have been
made since 1994 to each of the nonemployee directors. Such stock options are
granted at a purchase price equal to fair market value on the date of grant,
become exercisable one year after date of grant and expire ten years after date
of grant.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York and Pacific Stock
Exchanges. The table below sets forth, for the periods indicated, the range of
high and low sales prices of the Common Stock as reported on the New York Stock
Exchange composite tape.
<TABLE>
<CAPTION>
PRICES
-------------------
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter............................................. $ 16 1/8 $ 12 1/4
Second Quarter............................................ 16 7/8 13 1/8
Third Quarter............................................. 17 1/2 14 9/16
Fourth Quarter............................................ 17 1/2 12 1/8(1)
1998
First Quarter............................................. $ 15 9/16 $ 12 1/4
Second Quarter............................................ 16 1/4 13 1/2
Third Quarter............................................. 14 13/16 7 3/8
Fourth Quarter............................................ 8 1/8 5 1/4
1999
First Quarter (through March 18).......................... $ 6 15/16 $ 4 1/2
</TABLE>
- ---------------
(1) After the effect of the Reorganization on December 3, 1997 (as discussed
herein).
The Company is subject to certain restrictions under its long-term debt
agreements related to the payment of cash dividends on its Common Stock. During
1998 and 1997, no cash dividends were paid on the Company's Common Stock and no
future dividends are currently planned.
At March 18, 1999, there were 5,585 record holders of the Common Stock.
EMPLOYEE STOCK PURCHASE PLAN
The Beverly Enterprises 1988 Employee Stock Purchase Plan (as amended and
restated) enables all full-time employees having completed one year of
continuous service to purchase shares of Common Stock at the current market
price through payroll deductions. The Company makes contributions in the amount
of 30% of the participant's contribution. Each participant specifies the amount
to be withheld from earnings per two-week pay period, subject to certain
limitations. The total charge to the Company's statement of operations for the
year ended December 31, 1998 related to this plan was approximately $2,435,000.
At December 31, 1998, there were approximately 4,800 participants in the plan.
Merrill Lynch & Co., Merrill Lynch World Headquarters, North Tower, World
Financial Center, New York, New York 10281, was appointed broker to open and
maintain an account in each participant's name and to purchase shares of Common
Stock on the New York Stock Exchange for each participant.
16
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA.
The following table of selected financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto for 1998, 1997 and 1996 included elsewhere in this Annual Report
on Form 10-K.
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1998 1997(1) 1996 1995 1994
------------ ------------ ------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net operating revenues......................... $ 2,812,232 $ 3,217,099 $ 3,267,189 $ 3,228,553 $ 2,969,239
Interest income................................ 10,708 13,201 13,839 14,228 14,578
------------ ------------ ------------ ----------- -----------
Total revenues......................... 2,822,940 3,230,300 3,281,028 3,242,781 2,983,817
Costs and expenses:
Operating and administrative................. 2,633,135 2,888,021 2,958,942 2,960,832 2,715,496
Interest..................................... 65,938 82,713 91,111 84,245 64,792
Depreciation and amortization................ 93,722 107,060 105,468 103,581 88,734
Workforce reductions, asset impairments,
transaction costs and other unusual
items...................................... 69,443 44,000 -- 100,277 --
Year 2000 remediation........................ 9,719 -- -- -- --
Investigation costs.......................... 1,865 -- -- -- --
------------ ------------ ------------ ----------- -----------
Total costs and expenses............... 2,873,822 3,121,794 3,155,521 3,248,935 2,869,022
------------ ------------ ------------ ----------- -----------
Income (loss) before provision for (benefit
from) income taxes, extraordinary charge and
cumulative effect of change in accounting for
start-up costs............................... (50,882) 108,506 125,507 (6,154) 114,795
Provision for (benefit from) income taxes...... (25,936) 49,913 73,481 1,969 37,882
Extraordinary charge, net of income tax benefit
of $1,057 in 1998, $1,099 in 1996 and $1,188
in 1994...................................... (1,660) -- (1,726) -- (2,412)
Cumulative effect of change in accounting for
start-up costs, net of income tax benefit of
$2,811....................................... (4,415) -- -- -- --
------------ ------------ ------------ ----------- -----------
Net income (loss).............................. $ (31,021) $ 58,593 $ 50,300 $ (8,123) $ 74,501
============ ============ ============ =========== ===========
Net income (loss) applicable to common
shares....................................... $ (31,021) $ 58,593 $ 50,300 $ (14,998) $ 66,251
============ ============ ============ =========== ===========
Diluted income (loss) per share of common
stock:
Before extraordinary charge and cumulative
effect of change in accounting for start-up
costs...................................... $ (.24) $ .57 $ .50 $ (.16) $ .78
Extraordinary charge......................... (.02) -- (.01) -- (.02)
Cumulative effect of change in accounting for
start-up costs............................. (.04) -- -- -- --
------------ ------------ ------------ ----------- -----------
Net income (loss)............................ $ (.30) $ .57 $ .49 $ (.16) $ .76
============ ============ ============ =========== ===========
Shares used to compute per share amounts..... 103,762,000 103,422,000 110,726,000 92,233,000 98,016,000
CONSOLIDATED BALANCE SHEET DATA:
Total assets................................... $ 2,160,511 $ 2,073,469 $ 2,525,082 $ 2,506,461 $ 2,322,578
Current portion of long-term obligations....... $ 27,773 $ 31,551 $ 38,826 $ 84,639 $ 60,199
Long-term obligations, excluding current
portion...................................... $ 878,270 $ 686,941 $ 1,106,256 $ 1,066,909 $ 918,018
Stockholders' equity........................... $ 776,206 $ 862,505 $ 861,095 $ 820,333 $ 827,244
OTHER DATA:
Average occupancy percentage(2)................ 88.7% 88.9% 87.4% 88.1% 88.5%
Number of nursing home beds.................... 62,293 63,552 71,204 75,669 78,058
</TABLE>
- ---------------
(1) Amounts for 1997 include the operations of PCA up until the effective date
of the Merger (as discussed herein).
(2) Average occupancy percentage for 1998 and 1997 was based on operational
beds, and for all periods prior to 1997, such percentage was based on
licensed beds. Average occupancy percentage for 1998 and 1997 based on
licensed beds was 86.9% and 87.1%, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
GOVERNMENTAL REGULATION AND REIMBURSEMENT
Healthcare system reform and concerns over rising Medicare and Medicaid
costs continue to be high priorities for both the federal and state governments.
In August 1997, the President signed into law the Balanced Budget Act of 1997
(the "1997 Act") in which Congress included numerous program changes directed at
balancing the federal budget. The legislation changes Medicare and Medicaid
policy in a number of ways, including: (i) the phase in of a Medicare
prospective payment system ("PPS") for skilled nursing facilities effective July
1, 1998 (see below); (ii) establishment of limitations on Part B therapy charges
per beneficiary per year; (iii) a 10% reduction in Part B therapy costs for the
period from January 1, 1998 through July 1, 1998, at which time reimbursement
for these services will be based on fee schedules established by the Health Care
Financing Administration ("HCFA") of the Department of Health and Human Services
("HHS"); (iv) development of new Medicare and Medicaid health plan options; (v)
creation of additional safeguards against healthcare fraud and abuse; and (vi)
repeal of the Medicaid "Boren Amendment" payment standard. The legislation
includes new opportunities for providers to focus further on patient outcomes by
creating alternative patient delivery structures. The Company currently
estimates a decrease in its 1999 net operating revenues of approximately
$70,000,000 related to the impact of PPS and estimates a decrease in its 1999
net operating revenues of approximately $30,000,000 related to the impact of
Part B therapy cost reductions, including the establishment of beneficiary
limits. Future federal budget legislation and federal and state regulatory
changes may negatively impact the Company.
PPS, which became effective for the Company on January 1, 1999,
significantly changes the manner in which its skilled nursing facilities are
paid for inpatient services provided to Medicare beneficiaries. PPS will be
phased in over a three year period. In year one (1999 for the Company), Medicare
PPS rates will be based 75% on 1995 facility-specific Medicare costs (as
adjusted for inflation) and 25% will be federally-determined based upon the
acuity level of Medicare patients served in the Company's skilled nursing
facilities. In year two, Medicare PPS rates will be based 50% on 1995
facility-specific costs (as adjusted for inflation) and 50% on the
federally-determined acuity-adjusted rate. In year three, Medicare PPS rates
will be based 25% on 1995 facility-specific costs (as adjusted for inflation)
and 75% on the federally-determined acuity-adjusted rate. In year four and
thereafter, Medicare PPS rates will be based entirely on the
federally-determined acuity-adjusted rate.
The Company has analyzed its 1995 facility-specific costs, as well as the
current acuity level of Medicare patients in its skilled nursing facilities. In
addition, the Company has identified the significant changes in its
facility-specific costs since 1995 to determine the major reasons for such
changes. Based on such analyses, the Company has implemented facility-specific
plans to deliver care to Medicare patients at a lower cost and in a manner
consistent with PPS requirements. Such plans resulted in material changes in
staffing in the Company's skilled nursing facilities, primarily in the area of
rehabilitation services. Such staffing changes also resulted in a fourth quarter
1998 charge of approximately $2,500,000 (See "-- Operating Results"). The
Company has also determined that other cost reductions can be achieved in its
skilled nursing facilities. If the Company is unable to carry out its
facility-specific plans to reduce the cost of care to Medicare patients, PPS
could have a material adverse effect on the Company's consolidated financial
position and results of operations.
PPS also imposes significant documentation requirements on skilled nursing
facilities to demonstrate the acuity level of Medicare patients and other
factors which will directly impact billing and payment rates to the Company, as
well as compliance with PPS rules and regulations. The Company has implemented
new and enhanced information systems to help ensure compliance with PPS.
Company-wide training on PPS and other 1997 Act provisions has been conducted.
As a result of these and other preparations, the Company believes it will be
positioned to operate effectively under PPS.
The Company's future operating performance will continue to be affected by
the issues facing the long-term healthcare industry as a whole, including the
maintenance of occupancy, its ability to continue to expand
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higher margin businesses, 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 healthcare reform measures
that may be taken by the federal government, as discussed above, 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.
YEAR 2000 REMEDIATION
GENERAL
Computer programs and embedded chips that utilize a two digit year in their
processing logic may interpret the year "00" as the year 1900 rather than the
year 2000. This could result in system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company is addressing its own processing logic issues, as well
as those of third parties, which may impact the Company through the year 2000
Project (the "Y2K Project").
In 1996, the Company began a major systems initiative to upgrade or replace
all of its integrated financial application software to facilitate the adoption
of a new standard chart of accounts. As part of that major initiative, the
Company took the necessary steps to upgrade or replace the applications with
year 2000 compliant releases of the software whenever possible. For those
purchased software applications where the year 2000 release was not available at
that time, the upgrades to the compliant releases are being addressed as part of
the Y2K Project. The Company has not postponed any of its other information
technology projects as a result of the Y2K Project.
Y2K PROJECT
The Company's Y2K Project is divided into four major components: technology
infrastructure; applications software; third party vendors, suppliers and major
customers; and business unit operating equipment. The phases of the Y2K Project
that are common to all components include: inventory of date-dependent hardware,
software, and operating equipment; assessment of identified items to determine
current year 2000 compliance status; repair or replacement of material
non-compliant items; testing of material items for compliance; and development
of contingency plans for each operating unit.
The technology infrastructure component and the applications software
component, together, comprise all of the Company's hardware and systems
software, as well as all electronic interfaces with external parties. The
testing phase for these components is divided into two distinct types of
testing, each with its own timetable. The initial phase of year 2000 testing is
ongoing as hardware and software is remediated, upgraded, or replaced; and upon
successful completion of this phase of testing, the application is moved back
into the production environment. The second phase of year 2000 testing will
occur after the applications have been remediated, upgraded, or replaced, and
have been successfully tested and put back into production. At that time, year
2000 compliance testing will be done in a parallel operating environment in
which the internal system clock will be set forward in time to cross over the
century time boundary. The remediation, upgrade, replacement, and initial
testing of all mission critical mainframe hardware and software was
approximately 83% complete as of December 31, 1998, with the remaining mission
critical applications expected to be completed by the second quarter of 1999.
The trans-century compliance testing began during the first quarter of 1999 and
is scheduled to be completed by the end of the second quarter of 1999.
The third party vendors, suppliers and major customers component of the Y2K
Project includes the process of identifying and prioritizing critical vendors,
suppliers and customers, and communicating with them about their plans and
progress in addressing the year 2000 problem. The Company has completed the
inventory phase of this component of the Y2K Project and has initiated formal
communications with all of the vendors, suppliers, and customers identified as
critical to the Company's operations and initiated follow-up inquiries during
the fourth quarter of 1998 with any that did not respond to the first
communication. Detailed evaluations of the responses for the most critical third
parties were initiated during the fourth quarter of 1998.
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Based on the data obtained and the detailed evaluations being performed,
contingency planning began in the fourth quarter of 1998 and will continue
throughout 1999. The Company has no means of ensuring that third parties will be
year 2000 ready. The inability of third parties to complete their year 2000
resolution process in a timely manner could materially impact the Company. The
Company cannot determine the effect of non-compliance by third parties.
For the business unit operating equipment component of the Y2K Project, the
inventories of each individual operating unit were completed during the third
quarter of 1998, and the data has been compiled and summarized by major
operating category, including: medical devices and equipment; environmental
systems; security systems; telecommunication and office equipment. The Company
is utilizing external resources to test critical equipment impacted by the year
2000 problem, retrofit or replace equipment where necessary, and certify year
2000 compliance of all material date-sensitive equipment. The Company estimates
that all such remediation and testing will be completed by the third quarter of
1999.
COSTS
The Company has, and will continue to, utilize both internal and external
resources to reprogram or replace, test, and implement the software and
operating equipment for year 2000 modifications. The total cost of the Company's
Y2K Project is estimated at approximately $41,000,000 and is being funded
through operating cash flows. The total amount expended on the Y2K Project
through December 31, 1998 was approximately $11,000,000 ($10,000,000 expensed
and $1,000,000 capitalized for new systems and equipment), related to the
activities completed to date for all components and phases of the Y2K Project.
Of the total remaining Y2K Project costs, $13,000,000 is attributable to the
purchase of new hardware, software and operating equipment, which will be
capitalized. The remaining $17,000,000 relates to remediation of hardware,
software, and operating equipment, and will be expensed as incurred.
RISKS
The failure to correct a material year 2000 problem could result in
significant disruptions in, or failures of, normal business activities. Due to
the general uncertainty inherent in the year 2000 problem, due in part to the
uncertainty of the year 2000 readiness of third party vendors, suppliers and
customers, the Company is unable to determine at this time if it will be
impacted by year 2000 disruptions or failures, or whether the consequences of
such year 2000 disruptions or failures will have a material impact on the
Company's consolidated financial position, results of operations or cash flows.
The Company believes that, with the completion of all phases of each component
of the Y2K Project as scheduled, the possibility of significant disruptions of
normal operations should be significantly reduced. However, in the event that
the Company fails to complete the remaining phases of any component of the Y2K
Project, a possible worst case scenario might be that the Company would be
unable to provide uninterrupted service to its patients, invoice customers, or
collect payments. In addition, due to the Company's dependence on Medicare and
Medicaid revenue sources, disruptions in the processing and payment of Medicare
or Medicaid claims could also materially adversely affect the Company. The
General Accounting Office has reported that HCFA, which runs Medicare, is behind
schedule in taking steps to deal with the year 2000 issue, and that it is highly
unlikely that all of the Medicare systems will be compliant in time to ensure
the delivery of uninterrupted benefits and services into the year 2000. The
Company does not know at this time whether there will in fact be a disruption of
Medicare or Medicaid reimbursements and is, therefore, unable to determine the
impact on the Company, its operations or cash flows. In addition, the Company
could be subject to litigation for equipment shutdown or failure to properly
date business records. The amount of potential liability and lost revenue cannot
be reasonably estimated at this time.
The Company is in the process of developing contingency plans for certain
critical applications and will continue development of such plans for all other
applications throughout 1999. These contingency plans involve, among other
actions, manual workarounds, increasing inventories, and adjusting staffing.
The dates on which the Company believes the Y2K Project will be completed
are based on management's best estimates, which were derived utilizing
assumptions of future events, including the continued
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availability of certain resources, third party modification plans, and other
factors. However, there can be no assurance that these estimates will be
achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of the Y2K Project. Specific factors that could cause
differences between the estimates and actual results include, but are not
limited to, the availability and cost of personnel trained in these areas, the
ability to locate and correct all relevant computer codes, timely responses to
and corrections by third parties, and similar uncertainties.
OPERATING RESULTS
1998 COMPARED TO 1997
RESULTS OF OPERATIONS
Operating results for 1997 included the operations of Pharmacy Corporation
of America ("PCA") up until the effective date of the Merger (as discussed
herein). Net loss was $31,021,000 for the year ended December 31, 1998, as
compared to net income of $58,593,000 for the same period in 1997. Net loss for
1998 included a pre-tax charge of approximately $69,400,000 for workforce
reductions, impaired long-lived assets and other unusual items (as discussed
herein). In addition, net loss for 1998 included a $1,660,000 extraordinary
charge, net of income taxes, related to the write-off of unamortized deferred
financing costs associated with the repayment of certain debt instruments, as
well as certain bond refundings, and a cumulative effect adjustment of
$4,415,000, net of income taxes, related to the adoption of SOP 98-5 (as defined
below). Net income for 1997 included a pre-tax charge of $44,000,000 relating to
the December 3, 1997 Reorganization (as discussed herein).
In preparing for the January 1, 1999 implementation of the new Medicare
Prospective Payment System ("PPS"), as well as responding to other legislative
and regulatory changes, the Company reorganized its therapy operations, analyzed
its businesses for impairment issues and implemented new care-delivery and
tracking software. These initiatives, among others, resulted in a fourth quarter
1998 pre-tax charge of approximately $69,400,000, including $3,800,000 for
workforce reductions, $58,700,000 for asset impairments and $6,900,000 for
various other items.
During the fourth quarter of 1998, the Company reorganized all employed
therapy associates into a newly formed subsidiary, Beverly Rehabilitation, Inc.
("Bev Rehab"), in order to create a more consolidated, strategic approach to
managing the Company's rehabilitation business under PPS. The Company believes
that this reorganization should allow for a more cost-effective and efficient
therapy staff. Bev Rehab also may facilitate the development of additional
rehabilitation business outside the Company. The Company accrued approximately
$2,500,000 related to the termination of 835 therapy associates in conjunction
with this reorganization. Substantially all of the terminated therapy associates
will receive their severance packages and leave the Company during the first
quarter of 1999. In addition, the Company's home care and outpatient therapy
units underwent the consolidation and relocation of certain services, including
billing and collections, which resulted in a workforce reduction charge of
approximately $1,300,000 associated with the termination of 236 associates. Of
these 236 associates, 74 associates had been paid and left the Company by
December 31, 1998. The Company paid approximately $233,000 to these 74
associates during the year ended December 31, 1998. The remaining 162 terminated
home care and outpatient therapy associates will receive their severance
packages and leave the Company during the first quarter of 1999.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121") requires impairment losses to be recognized for long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the assets' carrying
amounts. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. SFAS No. 121 also requires that long-lived assets
held for disposal be carried at the lower of carrying value or fair value less
costs to sell, once management has committed the organization to a plan of
disposal.
As previously reported, the Company estimated that the impact of PPS on its
1999 net operating revenues would be a decrease of approximately $70,000,000, as
compared to 1998 Medicare Part A revenues, and the additional decrease related
to Part B therapy limitations and per beneficiary caps would be
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approximately $30,000,000. These significant regulatory changes were an
indicator to management that the carrying values of certain of its nursing
facilities may not be fully recoverable. In addition, there were certain assets
that had 1998 operating losses, and anticipated future operating losses, which
led management to believe that these assets were impaired. Accordingly,
management estimated the undiscounted future cash flows to be generated by each
facility and reduced the carrying value to its estimate of fair value, resulting
in an impairment charge of approximately $9,000,000. Management calculated the
fair values of the impaired facilities by using the present value of estimated
future cash flows, or its best estimate of what such facility, or similar
facilities in that state, would sell for in the open market. Management believes
it has the knowledge to make such estimates of open market sales prices based on
the volume of facilities the Company has purchased and sold in previous years.
Also during the fourth quarter of 1998, management identified nine nursing
facilities with an aggregate carrying value of approximately $14,000,000 which
needed to be replaced in order to increase operating efficiencies, attract
additional census or upgrade the nursing home environment. Management committed
to a plan to construct new facilities to replace these buildings and reduced the
carrying values of these facilities to their estimated salvage values. These
assets are included in the total assets of the Company's Beverly Healthcare
segment. In addition, management committed to a plan to dispose of 24 home care
centers and nine outpatient clinics which had 1998 and expected future period
operating losses. These businesses had an aggregate carrying value of
approximately $16,500,000 and were written down to their fair value less costs
to sell. These assets generated pre-tax losses for the Company of approximately
$5,100,000 during the year ended December 31, 1998. Substantially all of these
assets were purchased during 1998. The Company expects to dispose of these
assets during 1999. These assets are included in the total assets of the
Company's Beverly Care Alliance segment. The Company incurred a charge of
approximately $30,300,000 related to these replacements, closings and planned
disposals. These assets are included in the consolidated balance sheet captions
"Property and equipment, net" and "Goodwill, net."
In addition to the workforce reduction and the SFAS No. 121 charges, the
Company recorded a fourth quarter 1998 impairment charge for other long-lived
assets of approximately $19,400,000 primarily related to the write-off of
software and software development costs. In conjunction with the implementation
of business process changes, and the need for enhanced data-gathering and
reporting required to operate effectively under PPS, the Company installed new
clinical software in each of its nursing homes during late-1998, which made
obsolete the previously employed software. In addition, certain of the Company's
other ongoing software development projects were abandoned or written down due
to obsolescence, feasibility or cost recovery issues.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"), which provides
guidance on the financial reporting of start-up and organization costs. SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. Prior to 1998, the Company capitalized start-up costs in connection
with the opening of new facilities and businesses. The Company adopted the
provisions of SOP 98-5 in its financial statements for the year ended December
31, 1998. The effect of adopting SOP 98-5 was to decrease the Company's pre-tax
loss from continuing operations in 1998 by approximately $1,000,000 and to
record a charge for the cumulative effect of an accounting change, as of January
1, 1998, of $4,415,000, net of income taxes, or $0.04 per share, to expense
costs that had previously been capitalized.
INCOME TAXES
The Company had an annual effective tax rate of 51% for the year ended
December 31, 1998, compared to an annual effective tax rate of 46% for the same
period in 1997. The annual effective tax rate in 1998 was different than the
federal statutory rate primarily due to the impact of the sale of American
Transitional Hospitals, Inc. ("ATH"), the benefit of certain tax credits and the
pre-tax charge of $69,400,000 (as discussed 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. The
annual effective tax rate in 1997 was different than the federal statutory rate
primarily due to the impact of nondeductible transaction costs associated with
the Reorganization. At December 31, 1998, the Company had federal net
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operating loss carryforwards of $50,989,000 for income tax purposes which expire
in 2018. At December 31, 1998, the Company had general business tax credit
carryforwards of $5,270,000 for income tax purposes which expire in years 2008
through 2014. For financial reporting purposes, the federal net operating loss
carryforwards and the general business tax credit carryforwards have been
utilized to offset existing net taxable temporary differences reversing during
the carryforward periods.
NET OPERATING REVENUES
The Company reported net operating revenues of $2,812,232,000 during the
year ended December 31, 1998 compared to $3,217,099,000 for the same period in
1997. Approximately 90% and 80% of the Company's total net operating revenues
for the years ended December 31, 1998 and 1997, respectively, were derived from
services provided by the Company's Beverly Healthcare segment. The decrease in
net operating revenues of approximately $404,900,000 for the year ended December
31, 1998, as compared to the same period in 1997, consists of the following: a
decrease of approximately $599,900,000 due to the disposition of, or lease
terminations on, 26 nursing facilities and ATH in 1998 and 68 nursing facilities
and PCA in 1997; partially offset by an increase of approximately $155,100,000
due to the acquisitions of nursing facilities and outpatient, home care and
hospice businesses during 1998 and 1997; and an increase of approximately
$39,900,000 due to facilities which the Company operated during each of the
years ended December 31, 1998 and 1997 ("same facility operations").
The decrease in net operating revenues of approximately $599,900,000 for
1998, as compared to the same period in 1997, resulting from dispositions and
lease terminations that occurred during the years ended December 31, 1998 and
1997 are described below. During the year ended December 31, 1998, the Company
sold or terminated the leases on 26 nursing facilities (3,203 beds) and certain
other assets for cash proceeds of approximately $52,500,000 (approximately
$35,600,000 of which was included in accounts receivable-nonpatient at December
31, 1998), notes receivable of approximately $21,300,000, assumed debt of
approximately $4,600,000 and closing and other costs of approximately
$2,300,000. The Company did not operate seven of these nursing facilities (893
beds) which were leased to other nursing home operators in prior year
transactions. The Company recognized net pre-tax gains, which were included in
net operating revenues, during the year ended December 31, 1998 of approximately
$17,900,000 as a result of these dispositions. During the year ended December
31, 1997, the Company sold or terminated the leases on 68 nursing facilities
(8,314 beds) and certain other assets for cash proceeds of approximately
$146,800,000. The Company recognized net pre-tax gains, which were included in
net operating revenues, during the year ended December 31, 1997 of approximately
$19,900,000 as a result of these dispositions. The operations of these
facilities and certain other assets were immaterial to the Company's
consolidated financial position and results of operations.
In June 1998, the Company completed the sale of its ATH subsidiary to
Select Medical Corporation for cash of approximately $65,300,000 and assumed
debt of approximately $2,400,000. Prior to the sale, ATH operated 15
transitional hospitals (743 beds) in eight states which addressed the needs of
patients requiring intense therapy regimens, but not necessarily the breadth of
services provided within traditional acute care hospitals. The Company
recognized a pre-tax gain, which was included in net operating revenues, of
approximately $16,000,000 during the year ended December 31, 1998 as a result of
this disposition. The operations of ATH were immaterial to the Company's
consolidated financial position and results of operations.
On December 3, 1997, the Company completed the merger of PCA with Capstone
Pharmacy Services, Inc. (the "Merger"). As a result of the Merger, the Company
received approximately $281,000,000 of cash as partial repayment for PCA's
intercompany debt, with a charge to the Company's retained earnings of
approximately $45,100,000 for the remaining intercompany balance which was not
repaid. Pursuant to the Reorganization, each of the Company's stockholders of
record at the close of business on December 3, 1997 received .4551 shares of
PharMerica, Inc.'s common stock for each share of the Company's Common Stock
held. The conversion ratio was based on a total of 109,873,230 outstanding
shares of the Company's Common Stock at the close of business on December 3,
1997 divided into the 50,000,000 shares issued by PharMerica, Inc.
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In connection with the Reorganization, the Company incurred $44,000,000 of
transaction costs related to the restructuring, repayment or renegotiating of
substantially all of the Company's outstanding debt instruments, as well as the
renegotiating or making of certain payments, primarily in the form of
accelerated vesting of stock-based awards, under various employment agreements
with officers of the Company. Such amounts were funded with a portion of the
$281,000,000 proceeds received as partial repayment of PCA's intercompany debt,
as discussed above. Included in the $44,000,000 of transaction costs were
approximately $18,000,000 of non-cash expenses related to various long-term
incentive agreements.
At the date of the Merger, PCA had total assets of approximately
$489,200,000, total liabilities of approximately $368,000,000 and total
stockholder's equity of approximately $121,200,000. Total net operating revenues
for PCA for the years ended December 31, 1997 and 1996 were approximately
$564,200,000 and $516,400,000, respectively. Total net operating revenues for
PCA for the year ended December 31, 1997 represent the operations of PCA prior
to the Merger.
The increase in net operating revenues of approximately $155,100,000 for
1998, as compared to the same period in 1997, resulting from acquisitions which
occurred during the years ended December 31, 1998 and 1997 are described below.
During the year ended December 31, 1998, the Company purchased 111 outpatient
clinics, 50 home care centers, eight nursing facilities (823 beds), one assisted
living center (48 units), two previously leased nursing facilities (228 beds)
and certain other assets for cash of approximately $163,200,000, acquired debt
of approximately $8,000,000 and closing and other costs of approximately
$7,000,000. During the year ended December 31, 1997, the Company purchased six
previously leased nursing facilities (758 beds) and certain other assets
including, among other things, 14 institutional pharmacies and 40 outpatient
clinics, for cash of approximately $60,800,000 and closing and other costs of
approximately $9,500,000. The acquisitions of such facilities and certain other
assets were accounted for as purchases. The operations of these facilities and
certain other assets were immaterial to the Company's consolidated financial
position and results of operations.
The increase in net operating revenues of approximately $39,900,000 for
same facility operations for the year ended December 31, 1998, as compared to
the same period in 1997, was due to the following: approximately $92,300,000 due
to increases in room and board rates and approximately $6,100,000 due to various
other items; partially offset by approximately $30,400,000 decrease in ancillary
revenues due to a decline in the Company's Medicare census and, to a lesser
extent, as a result of hiring therapists on staff as opposed to contracting for
their services; approximately $19,900,000 due to a decrease in same facility
occupancy to 89.3% for the year ended December 31, 1998, as compared to 90.1%
for the same period in 1997; and approximately $8,200,000 due to a shift in the
Company's patient mix. The Company's Medicare, private and Medicaid census for
same facility operations was 10%, 20% and 69%, respectively, for the year ended
December 31, 1998, as compared to 12%, 19% and 68%, respectively, for the same
period in 1997.
OPERATING AND ADMINISTRATIVE EXPENSES
The Company reported operating and administrative expenses of
$2,633,135,000 during the year ended December 31, 1998 compared to
$2,888,021,000 for the same period in 1997. The decrease of approximately
$254,900,000 consists of the following: a decrease of approximately $534,700,000
due to dispositions; partially offset by an increase of approximately
$141,400,000 due to acquisitions; and an increase of approximately $138,400,000
due to same facility operations. (See above for a discussion of dispositions and
acquisitions).
The increase in operating and administrative expenses of approximately
$138,400,000 for same facility operations for the year ended December 31, 1998,
as compared to the same period in 1997, was due to the following: approximately
$66,500,000 due to an increase in the provision for insurance and related items;
approximately $61,400,000 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 $32,900,000 due to increases in
purchased ancillary products, nursing supplies and other variable costs; and
approximately $13,300,000 due to various other items. These increases in
operating and administrative expenses were partially offset by approximately
$35,700,000
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due to a decrease in contracted therapy expenses as a result of hiring
therapists on staff as opposed to contracting for their services.
On December 31, 1998, Beverly Indemnity, Ltd., a wholly-owned subsidiary of
the Company, completed a risk transfer of substantially all of its pre-May 1998
auto liability, general liability and workers' compensation claims liability to
a third party insurer effected through a loss portfolio transfer valued as of
December 31, 1998. In exchange for a premium of approximately $116,000,000 (paid
primarily from restricted cash and investments), the Company acquired
reinsurance of approximately $180,000,000 to insure such auto liability, general
liability and workers' compensation losses. In addition, in exchange for a
premium of approximately $4,000,000, the Company acquired excess coverage of
approximately $20,000,000 for general liability losses. Based upon estimates and
analyses by its outside actuaries, the Company believes that the risk of such
liabilities exceeding the aggregate limit is remote, although there can be no
assurance that such liabilities will not exceed the aggregate limit. The
Company's provision for insurance and related items increased approximately
$82,200,000 during the fourth quarter of 1998 primarily as a result of this
transaction.
INTEREST EXPENSE, NET
Net interest expense decreased approximately $14,300,000 to $55,230,000 for
the year ended December 31, 1998, as compared to $69,512,000 for the same period
in 1997 primarily due to the conversion of the Company's 5 1/2% convertible
subordinated debentures to Common Stock in the third quarter of 1997, as well as
the repayments of the Company's 7 5/8% convertible subordinated debentures, the
8 3/4% Notes and certain other notes and mortgages during the fourth quarter of
1997 with the proceeds from the PCA transaction.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased approximately $13,300,000
to $93,722,000 for the year ended December 31, 1998, as compared to $107,060,000
for the same period in 1997. Such decrease was affected by the following:
approximately $25,900,000 decrease due to the dispositions of, or lease
terminations on, certain nursing facilities, ATH and PCA; partially offset by an
increase of approximately $12,600,000 due to acquisitions, as well as capital
additions and improvements.
NEW ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), which is required to be adopted by the Company in
the first quarter of 1999. SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use. The Company
does not expect the adoption of SOP 98-1 to have a material effect on its
consolidated financial position or results of operations.
1997 COMPARED TO 1996
RESULTS OF OPERATIONS
Operating results for 1997 included the operations of PCA up until the
effective date of the Merger (as discussed above). Net income was $58,593,000
for the year ended December 31, 1997, as compared to net income of $50,300,000
for the same period in 1996. Net income for 1997 included a pre-tax charge of
$44,000,000 relating to the December 3, 1997 Reorganization (as discussed
above). Net income for 1996 included a $1,726,000 extraordinary charge, net of
income taxes, related to the write-off of unamortized deferred financing costs
related to certain refinanced debt.
INCOME TAXES
The Company had an annual effective tax rate of 46% for the year ended
December 31, 1997, compared to an annual effective tax rate of 59% for the same
period in 1996. The annual effective tax rate in 1997 was different than the
federal statutory rate primarily due to the impact of nondeductible transaction
costs
25
<PAGE> 27
associated with the Reorganization. The annual effective tax rate in 1996 was
different than the federal statutory rate primarily due to the impact of
nondeductible goodwill associated with the sale of the Company's MedView
Services unit ("MedView").
NET OPERATING REVENUES
The Company reported net operating revenues of $3,217,099,000 during the
year ended December 31, 1997 compared to $3,267,189,000 for the same period in
1996. Approximately 80% and 82% of the Company's total net operating revenues
for the years ended December 31, 1997 and 1996, respectively, were derived from
services provided by the Company's Beverly Healthcare segment. Approximately 15%
and 13% of the Company's total net operating revenues for the years ended
December 31, 1997 and 1996, respectively, were derived from services provided by
the Company's PCA segment. The decrease in net operating revenues of
approximately $50,100,000 for the year ended December 31, 1997, as compared to
the same period in 1996, consists of the following: a decrease of approximately
$246,500,000 due to the disposition of, or lease terminations on, 68 nursing
facilities in 1997 and 83 nursing facilities and MedView in 1996; partially
offset by an increase of approximately $100,300,000 due to facilities which the
Company operated during each of the years ended December 31, 1997 and 1996
("same facility operations"); an increase of approximately $57,800,000 due to
the acquisitions of nursing facilities, outpatient and hospice businesses during
1997 and 1996; and an increase of approximately $38,300,000 due to the
operations of PCA.
The decrease in net operating revenues of approximately $246,500,000 for
1997, as compared to the same period in 1996, resulting from dispositions and
lease terminations that occurred during the year ended December 31, 1996 are
described below. (See above for discussion of 1997 dispositions). During the
year ended December 31, 1996, the Company sold or terminated the leases on 83
nursing facilities (5,230 beds) and certain other assets for cash proceeds of
approximately $36,700,000 and approximately $4,200,000 of notes receivable. The
Company recognized net pre-tax gains, which were included in net operating
revenues, during the year ended December 31, 1996 of approximately $6,300,000 as
a result of these dispositions. The operations of these facilities and certain
other assets were immaterial to the Company's consolidated financial position
and results of operations.
In November 1996, the Company sold its MedView unit for cash of
approximately $89,700,000 (approximately $2,200,000 of which was included in
accounts receivable-nonpatient at December 31, 1996). Prior to the sale, MedView
provided a full range of managed care services to the workers' compensation
market. It also offered case management and injury reporting and tracking
services. The Company recognized a pre-tax gain, which was included in net
operating revenues, of approximately $14,700,000 during the year ended December
31, 1996 as a result of this disposition. The operations of MedView were
immaterial to the Company's consolidated financial position and results of
operations.
The increase in net operating revenues of approximately $100,300,000 for
same facility operations for the year ended December 31, 1997, as compared to
the same period in 1996, was due to the following: approximately $103,200,000
due to increases in room and board rates and approximately $11,800,000 due
primarily to increases in ancillary revenues and various other items. These
increases in net operating revenues were partially offset by approximately
$9,300,000 due to a decrease in same facility occupancy to 89.8% for the year
ended December 31, 1997, as compared to 90.3% for the same period in 1996 and
approximately $5,400,000 due to one less calendar day for the year ended
December 31, 1997, as compared to the same period in 1996.
The increase in net operating revenues of approximately $57,800,000 for
1997, as compared to the same period in 1996, resulting from acquisitions which
occurred during the year ended December 31, 1996 are described below. (See above
for discussion of 1997 acquisitions). During the year ended December 31, 1996,
the Company acquired 22 nursing facilities (2,138 beds) (15 of such facilities
(1,747 beds) were previously leased), one previously managed nursing facility
(180 beds) and certain other assets including, among other things, pharmacy,
hospice and outpatient businesses, for cash of approximately $80,800,000,
acquired debt of approximately $7,500,000, closing and other costs of
approximately $7,000,000, reduction in receivables of approximately $4,800,000
and security and other deposits of approximately $1,900,000. The Company did not
26
<PAGE> 28
operate three of these nursing facilities which had been subleased to other
nursing home operators in prior year transactions. The acquisitions of these
facilities and certain other assets were accounted for as purchases. The
operations of these facilities and certain other assets were immaterial to the
Company's consolidated financial position and results of operations.
OPERATING AND ADMINISTRATIVE EXPENSES
The Company reported operating and administrative expenses of
$2,888,021,000 during the year ended December 31, 1997 compared to
$2,958,942,000 for the same period in 1996. The decrease of approximately
$70,900,000 consists of the following: a decrease of approximately $215,900,000
due to dispositions; partially offset by an increase of approximately
$77,600,000 due to same facility operations; an increase of approximately
$51,500,000 due to acquisitions; and an increase of approximately $15,900,000
due to the operations of PCA. (See above for a discussion of dispositions and
acquisitions).
The increase in operating and administrative expenses of approximately
$77,600,000 for same facility operations for the year ended December 31, 1997,
as compared to the same period in 1996, was due to the following: approximately
$66,000,000 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 increased patient acuity; approximately $18,200,000 due primarily to
increases in purchased ancillary products; approximately $14,300,000 due to
increases in nursing supplies and other variable costs; and approximately
$7,800,000 due to various other items. These increases in operating and
administrative expenses were partially offset by approximately $20,700,000 due
to a decrease in contracted therapy expenses as a result of hiring therapists on
staff as opposed to contracting for their services and approximately $8,000,000
due to a decrease in insurance-related expenses primarily due to a reduction in
loss payments for the Company's workers' compensation claims liability.
INTEREST EXPENSE, NET
Net interest expense decreased approximately $7,800,000 to $69,512,000 for
the year ended December 31, 1997, as compared to $77,272,000 for the same period
in 1996 primarily due to repayments of the term loan and revolver borrowings
under the Company's 1994 Credit Agreement, the term loan under the Company's
1992 Credit Facility and the Nippon Term Loan during late 1996 with the proceeds
from a new credit facility, as well as the redemption of the Company's 5 1/2%
convertible subordinated debentures in the third quarter of 1997 and the debt
repayments made during the fourth quarter of 1997 with the proceeds from the
Merger (as discussed above).
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased approximately $1,600,000 to
$107,060,000 for the year ended December 31, 1997, as compared to $105,468,000
for the same period in 1996. Such increase was affected by the following:
approximately $9,900,000 increase primarily due to capital additions and
improvements, as well as acquisitions; partially offset by a decrease of
approximately $8,300,000 related to the disposition of, or lease terminations
on, certain nursing facilities and MedView.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had approximately $17,300,000 in cash and
cash equivalents and net working capital of approximately $338,800,000. The
Company anticipates that approximately $4,000,000 of its existing cash at
December 31, 1998, while not legally restricted, will be utilized primarily to
fund certain workers' compensation and general liability claims and expenses,
and the Company does not expect to use such cash for other purposes. The Company
had approximately $93,800,000 of unused commitments under its Revolver/Letter of
Credit Facility as of December 31, 1998.
Net cash provided by operating activities for the year ended December 31,
1998 decreased approximately $137,400,000 to $6,800,000 as compared to
$144,200,000 for 1997, primarily due to an increase in accounts
27
<PAGE> 29
receivable-patient. This increase was primarily the result of changes in certain
Medicare documentation requirements which has lengthened the billing period for
these and other related receivables. Net cash used for investing activities and
net cash provided by financing activities were approximately $230,600,000 and
$135,800,000, respectively, for the year ended December 31, 1998. The Company
received net cash proceeds of approximately $82,100,000 from the dispositions of
facilities and other assets and approximately $9,500,000 from the issuance of
long-term obligations. Such net cash proceeds, along with cash generated from
operations, net borrowings of approximately $251,000,000 under its
Revolver/Letter of Credit Facility and cash on hand, were used to fund
acquisitions of approximately $163,000,000, to fund capital expenditures
totaling approximately $150,500,000, to repay approximately $70,900,000 of
long-term obligations and to repurchase shares of Common Stock for approximately
$56,800,000.
During 1998, the Company entered into promissory notes totaling
approximately $9,500,000 in conjunction with the construction or renovation of
certain nursing facilities. Such debt instruments bear interest at rates ranging
from 7.29% to 8.75%, require monthly installments of principal and interest, and
are secured by mortgage interests in the real property and security interests in
the personal property of the nursing facilities.
The Company has a $125,000,000 financing arrangement available for the
construction of certain facilities. The Company will lease the facilities, under
operating leases with the creditor, upon completion of construction. The Company
will have the option to purchase these facilities at the end of the initial
lease terms. Total construction advances under the financing arrangement as of
December 31, 1998 were approximately $54,000,000.
In June 1996, the Company announced that its Board of Directors had
authorized a stock repurchase program whereby the Company may repurchase, from
time to time on the open market, up to a total of 10,000,000 shares of its
outstanding Common Stock. In December 1997, the Company repurchased 4,000,000
shares of its Common Stock through an accelerated stock repurchase transaction
at a cost of approximately $56,100,000 (approximately $5,700,000 of which was
paid during 1998). During 1998, the Company repurchased 3,000,000 shares of its
Common Stock, through a similar transaction, and approximately 900,000 shares on
the open market at a total cost of approximately $51,100,000. The repurchases
were financed primarily through borrowings under the Company's Revolver/Letter
of Credit Facility. On June 2, 1998, the Company announced that its Board of
Directors had authorized an increase in its stock repurchase program. The
Company may repurchase from time to time on the open market, up to an additional
10,000,000 shares of its outstanding Common Stock. Since June 1996, the Company
has repurchased approximately 10,200,000 shares of its outstanding Common Stock
under the stock repurchase program. The Company is subject to certain
restrictions under its credit arrangements related to the repurchase of its
outstanding Common Stock.
The Company believes that its existing cash and cash equivalents, working
capital from operations, borrowings under its banking arrangements, issuance of
certain debt securities and refinancings of certain existing indebtedness will
be adequate to repay its debts due within one year of approximately $27,800,000,
to make normal recurring capital additions and improvements of approximately
$102,000,000, to make selective acquisitions, including the purchase of
previously leased facilities, to construct new facilities, and to meet working
capital requirements for the twelve months ending December 31, 1999.
Any settlement of the federal government investigation could result in a
substantial additional liability for the Company. The timing and amount of such
ultimate liability cannot, at this time, be reasonably estimated; however, it is
possible that the ultimate resolution of this investigation could have a
material adverse effect on the Company's consolidated financial position,
results of operations and cash flows. See "Item 3. Legal Proceedings."
As of December 31, 1998, the Company had total indebtedness of
approximately $906,000,000 and total stockholders' equity of approximately
$776,200,000. The ability of the Company to satisfy its long-term obligations
will be dependent upon its future performance, which will be subject to
prevailing economic conditions and to financial, business and other factors
beyond the Company's control, such as federal and state healthcare reform. In
addition, healthcare service providers, such as the Company, operate in an
industry that is currently subject to significant changes from business
combinations, new strategic alliances, legislative
28
<PAGE> 30
reform, increased regulatory oversight, aggressive marketing practices by
competitors and market pressures. In this environment, the Company is frequently
contacted by, and otherwise engages in discussions with, other healthcare
companies and financial advisors regarding possible strategic alliances, joint
ventures, business combinations and other financial alternatives. The terms of
substantially all of the Company's debt instruments require the Company to repay
or refinance indebtedness under such debt instruments in the event of a change
of control. There can be no assurance that the Company will have the financial
resources to repay such indebtedness upon a change of control.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk because it utilizes financial
instruments. The market risks inherent in these instruments are represented by
the potential loss due to adverse changes in the general level of U.S. interest
rates. The Company manages its interest rate risk exposure by maintaining a mix
of fixed and variable rates for debt and notes receivable. The following table
provides information regarding the Company's market sensitive financial
instruments and constitutes a forward-looking statement.
<TABLE>
<CAPTION>
FAIR VALUE
JANUARY 1,
EXPECTED MATURITY DATES 1999 2000 2001 2002 2003 THEREAFTER TOTAL 1999
- ----------------------- ------- ------- -------- ------- ------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total long-term obligations:
Fixed Rate........... $27,129 $28,867 $ 23,851 $21,561 $28,491 $430,181 $560,080 $585,394
Average Interest
Rate............... 8.32% 8.21% 8.39% 8.16% 8.42% 8.85%
Variable Rate........ $ 644 $40,657 $266,775 $23,799 $ 920 $ 13,168 $345,963 $344,060
Average Interest
Rate............... 5.91% 5.58% 6.07% 5.61% 5.86% 5.81%
Total notes receivable:
Fixed Rate........... $20,616 $12,257 $ 5,728 $ 425 $ 3,724 $ 890 $ 43,640 $ 43,600
Average Interest
Rate............... 9.53% 10.07% 10.73% 9.50% 9.13% 10.28%
Variable Rate........ $ 42 $ 51 $ 53 $ 59 $ 64 $ 933 $ 1,202 $ 1,300
Average Interest
Rate............... 8.75% 8.75% 8.75% 8.75% 8.75% 8.75%
</TABLE>
29
<PAGE> 31
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 31
Consolidated Balance Sheets................................. 32
Consolidated Statements of Operations....................... 33
Consolidated Statements of Stockholders' Equity............. 34
Consolidated Statements of Cash Flows....................... 35
Notes to Consolidated Financial Statements.................. 36
Supplementary Data (Unaudited) -- Quarterly Financial
Data...................................................... 58
</TABLE>
30
<PAGE> 32
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Beverly Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Beverly
Enterprises, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Beverly Enterprises, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ ERNST & YOUNG LLP
Little Rock, Arkansas
February 3, 1999
31
<PAGE> 33
BEVERLY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 17,278 $ 105,230
Accounts receivable -- patient, less allowance for
doubtful accounts:
1998 -- $21,764; 1997 -- $17,879....................... 463,822 384,833
Accounts receivable -- nonpatient, less allowance for
doubtful accounts:
1998 -- $441; 1997 -- $626............................. 85,585 14,400
Notes receivable.......................................... 21,075 4,409
Operating supplies........................................ 32,133 30,439
Deferred income taxes..................................... 56,512 27,304
Prepaid expenses and other................................ 19,565 59,703
---------- ----------
Total current assets.............................. 695,970 626,318
Property and equipment, net................................. 1,120,315 1,158,329
Other assets:
Notes receivable, less allowance for doubtful notes:
1998 -- $2,921; 1997 -- $2,917......................... 21,263 20,564
Designated and restricted funds........................... 4,029 64,233
Goodwill, net............................................. 217,066 99,280
Other, net................................................ 101,868 104,745
---------- ----------
Total other assets................................ 344,226 288,822
---------- ----------
$2,160,511 $2,073,469
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 85,533 $ 75,791
Accrued wages and related liabilities..................... 96,092 123,146
Accrued interest.......................................... 12,783 15,108
Other accrued liabilities................................. 134,975 98,421
Current portion of long-term obligations.................. 27,773 31,551
---------- ----------
Total current liabilities......................... 357,156 344,017
Long-term obligations....................................... 878,270 686,941
Deferred income taxes payable............................... 114,962 111,388
Other liabilities and deferred items........................ 33,917 68,618
Commitments and contingencies
Stockholders' equity:
Preferred stock, shares authorized: 25,000,000............ -- --
Common stock, shares issued: 1998 -- 110,275,714; 1997 --
109,890,205............................................ 11,028 10,989
Additional paid-in capital................................ 876,383 874,335
Retained earnings (deficit)............................... (4,782) 26,239
Accumulated other comprehensive income.................... 760 1,332
Treasury stock, at cost: 1998 -- 7,886,800 shares;
1997 -- 4,000,000 shares............................... (107,183) (50,390)
---------- ----------
Total stockholders' equity........................ 776,206 862,505
---------- ----------
$2,160,511 $2,073,469
========== ==========
</TABLE>
See accompanying notes.
32
<PAGE> 34
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net operating revenues................................... $2,812,232 $3,217,099 $3,267,189
Interest income.......................................... 10,708 13,201 13,839
---------- ---------- ----------
Total revenues................................. 2,822,940 3,230,300 3,281,028
Costs and expenses:
Operating and administrative:
Wages and related................................... 1,664,741 1,713,224 1,749,855
Provision for insurance and related items........... 154,267 87,780 95,807
Other............................................... 814,127 1,087,017 1,113,280
Interest............................................... 65,938 82,713 91,111
Depreciation and amortization.......................... 93,722 107,060 105,468
Workforce reductions, asset impairments, transaction
costs and other unusual items....................... 69,443 44,000 --
Year 2000 remediation.................................. 9,719 -- --
Investigation costs.................................... 1,865 -- --
---------- ---------- ----------
Total costs and expenses....................... 2,873,822 3,121,794 3,155,521
---------- ---------- ----------
Income (loss) before provision for (benefit from) income
taxes, extraordinary charge and cumulative effect of
change in accounting for start-up costs................ (50,882) 108,506 125,507
Provision for (benefit from) income taxes................ (25,936) 49,913 73,481
---------- ---------- ----------
Income (loss) before extraordinary charge and cumulative
effect of change in accounting for start-up costs...... (24,946) 58,593 52,026
Extraordinary charge, net of income tax benefit of $1,057
in 1998 and $1,099 in 1996............................. (1,660) -- (1,726)
Cumulative effect of change in accounting for start-up
costs, net of income tax benefit of $2,811............. (4,415) -- --
---------- ---------- ----------
Net income (loss)........................................ $ (31,021) $ 58,593 $ 50,300
========== ========== ==========
Income (loss) per share of common stock:
Basic:
Before extraordinary charge and cumulative effect of
change in accounting for start-up costs........... $ (.24) $ .57 $ .53
Extraordinary charge................................ (.02) -- (.02)
Cumulative effect of change in accounting for
start-up costs.................................... (.04) -- --
---------- ---------- ----------
Net income (loss)................................... $ (.30) $ .57 $ .51
========== ========== ==========
Shares used to compute per share amounts............ 103,762 102,060 98,574
========== ========== ==========
Diluted:
Before extraordinary charge and cumulative effect of
change in accounting for start-up costs........... $ (.24) $ .57 $ .50
Extraordinary charge................................ (.02) -- (.01)
Cumulative effect of change in accounting for
start-up costs.................................... (.04) -- --
---------- ---------- ----------
Net income (loss)................................... $ (.30) $ .57 $ .49
========== ========== ==========
Shares used to compute per share amounts............ 103,762 103,422 110,726
========== ========== ==========
</TABLE>
See accompanying notes.
33
<PAGE> 35
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER
PREFERRED COMMON PAID-IN EARNINGS COMPREHENSIVE TREASURY
STOCK STOCK CAPITAL (DEFICIT) INCOME STOCK TOTAL
--------- ------- ---------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996......... $ -- $10,262 $766,549 $ 83,657 $ -- $ (40,135) $ 820,333
Employee stock transactions,
net............................. -- 181 8,123 -- -- -- 8,304
Purchase of 1,451,200 shares of
common stock for treasury....... -- -- -- -- -- (17,842) (17,842)
Net income and total comprehensive
income.......................... -- -- -- 50,300 -- -- 50,300
------- ------- -------- --------- ----------- --------- ---------
Balances at December 31, 1996....... -- 10,443 774,672 133,957 -- (57,977) 861,095
Employee stock transactions,
net............................. -- 54 21,314 -- -- -- 21,368
Purchase of 4,850,700 shares of
common stock for treasury....... -- -- -- -- -- (62,729) (62,729)
Cancellation and retirement of
6,274,108 shares of common stock
held in treasury................ -- (627) (69,689) -- -- 70,316 --
Disposition of PCA................ -- -- -- (121,230) -- -- (121,230)
Forgiveness of PCA intercompany
balance......................... -- -- -- (45,081) -- -- (45,081)
Conversion of 5 1/2% Debentures
into common stock............... -- 1,119 147,991 -- -- -- 149,110
Conversion of 7 5/8% Debentures
into common stock............... -- -- 47 -- -- -- 47
Comprehensive income:
Unrealized gains on securities,
net of income taxes of $896... -- -- -- -- 1,332 -- 1,332
Net income...................... -- -- -- 58,593 -- -- 58,593
---------
Total comprehensive income........ -- -- -- -- -- -- 59,925
------- ------- -------- --------- ----------- --------- ---------
Balances at December 31, 1997....... -- 10,989 874,335 26,239 1,332 (50,390) 862,505
Employee stock transactions,
net............................. -- 39 2,048 -- -- -- 2,087
Purchase of 3,886,800 shares of
common stock for treasury....... -- -- -- -- -- (51,120) (51,120)
Settlement of amounts due from
1997 purchase of 4,000,000
shares of common stock for
treasury........................ -- -- -- -- -- (5,673) (5,673)
Comprehensive income (loss):
Unrealized gains on securities,
net of income taxes of $795... -- -- -- -- 1,183 -- 1,183
Adjustment to unrealized gains
on securities, net of income
tax benefit of $1,180......... -- -- -- -- (1,755) -- (1,755)
Net loss........................ -- -- -- (31,021) -- -- (31,021)
---------
Total comprehensive loss.......... -- -- -- -- -- -- (31,593)
------- ------- -------- --------- ----------- --------- ---------
Balances at December 31, 1998....... $ -- $11,028 $876,383 $ (4,782) $ 760 $(107,183) $ 776,206
======= ======= ======== ========= =========== ========= =========
</TABLE>
See accompanying notes.
34
<PAGE> 36
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (31,021) $ 58,593 $ 50,300
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 93,722 107,060 105,468
Provision for reserves on patient, notes and other
receivables, net...................................... 25,249 34,341 28,544
Amortization of deferred financing costs................ 2,336 3,163 3,210
Workforce reductions, asset impairments, transaction
costs and other unusual items......................... 69,443 44,000 --
Extraordinary charge.................................... 2,717 -- 2,825
Cumulative effect of change in accounting for start-up
costs................................................. 7,226 -- --
Gains on dispositions of facilities and other assets,
net................................................... (33,853) (19,901) (20,951)
Deferred taxes.......................................... (28,105) 20,247 33,765
Insurance related accounts.............................. 39,587 (25,432) (22,336)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable -- patient....................... (132,199) (46,639) (25,851)
Operating supplies.................................... (1,239) (3,911) 3,226
Prepaid expenses and other receivables................ 240 (18,749) 771
Accounts payable and other accrued expenses........... 24,945 3,377 (53,029)
Income taxes payable.................................. (27,729) (7,305) 26,711
Other, net............................................ (4,530) (4,640) 527
----------- ----------- -----------
Total adjustments.................................. 37,810 85,611 82,880
----------- ----------- -----------
Net cash provided by operating activities.......... 6,789 144,204 133,180
Cash flows from investing activities:
Capital expenditures...................................... (150,451) (133,087) (136,442)
Payments for acquisitions, net of cash acquired........... (162,969) (61,567) (80,981)
Proceeds from dispositions of facilities and other
assets.................................................. 82,119 421,412 121,660
Collections on notes receivable and REMIC investment...... 6,089 32,273 12,809
Other, net................................................ (5,374) (28,178) (8,547)
----------- ----------- -----------
Net cash provided by (used for) investing
activities....................................... (230,586) 230,853 (91,501)
Cash flows from financing activities:
Revolver borrowings....................................... 1,328,000 1,604,000 1,308,000
Repayments of Revolver borrowings......................... (1,077,000) (1,745,000) (1,230,000)
Proceeds from issuance of long-term obligations........... 9,495 31,137 228,862
Repayments of long-term obligations....................... (70,878) (166,369) (318,447)
Purchase of common stock for treasury..................... (56,793) (65,126) (15,445)
Proceeds from exercise of stock options................... 3,092 5,401 3,620
Deferred financing costs.................................. (730) (1,251) (7,560)
Dividends paid on preferred stock......................... -- -- (688)
Proceeds from designated funds, net....................... 659 (2,380) 3,437
----------- ----------- -----------
Net cash provided by (used for) financing
activities....................................... 135,845 (339,588) (28,221)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ (87,952) 35,469 13,458
Cash and cash equivalents at beginning of year.............. 105,230 69,761 56,303
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 17,278 $ 105,230 $ 69,761
=========== =========== ===========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized).................... $ 65,927 $ 81,411 $ 81,193
Income taxes (net of refunds)........................... 26,030 36,971 11,906
</TABLE>
See accompanying notes.
35
<PAGE> 37
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
References herein to the Company include Beverly Enterprises, Inc. and its
wholly-owned subsidiaries.
Beverly Enterprises, Inc. (formerly known as New Beverly Holdings, Inc.),
which was incorporated on April 15, 1997 ("New Beverly"), is the successor to
the former Beverly Enterprises, Inc., which was incorporated on February 27,
1987 ("Old Beverly"), as the result of a tax-free reorganization completed
December 3, 1997 (the "Reorganization") in order to facilitate the merger of
Pharmacy Corporation of America ("PCA") with Capstone Pharmacy Services, Inc.
("Capstone") (the "Merger"). References to Beverly Enterprises, Inc., or the
Company, prior to December 3, 1997 means the predecessor corporation, Old
Beverly. References to Beverly Enterprises, Inc., or the Company, on or after
December 3, 1997 means New Beverly, and New Beverly is treated for accounting
purposes as the continuing reporting entity with respect to the historical and
future operations of the Company. See Note 3 for additional information.
The Company provides healthcare services in 33 states and the District of
Columbia. Its operations include nursing facilities, rehabilitation therapy
services, assisted living centers, home care centers and outpatient clinics. In
addition, prior to June 30, 1998, the Company operated acute long-term
transitional hospitals and, prior to the Merger, institutional and mail service
pharmacies. The consolidated financial statements of the Company include the
accounts of the Company and all of its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and certificates of deposit
with original maturities of three months or less.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation or,
where appropriate, the present value of the related capital lease obligations
less accumulated amortization. Depreciation and amortization are computed by the
straight-line method over the estimated useful lives of the assets.
Intangible Assets
Goodwill (stated at cost less accumulated amortization of $25,547,000 in
1998 and $21,610,000 in 1997) is being amortized over 40 years using the
straight-line method. Operating and leasehold rights and licenses, which are
included in the consolidated balance sheet caption "Other, net," (stated at cost
less accumulated amortization of $18,307,000 in 1998 and $17,442,000 in 1997)
are being amortized over the lives of the related assets (principally 40 years)
and leases (principally 10 to 15 years), using the straight-line method.
On an ongoing basis, the Company reviews the carrying value of its
intangible assets in light of any events or circumstances that indicate they may
be impaired or that the amortization period may need to be adjusted. If such
circumstances suggest the intangible value cannot be recovered, calculated based
on undiscounted
36
<PAGE> 38
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
cash flows over the remaining amortization period, the carrying value of the
intangible will be reduced by such shortfall. As of December 31, 1998, the
Company does not believe there is any indication that the carrying value or the
amortization period of its intangibles needs to be adjusted; however, certain
adjustments were made to the carrying value of the Company's intangibles during
1998. See Note 2.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," ("SFAS No. 121")
which requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amounts. The impairment
loss is measured by comparing the fair value of the asset to its carrying
amount. In accordance with SFAS No. 121, the Company assesses the need for an
impairment write-down when such indicators of impairment are present. See Note
2.
Insurance
On December 31, 1998, Beverly Indemnity, Ltd., a wholly-owned subsidiary of
the Company, completed a risk transfer of substantially all of its pre-May 1998
auto liability, general liability and workers' compensation claims liability to
a third party insurer effected through a loss portfolio transfer ("LPT") valued
as of December 31, 1998. In exchange for a premium of approximately $116,000,000
(paid primarily from restricted cash and investments), the Company acquired
reinsurance of approximately $180,000,000 to insure such auto liability, general
liability and workers' compensation losses. In addition, in exchange for a
premium of approximately $4,000,000, the Company acquired excess coverage of
approximately $20,000,000 for general liability losses. Based upon estimates and
analyses by its outside actuaries, the Company believes that the risk of such
liabilities exceeding the aggregate limit is remote, although there can be no
assurance that such liabilities will not exceed the aggregate limit. The
Company's provision for insurance and related items increased approximately
$82,200,000 during the fourth quarter of 1998 primarily as a result of this
transaction.
Prior to the LPT, and for periods not covered by the LPT, the Company
insures the majority of its auto liability, general liability and workers'
compensation risks through insurance policies with third parties, some of which
are subject to reinsurance agreements between the insurer and Beverly Indemnity,
Ltd. The liabilities for estimated incurred losses not covered by third party
insurance are discounted at 10% to their present value based on expected loss
payment patterns determined by independent actuaries. Had the discount rate been
reduced by one-half of a percentage point, the Company would have incurred a
pre-tax charge of approximately $200,000 for the year ended December 31, 1998.
The discounted insurance liabilities are included in the consolidated balance
sheet captions as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Accrued wages and related liabilities....................... $ -- $28,484
Other accrued liabilities................................... -- 6,874
Other liabilities and deferred items........................ 18,151 50,366
------- -------
$18,151 $85,724
======= =======
</TABLE>
On an undiscounted basis, the total insurance liabilities as of December
31, 1998 and 1997 were $22,800,000 and $111,200,000, respectively. As of
December 31, 1998, the Company had deposited approximately $1,600,000 in funds
(the "Beverly Indemnity funds") that are restricted for the payment of insured
claims. In addition, the Company anticipates that approximately $4,000,000 of
its existing cash at
37
<PAGE> 39
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
December 31, 1998, while not legally restricted, will be utilized primarily to
fund certain workers' compensation and general liability claims and expenses,
and the Company does not expect to use such cash for other purposes.
During 1998, the Company purchased traditional indemnity insurance coverage
for its 1998 workers' compensation and auto liabilities. During 1997, the
Company transferred a portion of its liabilities for workers' compensation and
general liability related to certain of its sold nursing facilities to a
third-party indemnity insurance company and purchased traditional indemnity
insurance coverage for its 1997 workers' compensation and auto liabilities.
Stock Based Awards
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") which encourages, but does not require,
companies to recognize compensation expense for stock-based awards based on
their fair value on the date of grant. The Company has elected to continue to
account for its stock-based awards in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly, recognizes no compensation expense for its stock option grants
which are issued at market value on the date of grant. See Note 7 for the pro
forma effects on the Company's reported net income (loss) and diluted earnings
per share assuming the election had been made to recognize compensation expense
on stock-based awards in accordance with SFAS No. 123.
Revenues
The Company's revenues are derived primarily from providing long-term
healthcare services. Approximately 74%, 74% and 75% of the Company's net
operating revenues for 1998, 1997 and 1996, respectively, were derived from
funds under federal and state medical assistance programs, and approximately 62%
and 68% of the Company's net patient accounts receivable at December 31, 1998
and 1997, respectively, are due from such programs. The Company accrues for
revenues when services are provided at standard charges adjusted to amounts
estimated to be received under governmental programs and other third-party
contractual arrangements. These revenues and receivables are reported at their
estimated net realizable amounts and are subject to audit and retroactive
adjustment. Provisions for estimated third-party payor settlements are provided
in the period the related services are rendered and are adjusted in the period
of settlement. Changes in estimates related to third party receivables resulted
in the recording of approximately $10,900,000, $8,900,000 and $10,900,000 of net
operating revenues for the years ended December 31, 1998, 1997 and 1996,
respectively.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations; however, as disclosed in
Note 6, the Company is the subject of an investigation involving allegations of
potential wrongdoing. Compliance with such laws and regulations is subject to
government review and interpretation, as well as significant regulatory action
including fines, penalties, and exclusion from the Medicare and Medicaid
programs.
Concentration of Credit Risk
The Company has significant accounts receivable, notes receivable and other
assets whose collectibility or realizability is dependent upon the performance
of certain governmental programs, primarily Medicaid and Medicare. These
receivables and other assets represent the only concentration of credit risk for
the Company.
38
<PAGE> 40
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company does not believe there are significant credit risks associated with
these governmental programs. The Company believes that an adequate provision has
been made for the possibility of these receivables and other assets proving
uncollectible and continually monitors and adjusts these allowances as
necessary.
Income Taxes
The Company follows the liability method in accounting for income taxes.
The liability method provides that deferred tax assets and liabilities are
recorded at currently enacted tax rates based on the difference between the tax
basis of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences.
Earnings per Share
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is similar to the previously reported
fully diluted earnings per share. Earnings per share amounts for all periods
have been presented to conform with the requirements of SFAS No. 128.
The following table sets forth the computation of basic and diluted income
(loss) per share for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
NUMERATOR:
Numerator for basic income (loss) per share from
continuing operations........................... $(24,946) $ 58,593 $ 52,026
Effect of dilutive securities:
5 1/2% Debentures, net of income taxes.......... -- -- 3,420
-------- -------- --------
Numerator for diluted income (loss) per share from
continuing operations........................... $(24,946) $ 58,593 $ 55,446
======== ======== ========
DENOMINATOR:
Denominator for basic income (loss) per
share -- weighted average shares................ 103,762 102,060 98,574
Effect of dilutive securities:
Employee stock options.......................... -- 1,236 899
Performance shares.............................. -- 126 --
5 1/2% Debentures............................... -- -- 11,253
-------- -------- --------
Dilutive potential common shares................... -- 1,362 12,152
-------- -------- --------
Denominator for diluted income (loss) per share --
adjusted weighted average shares and assumed
conversions..................................... 103,762 103,422 110,726
======== ======== ========
Basic income (loss) per share........................ $ (0.24) $ 0.57 $ 0.53
======== ======== ========
Diluted income (loss) per share...................... $ (0.24) $ 0.57 $ 0.50
======== ======== ========
</TABLE>
39
<PAGE> 41
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), which requires the presentation of comprehensive income in a
company's financial statement disclosures. Comprehensive income includes net
income (loss), as well as charges and credits directly to stockholders' equity
which are excluded from net income (loss). Accumulated other comprehensive
income, net of income taxes, consists of unrealized gains on securities of
approximately $760,000 and $1,332,000 at December 31, 1998 and 1997,
respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which provides revised
disclosure guidelines for segments of a company based on a management approach
to defining operating segments. See Note 10 for additional information.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"), which provides
guidance on the financial reporting of start-up and organization costs. SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. Prior to 1998, the Company capitalized start-up costs in connection
with the opening of new facilities and businesses. The Company adopted the
provisions of SOP 98-5 in its financial statements for the year ended December
31, 1998. The effect of adopting SOP 98-5 was to decrease the Company's pre-tax
loss from continuing operations in 1998 by approximately $1,000,000 and to
record a charge for the cumulative effect of an accounting change, as of January
1, 1998, of $4,415,000, net of income taxes, or $0.04 per share, to expense
costs that had previously been capitalized.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), which is required to be adopted by the Company in
the first quarter of 1999. SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use. The Company
does not expect the adoption of SOP 98-1 to have a material effect on its
consolidated financial position or results of operations.
Other
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
2. WORKFORCE REDUCTIONS, ASSET IMPAIRMENTS AND OTHER UNUSUAL ITEMS
In preparing for the January 1, 1999 implementation of the new Medicare
Prospective Payment System ("PPS"), as well as responding to other legislative
and regulatory changes, the Company reorganized its therapy operations, analyzed
its businesses for impairment issues and implemented new care-delivery and
tracking software. These initiatives, among others, resulted in a fourth quarter
1998 pre-tax charge of approximately $69,400,000, including $3,800,000 for
workforce reductions, $58,700,000 for asset impairments and $6,900,000 for
various other items.
During the fourth quarter of 1998, the Company reorganized all employed
therapy associates into a newly formed subsidiary, Beverly Rehabilitation, Inc.
("Bev Rehab"), in order to create a more consolidated, strategic approach to
managing the Company's rehabilitation business under PPS. The Company believes
that this reorganization should allow for a more cost-effective and efficient
therapy staff. Bev Rehab also may facilitate the development of additional
rehabilitation business outside the Company. The Company accrued
40
<PAGE> 42
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. WORKFORCE REDUCTIONS, ASSET IMPAIRMENTS AND OTHER UNUSUAL
ITEMS -- (CONTINUED)
approximately $2,500,000 related to the termination of 835 therapy associates in
conjunction with this reorganization. Substantially all of the terminated
therapy associates will receive their severance packages and leave the Company
during the first quarter of 1999. In addition, the Company's home care and
outpatient therapy units underwent the consolidation and relocation of certain
services, including billing and collections, which resulted in a workforce
reduction charge of approximately $1,300,000 associated with the termination of
236 associates. Of these 236 associates, 74 associates had been paid and left
the Company by December 31, 1998. The Company paid approximately $233,000 to
these 74 associates during the year ended December 31, 1998. The remaining 162
terminated home care and outpatient therapy associates will receive their
severance packages and leave the Company during the first quarter of 1999.
SFAS No. 121 requires impairment losses to be recognized for long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the assets' carrying
amounts. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. SFAS No. 121 also requires that long-lived assets
held for disposal be carried at the lower of carrying value or fair value less
costs to sell, once management has committed the organization to a plan of
disposal.
As previously reported, the Company estimated that the impact of PPS on its
1999 net operating revenues would be a decrease of approximately $70,000,000, as
compared to 1998 Medicare Part A revenues, and the additional decrease related
to Part B therapy limitations and per beneficiary caps would be approximately
$30,000,000. These significant regulatory changes were an indicator to
management that the carrying values of certain of its nursing facilities may not
be fully recoverable. In addition, there were certain assets that had 1998
operating losses, and anticipated future operating losses, which led management
to believe that these assets were impaired. Accordingly, management estimated
the undiscounted future cash flows to be generated by each facility and reduced
the carrying value to its estimate of fair value, resulting in an impairment
charge of approximately $9,000,000. Management calculated the fair values of the
impaired facilities by using the present value of estimated future cash flows,
or its best estimate of what such facility, or similar facilities in that state,
would sell for in the open market. Management believes it has the knowledge to
make such estimates of open market sales prices based on the volume of
facilities the Company has purchased and sold in previous years. There were no
material impairment adjustments recorded during the years ended December 31,
1997 and 1996.
Also during the fourth quarter of 1998, management identified nine nursing
facilities with an aggregate carrying value of approximately $14,000,000 which
needed to be replaced in order to increase operating efficiencies, attract
additional census or upgrade the nursing home environment. Management committed
to a plan to construct new facilities to replace these buildings and reduced the
carrying values of these facilities to their estimated salvage values. These
assets are included in the total assets of Beverly Healthcare (See Note 10). In
addition, management committed to a plan to dispose of 24 home care centers and
nine outpatient clinics which had 1998 and expected future period operating
losses. These businesses had an aggregate carrying value of approximately
$16,500,000 and were written down to their fair value less costs to sell. These
assets generated pre-tax losses for the Company of approximately $5,100,000
during the year ended December 31, 1998. Substantially all of these assets were
purchased during 1998. The Company expects to dispose of these assets during
1999. These assets are included in the total assets of Beverly Care Alliance
(See Note 10). The Company incurred a charge of approximately $30,300,000
related to these replacements, closings and planned disposals. These assets are
included in the consolidated balance sheet captions "Property and equipment,
net" and "Goodwill, net."
In addition to the workforce reduction and the SFAS No. 121 charges, the
Company recorded a fourth quarter 1998 impairment charge for other long-lived
assets of approximately $19,400,000 primarily related to the write-off of
software and software development costs. In conjunction with the implementation
of business
41
<PAGE> 43
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. WORKFORCE REDUCTIONS, ASSET IMPAIRMENTS AND OTHER UNUSUAL
ITEMS -- (CONTINUED)
process changes, and the need for enhanced data-gathering and reporting required
to operate effectively under PPS, the Company installed new clinical software in
each of its nursing homes during late-1998, which made obsolete the previously
employed software. In addition, certain of the Company's other ongoing software
development projects were abandoned or written down due to obsolescence,
feasibility or cost recovery issues.
3. ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 1998, the Company purchased 111
outpatient clinics, 50 home care centers, eight nursing facilities (823 beds),
one assisted living center (48 units), two previously leased nursing facilities
(228 beds) and certain other assets for cash of approximately $163,200,000,
acquired debt of approximately $8,000,000 and closing and other costs of
approximately $7,000,000. The acquisitions of such facilities and other assets
were accounted for as purchases and resulted in the Company recording goodwill
of approximately $143,000,000. Also, during such period, the Company sold or
terminated the leases on 26 nursing facilities (3,203 beds) and certain other
assets for cash proceeds of approximately $52,500,000 (approximately $35,600,000
of which was included in accounts receivable-nonpatient at December 31, 1998),
notes receivable of approximately $21,300,000, assumed debt of approximately
$4,600,000 and closing and other costs of approximately $2,300,000. The Company
did not operate seven of these nursing facilities (893 beds) which were leased
to other nursing home operators in prior year transactions. The Company
recognized net pre-tax gains, which were included in net operating revenues,
during the year ended December 31, 1998 of approximately $17,900,000 as a result
of these dispositions. The operations of these facilities and certain other
assets were immaterial to the Company's consolidated financial position and
results of operations.
In June 1998, the Company completed the sale of its American Transitional
Hospitals, Inc. ("ATH") subsidiary to Select Medical Corporation for cash of
approximately $65,300,000 and assumed debt of approximately $2,400,000. Prior to
the sale, ATH operated 15 transitional hospitals (743 beds) in eight states
which addressed the needs of patients requiring intense therapy regimens, but
not necessarily the breadth of services provided within traditional acute care
hospitals. The Company recognized a pre-tax gain, which was included in net
operating revenues, of approximately $16,000,000 during the year ended December
31, 1998 as a result of this disposition. The operations of ATH were immaterial
to the Company's consolidated financial position and results of operations.
During the year ended December 31, 1997, the Company purchased six
previously leased nursing facilities (758 beds) and certain other assets
including, among other things, 14 institutional pharmacies and 40 outpatient
clinics, for cash of approximately $60,800,000 and closing and other costs of
approximately $9,500,000. The acquisitions of such facilities and other assets
were accounted for as purchases. Also during such period, the Company sold or
terminated the leases on 68 nursing facilities (8,314 beds) and certain other
assets for cash proceeds of approximately $146,800,000. The Company recognized
net pre-tax gains, which were included in net operating revenues, during the
year ended December 31, 1997 of approximately $19,900,000 as a result of these
dispositions. The operations of these facilities and certain other assets were
immaterial to the Company's consolidated financial position and results of
operations.
On December 3, 1997, the Company completed the Merger of PCA with Capstone.
As a result of the Merger, the Company received approximately $281,000,000 of
cash as partial repayment for PCA's intercompany debt, with a charge to the
Company's retained earnings of approximately $45,100,000 for the remaining
intercompany balance which was not repaid. Pursuant to the Reorganization, each
of the Company's stockholders of record at the close of business on December 3,
1997 received .4551 shares of PharMerica, Inc.'s common stock for each share of
the Company's Common Stock held. The conversion ratio
42
<PAGE> 44
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
3. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)
was based on a total of 109,873,230 outstanding shares of the Company's Common
Stock at the close of business on December 3, 1997 divided into the 50,000,000
shares issued by PharMerica, Inc.
In connection with the Reorganization, the Company incurred $44,000,000 of
transaction costs related to the restructuring, repayment or renegotiating of
substantially all of the Company's outstanding debt instruments, as well as the
renegotiating or making of certain payments, primarily in the form of
accelerated vesting of stock-based awards, under various employment agreements
with officers of the Company. Such amounts were funded with a portion of the
$281,000,000 proceeds received as partial repayment of PCA's intercompany debt,
as discussed above. Included in the $44,000,000 of transaction costs were
approximately $18,000,000 of non-cash expenses related to various long-term
incentive agreements.
At the date of the Merger, PCA had total assets of approximately
$489,200,000, total liabilities of approximately $368,000,000 and total
stockholder's equity of approximately $121,200,000. Total net operating revenues
for PCA for the years ended December 31, 1997 and 1996 were approximately
$564,200,000 and $516,400,000, respectively. Total net operating revenues for
PCA for the year ended December 31, 1997 represent the operations of PCA prior
to the Merger.
During the year ended December 31, 1996, the Company acquired 22 nursing
facilities (2,138 beds) (15 of such facilities (1,747 beds) were previously
leased), one previously managed nursing facility (180 beds) and certain other
assets including, among other things, pharmacy, hospice and outpatient
businesses, for cash of approximately $80,000,000, acquired debt of
approximately $7,500,000, closing and other costs of approximately $7,000,000,
reduction in receivables of approximately $4,800,000 and security and other
deposits of approximately $1,900,000. The acquisitions of such facilities and
other assets were accounted for as purchases. The Company did not operate three
of these nursing facilities which had been subleased to other nursing home
operators in prior year transactions. Also during such period, the Company sold
or terminated the leases on 83 nursing facilities (5,230 beds) (including the
three nursing facilities which were not operated by the Company, as mentioned
above) and certain other assets for cash proceeds of approximately $36,700,000
and approximately $4,200,000 of notes receivable. The Company recognized net
pre-tax gains, which were included in net operating revenues, during the year
ended December 31, 1996 of approximately $6,300,000 as a result of these
dispositions. The operations of these facilities and certain other assets were
immaterial to the Company's consolidated financial position and results of
operations.
In November 1996, the Company sold its MedView Services unit ("MedView")
for cash of approximately $89,700,000 (approximately $2,200,000 of which was
included in accounts receivable-nonpatient at December 31, 1996). Prior to the
sale, MedView provided a full range of managed care services to the workers'
compensation market. It also offered case management and injury reporting and
tracking services. The Company recognized a pre-tax gain, which was included in
net operating revenues, of approximately $14,700,000 during the year ended
December 31, 1996 as a result of this disposition. The operations of MedView
were immaterial to the Company's consolidated financial position and results of
operations.
43
<PAGE> 45
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
4. PROPERTY AND EQUIPMENT
Following is a summary of property and equipment and related accumulated
depreciation and amortization, by major classification, at December 31 (in
thousands):
<TABLE>
<CAPTION>
TOTAL OWNED LEASED
----------------------- ----------------------- -----------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Land, buildings and
improvements............ $1,433,170 $1,437,334 $1,393,839 $1,395,859 $39,331 $41,475
Furniture and equipment... 350,410 329,222 344,484 324,309 5,926 4,913
Construction in
progress................ 31,057 30,607 31,057 30,607 -- --
---------- ---------- ---------- ---------- ------- -------
1,814,637 1,797,163 1,769,380 1,750,775 45,257 46,388
Less accumulated
depreciation and
amortization............ 694,322 638,834 662,281 606,541 32,041 32,293
---------- ---------- ---------- ---------- ------- -------
$1,120,315 $1,158,329 $1,107,099 $1,144,234 $13,216 $14,095
========== ========== ========== ========== ======= =======
</TABLE>
The Company provides depreciation and amortization using the straight-line
method over the following estimated useful lives: land improvements -- 5 to 15
years; buildings -- 35 to 40 years; building improvements -- 5 to 20 years;
leasehold improvements -- 5 to 20 years or term of lease, if less; furniture and
equipment -- 5 to 15 years. Capitalized lease assets are amortized over the
remaining initial terms of the leases.
Depreciation and amortization expense related to property and equipment,
including the amortization of assets under capital lease obligations, for the
years ended December 31, 1998, 1997 and 1996 was $81,722,000, $87,286,000 and
$85,221,000, respectively.
44
<PAGE> 46
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31 (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Credit Agreement due December 31, 2001...................... $266,000 $ 15,000
9% Senior Notes due February 15, 2006, unsecured............ 180,000 180,000
Notes and mortgages, less imputed interest: 1998 -- $92,
1997 -- $203; due in installments through the year 2031,
at effective interest rates of 5.57% to 12.50%, a portion
of which is secured by property, equipment and other
assets with a net book value of $182,681 at December 31,
1998...................................................... 167,268 170,738
Industrial development revenue bonds, less imputed interest:
1998 -- $13,
1997 -- $19; due in installments through the year 2013, at
effective interest rates of 4.00% to 10.49%, a portion of
which is secured by property and other assets with a net
book value of $193,527 at December 31, 1998............... 169,306 188,711
Term Loan under the GE Capital Facility..................... 5,471 10,505
8 3/4% First Mortgage Bonds due July 1, 2008, secured by
first mortgages on eight nursing facilities with an
aggregate net book value of $17,180 at December 31,
1998...................................................... 14,219 18,750
8 5/8% First Mortgage Bonds due October 1, 2008, secured by
first mortgages on 10 nursing facilities with an aggregate
net book value of $27,833 at December 31, 1998............ 21,540 28,195
7 3/4% Note due in quarterly installments through June 1,
2001 (repaid in July 1998)................................ -- 21,437
Series 1995 Bonds due June 2005, at an interest rate of
6.88% with respect to $7,000 and 7.24% with respect to
$18,000, secured by a letter of credit.................... 25,000 25,000
Medium Term Notes due June 15, 2000, at an interest rate
based on LIBOR, as defined, plus .35%, secured by eligible
receivables of selected nursing facilities of $56,793 at
December 31, 1998, which cannot be used to satisfy claims
of the Company or any of its subsidiaries other than
Beverly Funding Corporation............................... 40,000 40,000
-------- --------
888,804 698,336
Present value of capital lease obligations, less imputed
interest: 1998 -- $419, 1997 -- $456, at effective
interest rates of 5.94% to 13.00%......................... 17,239 20,156
-------- --------
906,043 718,492
Less amounts due within one year............................ 27,773 31,551
-------- --------
$878,270 $686,941
======== ========
</TABLE>
During 1998, the Company entered into promissory notes totaling
approximately $9,500,000 in conjunction with the construction or renovation of
certain nursing facilities. Such debt instruments bear interest at rates ranging
from 7.29% to 8.75%, require monthly installments of principal and interest, and
are secured by mortgage interests in the real property and security interests in
the personal property of the nursing facilities. In addition, the Company
incurred a $1,660,000 extraordinary charge, net of income taxes, in 1998 related
to the write-off of unamortized deferred financing costs associated with the
repayment of certain debt instruments, as well as certain bond refundings.
The Company has a $375,000,000 Credit Agreement (the "Credit Agreement")
which provides for a Revolver/Letter of Credit Facility (the "Revolver/LOC
Facility"). At December 31, 1998, the Company had approximately $15,200,000 of
outstanding letters of credit under the Revolver/LOC Facility. Borrowings
45
<PAGE> 47
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
5. LONG-TERM OBLIGATIONS -- (CONTINUED)
under the Credit Agreement bear interest at adjusted LIBOR plus .875%, the Prime
Rate, as defined, or the adjusted CD rate, as defined, plus 1%, at the Company's
option. Such interest rates may be adjusted quarterly based on certain financial
ratio calculations. The Company pays certain commitment fees and commissions
with respect to the Revolver/LOC Facility and had approximately $93,800,000 of
unused commitments under such facility at December 31, 1998. The Credit
Agreement is guaranteed by substantially all of the Company's present and future
subsidiaries (collectively, the "Subsidiary Guarantors") and imposes on the
Company certain financial tests and restrictive covenants.
The Company has $180,000,000 of 9% Senior Notes due February 15, 2006 (the
"Senior Notes") which were sold through a public offering (the "Senior Notes
offering"). The Senior Notes are unsecured obligations guaranteed by the
Subsidiary Guarantors and impose on the Company certain restrictive covenants.
Separate financial statements of the Subsidiary Guarantors are not considered to
be material to holders of the Senior Notes since the guaranty of each of the
Subsidiary Guarantors is joint and several and full and unconditional (except
that liability thereunder is limited to an aggregate amount equal to the largest
amount that would not render its obligations thereunder subject to avoidance
under Section 548 of the Bankruptcy Code of 1978, as amended, or any comparable
provisions of applicable state law), and Beverly Enterprises, Inc., the parent,
has no operations or assets separate from its investment in its subsidiaries.
Maturities and sinking fund requirements of long-term obligations,
including capital leases, for the years ended December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL
------- ------- -------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Future minimum lease
payments............. $ 3,129 $ 2,755 $ 2,561 $ 2,616 $ 1,965 $ 18,934 $ 31,960
Less interest.......... 1,584 1,443 1,327 1,201 1,081 8,085 14,721
------- ------- -------- ------- ------- -------- --------
Net present value of
future minimum lease
payments............. 1,545 1,312 1,234 1,415 884 10,849 17,239
Notes, mortgages and
bonds................ 26,228 68,212 289,392 43,945 28,527 432,500 888,804
------- ------- -------- ------- ------- -------- --------
$27,773 $69,524 $290,626 $45,360 $29,411 $443,349 $906,043
======= ======= ======== ======= ======= ======== ========
</TABLE>
Many of the capital and operating leases contain at least one renewal
option (which could extend the term of the leases by five to fifteen years),
purchase options, escalation clauses and provisions for payments by the Company
of real estate taxes, insurance and maintenance costs.
The industrial development revenue bonds were originally issued prior to
1985 primarily for the construction or acquisition of nursing facilities. Bond
reserve funds are included in designated funds. These funds are invested
primarily in certificates of deposit and in United States government securities
and are carried at cost, which approximates market value. Net capitalized
interest relating to construction was not material in 1998, 1997, or 1996.
46
<PAGE> 48
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
6. COMMITMENTS AND CONTINGENCIES
The future minimum rental commitments required by all noncancelable
operating leases with initial or remaining terms in excess of one year as of
December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999........................................................ $ 76,472
2000........................................................ 56,256
2001........................................................ 43,095
2002........................................................ 33,583
2003........................................................ 19,041
Thereafter.................................................. 54,017
--------
$282,464
========
</TABLE>
Total future minimum rental commitments are net of approximately
$17,863,000 of minimum sublease rental income due in the future under
noncancelable subleases. Rent expense on operating leases, net of sublease
rental income, for the years ended December 31 was as follows:
1998 -- $113,762,000; 1997 -- $114,694,000; 1996 -- $116,718,000. Sublease rent
income was approximately $6,772,000, $5,638,000 and $4,595,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Contingent rent expense,
based primarily on revenues, was approximately $17,000,000, $18,000,000 and
$18,000,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company has a $125,000,000 financing arrangement available for the
construction of certain facilities. The Company will lease the facilities, under
operating leases with the creditor, upon completion of construction. The Company
will have the option to purchase these facilities at the end of the initial
lease terms. Total construction advances under the financing arrangement as of
December 31, 1998 were approximately $54,000,000.
In 1992, the Company entered into an agreement to outsource its management
information systems functions for a period of seven years, with an option to
renew based on mutual agreement among the parties. Such agreement was
renegotiated during 1997 to allow the Company to bring the programming functions
under its direct control but continue to outsource the data processing functions
and to extend the term of the agreement. The future minimum commitments as of
December 31, 1998 required under such agreement are as follows:
1999 -- $4,033,000; 2000 -- $3,944,000; 2001 -- $3,859,000; 2002 -- $2,849,000.
The Company incurred approximately $5,673,000, $4,498,000 and $8,711,000 under
such agreement during the years ended December 31, 1998, 1997 and 1996,
respectively.
The Company is contingently liable for approximately $76,520,000 of
long-term obligations maturing on various dates through 2019, as well as annual
interest and letter of credit fees of approximately $7,027,000. Such contingent
liabilities principally arose from the Company's sale of nursing facilities and
retirement living centers. The Company operates the facilities related to
approximately $25,795,000 of the principal amount for which it is contingently
liable, pursuant to long-term agreements accounted for as operating leases. In
addition, the Company is contingently liable for various operating leases that
were assumed by purchasers and are secured by the rights thereto.
Approximately 100 of the Company's facilities, or 8% 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 healthcare industry. The Company, being one of the largest employers
within the long-term healthcare 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
47
<PAGE> 49
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
6. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
experienced any material work stoppages and believes that its relations with its
employees are generally good, the Company cannot predict the effect continued
union representation or organizational activities will have on the Company's
future activities. There can be no assurance that continued union representation
and organizational activities will not result in material work stoppages, which
could have a material adverse effect on the Company's operations.
On March 4, 1998, a jury in California returned a verdict of $95,100,000
against a nursing facility operated by a subsidiary of the Company. The verdict,
which was based on findings of fraud as well as negligence and abuse, consisted
of $365,580 in compensatory damages and $94,700,000 in punitive damages. At a
post-trial hearing on June 3, 1998, the trial judge reduced the compensatory
damages to $125,000 and reduced the punitive damages to $3,000,000. The Company
believes that these reduced damages are excessive and has appealed on this
basis. The plaintiff has cross-appealed. The Company intends to aggressively
pursue all appellate remedies available.
The Company is the subject of a federal government investigation relating
to the allocation to the Medicare program of certain nursing labor costs in its
skilled nursing facilities from 1990 to 1997. The federal government has not
disclosed the origin of this investigation or its intended scope. The
investigation is being conducted by the Office of Inspector General of the
Department of Health and Human Services and by the Department of Justice. The
Company has received subpoenas and has provided substantial information
voluntarily. The Company's independent auditors, Ernst & Young LLP, also
received a subpoena relating to its evaluation of the Company's internal
controls. In addition, the Company has been notified that a federal grand jury
in San Francisco is currently investigating practices which are the subject of
the above civil investigation. Two former employees of the Company have received
letters from the United States Attorney for the Northern District of California
indicating they are targets of the grand jury investigation. To date, four
current employees of the Company have served as witnesses before the grand jury.
The Company has cooperated with the United States Attorney's office in its
investigation. In addition, the Company's current Medicare fiscal intermediary,
Blue Cross of California, is examining cost reports of the Company's facilities
with respect to the areas that are the focus of the government investigation.
Skilled nursing facilities are required to allocate nursing labor costs to
Medicare-certified units on an equitable basis. The Company has relied on a
variety of internal and external processes and practices that are designed to
ensure compliance with this requirement. The Company believes that its cost
reporting policies and procedures are consistent with government regulations and
reflect industry norms for determination of these cost allocations. While it is
not possible to predict the outcome of this investigation, a determination that
the Company has violated these regulations could have a material adverse effect
on the Company's consolidated financial position and results of operations,
which could include the payment of fines and penalties and exclusion from
participation in the Medicare and Medicaid programs.
On October 2, 1998, a purported class action lawsuit was filed in the
United States District Court for the Eastern District of Arkansas by Jack
Kushner against the Company and certain of its officers. The class action
lawsuit alleges, among other things, that the Company and certain of its
officers committed violations of the federal securities laws by materially
inflating the Company's revenues and earnings through practices that are the
subject of the federal government investigation (see above) and disseminating
false and misleading statements concerning compliance with Medicare regulations.
The class action lawsuit seeks damages, costs and expenses. The Company intends
to aggressively pursue all defenses available to it.
There are various other lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages that are generally not covered by insurance. The Company does not
believe that the ultimate resolution of such other matters will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
48
<PAGE> 50
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
7. STOCKHOLDERS' EQUITY
The Company had 300,000,000 shares of authorized $.10 par value common
stock ("Common Stock") at December 31, 1998 and 1997. The Company is subject to
certain restrictions under its long-term debt agreements related to the payment
of cash dividends on its Common Stock. The Company had 25,000,000 shares of
authorized $1 par value preferred stock at December 31, 1998 and 1997, all of
which remain unissued. The Board of Directors has authority, without further
stockholder action, to set rights, privileges and preferences for any unissued
shares of preferred stock.
In June 1996, the Company announced that its Board of Directors had
authorized a stock repurchase program whereby the Company may repurchase, from
time to time on the open market, up to a total of 10,000,000 shares of its
outstanding Common Stock. In December 1997, the Company repurchased 4,000,000
shares of its Common Stock through an accelerated stock repurchase transaction
at a cost of approximately $56,100,000 (approximately $5,700,000 of which was
paid during 1998). During 1998, the Company repurchased 3,000,000 shares of its
Common Stock, through a similar transaction, and approximately 900,000 shares on
the open market at a total cost of approximately $51,100,000. The repurchases
were financed primarily through borrowings under the Company's Revolver/LOC
Facility. On June 2, 1998, the Company announced that its Board of Directors had
authorized an increase in its stock repurchase program. The Company may
repurchase from time to time on the open market, up to an additional 10,000,000
shares of its outstanding Common Stock. Since June 1996, the Company has
repurchased approximately 10,200,000 shares of its outstanding Common Stock
under the stock repurchase program. The Company is subject to certain
restrictions under its credit arrangements related to the repurchase of its
outstanding Common Stock.
During 1997, the New Beverly 1997 Long-Term Incentive Plan was approved
(the "1997 Long-Term Incentive Plan"). Such plan became effective December 3,
1997 and will remain in effect until December 31, 2006, subject to early
termination by the Board of Directors. Such plan replaced the 1996 Long-Term
Incentive Plan, the 1993 Incentive Stock Plan and the 1985 Nonqualified Stock
Option Plan. The Compensation Committee of the Board of Directors (the
"Committee") is responsible for administering the 1997 Long-Term Incentive Plan
and has complete discretion in determining the number of shares or units to be
granted, in setting performance goals and in applying other restrictions to
awards, as needed, under the plan. The Company has 10,000,000 shares of Common
Stock authorized for issuance, subject to certain adjustments, under the 1997
Long-Term Incentive Plan in the form of nonqualified stock options, incentive
stock options, stock appreciation rights, restricted stock, performance awards,
bonus stock and other stock unit awards. Except for options granted upon the
assumption of, or in substitution for, options of another company in which the
Company participates in a corporate transaction or the options affected by the
Reorganization (as discussed below), nonqualified and incentive stock options
must be granted at a purchase price equal to the market price on the date of
grant. Options shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall determine and expire no later
than 10 years from the grant date. Stock appreciation rights may be granted
alone, in tandem with an option or in addition to an option. Stock appreciation
rights shall be exercisable at such times and be subject to such restrictions
and conditions as the Committee shall determine and expire no later than 10
years from the grant date. Restricted stock awards are outright stock grants
which have a minimum vesting period of one year for performance-based awards and
three years for other awards. Performance awards, bonus stock and other stock
unit awards may be granted based on the achievement of certain performance or
other goals and will carry certain restrictions, as defined.
During 1997, the New Beverly Non-Employee Directors Stock Option Plan was
approved (the "Non-Employee Directors Stock Option Plan"). Such plan became
effective December 3, 1997 and will remain in effect until December 31, 2007,
subject to early termination by the Board of Directors. Such plan replaced the
Nonemployee Directors' Plan. The Company has 300,000 shares of Common Stock
authorized for issuance,
49
<PAGE> 51
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
7. STOCKHOLDERS' EQUITY -- (CONTINUED)
subject to certain adjustments, under the Non-Employee Directors Stock Option
Plan. The Non-Employee Directors Stock Option Plan was amended by the Board of
Directors on December 11, 1997 to provide that each nonemployee director be
granted an option to purchase 3,375 shares of the Company's Common Stock on June
1 of each year until the plan is terminated, subject to the availability of
shares. Such options are granted at a purchase price equal to fair market value
on the date of grant, become exercisable one year after date of grant and expire
10 years after date of grant.
The following table summarizes stock option, restricted stock and other
stock units data relative to the Company's long-term incentive plans for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
---------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
year................................. 6,561,903 $9.29 4,908,727 $10.55 4,394,382 $ 9.02
Changes during the year:
Granted.............................. 3,341,994 8.81 2,944,522 10.87 1,696,500 12.38
Exercised............................ (428,069) 6.89 (1,047,423) 8.06 (833,587) 5.41
Cancelled............................ (1,312,263) 9.42 (243,923) 14.64 (348,568) 12.39
---------- ---------- ---------
Options outstanding at end of year..... 8,163,565 9.20 6,561,903 9.29 4,908,727 10.55
========== ========== =========
Options exercisable at end of year..... 3,761,259 8.50 5,073,903 8.23 2,560,209 8.75
========== ========== =========
Options available for grant at end of
year................................. 1,701,426 3,738,097 3,052,403
========== ========== =========
Restricted stock outstanding at
beginning of year.................... -- 145,200 306,052
Changes during the year:
Granted.............................. -- 10,500 29,000
Vested............................... -- (134,711) (148,352)
Forfeited............................ -- (20,989) (41,500)
---------- ---------- ---------
Restricted stock outstanding at end of
year................................. -- -- 145,200
========== ========== =========
Phantom units outstanding at beginning
of year.............................. -- 76,769 90,942
Changes during the year:
Granted.............................. -- -- --
Vested............................... -- (76,316) (6,982)
Cancelled............................ -- (453) (7,191)
---------- ---------- ---------
Phantom units outstanding at end of
year................................. -- -- 76,769
========== ========== =========
Performance shares outstanding at
beginning of year.................... -- 992,000 --
Changes during the year:
Granted.............................. -- 16,000 1,040,000
Vested............................... -- (759,389) --
Cancelled............................ -- (248,611) (48,000)
---------- ---------- ---------
Performance shares outstanding at end
of year.............................. -- -- 992,000
========== ========== =========
</TABLE>
50
<PAGE> 52
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
7. STOCKHOLDERS' EQUITY -- (CONTINUED)
Exercise prices for options outstanding as of December 31, 1998 ranged from
$3.24 to $16.06. The weighted-average remaining contractual life of these
options is eight years. The following table provides certain information with
respect to stock options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ----------------------------
WEIGHTED- AVERAGE WEIGHTED-
OPTIONS AVERAGE REMAINING OPTIONS AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.24-$ 6.50................. 3,143,678 $ 5.73 7.87 920,091 $ 3.85
$ 7.13-$10.00................. 1,888,575 9.14 7.45 1,724,460 9.20
$10.19-$13.81................. 2,188,833 12.05 8.06 1,116,708 11.25
$14.00-$16.06................. 942,479 14.26 9.17 -- --
--------- ---------
$ 3.24-$16.06................. 8,163,565 $ 9.20 7.98 3,761,259 $ 8.50
========= =========
</TABLE>
As a result of the Reorganization (as discussed herein), immediately prior
to the Distribution, (i) each option to purchase the Company's Common Stock then
outstanding became fully vested and exercisable, (ii) all restrictions on
outstanding restricted shares lapsed and became fully vested, (iii) each
outstanding award of phantom units became fully vested, and (iv) each
outstanding performance share became fully vested. The Company incurred expenses
of approximately $18,000,000 as it related to these stock-based awards, which
was included in the $44,000,000 of transaction costs. In addition, all options
outstanding immediately after the Distribution were cancelled and replaced with
new options issued by the Company under the 1997 Long-Term Incentive Plan. Such
options are exercisable upon the same terms and conditions (except that all
options are 100% vested) as under the applicable option agreement issued
thereunder, except that (i) the number of shares for which such options may be
converted, and (ii) the option exercise price per share of such options were
adjusted to take into account the effect of the Reorganization.
The Company recognizes compensation expense for its restricted stock
grants, performance share grants (when the performance targets are achieved) and
other stock unit awards. The Company did not incur any charges related to these
stock-based awards during the year ended December 31, 1998. The total charges to
the Company's consolidated statements of operations for the years ended December
31, 1997 and 1996 related to these stock-based awards were approximately
$19,767,000 and $509,000, respectively. The total charges for 1997 included
approximately $18,000,000 related to the impact of the Reorganization on the
Company's stock-based awards (as discussed above), which was included in the
$44,000,000 of transaction costs.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its 1998, 1997 and 1996 stock option and performance share grants
under the fair value method as prescribed by such statement. The fair value for
stock options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for the years
ended December 31, 1998, 1997 and 1996, respectively: risk-free interest rates
of 5.0%, 5.9% and 6.5%; volatility factors of the expected market price of the
Company's Common Stock of .41, .35 and .34; and weighted-average expected option
lives of 10 years, 8 years and 10 years. The Company does not currently pay cash
dividends on its Common Stock and no future dividends are currently planned.
Such weighted-average assumptions resulted in a weighted average fair value of
options granted during 1998, 1997 and 1996 of $5.35 per share, $7.84 per share
and $7.30 per share, respectively. The fair value of the performance share
grants was based on the market value of the Company's Common Stock on the date
of grant.
51
<PAGE> 53
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
7. STOCKHOLDERS' EQUITY -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
stock options and performance shares is amortized to expense over their
respective vesting periods. The pro forma effects on reported net income (loss)
and diluted earnings per share assuming the Company had elected to account for
its stock option and performance share grants in accordance with SFAS No. 123
for the years ended December 31, 1998, 1997 and 1996 would have been a net loss
of $32,202,000 or $.31 per share, net income of $47,244,000 or $.46 per share
and net income of $48,964,000 or $.49 per share, respectively. The pro forma
amounts for 1997 reflect the impact of the Reorganization on the Company's
outstanding stock options (as discussed above). Such pro forma effects are not
necessarily indicative of the effect on future years.
The Beverly Enterprises 1988 Employee Stock Purchase Plan (as amended and
restated) enables all full-time employees having completed one year of
continuous service to purchase shares of Common Stock at the current market
price through payroll deductions. The Company makes contributions in the amount
of 30% of the participant's contribution. Each participant specifies the amount
to be withheld from earnings per two-week pay period, subject to certain
limitations. The total charges to the Company's consolidated statements of
operations for the years ended December 31, 1998, 1997 and 1996 related to this
plan were approximately $2,435,000, $2,449,000 and $2,258,000, respectively.
8. INCOME TAXES
The provision for (benefit from) taxes on income (loss) before
extraordinary charge and cumulative effect of change in accounting for start-up
costs (see Note 1) consists of the following for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Federal:
Current.............................................. $ -- $22,997 $31,615
Deferred............................................. (28,227) 20,404 29,466
State:
Current.............................................. 2,169 6,669 8,101
Deferred............................................. 122 (157) 4,299
-------- ------- -------
$(25,936) $49,913 $73,481
======== ======= =======
</TABLE>
The Company had an annual effective tax rate of 51% for the year ended
December 31, 1998, compared to annual effective tax rates of 46% and 59% for the
years ended December 31, 1997 and 1996, respectively. The annual effective tax
rate in 1998 was different than the federal statutory rate primarily due to the
impact of the sale of ATH (see Note 3), the benefit of certain tax credits, and
the pre-tax charge of approximately $69,400,000 (see Note 2) 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. The annual effective tax rate in 1997 was different than the
federal statutory rate primarily due to the impact of nondeductible transaction
costs associated with the Reorganization (see Note 3). The annual effective tax
rate
52
<PAGE> 54
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
8. INCOME TAXES -- (CONTINUED)
in 1996 was different than the federal statutory rate primarily due to the
impact of nondeductible goodwill associated with the MedView disposition (see
Note 3).
A reconciliation of the provision for (benefit from) income taxes, computed
at the statutory rate, to the Company's annual effective tax rate is summarized
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
-------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Tax (benefit) at statutory rate......... $(17,809) 35 $37,977 35 $43,927 35
General business tax credits............ (2,315) 5 -- -- -- --
State tax provision, net................ 1,489 (3) 4,233 4 8,060 6
Nondeductible amortization of
intangibles........................... (74) -- 1,702 2 20,881 17
Sale of ATH............................. (6,867) 13 -- -- -- --
Effect of Reorganization and Merger..... -- -- 5,618 5 -- --
Other................................... (360) 1 383 -- 613 1
-------- -- ------- -- ------- --
$(25,936) 51 $49,913 46 $73,481 59
======== == ======= == ======= ==
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The tax effects of temporary
differences giving rise to the Company's deferred tax assets and liabilities at
December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
ASSET LIABILITY ASSET LIABILITY
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Insurance reserves......................... $ 11,988 $ -- $ 36,104 $ --
General business tax credit
carryforwards............................ 5,270 -- -- --
Alternative minimum tax credit
carryforwards............................ 16,568 -- 13,969 --
Provision for dispositions................. 37,805 3,152 32,591 5,776
Depreciation and amortization.............. 12,711 136,096 29 140,062
Operating supplies......................... -- 13,241 -- 12,907
Federal net operating loss carryforwards... 17,846 -- -- --
Other...................................... 22,728 30,877 18,304 26,336
-------- -------- -------- --------
$124,916 $183,366 $100,997 $185,081
======== ======== ======== ========
</TABLE>
At December 31, 1998, the Company had federal net operating loss
carryforwards of $50,989,000 for income tax purposes which expire in 2018. At
December 31, 1998, the Company had general business tax credit carryforwards of
$5,270,000 for income tax purposes which expire in years 2008 through 2014. For
financial reporting purposes, the federal net operating loss carryforwards and
the general business tax credit carryforwards have been utilized to offset
existing net taxable temporary differences reversing during the carryforward
periods.
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Statement No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation
53
<PAGE> 55
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
9. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company. The following methods and assumptions were used
by the Company in estimating its fair value disclosures for financial
instruments:
Cash and Cash Equivalents
The carrying amount reported in the consolidated balance sheets for cash
and cash equivalents approximates its fair value.
Notes Receivable, Net (Including Current Portion)
For variable-rate notes that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for fixed-rate notes are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.
Beverly Indemnity Funds
The fair value of the Beverly Indemnity funds is based on information
obtained from the trustee and the manager of such funds. These funds are
invested primarily in United States government securities with maturity dates
ranging primarily from one to five years. The carrying amount of these funds is
included in the consolidated balance sheet captions "Prepaid expenses and other"
and "Designated and restricted funds" based on when the corresponding claims are
expected to be paid. During the fourth quarter of 1998, Beverly Indemnity, Ltd.
completed a risk transfer of substantially all of its pre-May 1998 auto
liability, general liability and workers' compensation claims liability to a
third party insurer effected through a loss portfolio transfer (see Note 1)
which resulted in the sale of securities with a book value of approximately
$61,600,000. Also during 1998, various other securities were sold with a book
value of approximately $33,700,000. Beverly Indemnity, Ltd. received gross
proceeds of approximately $98,000,000 from the sale of these securities and
recognized gross gains on the sales of these securities of approximately
$3,000,000. In addition, an adjustment was recorded to unrealized gains on
securities of $1,755,000, net of income taxes, for gains on sales of securities
included in net income.
Long-term Obligations (Including Current Portion)
The carrying amounts of the Company's variable-rate borrowings approximate
their fair values. The fair values of the remaining long-term obligations are
estimated using discounted cash flow analyses, based on the Company's
incremental borrowing rates for similar types of borrowing arrangements.
54
<PAGE> 56
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
9. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 17,278 $ 17,278 $105,230 $105,230
Notes receivable, net (including current
portion)................................... 42,338 44,900 24,973 26,400
Beverly Indemnity funds...................... 1,600 1,600 80,804 80,804
Long-term obligations (including current
portion)................................... 906,043 929,454 718,492 746,439
</TABLE>
During 1998, the Company defeased long-term obligations with an aggregate
carrying value of $5,740,000. The fair values of such long-term obligations are
estimated using discounted cash flow analyses, based on the Company's
incremental borrowing rates for similar types of borrowing arrangements, and
were approximately $5,819,000 at December 31, 1998.
In order to consummate certain dispositions and other transactions, the
Company has agreed to guarantee the debt assumed or acquired by the purchaser or
the performance under a lease, by the lessor. It is not practicable to estimate
the fair value of the Company's off-balance sheet guarantees (See Note 6). The
Company does not charge a fee for entering into such agreements and contracting
with a financial institution to estimate such amounts could not be done without
incurring excessive costs. In addition, unlike the Company, a financial
institution would not be in a position to assume the underlying obligations and
operate the nursing facilities collateralizing the obligations, which would
significantly impact the calculation of the fair value of such off-balance sheet
guarantees.
10. SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 provides
revised disclosure guidelines for segments of a company based on a management
approach to defining operating segments.
Description of the Types of Services from which each Operating Segment Derives
its Revenues
At December 31, 1998, the Company was organized into two operating
segments, which support the Company's delivery of vertically integrated services
to the long-term healthcare market. These operating segments included: (i)
Beverly Healthcare, which provides long-term healthcare through the operation of
nursing facilities and assisted living centers; and (ii) Beverly Care Alliance,
which operates outpatient clinics, home care centers and a rehabilitation
services business.
At December 31, 1997, in addition to the two operating segments mentioned
above, the Company owned Beverly Specialty Hospitals, which operated the
Company's transitional hospitals. In June 1998, the Company completed the sale
of this segment to Select Medical Corporation (see Note 3). At December 31,
1996, in addition to the three operating segments mentioned above, the Company
owned PCA, which operated the Company's institutional and mail service pharmacy
businesses. In December 1997, the Company completed the Merger of PCA with
Capstone (see Note 3).
55
<PAGE> 57
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
10. SEGMENT INFORMATION -- (CONTINUED)
Measurement of Segment Income or Loss and Segment Assets
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies (see Note 1). The
Company evaluates performance and allocates resources based on income or loss
from operations before income taxes, excluding any unusual items.
Factors Management Used to Identify the Company's Operating Segments
The Company's operating segments are strategic business units that offer
different services within the long-term healthcare continuum. Business in each
operating segment is conducted by one or more corporations headed by a president
who also is a senior officer of the Company and reports directly to the
President of the Company. The corporations comprising each operating segment
also have separate boards of directors consisting of four senior executives of
the Company and the president of the segment.
56
<PAGE> 58
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
10. SEGMENT INFORMATION -- (CONTINUED)
The following table summarizes certain information for each of the
Company's operating segments (in thousands):
<TABLE>
<CAPTION>
BEVERLY BEVERLY PHARMACY
BEVERLY CARE SPECIALTY CORPORATION
HEALTHCARE ALLIANCE HOSPITALS OF AMERICA ALL OTHER(1) TOTALS
---------- -------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Revenues from external
customers.................. $2,531,496 $192,627 $61,775 -- $ 26,334 $2,812,232
Intercompany revenues......... -- 13,518 539 -- 10,682 24,739
Interest income............... 410 160 3 -- 10,135 10,708
Interest expense.............. 29,359 108 93 -- 36,378 65,938
Depreciation and
amortization............... 78,269 8,662 1,578 -- 5,213 93,722
Pre-tax income (loss)......... 165,707 6,878 (670) -- (222,797) (50,882)
Total assets.................. 1,526,091 303,913 -- -- 330,507 2,160,511
Capital expenditures.......... 87,209 15,149 4,937 -- 43,156 150,451
Year ended December 31, 1997
Revenues from external
customers.................. $2,583,758 $ 60,103 $99,783 $472,861 $ 594 $3,217,099
Intercompany revenues......... -- 15,643 1,708 91,338 10,269 118,958
Interest income............... 302 -- 3 125 12,771 13,201
Interest expense.............. 32,264 19 275 14,965 35,190 82,713
Depreciation and
amortization............... 77,162 3,402 2,517 18,281 5,698 107,060
Pre-tax income (loss)......... 173,363 2,801 819 33,450 (101,927) 108,506
Total assets.................. 1,504,437 101,364 48,964 -- 418,704 2,073,469
Capital expenditures.......... 90,699 6,468 5,198 11,725 18,997 133,087
Year ended December 31, 1996
Revenues from external
customers.................. $2,678,025 $ 65,516 $80,363 $434,238 $ 9,047 $3,267,189
Intercompany revenues......... -- 15,314 1,269 82,162 9,957 108,702
Interest income............... 603 54 19 177 12,986 13,839
Interest expense.............. 32,230 -- 219 16,000 42,662 91,111
Depreciation and
amortization............... 77,169 4,108 2,437 16,385 5,369 105,468
Pre-tax income (loss)......... 164,463 3,718 (1,576) 21,215 (62,313) 125,507
Total assets.................. 1,580,162 53,202 41,440 449,086 401,192 2,525,082
Capital expenditures.......... 97,807 6,294 2,769 10,895 18,677 136,442
</TABLE>
- ---------------
(1) All Other consists of the operations of the Company's corporate headquarters
and related overhead.
57
<PAGE> 59
BEVERLY ENTERPRISES, INC.
SUPPLEMENTARY DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998
-------------------------------------------------------
1ST 2ND 3RD 4TH TOTAL
-------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues........................... $697,427 $717,648 $700,635 $ 707,230 $2,822,940
======== ======== ======== ========= ==========
Income (loss) before provision for
(benefit from) income taxes,
extraordinary charge and cumulative
effect of change in accounting for
start-up costs.......................... $ 29,099 $ 31,803 $ 32,822 $(144,606) $ (50,882)
Provision for (benefit from) income
taxes................................... 11,058 10,258 11,487 (58,739) (25,936)
-------- -------- -------- --------- ----------
Income (loss) before extraordinary charge
and cumulative effect of change in
accounting for start-up costs........... 18,041 21,545 21,335 (85,867) (24,946)
Extraordinary charge..................... -- -- -- (1,660) (1,660)
Cumulative effect of change in accounting
for start-up costs...................... (4,415) -- -- -- (4,415)
-------- -------- -------- --------- ----------
Net income (loss)........................ $ 13,626 $ 21,545 $ 21,335 $ (87,527) $ (31,021)
======== ======== ======== ========= ==========
Income (loss) per share of common stock:
Basic:
Before extraordinary charge and
cumulative effect of change in
accounting for start-up costs......... $ .17 $ .21 $ .21 $ (.84) $ (.24)
Extraordinary charge.................... -- -- -- (.02) (.02)
Cumulative effect of change in
accounting for start-up costs......... (.04) -- -- -- (.04)
-------- -------- -------- --------- ----------
Net income (loss)....................... $ .13 $ .21 $ .21 $ (.86) $ (.30)
======== ======== ======== ========= ==========
Shares used to compute per share
amounts............................... 106,006 103,682 103,019 102,389 103,762
======== ======== ======== ========= ==========
Diluted:
Before extraordinary charge and
cumulative effect of change in
accounting for start-up costs......... $ .17 $ .20 $ .21 $ (.84) $ (.24)
Extraordinary charge.................... -- -- -- (.02) (.02)
Cumulative effect of change in
accounting for start-up costs......... (.04) -- -- -- (.04)
-------- -------- -------- --------- ----------
Net income (loss)....................... $ .13 $ .20 $ .21 $ (.86) $ (.30)
======== ======== ======== ========= ==========
Shares used to compute per share
amounts............................... 107,479 105,112 103,610 102,389 103,762
======== ======== ======== ========= ==========
Common stock price range:
High.................................... $ 15.56 $ 16.25 $ 14.81 $ 8.13
Low..................................... $ 12.25 $ 13.50 $ 7.38 $ 5.25
<CAPTION>
1997
------------------------------------------------------
1ST 2ND 3RD 4TH TOTAL
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues........................... $820,281 $820,664 $807,926 $781,429 $3,230,300
======== ======== ======== ======== ==========
Income (loss) before provision for
(benefit from) income taxes,
extraordinary charge and cumulative
effect of change in accounting for
start-up costs.......................... $ 30,772 $ 34,950 $ 45,222 $ (2,438) $ 108,506
Provision for (benefit from) income
taxes................................... 12,309 13,980 18,089 5,535 49,913
-------- -------- -------- -------- ----------
Income (loss) before extraordinary charge
and cumulative effect of change in
accounting for start-up costs........... 18,463 20,970 27,133 (7,973) 58,593
Extraordinary charge..................... -- -- -- -- --
Cumulative effect of change in accounting
for start-up costs...................... -- -- -- -- --
-------- -------- -------- -------- ----------
Net income (loss)........................ $ 18,463 $ 20,970 $ 27,133 $ (7,973) $ 58,593
======== ======== ======== ======== ==========
Income (loss) per share of common stock:
Basic:
Before extraordinary charge and
cumulative effect of change in
accounting for start-up costs......... $ .19 $ .21 $ .26 $ (.07) $ .57
Extraordinary charge.................... -- -- -- -- --
Cumulative effect of change in
accounting for start-up costs......... -- -- -- -- --
-------- -------- -------- -------- ----------
Net income (loss)....................... $ .19 $ .21 $ .26 $ (.07) $ .57
======== ======== ======== ======== ==========
Shares used to compute per share
amounts............................... 98,144 97,736 103,508 108,719 102,060
======== ======== ======== ======== ==========
Diluted:
Before extraordinary charge and
cumulative effect of change in
accounting for start-up costs......... $ .18 $ .20 $ .26 $ (.07) $ .57
Extraordinary charge.................... -- -- -- -- --
Cumulative effect of change in
accounting for start-up costs......... -- -- -- -- --
-------- -------- -------- -------- ----------
Net income (loss)....................... $ .18 $ .20 $ .26 $ (.07) $ .57
======== ======== ======== ======== ==========
Shares used to compute per share
amounts............................... 110,386 109,993 107,751 108,719 103,422
======== ======== ======== ======== ==========
Common stock price range:
High.................................... $ 16.13 $ 16.88 $ 17.50 $ 17.50
Low..................................... $ 12.25 $ 13.13 $ 14.56 $ 12.13(1)
</TABLE>
- ---------------
(1) After the effect of the Reorganization on December 3, 1997 (as discussed
herein).
The Company had an annual effective tax rate of 51% for the year ended
December 31, 1998 compared to an annual effective tax rate of 46% for the year
ended December 31, 1997. The annual effective tax rate in 1998 was different
than the federal statutory rate primarily due to the impact of the sale of ATH
(see Note 3), the benefit of certain tax credits, and the $69,400,000 pre-tax
charge (see Note 2) which reduced the Company's pre-tax income to a level where
the impact of permanent tax differences and state income taxes had a significant
impact on the effective tax rate. In addition, the annual effective tax rate in
1997 was different than the federal statutory rate primarily due to the impact
of nondeductible transaction costs associated with the Reorganization (as
discussed herein).
Results of operations for the first quarter of 1998 have been restated for
the cumulative effect of a change in accounting for start-up costs resulting
from the adoption of SOP 98-5 (see Note 1). The adoption of SOP 98-5 did not
have a significant impact on previously reported results from continuing
operations and, therefore, such results have not been restated.
58
<PAGE> 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on May 27, 1999, to
be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on May 27, 1999, to
be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on May 27, 1999, to
be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Jon E.M. Jacoby, a director, serves as Executive Vice President, Chief
Financial Officer and director of Stephens Group, Inc. During the years ended
December 31, 1998, 1997 and 1996, the Company used Stephens Group, Inc., or its
affiliates, for investment banking services.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1 and 2. The Consolidated Financial Statements and Consolidated Financial
Statement Schedule
The consolidated financial statements and consolidated financial statement
schedule listed in the accompanying index to consolidated financial statements
and financial statement schedules are filed as part of this annual report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are incorporated
by reference herein or are filed as part of this annual report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1998.
(c) Exhibits
See the accompanying index to exhibits referenced in Item 14(a)(3) above
for a list of exhibits incorporated herein by reference or filed as part of this
annual report.
(d) Financial Statement Schedule
See the accompanying index to consolidated financial statements and
financial statement schedules referenced in Item 14(a)1 and 2, above.
59
<PAGE> 61
BEVERLY ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
(ITEM 14(A))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Consolidated financial statements:
Report of Ernst & Young LLP, Independent Auditors...... 31
Consolidated Balance Sheets at December 31, 1998 and
1997.................................................. 32
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1998..... 33
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended December
31, 1998.............................................. 34
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1998..... 35
Notes to Consolidated Financial Statements............. 36
Supplementary Data (Unaudited) -- Quarterly Financial
Data.................................................. 58
2. Consolidated financial statement schedule for each of the
three years in the period ended December 31, 1998:
II -- Valuation and Qualifying Accounts................ 61
</TABLE>
All other schedules are omitted because they are either not applicable or
the items do not exceed the various disclosure levels.
60
<PAGE> 62
BEVERLY ENTERPRISES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED DUE TO
BALANCE AT (CREDITED) ACQUISITIONS BALANCE
BEGINNING TO AND AT END
DESCRIPTION OF YEAR OPERATIONS WRITE-OFFS DISPOSITIONS OTHER OF YEAR
- ----------- ---------- ---------- ---------- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful
accounts:
Accounts
receivable -- patient..... $17,879 $25,549 $(19,807) $(1,857) $ -- $21,764
Accounts receivable --
nonpatient................ 862 (90) (13) (82) -- 677*
Notes receivable............ 2,917 (210) (66) -- 280 2,921
------- ------- -------- ------- ------ -------
$21,658 $25,249 $(19,886) $(1,939) $ 280 $25,362
======= ======= ======== ======= ====== =======
Year ended December 31, 1997:
Allowance for doubtful
accounts:
Accounts
receivable -- patient..... $25,618 $35,343 $(34,858) $(8,224) $ -- $17,879
Accounts receivable --
nonpatient................ 637 209 (218) -- 234 862*
Notes receivable............ 4,951 (1,211) (306) (1,453) 936 2,917
------- ------- -------- ------- ------ -------
$31,206 $34,341 $(35,382) $(9,677) $1,170 $21,658
======= ======= ======== ======= ====== =======
Year ended December 31, 1996:
Allowance for doubtful
accounts:
Accounts
receivable -- patient..... $22,860 $28,637 $(29,163) $ 2,555 $ 729 $25,618
Accounts receivable --
nonpatient................ 813 56 (223) -- (9) 637*
Notes receivable............ 4,953 (149) (257) 24 380 4,951
------- ------- -------- ------- ------ -------
$28,626 $28,544 $(29,643) $ 2,579 $1,100 $31,206
======= ======= ======== ======= ====== =======
</TABLE>
- ---------------
* Includes amounts classified in long-term other assets as well as current
assets.
61
<PAGE> 63
BEVERLY ENTERPRISES, INC.
INDEX TO EXHIBITS
(ITEM 14(A)(3))
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Form of Restated Certificate of Incorporation of New
Beverly Holdings, Inc. (incorporated by reference to
Exhibit 3.1 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1997)
3.2 -- Form of Certificate of Amendment of Certificate of
Incorporation of New Beverly Holdings Inc., changing its
name to Beverly Enterprises, Inc. (incorporated by
reference to Exhibit 3.2 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1997)
3.3 -- By-Laws of Beverly Enterprises, Inc. (incorporated by
reference to Exhibit 3.4 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-1 filed on June 4, 1997
(File No. 333-28521))
4.1 -- Indenture dated as of February 1, 1996 between Beverly
Enterprises, Inc. and Chemical Bank, as Trustee, with
respect to Beverly Enterprises, Inc.'s 9% Senior Notes
due February 15, 2006 (the "9% Indenture") (incorporated
by reference to Exhibit 4.1 to Beverly Enterprises,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1995)
4.2 -- Form of Supplemental Indenture No. 2 to the 9% Indenture
dated as of November 19, 1997 (incorporated by reference
to Exhibit 4.2 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on September 8,
1997 (File No. 333-35137))
4.3 -- Indenture dated as of April 1, 1993 (the "First Mortgage
Bond Indenture"), among Beverly Enterprises, Inc.,
Delaware Trust Company, as Corporate Trustee, and Richard
N. Smith, as Individual Trustee, with respect to First
Mortgage Bonds (incorporated by reference to Exhibit 4.1
to Beverly Enterprises, Inc.'s Quarterly Report on Form
10-Q for the quarter ended March 31, 1993)
4.4 -- First Supplemental Indenture dated as of April 1, 1993 to
the First Mortgage Bond Indenture, with respect to 8 3/4%
First Mortgage Bonds due 2008 (incorporated by reference
to Exhibit 4.2 to Beverly Enterprises, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993)
4.5 -- Second Supplemental Indenture dated as of July 1, 1993 to
the First Mortgage Bond Indenture, with respect to 8 5/8%
First Mortgage Bonds due 2008 (replaces Exhibit 4.1 to
Beverly Enterprises, Inc.'s Current Report on Form 8-K
dated July 15, 1993) (incorporated by reference to
Exhibit 4.15 to Beverly Enterprises, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993)
4.6 -- Trust Indenture dated as of December 1, 1994 from Beverly
Funding Corporation, as Issuer, to Chemical Bank, as
Trustee (the "Chemical Indenture") (incorporated by
reference to Exhibit 10.45 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on February 13,
1995 (File No.33-57663))
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.7 -- Series Supplement dated as of December 1, 1994 to the
Chemical Indenture (incorporated by reference to Exhibit
10.46 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-4 filed on February 13, 1995 (File
No. 33-57663))
In accordance with item 601(b)(4)(iii) of Regulation S-K,
certain instruments pertaining to Beverly Enterprises,
Inc.'s long-term obligations have not been filed; copies
thereof will be furnished to the Securities and Exchange
Commission upon request.
10.1* -- Beverly Enterprises, Inc. Annual Incentive Plan
(incorporated by reference to Exhibit 10.4 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-4
filed on February 13, 1995 (File No. 33-57663))
10.2* -- New Beverly Holdings, Inc. 1997 Long-Term Incentive Plan
(the "1997 LTIP") (incorporated by reference to Exhibit
4.1 to Beverly Enterprises, Inc.'s Registration Statement
on Form S-8 filed on December 8, 1997 (File No.
333-41669))
10.3* -- Amendment No. 1 to the 1997 LTIP dated as of December 3,
1997 (incorporated by reference to Exhibit 10.3 to
Beverly Enterprises, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997)
10.4* -- New Beverly Holdings, Inc. Non-Employee Directors' Stock
Option Plan (the "Directors' Option Plan") (incorporated
by reference to Exhibit 4.1 to Beverly Enterprises,
Inc.'s Registration Statement on Form S-8 filed on
December 12, 1997 (File No. 333-42131))
10.5* -- Amendment No. 1 to the Directors' Option Plan dated as of
December 3, 1997 (incorporated by reference to Exhibit
10.5 to Beverly Enterprises, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1997)
10.6* -- Executive Medical Reimbursement Plan (incorporated by
reference to Exhibit 10.5 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1987)
10.7* -- Amended and Restated Beverly Enterprises, Inc. Executive
Life Insurance Plan and Summary Plan Description (the
"Executive Life Plan") (incorporated by reference to
Exhibit 10.7 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1993)
10.8* -- Amendment No. 1, effective September 29, 1994, to the
Executive Life Plan (incorporated by reference to Exhibit
10.10 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-4 filed on February 13, 1995 (File
No. 33-57663))
10.9* -- Executive Physicals Policy (incorporated by reference to
Exhibit 10.8 to Beverly Enterprises, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993)
10.10* -- Amended and Restated Deferred Compensation Plan effective
July 18, 1991 (incorporated by reference to Exhibit 10.6
to Beverly Enterprises, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1991)
10.11* -- Amendment No. 1, effective September 29, 1994, to the
Deferred Compensation Plan (incorporated by reference to
Exhibit 10.13 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-4 filed on February 13, 1995 (File
No. 33-57663))
</TABLE>
63
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12* -- Executive Retirement Plan (incorporated by reference to
Exhibit 10.9 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1987)
10.13* -- Amendment No. 1, effective as of July 1, 1991, to the
Executive Retirement Plan (incorporated by reference to
Exhibit 10.8 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1991)
10.14* -- Amendment No. 2, effective as of December 12, 1991, to
the Executive Retirement Plan (incorporated by reference
to Exhibit 10.9 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1991)
10.15* -- Amendment No. 3, effective as of July 31, 1992, to the
Executive Retirement Plan (incorporated by reference to
Exhibit 10.10 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1992)
10.16* -- Amendment No. 4, effective as of January 1, 1993, to the
Executive Retirement Plan (incorporated by reference to
Exhibit 10.18 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1994)
10.17* -- Amendment No. 5, effective as of September 29, 1994, to
the Executive Retirement Plan (incorporated by reference
to Exhibit 10.19 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1994)
10.18* -- Amendment No. 6, effective as of January 1, 1996, to the
Executive Retirement Plan (incorporated by reference to
Exhibit 10.18 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997)
10.19* -- Amendment No. 7, effective as of September 1, 1997, to
the Executive Retirement Plan (incorporated by reference
to Exhibit 10.19 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997)
10.20* -- Amendment No. 8, dated as of December 11, 1997, to the
Executive Retirement Plan, changing its name to the
"Executive SavingsPlus Plan" (incorporated by reference
to Exhibit 10.20 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997)
10.21* -- Beverly Enterprises, Inc.'s Supplemental Executive
Retirement Plan effective as of January 1, 1998
(incorporated by reference to Exhibit 10.21 to Beverly
Enterprises, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1997)
10.22* -- Beverly Enterprises, Inc.'s Executive Deferred
Compensation Plan (incorporated by reference to Exhibit
4.1 to Beverly Enterprises, Inc.'s Registration Statement
on Form S-8 filed on December 5, 1997 (File No.
333-41673))
10.23* -- Amendment No. 1 to the Executive Deferred Compensation
Plan made as of December 11, 1997 (incorporated by
reference to Exhibit 10.23 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1997)
10.24* -- Amendment No. 2 to the Executive Deferred Compensation
Plan made as of December 11, 1997 (incorporated by
reference to Exhibit 10.24 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1997)
10.25* -- Beverly Enterprises, Inc. Non-Employee Director Deferred
Compensation Plan (the "Directors' Plan") (incorporated
by reference to Exhibit 10.1 to Beverly Enterprises,
Inc.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997)
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.26* -- Amendment No. 1, effective as of December 3, 1997, to the
Directors' Plan (incorporated by reference to Exhibit
10.26 to Beverly Enterprises, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1997)
10.27* -- Beverly Enterprises, Inc.'s Supplemental Long-Term
Disability Plan (incorporated by reference to Exhibit
10.24 to Beverly Enterprises, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1996)
10.28* -- Form of Indemnification Agreement between Beverly
Enterprises, Inc. and its officers, directors and certain
of its employees (incorporated by reference to Exhibit
19.14 to Beverly Enterprises, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1987)
10.29* -- Form of request by Beverly Enterprises, Inc. to certain
of its officers or directors relating to indemnification
rights (incorporated by reference to Exhibit 19.5 to
Beverly Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1987)
10.30* -- Form of request by Beverly Enterprises, Inc. to certain
of its officers or employees relating to indemnification
rights (incorporated by reference to Exhibit 19.6 to
Beverly Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1987)
10.31* -- Agreement dated December 29, 1986 between Beverly
Enterprises, Inc. and Stephens Inc. (incorporated by
reference to Exhibit 10.20 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-1 filed on January 18,
1990 (File No. 33-33052))
10.32* -- Employment Contract, made as of August 22, 1997, between
New Beverly Holdings, Inc. and David R. Banks
(incorporated by reference to Exhibit 10.17 to Amendment
No. 2 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-1 filed on September 22, 1997 (File
No. 333-28521))
10.33* -- Form of Employment Contract, made as of August 22, 1997,
between New Beverly Holdings, Inc. and certain of its
officers (incorporated by reference to Exhibit 10.20 to
Amendment No. 2 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-1 filed on September 22,
1997 (File No. 333-28521))
10.34* -- Executive Stock Option Agreement, effective as of
February 19, 1998, between Beverly Enterprises, Inc. and
David R. Banks (incorporated by reference to Exhibit 10.1
to Beverly Enterprises, Inc.'s Quarterly Report on Form
10-Q for the quarter ended March 31, 1998)
10.35 -- Master Lease Document -- General Terms and Conditions
dated December 30, 1985 for Leases between Beverly
California Corporation and various subsidiaries thereof
as lessees and Beverly Investment Properties, Inc. as
lessor (incorporated by reference to Exhibit 10.12 to
Beverly California Corporation's Annual Report on Form
10-K for the year ended December 31, 1985)
10.36 -- Agreement dated as of December 29, 1986 among Beverly
California Corporation, Beverly Enterprises -- Texas,
Inc., Stephens Inc. and Real Properties, Inc.
(incorporated by reference to Exhibit 28 to Beverly
California Corporation's Current Report on Form 8-K dated
December 30, 1986) and letter agreement dated as of July
31, 1987 among Beverly Enterprises, Inc., Beverly
California Corporation, Beverly Enterprises -- Texas,
Inc. and Stephens Inc. with reference thereto
(incorporated by reference to Exhibit 19.13 to Beverly
Enterprises, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1987)
</TABLE>
65
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.37 -- Participation Agreement, dated as of August 28, 1998,
among Vantage Healthcare Corporation, Petersen Health
Care, Inc., Beverly Savana Cay Manor, Inc., Beverly
Enterprises -- Georgia, Inc., Beverly
Enterprises -- California, Inc., Beverly Health and
Rehabilitation Services, Inc., Beverly
Enterprises -- Arkansas, Inc., Beverly
Enterprises -- Florida, Inc. and Beverly
Enterprises -- Washington, Inc. as Lessees and Structural
Guarantors; Beverly Enterprises, Inc. as Representative,
Construction Agent and Parent Guarantor; Bank of Montreal
Global Capital Solutions, Inc. as Agent Lessor and
Lessor; The Long-Term Credit Bank of Japan, LTD., Los
Angeles Agency, Bank of America National Trust and
Savings Association and Bank of Montreal, as Lenders; The
Long-Term Credit Bank of Japan, LTD., Los Angeles Agency
as Arranger; and Bank of Montreal as Co-Arranger and
Syndication Agent and Administrative Agent for the
Lenders with respect to the Lease Financing of New
Headquarters for Beverly Enterprises, Inc., Assisted
Living and Nursing Facilities for Beverly Enterprises,
Inc.
10.38 -- Amended and Restated Credit Agreement, dated as of April
30, 1998, among Beverly Enterprises, Inc., the Banks
listed therein and Morgan Guaranty Trust Company of New
York, as Issuing Bank and Agent
10.39 -- Data Processing Agreement, dated as of August 1, 1992, by
and between Systematics Telecommunications Services, Inc.
and Beverly California Corporation (incorporated by
reference to Exhibit 10 to Beverly Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992)
10.40 -- Form of Irrevocable Trust Agreement for the Beverly
Enterprises, Inc. Executive Benefits Plan (incorporated
by reference to Exhibit 10.55 to Beverly Enterprises,
Inc.'s Registration Statement of Form S-4 filed on
February 13, 1995 (File No. 33-57663))
21.1 -- Subsidiaries of Registrant
23.1 -- Consent of Ernst & Young LLP, Independent Auditors
27.1 -- Financial Data Schedule for the year ended December 31,
1998
</TABLE>
- ---------------
* Exhibits 10.1 through 10.34 are the management contracts, compensatory plans,
contracts and arrangements in which any director or named executive officer
participates.
66
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BEVERLY ENTERPRISES, INC.
Registrant
Dated: March 25, 1999 By: /s/ DAVID R. BANKS
----------------------------------
David R. Banks
Chairman of the Board, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
/s/ DAVID R. BANKS Chairman of the Board, Chief March 25, 1999
- ----------------------------------------------------- Executive Officer and
David R. Banks Director
/s/ BOYD W. HENDRICKSON President, Chief Operating March 25, 1999
- ----------------------------------------------------- Officer and Director
Boyd W. Hendrickson
/s/ SCOTT M. TABAKIN Executive Vice President and March 25, 1999
- ----------------------------------------------------- Chief Financial Officer
Scott M. Tabakin
/s/ PAMELA H. DANIELS Vice President, Controller and March 25, 1999
- ----------------------------------------------------- Chief Accounting Officer
Pamela H. Daniels
/s/ BERYL F. ANTHONY, JR. Director March 25, 1999
- -----------------------------------------------------
Beryl F. Anthony, Jr.
/s/ CAROLYNE K. DAVIS Director March 25, 1999
- -----------------------------------------------------
Carolyne K. Davis
/s/ JAMES R. GREENE Director March 25, 1999
- -----------------------------------------------------
James R. Greene
/s/ EDITH E. HOLIDAY Director March 25, 1999
- -----------------------------------------------------
Edith E. Holiday
Director March 25, 1999
- -----------------------------------------------------
Jon E. M. Jacoby
Director March 25, 1999
- -----------------------------------------------------
Risa J. Lavizzo-Mourey
/s/ MARILYN R. SEYMANN Director March 25, 1999
- -----------------------------------------------------
Marilyn R. Seymann
</TABLE>
67
<PAGE> 69
BEVERLY ENTERPRISES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Form of Restated Certificate of Incorporation of New
Beverly Holdings, Inc. (incorporated by reference to
Exhibit 3.1 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1997)
3.2 -- Form of Certificate of Amendment of Certificate of
Incorporation of New Beverly Holdings Inc., changing its
name to Beverly Enterprises, Inc. (incorporated by
reference to Exhibit 3.2 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1997)
3.3 -- By-Laws of Beverly Enterprises, Inc. (incorporated by
reference to Exhibit 3.4 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-1 filed on June 4, 1997
(File No. 333-28521))
4.1 -- Indenture dated as of February 1, 1996 between Beverly
Enterprises, Inc. and Chemical Bank, as Trustee, with
respect to Beverly Enterprises, Inc.'s 9% Senior Notes
due February 15, 2006 (the "9% Indenture") (incorporated
by reference to Exhibit 4.1 to Beverly Enterprises,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1995)
4.2 -- Form of Supplemental Indenture No. 2 to the 9% Indenture
dated as of November 19, 1997 (incorporated by reference
to Exhibit 4.2 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on September 8,
1997 (File No. 333-35137))
4.3 -- Indenture dated as of April 1, 1993 (the "First Mortgage
Bond Indenture"), among Beverly Enterprises, Inc.,
Delaware Trust Company, as Corporate Trustee, and Richard
N. Smith, as Individual Trustee, with respect to First
Mortgage Bonds (incorporated by reference to Exhibit 4.1
to Beverly Enterprises, Inc.'s Quarterly Report on Form
10-Q for the quarter ended March 31, 1993)
4.4 -- First Supplemental Indenture dated as of April 1, 1993 to
the First Mortgage Bond Indenture, with respect to 8 3/4%
First Mortgage Bonds due 2008 (incorporated by reference
to Exhibit 4.2 to Beverly Enterprises, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993)
4.5 -- Second Supplemental Indenture dated as of July 1, 1993 to
the First Mortgage Bond Indenture, with respect to 8 5/8%
First Mortgage Bonds due 2008 (replaces Exhibit 4.1 to
Beverly Enterprises, Inc.'s Current Report on Form 8-K
dated July 15, 1993) (incorporated by reference to
Exhibit 4.15 to Beverly Enterprises, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993)
4.6 -- Trust Indenture dated as of December 1, 1994 from Beverly
Funding Corporation, as Issuer, to Chemical Bank, as
Trustee (the "Chemical Indenture") (incorporated by
reference to Exhibit 10.45 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on February 13,
1995 (File No. 33-57663))
4.7 -- Series Supplement dated as of December 1, 1994 to the
Chemical Indenture (incorporated by reference to Exhibit
10.46 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-4 filed on February 13, 1995 (File
No. 33-57663))
In accordance with item 601(b)(4)(iii) of Regulation S-K,
certain instruments pertaining to Beverly Enterprises,
Inc.'s long-term obligations have not been filed; copies
thereof will be furnished to the Securities and Exchange
Commission upon request.
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1* -- Beverly Enterprises, Inc. Annual Incentive Plan
(incorporated by reference to Exhibit 10.4 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-4
filed on February 13, 1995 (File No. 33-57663))
10.2* -- New Beverly Holdings, Inc. 1997 Long-Term Incentive Plan
(the "1997 LTIP") (incorporated by reference to Exhibit
4.1 to Beverly Enterprises, Inc.'s Registration Statement
on Form S-8 filed on December 8, 1997 (File No.
333-41669))
10.3* -- Amendment No. 1 to the 1997 LTIP dated as of December 3,
1997 (incorporated by reference to Exhibit 10.3 to
Beverly Enterprises, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997)
10.4* -- New Beverly Holdings, Inc. Non-Employee Directors' Stock
Option Plan (the "Directors' Option Plan") (incorporated
by reference to Exhibit 4.1 to Beverly Enterprises,
Inc.'s Registration Statement on Form S-8 filed on
December 12, 1997 (File No. 333-42131))
10.5* -- Amendment No. 1 to the Directors' Option Plan dated as of
December 3, 1997 (incorporated by reference to Exhibit
10.5 to Beverly Enterprises, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1997)
10.6* -- Executive Medical Reimbursement Plan (incorporated by
reference to Exhibit 10.5 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1987)
10.7* -- Amended and Restated Beverly Enterprises, Inc. Executive
Life Insurance Plan and Summary Plan Description (the
"Executive Life Plan") (incorporated by reference to
Exhibit 10.7 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1993)
10.8* -- Amendment No. 1, effective September 29, 1994, to the
Executive Life Plan (incorporated by reference to Exhibit
10.10 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-4 filed on February 13, 1995 (File
No. 33-57663))
10.9* -- Executive Physicals Policy (incorporated by reference to
Exhibit 10.8 to Beverly Enterprises, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993)
10.10* -- Amended and Restated Deferred Compensation Plan effective
July 18, 1991 (incorporated by reference to Exhibit 10.6
to Beverly Enterprises, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1991)
10.11* -- Amendment No. 1, effective September 29, 1994, to the
Deferred Compensation Plan (incorporated by reference to
Exhibit 10.13 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-4 filed on February 13, 1995 (File
No. 33-57663))
10.12* -- Executive Retirement Plan (incorporated by reference to
Exhibit 10.9 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1987)
10.13* -- Amendment No. 1, effective as of July 1, 1991, to the
Executive Retirement Plan (incorporated by reference to
Exhibit 10.8 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1991)
10.14* -- Amendment No. 2, effective as of December 12, 1991, to
the Executive Retirement Plan (incorporated by reference
to Exhibit 10.9 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1991)
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15* -- Amendment No. 3, effective as of July 31, 1992, to the
Executive Retirement Plan (incorporated by reference to
Exhibit 10.10 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1992)
10.16* -- Amendment No. 4, effective as of January 1, 1993, to the
Executive Retirement Plan (incorporated by reference to
Exhibit 10.18 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1994)
10.17* -- Amendment No. 5, effective as of September 29, 1994, to
the Executive Retirement Plan (incorporated by reference
to Exhibit 10.19 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1994)
10.18* -- Amendment No. 6, effective as of January 1, 1996, to the
Executive Retirement Plan (incorporated by reference to
Exhibit 10.18 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997)
10.19* -- Amendment No. 7, effective as of September 1, 1997, to
the Executive Retirement Plan (incorporated by reference
to Exhibit 10.19 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997)
10.20* -- Amendment No. 8, dated as of December 11, 1997, to the
Executive Retirement Plan, changing its name to the
"Executive SavingsPlus Plan" (incorporated by reference
to Exhibit 10.20 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997)
10.21* -- Beverly Enterprises, Inc.'s Supplemental Executive
Retirement Plan effective as of January 1, 1998
(incorporated by reference to Exhibit 10.21 to Beverly
Enterprises, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1997)
10.22* -- Beverly Enterprises, Inc.'s Executive Deferred
Compensation Plan (incorporated by reference to Exhibit
4.1 to Beverly Enterprises, Inc.'s Registration Statement
on Form S-8 filed on December 5, 1997 (File No.
333-41673))
10.23* -- Amendment No. 1 to the Executive Deferred Compensation
Plan made as of December 11, 1997 (incorporated by
reference to Exhibit 10.23 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1997)
10.24* -- Amendment No. 2 to the Executive Deferred Compensation
Plan made as of December 11, 1997 (incorporated by
reference to Exhibit 10.24 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1997)
10.25* -- Beverly Enterprises, Inc. Non-Employee Director Deferred
Compensation Plan (the "Directors' Plan") (incorporated
by reference to Exhibit 10.1 to Beverly Enterprises,
Inc.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997)
10.26* -- Amendment No. 1, effective as of December 3, 1997, to the
Directors' Plan (incorporated by reference to Exhibit
10.26 to Beverly Enterprises, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1997)
10.27* -- Beverly Enterprises, Inc.'s Supplemental Long-Term
Disability Plan (incorporated by reference to Exhibit
10.24 to Beverly Enterprises, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1996)
10.28* -- Form of Indemnification Agreement between Beverly
Enterprises, Inc. and its officers, directors and certain
of its employees (incorporated by reference to Exhibit
19.14 to Beverly Enterprises, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1987)
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.29* -- Form of request by Beverly Enterprises, Inc. to certain
of its officers or directors relating to indemnification
rights (incorporated by reference to Exhibit 19.5 to
Beverly Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1987)
10.30* -- Form of request by Beverly Enterprises, Inc. to certain
of its officers or employees relating to indemnification
rights (incorporated by reference to Exhibit 19.6 to
Beverly Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1987)
10.31* -- Agreement dated December 29, 1986 between Beverly
Enterprises, Inc. and Stephens Inc. (incorporated by
reference to Exhibit 10.20 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-1 filed on January 18,
1990 (File No. 33-33052))
10.32* -- Employment Contract, made as of August 22, 1997, between
New Beverly Holdings, Inc. and David R. Banks
(incorporated by reference to Exhibit 10.17 to Amendment
No. 2 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-1 filed on September 22, 1997 (File
No. 333-28521))
10.33* -- Form of Employment Contract, made as of August 22, 1997,
between New Beverly Holdings, Inc. and certain of its
officers (incorporated by reference to Exhibit 10.20 to
Amendment No. 2 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-1 filed on September 22,
1997 (File No. 333-28521))
10.34* -- Executive Stock Option Agreement, effective as of
February 19, 1998, between Beverly Enterprises, Inc. and
David R. Banks (incorporated by reference to Exhibit 10.1
to Beverly Enterprises, Inc.'s Quarterly Report on Form
10-Q for the quarter ended March 31, 1998)
10.35 -- Master Lease Document -- General Terms and Conditions
dated December 30, 1985 for Leases between Beverly
California Corporation and various subsidiaries thereof
as lessees and Beverly Investment Properties, Inc. as
lessor (incorporated by reference to Exhibit 10.12 to
Beverly California Corporation's Annual Report on Form
10-K for the year ended December 31, 1985)
10.36 -- Agreement dated as of December 29, 1986 among Beverly
California Corporation, Beverly Enterprises -- Texas,
Inc., Stephens Inc. and Real Properties, Inc.
(incorporated by reference to Exhibit 28 to Beverly
California Corporation's Current Report on Form 8-K dated
December 30, 1986) and letter agreement dated as of July
31, 1987 among Beverly Enterprises, Inc., Beverly
California Corporation, Beverly Enterprises -- Texas,
Inc. and Stephens Inc. with reference thereto
(incorporated by reference to Exhibit 19.13 to Beverly
Enterprises, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1987)
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.37 -- Participation Agreement, dated as of August 28, 1998,
among Vantage Healthcare Corporation, Petersen Health
Care, Inc., Beverly Savana Cay Manor, Inc., Beverly
Enterprises -- Georgia, Inc., Beverly
Enterprises -- California, Inc., Beverly Health and
Rehabilitation Services, Inc., Beverly
Enterprises -- Arkansas, Inc., Beverly
Enterprises -- Florida, Inc. and Beverly
Enterprises -- Washington, Inc. as Lessees and Structural
Guarantors; Beverly Enterprises, Inc. as Representative,
Construction Agent and Parent Guarantor; Bank of Montreal
Global Capital Solutions, Inc. as Agent Lessor and
Lessor; The Long-Term Credit Bank of Japan, LTD., Los
Angeles Agency, Bank of America National Trust and
Savings Association and Bank of Montreal, as Lenders; The
Long-Term Credit Bank of Japan, LTD., Los Angeles Agency
as Arranger; and Bank of Montreal as Co-Arranger and
Syndication Agent and Administrative Agent for the
Lenders with respect to the Lease Financing of New
Headquarters for Beverly Enterprises, Inc., Assisted
Living and Nursing Facilities for Beverly Enterprises,
Inc.
10.38 -- Amended and Restated Credit Agreement, dated as of April
30, 1998, among Beverly Enterprises, Inc., the Banks
listed therein and Morgan Guaranty Trust Company of New
York, as Issuing Bank and Agent
10.39 -- Data Processing Agreement, dated as of August 1, 1992, by
and between Systematics Telecommunications Services, Inc.
and Beverly California Corporation (incorporated by
reference to Exhibit 10 to Beverly Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992)
10.40 -- Form of Irrevocable Trust Agreement for the Beverly
Enterprises, Inc. Executive Benefits Plan (incorporated
by reference to Exhibit 10.55 to Beverly Enterprises,
Inc.'s Registration Statement of Form S-4 filed on
February 13, 1995 (File No. 33-57663))
21.1 -- Subsidiaries of Registrant
23.1 -- Consent of Ernst & Young LLP, Independent Auditors
27.1 -- Financial Data Schedule for the year ended December 31,
1998
</TABLE>
- ---------------
* Exhibits 10.1 through 10.34 are the management contracts, compensatory plans,
contracts and arrangements in which any director or named executive officer
participates.
<PAGE> 1
EXHIBIT 10.37
================
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
dated as of August 28, 1998
amending and restating the Participation
Agreement dated as of March 21, 1997
among
VANTAGE HEALTHCARE CORPORATION, PETERSEN HEALTH CARE, INC., BEVERLY SAVANA
CAY MANOR, INC.,
BEVERLY ENTERPRISES-GEORGIA, INC.,
BEVERLY ENTERPRISES-CALIFORNIA, INC.,
BEVERLY HEALTH AND REHABILITATION SERVICES, INC.,
BEVERLY ENTERPRISES - ARKANSAS, INC.,
BEVERLY ENTERPRISES - FLORIDA, INC. and
BEVERLY ENTERPRISES - WASHINGTON, INC.
as Lessees and Structural Guarantors
BEVERLY ENTERPRISES, INC.
as Representative, Construction Agent
and Parent Guarantor,
BANK OF MONTREAL GLOBAL CAPITAL SOLUTIONS, INC.,
as Agent Lessor and Lessor,
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
and
BANK OF MONTREAL,
as Lenders,
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY
as Arranger
and
BANK OF MONTREAL,
as Co-Arranger, Syndication Agent and Administrative Agent
for the Lenders
----------------------
Lease Financing of New Headquarters for Beverly Enterprises, Inc. and
Assisted Living and Nursing
Facilities
for
Beverly Enterprises, Inc.
================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS; INTERPRETATION
ARTICLE II
DOCUMENTATION DATE
Section 2.1 Documentation Date...............................................................3
ARTICLE III
FUNDING OF ADVANCES
Section 3.1 Advances.........................................................................5
Section 3.2 Lessors' Commitments.............................................................6
Section 3.3 Lenders' Commitments.............................................................6
Section 3.4 Procedures for Advances..........................................................7
Section 3.5 Interest Rate; Yield Rate........................................................7
Section 3.6 Interest Period Selection/ Continuation/Conversion Elections.....................8
ARTICLE IV
YIELD; INTEREST; FEES
Section 4.1 Yield............................................................................9
Section 4.2 Interest on Loans...............................................................10
Section 4.3 Reductions in Commitments and Prepayments.......................................10
Section 4.4 Fees............................................................................11
Section 4.5 Place and Manner of Payments....................................................12
Section 4.6 Pro Rata Treatment..............................................................13
Section 4.7 Sharing of Payments.............................................................13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V
CERTAIN INTENTIONS OF THE PARTIES
Section 5.1 Nature of Transaction...........................................................14
Section 5.2 Amounts Due Under the Lease.....................................................15
ARTICLE VI
CONDITIONS PRECEDENT: ACQUISITION DATES; FUNDING DATES
Section 6.1 Acquisition Dates...............................................................15
Section 6.2 Funding Dates...................................................................20
Section 6.3 Conditions to Completion Date...................................................23
ARTICLE VII
DISTRIBUTIONS
Section 7.1 Basic Rent.....................................................................23
Section 7.2 Purchase Payments by the Representative and the Lessees........................23
Section 7.3 Payment of Loan Balance........................................................24
Section 7.4 Sales Proceeds of Remarketing of Properties....................................24
Section 7.5 Supplemental Rent..............................................................25
Section 7.6 Distribution of Payments after Lease Event of Default..........................25
Section 7.7 Other Payments.................................................................28
Section 7.8 Casualty and Condemnation Amounts..............................................28
Section 7.9 Order of Application...........................................................29
Section 7.10 Payments to Account............................................................29
ARTICLE VIII
REPRESENTATIONS
Section 8.1 Representations of the Participants.............................................29
Section 8.2 Representations of the Beverly Entities.........................................29
Section 8.3 Representations with Respect to each Funding Date and Acquisition Date..........37
ARTICLE IX
PAYMENT OF CERTAIN EXPENSES
Section 9.1 Transaction Expenses............................................................38
Section 9.2 Brokers' Fees and Stamp Taxes...................................................38
Section 9.3 Loan Agreement and Related Obligations..........................................39
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE X
OTHER COVENANTS AND AGREEMENTS
Section 10.1 Affirmative Covenants of the Representative....................................39
Section 10.2 Negative Covenants of the Representative.......................................44
Section 10.3 Affirmative Covenant of the Agent Lessor.......................................55
ARTICLE XI
RENEWALS
Section 11.1 Extensions of Maturity Date and Expiration Date;
Replacement of Participants..............................................55
Section 11.2 Replacement of Defaulting Participant..........................................56
ARTICLE XII
TRANSFERS OF PARTICIPANTS' INTERESTS
Section 12.1 Assignments....................................................................57
Section 12.2 Participations.................................................................57
Section 12.3 Withholding Taxes; Disclosure of Information; Pledge Under Regulation A........58
ARTICLE XIII
INDEMNIFICATION
Section 13.1 General Indemnification.......................................................59
Section 13.2 End of Term Indemnity.........................................................62
Section 13.3 Environmental Indemnity.......................................................63
Section 13.4 Proceedings in Respect of Claims..............................................64
Section 13.5 General Tax Indemnity.........................................................66
Section 13.6 Indemnity Payments in Addition to Lease Obligations...........................70
Section 13.7 Eurodollar Rate Lending Unlawful..............................................70
Section 13.8 Deposits Unavailable..........................................................70
Section 13.9 Increased Costs, etc..........................................................71
Section 13.10 Funding Losses................................................................72
Section 13.11 Capital Adequacy..............................................................73
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE XIV
THE AGENT LESSOR
Section 14.1 Appointment and Authorization.................................................74
Section 14.2 Delegation of Duties..........................................................75
Section 14.3 Agent Lessor and Affiliates...................................................75
Section 14.4 Action by Agent Lessor........................................................75
Section 14.5 Consultation with Experts.....................................................75
Section 14.6 Exculpatory Provisions........................................................75
Section 14.7 Reliance on Communications....................................................76
Section 14.8 Notice of Default.............................................................76
Section 14.9 Non-Reliance on Agent Lessor and Other Participants...........................76
Section 14.10 Indemnification...............................................................77
Section 14.11 Failure to Act................................................................77
Section 14.12 Resignation and Removal.......................................................78
Section 14.13 Distributions.................................................................78
Section 14.14 Rights of Each Beverly Entity.................................................78
ARTICLE XV
MISCELLANEOUS
Section 15.1 Survival of Agreements........................................................79
Section 15.2 No Broker, etc................................................................79
Section 15.3 Notices.......................................................................79
Section 15.4 Counterparts..................................................................80
Section 15.5 Amendments, etc...............................................................80
Section 15.6 Headings, etc.................................................................81
Section 15.7 Parties in Interest...........................................................81
Section 15.8 Governing Law.................................................................81
Section 15.9 Severability..................................................................82
Section 15.10 Liability Limited.............................................................82
Section 15.11 Further Assurances............................................................82
Section 15.12 Submission To Jurisdiction....................................................83
Section 15.13 Setoff........................................................................83
Section 15.14 Waiver of Jury Trial..........................................................83
Section 15.15 No Participant Responsible for Other Participants.............................84
Section 15.16 Each Lessor to Have an Undivided Interest.....................................84
Section 15.17 Authority of Representative...................................................84
</TABLE>
iv
<PAGE> 6
EXHIBIT A - FORM OF LEGAL OPINION OF LESSEE AND GUARANTORS
EXHIBIT B - FORM OF FUNDING REQUEST
EXHIBIT C - FORM OF INTEREST PERIOD
SELECTION/CONTINUATION/CONVERSION NOTICE
EXHIBIT D-1 - FORM OF OFFICER'S CERTIFICATE
EXHIBIT D-2 - FORM OF SECRETARY'S CERTIFICATE
EXHIBIT D-3 - FORM OF RESPONSIBLE OFFICER'S CERTIFICATE
EXHIBIT E - FORM OF COMPLIANCE CERTIFICATE
EXHIBIT F - FORM OF ASSIGNMENT AGREEMENT
EXHIBIT G - FORM OF LEGAL OPINION OF LOCAL COUNSEL TO
LESSEE
EXHIBIT H - FORM OF COMPLETION CERTIFICATE
v
<PAGE> 7
PARTICIPATION AGREEMENT
THIS AMENDED AND RESTATED PARTICIPATION AGREEMENT (this "Participation
Agreement"), dated as of August 28, 1998, is entered into by and among BEVERLY
ENTERPRISES, INC., a Delaware corporation, as the Representative, Construction
Agent and Parent Guarantor (in its capacity as Representative, the
"Representative"; in its capacity as Construction Agent, the "Construction
Agent"; and, in its capacity as Parent Guarantor, the "Parent Guarantor") and
together with the Guarantors listed on the signature page to the Guaranty (each
a "Guarantor") and the Structural Guarantors, the "Guarantors"); BANK OF
MONTREAL GLOBAL CAPITAL SOLUTIONS, INC. (formerly known as BMO Leasing (U.S.)
Inc.) , a Delaware corporation, as a Lessor (together with any permitted
successors and assigns thereto, each a "Lessor" and collectively the "Lessors");
BANK OF MONTREAL GLOBAL CAPITAL SOLUTIONS, INC. (formerly known as BMO Leasing
(U.S.) Inc.), as Agent Lessor for the Lessors (in such capacity, the "Agent
Lessor"); THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY ("LTCB"),
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, BANK OF MONTREAL, a
Canadian banking organization ("BMO"), and the other various financial
institutions as are or may from time to time become lenders (the "Lenders")
under the Loan Agreement; LTCB as Arranger (in such capacity, the "Arranger");
and BMO, as Co- Arranger, Syndication Agent and Administrative Agent for the
Lenders (in such capacity, the "Administrative Agent"), amending and restating
the Participation Agreement, dated as of March 21, 1997, among the
aforementioned parties (the "Existing Participation Agreement").
W I T N E S S E T H:
WHEREAS, on each Acquisition Date, the Agent Lessor will either (a)
purchase from one or more third parties designated by the Construction Agent, or
(b) with respect to Property that is not Improved Property lease pursuant to a
ground lease, parcels of Land, together with any Improvements thereon;
WHEREAS, the Representative, as Construction Agent, has constructed and
will construct, at Lessor's expense, additional Improvements on each Property
that is not Improved Property which as constructed will be the property of the
Agent Lessor and will become part of each Property that is not Improved
Property;
WHEREAS, the Agent Lessor desire to lease to the respective Lessees,
and the respective Lessees desire to lease from the Agent Lessor, such Property;
and
<PAGE> 8
WHEREAS, the Lessors are willing to provide the funding of the costs of
the acquisition of Land, all Improvements thereon and the construction of such
other Improvements;
WHEREAS, the Lenders are willing to provide financing to the Lessor for
a portion of the costs of acquisition of Land, all Improvements thereon and the
construction of such other Improvements and;
WHEREAS, to secure such financing (a) the Lessors will have the benefit
of (i) the Parent Guaranty from the Parent Guarantor and the Guaranty from the
other Guarantors (other than the Structural Guarantors) and (ii) a first
priority Lien on the Properties and (b) the Lenders will have the benefit of (i)
the Structural Guaranties from the Structural Guarantors, the Parent Guaranty
from the Parent Guarantor and the Guaranty from the other Guarantors, (ii) a
Lien on the Agent Lessor's right, title and interest in the Properties, and
(iii) an assignment of certain of the Agent Lessor's rights against the Lessees
under the Lease and against the Construction Agent under the Construction Agency
Agreement;
WHEREAS, the parties hereto wish to amend and restate the terms of the
Existing Participation Agreement and to increase the commitments of the Lessors
and Lenders to provide financing for the acquisition of additional Land and
construction of additional Improvements;
WHEREAS, the parties hereto acknowledge that all advances made prior to
the date hereof are subject to the benefit of the security arrangements
contemplated by the Existing Participation Agreement without interruption;
WHEREAS, contemporaneous with the execution and delivery of this
Participation Agreement BMO and LTCB have assigned to BoA shares of the
outstanding Loan Balance such that after such assignment the outstanding Loan
Balance of each Lender is proportional to its respective Commitment Percentage;
NOW THEREFORE, in consideration of the mutual agreements contained in
this Participation Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix A hereto
for all
2
<PAGE> 9
purposes hereof (as such Appendix A may be amended, supplemented, amended and
restated or otherwise modified from time to time, "Appendix A to this
Participation Agreement"); and the rules of interpretation set forth in Appendix
A to this Participation Agreement shall apply to this Participation Agreement.
ARTICLE II
DOCUMENTATION DATE
Section 2.1 Documentation Date. The Documentation Date for the
transaction contemplated by the Participation Agreement occurred on March 21,
1997.
Section 2.2 Effectiveness of this Agreement. This Amended and Restated
Participation Agreement shall be in effect upon satisfaction or waiver of each
of the following conditions precedent; the date of such effectiveness being
hereinafter referred to as the "Effective Date".
(a) Participation Agreement. This Participation Agreement
shall have been duly authorized, executed and delivered by the parties
hereto.
(b) Master Lease. The Master Lease shall have been duly
authorized, executed and delivered by the parties thereto.
(c) Construction Agency Agreement. The Construction Agency
Agreement shall have been duly authorized, executed and delivered by
the parties thereto.
(d) Construction Agency Agreement Assignment; Construction
Documents Assignment. The Construction Agency Agreement Assignment and
the Construction Documents Assignment shall have been duly authorized,
executed and delivered by the Agent Lessor and consented to and
acknowledged by the Construction Agent.
(e) Loan Agreement and Notes. The Loan Agreement and each
Lender's Note shall have been duly authorized, executed and delivered
by the parties thereto.
(f) Assignment of Lease and Rent. The Assignment of Lease and
Rent shall have been duly authorized, executed and delivered by the
Agent Lessor, as assignor, to the Administrative Agent, as assignee,
and the
3
<PAGE> 10
Assignment of Lease and Rent shall have been consented to and
acknowledged by the Lessees.
(g) Guaranties. The Structural Guaranties shall have been duly
authorized, executed and delivered by each Structural Guarantor, the
Parent Guaranty shall have been duly authorized, executed and delivered
by the Parent Guarantor and the Guaranty shall have been duly
authorized, executed and delivered by each of the other Guarantors.
(h) Fees. The Administrative Agent and each Participant, as
applicable, shall have received all fees then due and payable pursuant
to Section 4.4.
(i) Certain Transaction Expenses. Mayer, Brown & Platt
("MBP"), as special counsel for the Agent Lessor, shall have received,
to the extent then invoiced, payment in full in cash of all Transaction
Expenses payable to such counsel pursuant to Section 9.1.
(j) Corporate Documents; Certificates; Acceptance Letter. Each
of the Lessees and the Representative shall have delivered, or shall
have caused to be delivered, to the Administrative Agent, the Agent
Lessor, each Lender and each Lessor the following:
(i) Good Standing. To the extent the following has
not previously been delivered with respect to any Lessee,
copies of certificates of good standing, existence or its
equivalent, certified as of a recent date by the appropriate
governmental authorities of the state of its incorporation
and, for each Lessee, of the state where the Property leased
to it is located.
(ii) Opinions of Counsel. An opinion of (i) Weil,
Gotshal & Manges LLP, New York counsel, (ii) the vice
president and deputy general counsel for the Beverly Entities,
and (iii) Mayer, Brown & Platt, counsel to the Agent Lessor,
and Thomas R. Sizer, Esq., internal counsel for the Agent
Lessor, each dated the Effective Date and, with respect to (i)
and (ii), addressed to the Administrative Agent, the Agent
Lessor, each of the Lenders and each of the Lessors, covering
the matters set forth in Exhibit A.
(k) No Default. No Default or Event of Default shall have
occurred and be continuing on the Effective Date unless such Default or
Event of Default shall have been waived in accordance with the
Operative Documents.
4
<PAGE> 11
(l) Governmental Approvals. All Governmental Actions required
by any Requirement of Law for the purpose of authorizing each Beverly
Entity, the Agent Lessor, the Administrative Agent and each Participant
to enter into the amended and restated Operative Documents shall have
been obtained or made and be in full force and effect.
All documents and instruments required to be delivered pursuant to this Section
2.1 shall be delivered at the offices of Mayer, Brown & Platt, 1675 Broadway,
New York, New York 10019 or at such other location as may be determined by the
Agent Lessor, the Administrative Agent and the Representative, and in such
numbers as shall be reasonably requested by the Administrative Agent.
ARTICLE III
FUNDING OF ADVANCES
Section 3.1 Advances. Subject to the conditions and terms hereof, the
Agent Lessor shall take the following actions at the written request of the
Representative from time to time during the Commitment Period with respect to
each Property:
(a) the Agent Lessor shall make Advances (out of funds
provided by the Lessors and the Lenders) to the Construction Agent, for
the purpose of financing the acquisition of Land, with respect to
Property that is not Improved Property, or leasehold interests therein
(and Improvements existing thereon, if any) and the Construction of
Improvements thereon, and the proceeds of such Advances shall be made
directly to the Construction Agent or to such parties designated in
writing by the Construction Agent to the Agent Lessor;
(b) the Agent Lessor shall acquire the Land, with respect to
Property that is not Improved Property, or leasehold interests therein,
and Improvements, if any (using funds provided by the Lessors and the
Lenders); and
(c) the Agent Lessor shall lease (or in the case of
leaseholds, sublease) the Land and Improvements to the relevant Lessee
under the Master Lease and the respective Lease Supplement.
Notwithstanding any other provision hereof, the Agent Lessor shall not be
obligated to make any Advance with respect to any Property if, after giving
effect thereto, (i) the aggregate outstanding amounts of the Loans and the
Lessor Amounts would exceed the Aggregate Commitment Amount, or (ii) the
Property Balance for such Property would exceed the lesser of (x) 110% of the
Estimated Improvements Costs
5
<PAGE> 12
plus Land Acquisition Cost, as set forth in the Funding Request relating to the
Acquisition Date for such Property, and (y) the Fair Market Sales Value of such
Property as set forth in (A) the As-Built Appraisal thereof delivered pursuant
to clause (i) or (ii) of Section 6.2(b) , or (iii) with respect to the New
Beverly Headquarters, the aggregate Property Cost thereof would exceed
$40,000,000. Notwithstanding the foregoing, but subject to the rights and
remedies of the Agent Lessor under the Construction Agency Agreement and to
Article VI hereof, the Construction Agent is entitled to obtain Advance for the
purpose of reimbursing it for Project Costs expended by it in connection with
the construction of Improvements on a Property. Furthermore, until the
Unavailable Commitment Termination Date, no Lessor or Lender shall be obligated
to make available any Lessor Amount or Loan if, after giving effect to the
proposed Lessor Amount or Loan, the outstanding aggregate amount of the Lessor
Amounts and Loans would exceed (I) with respect to any Improved Property, the
Fair Market Sales Value of such Property as set forth in the Improved Property
Appraisal thereof delivered pursuant to clause (i) of Section 6.1(d) and (II)
with respect to any Property that is not Improved Property, the difference
between (x) the Aggregate Commitment Amount and (y) the Unavailable Commitment.
There shall not be a Funding Date with respect to any Improved Property after
the Acquisition Date of such Property.
Section 3.2 Lessors' Commitments. Subject to the conditions and terms
hereof, each of the Lessors shall make available to the Agent Lessor at the
request of the Construction Agent from time to time during the Commitment Period
on any Funding Date or Acquisition Date, as appropriate, an amount (relative to
such Lessor, a "Lessor Amount") in immediately available funds equal to such
Lessor's Commitment Percentage of the amount of the Advance being funded on such
Funding Date or Acquisition Date. Notwithstanding any other provision hereof, no
Lessor shall be obligated to make available any Lessor Amount if, after giving
effect to the proposed Lessor Amount, the outstanding aggregate amount of the
Lessor Amounts of such Lessor would exceed such Lessor's Commitment.
Section 3.3 Lenders' Commitments. Subject to the conditions and terms
hereof, each of the Lenders shall make Loans to the Agent Lessor at the request
of the Construction Agent from time to time during the Commitment Period on any
Funding Date or Acquisition Date, as appropriate, an amount (relative to such
Lender, a "Loan") in immediately available funds equal to such Lender's
Commitment Percentage of the amount of the Advance being funded on such Funding
Date or Acquisition Date. Notwithstanding any other provision hereof, no Lender
shall be obligated to make any Loan if, after giving effect to the proposed
Loan, the outstanding aggregate amount of such Lender's Loans would exceed such
Lender's Commitment.
6
<PAGE> 13
Section 3.4 Procedures for Advances.
(a) With respect to each Advance, the Construction Agent shall give the
Agent Lessor and the Administrative Agent prior written notice pursuant to a
Funding Request substantially in the form of Exhibit B (a "Funding Request"),
which Funding Request shall be delivered not later than 10:00 a.m. (New York
City time), three (3) Business Days prior to the proposed Acquisition Date or
the proposed Funding Date, specifying: (i) the proposed Acquisition Date or
Funding Date, (ii) the amount of Advance requested, (iii) whether such proposed
Funding Date will also be an Acquisition Date, and (iv) the Properties to which
such Advance is being allocated and the amount allocated to each Property. With
respect to any Funding Request related to the acquisition of a Property (or
leasehold interest therein), in addition to the foregoing, the Representative
shall also specify: (i) the Property to be acquired or leased, (ii) the seller
or lessor of the Property and the related Land Acquisition Cost, and, with
respect to Improved Property, the Property Improvement Costs (iii) the Estimated
Improvement Costs for such Property. Such Loans and Lessor Amounts made with
respect to each Advance (i) if made on a day other than a Scheduled Payment Date
or an Acquisition Date, shall be Base Rate Loans/Lessor Amounts and (ii) if made
on a Scheduled Payment Date or an Acquisition Date, shall be Eurodollar
Loans/Lessor Amounts, and the duration of the initial Interest Period with
respect to such Advance shall begin on the proposed Acquisition Date or Funding
Date and end on the next succeeding Scheduled Payment Date (the "Initial
Interest Period"). Subject to timely delivery of a Funding Request and the other
terms and conditions of the Operative Documents, each Participant shall make its
Commitment Percentage of the requested Advance available to the Agent Lessor by
2:00 p.m., Eastern time, on the requested Acquisition Date or Funding Date, as
applicable, and the Agent Lessor will forward any such amounts so received to
the Construction Agent not later than 3:00 p.m., Eastern time, on the same day.
The Agent Lessor and the Administrative Agent shall calculate the amounts of the
Lessor Amounts and the Loans required to fund the requested Advance as it
relates to each Property. No more than two (2) Funding Requests shall be made
during each Interest Period other than Funding Requests made pursuant to Section
6.1.
(b) Except as the Participants may otherwise agree in writing, Advances
shall be made solely to provide the Construction Agent with funds with which to
pay any Land Acquisition Costs or pay or reimburse itself for Property
Improvement Costs, as the case may be.
Section 3.5 Interest Rate; Yield Rate. Each Loan and Lessor Amount
shall accrue interest or Yield, as the case may be, by reference to the Base
Rate or the Adjusted Eurodollar Rate in accordance with Section 3.6.
7
<PAGE> 14
Section 3.6 Interest Period Selection/ Continuation/Conversion
Elections.
(a) By delivering an Interest Period Selection/Continuation/Conversion
Notice to the Agent Lessor and Administrative Agent with respect to Loans and
Lessor Amounts, the Representative may from time to time during the Basic Lease
Term irrevocably select, on not less than three (3) nor more than five (5)
Business Days' notice, that all or any portion of the outstanding Loans and
Lessor Amounts be, in the case of Base Rate Loans/Lessor Amounts, converted into
Eurodollar Loans/Lessor Amounts or, in the case of Eurodollar Loans/Lessor
Amounts, converted into Base Rate Loans/Lessor Amounts or continued as
Eurodollar Rate Loans/Lessor Amounts and, with respect to Eurodollar
Loans/Lessor Amounts, select the duration for the next succeeding Interest
Period; provided, however, that (a) in the absence of a delivery of an Interest
Period Selection/Continuation/Conversion Notice with respect to any Eurodollar
Loan/Lessor Amount at least three (3) Business Days before the last day of the
then current Interest Period with respect thereto, the Representative (on behalf
of all Lessees) shall be deemed to have selected that such Eurodollar
Loan/Lessor Amount be converted into a Base Rate Loan/Lessor Amount on such last
day, (b) each such conversion or continuation shall be pro rated among the
applicable outstanding Loans and Lessor Amounts of all Participants, (c) no
portion of any Loan or Lessor Amount may be continued as, or converted into, a
Eurodollar Loan/Lessor Amount when any Lease Default has occurred and is
continuing, and (d) the outstanding Loans and Lessor Amounts may not be
apportioned into more than three (3) separate Loans and Lessor Amounts pursuant
to this Section 3.6(a) at any one time.
(b) the Representative, with respect to any Loans and Lessor Amounts
outstanding during the Interim Lease Term, shall be deemed to have (i) converted
Base Rate Loans/Lessor Amounts into Eurodollar Loans/Lessor Amounts at the end
of the Initial Interest Period, (ii) as of each Scheduled Payment Date (other
than the Interim Termination Date), continued all outstanding Eurodollar
Loans/Lessor Amounts as Eurodollar Loans/Lessor Amounts and (iii) as of each
Scheduled Payment Date (other than the Interim Termination Date) selected an
Interest Period ending on the earlier of the next succeeding Scheduled Payment
Date and the Interim Termination Date.
Each Interest Period Selection/Continuation/Conversion Notice so delivered or
deemed delivered by the Representative shall be deemed an effective election by
the Lessors of the method for computing interest on the Loans under the Loan
Agreement.
8
<PAGE> 15
ARTICLE IV
YIELD; INTEREST; FEES
Section 4.1 Yield.
(a) the amount of the Lessor Amounts outstanding from time to time
shall accrue yield ("Yield") at the Yield Rate, calculated using the actual
number of days elapsed and, when the Yield Rate is based on the Adjusted
Eurodollar Rate, a 360-day year basis and, if calculated at the Base Rate, a
360-day year basis if the Base Rate is calculated at the Federal Funds Rate, and
a 365-, or, if applicable, 366-, day year basis if the Base Rate is calculated
at the Prime Rate. If all or any portion of the Lessor Amounts, any Yield
payable thereon or any other amount payable hereunder shall not be paid when due
(whether at stated maturity, acceleration thereof or otherwise), such overdue
amount shall bear interest at a rate per annum which is equal to the Overdue
Rate. Upon the occurrence, and during the continuance of an Event of Default,
the principal of and, to the extent permitted by law, interest on (or Yield on)
the Lessor Amounts and any other amounts owing hereunder or under the other
Operative Documents shall bear interest, payable on demand, at a per annum rate
of 2% greater than the rate which would otherwise be applicable (or if no rate
is applicable, whether in respect of interest, fees or other amounts, then 2%
greater than the Base Rate). The Administrative Agent shall, as soon as
practicable, but in no event later than 1:00 p.m., Eastern time, two Business
Days before the effectiveness of each Adjusted Eurodollar Rate, cause to be
determined such Adjusted Eurodollar Rate, the resulting Yield and Lessor Basic
Rent, and notify each Lessor thereof.
(b) the Administrative Agent shall distribute, in accordance with
Article VII, the Lessor Basic Rent and all other amounts due with respect to the
Lessor Amounts paid to the Administrative Agent by the Lessees under the Lease
from time to time.
(c) yield on outstanding Lessor Amounts made with respect to each
Property shall that is not Improved Property be paid from Advances by the
Lessors deemed to have been requested by the Representative pursuant to Section
3.4 on each Scheduled Payment Date occurring prior to the earlier of the
Completion Date and the Outside Completion Date for such Property, and the
Property Improvement Costs of such Property shall be increased on the date of
each such Advance by an amount equal to such Advance; provided that if a
Completion Certificate is delivered less than three (3) Business Days prior to a
Scheduled Payment Date, solely for purposes of this clause (c) such Completion
Certificate shall not be effective until the day after such Scheduled Payment
Date.
(d) after the earlier of the Completion Date and the Outside Completion
Date for any Property, that is not Improved Property Yield on outstanding Lessor
Amounts
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made with respect to each Improved Property shall be due and payable in cash on
each Scheduled Payment Date and not funded pursuant to deemed Advances as
referred to in clause (c) above.
(e) if not repaid sooner, the outstanding aggregate Lessor Amounts
shall be repaid in full on the Maturity Date.
Section 4.2 Interest on Loans.
(a) Each Loan shall accrue interest computed and payable in accordance
with the terms of the Loan Agreement. Each Loan shall become due and payable at
the dates and times provided under the Loan Agreement.
(b) The Administrative Agent shall distribute, in accordance with
Article VII, the Lender Basic Rent and all other amounts due with respect to the
Loans paid to the Administrative Agent by any Lessees under the Lease from time
to time.
Section 4.3 Reductions in Commitments and Prepayments.
(a) Voluntary Reduction of Commitments. The Representative may from
time to time permanently reduce the Aggregate Commitment Amount in whole or in
part (in each such case in a minimum aggregate amount of $2,000,000 and integral
multiples of $1,000,000 in excess thereof) upon three (3) Business Days' prior
written notice to the Administrative Agent; provided, however, that no such
reduction shall be effective if the aggregate amount of outstanding Loans and
Lessor Amounts exceeds the remaining Loan Commitment or Lessor Commitment, as
the case may be.
(b) Voluntary Prepayments. The Representative shall have the right to
prepay an amount equal to the aggregate outstanding Property Balance in whole,
but not in part, in respect of any one or more of the Properties pursuant to the
exercise of purchase options permitted under the Lease without premium or
penalty, provided that such prepayment is in connection with the sale of such
Property to a Person other than a Beverly Entity or any Affiliate thereof and
that no Beverly Entity shall operate or manage such Property after its sale
(other than on a temporary basis in connection with such sale).
(c) Mandatory Prepayments.
(i) If at any time the sum of the aggregate amount of
outstanding Loans and Lessor Amounts shall exceed the Available
Commitments or the Aggregate Commitment Amount, each of Lessees shall
immediately make payment on the Loans or Lessor Amounts in an amount
sufficient to eliminate their pro rata share of such excess. Payments
required to be made hereunder
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shall be applied to Base Rate Loans or Lessor Amounts and then to
Eurodollar Loans or Lessor Amounts in direct order of their Interest
Period maturities.
(ii) All amounts payable by the Representative or any Lessee
pursuant to Article XV, XVI, XVIII or XX of the Master Lease shall be
applied to the Loans and the Lessor Amounts in the manner set forth in
Article VII.
(d) Notice. The Representative will provide notice to the
Administrative Agent of any prepayment by 11:00 A.M. (New York City time) at
least three (3) Business Days prior to the date of prepayment.
Section 4.4 Fees. The Representative agrees to pay the fees set forth
in this Section 4.4.
(a) Commitment Fees. The Representative agrees to pay to the
Administrative Agent for the account of each Participant, for the
period (including any portion thereof when its Commitment is suspended
by reason of any Lessee's inability to satisfy any condition of Article
VI) commencing on the Effective Date and continuing through the Interim
Termination Date, a Commitment fee (collectively, the "Commitment
Fees") as follows:
(i) from the Effective Date to and excluding the
Unavailable Commitment Termination Date, the Commitment Fee,
with respect to each Participant, shall be calculated (x) at a
rate per annum of 0.25% on such Participant's Commitment
Percentage of the average daily Available Commitments and (y)
at a rate per annum of 0.125% on such Participant's Commitment
Percentage of the Unavailable Commitments; and
(ii) from and including the Unavailable Commitment
Termination Date to and including the Interim Termination Date, the
Commitment Fee, with respect to each Participant, shall be at a rate
per annum of 0.25% on such Participant's Commitment Percentage of the
average daily Available Commitments from and including the Unavailable
Commitment Termination Date to and including the Interim Termination
Date.
The Commitment Fees shall be payable by the Representative in arrears on each
Quarterly Payment Date, commencing with the first such day following the
Documentation Date, and on the Interim Termination Date; provided, however, in
the event the Unavailable Commitment Termination Date occurs prior to August 1,
1997, the Commitment Fees shall be immediately payable by the Representative in
arrears on the Unavailable Commitment Termination Date, together with an amount
equal to
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the difference between (x) the Commitment Fees as calculated from the
Documentation Date to but excluding the Unavailable Commitment Termination Date
pursuant to the method under clause (ii) above less (y) the Commitment Fees paid
to the Administrative Agent from the Documentation Date through the Unavailable
Commitment Termination Date (such difference, the "Commitment Fee Shortfall
Amounts"). The Commitment Fees and Commitment Fee Shortfall Amounts, as
applicable, shall be computed on the basis of the actual number of days
(including the first day but excluding the last day) occurring during the period
for which such Commitment Fees and Commitment Fee Shortfall Amounts, as
applicable, are payable over a year of 360 days.
(b) Up-Front Fees. The Representative agrees to pay to the
Arranger and the Co-Arranger the Up-Front Fees in accordance with the
Arranger's Fee Letter and each Fee Letter executed in connection with
an increase of the Commitment.
(c) Administrative Agent's Fees. The Representative agrees to
pay to the Administrative Agent for its own account the non-refundable
fees set forth in the Arranger's Fee Letter annually in arrears on each
anniversary of the Documentation Date during the Lease Term and on the
Expiration Date.
(d) Other Fees. The Representative agrees to pay to the Agent
Lessor for its own account, with respect to each Property acquired
pursuant to Section 6.1 in excess of 10 Properties from the
Documentation Date, a non-refundable fee of $2,500 on the Acquisition
Date for such Property.
Section 4.5 Place and Manner of Payments. Except as otherwise
specifically provided herein, all payments by any Beverly Entity hereunder,
under the Master Lease or under any other Operative Document shall be made to
the Administrative Agent in Dollars in immediately available funds, without
offset, deduction, counterclaim or withholding of any kind, to the Account in
New York, New York not later than 1:00 p.m. (New York City time) on the date
when due. Payments received after such time shall be deemed to have been
received on the next succeeding Business Day. Each Beverly Entity shall, at the
time it makes any payment under any Operative Document, specify to the
Administrative Agent the Loans and Lessor Amounts, fees or other amounts payable
by the Lessees or the Representative, as the case may be, hereunder to which
such payment is to be applied (and in the event that it fails so to specify, or
if such application would be inconsistent with the terms hereof, the
Administrative Agent shall distribute such payment to the Lenders and the
Lessors in such manner as the Administrative Agent may determine to be
appropriate in respect of obligations owing by such Beverly Entity, subject to
the terms of Section 4.6). The Administrative Agent will distribute such
payments to such Lenders and Lessors in accordance with Article VII, if any such
payment is received prior to 3:00
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p.m. (New York City time) on a Business Day in like funds as received prior to
such time, and otherwise the Administrative Agent will distribute such payment
to such Lenders and Lessors on the next succeeding Business Day. Whenever any
payment hereunder shall be stated to be due on a day which is not a Business
Day, the due date thereof shall be extended to the next succeeding Business Day
(subject to accrual of interest and fees for the period of such extension),
except that in the case of Eurodollar Loans or Lessor Amounts, if the extension
would cause the payment to be made in the next following calendar month, then
such payment shall instead be made on the next preceding Business Day.
Section 4.6 Pro Rata Treatment. Except to the extent otherwise provided
herein, each Advance, each payment or repayment of principal on any outstanding
Loan or Lessor Amount, each payment of interest or Yield, and each reduction of
the Aggregate Commitment Amount, shall be allocated pro rata among the relevant
Lenders and Lessors, as the case may be, in accordance with the respective
applicable Commitments (or, if the Commitments of such Lenders or Lessors have
expired or been terminated, in accordance with the respective principal amounts
of their outstanding Loans or Lessor Amounts, as the case may be).
Section 4.7 Sharing of Payments. The Participants agree among
themselves that, in the event that any Participant shall obtain payment in
respect of any Loan or Lessor Amount or any other obligation owing to such
Participant under the Operative Documents through the exercise of a right of
setoff, banker's lien or counterclaim, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Participant
under any applicable bankruptcy, insolvency or other similar law or otherwise,
or by any other means, in excess of its pro rata share of such payment as
provided for in this Agreement, such Participant shall promptly purchase from
the other Participants a participation in such Loans or Lessor Amounts and other
obligations in such amounts, and make such other adjustments from time to time,
as shall be equitable to the end that all Participants share such payment in
accordance with their respective ratable shares as provided for in this
Agreement. The Participants further agree among themselves that if payment to a
Participant obtained by such Participant through the exercise of a right of
setoff, banker's lien, counterclaim or other event as aforesaid shall be
rescinded or must otherwise be restored, each Participant which shall have
shared the benefit of such payment shall, by repurchase of a participation
theretofore sold, return its share of that benefit (together with its share of
any accrued interest payable with respect thereto) to each Participant whose
payment shall have been rescinded or otherwise restored. Each Beverly Entity
agrees that any Participant so purchasing such a participation may, to the
fullest extent permitted by law, exercise all rights of payment, including
setoff, banker's lien or counterclaim, with respect to such participation as
fully as if such Participant were a holder of such Loan or Lessor Amount or
other obligation in the
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amount of such participation. Except as otherwise expressly provided herein, if
any Participant, the Agent Lessor or the Administrative Agent shall fail to
remit to the Administrative Agent, the Agent Lessor or any other Participant an
amount payable by such party to the Administrative Agent, the Agent Lessor or
such other Participant pursuant to the Operative Documents on the date when such
amount is due, such payments shall be made together with interest thereon for
each date from the date such amount is due until the date such amount is paid to
the Administrative Agent, the Agent Lessor or such other Participant at a rate
per annum equal to the Federal Funds Rate. If under any applicable bankruptcy,
insolvency or other similar law, any Participant receives a secured claim in
lieu of a setoff to which this Section 4.7 applies, such Participant shall, to
the extent practicable, exercise its rights in respect of such secured claim in
a manner consistent with the rights of the Participants under this Section 4.7
to share in the benefits of any recovery on such secured claim.
ARTICLE V
CERTAIN INTENTIONS OF THE PARTIES
Section 5.1 Nature of Transaction.
(a) The parties hereto intend that (i) for financial accounting
purposes with respect to the Lessees, the Agent Lessor will be treated as the
owner and the lessor of the Properties and the Lessees will be treated as the
lessees of their respective Properties and (ii) for all other purposes,
including federal and all state and local income tax purposes, state real estate
and commercial law and bankruptcy purposes,
(i) the Lease will be treated as a financing arrangement,
(ii) the Lessors and the Lenders will be deemed lenders making
loans to the Lessees in an amount equal to the sum of the Lessor
Amounts and the outstanding principal amount of the Loans, which
amounts are secured by the Properties, and
(iii) the Lessees will be treated as the owners of the
Properties described in their respective Lease Supplements and will be
entitled to all tax benefits ordinarily available to an owner of
properties like the Properties for such tax purposes. Nevertheless, the
Lessees acknowledge and agree that (other than the representations and
covenants of the Agent Lessor and its parent to the Representative in
the Lessor Letter Agreement) neither the Agent Lessor, the
Administrative Agent nor any of the Lessors or Lenders has made any
representations or warranties to the Lessees concerning the tax,
accounting or legal characteristics of the Operative Documents and that
the
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Lessees have obtained and relied upon such tax, accounting and legal
advice concerning the Operative Documents as they deem appropriate.
(b) Specifically, without limiting the generality of clause (a) of this
Section 5.1, the parties hereto intend and agree that in the event of any
insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any State or Commonwealth thereof affecting any Beverly
Entity, the Lessors, or the Lenders or any collection actions, the transactions
evidenced by the Operative Documents shall be regarded as loans made by the
Lessors and the Lenders as unrelated third party lenders of the Lessees.
Section 5.2 Amounts Due Under the Lease. Anything herein or elsewhere
to the contrary notwithstanding, it is the intention of Lessee, the Lessors and
the Lenders that: (i) with respect to each Lessee, the amount and timing of
installments of Basic Rent due and payable from time to time from such Lessee
under the Lease shall be equal to the aggregate payments due and payable as
interest on the Loans and Yield on the Lessor Amounts on each Scheduled Payment
Date; (ii) if the Representative elects the Purchase Option or any Lessee
becomes obligated to purchase any of the Properties under the Lease, the Loans,
the Lessor Amounts, and all interest, Yield and Commitment Fees thereon and all
other obligations of the Representative and the Lessor or Lessees with respect
to such Property, as the case may be, owing to the Administrative Agent, the
Agent Lessor, the Lessors and the Lenders shall be immediately due and payable
in full by such parties; (iii) if the Representative properly elects the
Remarketing Option, the Representative shall only be required to pay to the
Administrative Agent the proceeds of the sale of each of the Properties, the
Loan Balance, Lessor Amounts that are allocable to Qualified Land and any
amounts due pursuant to Article XIII hereof and Section 20.2 of the Master Lease
(which aggregate amounts may be less than the Lease Balance); and (iv) upon an
Event of Default resulting in an acceleration of the Representative's obligation
to purchase the Properties under the Lease, the amounts then due and payable by
the Representative under the Lease shall include all amounts necessary to pay in
full the Lease Balance, plus all other amounts then due from the Representative
and the Lessees to the Participants under the Operative Documents.
ARTICLE VI
CONDITIONS PRECEDENT: ACQUISITION DATES; FUNDING DATES
Section 6.1 Acquisition Dates. Each closing date with respect to an
acquisition of Land or leasehold interests therein (and the Improvements
existing thereon, if any) (each an "Acquisition Date") shall occur on the date
on which all the
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conditions precedent thereto set forth in this Section 6.1 with respect to such
acquisition of Land or leasehold interests therein shall have been satisfied or
waived by the applicable parties as set forth herein; provided that no
Acquisition Date shall occur within six months of the Interim Termination Date.
The obligation of the Lessors to acquire any Land or leasehold interests therein
on an Acquisition Date, the obligation of each Lessor to make available any
related Lessor Amount on such Acquisition Date and the obligation of each Lender
to make any related Loan on such Acquisition Date, are subject to satisfaction
or waiver of the following conditions precedent:
(a) Funding Request. Each of the Administrative Agent and the
Agent Lessor shall have received a fully executed counterpart of the
applicable Funding Request in accordance with Section 3.4. Each of the
delivery of a Funding Request and the acceptance of the proceeds of
such Advance shall constitute a representation and warranty by the
Beverly Entities that on the applicable Acquisition Date (both
immediately before and after giving effect to the making of such
Advance and the application of the proceeds thereof), the statements
made in such Funding Request and Section 8.2 are true and correct.
(b) Fees. All fees due and payable pursuant to this
Participation Agreement shall have been paid, and the Participants
shall have received all Commitment Fees due and payable pursuant to
Section 4.4(a).
(c) Representations and Warranties. On the applicable
Acquisition Date, the representations and warranties of each Beverly
Entity in this Agreement and in each of the other Operative Documents
shall be true and correct in all material respects as though made on
and as of such date, except to the extent such representations or
warranties relate solely to an earlier date, in which case such
representations and warranties shall have been true and correct in all
material respects on and as of such earlier date.
(d) Appraisal. At least three (3) Business Days prior to such
Acquisition Date, the Agent Lessor and the Administrative Agent shall
have received an Appraisal, in form and substance satisfactory to the
Administrative Agent and the Agent Lessor, which Appraisal shall show
(i) with respect to each Improved Property, that the Fair Market Sales
Value of such Improved Property as of the Acquisition Date and the end
of the Base Term and each Renewal Term for such Property is not less
than the sum of the Land Acquisition Cost and Property Improvement Cost
for such Property (which, in each case, shall be an Improved Property
Appraisal) and (ii) with respect to each Property other than an
Improved Property, that the Fair Market Sales
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Value of such Land is not less than the Land Acquisition Cost for such
Property.
(e) Governmental Approvals. All necessary Governmental Actions
required by any Requirement of Law for the purpose of authorizing the
Lessors to acquire the applicable Property shall have been obtained or
made and be in full force and effect. With respect to each Improved
Property, such Property shall be ready for occupancy and operation, and
all appropriate Governmental Action (including the issuance by the
appropriate Governmental Authority of a permanent certificate of
occupancy) shall have been taken for the occupancy and operation of
such Property.
(f) Responsible Officer's Certificate. The Agent Lessor and
the Administrative Agent shall have received a Responsible Officer's
Certificate of the Representative, in substantially the form of Exhibit
D-3 attached hereto, addressed to the Administrative Agent, the Agent
Lessor, each Lender and each Lessor and dated as of the applicable
Acquisition Date, stating that (i) to such Responsible Officer's
knowledge the representations and warranties of each Beverly Entity
contained in the Participation Agreement and each other Operative
Document to which it is a party is true and correct in all material
respects on and as of the respective Acquisition Date; (ii) to such
Responsible Officer's knowledge no Default or Event of Default has
occurred and is continuing under any Operative Document to which it is
a party with respect to each Beverly Entity; (iii) to such Responsible
Officer's knowledge each Operative Document to which each Beverly
Entity is a party is in full force and effect with respect to it; and
(iv) each Beverly Entity has duly performed and complied with all
conditions contained herein or in any other Operative Document required
to be performed or complied with by it on or prior to the respective
Acquisition Date.
(g) Evidence of Property Insurance. The Agent Lessor and the
Administrative Agent shall have received evidence that the insurance
maintained by the applicable Lessee with respect to such Property
satisfies the requirements set forth in Article XIII of the Master
Lease, setting forth the respective coverage, limits of liability,
carrier, policy number and period of coverage.
(h) Environmental Audit. At least ten (10) Business Days prior
to such Acquisition Date, the Agent Lessor and the Administrative Agent
shall have received an Environmental Audit with respect to the Property
demonstrating as to any preexisting environmental issue identified in
such audit that the risk of loss therefrom is remote and otherwise in
form and
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substance reasonably satisfactory to the Agent Lessor and the
Administrative Agent.
(i) Deed or Ground Lease. The Agent Lessor shall have received
either (A) in the case of Land being acquired from a third-party
Seller, at least one (1) Business Day prior to such Acquisition Date a
Deed with respect to such Property (and/or all Improvements located
thereon) being purchased on such Acquisition Date, conveying fee simple
title to such Property (and/or all Improvements located thereon) to the
Agent Lessor and containing all customary seller's warranties and
subject only to Permitted Property Liens or (B) in the case of Land
owned in fee simple by the applicable Lessee or an Affiliate of any
Guarantor, at least ten (10) days prior to such Acquisition Date, a
ground lease, in form and substance satisfactory to the Agent Lessor,
duly executed by such Lessee or such Affiliate as the case may be, as
ground Lessor thereunder, conveying to the Agent Lessor a leasehold
interest in such Land, which Land shall be a separate tax lot and a
legal subdivision under all applicable zoning laws. Notwithstanding any
other provision of this Participation Agreement or the other Operative
Documents, the Agent Lessor shall receive a Deed for each Improved
Property and in no event shall Improved Property be subject to a ground
lease as provided in clause (B) of this Section.
(j) Bill of Sale. On or prior to such Acquisition Date, the
Agent Lessor shall have received a special warranty bill of sale (a
"Bill of Sale"), conveying title to the Agent Lessor in any
Improvements and other personal property (other than inventory)
comprising part of the applicable Property.
(k) Construction Agency Agreement Supplement. On or prior to
such Acquisition Date, the Construction Agent and the Agent Lessor
shall have delivered to the Lessors and the Lenders a Construction
Agency Agreement Supplement with respect to the applicable Property
fully executed by the Construction Agent and the Agent Lessor.
(l) Supplement to Assignment of Lease and Rent. On or prior to
such Acquisition Date, the Agent Lessor shall have delivered to the
Administrative Agent a supplement to the Assignment of Lease and Rent
with respect to the applicable Property substantially in the form of
Exhibit A thereto, together with a consent to and acknowledgment of
such supplement duly executed by the applicable Lessee.
(m) Lease Supplement. On or prior to such Acquisition Date,
the applicable Lessee and the Agent Lessor shall have delivered the
original
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counterpart of the Lease Supplement executed by such Lessee and the
Agent Lessor with respect to the applicable Property to the Lenders.
(n) Lessor Financing Statements. On or prior to such
Acquisition Date, the applicable Lessee shall have delivered to the
Agent Lessor all Lessor Financing Statements relating to such Property
as the Agent Lessor or any other Lessor may reasonably request in order
to protect the interests of the Agent Lessor and each of the Lessors
under the Master Lease and the Lease Supplement relating to the
applicable Property to the extent the Master Lease and such Lease
Supplement constitute security agreements.
(o) Recordation of Lessor Mortgage and Lessor Financing
Statements; Search Results. Each of the Participants shall have
received (x) evidence reasonably satisfactory to it that each of (i)
the Lease Supplement and any other instrument constituting a Lessor
Mortgage and (ii) the Lessor Financing Statements, in each case
relating to such Property, has been, or are being, recorded in a manner
sufficient to properly perfect each of their interests therein and (y)
copies of file search reports from the Uniform Commercial Code filing
officer in the jurisdiction (i) in which is located such Property or
(ii) in which is located a place of business or the chief executive
office of the applicable Lessee that owns or holds any right, title or
interest in any Property, setting forth the results of such Uniform
Commercial Code file searches.
(p) Property Survey. At least five (5) Business Days prior to
such Acquisition Date, the Representative shall have delivered to each
of the Agent Lessor and the Administrative Agent an American Land Title
Association ("ALTA")/1992 (Urban) Survey of such Property certified to
the Participants and the title company and otherwise in form reasonably
acceptable to the Participants.
(q) Title Insurance. On or prior to such Acquisition Date, the
Representative shall have delivered to the Administrative Agent and the
Agent Lessor a commitment to deliver an ALTA extended owners and
lenders title insurance policy covering such Property in favor of the
Agent Lessor, the Administrative Agent and the Participants,
respectively, such policy in an amount not less than (i) with respect
to Improved Property, the sum of the related Land Acquisition Cost and
Property Improvement Costs and (ii) with respect to any other Property,
the sum of the related Land Acquisition Cost and Estimated Improvement
Costs and to be reasonably satisfactory to the Required Lenders and the
Lessors with such customary endorsements and affirmative assurances
issued by the title company as a routine matter, if requested by the
Agent Lessor or the Administrative Agent.
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(r) No Default. There shall not have occurred and be
continuing any Default or Event of Default under any of the Operative
Documents, and no Default or Event of Default under any of the
Operative Documents will have occurred after giving effect to the
acquisition of the Land requested by such Funding Request.
(s) Opinion of Counsel and of Local Counsel to the Lessee. The
Agent Lessor and the Administrative Agent shall have received (i) an
opinion of counsel qualified with respect to the laws of the
jurisdiction in which the applicable Property is situated, addressed to
the Administrative Agent, the Agent Lessor, each Lender and each
Lessor, substantially in the form of Exhibit G and (ii) if requested by
the Agent Lessor and the Administrative Agent, opinions from such other
counsel and covering such issues as they may reasonably request.
(t) Approval of Proposed Acquisition. The applicable Property
shall have been disclosed to and approved by the Agent Lessor and
Administrative Agent prior to the first anniversary of the Effective
Date.
All documents and instruments required to be delivered pursuant to this Section
6.1 shall be delivered at the offices of Mayer, Brown & Platt, 1675 Broadway,
New York, New York 10019-5820, or at such other location as may be determined by
the Agent Lessor, the Administrative Agent and the Lessee.
Section 6.2 Funding Dates. The obligations of the Agent Lessor to make
an Advance on each Funding Date occurring after an Acquisition Date, the
obligation of the Lessors to make any related Lessor Amount on such Funding
Date, and the obligation of the Lenders to make available any related Loan on
such Funding Date, are subject to satisfaction or waiver of the following
conditions precedent:
(a) Funding Request. Each of the Administrative Agent and the
Agent Lessor shall have received a fully executed counterpart of the
applicable Funding Request in accordance with Section 3.4. Each of the
delivery of a Funding Request and the acceptance of the proceeds of
such Advance shall constitute a representation and warranty by the
Beverly Entities that on the applicable Funding Date (both immediately
before and after giving effect to the making of such Advance and the
application of the proceeds thereof), the statements made in Section
8.3 are true and correct.
(b) As-Built Appraisal. (i) On the earlier of (x) three (3)
Business Days prior to the Initial Construction Date for each Property
that is not an Improved Property and (y) ninety (90) days following the
Acquisition Date for such Property, the Agent Lessor and the
Administrative Agent shall have
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received an As-Built Appraisal of the applicable Property, in form and
substance satisfactory to the Administrative Agent and the Agent
Lessor, which As-Built Appraisal shall show that as of each of the
Completion Date, the last day of the Base Term and the last day of any
Renewal Term for such Property, the Fair Market Sales Value of such
Land and the Improvements to be constructed thereon in accordance with
the Plans and Specifications for such Property shall not be less than
100% of the sum of the Land Acquisition Cost and Estimated Improvement
Costs for such Property and (ii) at least three (3) Business Days prior
to the Funding Date in the event the Property Balance for any Property,
after giving effect to such Advance, would be greater than the Fair
Market Sales Value for any date indicated in the As- Built Appraisal
delivered under clause (i) and subject to Section 3.1 of the
Construction Agency Agreement, a subsequent As-Built Appraisal which
shall show that as of each of the Completion Date, the last day of the
Base Term and the last day of any Renewal Term for such Property, the
Fair Market Sales Value of such Property shall not be less than the
Property Balance after giving effect to such Advance.
(c) Lease Supplement Covering Improvements. If (x) such
Funding Date is an Initial Construction Date for any Property that is
not an Improved Property and (y) the Fair Market Sales Value for such
Property as of the Completion Date therefor, as set forth in the
As-Built Appraisal delivered with respect to such Property pursuant to
clause (b), is greater than or equal to four times the Land Acquisition
Cost for the related Land, then, on or prior to such Initial
Construction Date, the applicable Lessee and the Agent Lessor shall
have delivered to the Lenders the original counterpart of a Lease
Supplement executed by such Lessee and the Agent Lessor covering the
Improvements then located on the applicable Property and all additional
Improvements thereafter located on such Property.
(d) Fees. All fees due and payable pursuant to this
Participation Agreement shall have been paid, and the Participants
shall have received all Commitment Fees due and payable pursuant to
Section 4.4(a).
(e) Representations and Warranties. On the applicable Funding
Date, the representations and warranties of each Beverly Entity in this
Agreement and in each of the other Operative Documents shall be true
and correct in all material respects as though made on and as of such
date, except to the extent such representations or warranties relate
solely to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects on
and as of such earlier date.
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(f) Litigation. On the applicable Funding Date, there shall
not be any actions, suits or proceedings pending or, to the knowledge
of any Beverly Entity, threatened with respect to any Beverly Entity
(i) that are reasonably likely to have a Material Adverse Effect, or
(ii) that could reasonably be expected to have a Material Adverse
Effect on the title to, or the use, operation or value of, the Property
which is the subject of the current Advance.
(g) No Default. There shall not have occurred and be
continuing any Default or Event of Default, and no Default or Event of
Default will have occurred after giving effect to the making of the
Advance requested by such Funding Request.
(h) Available Commitments. After giving effect to the
applicable Advance, the conditions set forth in Article III shall not
be violated.
(i) Construction Costs. After giving effect to the applicable
Advance, the estimated as yet unpaid cost to the Construction Agent of
completing the Construction pursuant to the Construction Documents
shall not exceed the Available Commitments, net of any portion of the
Available Commitments that shall be allocated for Advances deemed to
have been requested pursuant to Section 4.1(c) or the Construction
Budget for such Property.
(j) Construction Budget. On or prior to the Initial
Construction Date with respect to each Property, the Construction Agent
shall have delivered a Construction Budget to the Administrative Agent
and Agent Lessor in such detail with respect to the Construction of
such Property, and such Construction Budget shall be reasonably
satisfactory to the Administrative Agent and the Agent Lessor.
(k) Taxes. All taxes, fees and other charges in connection
with the execution, delivery, recording, filing and registration of the
Operative Documents shall have been paid or provisions for such payment
shall have been made by the Representative to the reasonable
satisfaction of the Agent Lessor, the Administrative Agent, the Lessors
and the Lenders.
(l) Prime Contracts and Subcontracts. All prime contracts and
principal subcontracts with respect to the Construction of each
Property shall contain provisions requiring the Construction Agent to
withhold not less than 10% of total amounts due under such contract or
subcontract until the scope of work covered by such prime or
subcontract has been completed.
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Section 6.3 Conditions to Completion Date. The Completion Date with
respect to any Property shall be deemed to have occurred for purposes of the
Operative Documents on the earliest date on which each of the following events
shall have occurred:
(a) the Construction relating to such Property shall have been
substantially completed in accordance with the applicable Plans and
Specifications and all Applicable Law;
(b) such Property shall be ready for occupancy and operation
in accordance with the Plans and Specifications therefor, and all
appropriate Governmental Action (including the issuance by the
appropriate Governmental Authority of a permanent certificate of
occupancy) shall have been taken for the occupancy and operation of
such Property;
(c) the Representative shall have provided to the
Administrative Agent and the Agent Lessor an updated title report for
such Property in form and substance reasonably satisfactory to each of
the Administrative Agent and the Agent Lessor; and
(d) the Agent Lessor, the Administrative Agent, the Lessors
and the Lenders shall have received a Completion Certificate from the
Construction Agent substantially in the form of Exhibit H hereto (a
"Completion Certificate").
ARTICLE VII
DISTRIBUTIONS
Section 7.1 Basic Rent. Each payment of Basic Rent (and any payment of
interest on overdue installments of Basic Rent) received by the Administrative
Agent shall be distributed by the Administrative Agent to the Lessors and the
Lenders pro rata in accordance with, and for application to, the Lender Basic
Rent and Lessor Basic Rent then due, as well as any overdue interest or Yield
due to the Lessors or the Lenders (to the extent permitted by Applicable Law).
Section 7.2 Purchase Payments by the Representative and the Lessees.
Any payment received by the Administrative Agent as a result of:
(a) the purchase of any or all of the Properties in connection
with the exercise of the Purchase Option under Section 18.1 of the
Master Lease, or
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compliance with the obligation to purchase (or cause its designee to
purchase) all of the Properties in accordance with Section 18.2 or 18.3
of the Master Lease, or
(b) compliance with the obligation to purchase all unsold
Properties in accordance with Section 16.2(f) of the Master Lease, or
(c) any amounts received pursuant to Section 20.3(b) of the
Master Lease, or
(d) the payment of the Property Balance with respect to any
Property in accordance with Section 15.1 of the Master Lease or Section
4.3(b) of the Participation Agreement, or
(e) the payment of the Property Balance with respect to any
Property in accordance with Section 5.3 of the Construction Agency
Agreement,
shall be distributed by the Administrative Agent to the Lessors and the Lenders
pro rata without priority of one over the other, in the proportion that the
Participant Balance of each of the Lenders and the Lessor bears to the aggregate
of all of the Participant Balances.
Section 7.3 Payment of Loan Balance. In accordance with Section 20.2(f)
of the Master Lease upon the exercise of the Remarketing Option, the payment of
the Loan Balance to the Administrative Agent shall be distributed to the Lenders
for application to pay in full the Participant Balance of each Lender, and the
payment of the aggregate amount of Lessor Amounts that are allocable to
Qualified Land shall be distributed to the Lessors.
Section 7.4 Sales Proceeds of Remarketing of Properties. Any payments
received by the Administrative Agent as proceeds from the sale of the Properties
sold pursuant to the exercise of the Remarketing Option pursuant to Article XX
of the Master Lease, together with any payment made as a result of an appraisal
pursuant to Section 13.2, shall be distributed by the Administrative Agent in
the funds so received in the following order of priority:
first, to the Lessors in an amount equal to (x) the aggregate
Lessor Balance minus (y) 3% of the sum of (i) the largest principal amount
outstanding of Lessor Amounts at any one time prior to the distribution
hereunder and (ii) the largest principal amount outstanding of Loans at any one
time prior to the distribution hereunder (such amount under clause (y), the
"Equity Amount"), shall be distributed to the Lessors for application to the
Participant Balance of each Lessor, pro rata among the Lessors without priority
of one over the other in the proportion that the
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Participant Balance of each such Lessor bears to the aggregate Participant
Balances of all Lessors and, in the case where the amounts so distributed shall
be insufficient to pay in full as aforesaid, then pro rata among the Lessors
without priority of one over the other in the proportion that the Participant
Balance of each such Lessor bears to the aggregate Participant Balances of all
Lessors;
second, an amount equal to the Equity Amount shall be
distributed to the Lessors for application to pay in full the Participant
Balance of each Lessor, pro rata among the Lessors without priority of one over
the other in the proportion that the Participant Balance of each such Lessor
bears to the aggregate Participant Balance of all Lessors,
third, the balance, if any, shall be promptly paid to the
Lessors to be distributed as provided in the Lease.
Section 7.5 Supplemental Rent. All payments of Supplemental Rent
received by the Administrative Agent (excluding any amounts payable pursuant to
the preceding provisions of this Article VII) shall be distributed promptly by
the Administrative Agent upon receipt thereof to the Persons entitled thereto
pursuant to the Operative Documents.
Section 7.6 Distribution of Payments after Lease Event of Default.
(a) During the continuance of a Lease Event of Default and subject to
clauses (b) and (c) below, all proceeds from the sale of all or any part of any
one or more Properties shall be distributed by the Administrative Agent in the
following order of priority:
first, so much of such payment or amount as shall be required
to pay or reimburse the Administrative Agent and the Agent Lessor for any tax,
fees, expense, indemnification or other loss incurred by the Administrative
Agent or the Agent Lessor (to the extent incurred in connection with any duties
as the Administrative Agent or Agent Lessor, as the case may be), shall be
distributed to the Administrative Agent and the Agent Lessor without priority of
one over the other for their own accounts in accordance with the amount of such
payment or amount payable to such Person;
second, so much of such payments or amounts as shall be
required to pay the Lenders and the Lessors the amounts payable to them pursuant
to any expense reimbursement or indemnification provisions of the Operative
Documents shall be distributed to each such Lender and Lessor without priority
of one over the other in accordance with the amount of such payment or payments
payable to each such Person;
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third, to the Lessors in an amount equal to the aggregate
Lessor Balance minus the Equity Amount shall be distributed to the Lessors for
application to the Participant Balance of each Lessor, pro rata among the
Lessors without priority of one over the other in the proportion that the
Participant Balance of each such Lessor bears to the aggregate Participant
Balances of all Lessors and, in the case where the amounts so distributed shall
be insufficient to pay in full as aforesaid, then pro rata among the Lessors
without priority of one over the other in the proportion that the Participant
Balance of each such Lessor bears to the aggregate Participant Balances of all
Lessors;
fourth, to the Lenders for application to pay in full the Loan
Balance, pro rata among the Lenders without priority of one over the other in
the proportion that the Participant Balance of each such Lender bears to the
aggregate Participant Balances of all Lenders and, in the case where the amounts
so distributed shall be insufficient to pay in full as aforesaid, then pro rata
among the Lenders without priority of one over the other in the proportion that
the Participant Balance of each such Lender bears to the aggregate Participant
Balances of all Lenders;
fifth, an amount equal to the Equity Amount shall be
distributed to the Lessors for application to pay in full the Participant
Balance of each Lessor, pro rata among the Lessors without priority of one over
the other in the proportion that the Participant Balance of each such Lessor
bears to the aggregate Participant Balance of all Lessors,
sixth, the balance, if any, of such payment or amounts
remaining thereafter shall be promptly distributed to, or as directed by, the
Representative.
(b) All payments received and amounts realized by the Administrative
Agent in connection with any Casualty or Condemnation during the continuance of
a Lease Event of Default shall be distributed by the Administrative Agent as
follows:
(i) in the event that the Agent Lessor (at the direction of
the Lessors) and the Administrative Agent elect to pay all or a portion
of such amounts to the appropriate Lessee for the repair of damage
caused by such Casualty or Condemnation in accordance with Section
14.1(a) of the Master Lease, then such amounts shall be distributed to
such Lessee, and
(ii) in the event that the Agent Lessor (at the direction of
the Lessors) and the Administrative Agent elect to apply all or a
portion of such amounts to the purchase price of the related Property
in accordance with Section 14.1(a) and Article XV of the Master Lease,
then such amounts shall be distributed in accordance with clause (a).
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(c) During the continuance of a Construction Agency Event of Default
during which recourse is limited by Section 5.4 of the Construction Agency
Agreement, all payments received and amounts realized with respect to the
relevant Properties by the Administrative Agent shall be distributed by the
Administrative Agent as follows:
first, so much of such payment or amount as shall be required
to pay or reimburse the Administrative Agent and the Agent Lessor for any tax,
fees, expense, indemnification or other loss incurred by the Administrative
Agent or the Agent Lessor (to the extent incurred in connection with any duties
as the Administrative Agent or Agent Lessor, as the case may be), shall be
distributed to the Administrative Agent and the Agent Lessor without priority of
one over the other for their own accounts in accordance with the amount of such
payment or amount payable to such Person;
second, so much of such payments or amounts as shall be
required to pay the Lenders and the Lessors the amounts payable to them pursuant
to any expense reimbursement or indemnification provisions of the Operative
Documents shall be distributed to each such Lender and Lessor without priority
of one over the other in accordance with the amount of such payment or payments
payable to each such Person;
third, to the Lenders for application to pay in full the Loan
Balance, pro rata among the Lenders without priority of one over the other in
the proportion that the Participant Balance of each such Lender bears to the
aggregate Participant Balances of all Lenders and, in the case where the amounts
so distributed shall be insufficient to pay in full as aforesaid, then pro rata
among the Lenders without priority of one over the other in the proportion that
the Participant Balance of each such Lender bears to the aggregate Participant
Balances of all Lenders;
fourth, to the Lessors in an amount equal to the aggregate
Lessor Balance minus the Equity Amount shall be distributed to the Lessors for
application to the Participant Balance of each Lessor, pro rata among the
Lessors without priority of one over the other in the proportion that the
Participant Balance of each such Lessor bears to the aggregate Participant
Balances of all Lessors and, in the case where the amounts so distributed shall
be insufficient to pay in full as aforesaid, then pro rata among the Lessors
without priority of one over the other in the proportion that the Participant
Balance of each such Lessor bears to the aggregate Participant Balances of all
Lessors;
fifth, an amount equal to the Equity Amount shall be
distributed to the Lessors for application to pay in full the Participant
Balance of each Lessor, pro rata among the Lessors without priority of one over
the other in the proportion that the
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Participant Balance of each such Lessor bears to the aggregate Participant
Balance of all Lessors,
sixth, the balance, if any, of such payment or amounts
remaining thereafter shall be promptly distributed to, or as directed by, the
Representative.
Section 7.7 Other Payments.
(a) Except as otherwise provided in Sections 7.1, 7.2, 7.6 and clause
(b) below, any payment received by the Administrative Agent for which no
provision as to the application thereof is made in the Operative Documents or
elsewhere in this Article VII (including any balance remaining after the
application in full of amounts to satisfy any expressed provision) shall be
distributed pro rata among the Lenders and the Lessors without priority of one
over the other, in the proportion that the Participant Balance of each bears to
the aggregate of all the Participant Balances.
(b) Except as otherwise provided in Sections 7.1, 7.2 and 7.6, all
payments received and amounts realized by the Administrative Agent or the Agent
Lessor under the Master Lease or otherwise with respect to the Properties to the
extent received or realized at any time after indefeasible payment in full of
the Participant Balances of all of the Lenders and the Lessors and any other
amounts due and owing to the Lenders or the Lessors, shall be distributed
forthwith by the Administrative Agent or the Agent Lessor, as the case may be,
in the order of priority set forth in Section 7.6(a).
(c) Except as otherwise provided in Sections 7.1 and 7.2, any payment
received by the Administrative Agent or the Agent Lessor for which provision as
to the application thereof is made in an Operative Document but not elsewhere in
this Article VII shall be distributed forthwith by the Agent Lessor or the
Administrative Agent to the Person and for the purpose for which such payment
was made in accordance with the terms of such Operative Document.
Section 7.8 Casualty and Condemnation Amounts. Subject to Section
7.6(b), any amounts payable to the Administrative Agent as a result of a
Casualty or Condemnation pursuant to Section 14.1 of the Master Lease and the
Assignment of Lease and Rent shall be distributed as follows:
(a) all amounts payable to the appropriate Lessee for the
repair of damage caused by such Casualty or Condemnation in accordance
with Section 14.1(a) of the Master Lease shall be distributed to such
Lessee, and
(b) all amounts that are to be applied to the purchase price
of the related Property in accordance with Section 14.1(a) and Article
XV of the Master Lease shall be distributed by the Administrative Agent
to the Lenders
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and the Lessors pro rata without priority of one over the other, in the
proportion that the Participant Balance of each bears to the aggregate
of all of the Participant Balances.
Section 7.9 Order of Application. To the extent any payment made to any
Lender or any Lessor pursuant to sections 7.2, 7.3, 7.4, 7.6 or 7.7 is
insufficient to pay in full the Participant Balance of such Lender or Lessor,
then each such payment shall first be applied to accrued interest or Yield and
then to principal on the Loans or the Lessor Amounts, as applicable.
Section 7.10 Payments to Account. All payments made to the
Administrative Agent pursuant to the Operative Documents shall be made to the
Account.
ARTICLE VIII
REPRESENTATIONS
Section 8.1 Representations of the Participants. Each Participant
represents and warrants to each other Participant, the Agent Lessor, the
Administrative Agent, the Representative and each Lessee that:
(a) ERISA. Such Participant is not and will not be making its
Loans or funding its Lessor Amounts hereunder, and is not performing
its obligations under the Operative Documents, with the assets of an
"employee benefit plan" (as defined in Section 3(3) of ERISA) which is
subject to Title I of ERISA, or "plan" (as defined in Section
4975(e)(1) of the Code).
(b) Status. Such Participant meets at least one of the
definitions (other than as a "Lessor" or a "Lender") of the term
"Eligible Assignee".
(c) Securities. Each Participant is participating in the
Transactions for its own account and not with a view toward
redistribution; provided that disposition of its rights hereunder shall
remain in its control and the foregoing shall not affect the ability of
any Participant to assign or sell participations in its rights in
accordance with the Operative Documents.
Section 8.2 Representations of the Beverly Entities. Each of the
Lessees and the Representative hereby represents and warrants to each
Participant, the Agent Lessor and the Administrative Agent that:
(a) Organization; Powers. Each Beverly Entity and their
respective Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (ii) has all
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requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be conducted,
(iii) is qualified to do business in every jurisdiction where such
qualification is required, except where the failure so to qualify would
not result in a Material Adverse Effect, (iv) has the corporate power
and authority to execute, deliver and perform its obligations under
each of the Operative Documents and each other agreement or instrument
contemplated thereby to which it is or will be a party hereunder, and
(v) has its chief executive office located at 5111 Rogers Avenue, Suite
40-A, Fort Smith, Arkansas 72919.
(b) Authorization. The execution, delivery and performance by
each Beverly Entity of each of the Operative Documents to which it is a
party (i) have been duly authorized by all requisite corporate and, if
required, stockholder action and (ii) will not (A) violate (x) any
provision of law, statute, rule or regulation, or of the certificate or
articles of incorporation or other constitutive documents or bylaws of
such Beverly Entity or any of its Subsidiaries (y) any order, writ,
ruling, injunction or decree of any Governmental Authority or (z) any
provision of any indenture, agreement or other instrument to which such
Beverly Entity or any of its Subsidiaries is a party or by which any of
them, or any of their property is or may be bound, (B) be in conflict
with, result in a breach of or constitute (alone or with notice or
lapse of time or both) a default under any such indenture, agreement or
other instrument or (C) result in the creation or imposition of (or the
obligation to create or impose) any Lien upon or with respect to any
property or assets now owned or hereafter acquired by such Beverly
Entity or any of its Subsidiaries.
(c) Enforceability.
(i) This Participation Agreement has been duly
executed and delivered by the Representative and each Lessee
and constitutes, and each other Operative Document to which a
Beverly Entity is a party when executed and delivered by such
party will constitute, a legal, valid and binding obligation
of such Beverly Entity enforceable against it in accordance
with its terms.
(ii) Each of the Lessor Financing Statements, Lessor
Mortgages and the Lease Supplements relating to each Property
create valid security interests in and mortgage liens on the
Property purported to be covered thereby, which security
interests and mortgage liens are and will remain perfected
security interests and mortgage liens, prior to all Liens
other than Permitted Property Liens.
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(d) Governmental and Other Approvals. No action, consent or
approval of, registration or filing with or any other action by any
Governmental Authority or any third party is or will be required in
connection with the activities of any Beverly Entity pursuant to the
Transactions or the enforceability of any Operative Document against
any Beverly Entity to which such Beverly Entity is a party, except such
as have been made or obtained and are in full force and effect and
except with respect to Properties for which Advances have not been
made.
(e) Financial Statements. The Representative has heretofore
furnished to the Administrative Agent, the Agent Lessor and each
Participant the consolidated balance sheet of the Representative and
its Consolidated Subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, stockholders' equity and cash
flows for the year then ended, together with the notes thereto,
included in the Representative's 1997 Form 10-K and reported on by
Ernst & Young LLP (the "Submitted Financial Statements"). Such
financial statements present fairly the consolidated financial
condition and consolidated results of operations of the Representative
and its Consolidated Subsidiaries (including the Lessees) as of such
date and for such period. Such financial statements were prepared in
conformity with GAAP.
(f) No Material Adverse Change. There has been no material
adverse change in the business, financial position, results of
operations or prospects of the Representative and its Consolidated
Subsidiaries, considered as a whole, since June 30, 1998.
(g) Title to Properties; Possession Under Leases.
(i) The Representative and its Subsidiaries have good
and marketable title to all of the properties and other assets
(real or personal, tangible, intangible or mixed) they own or
purport to own.
(ii) All leases to which the Representative or any of
its Subsidiaries is a party as lessee or sublessee are in full
force and effect, except for such defects in title and such
invalidity or unenforceability of leases as, in the aggregate,
could not materially adversely affect the condition (financial
or otherwise), earnings, business affairs or business
prospects of the Representative and its Subsidiaries taken as
a whole.
(h) Subsidiaries. Item 8.2(h) of Schedule III sets forth as of
the Effective Date a list of the Representative's Subsidiaries and the
percentage ownership interest of the Representative therein. The
capital stock of each
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such Subsidiary is duly authorized, validly issued and fully paid and
nonassessable. Each Guarantor (other than the Parent Guarantor) and
each Lessee is a Wholly-Owned Subsidiary of the Representative, and
each Wholly-Owned Subsidiary of the Representative (other than Beverly
Funding, Inc., Beverly Indemnity, Limited and Pharmacy and its
Subsidiaries) is a Guarantor.
(i) Litigation; Compliance with Laws.
Except as disclosed in the Representative's 1997 Form
10-K or the Representative's quarterly report for the fiscal
quarter ended June 30, 1998 as filed with the Securities and
Exchange Commission on Form 10-Q, there are no actions, suits
or proceedings at law or in equity or by or before any
Governmental Authority now pending or, to the knowledge of any
Beverly Entity threatened against or affecting the
Representative or any of its Subsidiaries or any business,
property or rights of any such Person (A) which involve any
Operative Document or the Transactions or (B) as to which
there is a reasonable possibility of an adverse determination
and which, if adversely determined, could materially adversely
affect the business, consolidated financial position or
consolidated results of operations of the Representative and
its Consolidated Subsidiaries.
(j) Federal Reserve Regulations.
(i) No Beverly Entity or any of its respective
Subsidiaries is engaged in the business of extending credit
for the purpose of purchasing or carrying Margin Stock.
(ii) No part of the proceeds of any Advance will be
used, whether directly or indirectly, and whether immediately,
incidentally or ultimately, (A) to purchase or carry Margin
Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness
originally incurred for such purpose, or (B) for any purpose
which entails a violation of, or which is inconsistent with
the provisions of the Regulations of the F.R.S. Board,
including Regulation G, U or X.
(k) Governmental Regulation. No Beverly Entity or any of its
respective Subsidiaries is an "investment company" or a company
"controlled" by an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940 or (ii) subject to
regulation under the Public Utility Holding Company Act of 1935.
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(l) Use of Proceeds. The proceeds of each Advance will be used
only for the purpose of financing the acquisition of Land or leasehold
interests therein (and Improvements existing thereon, if any) and the
payment of Property Improvement Costs incurred in connection therewith.
(m) Tax Returns. United States Federal income tax returns of
the Representative and its Subsidiaries have been closed through the
fiscal year ended December 31, 1992. The Representative and its
respective Subsidiaries have filed or caused to be filed all United
Stated Federal income tax returns and all other material tax returns
which are required to have been filed by it and has paid or caused to
be paid all Taxes shown to be due and payable on such returns or on any
assessments received by it, except Taxes that are being contested in
good faith by appropriate proceedings and for which such Beverly Entity
or such Subsidiary shall have set aside on its respective books
adequate reserves in conformity with GAAP. The charges, accruals and
reserves on the books of the Representative and its Subsidiaries in
respect of Taxes or other governmental charges are, in the opinion of
the Representative, adequate.
(n) No Material Misstatements. No information, report,
financial statement, exhibit or schedule furnished by or on behalf of
any Beverly Entity or any of its respective Subsidiaries to the
Administrative Agent, the Agent Lessor or any Participant in connection
with the negotiation of any Operative Document or included therein or
delivered pursuant thereto contained, contains or will contain any
material misstatement of fact or omitted, omits or will omit to state
any material fact necessary to make the statements therein, in the
light of the circumstances under which they were, are or will be made,
not misleading.
(o) Employee Benefit Plan. Each member of the ERISA Group has
complied with its obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA
and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standards under Section
412 of the Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan, or made any
amendment to any Plan, which has resulted or could reasonable be
expected to result, prior to the first anniversary of the Expiration
Date, in the imposition of a Lien or the posting of a bond or other
security under Section 302(f) of ERISA or Section 401(a)(29) or 412(n)
of the Code, (iii) incurred any liability under Title IV of ERISA other
than a liability to the PBGC for premiums under Section 4007 of ERISA
or (iv) within the preceding five plan years, with respect to any Other
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Plan, engaged in any transaction described in Section 4069 or Section
4212(c) of ERISA.
(p) Environmental and Safety Matters.
(a) In the ordinary course of its business, the
Representative conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties
of the Representative and its Subsidiaries, in the course of
which it identifies and evaluates associated liabilities and
costs. On the basis of this review, the Representative has
reasonably concluded that Environmental Laws are unlikely to
have a material adverse effect on the business, financial
condition, results of operations or prospects of the
Representative and its Consolidated Subsidiaries, considered
as a whole.
(b) As of the Documentation Date and the Effective
Date, to the knowledge of the Representative and its
Subsidiaries no material claim, investigation or written
inquiry has been made, and the Representative is not aware of
any circumstance which would warrant or give rise to such a
claim, investigation or inquiry, with regard to the
Representative or any of its Subsidiaries, in respect of any
facility owned, or to the knowledge of the Representative and
its Subsidiaries, leased or operated, either now or in the
past, by the Representative or any of its Subsidiaries, under
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended and in effect, or pursuant
to any other Environmental Law, or by the Environmental
Protection Agency or by any state, local, municipal or foreign
enforcement agency having jurisdiction over the protection of
the environment, or by any other Person in respect of or under
any Environmental Law.
(q) Patents, Licenses, Franchises and Formulas. Each Beverly
Entity and its respective Subsidiaries own all the patents, trademarks,
permits, service marks, trade names, copyrights, licenses, franchises
and formulas, or rights with respect to the foregoing, and has obtained
assignments of all leases and other rights of whatever nature,
necessary for the present conduct of its business, without any known
conflict with the rights of others which, or the failure to obtain
which, as the case may be, would result in a Material Adverse Effect on
the business, operations, property, assets, condition (financial or
otherwise) or prospects of such Person or of the Beverly Entities and
their respective Subsidiaries taken as a whole.
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<PAGE> 41
(r) Offer of Securities, etc. No Beverly Entity or any of its
respective Subsidiaries or any Person authorized to act on their behalf
has, directly or indirectly, offered any interest in any Property or
any other interest similar thereto (the sale or offer of which would be
integrated with the sale or offer of such interest in each such
Property), for sale to, or solicited any offer to acquire any of the
same from, any Person other than each Participant and the
Administrative Agent, the Agent Lessor and other "accredited investors"
(as defined in Regulation D of the Securities and Exchange Commission).
(s) Property. Each Property as improved in accordance with the
applicable Plans and Specifications and the contemplated use thereof by
the applicable Lessee and its agents, assignees, employees, lessees,
licensees and tenants will comply with all Requirements of Law
(including, without limitation, all zoning and land use laws and
Environmental Laws) and Material Insurance Requirements, except for
such Requirements of Law as it shall be contesting in good faith by
appropriate proceedings. There is no action, suit or proceeding
(including any proceeding in condemnation or eminent domain or under
any Environmental Law) pending or, to the best of its knowledge,
threatened with respect to it, its Affiliates, or any Property which
materially adversely affects the title to, or the use, operation or
value of, any Property.
(t) Plans and Specifications. Upon Completion of the
applicable Construction for each Property, all water, sewer, electric,
gas, telephone and drainage facilities and all other utilities required
to adequately service the applicable Improvements for such Property's
intended use will be available pursuant to adequate permits (including
any that may be required under applicable Environmental Laws). No fire
or other casualty with respect to any Property has occurred which fire
or other casualty has had a Material Adverse Effect on any such
Property. Upon Completion of the applicable Construction, each Property
will have available all Material services of public facilities and
other utilities necessary for use and operation of each Property and
the other Improvements for their primary intended purposes including,
without limitation, adequate water, gas and electrical supply, storm
and sanitary sewerage facilities, telephone, other required public
utilities and means of access between such Improvements and public
highways for pedestrians and motor vehicles. All utilities serving each
Property, or proposed to serve each Property in accordance with the
applicable Plans and Specifications, are located in, and vehicular
access to the Improvements on each Property is provided by, either
public rights-of-way abutting each Property or Appurtenant Rights. All
Material licenses, approvals, authorizations, consents, permits
(including, without limitation, building, demolition and environmental
permits, licenses, approvals, authorizations and consents), easements
and rights-of-way, including proof and dedication,
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<PAGE> 42
required for (x) the use, treatment, storage, transport, disposal or
disposition of any Hazardous Substance on, at, under or from each
Property during the construction of the Improvements thereon, and (y)
construction of the Improvements on each Property in accordance with
the applicable Plans and Specifications and the Construction Agency
Agreement have either been irrevocably obtained from the appropriate
Governmental Authorities having jurisdiction or from private parties,
as the case may be, or will be irrevocably obtained from the
appropriate Governmental Authorities having jurisdiction or from
private parties, as the case may be, prior to commencing any such
construction or use and operation, as applicable. Prior to any Advance
with respect of any Land or Improvements, each Lessee has obtained (or
will obtain prior to the Completion Date of the respective Property)
all appropriate Governmental Action, and has and will keep in full
force and effect, all operating permits necessary to allow for Property
to be operated in accordance with its intended use.
(u) Deeds; Ground Leases. Each Deed is in form and substance
sufficient to convey good and marketable title to the applicable
Property in fee simple. Each ground lease conveys to the Agent Lessor a
leasehold interest in the Land covered thereby, which Land is a
separate tax lot and a legal subdivision under all applicable zoning
laws, and the term of each ground lease is for a term not less than the
reasonably estimated useful life of the Improvements to be constructed
on the applicable Land.
(v) Insurance. Each Lessee has obtained insurance coverage
covering its Properties which meets the requirements of the Master
Lease, and such coverage is in full force and effect. Each Beverly
Entity carries insurance with reputable insurers in respect of its
material assets in such manner, in such amounts and against such risks
as is customarily maintained by other Persons of similar size engaged
in similar business.
(w) Flood Hazard Areas. Except as otherwise identified on the
applicable survey delivered pursuant to Section 6.1(p), no portion of
any Property is located in an area identified as a special flood hazard
area by the Federal Emergency Management Agency or other applicable
agency. If any Property is located in an area identified as a special
flood hazard area by the Federal Emergency Management Agency or other
applicable agency, then flood insurance has been obtained for such
Property in accordance with Article XIII of the Master Lease and in
accordance with the National Flood Insurance Act of 1968, as amended.
(x) Title to Assets. Each Beverly Entity and its respective
Subsidiaries have good and marketable title to all of its Material
assets
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<PAGE> 43
reflected on the balance sheets in the Submitted Financial Statements,
except for such assets as have been disposed of in the ordinary course
of business (or as have been disclosed to the Participants on or prior
to the Effective Date), and all such assets are free and clear of any
Lien, except as reflected in the Submitted Financial Statements and/or
notes thereto or as otherwise permitted by the provisions hereof or
under the Operative Documents, and except for Permitted Property Liens.
Each Beverly Entity and its respective Subsidiaries have such
trademarks, trademark rights, trade names, trade name rights,
franchises, copyrights, patents, patent rights and licenses as to allow
it to conduct its business as now operated, without known conflict with
the rights of others.
(y) Solvency. The Representative and its Consolidated
Subsidiaries, taken as a whole, are Solvent.
Section 8.3 Representations with Respect to each Funding Date and
Acquisition Date. Each of the Lessees and the Representative represents and
warrants to the Administrative Agent, the Agent Lessor and each Participant as
of each Funding Date and Acquisition Date as follows:
(a) Representations and Warranties. The representations and
warranties set forth in Section 8.2 are true and correct on and as of
such Funding Date or Acquisition Date, except to the extent such
representations or warranties relate solely to an earlier date, in
which case such representations and warranties shall have been true and
correct on and as of such earlier date. Each Beverly Entity is in
compliance with its obligations under the Operative Documents and there
exists no Default or Event of Default. No Default or Event of Default
will occur as a result of, or after giving effect to, the Advance
requested by the Funding Request on such date.
(b) Improvements. The Construction of the Improvements on the
applicable Land to date has, to the best of each Beverly Entity's
knowledge, been performed in a good and workmanlike manner,
substantially in accordance with the applicable Plans and
Specifications and the Construction Budget for such Property and in
compliance with all Insurance Requirements and Requirements of Law.
(c) Liens. No Beverly Entity has permitted any Liens to be
placed against any Property other than Permitted Property Liens.
(d) Advance. The amount of the Advance requested represents
amounts advanced or to be advanced by the Construction Agent to third
parties (except for the Construction Agency Fee) in connection with
Land
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<PAGE> 44
Acquisition Costs or Property Improvement Costs or amounts paid by the
Construction Agent in respect of Property Improvements Costs. With
respect to each Advance, the conditions precedent to such Advance and
the related Lessor Amounts and Loans set forth in Article VI have been
satisfied.
ARTICLE IX
PAYMENT OF CERTAIN EXPENSES
The Representative agrees, for the benefit of the Arranger,
the Agent Lessor, the Administrative Agent, the Lessors and the Lenders, that:
Section 9.1 Transaction Expenses.
(a) The Representative shall request Advances for and pay from such
Advances from time to time all Transaction Expenses in respect of the
transactions on the Documentation Date, the Effective Date, each Acquisition
Date and each Funding Date; provided, however, that, if the Representative has
not received written invoices therefor at least two (2) Business Days prior to
such date, such Transaction Expenses shall be paid within thirty (30) days after
the Representative has received written invoices therefor.
(b) The Representative shall pay or cause to be paid (i) all
Transaction Expenses incurred by the Agent Lessor, the Administrative Agent or
the Arranger in entering into any future amendments or supplements with respect
to any of the Operative Documents, whether or not such amendments or supplements
are ultimately entered into, or giving or withholding of waivers or consents
hereto or thereto, in each case which have been requested by or approved by the
Representative, (ii) all Transaction Expenses incurred by the Arranger, the
Agent Lessor, the Administrative Agent, the Lenders or the Lessors in connection
with any purchase of the Property by the Lessee or other Person pursuant to
Articles XVIII and XXI of the Master Lease and (iii) after the occurrence and
during the continuance of a Lease Event of Default or a Construction Agency
Event of Default all Transaction Expenses incurred by any of the Participants,
the Agent Lessor, the Administrative Agent or the Arranger in respect of
enforcement of any of their rights or remedies against any Beverly Entity of any
of the foregoing in respect of the Operative Documents.
Section 9.2 Brokers' Fees and Stamp Taxes. The Representative shall pay
or cause to be paid any brokers' fees and any and all stamp, transfer and other
similar taxes, fees and excises, if any, including any interest and penalties,
which are payable
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<PAGE> 45
in connection with the transactions contemplated by this Participation Agreement
and the other Operative Documents.
Section 9.3 Loan Agreement and Related Obligations. The Representative
shall pay, without duplication of any other obligation of the Representative to
pay any such amount under the Operative Documents, before the due date thereof,
all costs, expenses and other amounts (other than principal and interest on the
Loans which are payable to the extent otherwise required by the Operative
Documents) required to be paid by the Agent Lessor, Administrative Agent or any
of the Lenders or Lessors under the Loan Agreement, the Assignment of Lease and
Rent and the Construction Agency Agreement Assignment.
ARTICLE X
OTHER COVENANTS AND AGREEMENTS
Section 10.1 Affirmative Covenants of the Representative. The
Representative covenants and agrees with the Arranger, the Agent Lessor, the
Administrative Agent, the Lessors and the Lenders that, so long as this
Participation Agreement shall remain in effect or the principal or interest on
any Loan, any Lessor Amount or Yield thereon, or any Commitment Fees, other fees
or any other expenses or amounts payable under any Operative Document shall be
unpaid, and until all Commitments shall have been permanently terminated, unless
the Required Participants shall otherwise consent in writing, the Representative
will, and will cause each of its Subsidiaries (including all other Beverly
Entities) to:
(a) Existence; Businesses and Properties. The Representative
will keep, and will cause each of its Subsidiaries to keep, all
property necessary in its business in good working order and condition,
ordinary wear and tear excepted.
(b) Insurance. The Representative will, and will cause each of
its Subsidiaries to, maintain (either in the name of the Representative
or in such Subsidiary's own name) with financially sound and
responsible insurance companies, insurance on all their respective
properties in at least such amounts and against at least such risks
(and with such risk retention and self insurance) as are usually
insured against in the same general area by companies of established
repute engaged in the same or a similar business at a substantial
number of different facilities. The Representative will furnish to the
Participants, upon request from the Administrative Agent or Agent
Lessor, information presented in reasonable detail as to the insurance
so carried.
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<PAGE> 46
(c) Compliance with Laws. The Representative will comply, and
will cause each of its Subsidiaries to comply, with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, Environmental Laws and
ERISA and the rules and regulations thereunder)(except (i) where the
failure to so comply would not materially adversely affect the
business, consolidated financial position or consolidated results of
operations of the Representative and its Subsidiaries and would not in
any manner draw into question the validity of any Operative Document or
(ii) where the necessity of compliance therewith is contested in good
faith by appropriate proceedings and for which adequate reserves have
been established in accordance with generally accepted accounting
principles) and will maintain and cause each of its Subsidiaries to
maintain all governmental licenses, approvals, authorizations and
consents necessary for the conduct of the business of the
Representative and its Subsidiaries (except where the failure to
maintain such governmental licenses, approvals, authorizations and
consents would not materially adversely affect the business,
consolidated financial position or consolidated results of operations
of the Representative and its Subsidiaries and would not in any manner
draw into question the validity of any Operative Documents).
(d) Financial Statements, Reports, etc. In the case of the
Representative, furnish to the Administrative Agent, each Lender, each
Lessor and the Agent Lessor:
(i) as soon as available and in any event within
forty-five (45) days after the end of each of the first three
fiscal quarters of each fiscal year of the Representative,
consolidated balance sheets of the Representative and its
Consolidated Subsidiaries (including the other Beverly
Entities), as at the end of such period, and the related
consolidated statements of operations and cash flows for such
fiscal quarter and for the portion of the Representative's
fiscal year ended at the end of such quarter, setting forth in
each case in comparative form the figures for the
corresponding periods of the previous fiscal year, all
certified by a Financial Officer of the Representative that
they fairly present the financial condition of the
Representative and its Consolidated Subsidiaries and that they
consistently comply with Section C of Appendix A to this
Participation Agreement, subject to changes resulting from
normal year-end adjustment;
(ii) as soon as available and in any event within
ninety (90) days after the end of each fiscal year of the
Representative, consolidated balance sheets of the
Representative and its Consolidated Subsidiaries, as at the
end of such year, and the related consolidated
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<PAGE> 47
statements of operations, stockholders' equity and cash flows
for such fiscal year, setting forth in each case, in
comparative form the consolidated figures for the previous
year, all in reasonable detail and reported in a manner
acceptable to the Securities and Exchange Commission by Ernst
& Young LLP or other independent certified public accountants
of recognized national standing selected by the Representative
and certified by a Financial Officer of the Representative
that they fairly present the financial condition of the
Representative and its Consolidated Subsidiaries and that they
consistently comply with Section C of Appendix A to this
Participation Agreement;
(iii) together with each delivery of financial
statements of the Representative and its Subsidiaries pursuant
to Sections 10.1(d)(i) and 10.1(d)(ii) above, (A) a
certificate of a Financial Officer (x) stating that the signer
thereof has reviewed the terms of this Participation Agreement
and the Master Lease and has made, or caused to be made under
his supervision, a review in reasonable detail of the
transactions and condition of the Representative and its
Subsidiaries (including the other Beverly Entities) during the
accounting period covered by such financial statements and
that such review has not disclosed the existence during or at
the end of such accounting period, and that the signer does
not have knowledge of the existence as at the date of such
certificate, of any condition or event which constitutes a
Lease Event of Default or Lease Default, or, if any such
condition or event existed or exists, specifying the nature
and period of existence thereof and what action the
Representative has taken, is taking and proposes to take with
respect thereto and (y) setting forth in reasonable detail
calculations of the Pricing Ratio as of the date of the
Balance Sheet contained therein and for the period of four
fiscal quarters ending on such date; and (B) a Compliance
Certificate demonstrating in reasonable detail compliance
during and at the end of such accounting periods with the
restrictions contained in Section 10.2(a), Section 10.2(b),
Section 10.2(c), clause v of Section 10.2(e), Section 10.2(f),
Section 10.2(g), Section 10.2(i) and Section 10.2(l);
(iv) promptly upon (i) the mailing thereof to the
shareholders of the Representative generally, copies of all
financial statements, reports and proxy statements so mailed
and (ii) the filing thereof, copies of all registration
statements (other than the exhibits thereto and any
registration statement on Form S-8 or its equivalent) and
reports on Forms 10-K, 10-Q and 8-K (or their equivalents)
which the
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<PAGE> 48
Representative shall have filed with the Securities and
Exchange Commission;
(v) forthwith upon the occurrence of any Default or
Event of Default, a certificate of a Financial Officer setting
forth the details thereof and the action the Representative
has taken, is taking and proposes to take with respect
thereto; and
(vi) with reasonable promptness, such other
information with respect to the financial position or business
of the Representative or any of its Subsidiaries (including
the other Beverly Entities) as from time to time may be
reasonably requested by any Participant.
(e) ERISA. If and when any member of the ERISA Group (i)
provides or is required to provide notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with respect
to any Plan which might constitute grounds for a termination of such
Plan under Title IV of ERISA, or knows that the plan administrator of
any Plan has provided or is required to provide notice of any such
reportable event, a copy of the notice of such reportable event
provided or required to be provided to the PBGC; (ii) receives notice
of complete or partial withdrawal liability under Title IV or ERISA or
notice that any Multiemployer Plan is in reorganization, is insolvent
or has been terminated, a copy of such notice; (iii) receives notice
from the PBGC under title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in
respect of, or appoint a trustee to administer any Plan, a copy of such
notice; (iv) applies for a waiver of the minimum funding standards
under Section 412 of the Code with respect to any Plan, a copy of such
application; (v) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and such other
information as is filed with the PBGC in connection therewith; (vi)
gives notice of withdrawal from any Plan pursuant to Section 4063 of
ERISA, a copy of such notice; (vii) receives notice from the PBGC or
any plan administrator of an intent to impose liability on any member
of the ERISA Group with respect to any Other Plan on account of a
transaction described in Section 4069 or 4212(c) of ERISA, a copy of
such notice; (viii) receives notice from the PBGC or any plan
administrator of an intent to impose liability on any member of the
ERISA Group with respect to any Other Plan on the basis that such
member of the ERISA Group is a member of the "controlled group" with
respect to such Other Plan under Section 412(c)(11) of the Code or
Section 4001(a)(14) of ERISA, a copy of such notice; or (ix) fails to
make any payment or contribution to any Plan or Multiemployer Plan or
makes any amendment to any Plan which has resulted or could result in
the imposition of a Lien or the posting of a bond or other security
under Section
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302(f) of ERISA or Section 401(a)(29) or 412(n) of the Code, a
certificate of an Authorized Financial Officer of the Representative
setting forth all material and relevant details as to such occurrence
or event and the action, if any, which the Representative, the
Representative or the applicable member of the ERISA Group proposes or,
after consultation with counsel, believes that it is required to take.
(f) Maintaining Records; Access to Properties and Inspections.
The Representative will keep, and will cause each of its Subsidiaries
to keep, proper books of record and account in which full, true and
correct entries shall be made of all dealings and transactions in
relation to its business and activities and will permit, and will cause
each such Subsidiary to permit, representatives of any Participant to
visit and inspect any of its properties, to examine and make abstracts
from any of its books and records and to discuss its affairs, finances
and accounts with its officers, employees and independent public
accountants, all at such reasonable times and upon reasonable notice to
the Representative and as often as may reasonably be desired; provided
that (i) subject to the provisions of Article IX, the Representative
shall not be obligated to pay the expenses of the Participants'
respective representatives and (ii) the Representative will have an
opportunity to participate in any discussions that take place between
representatives of any Participant and the Representative's independent
public accountants.
(g) Use of Proceeds. Use the proceeds of Advances only as
contemplated by the Operative Documents.
(h) Corporate Franchises, Patents and Licenses. Do or cause to
be done, all things necessary to preserve and keep in full force and
effect its existence and its material rights, franchises, licenses and
patents; provided, however, that nothing in this Section 10.1(h) shall
prevent the withdrawal by the Representative or any of its Subsidiaries
(including the other Beverly Entities) of its qualification as a
foreign corporation in any jurisdiction where such withdrawal could not
have a Material Adverse Effect on the business, operations, property,
assets, condition (financial or otherwise) or prospects of the
Representative or such Subsidiary.
(i) Additional Lessees and Guarantors. The Representative
agrees to cause each Person, other than a Special Purpose Receivables
Financing Subsidiary, that shall, at any time after the Documentation
Date, become a Wholly-Owned Subsidiary of the Representative to enter
into the Guaranty promptly (and in any event within 10 Business Days
thereafter) after becoming a Wholly-Owned Subsidiary, and to provide
written evidence thereof reasonably satisfactory to the Administrative
Agent. Upon written request
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from the Representative, the Agent Lessor and the Administrative Agent
may in their sole discretion permit a wholly-owned Subsidiary of the
Representative to enter into the Operative Documents as a "Lessee" in
place of a then current Lessee provided the Agent Lessor and
Administrative Agent shall have received executed documentation
reasonably satisfactory to it confirming such substitution.
(j) Construction with respect to each Property. The
Representative, as Construction Agent, agrees to cause Construction for
each Property within the period specified in Section 2.7(g) of the
Construction Agency Agreement.
(k) Liquidity Facility. The Representative shall at all times
maintain sufficient undrawn credit facilities to ensure adequate
liquidity to meet working capital and other needs.
Section 10.2 Negative Covenants of the Representative. The
Representative covenants and agrees with the Arranger, the Agent Lessor, the
Administrative Agent, the Lessors and the Lenders that, so long as this
Participation Agreement shall remain in effect or the principal of or interest
on any Loan, any Lessor Amount or Yield thereon, or any Commitment Fees, other
fees or any other expenses or amounts payable under any Operative Document shall
be unpaid, and until all Commitments have been permanently terminated, unless
Required Participants shall otherwise consent in writing, the Representative and
each Lessee will not, and will not cause or permit any of their Subsidiaries
(including all other Beverly Entities) to:
(a) Minimum Consolidated Net Worth. Permit Consolidated Net
Worth of the Representative to be less than the sum of (i) $690,000,000
plus (ii) 50% of the aggregate positive Consolidated Net Income of the
Representative and its Consolidated Subsidiaries (excluding any
consolidated net loss) for each fiscal quarter ending after January 1,
1998.
(b) Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio at any date during the periods specified below to be
less than the ratio set forth below opposite the period in which such
date falls:
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<TABLE>
<CAPTION>
========================================================================================
Period Ratio
- ----------------------------------------------------------------------------------------
<S> <C>
Amendment Effective Date through (and including) 1.25 to 1.0
March 30, 1999
- ----------------------------------------------------------------------------------------
March 31, 1999 through (and including) March 30, 2000 1.35 to 1.0
- ----------------------------------------------------------------------------------------
March 31, 2000 through (and including) March 30, 2001 1.45 to 1.0
- ----------------------------------------------------------------------------------------
March 31, 2001 and thereafter 1.50 to 1.0
========================================================================================
</TABLE>
(c) Adjusted Consolidated Debt Ratio. Permit the Adjusted
Consolidated Debt Ratio at any date during the periods specified below
to be more than the ratio set forth below opposite the period in which
such date falls:
<TABLE>
<CAPTION>
========================================================================================
Period Ratio
- ----------------------------------------------------------------------------------------
<S> <C>
Amendment Effective Date through (and including) 4.95 to 1.0
June 29, 1999
- ----------------------------------------------------------------------------------------
June 30, 1999 through (and including) December 30, 1999 4.85 to 1.0
- ----------------------------------------------------------------------------------------
December 31, 1999 through (and including) June 29, 2000 4.75 to 1.0
- ----------------------------------------------------------------------------------------
June 30, 2000 through (and including) December 30, 2000 4.60 to 1.0
- ----------------------------------------------------------------------------------------
December 31, 2000 through (and including) June 29, 2001 4.50 to 1.0
- ----------------------------------------------------------------------------------------
June 30, 2001 and thereafter 4.45 to 1.0
========================================================================================
</TABLE>
(d) Ownership of Stock of Wholly-Owned Subsidiaries. Fail to
at all times maintain, or cause a Wholly-Owned Subsidiary of the
Representative to maintain, ownership of 100% of each class of voting
securities of, and all other equity securities (except for directors'
qualifying shares) in, each of their Subsidiaries that are Wholly-Owned
Subsidiaries of the Representative on the Effective Date and each
Person that shall become a Wholly-Owned Subsidiary of the
Representative after the Effective Date, except in each case (i) any
such Wholly-Owned Subsidiary that shall hereafter be disposed of in its
entirety, consolidated or merged with or into the Representative or
another such Wholly-Owned Subsidiary or liquidated, (ii) any Subsidiary
of Pharmacy that shall hereafter be consolidated or merged with or into
Pharmacy or any Wholly-Owned Subsidiary of Pharmacy or liquidated, in
each case in accordance with the provisions hereof, or (iii) sales or
dispositions of Pharmacy and any Subsidiary of Pharmacy in whole or in
part at any time.
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(e) Investments. Make or acquire after the Effective Date any
Investment in any Person other than:
(i) Investments in the Representative or in Persons
that are Subsidiaries of the Representative (including any
other Beverly Entity) on the Effective Date (other than, after
the Release Date, Pharmacy and the Subsidiaries of Pharmacy)
(ii) Investments in Persons that are (i) primarily
engaged in the health-care business and (ii) after the making
of such Investment, are Subsidiaries of the Representative;
(iii) Temporary Cash Investments;
(iv) extensions of credit or Guarantees of
obligations of one or more other Persons (other than Encore
Nursing Center Partners, Ltd.-85 and Encore Retirement
Partners, Ltd.-85) as an integral part of the financing of the
acquisition, construction, equipping or improving of
facilities from which the Representative or its Subsidiaries
(including the other Beverly Entities) will provide medical or
related services;
(v) other miscellaneous Investments related to the
acquisition and financing (in the ordinary course of the
Representative's business) of health-care facilities through
industrial development revenue bonds issued for the benefit of
the Representative and its Subsidiaries (including the other
Beverly Entities);
(vi) capital contributions required to be made by the
Representative to Beverly Indemnity, Ltd. in accordance with
applicable law and insurance regulations;
(vii) stock, obligations or securities received from
nursing home patients in the ordinary course of business of
the Representative and its Subsidiaries;
(viii) negotiable instruments endorsed for deposit or
collection or similar instruments in the ordinary course of
business;
(ix) promissory notes and other Investments received
as consideration for facilities sold, provided that the
aggregate net book value of all outstanding Investments
permitted by this clause (ix) shall not, at any time, exceed
$25,000,000;
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<PAGE> 53
(x) Guarantees permitted by Section 10.2(i);
(xi) any Investment made by the Representative or any
of its Subsidiaries (including the other Beverly Entities) in
connection with and as part of a Workout Transaction;
(xii) Investments made by the Representative or any
of its Subsidiaries (including the other Beverly Entities) in
one or more Special Purpose Receivables Financing Subsidiaries
by means of the sale of, or the granting of security interests
in, Medicare, Medicaid or other patient accounts receivable
owing to the Representative or such Subsidiary (including the
other Beverly Entities), in either case to such Special
Purpose Receivables Financing Subsidiaries pursuant to a
Receivables Financing Program, provided that the net amount of
all uncollected accounts receivable owing to the
Representative or any of its Subsidiaries (including the other
Beverly Entities) that have been so sold or in which a
security interest has been so granted shall not exceed 200% of
the aggregate principal or redemption amount of all Permitted
Receivables Financing Securities then outstanding;
(xiii) Investments made in Beverly Japan Corporation
in an aggregate amount outstanding at any time not to exceed
$10,000,000;
(xiv) Investments made in Persons that are primarily
engaged in the health-care business, the consideration for
which consists exclusively of common stock of the
Representative or Permitted Preferred Stock; and
(xv) any Investment not otherwise permitted by the
foregoing clauses of this Section (other than promissory notes
and other Investments received as consideration for facilities
sold) in any Person engaged primarily in the health-care
business if, immediately after such Investment is made or
acquired, the aggregate net book value of all such Investments
then held by the Representative or its Subsidiaries (including
the other Beverly Entities) and permitted by this clause (xv)
does not exceed $75,000,000.
(f) Restricted Payments on Stock. (x) Declare or make any
dividend payment or other distribution on any capital stock of the
Representative (other than dividends payable solely in shares of the
Representative's capital stock) or (y) declare or make any payment on
account of the purchase, redemption, retirement or acquisition of the
Representative's capital stock; provided that,
47
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so long as at the time of and after giving effect to any such payment
no Event of Default shall have occurred and be continuing,
(i) the Representative may make any such payment or
distribution from the proceeds of the sale by the
Representative (other than a sale to a Subsidiary of the
Representative, including any other Beverly Entity) after the
Documentation Date of its common stock,
(ii) the Representative may make dividend payments
with respect to its preferred stock (A) from any source in an
amount not to exceed an aggregate of $2,500,000 in any fiscal
quarter and (B) from proceeds of the sale by the
Representative (other than a sale to a Subsidiary of the
Representative, including the other Beverly Entities) after
the Documentation Date of Permitted Preferred Stock in any
amount,
(iii) the Representative may make payments on account
of the purchase, redemption, retirement or acquisition of its
preferred stock from the proceeds of the sale by the
Representative (other than a sale to a Subsidiary of the
Representative) after the Documentation Date of any Permitted
Preferred Stock,
(iv) the Representative may make odd-lot repurchases
of their common stock for an aggregate consideration not
exceeding $10,000 in any calendar year,
(v) the Representative may consummate the New BEI
Spin-Off as part of the Pharmacy Divestiture Transaction on
the Release Date, and
(vi) the Representative may make any such payment or
distribution if, after giving effect thereto, the aggregate
amount of all such payments or distributions made after the
Amendment Effective Date (including, without limitation, any
such payments or distributions permitted under subclause
(ii)(A) or clause (iv) above) does not exceed the sum of
$75,000,000 plus 50% of Consolidated Net Income for the period
after June 30, 1997 through the date of such declaration,
payment or distribution.
Nothing in this Section shall prohibit the payment of any dividend or
distribution within 45 days after the declaration thereof if such declaration
was not prohibited by this Section.
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(g) Negative Pledge.
Create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, except:
(1) Liens existing on the Documentation Date
securing Indebtedness and other obligations
outstanding on the Documentation Date;
(2) Liens created by the Operative
Documents;
(3) any Lien on any asset of any corporation
that becomes a Consolidated Subsidiary of the
Representative after the Documentation Date that
exists at the time such corporation becomes such a
Consolidated Subsidiary and (other than in a Workout
Transaction) not created in contemplation thereof;
(4) any Lien existing on any asset prior to
the acquisition thereof, acquired after the
Documentation Date by the Representative or a
Subsidiary of the Representative (including any other
Beverly Entity) and (other than in a Workout
Transaction) not created in contemplation thereof;
(5) any Lien on any asset securing
Indebtedness or lease obligations incurred or assumed
for the purpose of fi nancing all or any part of the
cost of acquiring or constructing such asset or
reconstructing substantially all of such asset,
provided that such Lien attaches to such asset
concurrently with or within one year after such
acquisition, construction or reconstruction;
(6) any Lien on any asset securing
Indebtedness or lease obligations incurred or assumed
for the purpose of im proving or making any addition
to such asset, provided that (x) such Lien attaches
to such asset concurrently with or within one year
after the completion of the improvement thereof or
addition thereto and (y) the aggregate outstanding
principal amount of all such Indebtedness incurred
after the Documentation Date secured by such Liens
shall not, at any time, exceed $30,000,000;
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(7) Liens securing Indebtedness incurred in
connection with Lease Cancellation Payments, provided
that the aggregate amount of all such Indebtedness
incurred after the Documentation Date secured by such
Liens shall not, at any time, exceed $20,000,000;
(8) Liens securing industrial development
revenue bonds (or securing contingent obligations to
issuers of letters of credit issued to support
industrial development revenue bonds) arising in
connection with the conversion of the inter est rate
on such bonds from floating to long-term fixed rates
or from fixed rates to other long-term fixed rates;
(9) any Lien arising out of the refinancing,
extension, renewal or refunding of any Indebtedness
secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that the principal
amount of such Indebtedness is not increased and such
Indebtedness is not secured by any additional assets
other than assets that relate directly to the
facility subject to the original financing;
(10) Liens on Medicare, Medicaid or other
patient accounts receivable of the Representative or
any of its Subsidiaries (including the other Beverly
Entities), or on Permitted Receivables Financing
Securities, granted to secure Permitted Receivables
Financing Securities, provided that the net amount of
all uncollected accounts receivable owing to the
Representative or any of its Subsidiaries (including
the other Beverly Entities) over which such a Lien is
granted, together, without duplication, with the net
amount of all uncollected accounts receivable owing
to the Representative or any of its Subsidiaries
(including the other Beverly Entities) that are
assigned to secure such Permitted Receivables
Financing Securities, shall not exceed, at any time,
200% of the aggregate principal or redemption amount
of all Permitted Receivables Financing Securities
then outstanding;
(11) Liens incidental to the conduct of its
business or the ownership of its assets which (x) do
not secure Indebtedness or Derivatives Obligations
and (y) do not in the aggregate materially detract
from the value of its assets or materially impair the
use thereof in the operation of its business;
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(12) Liens on cash and cash equivalents
securing Derivatives Obligations, provided that the
aggregate amount of cash and cash equivalents subject
to such Liens may at no time exceed $10,000,000;
(13) Liens on nursing homes and related real
estate improvements and equipment ("Mortgage Assets")
given in substitution for Liens on Mortgage Assets
existing on the Documentation Date or for Liens on
Mortgage Assets incurred pursuant to this clause (13)
or clause (15) below, provided that the sum of (A)
the excess of the Appraised Value of all Mortgage
Assets subjected to Liens pursuant to this clause
(13) on or after the Amendment Effective Date over
the Appraised Value of all such Mortgage Assets
released from Liens on or after the Amendment
Effective Date and (B) all Indebtedness incurred
after the Amendment Effective Date and secured by
Liens permitted under clause (15) below shall not at
any time exceed $50,000,000;
(14) Liens on the capital stock of Pharmacy
and its Subsidiaries securing the Morgan Credit
Agreement as of the Release Date and Liens consisting
of the pledge of the capital stock of the
Subsidiaries of the Representative in favor of the
lenders under the Morgan Credit Agreement in the
event that Pharmacy and its Subsidiaries are no
longer Wholly-Owned Subsidiaries of the
Representative and the capital stock of Pharmacy and
its Subsidiaries is released from such Liens;
provided, that after the Release Date, no capital
stock of any Subsidiary of the Representative shall
be pledged in replacement of or in addition to any
capital stock of any Subsidiary pledged in favor of
the lenders under the Morgan Credit Agreement as of
the Release Date, and no capital stock of any
Subsidiary released from such pledge on any date
shall be pledged after such date; and
(15) Liens not otherwise permitted under
clauses (1) through (14) of this Section, provided
that the sum of the amounts set forth in subclause
(A) of clause (13) above and the aggregate principal
amount of all indebtedness incurred after the
Documentation Date and secured by Liens permitted
under this clause (15) shall not at any time exceed
$50,000,000.;
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(h) Consolidations, Mergers and Sales of Assets. (i)(A)
Consolidate or merge with or into any other Person, unless the
Representative or, except in the case of a merger or consolidation to
which the Representative is a party, a Wholly-Owned Subsidiary of the
Representative is the surviving corporation, or (B) sell, lease or
otherwise transfer all or any substantial part of the assets of the
Representative and its Subsidiaries (including the other Beverly
Entities), taken as a whole, to any other Person, provided that (I)
this Section shall not apply to mergers, dissolutions, reorganizations
or liquidations of Subsidiaries of the Representative that have
disposed of all or substantially all of their assets in accordance with
the terms of this Agreement, (II) the Representative and its
Subsidiaries (other than Pharmacy or any of its Subsidiaries) may
assign or grant security interests in their Medicare, Medicaid or other
patient accounts receivable to a Special Purpose Receivables Financing
Subsidiary to secure Permitted Receivables Financing Securities
(provided that the net amount at any time of all uncollected accounts
receivable owing to the Representative or any of its Subsidiaries that
are so assigned or in which a security interest is so granted shall not
exceed 200% of the aggregate principal or redemption amount of all
Permitted Receivables Financing Securities then outstanding) and (III)
this Section shall not prohibit the consummation of the Pharmacy
Divestiture Transaction or the Merger on the Release Date.
(ii) So long as Pharmacy is a Wholly-Owned Subsidiary
of the Representative, permit Pharmacy or any of its
Subsidiaries to (A) consolidate or merge with or into any
other Person, unless Pharmacy or, except in the case of a
merger or consolidation to which Pharmacy is a party, a
Wholly-Owned Subsidiary of Pharmacy is the surviving
corporation or (B) sell, lease or otherwise transfer all or
any substantial part of its assets to any Person other than
Pharmacy.
(i) Incurrence of Indebtedness.
Incur, assume or suffer to exist any Indebtedness,
except:
(1) Indebtedness outstanding on the
Effective Date and included in the Base Financials or
listed under item 10.2(i) in Schedule III hereto;
(2) Indebtedness incurred after the
Effective Date in connection with Lease Cancellation
Payments, provided that the aggregate principal
amount of all such Indebtedness outstanding at any
time shall not exceed $20,000,000;
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(3) Indebtedness secured by a Lien permitted
pursuant to clause (4) of Section 10.2(g);
(4) Indebtedness of any corporation that
becomes a Consolidated Subsidiary of the
Representative after the Documentation Date that
exists at the time such corporation becomes such a
Consolidated Subsidiary and (other than in a Workout
Transaction) not created in contemplation thereof;
(5) Indebtedness ("Refinancing
Indebtedness") incurred to refinance Indebtedness
("Refinanced Indebtedness") permitted under clauses
(1) through (4) above, provided that (I) the
principal amount of such Refinancing Indebtedness
shall not exceed the principal amount of such
Refinanced Indebtedness and (II) such Refinancing
Indebtedness shall have a weighted average life of
not less than the remaining weighted average life of
such Refinanced Indebtedness or such Refinancing
Indebtedness shall not have any required payments of
principal prior to the fifth anniversary of the
Documentation Date;
(6) Permitted Receivables Financing
Securities, provided that the aggregate principal and
redemption amount of all Permitted Receivables
Financing Securities outstanding at any time shall
not exceed $150,000,000;
(7) Indebtedness incurred under the
Operative Documents;
(8) guarantees by any Subsidiary of the
Representative of any obligation of the
Representative or any of its Subsidiaries (including
the other Beverly Entities) that such guaranteeing
Subsidiary would have been permitted to incur
hereunder as a primary obligation;
(9) Indebtedness consisting of advances from
the Representative or any of its Subsidiaries in
connection with the normal operation of the business
of the Representative and its Subsidiaries (including
the other Beverly Entities);
(10) Indebtedness incurred in connection
with and as part of a Workout Transaction;
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(11) Indebtedness incurred or assumed for
the purpose of financing the cost of acquiring,
constructing or improving an asset of the
Representative or any of its Subsidiaries (including
the other Beverly Entities);
(12) Permitted Preferred Stock;
(13) Indebtedness under the Morgan Credit
Agreement; and
(14) Indebtedness not otherwise permitted
under clauses (1) through (13) of this Section,
provided that the aggregate principal amount of all
Indebtedness permitted under this clause (14) that is
incurred on or after the Amendment Effective Date
shall not at any time exceed $75,000,000
(j) Lease Conversions. Make any Lease Conversion in any
calendar year unless:
(i) the aggregate consideration paid or to be paid by
the Representative and its Subsidiaries (including the other
Beverly Entities) in connection with the termination of leases
or the acquisition of facilities and related property
pursuant to such Lease Conver sion and all other Lease
Conversions made during such calendar year would not exceed
$100,000,000;
(ii) to the extent such Lease Conversion is financed
or will be financed with Indebtedness of the Representative or
any of its Subsidiaries (including the other Beverly
Entities), such Indebtedness is incurred within one year of
such Lease Conversion; and
(iii) such Lease Conversion, after giving effect
thereto, will not result in an Event of Default.
(k) Transactions with Affiliates. Enter into any transaction
or arrangement with any Affiliate (including, without limitation, the
purchase from, sale to or exchange of property with, or the rendering
of any service by or for, any Affiliate), except in the ordinary course
of and pursuant to the reasonable requirements of the Representative's
or such Subsidiary's (as the case may be) business and upon fair and
reasonable terms no less favorable to the Representative or such
Subsidiary than would be obtained in a comparable arm's-length
transaction with a Person other than an Affiliate.
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Section 10.3 Affirmative Covenant of the Agent Lessor. The Agent Lessor
covenants and agrees with the Arranger, the Representative, the Administrative
Agent and the Lenders that, so long as this Participation Agreement shall remain
in effect or the principal or interest on any Loan, or any Commitment Fees,
other fees or any other expenses or amounts payable under any Operative Document
to the Administrative Agent or the Lenders shall be unpaid, and until all
Commitments of the Lenders shall have been permanently terminated, unless the
Required Lenders shall otherwise consent in writing, the Agent Lessor will, upon
the written request of the Required Lenders after the occurrence and during the
continuance of an Event of Default qualify to do business in every jurisdiction
where such qualification is necessary for the Agent Lessor to exercise its
remedies under the Master Lease or any other Operative Document.
ARTICLE XI
RENEWALS
Section 11.1 Extensions of Maturity Date and Expiration Date;
Replacement of Participants.
(a) So long as the Representative has not elected the Remarketing
Option on behalf of the Lessees, the Representative may, not earlier than six
months and not later than three months prior to the Maturity Date, direct a
written request to the Agent Lessor and the Administrative Agent that the
Expiration Date then in effect under the Master Lease be extended to the date
occurring one year after such Expiration Date and concurrently therewith request
that the Administrative Agent and the Agent Lessor direct a written request to
the Lessors and the Lenders that the applicable Maturity Date be extended to the
same date (each such additional year, a "Renewal Term"). In no event may the
Expiration Date or the Maturity Date be extended more than twice pursuant to
this Section 11.1(a). Each Participant may grant or deny its consent to a
Renewal Term in its sole discretion by notifying the Administrative Agent and
the Agent Lessor in writing (with a copy to the Representative); provided,
however, that any Participant that fails to respond to such request for a
Renewal Term within sixty (60) days after its receipt thereof shall be deemed to
have denied such request for a Renewal Term.
(b) In connection with a written request of the Representative for a
Renewal Term, upon the request of the Representative, the Administrative Agent
and the Agent Lessor shall be permitted to replace any non-consenting
Participant and any Participant that fails to respond to the Administrative
Agent's and the Agent Lessor's written request for a Renewal Term within the
time period specified in clause (a) above (each, a "Non-Consenting Participant")
with a replacement bank or other
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financial institution (a "Replacement Participant") satisfactory to the
Representative, the Lessors and the Lenders, with such replacement to be
effective as of the Expiration Date and Maturity Date in effect prior to the
requested Renewal Term; provided, however, that (i) such replacement does not
conflict with any Requirement of Law, (ii) the Replacement Participant shall
purchase from the Non-Consenting Participant (A) at par, all Loans, in the case
of a Lender, and all Lessor Amounts, in the case of a Lessor, (B) all accrued
interest, in the case of a Lender, and all accrued Yield, in the case of a
Lessor, and (C) all other amounts owing to such Non-Consenting Participant on or
prior to the date of replacement, in each case, (iii) the Representative shall
be liable to such Non-Consenting Participant under Section 13.10 if any Loan or
Lessor Amount, as the case may be, owing to such Non-Consenting Participant
shall be prepaid (or purchased) other than on the last day of the Interest
Period or Interest Periods relating thereto, (iv) such replacement shall be made
in accordance with the provisions of Article XII (provided that the
Representative or the relevant Replacement Participant shall be obligated to pay
the Transaction Expenses arising in connection therewith), and (v) the
Replacement Participant shall have agreed to be subject to all of the terms and
conditions of the applicable Operative Documents (including the extension of the
Maturity Date contemplated by the relevant request for a Renewal Term and the
related extension). The Administrative Agent and the Agent Lessor hereby agree
to cooperate with the Representative in its efforts to arrange one or more
Replacement Participants as contemplated by this Section 11.1(b).
(c) Any Renewal Term and extension of the Maturity Date and the
Expiration Date as contemplated by Section 11.1(a) shall be effective only upon
the consent of all Participants after giving effect to the provisions of Section
11.1(b). Except as otherwise provided in this Article XI, all other terms of the
Operative Documents shall remain unchanged and with the same force and effect
(including the Pricing Categories and Pricing Ratios), and there shall not be
any additional up-front fee in connection with such Renewal Term.
Section 11.2 Replacement of Defaulting Participant. The Representative
shall have the right (but not the obligation) to require any Defaulting
Participant to assign and delegate in accordance with Section 12.1 all of such
Lender's or Lessor's total Loans or Lessor Amounts, as the case may be, and
Commitment to any other financial institution selected by the Representative
that, in each case, is willing to accept such assignment and delegation and
shall be satisfactory to the Administrative Agent and the Agent Lessor.
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ARTICLE XII
TRANSFERS OF PARTICIPANTS' INTERESTS
Section 12.1 Assignments. Each Participant may, with the prior written
consent of the Representative, the Administrative Agent and the Agent Lessor
(which consents shall not be unreasonably withheld), assign all or a portion of
its rights and obligations hereunder pursuant to an assignment agreement
substantially in the form of Exhibit F to one or more Eligible Lender Assignees,
with respect to Lender Commitments and Loans, and/or Eligible Lessor Assignees
with respect to Lessor Commitments and Lessor Amounts, each such assignment
shall be of a constant, not varying, percentage of all of the assigning
Participant's rights and obligations under the Operative Documents. In the case
of assignments made by a Lender, any such assignment shall be in a minimum
aggregate amount of $5,000,000 of its Loan Commitment (or the balance of such
Loan Commitment, if less) and the aggregate remaining Loan Commitment of the
assigning Lender shall, after giving effect to the proposed assignment, be at
least $5,000,000 or if less, zero. In the case of assignments made by a Lessor,
any such assignment shall be in a minimum aggregate amount of $1,000,000 of its
Lessor Commitment (or the balance of such Lessor Commitment, if less) and the
aggregate remaining Lessor Commitment of the assigning Lessor shall, after
giving effect to the proposed assignment, be at least $1,000,000 or if less,
zero. Any assignment hereunder shall be effective upon delivery to the
Administrative Agent and the Agent Lessor of written notice of the assignment
together with a transfer fee of $2,500 payable by the assignor Participant or
the assignee Participant to the Administrative Agent for its own account. The
assigning Participant will give prompt notice to the Administrative Agent of any
such assignment. Upon the effectiveness of any such assignment (and after notice
to and consent of the Lessee, the Administrative Agent and the Agent Lessor, as
provided herein), the assignee shall become a "Lender" or "Lessor", as the case
may be, for all purposes of the Operative Documents and, to the extent of such
assignment, the assigning Participant shall be relieved of its obligations
hereunder to the extent of the Loans or Lessor Amounts, as the case may be, and
Commitment components being assigned. The Administrative Agent agrees that upon
notice of any such assignment and surrender of the appropriate Note or Notes, it
will promptly provide to the assigning Lender and to the assignee separate
promissory notes in the amount of their respective interests substantially in
the form of the original Note (but with notation thereon that it is given in
substitution for and replacement of the original Note or any replacement notes
thereof). The Representative shall not be responsible for any costs or expenses
incurred by any Participant in connection with an assignment of all or any of
its rights and obligations in connection with an assignment pursuant to this
Section 12.1.
Section 12.2 Participations. Each Participant may sell, transfer, grant
or assign participations in all or any part of such Participant's interests and
obligations hereunder; provided that (i) such selling Participant shall remain a
"Lender" or "Lessor", as the case may be, for all purposes under the Operative
Documents (such selling Participant's obligations under the Operative Documents
remaining
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unchanged) and the sub-participant shall not constitute a Lender or a Lessor, as
the case may be, hereunder, (ii) no such sub-participant shall have, or be
granted, rights to approve any amendment or waiver relating to the Operative
Documents except to the extent any such amendment or waiver would (A) reduce the
principal of or rate of interest on or fees in respect of any Loans or Lessor
Amounts in which the sub-participant is participating, (B) postpone the date
fixed for any payment of principal (including extension of the Expiration Date
or the date of any mandatory prepayment), interest or fees in which the
sub-participant is participating, or (C) release all or substantially all of the
collateral or guarantees (except as expressly provided in the Operative
Documents) supporting any of the Loans or Lessor Amounts or Commitments in which
the sub-participant is participating, and (iii) sub-sub-participations by the
sub-participant (except to an Affiliate, parent company or Affiliate of a parent
company of the participant) shall be prohibited. In the case of any such
participation, the sub-participant shall not have any rights under the Operative
Documents (the sub-participant's rights against the selling Participant in
respect of such participation to be those set forth in the participation
agreement with such Participant creating such participation) and all amounts
payable by any Beverly Entity hereunder shall be determined as if such
Participant had not sold such participation; provided, however, that such
sub-participant shall be entitled to receive additional amounts under Sections
13.5, 13.10 and 13.11 on the same basis as if it were a Participant (but only to
the extent that the Participant would have been entitled to receive such
additional amounts with respect to the interest participated had it not sold
such participation). No Beverly Entity shall be responsible for any costs or
expenses incurred by any Participant in connection with a sale, transfer, grant
or assignment of participations pursuant to this Section 12.2.
Section 12.3 Withholding Taxes; Disclosure of Information; Pledge Under
Regulation A.
(a) If any Participant (or the assignee of or subparticipant of a
Participant, each a "Transferee") is organized under the laws of any
jurisdiction other than the United States or any State thereof, then such
Participant or the Transferee of such Participant, as applicable, shall (as a
condition precedent to acquiring or participating in such Loan or Lessor Amount
and as a continuing obligation to the Lessor and the Lender) (i) furnish to each
of the Administrative Agent, the Agent Lessor and the Representative in
duplicate, for each taxable year of such Participant or Transferee during the
term of the Lease, a properly completed and executed copy of either Internal
Revenue Service Form 4224 or Internal Revenue Service Form 1001 and Internal
Revenue Service Form W-8 or Internal Revenue Service Form W-9 and any additional
form (or such other form) as is necessary to claim complete exemption from
United States withholding taxes (wherein such Transferee claims entitlement to
complete exemption from United States withholding taxes on all payments
hereunder), and (ii) provide to each of the Administrative Agent, the Agent
Lessor
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and the Representative a new Internal Revenue Service Form 4224 or Internal
Revenue Service Form 1001 and Internal Revenue Service Form W-8 or Internal
Revenue Service Form W-9 and any such additional form (or any successor form or
forms) upon the expiration or obsolescence of any previously delivered form and
comparable statements in accordance with applicable United States laws and
regulations and amendments duly executed and completed by such Participant or
Transferee, and to comply from time to time with all applicable United States
laws and regulations with regard to such withholding tax exemption. By its
acceptance of a participation or assignment hereunder, each Transferee shall be
deemed bound by the provisions set forth in this Article XII.
(b) Any Participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Article
XII, disclose to such assignee or participant or proposed assignee or
participant, any information relating to any Beverly Entity or the Transactions,
subject to appropriate confidentiality requirements relating to such
information.
(c) Anything in this Article XII to the contrary notwithstanding, any
Participant may without the consent of any Beverly Entity, the Administrative
Agent or the Agent Lessor, assign and pledge all or any portion of the Notes
held by it to any Federal Reserve Bank, the United States Treasury or to any
other financial institution as collateral security pursuant to Regulation A of
the F.R.S. Board and any operating circular issued by the Federal Reserve System
and/or the Federal Reserve Bank or otherwise; provided, any payment by any
Beverly Entity for the benefit of the assigning or pledging Participant shall be
deemed to satisfy such Beverly Entity's obligations with respect thereto.
ARTICLE XIII
INDEMNIFICATION
Section 13.1 General Indemnification. (a) The Representative agrees
that, with respect to each Completed Property and Improved Property, to assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee, on an After Tax Basis, from and against any and all Claims that may
be imposed on, incurred by or asserted against such Indemnitee (whether because
of action or omission by such Indemnitee or otherwise), whether or not such
Indemnitee shall also be indemnified as to any such Claim by any other Person
and whether or not such Claim arises or accrues prior to the applicable
Acquisition Date or after the Expiration Date, in any way relating to or arising
out of:
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(i) any of the Operative Documents or any of the transactions
contemplated thereby, and any amendment, modification or waiver in
respect thereof;
(ii) the Properties or any part thereof or interest therein;
(iii) the purchase, design, construction, preparation,
installation, inspection, delivery, nondelivery, acceptance, rejection,
ownership, management, possession, operation, rental, lease, sublease,
repossession, maintenance, repair, alteration, modification, addition
or substitution, storage, transfer of title, redelivery, use,
financing, refinancing, disposition, operation, condition, sale
(including, without limitation, any sale pursuant to Section 16.2(d) or
16.2(f) of the Master Lease or any sale pursuant to Article XV, XVIII
or XX of the Master Lease), return or other disposition of all or any
part or any interest in the Properties or the imposition of any Lien
(or incurring of any liability to refund or pay over any amount as a
result of any Lien) thereon, including, without limitation: (1) Claims
or penalties arising from any violation of law or in tort (on the basis
of strict liability or otherwise), (2) latent or other defects, whether
or not discoverable, (3) any Claim based upon a violation or alleged
violation of the terms of any restriction, easement, condition or
covenant or other matter affecting title to the Properties, (4) the
making of any Modifications in violation of any standards imposed by
any insurance policies required to be maintained by each Lessee
pursuant to the Lease which are in effect at any time with respect to
the Properties or any part thereof, (5) any Claim for patent, trademark
or copyright infringement, and (6) Claims arising from any public
improvements with respect to the Properties resulting in any change or
special assessments being levied against the Property or any plans to
widen, modify or realign any street or highway adjacent to any of the
Properties, or any Claim for utility "tap-in" fees;
(iv) the breach by any Beverly Entity of any covenant,
representation or warranty made by it or deemed made by it in any
Operative Document or any certificate reclaimed to be delivered by any
Operative Document;
(v) the retaining or employment of any broker, finder or
financial advisor by any Beverly Entity to act on its behalf in
connection with this Participation Agreement or any other Operative
Document;
(vi) the existence of any Lien on or with respect to the
Properties, the Improvements, any Basic Rent or Supplemental Rent,
title thereto, or any interest therein including any Liens which arise
out of the possession, use, occupancy, construction, repair or
rebuilding of the Property or by reason of
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labor or materials furnished or claimed to have been furnished to any
Lessee, or any of its contractors or agents or by reason of the
financing of any personalty or equipment purchased or leased by any
Lessee or Modifications constructed by such Lessee, except Lessor Liens
and Liens in favor of the Lenders or the Lessors;
(vii) subject to the accuracy of any Participant's
representation set forth in Section 8.1(a), as to such Participant, the
transactions contemplated by the Lease or by any other Operative
Document, in respect of the application of Parts 4 and 5 of Subtitle B
of Title I of ERISA and any prohibited transaction described in Section
4975(c) of the Code.
(b) The Representative agrees that, with respect to each Construction
Period Property, to assume liability for, and to indemnify, protect, defend,
save and keep harmless each Lessor (which right to indemnity may be assigned by
such Lessor), from and against any and all Claims that may be imposed on,
incurred by or asserted against such Lessor, whether or not such Lessor shall
also be indemnified as to any such Claim by any other Person and whether or not
such claim arise or accrues prior to the applicable Acquisition Date, in any way
relating to or arising out of the circumstances described in clauses (i) through
(vii) of paragraph 13.1(a) where such Claims relate to the action or omission of
any Beverly Entity while any such Beverly Entity is located on, in possession
of, controlling or acting or failing to act with respect to such Construction
Period Property.
Provided, however, that the Representative shall not be required to indemnify
any Indemnitee under this Section 13.1 for any of the following: (1) any Claim
to the extent resulting from the willful misconduct or gross negligence of such
Indemnitee (it being understood that the Representative shall be required to
indemnify an Indemnitee even if the ordinary (but not gross) negligence of such
Indemnitee caused or contributed to such Claim) or the breach of any
representation, warranty or covenant of such Indemnitee set forth in any
Operative Document, (2) any Claim resulting from Lessor Liens which the Agent
Lessor, the Administrative Agent or any of the Lessors or Lenders is responsible
for discharging under the Operative Documents, (3) any Claim arising from a
breach or alleged breach by the Lenders or the Lessors of any agreement entered
into in connection with the assignment or participation of any Loan or Lessor
Amount and (4) any Claim arising in respect to any Property in the period after
the respective Lessee ceases to lease such Property from the Lessors under the
related Lease, provided that the facts supporting such Claim occur after such
period. It is expressly understood and agreed that the indemnity provided for
herein shall survive the expiration or termination of and shall be separate and
independent from any remedy under the Lease or any other Operative Document.
Without limiting the express rights of any Indemnitee under this Section 13.1,
this Section 13.1 shall be
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construed as an indemnity only and not a guaranty of residual value of the
Properties or as a guaranty of the Notes.
Section 13.2 End of Term Indemnity.
(a) If the Representative elects the Remarketing Option and there
would, after giving effect to the proposed remarketing transactions, be a
Shortfall Amount, then prior to the Expiration Date and as a condition to the
Representative's right to complete the remarketing of the Properties pursuant to
Article XX of the Master Lease, the Representative shall cause to be delivered
to the Agent Lessor at least one hundred twenty (120) days prior to the
Expiration Date, at the Representative's sole cost and expense, a report from
the Appraiser in form and substance satisfactory to the Agent Lessor, the
Administrative Agent and the Participants (the "End of the Term Report") which
shall state the appraiser's conclusions as to the reason for any decline in the
Fair Market Sales Value of any of the Property from that anticipated for such
date in the As-Built Appraisal delivered with respect to such Property.
(b) On or prior to the Expiration Date the Representative shall pay to
the Agent Lessor for the account of each of the Lessors an amount (not to exceed
the Shortfall Amount) equal to the portion of the Shortfall Amount that the End
of the Term Report demonstrates was the result of a decline in the Fair Market
Sales Value of the applicable Property due to
(i) extraordinary use; failure to maintain, repair, restore,
rebuild or replace; failure to comply with all applicable laws; failure
to use; workmanship; method of installation or removal or maintenance,
repair, rebuilding or replacement, (excepting in each case ordinary
wear and tear), or
(ii) any change to the Plans and Specifications, or any
Modification made to, or any rebuilding of, the applicable Properties
or any part thereof by the applicable Lessee or the Construction Agent,
or
(iii) the existence of any Hazardous Activity, Hazardous
Materials or Environmental Violations, the indemnity for which shall
not exceed the cost of the remediation thereof, or
(iv) any restoration or rebuilding carried out by the
applicable Lessee or the Construction Agent, or
(v) any condemnation of any portion of any of the applicable
Properties pursuant to Article XIV of the Master Lease, or
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(vi) any use of any of the applicable Properties or any part
thereof by the Lessee or any sublessee other than (i) with respect to
the New Beverly Headquarters, an office headquarters for the
Representative and the other Beverly Entities and other office and
retail facilities customarily found in office buildings and (ii) with
respect to each other Property, an assisted living facility or nursing
facility as contemplated by the applicable As-Built Appraisal, or
(vii) any grant, release, dedication, transfer, annexation or
amendment made pursuant to Section 11.2 of the Master Lease, or
(viii) the failure of the Lessors to have good and marketable
title to any of the applicable Properties free and clear of all Liens
(excluding Permitted Property Liens), or
(ix) the existence of any sublease relating to any of the
applicable Properties that shall survive the Expiration Date.
Section 13.3 Environmental Indemnity. Without limitation of the other
provisions of this Article XIII, the Representative hereby agrees to indemnify,
hold harmless and defend each Indemnitee from and against any and all claims
(including, without limitation, third party claims for personal injury or real
or personal property damage), losses (including but not limited to, to the
extent the Lease Balance has not been fully paid, any loss of value of the
Property related thereto), damages, liabilities, fines, penalties, charges,
administrative and judicial proceedings (including informal proceedings) and
orders, judgments, remedial action, requirements, enforcement actions of any
kind, and all reasonable and documented costs and expenses incurred in
connection therewith (including but not limited to reasonable and documented
attorneys' and/or paralegals' fees and expenses), including, but not limited to,
all costs incurred in connection with any investigation or monitoring of site
conditions or any clean-up, remedial, removal or restoration work by any
federal, state or local Governmental Authority, arising in whole or in part, out
of:
(a) the presence on or under any of the Properties of any
Hazardous Materials, or any Releases of any Hazardous Materials on,
under, from or onto any of the Properties,
(b) any activity, including, without limitation, construction,
carried on or undertaken on or off any of the Properties, and whether
by any Lessee or any predecessor in title or any employees, agents,
contractors or subcontractors of any Lessee or any predecessor in
title, or any other Persons (including such Indemnitee), or in
connection with the handling, treatment, removal, storage,
decontamination, clean-up, transport or disposal of any Hazardous
Materials that at any time are located or present on or under or
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that at any time migrate, flow, percolate, diffuse or in any way move
onto or under any of the Properties,
(c) loss of or damage to any property or the environment
(including, without limitation, clean-up costs, response costs,
remediation and removal costs, costs of corrective action, costs of
financial assurance, fines and penalties and natural resource damages),
or death or injury to any Person, and all expenses associated with the
protection of wildlife, aquatic species, vegetation, flora and fauna,
and any mitigative action required by or under Hazardous Materials
Laws,
(d) any claim concerning lack of compliance with Hazardous
Materials Laws, or any act or omission causing an environmental
condition that requires remediation or would allow any Governmental
Authority to record a Lien on the land records, or
(e) any residual contamination on or under any of the Land, or
affecting any natural resources, and to any contamination of any
property or natural resources arising in connection with the
generation, use, handling, storage, transport or disposal of any such
Hazardous Materials, and irrespective of whether any of such activities
were or will be undertaken in accordance with applicable laws,
regulations, codes and ordinances;
provided, however, that the Representative shall not be required to indemnify
any Indemnitee under this Section 13.3 for any Claim (i) to the extent resulting
from the willful misconduct or gross negligence of such Indemnitee and (ii)
relating to an Environmental Violation which preexisted the acquisition of the
Property by the Agent Lessor but solely to the extent that (x) such
Environmental Violation was identified in the Environmental Audit delivered
pursuant to Section 6.1(h) hereof, (y) such Audit indicated that the risk of
loss with respect to such Environmental Violation was less than remote and (z)
notwithstanding the requirements of Section 6.1(h), the Property was acquired by
the Agent Lessor. It is expressly understood and agreed that the indemnity
provided for herein shall survive the expiration or termination of the Lease
Term with respect to any Claim based on facts or circumstances arising prior to
or during the Lease Term, and shall be separate and independent from any remedy
under the Lease or any other Operative Document.
Section 13.4 Proceedings in Respect of Claims.
In case any action, suit or proceeding shall be brought against any
Indemnitee, such Indemnitee shall notify the Representative of the commencement
thereof, and the Representative shall be entitled, at the Representative's
expense, to participate in, and, to the extent that the Representative desires
to, assume and control the defense
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thereof; provided, however, that the Representative shall have acknowledged in
writing its obligation to fully indemnify such Indemnitee in respect of such
action, suit or proceeding, and the Representative shall keep such Indemnitee
fully apprised of the status of such action, suit or proceeding and shall
provide such Indemnitee with all information with respect to such action, suit
or proceeding as such Indemnitee shall reasonably request, and provided,
further, that the Representative shall not be entitled to assume and control the
defense of any such action, suit or proceeding if and to the extent that, (A) in
the reasonable opinion of such Indemnitee, (x) such action, suit or proceeding
involves any risk of imposition of criminal liability or will involve a risk of
the sale, forfeiture or loss of, or the creation of any Lien (other than a
Permitted Property Lien) on any Property or any part thereof unless, in the case
of civil liability, the Representative shall have posted a bond or other
security satisfactory to take relevant Indemnitees in respect to such risk or
(y) the control of such action, suit or proceeding would involve an actual or
potential conflict of interest, (B) such proceeding involves Claims not fully
indemnified by the Representative which the Representative and the Indemnitee
have been unable to sever from the indemnified claim(s), or (C) an Event of
Default under the Lease has occurred and is continuing. The Indemnitee will join
in the Representative's efforts to sever such action. The Indemnitee may
participate at its own expense and with its own counsel in any proceeding
conducted by the Representative in accordance with the foregoing. The
Representative shall not enter into any settlement or other compromise with
respect to any Claim which is entitled to be indemnified under Section 13.1 or
13.3 without the prior written consent of the Indemnitee, which consent shall
not be unreasonably withheld in the case of a money settlement not involving an
admission of liability of such Indemnitee.
Each Indemnitee shall at the expense of the Representative supply the
Representative with such information and documents reasonably requested by the
Representative as are necessary or advisable for the Representative to
participate in any action, suit or proceeding to the extent permitted by Section
13.1 or 13.3.
Upon payment in full of any Claim by the Representative pursuant to
Section 13.1 or 13.3 to or on behalf of an Indemnitee, the Representative,
without any further action, shall be subrogated to any and all claims that such
Indemnitee may have relating thereto (other than claims in respect of insurance
policies maintained by such Indemnitee at its own expense), and such Indemnitee
shall execute such instruments of assignment and conveyance, evidence of claims
and payment and such other documents, instruments and agreements as may be
necessary to preserve any such claims and otherwise cooperate with the
Representative and give such further assurances as are necessary or advisable to
enable the Representative vigorously to pursue such claims.
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Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3
shall be paid to such Indemnitee promptly upon receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the amount
so payable.
Section 13.5 General Tax Indemnity.
(a) Indemnification. The Representative shall pay and assume liability
for, and does hereby agree to indemnify, protect and defend the applicable
Property and all Tax Indemnitees, and hold them harmless against, all
Impositions on an After Tax Basis.
(b) Contests. If any claim shall be made against any Tax Indemnitee or
if any proceeding shall be commenced against any Tax Indemnitee (including a
written notice of such proceeding) for any Imposition as to which the
Representative may have an indemnity obligation pursuant to this Section 13.5,
or if any Tax Indemnitee shall determine that any Imposition to which the
Representative may have an indemnity obligation pursuant to this Section 13.5
may be payable, such Tax Indemnitee shall promptly (and in any event, within 30
days) notify the Representative in writing (provided that failure to so notify
the Representative within 30 days shall not alter such Tax Indemnitee's rights
under this Section 13.5 except to the extent such failure precludes or
materially adversely affects the ability to conduct a contest of any
Impositions) and shall not take any action with respect to such claim,
proceeding or Imposition without the written consent of the Representative (such
consent not to be unreasonably withheld or unreasonably delayed) for 30 days
after the receipt of such notice by the Representative; provided, however, that
in the case of any such claim or proceeding, if such Tax Indemnitee shall be
required by law or regulation to take action prior to the end of such 30-day
period, such Tax Indemnitee shall in such notice to the Representative, so
inform the Representative and such Tax Indemnitee shall not take any action with
respect to such claim, proceeding or Imposition without the consent of the
Representative (such consent not to be unreasonably withheld or unreasonably
delayed) for 10 days after the receipt of such notice by the Representative
unless such Tax Indemnitee shall be required by law or regulation to take action
prior to the end of such 10-day period.
The Representative shall be entitled for a period of 30 days from
receipt of such notice from such Tax Indemnitee (or such shorter period as such
Tax Indemnitee has notified the Lessee is required by law or regulation for such
Tax Indemnitee to commence such contest), to request in writing that such Tax
Indemnitee contest the imposition of such Tax, at the Representative's expense.
If (x) such contest can be pursued in the name of the Representative and
independently from any other proceeding involving a Tax liability of such Tax
Indemnitee for which the Representative has not agreed to indemnify such Tax
Indemnitee, (y) such contest
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must be pursued in the name of such Tax Indemnitee, but can be pursued
independently from any other proceeding involving a Tax liability of such Tax
Indemnitee for which the Representative has not agreed to indemnify such Tax
Indemnitee or (z) such Tax Indemnitee so requests, then the Representative shall
be permitted to control the contest of such claim, provided that in the case of
a contest described in clause (y), if such Tax Indemnitee determines reasonably
and in good faith that such contest by the Representative could have a material
adverse impact on the business or operations of such Tax Indemnitee and provides
a written explanation to the Representative of such determination, such Tax
Indemnitee may elect to control or reassert control of the contest, and provided
that by taking control of the contest, the Representative acknowledges that it
is responsible for the Imposition ultimately determined to be due by reason of
such claim, and provided, further, that in determining the application of
clauses (x) and (y) above, each Tax Indemnitee shall take any and all reasonable
steps to segregate claims for any Taxes for which the Representative indemnifies
hereunder from Taxes for which the Representative is not obligated to indemnify
hereunder, so that the Representative can control the contest of the former. In
all other claims requested to be contested by the Representative, such Tax
Indemnitee shall control the contest of such claim, acting through counsel
reasonably acceptable to the Representative. In no event shall the
Representative be permitted to contest (or such Tax Indemnitee required to
contest) any claim, (A) if such Tax Indemnitee provides the Representative with
a legal opinion of counsel reasonably acceptable to the Representative that such
action, suit or proceeding involves a risk of imposition of criminal liability
or will involve a material risk of the sale, forfeiture or loss of, or the
creation of any Lien (other than a Permitted Lien) on any Property or any part
thereof unless the Representative shall have posted and maintained a bond or
other security satisfactory to the relevant Tax Indemnitee in respect to such
risk, (B) if an Event of Default has occurred and is continuing, (C) unless the
Representative shall have agreed to pay and shall pay, to such Tax Indemnitee on
demand all reasonable out-of-pocket costs, losses and expenses that such Tax
Indemnitee may incur in connection with contesting such Imposition including all
reasonable legal, accounting and investigatory fees and disbursements, or (D) if
such contest shall involve the payment of the Tax prior to the contest, unless
the Representative shall provide to such Tax Indemnitee an interest-free advance
in an amount equal to the Imposition that the Indemnitee is required to pay
(with no additional net after-tax costs to such Tax Indemnitee). In addition for
Tax Indemnitee controlled contests and claims contested in the name of such Tax
Indemnitee in a public forum, no contest shall be required: (A) unless the
amount of the potential indemnity (taking into account all similar or logically
related claims that have been or could be raised in any audit involving any or
all such Tax Indemnitees with respect to any period for which the Representative
may be liable to pay an indemnity under this Sec 13.5(b)) exceeds $75,000 and
(B) unless, if requested by such Tax Indemnitee, the Representative shall have
provided to such Tax Indemnitee an opinion of counsel selected by the
Representative (which may be in-house counsel) (except, in the case
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of income taxes indemnified hereunder, in which case such opinion shall be an
opinion of independent tax counsel selected by such Tax Indemnitee and
reasonably acceptable to the Representative) that a reasonable basis exists to
contest such claim. In no event shall a Tax Indemnitee be required to appeal an
adverse judicial determination to the United States Supreme Court.
The party conducting the contest shall consult in good faith with the
other party and its counsel with respect to the contest of such claim for Taxes
(or claim for refund) but the decisions regarding what actions to be taken shall
be made by the controlling party in its sole judgment, provided, however, that
if such Tax Indemnitee is the controlling party and the Representative
recommends the acceptance of a settlement offer made by the relevant
Governmental Authority and such Tax Indemnitee rejects such settlement offer
then the amount for which the Representative required to indemnify such Tax
Indemnitee with respect to the Taxes subject to such offer shall not exceed the
amount which it would have owed if such settlement offer had been accepted. In
addition, the controlling party shall keep the non-controlling party reasonably
informed as to the progress of the contest, and shall provide the noncontrolling
party with a copy of (or appropriate excerpts from) and reports or claims issued
by the relevant auditing agents or taxing authority to the controlling party
thereof, in connection with such claim or the contest thereof.
Each Tax Indemnitee shall, at the Representative's expense, supply the
Representative with such information and documents reasonably requested by the
Representative as are necessary or advisable for the Representative to
participate in any action, suit or proceeding to the extent permitted by this
Section 13.5(b). Notwithstanding anything in this Section 13.5(b) to the
contrary, no Tax Indemnitee shall enter into any settlement or other compromise
or fail to appeal an adverse ruling with respect to any claim which is entitled
to be indemnified under this Section 13.5 (and with respect to which contest is
required under this Section 13.5(b)) without the prior written consent of the
Representative, unless such Tax Indemnitee waives its right to be indemnified
under this Section 13.5 with respect to such claim.
Notwithstanding anything contained herein to the contrary, a Tax
Indemnitee will not be required to contest (and the Representative shall not be
permitted to contest) a claim with respect to the imposition of any Tax if such
Tax Indemnitee shall waive its right to indemnification under this Section 13.5
with respect to such claim (and any claim with respect to such year or any other
taxable year the contest of which is materially adversely affected as a result
of such waiver).
(c) [Intentionally left blank]
(d) Payments. Any Imposition indemnifiable under this Section 13.5
shall be paid directly when due to the applicable taxing authority if direct
payment is
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practicable and permitted. If direct payment to the applicable taxing authority
is not permitted or is otherwise not made, any amount payable to a Tax
Indemnitee pursuant to Section 13.5 shall be paid within thirty (30) days after
receipt of a written demand therefor from such Tax Indemnitee accompanied by a
written statement describing in reasonable detail the amount so payable, but not
before two Business Days prior to the date that the relevant Taxes are due. Any
payments made pursuant to this Section 13.5 shall be made directly to such Tax
Indemnitee entitled thereto or the Representative, as the case may be, in
immediately available funds at such bank or to such account as specified by the
payee in written directions to the payor, or, if no such direction shall have
been given, by check of the payor payable to the order of the payee by certified
mail, postage prepaid at its address as set forth in Schedule II hereto. Upon
the request of any Tax Indemnitee with respect to a Tax that the Representative
is required to pay, the Representative shall furnish to such Tax Indemnitee the
original or a certified copy of a receipt for the Representative's payment of
such Tax or such other evidence of payment as is reasonably acceptable to such
Tax Indemnitee.
(e) Reports. In the case of any report, return or statement required to
be filed with respect to any Taxes that are subject to indemnification under
this Section 13.5 and of which the Representative or any Lessee has knowledge,
the Representative shall promptly notify such Tax Indemnitee of such requirement
and, at the Representative's expense (i) if the Representative is permitted
(unless otherwise requested by such Tax Indemnitee) by Applicable Law, timely
file such report, return or statement in its own name or (ii) if such report,
return or statement is required to be in the name of or filed by such Tax
Indemnitee or such Tax Indemnitee otherwise requests that such report, return or
statement be filed in its name, prepare and finish such statement for filing by
such Tax Indemnitee in such manner as shall be satisfactory to such Tax
Indemnitee and send the same to such Tax Indemnitee for filing no later than 15
days prior to the due date therefor. In any case in which such Tax Indemnitee
will file any such report, return or statement, the Representative shall, upon
written request of such Tax Indemnitee, provide such Tax Indemnitee with such
information as is reasonably necessary to allow such Tax Indemnitee to file such
report, return or statement.
(f) [Intentionally left blank]
(g) Tax Ownership. Each Tax Indemnitee represents and warrants that it
will not, prior to the termination of the Master Lease, claim ownership of (or
any tax benefits, including depreciation, with respect to) any Property for any
income tax purposes (unless required to do so by a Governmental Authority), it
being understood that the Lessees are and will remain the owners of the
Properties for such income tax purposes until the termination of the Master
Lease.
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Section 13.6 Indemnity Payments in Addition to Lease Obligations. The
Representative acknowledges and agrees that the Representative's obligations to
make indemnity payments under this Article XIII are separate from, in addition
to, and do not reduce, any Beverly Entity's obligation to pay any amounts owing
from time to time under the Lease.
Section 13.7 Eurodollar Rate Lending Unlawful. Notwithstanding any
other provision herein, if the adoption of or any change in any Requirement of
Law or in the interpretation or application thereof occurring after the
Documentation Date shall make it unlawful for any Participant to make, continue
or maintain Eurodollar Loans/Lessor Amounts as contemplated by the Operative
Documents, (i) such Participant shall promptly give written notice of such
circumstances to the Representative, the Lessor Agent and the Administrative
Agent (which notice shall be withdrawn whenever such circumstances no longer
exist), (ii) the commitment of such Lender or Lessor, as the case may be,
hereunder to make, continue or maintain Eurodollar Loans/Lessor Amounts shall
forthwith be canceled and, until such time as it shall no longer be unlawful for
such Participant to make, continue or maintain Eurodollar Loans/Lessor Amounts,
such Participant shall then have a commitment only to make or maintain Base Rate
Loans/Lessor Amounts when a Eurodollar Loans/Lessor Amounts is requested and (c)
such Participant's Loans and Lessor Amounts then outstanding as Eurodollar
Loans/Lessor Amounts, if any, shall be converted automatically to Base Rate
Loans/Lessor Amounts on the respective last days of the then current Interest
Periods with respect to such Loans and Lessor Amounts or within such earlier
period as required by law. If any such conversion of Eurodollar Loans/Lessor
Amounts occurs on a day which is not the last day of the then current Interest
Period with respect thereto, the Representative shall pay to such Participant
such amounts, if any, as may be required pursuant to Section 13.10. In any such
case, interest and principal (if any) shall be payable contemporaneously with
the related Eurodollar Loans/Lessor Amounts of the other Participants.
Section 13.8 Deposits Unavailable. If any of the Participants shall
have determined that:
(a) Dollar deposits in the relevant amount and for the
relevant Interest Period are not available to the Participant in its
relevant market; or
(b) by reason of circumstances affecting the Participant's
relevant market, adequate means do not exist for ascertaining the
interest rate or Yield, as the case may be, applicable to such
Participant's Eurodollar Loans/Lessor Amounts;
then, upon notice from such Participant to the Representative, the Lessor Agent,
the Administrative Agent and the other Participants, (x) the obligations of the
Participants
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to make or continue any Loans or Lessor Amounts as, or to convert any Loans or
Lessor Amounts into Eurodollar Loans/Lessor Amounts shall be suspended, and (y)
each outstanding Eurodollar Loan/Lessor Amount shall automatically convert into
a Base Rate Loan/Lessor Amount on the last day of the then current Interest
Period applicable thereto.
Section 13.9 Increased Costs, etc.
(a) If the adoption of or any change in a Requirement of Law or in the
interpretation or application thereof applicable to any Participant, or
compliance by any Participant with any request or directive (whether or not
having the force of law) from any central bank or other Governmental Authority,
in each case made subsequent to the Documentation Date (or, if later, the date
on which such Participant becomes a Participant):
(i) shall subject such Participant to any tax of any kind
whatsoever with respect to any Eurodollar Loans/Lessor Amounts made,
continued or maintained by it or its obligation to make, continue or
maintain Eurodollar Loans/Lessor Amounts, or change the basis of
taxation of payments to such Participant in respect thereof (except for
excluded Impositions, any changes in taxes measured by or imposed upon
the overall gross or net income, franchise or other taxes (imposed in
lieu of such net income tax), of such Participant or its applicable
lending office, branch, or any affiliate thereof); or
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of, Loans
and Lessor Amounts, loans or other extensions of credit by, or any
other acquisition of funds by, any office of such Participant which is
not otherwise included in the determination of the Adjusted Eurodollar
Rate hereunder; or
(iii) shall impose on such Participant any other condition
(excluding any Tax of any kind) whatsoever in connection with the
Operative Documents;
and the result of any of the foregoing is to increase the cost to such
Participant, by an amount which such Participant deems to be material, of
making, continuing or maintaining Eurodollar Loans/Lessor Amounts or to reduce
any amount receivable hereunder in respect thereof, then, in any such case, upon
notice to the Representative from such Participant, through the Administrative
Agent and/or the Agent Lessor, in accordance herewith, the Representative shall
pay such Participant any additional amounts necessary to compensate such
Participant for such increased cost or reduced amount receivable; provided that,
in any such case, the Representative may elect to
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convert the Eurodollar Loans/Lessor Amounts made by such Participant hereunder
to Base Rate Loans/Lessor Amounts by giving the Administrative Agent at least
one Business Day's notice of such election, in which case the Representative
shall promptly pay to such Participant, upon demand, without duplication, such
amounts, if any, as may be required pursuant to Section 13.10. All payments
required by this Section 13.9(a) shall be made by the Representative within 10
Business Days after demand by the affected Participant. The Representative shall
not be obligated to reimburse any Participant for any increased cost or reduced
return incurred more than 120 days after the date that such Participant receives
actual notice of such increased cost or reduced return unless such Participant
gives notice thereof to the Representative in accordance with this Section 13.9
during such 120 day period. If any Participant becomes entitled to claim any
additional amounts pursuant to this subsection, it shall provide prompt notice
thereof to the Representative, through the Administrative Agent and/or the Agent
Lessor, certifying (x) that one of the events described in this clause (a) has
occurred and describing in reasonable detail the nature of such event, (y) as to
the increased cost or reduced amount resulting from such event and (z) as to the
additional amount demanded by such Participant and a reasonably detailed
explanation of the calculation thereof (including the method by which such
Participant allocated such amounts to the applicable Lessee or Lessees). Such a
certificate as to any additional amounts payable pursuant to this clause
submitted by such Participant, through the Administrative Agent and/or the Agent
Lessor, to the Representative shall be conclusive in the absence of manifest
error. This covenant shall survive the termination of this Agreement and the
payment of the Loans and Lessor Amounts and all other amounts payable hereunder.
(b) Each Participant shall use its reasonable efforts to reduce or
eliminate any claim for compensation pursuant to this Section 13.9, including,
without limitation, a change in the office of such Participant at which its
obligations related to this Participation Agreement are maintained if such
change will avoid the need for, or reduce the amount of, such compensation and
will not, in the reasonable judgment of such Participant, be otherwise
disadvantageous to it. If any such claim for compensation shall not be
eliminated or waived, the Representative shall have the right to replace the
affected Participant with a new financial institution that shall succeed to the
rights of such Participant under this Participation Agreement; provided,
however, that such Participant shall not be replaced hereunder until it has been
paid in full such claim and all other amounts owed to it hereunder.
Section 13.10 Funding Losses. The Representative agrees to indemnify
each Indemnitee and to hold each Indemnitee harmless from any loss or expense
which such Indemnitee may sustain or incur (other than through such Person's own
gross negligence or willful misconduct) as a consequence of (a) default by any
Lessee in making a borrowing of, conversion into or continuation of Loans or
Lessor Amounts which are Eurodollar Loans/Lessor Amounts after such Lessee has
given a notice
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requesting the same in accordance with the provisions of this Participation
Agreement, (b) default by such Lessee in making any prepayment of a Loan or
Lessor Amounts which is a Eurodollar Loan/Lessor Amount after the Lessee has
given a notice thereof in accordance with the provisions of this Participation
Agreement, or (c) the making of a prepayment of Loans or Lessor Amounts which
are Eurodollar Loans/Lessor Amounts on a day which is not the last day of an
Interest Period with respect thereto. This covenant shall survive the
termination of this Participation Agreement or any other Operative Document and
the payment of the Loans, Lessor Amounts and all other amounts payable under the
Operative Documents.
Section 13.11 Capital Adequacy.
(a) If the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Participant with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, in each case made subsequent to the Documentation Date has or
will have the effect of reducing the rate of return on any Participant's or its
parent company's capital by an amount such Participant deems to be material, as
a consequence of its commitments or obligations hereunder to a level below that
which such Participant or its parent company could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration such
Participant's or its parent company's policies with respect to capital
adequacy), then, upon notice from such Participant, the Representative shall pay
to such Participant such additional amount or amounts as will compensate such
Participant and its parent company for such reduction (it being understood that
such parent company shall not be reimbursed to the extent its subsidiary
Participant is reimbursed by the Representative in connection with the same or a
similar law, rule, regulation, change, request or directive applicable to such
Participant). All payments required by this Section 13.11 shall be made by the
Representative within 10 Business Days after demand by the affected Participant.
The Representative shall not be obligated to reimburse any Participant for any
reduced return incurred more than 120 days after the date that such Participant
receives actual notice of such reduced return unless such Participant gives
notice thereof to the Representative in accordance with this Section 13.11
during such 120 day period. If any Participant becomes entitled to claim any
additional amounts pursuant to this clause, it shall provide prompt notice
thereof to the Representative, through the Administrative Agent and/or the Agent
Lessor, certifying (x) that one of the events described in this clause (a) has
occurred and describing in reasonable detail the nature of such event, (y) as to
the increased cost or reduced amount resulting from such event and (z) as to the
additional amount demanded by such Participant and a reasonably detailed
explanation of the calculation thereof (including the method
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by which such Participant allocated such amounts to the applicable Lessee or
Lessees). Such a certificate as to any additional amounts payable pursuant to
this clause submitted by such Participant, through the Administrative Agent
and/or the Agent Lessor, to the Representative shall be conclusive in the
absence of manifest error. This covenant shall survive the termination of this
Participation Agreement and the other Operative Documents and the payment of the
Loans, Lessor Amounts and all other amounts payable hereunder and thereunder.
(b) Each Participant shall use its commercially reasonable efforts to
reduce or eliminate any claim for compensation pursuant to this Section 13.11,
including, without limitation, a change in the office of such Participant at
which its obligations related to the Operative Documents are maintained if such
change will avoid the need for, or reduce the amount of, such compensation and
will not, in the reasonable judgment of such Participant, be otherwise
disadvantageous to it. If any such claim for compensation shall not be
eliminated or waived, the Representative shall have the right to replace the
affected Participant with a new financial institution that shall succeed to the
rights of such Participant under the Operative Documents; provided, however,
that such Participant shall not be replaced hereunder until it has been paid in
full such claim and all other amounts owed to it hereunder.
ARTICLE XIV
THE AGENT LESSOR
Section 14.1 Appointment and Authorization. Each Lessor irrevocably
appoints and authorizes Bank of Montreal Global Capital Solutions, Inc. as Agent
Lessor (in such capacity as Agent Lessor hereunder and under the other Operative
Documents, the "Agent Lessor") of such Lessor to enter into the Operative
Documents (including, without limitation, the Master Lease and each Lease
Supplement) on behalf of such Lessor and to act as specified herein and in the
other Operative Documents, and each such Lessor hereby authorizes the Agent
Lessor as agent for such Lessor, to take such action on its behalf under the
provisions of this Participation Agreement and the other Operative Documents and
to exercise such powers and perform such duties as are expressly delegated by
the terms hereof and thereof, together with such other powers as are reasonably
incidental thereto (including, without limitation, the execution and delivery
from time to time with the Lenders' unanimous consent of Lease Supplements,
Construction Agency Agreement Supplements, Assignment of Lease and Rent
Supplements and the various other documents, conveyances, terminations,
assignments and instruments contemplated herein to be delivered by the Agent
Lessor on behalf of the Lessors). Each action taken by the Agent Lessor under
any Operative Document shall be deemed to be on behalf of each the Lessors,
unless otherwise indicated. Notwithstanding any provision
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to the contrary elsewhere herein or in the other Operative Documents, the Agent
Lessor shall not have any duties or responsibilities, except those expressly set
forth herein and therein, or any fiduciary relationship with any Lessor, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Participation Agreement or any of the other
Operative Documents, or shall otherwise exist against the Agent Lessor.
Section 14.2 Delegation of Duties. The Agent Lessor may execute any of
its duties hereunder or under the other Operative Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent Lessor shall not be responsible for
the negligence or misconduct of any agents or attorneys in fact selected by it
with reasonable care.
Section 14.3 Agent Lessor and Affiliates. The Agent Lessor shall have
the same rights and powers under this Participation Agreement and under the
other Operative Documents as any other Lessor, and may exercise or refrain from
exercising the same as though it were not the Agent Lessor.
Section 14.4 Action by Agent Lessor. The obligations of the Agent
Lessor hereunder and under the other Operative Documents are only those
expressly set forth herein and therein. Without limiting the generality of the
foregoing, the Agent Lessor shall not be required to take any action with
respect to any Default or Event of Default, except as expressly provided herein
and in the other Operative Documents.
Section 14.5 Consultation with Experts. The Agent Lessor may consult
with legal counsel (who may be counsel for a Beverly Entity, a Participant, the
Administrative Agent, the Arranger or any Affiliate of any of them), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
Section 14.6 Exculpatory Provisions. Neither the Agent Lessor nor any
of its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be responsible for or have any duty to ascertain, inquire into or verify
(a) any statement, warranty or representation made in connection with the
Operative Documents; (b) the performance or observance of any of the covenants
or agreements of any Beverly Entity; (c) the satisfaction of any condition
precedent specified herein or in any other Operative Document; (d) the validity,
effectiveness or genuineness of any of the Operative Documents or any other
instrument or writing furnished in connection herewith or therewith; (e) the use
of the proceeds of the Advances; (f) the existence of any Default or Event of
Default; or (g) the properties, books or records of any Beverly Entity.
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Section 14.7 Reliance on Communications. The Agent Lessor shall be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to any
Beverly Entity, independent accountants and other experts selected by the Agent
Lessor with reasonable care). The Agent Lessor may deem and treat the
Participants as the owner of their respective interests hereunder and under the
other Operative Documents for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the Agent
Lessor in accordance with Section 12.1 of the Participation Agreement. The Agent
Lessor, acting in its capacity as Agent Lessor, shall be fully justified in
failing or refusing to take any action under this Participation Agreement or
under any of the other Operative Documents unless it shall first receive such
advice or concurrence of the Lessors as it deems appropriate or it shall first
be indemnified to its satisfaction by the Participants against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent Lessor shall in all cases be fully
protected in acting, or in refraining from acting, hereunder or under any of the
other Operative Documents in accordance with a request of the Lessors and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Participants (including their successors and assigns).
Section 14.8 Notice of Default. The Agent Lessor shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent Lessor has received notice from a Participant or a
Beverly Entity referring to the Operative Document, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Agent Lessor receives such a notice, the Agent Lessor shall give
prompt notice thereof to the Participants. The Agent Lessor shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Lessors.
Section 14.9 Non-Reliance on Agent Lessor and Other Participants. Each
Participant expressly acknowledges that neither the Agent Lessor (other than in
its role as Participant) nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates has made any representations or warranties to it
and that no act by the Agent Lessor or any affiliate thereof hereafter taken,
including any review of the affairs of any Beverly Entity, shall be deemed to
constitute any representation or warranty by the Agent Lessor to any
Participant. Each Participant represents to the Agent Lessor that it has,
independently and without reliance upon the Agent Lessor or any other
Participant, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions,
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prospects and creditworthiness of each Beverly Entity and made its own decision
to make its proportionate share of all Advances hereunder and under the other
Operative Documents and enter into this Participation Agreement and the other
Operative Documents. Each Participant also represents that it will,
independently and without reliance upon the Agent Lessor or any other
Participant, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Participation Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of each Beverly Entity. Except for notices,
reports and other documents expressly required to be furnished to the
Participants by the Agent Lessor hereunder, the Agent Lessor shall not have any
duty or responsibility to provide any Participant with any credit or other
information concerning the business, operations, assets, property, financial or
other conditions, prospects or creditworthiness of any Beverly Entity which may
come into the possession of the Agent Lessor or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
Section 14.10 Indemnification. The Lessors agree to indemnify the Agent
Lessor in its capacity as such (to the extent not reimbursed by the Beverly
Entities and without limiting the obligation of the Beverly Entities to do so),
ratably according to their respective Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Agent Lessor in
its capacity as such in any way relating to or arising out of this Participation
Agreement or the other Operative Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Agent Lessor under or in connection with
any of the foregoing; provided that no Lessor shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or willful misconduct of the Agent Lessor. If any indemnity
furnished to the Agent Lessor for any purpose shall, in the opinion of the Agent
Lessor, be insufficient or become impaired, the Agent Lessor may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished. The agreements in this
Section shall survive the payment in full of the Obligations and all other
amounts payable hereunder and under the other Operative Documents.
Section 14.11 Failure to Act. Except for action expressly required of
the Agent Lessor hereunder, the Agent Lessor shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall be indemnified
to its satisfaction by the
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Lessors against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action.
Section 14.12 Resignation and Removal. The Agent Lessor may resign at
any time upon at least 30 days' prior notice to the Representative and the
Participants, and may be removed as such at any time by vote of the Required
Lessors and notice to the retiring Agent Lessor, the Administrative Agent and
the Representative. In the Event of any such resignation or removal, the
Required Lessors shall as promptly as practicable (but with five Business Days'
prior written notice being given to the Representative) appoint a successor
Agent Lessor, provided that such successor Agent Lessor shall be approved by the
Administrative Agent, and, unless an Event of Default is continuing, be approved
by the Representative (which approval shall not be unreasonably withheld or
delayed) and, if the Representative has not responded within such five Business
Day period, the Representative shall be deemed to have approved such new Agent
Lessor. If no successor Agent Lessor shall have been so appointed and shall have
accepted such appointment within 30 days after either the retiring Agent
Lessor's giving of notice of resignation or the Required Lessors' vote to remove
the retiring Agent Lessor, then the retiring Agent Lessor may, on behalf of the
Lessors, appoint a successor Agent Lessor, which shall be a commercial bank
organized under the laws of the United States of America or of any State thereof
or under the laws of another country that is doing business in the United States
and having a combined capital, surplus and undivided profits of at least
$100,000,000, or a wholly owned subsidiary of such bank. Upon its acceptance of
its appointment, such successor Agent Lessor shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Agent Lessor, and the retiring Agent Lessor shall be discharged from all further
duties and obligations as Agent Lessor under this Participation Agreement and
under the other Operative Documents. After any retiring Agent Lessor's
resignation or removal hereunder as Agent Lessor, the provisions of this
Participation Agreement and of the other Operative Documents shall continue to
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent Lessor under this Participation Agreement. No resignation or
renewal of the Agent Lessor may become effective until a successor Agent Lessor
has been appointed as provided above.
Section 14.13 Distributions. The Agent Lessor shall, as promptly as
practicable, distribute to each Participant its appropriate portion, if any, of
payments received (in good, collected funds) by the Agent Lessor from the
Beverly Entities for the account of the Participants or of any such payments so
received for the account of such Participant.
Section 14.14 Rights of Each Beverly Entity. Except where a Beverly
Entity is expressly referenced in this Article XIV, (w) the Agent Lessor shall
act solely as agent of the Lessors and does not assume and shall not be deemed
to have assumed
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any obligation or relationship of agency or trust with or for any Beverly
Entity, (x) this Article XIV is for the benefit of the Agent Lessor and the
Participants only, (y) each Beverly Entity shall have no right to enforce any
part of this Article XIV and shall have no rights as third party beneficiary or
otherwise therein, and (z) this Article XIV may be amended by the approval of
Agent Lessor and the Required Participants, without any need to obtain the
approval of any Beverly Entity, provided no such amendment shall be permitted
without the consent of the Representative, which consent shall not be
unreasonably withheld. The Agent Lessor shall send the Representative a copy of
any such amendments.
ARTICLE XV
MISCELLANEOUS
Section 15.1 Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Documents, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Participation Agreement, the
transfer of any and all Property to the Agent Lessor, the construction of any
Improvements, any disposition of any interest of the Agent Lessor or any
Participant in any Property or any Improvements and the payment of the Notes and
any disposition thereof, and shall be and continue in effect notwithstanding any
investigation made by any party and the fact that any party may waive compliance
with any of the other terms, provisions or conditions of any of the Operative
Documents. Except as otherwise expressly set forth herein or in the other
Operative Documents, the indemnities of the parties provided for in the
Operative Documents shall survive the expiration or termination of any thereof.
Section 15.2 No Broker, etc. Each of the parties hereto represents to
the others that it has not retained or employed any broker, finder or financial
adviser (other than Capstar Partners, Inc.) to act on its behalf in connection
with this Participation Agreement or the transactions contemplated herein or in
the other Operative Documents nor has it authorized any broker, finder or
financial adviser (other than Capstar Partners, Inc.) retained or employed by
any other Person so to act. Any party which is in breach of this representation
shall indemnify and hold the other parties harmless from and against any
liability arising out of such breach of this representation.
Section 15.3 Notices. Unless otherwise specifically provided herein,
all notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be given in writing by United States mail, by nationally recognized
courier service, by hand or by facsimile, and any such notice shall become
effective (i) if
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delivered by United States mail, five (5) Business days after being deposited in
the mail, certified or registered with appropriate postage prepaid, (ii) if
delivered by a nationally recognized courier service, two (2) Business Days
after delivery to a nationally recognized courier service specifying overnight
delivery, (iii) if delivered by hand, when received or (iv) if delivered by
facsimile, when transmitted (upon electronic confirmation thereof), and shall be
directed to the address or facsimile number of such Person as indicated on
Schedule II. From time to time any party may designate a new address or
facsimile number for purposes of notice hereunder by written notice to each of
the other parties hereto in accordance with this Section.
Section 15.4 Counterparts. This Participation Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 15.5 Amendments, etc. Neither any Operative Document nor any of
the terms thereof may be terminated (except upon payment in full of the Lease
Balance or effective exercise and consummation of the Remarketing Option in
accordance with Article XX of the Master Lease and payment in full of all
amounts due in accordance therewith), amended, supplemented, waived or modified
without the written agreement or consent of each party thereto and, regardless
of whether the Lenders and the Lessors are parties thereto, the Required
Participants; provided, however, that:
(a) no such termination, amendment, supplement, waiver or
modification shall without written agreement or consent of each
Participant:
(i) modify any of the provisions of this Section
15.5, change the definition of "Required Participants" or
modify or waive any provision of any Operative Document
requiring action by the foregoing;
(ii) amend, modify, waive or supplement any of the
provisions of Section 2.5, 2.6 or 2.7 of the Loan Agreement;
(iii) reduce, modify, amend or waive any fees or
indemnities in favor of any Participant, including without
limitation amounts payable pursuant to Article XIII (except
that any Person may consent to any reduction, modification,
amendment or waiver of any indemnity payable to it);
(iv) modify, postpone, reduce or forgive, in whole or
in part, any payment of Rent (other than pursuant to the terms
of any
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Operative Document), any Loan or Lessor Amount, the Lease
Balance, the Loan Balance, Commitment Fees, amounts due
pursuant to Section 20.2 of the Master Lease, interest or
Yield (except that any Person may consent to any modification,
postponement, reduction or forgiveness of any payment of any
Commitment Fee payable to it) or, subject to subclause (iii)
above, any other amount payable under the Lease or this
Participation Agreement, or modify the definition or method of
calculation of Rent (other than pursuant to the terms of any
Operative Document), Loans or Lessor Amounts, Lease Balance,
Loan Balance, Commitment Fees, Commitment Fee Shortfall
Amounts, Shortfall Amount, Property Improvement Costs,
Estimated Improvement Costs, Participant Balance, or any other
definition which would affect the amounts to be advance or
which are payable under the Operative Documents;
(v) consent to any assignment of the Master Lease or
any Lease Supplement by any Lessee, releasing such Lessee from
its obligations in respect of the payments of Rent, Loan
Balance or Lease Balance or changing the absolute and
unconditional character of such obligations; or
(vi) consent to any change in clause (i) of the
definition of Unavailable Commitment Termination Date from
August 1, 1997; and
(b) no such termination, amendment, supplement, waiver or
modification that would increase the obligations of any Beverly Party
thereunder or deprive any Beverly Party of any of its rights thereunder
shall be effective against such Beverly Party without its written
agreement or consent.
Section 15.6 Headings, etc. The Table of Contents and headings of the
various Articles and Sections of this Participation Agreement are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
Section 15.7 Parties in Interest. Except as expressly provided herein,
none of the provisions of this Participation Agreement is intended for the
benefit of any Person except the parties hereto. No Beverly Entity shall assign
or transfer any of its rights or obligations under the Operative Documents
except in accordance with the terms and conditions thereof.
Section 15.8 GOVERNING LAW. THIS AGREEMENT AND THE OTHER OPERATIVE
DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER
SHALL BE
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CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
Section 15.9 Severability. Any provision of this Participation
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 15.10 Liability Limited.
(a) The parties hereto agree that except as specifically set forth
herein or in any other Operative Document, no Lessor shall have any personal
liability whatsoever to any Participant or their respective successors and
assigns for any claim based on or in respect hereof or any of the other
Operative Documents or arising in any way from the transactions contemplated
hereby or thereby and recourse, if any, shall be solely had against such
Lessor's interest in the Property; provided, however, that each Lessor shall be
liable in its individual capacity (a) for its own willful misconduct or gross
negligence, (b) breach of any of its representations, warranties or covenants
under the Operative Documents, or (c) for any Tax based on or measured by any
fees, commission or compensation received by it for acting as a Lessor as
contemplated by the Operative Documents. It is understood and agreed that,
except as provided in the preceding sentence: (i) no Lessor shall have any
personal liability under any of the Operative Documents as a result of acting
pursuant to and consistent with any of the Operative Documents; (ii) all
obligations of each Lessor to any Lender are solely nonrecourse obligations
except to the extent that such Lessor has received payment from others
(including, without limitation, obligations with respect to the Loans); and
(iii) all such personal liability of any Lessor is expressly waived and released
as a condition of, and as consideration for, the execution and delivery of the
Operative Documents by such Lessor.
(b) No Participant shall have any obligation to any other Participant
or to any Beverly Entity, the Lessors or the Lenders with respect to
transactions contemplated by the Operative Documents, except those obligations
of such Participant expressly set forth in the Operative Documents or except as
set forth in the instruments delivered in connection therewith, and no
Participant shall be liable for performance by any other party hereto of such
other party's obligations under the Operative Documents except as otherwise so
set forth.
Section 15.11 Further Assurances. The parties hereto shall promptly
cause to be taken, executed, acknowledged or delivered, at the sole expense of
the Representative, all such further acts, conveyances, documents and assurances
as the
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other parties may from time to time reasonably request in order to carry out and
preserve the security interests and liens (and the priority thereof) intended to
be created pursuant to this Participation Agreement, the other Operative
Documents, and the transactions thereunder (including, without limitation, the
preparation, execution and filing of any and all Uniform Commercial Code
financing statements and other filings or registrations which the parties hereto
may from time to time request to be filed or effected). The Representative, at
its own expense and without need of any prior request from any other party,
shall take such action as may be necessary (including any action specified in
the preceding sentence), or as so requested, in order to maintain and protect
all security interests provided for hereunder or under any other Operative
Document.
Section 15.12 SUBMISSION TO JURISDICTION. EACH PARTY HERETO HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS PARTICIPATION AGREEMENT OR ANY OF THE OTHER OPERATIVE
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 15.13 Setoff. The Lenders and the Lessors shall, upon the
occurrence of any Lease Event of Default or Construction Agency Event of
Default, have the right to appropriate and, subject to Section 4.7, apply to the
payment of any Beverly Entity's obligations under the Lease, the Construction
Agency Agreement and the other Operative Documents as security for the payment
of such obligations, any and all balances, credits, deposits, accounts or moneys
of such Beverly Entity then or thereafter maintained with any Lender or any
Lessor. The rights of the Lenders and the Lessors under this Section are in
addition to other rights and remedies (including other rights of setoff under
applicable law or otherwise) which such Person may have.
Section 15.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS PARTICIPATION AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY
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OF THE PARTIES HERETO. THE PARTIES HERETO HEREBY AGREE THAT THEY WILL NOT SEEK
TO CONSOLIDATE ANY SUCH LITIGATION WITH ANY OTHER LITIGATION IN WHICH A JURY
TRIAL HAS NOT OR CANNOT BE WAIVED. THE PROVISIONS OF THIS SECTION 15.14 HAVE
BEEN FULLY NEGOTIATED BY THE PARTIES HERETO AND SHALL BE SUBJECT TO NO
EXCEPTIONS. EACH BEVERLY ENTITY PARTY HERETO ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR EACH OF THE AGENT LESSOR, THE
ADMINISTRATIVE AGENT, THE ARRANGER AND EACH OF THE PARTICIPANTS ENTERING INTO
THIS PARTICIPATION AGREEMENT AND EACH SUCH OTHER OPERATIVE DOCUMENT.
Section 15.15 No Participant Responsible for Other Participants. The
obligations of each Participant under this Participation Agreement and the other
Operative Documents are several and not joint; and, in the event of a failure by
a Participant to perform any of its obligations hereunder or under any other
Operative Document, neither the Agent Lessor nor the Administrative Agent nor
any other Participant (other than the defaulting Participant) shall have any
liability as a consequence thereof.
Section 15.16 Each Lessor to Have an Undivided Interest. The Agent
Lessor hereby confirms that it is holding each Property on behalf of the
Lessors, each of which shall hold an undivided interest in the Property (and all
proceeds thereof), in each case such interest to be equal to the Commitment of
such Lessor relative to the aggregate amount of the Lessor Commitment of all
Lessors.
Section 15.17 Authority of Representative. Each of the Lessees hereby
appoints and designates (which appointment and designation is irrevocable and
coupled with an interest) Beverly Enterprises, Inc., as its attorney in fact and
legal representative (the "Representative") for the purposes of the Operative
Documents and all transactions contemplated thereby, and hereby authorizes each
Participant to conclusively rely on such designation. Each Lessee hereby
confirms that the Representative, acting alone, has sufficient power and
authority to bind such Lessee in respect of all matters contemplated by the
Operative Documents, and hereby agrees to indemnify and hold each Participant
harmless from and against any Claims it may suffer in relying on the
Representative as above indicated.
84
<PAGE> 91
IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
BEVERLY ENTERPRISES, INC., as
Representative, Construction Agent and
Parent Guarantor
By
----------------------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK
OF JAPAN, LTD., LOS ANGELES
AGENCY, as Arranger and as a Lender
By
----------------------------------------------
Name:
Title:
BANK OF MONTREAL GLOBAL
CAPITAL SOLUTIONS, INC.
By
----------------------------------------------
Name:
Title:
BANK OF MONTREAL, as Co-
Arranger, Administrative Agent and as
a Lender
By
----------------------------------------------
Name:
Title:
85
<PAGE> 92
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION as Documentation
Agent and as a Lender
By
--------------------------------------------
Name:
Title:
VANTAGE HEALTHCARE
CORPORATION, as Lessee and
Structural Guarantor
By
--------------------------------------------
Name:
Title:
PETERSEN HEALTH CARE, INC., as
Lessee and Structural Guarantor
By
--------------------------------------------
Name:
Title:
BEVERLY SAVANA CAY MANOR,
INC., as Lessee and Structural
Guarantor
By
--------------------------------------------
Name:
Title:
86
<PAGE> 93
BEVERLY ENTERPRISES -
GEORGIA, INC., as Lessee and
Structural Guarantor
By
--------------------------------------------
Name:
Title:
BEVERLY HEALTH AND
REHABILITATION SERVICES, INC.,
as Lessee and Structural Guarantor
By
--------------------------------------------
Name:
Title:
BEVERLY ENTERPRISES -
ARKANSAS, INC., as Lessee and
Structural Guarantor
By
--------------------------------------------
Name:
Title:
BEVERLY ENTERPRISES -
FLORIDA, INC., as Lessee and
Structural Guarantor
By
--------------------------------------------
Name:
Title:
87
<PAGE> 94
BEVERLY ENTERPRISES -
WASHINGTON, INC., as Lessee and
Structural Guarantor
By
--------------------------------------------
Name:
Title:
BEVERLY ENTERPRISES -
CALIFORNIA, INC., as Lessee and
Structural Guarantor
By
--------------------------------------------
Name:
Title:
88
<PAGE> 95
SCHEDULE I
TO PARTICIPATION AGREEMENT
COMMITMENTS
<TABLE>
<CAPTION>
COMMITMENT
PARTICIPANT COMMITMENT PERCENTAGE
- --------------------------------------------------------------------------------
<S> <C> <C>
LENDERS
LTCB $ 50,000,000 40%
Bank of Montreal $ 28,750,000 23%
Bank of America $ 25,000,000 20%
LESSORS
Bank of Montreal Global $ 21,250,000 17%
Capital Solutions, Inc.
TOTAL $125,000,000 100%
</TABLE>
I-1
<PAGE> 96
SCHEDULE II
TO PARTICIPATION AGREEMENT
Notice Information, Wire Instructions and Funding Offices
Representative, Construction Agent and Parent Guarantor
BEVERLY ENTERPRISES, INC.
5111 Rogers Avenue
Suite 40-A
Fort Smith, Arkansas 72919
Attention: Jack MacKenzie
Facsimile No.: (501) 452-2705
Wire Transfer Instructions:
Bank: Chase Manhattan Bank
ABA Number: 021-000-021
Account Name: Beverly Enterprises, Inc.
Account Number: 323-213448
Ref: Synthetic Lease Draws
Agent Lessor:
BANK OF MONTREAL GLOBAL CAPITAL SOLUTIONS, INC.
311 West Monroe
Chicago, IL 60603
Attention: Amy Szeto
Facsimile No.: (312) 461-2347
Wire Transfer Instructions:
Bank: Citibank N.A.
ABA Number: 021-000-089
Account Name: BMO Leasing
Account Number: 3602-3029
Ref: Beverly Enterprises
II-1
<PAGE> 97
Administrative Agent:
BANK OF MONTREAL
115 South LaSalle
Chicago, IL 60603
Attention: Sonya Taitt
Facsimile No.: (312) 750-4345
Wire Transfer Instructions:
Bank: Harris Bank
ABA Number: 071-000-288
Account Name: Bank of Montreal
Account Number: 124-8566
Ref: Beverly Enterprises
Lessors:
BANK OF MONTREAL GLOBAL CAPITAL SOLUTIONS, INC.
311 West Monroe
Chicago, IL 60603
Attention: Amy Szeto
Facsimile No.: (312) 461-2347
Wire Transfer Instructions:
Bank: Citibank N.A.
ABA Number: 021-000-089
Account Name: BMO Leasing
Account Number: 3602-3029
Ref: Beverly Enterprises
II-2
<PAGE> 98
Lenders:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY
Credit issues office:
The Long Term Credit Bank of Japan, Ltd.
Los Angeles Agency
350 South Grand Ave., Suite 3000
Los Angeles, California 90071
Attention: Koji Toriumi, Vice President
Facsimile No. (213) 687-3921
Funding office:
The Long-Term Credit Bank of Japan, Ltd.,
New York Branch
165 Broadway
48th Floor
New York, New York 10006
Attention: Bernadette McKenna, Assistant Manager
Facsimile No.: (215) 335-4998
Wire Transfer Instructions:
Bank: Chase Manhattan Bank, New York
ABA Number: 021000021
Name of Account: The Long-Term Credit Bank of Japan, Ltd., New York
Branch
Account Number: 544-7-75066
Ref: Beverly Enterprises, Inc./BMO Leasing
II-3
<PAGE> 99
BANK OF MONTREAL
115 South LaSalle
Chicago, IL 60603
Attention: Sonya Taitt
Facsimile No.: (312) 750-4345
Wire Transfer Instructions:
Bank: Harris Bank
ABA Number: 071-000-288
Account Name: Bank of Montreal
Account Number: 124-8566
Ref: Beverly Enterprises
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
Credit Contact:
Exact Name of Signing Officer: J. Gregory Seibly
Title of Signing Officer: Vice President
Bank Address:
555 S. Flower Street
11th Floor
Los Angeles, CA 90071
Back-up:
Beth Filipponi (213) 228-6379
Operations Contact:
Maria Borrayo
333 S. Beaudry Avenue
Los Angeles, CA 90017
Tel: (213) 345-7022
Fax: (213) 345-6550
Administration Contact:
Beth Filipponi
555 S. Flower Street, 11th Floor
Los Angeles, CA 90071
Tel: (213) 228-6379
Fax: (213) 228-2756
II-4
<PAGE> 100
Wire Instructions to your Bank:
Bank of America NT&SA
ABA # 1210-00358
Acct # 12331-83980
Re: Beverly/BMO Leasing
Attn: Maria Borrayo
Lessees and
Structural Guarantors:
c/o Beverly Enterprises, Inc.
II-5
<PAGE> 101
SCHEDULE III
TO PARTICIPATION AGREEMENT
Subsidiaries & Indebtedness
III
<PAGE> 102
SCHEDULE V
TO PARTICIPATION AGREEMENT
Existing Properties
Tampa (Hillsborough Co.), FL.
Marietta (Cobb Co.), GA.
Fort Myers (Lee Co.), FL
Lakeland (Polk Co.), FL.
Arkadelphia (Clark Co.), AR.
Larzo (Pinellas Co.), FL.
Murrieta (Riverside Co.), CA.
(Health & Rehab/Assisted Living)
Federal Way (King Co.), WA
El Dorado (Union Co.), AR.
Corporate Headquarters, Forth Smith, AR
Bradenton (Manatee Co.), FL.
Crestview (Okaloosa Co.), FL.
North Little Rock (Pulaski Co.), AR
V-II
<PAGE> 103
SCHEDULE IV
TO PARTICIPATION AGREEMENT
PRICING CATEGORY
For purposes of the Pricing Categories used in the definitions of "Loan
Margin" and "Lessor Margin", the following terms have the following meanings:
"Pricing Ratio" means the ratio of Consolidated EBITDAR to the sum of
Consolidated Interest Charges and Consolidated Rental Expense.
"Category I Pricing" applies on any day after March 31, 1997 if, as of
the last day of the fiscal quarter of the Representative most recently ended on
or prior to such day and as to which the Representative shall have delivered, or
been required to deliver, on or prior to such day a certificate pursuant to
Section 10.1(d)(iii), the Pricing Ratio is greater than 2.50 to 1.0.
"Category II Pricing" applies on any day after March 31, 1997 if, as of
the last day of the fiscal quarter of the Representative most recently ended on
or prior to such day and as to which the Representative shall have delivered, or
been required to deliver, on or prior to such day a certificate pursuant to
Section 10.1(d)(iii), (i) the Pricing Ratio is greater than 2.25 to 1.0 and (ii)
Category I Pricing does not apply.
"Category III Pricing" applies on any day if, as of the last day of the
fiscal quarter of the Representative most recently ended on or prior to such day
and as to which the Representative shall have delivered, or been required to
deliver, on or prior to such day a certificate pursuant to Section 10.1(d)(iii),
(i) the Pricing Ratio is greater than 2.00 to 1.0 and (ii) neither Category I
Pricing nor Category II Pricing applies.
"Category IV Pricing" applies on any day if, as of the last day of the
fiscal quarter of the Representative most recently ended on or prior to such day
and as to which the Representative shall have delivered, or been required to
deliver, on or prior to such day a certificate pursuant to Section 10.1(d)(iii),
(i) Pricing Ratio is greater than 1.75 to 1.0 and (ii) none of Category I
Pricing, Category II Pricing or Category III Pricing applies.
"Category V Pricing" applies on any day if, on such day, no other
Pricing Category applies.
"Pricing Category" means any one of the five pricing categories
denominated Category I Pricing, Category II Pricing, Category III Pricing,
Category IV Pricing or Category V Pricing.
IV-I
<PAGE> 104
SCHEDULE V
Additional Properties
New Beverly Headquarters
North Little Rock (Pulaski Co.) AR
Crestview (Okaloosa Co.) FL
Bradenton (Manatee Co.) FL
Callaway (Bay Co.) FL
V-I
<PAGE> 105
EXHIBIT A
TO PARTICIPATION AGREEMENT
FORM OF LEGAL OPINION OF REPRESENTATIVE,
LESSEES AND GUARANTORS(1)
SEE TABS 11 AND 12
- --------
(1)These opinions may be divided between Lessee's New York counsel with respect
to opinions 3, 9 and 10 and Lessee's general counsel with respect to all other
opinions.
A-I
<PAGE> 106
SCHEDULE A
A-II
<PAGE> 107
EXHIBIT B
TO PARTICIPATION AGREEMENT
FORM OF FUNDING REQUEST
(Date)
TO: Agent Lessor and the Administrative Agent, pursuant to the Amended and
Restated Participation Agreement (the "Participation Agreement") dated
as of August 28, 1998 among the Lessees, Representative, Construction
Agent, Parent Guarantor, the Structural Guarantors, the Agent Lessor,
the Lessors, the Lenders, the Administrative Agent, the Arranger and
the Co-Arranger as the same may be amended, supplemented, amended and
restated or otherwise modified from time to time (capitalized terms
used herein shall have the meanings ascribed thereto in the
Participation Agreement).
FROM: Beverly Enterprises, Inc., as Construction Agent
RE: [Funding Date][Acquisition Date] Closing
1. This irrevocable Funding Request is hereby delivered by Lessee pursuant
to Section 3.4(a) of the Participation Agreement.
2. The [Funding Date][Acquisition Date] is scheduled for _______________,
199_ [, and such date will also be an Acquisition Date].
3. The amount of the Advance is $__________________.
4. The Loans and Lessor Amounts comprising such Advance will be [Base Rate
Loans/Lessor Amounts][Eurodollar Loans/Lessor Amounts]. The initial
Interest Period for such Eurodollar Loans/Lessor Amounts will extend
from the [Funding Date] [Acquisition Date] to the next Scheduled
Payment Date.
5. The Advance will be allocated among each of the Properties listed in
Schedule I attached hereto. With respect to each acquisition of
Property, Schedule II specifies (i) a description of the Property, (ii)
the seller or lessor of the Property, (iii) the related Land
Acquisition Cost and (iv) the Estimated Improvement Costs.
6. After giving effect to the Advance requested hereby, the Property Cost
for each Property in respect of which the Advance is being drawn is set
forth on Schedule A hereto and such amount does not exceed the Fair
Market Sales Value for such Property as set forth in (i) the Improved
Property Appraisal, with respect to any Improved Property, therefor as
delivered pursuant to Section 6.1(d) of the
B-I
<PAGE> 108
Participation Agreement, and (ii) the As-Built Appraisal, with respect
to any other Property,". therefor as delivered pursuant to clause (i)
or (ii) of Section 6.2(b) of the Participation Agreement.
7. Funds shall be sent by wire transfer as follows:
a. Each Lessor and Lender shall transfer its Commitment
Percentage of $______________ to the following account of
Agent Lessor:
Bank:
ABA Number:
Account Name:
Account Number:
Ref:
Further Credit to:
[amount to be provided by Lessee]
b. Construction Agent hereby instructs Agent Lessor to distribute
the funds as follows:
[information to be provided by Construction Agent]
8. All of the costs being funded pursuant to this Funding Request relate
to the acquisition of Land and all Improvements thereon and to the
construction of such other Improvements subject to the Construction
Agency Agreement and all moneys advanced to Construction Agent pursuant
to this Funding Request relate to supplies purchaser for Construction
work actually performed on such Construction and will be applied by the
Construction Agent solely to the payment (or reimbursement) of such
costs and for no other purposes.
In connection with such requested Advance, the Construction Agent
hereby represents and warrants to you as follows:
a. On the proposed Funding Date or Acquisition Date, both
immediately before and after giving effect to the making of
the requested Advance and the application of the proceeds
thereof, the statements made by each Beverly Entity in Section
8 of the Participation Agreement are true and correct in all
material respects.
b. After giving effect to the Advance requested hereby (i) the
aggregate outstanding amounts of each of the Loans and the
Lessor Amounts to all Lessees does not exceed the Commitments
of the Lenders and the Lessors, respectively, (ii) in the case
of an acquisition of a fee simple interest or
B-II
<PAGE> 109
leasehold interest in the applicable Land, the Land
Acquisition Cost for such Property does not exceed the Fair
Market Sales Value of such Property as set forth in the
Appraisal of such Property delivered pursuant to Section
6.1(d) of the Participation Agreement and (iii) the total
amount advanced with respect to each Construction Period
Property is within the Construction Budget for such Property.
c. All of the conditions precedent set forth in Article VI of the
Participation Agreement applicable to the Advance requested
hereby have been satisfied or waived.
IN WITNESS WHEREOF, I have signed my name this ______ day of
_______, 199_.
BEVERLY ENTERPRISES, INC.,
as Construction Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
B-III
<PAGE> 110
SCHEDULE A TO FUNDING REQUEST
ALLOCATION OF ADVANCES
<TABLE>
<CAPTION>
Property Land Acquisition Improvement Costs
Description (City, Lease Supp. Costs (Current (Current Advance
State) No. Advance Only) Only)
<S> <C> <C> <C>
1._______ No. __ $________ $________
2._______ No. __ $________ $________
3._______ No. __ $________ $________
4._______ No. __ $________ $________
5._______ No. __ $________ $________
<CAPTION>
Aggregate Property As-Built Appraisal Land Acquisition
Cost (all Advances for Property as of Costs and
to date, including Completion Date Estimated
Current Advance) Improvement
Costs
<S> <C> <C>
1._______ $________ $________
2._______ $________ $________
3._______ $________ $________
4._______ $________ $________
5._______ $________ $________
</TABLE>
B-IV
<PAGE> 111
SCHEDULE B TO FUNDING REQUEST
INFORMATION REQUIRED
FOR FUNDING ACQUISITION OF LAND
1. Description of the subject Property:__________.
2. The subject Property consists of [Land only] [Land and
Improvements].
3. The Land comprising part of the subject Property is to be [ground
leased by the Lessors] [acquired by the Lessors in fee simple].
4. [name of Seller/Ground lessor] is the [Seller] [Ground lessor] of
the Land comprising part of the subject Property.
5. */Land Acquisition Cost for the subject Property: Indicated on
Schedule A.
6. Estimated Improvement Costs for the subject Property in the
aggregate are $_____________.
- --------
*/ Insert in the case of an acquisition of a fee simple interest in the
applicable Land.
B-V
<PAGE> 112
EXHIBIT C
TO PARTICIPATION AGREEMENT
FORM OF INTEREST PERIOD SELECTION/CONTINUATION/CONVERSION
NOTICE*/
Re:(Beverly Enterprises, Inc.)
TO: Agent Lessor and Administrative Agent
This Interest Period Selection/Continuation/Conversion Notice is delivered to
you pursuant to Section 3.6 of the Amended and Restated Participation Agreement
dated as of August 28, 1998 (the "Participation Agreement"), among the Lessees,
Representative, Construction Agent, Parent Guarantor, the Structural Guarantors,
the Agent Lessor, the Lessors, the Lenders, the Administrative Agent, the
Arranger and the Co-Arranger as the same may be amended, supplemented, amended
and restated or otherwise modified from time to time.
Beverly Enterprises, Inc. (the "Representative") hereby requests that
on _____ __, 19__, all or any portion of the presently outstanding principal
amount of the Loans and Lessor Amounts:
(1) which are presently [Base Rate Loans/Lessor Amounts] [Eurodollar
Loans/Lessor Amounts with an Interest Period ending on ______ __, 19__],
(2) be [continued as] [converted into],
(3) [Eurodollar Loans/Lessor Amounts having an Interest Period of ____
months].
Any and all capitalized terms used in this Notice for
Selection/Continuation/Conversion shall have the meaning ascribed thereto in the
Participation Agreement, unless specifically defined herein.
The Representative hereby certifies, represents and warrants that no
Default or Event of Default exists or will (after giving effect to the
selection, continuation or conversion requested hereby) exist.
- --------
*/ Subject to Section 3.6(b) of the Participation Agreement, this notice
is only applicable with respect to Loan and Lessor Amounts outstanding
during the Basic Lease Term.
C-I
<PAGE> 113
The Representative has caused this notice to be executed and delivered
by its Responsible Officer this _____ day of ______ __, 19__.
BEVERLY ENTERPRISES, INC.,
as Representative
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
C-II
<PAGE> 114
EXHIBIT D-1
TO PARTICIPATION AGREEMENT
FORM OF OFFICER'S CERTIFICATE
Pursuant to the Amended and Restated Participation Agreement dated as of August
28, 1998 (the "Participation Agreement") among the Lessees, Representative,
Construction Agent, Parent Guarantor, the Structural Guarantors, the Agent
Lessor, the Lessors, the Lenders, the Administrative Agent, the Arranger and the
Co- Arranger as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time. I, _______________, _______________ of
[Representative/Lessee], do hereby certify as follows (capitalized terms used
herein shall have the meanings ascribed thereto in the Participation Agreement):
(1) The representations and warranties of [Representative/Lessee] contained in
the Participation Agreement and other Operative Documents to which it is a party
are true, correct and complete on and as of the date hereof with the same effect
as if such representations and warranties had been made on and as of the date
hereof.
(2) [Representative/Lessee] has performed all agreements on its part required to
be performed under the Participation Agreement and the other Operative Documents
to which it is a party on or prior to the date hereof.
(3) There exists on the date hereof no Default or Event of Default.
IN WITNESS WHEREOF, I have signed my name this _____ day of _____________,
199__.
[REPRESENTATIVE/LESSEE]
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
D-1-I
<PAGE> 115
EXHIBIT D-2
TO PARTICIPATION AGREEMENT
FORM OF SECRETARY'S CERTIFICATE
The undersigned, _________________, [Assistant] Secretary of
[Representative/Lessee], a ______ corporation [("Representative/Lessee"],
pursuant to the Amended and Restated Participation Agreement dated as of August
28, 1998 (the "Participation Agreement") among the Representative, Construction
Agent, Parent Guarantor, the Structural Guarantors, the Agent Lessor, the
Lessors, the Lenders, the Administrative Agent, the Arranger and the Co-Arranger
as the same may be amended, supplemented, amended and restated or otherwise
modified from time to time, does hereby certify as follows (capitalized terms
used herein shall have the meanings ascribed thereto in the Participation
Agreement):
1. Attached hereto as Exhibit C are true, correct and complete copies
of all resolutions adopted by the [Board of Directors] (and shareholders) of
[Representative/Lessee] relating to the [Participation Agreement/Master Lease]
and the other Operative Documents to which [Representative/Lessee] is a party,
which resolutions have not been amended or rescinded and are in full force and
effect on the date hereof.
2. No proceeding for merger, consolidation, liquidation, reorganization
or dissolution of [Representative/Lessee] or the sale of all or substantially
all of its assets is pending or contemplated.
3. The following persons are on the date hereof duly qualified and
acting officers of [Representative/ Lessee], duly elected or appointed to the
offices set forth beside their respective names and signatures, and each such
person who, as an officer of [Representative/Lessee], signed the [Participation
Agreement/Master Lease], any of the other Operative Documents or any other
document delivered before or on the date hereof in connection with such
agreements and documents and the transactions contemplated therein was, at the
respective times of such signing and delivery, and is now duly elected or
appointed, qualified and acting as such officer, and the signatures of such
persons appearing on such documents are their genuine signatures:
D-2-I
<PAGE> 116
<TABLE>
<CAPTION>
NAME OFFICE SIGNATURE
- ---- ------ ---------
<S> <C> <C>
- ----------- ------------- ------------------------
- ----------- ------------- ------------------------
- ----------- ------------- ------------------------
</TABLE>
IN WITNESS WHEREOF, I have signed my name this _____ day of
_____________, 199__.
[REPRESENTATIVE/LESSEE]
By:
---------------------------------------
Name:
-------------------------------------
Title: [Assistant] Secretary
I, ___________________, [Vice] President of
[Representative/Lessee], hereby certify that ______________________ is on the
date hereof the duly elected, qualified and acting [Assistant] Secretary of
[Representative/Lessee], and that the signature set forth above is such person's
true and correct signature.
Dated: _________________, 199__
[REPRESENTATIVE/LESSEE]
By:
----------------------------------------
Name:
--------------------------------------
Title: [Vice] President
D-2-II
<PAGE> 117
EXHIBIT D-3
TO PARTICIPATION AGREEMENT
FORM OF RESPONSIBLE OFFICER'S CERTIFICATE
Pursuant to the Amended and Restated Participation Agreement dated
as of August 28, 1998, among the Lessees, Representative, Construction Agent,
Parent Guarantor, the Structural Guarantors, the Agent Lessor, the Lessors, the
Lenders, the Administrative Agent, the Arranger and the Co-Arranger as the same
may be amended, supplemented, amended and restated or otherwise modified from
time to time, I, [name of Responsible Officer], [position of Responsible
Officer] of Beverly Enterprises, Inc. (the "Representative"), do hereby certify
as follows (capitalized terms used herein shall have the meanings ascribed
thereto in the Participation Agreement):
1. The representations and warranties of each Beverly Entity
contained in the Participation Agreement and other Operative Documents to which
it is a party are true, correct and complete on and as of the date hereof with
the same effect as if such representations and warranties had been made on and
as of the date hereof.
2. Each Beverly Entity has performed all agreements on its part
required to be performed under the Participation Agreement and the other
Operative Documents to which it is a party on or prior to the date hereof.
3. Each Operative Document to which any Beverly Entity is a party
is in full force and effect with respect to it.
4. There exists on the date hereof no Default or Event of Default.
D-3-I
<PAGE> 118
IN WITNESS WHEREOF, I have signed my name this _____ day of
_______________ 199_ and certify that I am the [position of Responsible Officer]
of the Representative.
BEVERLY ENTERPRISES, INC.,
as Representative
By:
---------------------------
Name:
-------------------------
Title:
------------------------
D-3-II
<PAGE> 119
EXHIBIT E
TO PARTICIPATION AGREEMENT
FORM OF COMPLIANCE CERTIFICATE
TO: Agent Lessor, Administrative Agent, Lessors and Lenders
1. This Compliance Certificate is hereby delivered by the
Representative pursuant to Section 10.1(d)(iii)(B) of the Amended
and Restated Participation Agreement dated as of August 28, 1998,
among the Lessees, Representative, Construction Agent, Parent
Guarantor, the Structural Guarantors, the Agent Lessor, the
Lessors, the Lenders, the Administrative Agent, the Arranger and
the Co-Arranger as the same may be amended, supplemented, amended
and restated or otherwise modified from time to time (the
"Participation Agreement").
2. As described below, the Representative and each Lessee has been in
compliance during and at the end of such accounting periods covered
by the financial statements delivered pursuant to Sections
10.1(d)(i) and 10.1(d)(ii) of the Participation Agreement with the
restrictions contained in Section 10.2(a), Section 10.2(b), Section
10.2(c), clause v of Section 10.2(e), Section 10.2(f), Section
10.2(g), Section 10.2(i) and Section 10.2(1) of the Participation
Agreement.
[Representative to provide reasonable detail evidencing compliance with
aforementioned section references]
Any and all capitalized terms used in this Compliance Certificate
shall have the meaning ascribed thereto in the Participation Agreement, unless
specifically defined herein.
E-I
<PAGE> 120
IN WITNESS WHEREOF, I have signed my name this _____ day of
_______________ 199_.
BEVERLY ENTERPRISES, INC.,
as Representative
By:
---------------------------
Name:
-------------------------
Title:
------------------------
E-II
<PAGE> 121
EXHIBIT F
TO PARTICIPATION AGREEMENT
FORM OF ASSIGNMENT AGREEMENT
To: Beverly Enterprises, Inc.
Bank of Montreal Global Capital Solutions, Inc., as Agent Lessor
Reference is made to Section 12.1 of the Amended and Restated
Participation Agreement dated as of August 28, 1998, among the Lessees,
Representative, Construction Agent, Parent Guarantor, the Structural Guarantors,
the Agent Lessor, the Lessors, the Lenders, the Administrative Agent, the
Arranger and the Co-Arranger as the same may be amended, supplemented, amended
and restated or otherwise modified from time to time (the "Participation
Agreement"). Unless otherwise defined herein, capitalized terms used herein
shall have the meanings given thereto in the Participation Agreement.
[Name of assigning Participant] (the "Assignor") and [Name of
Eligible Lender Assignee/Eligible Lessor Assignee] hereby agree as follows:
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, a
[__]% interest in and to all the Assignor's rights and obligations under the
Operative Documents as of the Effective Date (as defined below) (including,
without limitation, such percentage interest in the [Lender][Lessor] Commitment
of the Assignor on the Effective Date and such percentage interest in each
[Loan][Lessor Amounts] owing to the Assignor outstanding on the Effective Date
together with such percentage interest in all unpaid [interest][Yield] and fees
(including those fees under Section 4.4 of the Participation Agreement) accrued
to the Effective Date).
2. The Assignor (a) represents and warrants that as of the date
hereof its [Lender][Lessor] Commitment (without giving effect to assignments
thereof which have not yet become effective) is $[_______], and the outstanding
aggregate principal balance of its [Loans][Lessor Amounts] (without giving
effect to assignments thereof which have not yet become effective) is $[_______]
and (b) makes no representation or warranty and assumes no responsibility (i)
with respect to any statements, warranties or representations made in or in
connection with any Operative Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Operative Document or
any other instrument or document furnished thereunder or pursuant thereto,
except that it represents and warrants that it is the legal and beneficial owner
of the interests being assigned by it hereunder and that such interests are free
and clear of adverse claims, and (ii) with respect to the financial position of
the Representative, Lessee or any Guarantor or the performance or observance by
the Representative, any Lessee or any Guarantor of any of their
F-I
<PAGE> 122
respective obligations under any Operative Document or any other instrument or
document furnished thereunder or pursuant thereto.
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment Agreement; (b) confirms that it has
received a copy of each of the Participation Agreement, Lease, Construction
Agency Agreement and Loan Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 10.1(d) of the Participation
Agreement and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment
Agreement; (c) agrees that it will, independently and without reliance upon the
Administrative Agent, the Agent Lessor, the Assignor or any other Participant
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under any Operative Document; (d) appoints and authorizes the Administrative
Agent and the Agent Lessor, as applicable, to take such action on its behalf and
to exercise such powers under the Operative Documents as are delegated to the
Administrative Agent and the Agent Lessor, as applicable, by the terms thereof,
together with such powers as are reasonably incidental thereto; and (e) agrees
that it will perform in accordance with its terms all the obligations which by
the terms of the Operative Documents are required to be performed by it as a
Participant.
4. From and after the Effective Date (a) the Assignee shall be
party to and be bound by the provisions of the Operative Documents as a
[Lender][Lessor] and, to the extent of its interests assigned by this Assignment
Agreement, have the rights and obligations of a ["Lender"] ["Lessor"] and as a
"Participant" thereunder and (b) the Assignor shall, to the extent of its
interests assigned by this Assignment Agreement, relinquish its rights and be
released from its obligations under the Operative Documents.
5. This Assignment Agreement will be delivered to each of the
Administrative Agent and the Agent Lessor together with a transfer fee of $2,500
payable by the Assignor or the Assignee to the Administrative Agent for its own
account.
[6. The Assignor shall surrender to the Administrative Agent its
Note or Notes representing the Assignor's interest in and to all the Assignor's
rights and obligations under the Operative Documents, and the Administrative
Agent will (upon execution and delivery thereof by the Representative) promptly
provide to the Assignor and the Assignee separate promissory notes in the amount
of their respective interests substantially in the form of the original Note
(each such note with
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<PAGE> 123
a notation thereon that it is given in substitution for and replacement of the
original Note or any replacement notes thereof).]*
7. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8. The effective date of this Assignment Agreement shall be ______
__, 19__ (the "Effective Date").
[THIS SPACE INTENTIONALLY LEFT BLANK]
- --------
* This Section to apply only if the Assignor is a Lender.
F-III
<PAGE> 124
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed and delivered by their respective duly authorized
officers as of the date first written above.
Adjusted Commitment [__________________],
as Assignor
Commitment to make Loans:
$
---------
Commitment Percentage: ___% By:
---------------------------
Name:
----------------------
Commitment to advance Title:
Lessor Amounts: ---------------------
$
---------
Commitment Percentage: ___%
Commitment
Commitment to make Loans: [__________________],
$
--------- as Assignee
Commitment Percentage: ___%
Commitment to advance By:
Lessor Amounts: ---------------------------
$ Name:
------- ----------------------
Commitment Percentage: ___% Title:
---------------------
F-IV
<PAGE> 125
Agreed to and Accepted:
BEVERLY ENTERPRISES, INC.,
as Representative
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BANK OF MONTREAL
as Administrative Agent
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BANK OF MONTREAL GLOBAL CAPITAL SOLUTIONS, INC.,
as Agent Lessor
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
F-V
<PAGE> 126
EXHIBIT G
TO PARTICIPATION AGREEMENT
FORM OF LEGAL OPINION OF LOCAL COUNSEL TO LESSEE
[Letterhead of Local Counsel]
___________________, 19___
TO: Bank of Montreal Global Capital Solutions, Inc.
Bank of Montreal
The Long-Term Credit Bank of Japan, Ltd., Los Angeles Agency
Bank of America National Trust and Savings Association
Re: Beverly Enterprises, Inc.
Ladies and Gentlemen:
We have acted as special ___________________ counsel to
_______________, a ____________ corporation (together with its permitted
successors and assigns, the "Company") in connection with the transactions
contemplated by the Amended and Restated Participation Agreement dated as of
August 28, 1998 (the "Participation Agreement"), entered into by and among the
Lessees, Representative, Construction Agent, Parent Guarantor, the Structural
Guarantors, the Agent Lessor, the Lessors, the Lenders, the Administrative
Agent, the Arranger and the Co-Arranger.
Capitalized terms used but not otherwise defined herein have the
respective meanings specified in Appendix A to the Participation Agreement.
This opinion is being furnished to you at the request of [Lessee]
(the "Lessee") pursuant to Section 6.1(s) of the Participation Agreement.
In connection with the opinions contained herein, we have examined
and are familiar with originals of or copies identified to our satisfaction of
the documents listed on Schedule I attached hereto (the "Subject Documents"). In
addition, we have
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<PAGE> 127
examined and are familiar with such legal matters as we have deemed necessary
for the purpose of rendering this opinion.
In rendering this opinion we have assumed: (a) the genuineness of
the signatures on all documents and instruments and the authenticity of all
documents submitted as originals, and the conformity to originals of all
documents submitted as photostatic or certified copies; (b) that each of the
parties to the Subject Documents has all the legal capacity, power and authority
required for it to enter into the Subject Documents to which it is a party, and
to perform its respective obligations thereunder; (c) that all such matters have
received any corporate or other authorization required by any applicable
charter, by-law, law or regulation; (d) the due execution and delivery of the
Subject Documents by each of the parties thereto; and (e) that there are no
agreements between any parties which would alter the agreements set forth in the
Subject Documents. To the extent that the assumptions in clauses (b) and (c)
relate to any laws or regulations, such assumptions relate only to those laws
and regulations as to which we are not opining herein.
Based upon the foregoing, we are of the opinion that:
1. Neither Bank of Montreal Global Capital Solutions, Inc. nor any
Participant is required under the laws of the State of ____________ (the
"State") to qualify as a foreign corporation or otherwise in the State solely as
a result of its execution, delivery and performance of the Subject Documents to
which it is a party.
2. Title to the Property situated in the State may be held in the
name of the Agent Lessor as follows: Bank of Montreal Global Capital Solutions,
Inc., as Agent Lessor under the Amended and Restated Master Lease and Open End
Mortgage dated as of August 28, 1998, among Bank of Montreal Global Capital
Solutions, Inc., as Agent Lessor, Beverly Enterprises, Inc., as Representative
and the various Lessees identified therein.
3. To the extent local law is applicable to the Subject Documents,
each of the Subject Documents delivered on the Acquisition Date for the related
Property situated in the State or previously delivered constitutes the legal,
valid and binding obligation of the parties thereto enforceable against each
such party in accordance with the terms thereof, except as such enforceability
may be limited by applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and by general equitable principles.
[4. The [Deed] [Ground Lease] delivered on the Acquisition Date for
the related Property situated in the State is in form sufficient under the laws
of the State to convey all interests in the property described therein intended
to be conveyed thereby, and such instrument, when filed or recorded with
_______________________ (the "Recording Office") will have been filed or
recorded in the appropriate public offices in the State in which such filing or
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<PAGE> 128
recording is necessary to convey valid title to the property described therein
to the Agent Lessor.
5. The Subject Documents create rights in the Agent Lessor for the
ratable benefit of all Participants, and the Agent Lessor has the power to
exercise remedies granted to it by the Subject Documents without naming the
other Participants.
6. No registration, filing or qualification is required to permit
the Agent Lessor to exercise remedies in the State under the Lease, and the
validity and enforceability of the Lease will not be affected by any failure of
the Agent Lessor to qualify.
7. If the transactions contemplated by the Master Lease and Lease
Supplement No. __ (the "Subject Lease Supplement") delivered on the Acquisition
Date for the related Property situated in the State are characterized as a lease
transaction, the Master Lease and the Subject Lease Supplement are in form
sufficient under the laws of the State to demise to the Lessee a valid leasehold
interest in such Property. The Subject Lease Supplement, when recorded with the
Recording Office, will have been filed or recorded in all public offices in the
State in which such filing or recording is necessary to provide constructive
notice of the Subject Lease Supplement to third Persons and to establish of
record the interest of the Agent Lessor thereunder.
8. If the transactions as provided for in the Master Lease and the
Subject Lease Supplement are characterized as a loan transaction:
a. Section 6 of the Subject Lease Supplement is
effective to create a power of sale in favor of the Lessee.
b. The Master Lease and the Subject Lease Supplement
are in form sufficient under the laws of the State to create a
valid lien or security interest, in favor of the Agent Lessor and
to secure all the obligations of the Lessee under the Operative
Documents, including future Advances, in the Property situated in
the State described therein. The Subject Lease Supplement, when
recorded with the Recording Office, will have been filed or
recorded in all public offices in the State in which such filing or
recording is necessary to perfect the lien of the Agent Lessor
thereunder to the extent that such Property situated in the State
constitutes real estate. The Master Lease and the Subject Lease
Supplement each provide the Agent Lessor with all remedies
customarily obtained by lenders in the State in connection with the
type of loan and security provided thereby. [There is no "one form
of action" or similar rule limiting
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<PAGE> 129
the remedies available for the enforcement of the Lease. There is
no limitation on remedies resulting from the exercise of remedies
against any leased property located outside the State.]*
9. The Assignment of Lease and Rent and the Supplement to the
Assignment of Lease and Rent delivered on the Acquisition Date for the related
Property situated in the State are in form sufficient under the laws of the
State to create valid liens or security interests in favor of the Lenders in the
collateral described therein, and when recorded with the Recording Office, will
have been filed or recorded in all public offices in the State in which such
filing or recording is necessary to perfect the lien of the Lenders thereunder
to the extent that such collateral constitutes real estate. The Assignment of
Lease and Rent and the Supplement to the Assignment of Lease and Rent delivered
on the Acquisition Date for the related Property situated in the State provide
the Lenders with all remedies customarily obtained by lenders in the State in
connection with the type of loan and security provided for by the Loan
Agreement.
10. The law (statutory or otherwise) of the State does not require
a lienholder to make an election of remedies where such lienholder holds
security interests and liens on both the real and the personal property of a
debtor or to take recourse first or solely against or otherwise exhaust its
remedies against its collateral before otherwise proceeding to enforce against
such debtor the obligations of such debtor.
11. The UCC Financing Statements which are to be recorded or filed
within the State, the forms of which are attached as Schedule II hereto, are in
form sufficient under the laws of the State for filing or recording, and when
recorded with the Recording Office and the ____________ Secretary of State will
have been filed or recorded in all public offices in the State in which such
filing or recording is necessary to perfect the interest of the Agent Lessor in
the collateral described therein to the extent the same can be perfected by
filing or recording in the State.
12. Neither the execution and delivery of the Subject Documents,
nor the fulfillment of or the compliance with the provisions thereof by the
Agent Lessor results in a violation of, or contravenes any State statute, law,
rule, code, ordinance or regulation to which the Agent Lessor is subject.
13. Except for the filings and recordings described above, no
approval, consent, or withholding of objection on the part of, or filing or
registration with, any governmental authority or regulatory body in the State is
required to be made or taken in the State to establish, protect and preserve
title to, interests in, liens on and security interests in the Property as
contemplated by the Subject Documents, except for UCC continuation statements.
- --------
* Bracketed language to be replaced in opinions from California.
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<PAGE> 130
14. Subject to the following sentence and except for federal, state
and local franchise, withholding and income taxes, no taxes, fees or other
charges imposed by the State, ___________ County or any other local governmental
entity are payable by the Agent Lessor or the Lenders solely as a result of the
execution, delivery, recordation or filing (where applicable) of the Subject
Documents and all other instruments delivered in connection with the
transactions contemplated thereby (except for nominal filing or recording fees
payable at the time of filing or recording).
15. Under the laws of the State and local jurisdictions therein,
there are no statutory or regulatory requirements relating to the transfer of
ownership or operation, sale or foreclosure of the Property situated in the
State which require notification of the State or the local jurisdiction of such
transfer, sale or foreclosure, certification that there has been no discharge of
Hazardous Materials or other substances.
16. The courts of the State would recognize the choice of New York
law as to all matters of construction, validity and performance of the Operative
Documents (excluding the lease documents which are governed by the internal laws
of any other jurisdiction). The lease documents that are governed by the laws of
the State are enforceable under the laws of the State.
We are members of the Bar of the State. The opinions expressed
herein are limited exclusively to the laws of the State and the rules and
regulations, if any, under each of said laws. Certain of the Subject Documents
purport to be governed by laws of states other than the State. With your
permission, we have assumed for the purposes of this opinion (contrary to the
express provisions thereof) that such agreements would be governed by and
construed and interpreted in accordance with the laws of the State.
Very truly yours,
--------------------------
G-V
<PAGE> 131
SCHEDULE I
List of Subject Documents
1. Master Lease
2. Lease Supplement No. __
3. [Deed] [Ground Lease] dated as of _______ __, 19___, from ____________,
as [grantor] [landlord], to Bank of Montreal Global Capital Solutions,
Inc., as Lessor Agent
4. Construction Agency Agreement
5. Supplement No. __ to Construction Agency Agreement
6. Assignment of Lease and Rent
7. Construction Agency Agreement Assignment
8. Supplement No. __ to Assignment of Lease and Rent
9. UCC financing statements described on Schedule II hereto
10. Construction Documents Assignment
11. Participation Agreement
12. Loan Agreement
13. Structural Guaranty
14. Guaranty
<PAGE> 132
SCHEDULE II
UCC Financing Statements
[Attach Forms of UCC Financing Statements]
<PAGE> 133
EXHIBIT H
TO PARTICIPATION AGREEMENT
FORM OF COMPLETION CERTIFICATE
TO: Agent Lessor, Administrative Agent, Lessors and Lenders pursuant to the
Amended and Restated Participation Agreement (the "Participation
Agreement") dated as of August 28, 1998 among the Lessees,
Representative, Construction Agent, Parent Guarantor, the Structural
Guarantors, the Agent Lessor, the Lessors, the Lenders, the
Administrative Agent, the Arranger and the Co-Arranger as the same may
be amended, supplemented, amended and restated or otherwise modified
from time to time (capitalized terms used herein shall have the
meanings ascribed thereto in the Participation Agreement).
With respect to the Property that is subject to Lease Supplement No. ___, the
Construction Agent certifies to each of you, as of _____, 19__, as follows:
1. The construction of Improvements, the identification of and assistance
with the acquisition of Land, and the construction of Improvements on
such Land have been completed in all material respects in accordance
with the applicable Plans and Specifications, the Construction Agency
Agreement and the other Operative Documents, and in compliance in all
material respects with all Requirements of Law and Insurance
Requirements and in all material respects with all information,
requirements and assumptions used in delivering the As-Built Appraisal
with respect to such Property.
2. The Property is ready for occupancy and operation in accordance with
the Plans and Specifications therefor, as evidenced by the issuance by
the appropriate Governmental Authority of a permanent certificate of
occupancy for all of the Improvements contemplated by the Plans and
Specifications for such Property and all applicable Governmental Action
has been taken;
3. The Property is subject to and governed by all of the provisions of the
Master Lease and the other Operative Documents.
4. The representations and warranties set forth in Section 8.2 and 8.3 of
the Participation Agreement (other than any representations and
warranties made only as of a specific date, each of which was true and
correct as of the date when made) are true and correct as of the date
hereof as if such representations and warranties were set forth herein
in full.
5. The aggregate Property Cost for the Property is $______. $______ of the
Property Cost is allocable to Improvement Costs.*
--------
* These amounts may be adjusted by a supplement to this certificate
reflecting any adjustments required by the final amounts described in
Item 6 hereof.
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<PAGE> 134
6. Substantially all amounts owing to third parties for the Construction
of the Improvements on the Property have been paid in full. We estimate
that $__________ remain to be paid to subcontractors and that such
amount has been included in Item 5.
7. No changes or modifications were made to the Plans and Specifications
relating to the Property after the related Acquisition Date that have
had a Material Adverse Effect on the value, use or useful life of the
Property.
H-II
<PAGE> 1
EXHIBIT 10.38
CONFORMED COPY
$375,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
April 30, 1998
among
BEVERLY ENTERPRISES, INC.
The BANKS Listed Herein
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Issuing Bank,
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Agent
<PAGE> 2
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions......................................................................2
SECTION 1.02. Accounting Terms and Determinations.............................................18
SECTION 1.03. Types of Loans and Borrowings...................................................18
ARTICLE 2
THE CREDITS
SECTION 2.01. The Loans.......................................................................18
SECTION 2.02. Notice of Borrowing.............................................................19
SECTION 2.03. Notice to Banks; Funding of Loans...............................................19
SECTION 2.04. Notes...........................................................................20
SECTION 2.05. Maturity of Loans...............................................................21
SECTION 2.06. Interest Rates..................................................................21
SECTION 2.07. Letters of Credit...............................................................25
SECTION 2.08. Fees............................................................................30
SECTION 2.09. Optional Termination or Reduction of Commitments................................31
SECTION 2.10. Mandatory Termination of Commitments............................................31
SECTION 2.11. Method of Electing Interest Rates...............................................31
SECTION 2.12. Optional Prepayments............................................................33
SECTION 2.13. General Provisions as to Payments...............................................33
SECTION 2.14. Funding Losses..................................................................34
SECTION 2.15. Computation of Interest, Fees and Commissions...................................35
SECTION 2.16. Withholding Tax Exemption.......................................................35
SECTION 2.17. Maximum Interest Rate...........................................................35
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness...................................................................36
SECTION 3.02. Borrowings and Letter of Credit Issuances.......................................37
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power...................................................38
SECTION 4.02. Corporate and Governmental Authorization; No Contravention......................39
SECTION 4.03. Binding Effect..................................................................39
SECTION 4.04. Financial Information; Valuations...............................................39
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SECTION 4.05. Litigation......................................................................39
SECTION 4.06. Compliance with ERISA...........................................................40
SECTION 4.07. Environmental Matters...........................................................40
SECTION 4.08. Taxes...........................................................................40
SECTION 4.09. Title to and Condition of Properties............................................41
SECTION 4.10. Not an Investment Company.......................................................41
SECTION 4.11. Full Disclosure.................................................................41
SECTION 4.12. Representations in Subsidiary Guaranty..........................................41
SECTION 4.13. Existing Letters of Credit......................................................41
ARTICLE 5
COVENANTS
SECTION 5.01. Information.....................................................................42
SECTION 5.02. Maintenance of Property; Insurance..............................................44
SECTION 5.03. Compliance with Laws............................................................44
SECTION 5.04. Inspection of Property, Books and Records.......................................45
SECTION 5.05. Minimum Consolidated Net Worth..................................................45
SECTION 5.06. Fixed Charge Coverage Ratio.....................................................45
SECTION 5.07. Leverage Ratio..................................................................46
SECTION 5.08. Ownership of Stock of Wholly-Owned Subsidiaries.................................46
SECTION 5.09. Investments.....................................................................46
SECTION 5.10. Restricted Payments on Stock....................................................48
SECTION 5.11. Negative Pledge.................................................................49
SECTION 5.12. Consolidations, Mergers and Sales of Assets.....................................51
SECTION 5.13. Incurrence of Debt..............................................................52
SECTION 5.14. Use of Proceeds and Letters of Credit...........................................53
SECTION 5.15. Additional Subsidiary Guarantors................................................53
SECTION 5.16. Lease Conversions...............................................................54
SECTION 5.17. Transactions with Affiliates....................................................54
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Defaults..............................................................54
SECTION 6.02. Notice of Default...............................................................58
ARTICLE 7
THE AGENT
SECTION 7.01. Appointment and Authorizations..................................................58
SECTION 7.02. Agent and Affiliates............................................................58
SECTION 7.03. Action by Agent.................................................................58
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SECTION 7.04. Consultation with Experts.......................................................59
SECTION 7.05. Liability of Agent..............................................................59
SECTION 7.06. Indemnification.................................................................59
SECTION 7.07. Credit Decision.................................................................59
SECTION 7.08. Successor Agent.................................................................59
SECTION 7.09. Agent's Fee.....................................................................60
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair........................60
SECTION 8.02. Illegality......................................................................61
SECTION 8.03. Increased Cost and Reduced Return...............................................61
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed Rate Loans.......................64
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices.........................................................................64
SECTION 9.02. No Waivers......................................................................65
SECTION 9.03. Expenses; Documentary Taxes; Indemnification....................................65
SECTION 9.04. Sharing of Set-Offs.............................................................66
SECTION 9.05. Amendments and Waivers..........................................................66
SECTION 9.06. Successors and Assigns..........................................................67
SECTION 9.07. Margin Stock....................................................................68
SECTION 9.08. GOVERNING LAW; SUBMISSION TO JURISDICTION.......................................69
SECTION 9.09. Consent to Execution and Delivery of Certain Financing Documents; Release of
Existing Collateral............................................................69
SECTION 9.10. Counterparts; Integration.......................................................69
SECTION 9.11. Confidentiality.................................................................69
SECTION 9.12. WAIVER OF JURY TRIAL............................................................70
</TABLE>
iii
<PAGE> 5
Schedule I - Pricing Schedule
Schedule II - Commitment Schedule
Schedule III - Existing Subsidiary Debt
Schedule IV - Subsidiaries of the Borrower
Exhibit A Note
Exhibit B Form of Subsidiary Guaranty
Exhibit C Form of Assignment and Assumption Agreement
iv
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT
AGREEMENT dated as of April 30, 1998 among BEVERLY ENTERPRISES, INC.
(with its successors, the "BORROWER"), a Delaware corporation, the BANKS listed
on the signature pages hereof, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Issuing Bank (with its successors in such capacity, the "ISSUING BANK"), and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (with its successors in
such capacity, the "AGENT"), amending and restating the Amended and Restated
Credit Agreement dated as of August 20, 1997 (the "EXISTING CREDIT AGREEMENT")
among the Borrower, the banks listed on the signature pages thereof and Morgan
Guaranty Trust Company of New York, as issuing bank and as agent.
WHEREAS, a Delaware corporation then known as Beverly Enterprises,
Inc. (the "FORMER BORROWER") entered into an Amended and Restated Credit
Agreement (the "ORIGINAL CREDIT AGREEMENT") dated as of December 20, 1996 among
the Former Borrower, the banks listed on the signature pages thereof, the
Issuing Bank and the Agent;
WHEREAS, pursuant to an Amended and Restated Credit Agreement dated as
of August 20, 1997 among the Former Borrower, the banks listed on the signature
pages thereof, the Issuing Bank and the Agent, the Original Credit Agreement
was amended and restated as set forth therein (the Original Credit Agreement,
as so amended and restated, the "EXISTING CREDIT AGREEMENT");
WHEREAS, pursuant to the Existing Credit Agreement, an Assumption
Agreement dated as of December 3, 1997 by the Borrower for the benefit of the
Agent, the Issuing Bank and the banks under the Existing Credit Agreement and a
New Pledge Agreement dated as of December 3, 1997 among the Borrower, Beverly
Health & Rehabilitation Services, Inc. ("BH&RS") and the Agent, the Borrower
assumed all of the obligations of the Former Borrower under the Existing Credit
Agreement, the Former Borrower and certain of its Subsidiaries were released
from all of their obligations under the Existing Credit Agreement and the
related Financing Documents (as defined in the Existing Credit Agreement), the
pledge by the Former Borrower and certain of its Subsidiaries of the capital
stock of certain of their Subsidiaries was released and BH&RS pledged the
capital stock of certain of its Subsidiaries to secure its obligations under
the Financing Documents (as so defined);
WHEREAS, the Borrower has requested that certain provisions of the
Existing Credit Agreement be amended, and the Banks, the Issuing Bank and the
Agent have agreed to such amendments, subject to the satisfaction of the terms
<PAGE> 7
and conditions set forth herein, which amendments shall become effective only
at such time as this Agreement becomes effective in accordance with Section
3.01;
WHEREAS, the parties have agreed that, upon the effectiveness of this
Agreement, any outstanding Loans made pursuant to the Existing Credit Agreement
shall constitute outstanding Loans hereunder and shall be governed by the terms
and conditions of this Agreement;
WHEREAS, the parties have agreed that, upon the effectiveness of this
Agreement, any outstanding "LETTERS OF CREDIT" issued or outstanding under the
Existing Credit Agreement shall constitute "LETTERS OF CREDIT" hereunder and
shall be governed by the terms and conditions of this Agreement; and
WHEREAS, in order to set forth in one document, for the convenience of
the parties, the text of the Existing Credit Agreement as amended by the
amendments to be made upon the effectiveness hereof, the Existing Credit
Agreement will upon satisfaction of the conditions set forth in Section 3.01
hereof, be amended and restated to read in full as set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"ADJUSTED CD RATE" has the meaning set forth in Section 2.06(b).
"ADJUSTED CONSOLIDATED DEBT" means at any date the sum, without
duplication, of (i) all liabilities of the Borrower and its Subsidiaries at
such date of the types classified as "current liabilities: short-term
borrowings", "current liabilities: current portion of long-term obligations"
and "long-term obligations" on the consolidated balance sheet included in the
Base Financials, (ii) all guarantees at such date of obligations of other
issuers (other than guarantees outstanding on the Effective Date of obligations
outstanding on the Effective Date, in amounts not in excess of $79,375,000 and
reported in the Base Financials) and (iii) an amount equal to the product of
eight multiplied by the Consolidated Rental Expense for the four fiscal
quarters of the Borrower most recently completed on or prior to such date.
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<PAGE> 8
"ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in
Section 2.06(c).
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Bank.
"AFFILIATE" means any Person (other than the Borrower, any Subsidiary
of the Borrower or any Bank) (a) which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, the Borrower or (b) which is the Beneficial Owner of 10% or more of any
class of the Voting Stock of the Borrower. As used herein, the term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting stock, by contract or otherwise.
"AGENT" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Banks hereunder, and its successors in such capacity.
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office and (ii) in the
case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"APPRAISED VALUE" means, with respect to any asset subjected to or
released from any Lien, the value of such asset as determined by an independent
appraisal performed within 90 days of, and as of a date not less than 90 days
prior to, the date upon which such asset is subjected to or released from such
Lien.
"ASSESSMENT RATE" has the meaning set forth in Section 2.06(b).
"ASSIGNEE" has the meaning set forth in Section 9.06(c).
"ASSUMPTION AGREEMENT" means the Assumption Agreement dated as of
December 3, 1997 by the Borrower in favor of the banks, the issuing bank and
the agent under the Existing Credit Agreement.
"AUGUST 1997 AMENDMENT" means the Amended and Restated Credit
Agreement dated as of August 20, 1997 among the Former Borrower, the banks
listed therein and Morgan Guaranty Trust Company of New York, as issuing bank
and as agent.
"AUTHORIZED FINANCIAL OFFICER" of any Person means the Chief Financial
Officer, Treasurer or Controller of such Person.
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<PAGE> 9
"BANK" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective
successors.
"BASE FINANCIALS" means the consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended, together with the notes thereto, included in the
Borrower's 1997 Form 10-K and reported on without qualification by Ernst &
Young LLP.
"BASE RATE" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"BASE RATE LOAN" means (i) a Loan which bears interest at the Base
Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or the provisions of Article 8 or (ii) an overdue amount that was a
Base Rate Loan immediately before it became overdue.
"BASE RATE MARGIN" has the meaning set forth in Section 2.06(a).
"BENEFICIAL OWNER" means a Person who is deemed to be the "Beneficial
Owner" of securities pursuant to Rule 13d-3 or 13d-5 of the Securities Exchange
Act of 1934 (as in effect on the date hereof).
"BORROWER" means Beverly Enterprises, Inc., a Delaware corporation.
"BORROWER'S 1997 FORM 10-K" means the Borrower's annual report on Form
10-K for 1997, as filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, as amended.
"BORROWING" has the meaning set forth in Section 1.03.
"CD BASE RATE" has the meaning set forth in Section 2.06(b).
"CD LOAN" means (i) a Loan which bears interest at a CD Rate pursuant
to the applicable Notice of Borrowing or Notice of Interest Rate Election or
(ii) an overdue amount that was a CD Loan immediately before it became overdue.
"CD MARGIN" has the meaning set forth in Section 2.06(b).
"CD RATE" means a rate of interest determined pursuant to Section
2.06(b) on the basis of an Adjusted CD Rate.
4
<PAGE> 10
"CD REFERENCE BANKS" means PNC Bank, National Association,
NationsBank, N.A. and Morgan Guaranty Trust Company of New York.
"COMMITMENT" means, with respect to any Bank, the amount set forth
opposite the name of such Bank as such Bank's Commitment on the Commitment
Schedule, as such amount may be reduced from time to time pursuant to Section
2.09.
"COMMITMENT FEE RATE" has the meaning set forth in Section 2.08(a).
"COMMITMENT SCHEDULE" means Schedule II attached hereto.
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net Income
of the Borrower and its Consolidated Subsidiaries for such period plus, without
duplication, any amounts deducted in determining such Consolidated Net Income
in respect of (a) Consolidated Interest Charges for such period, (b)
Consolidated Tax Charges for such period and (c) expenses for such period of
the types classified as "depreciation and amortization" on the consolidated
statement of operations included in the Base Financials; provided that,
notwithstanding the foregoing, if during any period for which Consolidated
EBITDA is being determined the Borrower or any of its Subsidiaries shall have
consummated any acquisition then, for all purposes of this Agreement,
Consolidated EBITDA shall be calculated (including, without limitation, as to
any cost savings and the like resulting from any such acquisition), on a pro
forma basis in accordance with Regulation S-X promulgated under the Securities
Act of 1933, as amended, as if such acquisition had been made or consummated on
the first day of such period.
"CONSOLIDATED EBITDAR" means, for any period, the sum of Consolidated
EBITDA and Consolidated Rental Expense for such period.
"CONSOLIDATED GROSS CAPITAL EXPENDITURES" means, for any period the
total amount of additions to property and equipment, other than software
development costs, of the Borrower and its Consolidated Subsidiaries during
such period of the types classified as "Capital expenditures" on the
consolidated statement of cash flows included in the Base Financials.
"CONSOLIDATED INTEREST CHARGES" means, for any period, all items for
such period of the types classified as "interest" on the consolidated statement
of operations included in the Base Financials.
"CONSOLIDATED NET INCOME" means, for any period, the net income (loss)
(calculated (a) before preferred and common stock dividends and (b) exclusive
of the effect of any extraordinary or other material non-recurring gain or loss
outside
5
<PAGE> 11
the ordinary course of business) of the Borrower and its Consolidated
Subsidiaries, determined on a consolidated basis for such period.
"CONSOLIDATED NET WORTH" means at any date the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries at such
date.
"CONSOLIDATED RENTAL EXPENSE" means, for any period, the rental
expense (net of sublease income) of the Borrower and its Consolidated
Subsidiaries for such period.
"CONSOLIDATED SUBSIDIARY" means, with respect to any Person and at any
date, any of its Subsidiaries or any other entity the accounts of which would
be consolidated with those of such Person in its consolidated financial
statements if such statements were prepared as of such date.
"CONSOLIDATED TAX CHARGES" means, for any period, all items for such
period of the types classified as "provision for income taxes" on the
consolidated statement of operations included in the Base Financials.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee which are
capitalized in accordance with generally accepted accounting principles, (v)
all obligations of such Person with respect to letters of credit and similar
instruments, including, without limitation, obligations under reimbursement
agreements, (vi) all mandatorily redeemable preferred stock of such Person,
(vii) all Debt of others secured by a Lien on any asset of such Person, whether
or not such Debt is assumed by such Person, and (viii) all Debt of others
Guaranteed by such Person.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DERIVATIVES OBLIGATIONS" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option or any other
6
<PAGE> 12
similar transaction (including any option with respect to any of the foregoing
transactions) or any combination of the foregoing transactions.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent.
"DOMESTIC LOANS" means CD Loans or Base Rate Loans or both.
"DOMESTIC RESERVE PERCENTAGE" has the meaning set forth in Section
2.06(b).
"EFFECTIVE DATE" means the date this Agreement becomes effective in
accordance with Section 3.01.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating
to the environment, the effect of the environment on human health or to
emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment, including, without limitation,
ambient air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA GROUP" means the Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Borrower, are treated as a single
employer under Section 414(b) or 414(c) of the Internal Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
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<PAGE> 13
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Agent.
"EURO-DOLLAR LOAN" means (i) a Loan which bears interest at a
Euro-Dollar Rate pursuant to the applicable Notice of Borrowing or Notice of
Interest Rate Election or (ii) an overdue amount that was a Euro-Dollar Loan
immediately before it became overdue.
"EURO-DOLLAR MARGIN" has the meaning set forth in Section 2.06(c).
"EURO-DOLLAR RATE" means a rate of interest determined pursuant to
Section 2.06(c) on the basis of an Adjusted London Interbank Offered Rate.
"EURO-DOLLAR REFERENCE BANKS" means the principal Nassau office of
PNC Bank, National Association and the principal London offices of
NationsBank, N.A. and Morgan Guaranty Trust Company of New York.
"EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section
2.06(c).
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"EXISTING BANK" means a Bank (as defined in the Existing Credit
Agreement).
"EXISTING CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement dated as of December 20, 1996 among the Former Borrower, the banks
listed on the signature pages thereof, and Morgan Guaranty Trust Company of New
York, as issuing bank and as agent, as the same has been amended on or prior to
the Effective Date, including without limitation, by the August 1997 Amendment
and the Assumption Agreement.
"EXISTING CREDIT AGREEMENT EFFECTIVE DATE" means August 20, 1997.
"EXISTING FINANCING DOCUMENTS" means the Financing Documents (as
defined in the Existing Credit Agreement).
"EXISTING LETTER OF CREDIT" means a Letter of Credit (as defined in
the Existing Credit Agreement).
8
<PAGE> 14
"EXISTING LOAN" means a Loan (as defined in the Existing Credit
Agreement).
"EXPOSURE" means, for any day and with respect to any Bank, the sum on
such day of the Letter of Credit Exposure of such Bank and the aggregate
outstanding principal amount of the Loans of such Bank.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day; provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions, as determined by the Agent.
"FINANCING DOCUMENTS" means this Agreement, the Notes and the
Subsidiary Guaranty.
"FIXED CHARGE COVERAGE RATIO" means, on any date, the ratio of (i)
Consolidated EBITDAR minus Consolidated Gross Capital Expenditures for the four
consecutive fiscal quarters most recently ended on or prior to such date to
(ii) the sum of Consolidated Interest Charges and Consolidated Rental Expense
for such four fiscal quarters.
"FIXED RATE LOANS" means CD Loans or Euro-Dollar Loans or both.
"FORMER BORROWER" means the Delaware corporation known, prior to
December 3, 1997, as Beverly Enterprises, Inc..
"GROUP OF LOANS" means at any time a group of Loans consisting of (i)
all Loans that are Base Rate Loans at such time or (ii) all Loans that are
Fixed Rate Loans of the same type having the same Interest Period at such time;
provided that, if a Loan of any particular Bank is converted to or made as a
Base Rate Loan pursuant to Section 8.02 or 8.04, such Loan shall be included in
the same Group or Groups of Loans from time to time as it would have been in if
it had not been so converted or made.
9
<PAGE> 15
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"HAZARDOUS SUBSTANCE" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"INTEREST PERIOD" means: (1) with respect to each Euro-Dollar Loan, a
period commencing on the date of borrowing specified in the applicable Notice
of Borrowing or the date specified in the applicable Notice of Interest Rate
Election and ending one week or one, two, three or six months thereafter, as
the Borrower may elect in the applicable Notice of Borrowing or Notice of
Interest Rate Election; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (c)(i) below) that would
otherwise end on a day that is not a Euro-Dollar Business Day
shall be extended to the next succeeding Euro-Dollar Business
Day unless, in the case of any Interest Period other than a
one-week Interest Period, such Euro-Dollar Business Day falls
in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period (other than an Interest Period of one
week or an Interest Period determined pursuant to clause (c)
below) that begins on the last Euro-Dollar Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Euro-Dollar Business
Day of a calendar month; and
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<PAGE> 16
(c) if any Interest Period includes a date on which a payment
of principal of the Loans is required to be made under
Section 2.05 but does not end on such date, then (i) the
principal amount (if any) of each Euro-Dollar Loan required
to be repaid on such date shall have an Interest Period
ending on such date and (ii) the remainder (if any) of each
such Euro-Dollar Loan shall have an Interest Period
determined as set forth above; and
(2) with respect to each CD Loan, a period commencing on the date of borrowing
specified in the applicable Notice of Borrowing or on the date specified in the
applicable Notice of Interest Rate Election and ending 30, 60, 90 or 180 days
thereafter, as the Borrower may elect in the applicable Notice of Borrowing or
Notice of Interest Rate Election; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b)(i) below) that would
otherwise end on a day that is not a Euro-Dollar Business Day
shall be extended to the next succeeding Euro-Dollar Business
Day; and
(b) if any Interest Period includes a date on which a payment
of principal of the Loans is required to be made under
Section 2.05 but does not end on such date, then (i) the
principal amount (if any) of each CD Loan required to be
repaid on such date shall have an Interest Period ending on
such date and (ii) the remainder (if any) of each such CD
Loan shall have an Interest Period determined as set forth
above.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"INVESTMENT" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"ISSUING BANK" means Morgan Guaranty Trust Company of New York in its
capacity as issuer of the Letters of Credit, and its successors in such
capacity.
"LEASE CANCELLATION PAYMENT" means any payment made to cancel or
terminate a lease of a facility and related property prior to the end of its
term.
"LEASE CONVERSION" means any acquisition by the Borrower or any of its
Subsidiaries of a facility and related property that had theretofore been
leased by the Borrower or any such Subsidiary and that the Borrower or any of
its Subsidiaries continues to operate.
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<PAGE> 17
"LETTER OF CREDIT" means a letter of credit issued, or deemed to have
been issued, by the Issuing Bank pursuant to Section 2.07(a).
"LETTER OF CREDIT COMMISSION RATE" has the meaning set forth in Section
2.07(f).
"LETTER OF CREDIT COMMITMENT" means, with respect to any Bank at any
time, an amount equal to the lesser of (i) such Bank's Commitment at such time
and (ii) the product of $100,000,000 multiplied by a fraction, the numerator of
which is such Bank's Commitment at such time and the denominator of which is
the aggregate Commitments of all Banks at such time.
"LETTER OF CREDIT EXPOSURE" means, with respect to any Bank at any
time, the sum of (i) its participation in the undrawn amount which is then, or
may thereafter become, available for drawing under each outstanding Letter of
Credit and (ii) its participation in the amount of each unpaid Reimbursement
Obligation for drawings theretofore made under any Letter of Credit.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any of its Subsidiaries shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"LOAN" means a loan made by a Bank pursuant to Section 2.01; provided
that if any such loan or loans (or portions thereof) are combined or subdivided
pursuant to a Notice of Interest Rate Election, the term "Loan" shall refer to
the combined principal amount resulting from such combination or to each of the
separate principal amounts resulting from such subdivision, as the case may be.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section
2.06(c).
"MATERIAL COMMITMENT" means an outstanding commitment by a financial
institution or a syndicate of financial institutions to provide financial
accommodations to the Borrower and/or one or more of its Subsidiaries, arising
in one or more related transactions, in an amount equal to or exceeding in the
aggregate $50,000,000.
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<PAGE> 18
"MATERIAL FINANCIAL OBLIGATIONS" means a principal or face amount of
Debt and/or (in the case of Section 6.01(f)) payment obligations in respect of,
or (in the case of Section 6.01(g)) mark-to-market value of, Derivatives
Obligations of the Borrower and/or one or more of its Subsidiaries, arising in
one or more related or unrelated transactions, exceeding in the aggregate
$20,000,000.
"MATERIAL PLAN" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $1,000,000.
"MATERIAL SUBSIDIARY" means, at any time, any Subsidiary of the
Borrower that at such time constitutes a "significant subsidiary" of the
Borrower within the meaning of Regulation S-X promulgated by the Securities and
Exchange Commission; provided that for purposes of this definition of the term
"Material Subsidiary" each reference to "10 percent" contained in the
definition of "significant subsidiary" set forth in Regulation S-X shall be
replaced by "5 percent".
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
"NOTES" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay
the Loans, and "Note" means any one of such promissory notes issued hereunder.
"NOTICE OF BORROWING" has the meaning set forth in Section 2.02.
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.11(a).
"NOTICE OF ISSUANCE" has the meaning set forth in Section 2.07(b).
"ORIGINAL EFFECTIVE DATE" means December 20, 1996.
"OTHER PLAN" means an employee pension benefit plan (other than a Plan
or a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Internal Revenue Code.
"PARENT" means, with respect to any Bank, any Person controlling such
Bank.
"PARTICIPANT" has the meaning set forth in Section 9.06(b).
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<PAGE> 19
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED RECEIVABLES FINANCING SECURITIES" means debt securities or
preferred stock issued by a Special Purpose Receivables Financing Subsidiary
pursuant to a Receivables Financing Program and borrowings by a Special Purpose
Receivables Financing Subsidiary under a related Receivables Financing
Backstop Facility.
"PERMITTED PREFERRED STOCK" means preferred stock of the Borrower that
has no mandatory redemption or redemption at the option of the holder thereof
prior to the first anniversary of the Termination Date and no required increase
in the rate of dividends payable thereon prior to such first anniversary other
than increases arising from the resetting of the rate of dividends on the basis
of a reasonable market or other similar index or a market interest rate.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and is
maintained, or contributed to, by any member of the ERISA Group for employees
of any member of the ERISA Group.
"PRICING RATIO" has the meaning set forth in the Pricing Schedule
attached hereto.
"PRICING SCHEDULE" means Schedule I attached hereto.
"PRIME RATE" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"QUARTERLY DATE" means any March 31, June 30, September 30 or December
31 or, in the case of any such date that is not a Euro-Dollar Business Day, the
next preceding Euro-Dollar Business Day.
"RECEIVABLES FINANCING BACKSTOP FACILITY" means a credit facility
entered into by a Special Purpose Receivables Financing Subsidiary for the
purposes of providing liquidity with respect to securities issued by such
Special
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<PAGE> 20
Purpose Receivables Financing Subsidiary and of financing transactions of the
type intended to be financed with the proceeds of such securities.
"RECEIVABLES FINANCING PROGRAM" means a program pursuant to which a
Special Purpose Receivables Financing Subsidiary issues debt securities or
preferred stock secured by (i) Medicaid, Medicare or other patient accounts
receivable or Permitted Receivables Financing Securities purchased from the
Borrower and its Subsidiaries or (ii) security interests in Medicaid, Medicare
or other patient accounts receivable or Permitted Receivables Financing
Securities granted by the Borrower and its Subsidiaries.
"REFERENCE BANKS" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "Reference Bank" means any one
of such Reference Banks.
"REFINANCED DEBT" has the meaning set forth in clause (v) of Section
5.13(a).
"REFINANCING DEBT" has the meaning set forth in clause (v) of Section
5.13(a).
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REIMBURSEMENT OBLIGATION" means an obligation of the Borrower to
reimburse the Issuing Bank pursuant to Section 2.07(d) for the amount of a
drawing under a Letter of Credit.
"RELEVANT DEBT" has the meaning set forth in Section 9.04.
"REQUIRED BANKS" means at any time Banks having at least 66 2/3% of
the aggregate Total Exposures of all Banks.
"SENIOR NOTE AGREEMENT" means that certain Indenture, dated as of
February 1, 1996, among the Borrower, the corporations listed on the signature
pages thereto and The Chase Manhattan Bank, formerly known as Chemical Bank, as
Trustee, as amended, modified or supplemented.
"SPECIAL PURPOSE RECEIVABLES FINANCING SUBSIDIARY" means a Wholly-
Owned Subsidiary of the Borrower the sole purpose of which is to issue debt
securities and/or preferred stock and to purchase Medicare, Medicaid or other
patient accounts receivable of the Borrower and its Subsidiaries and/or
Permitted Receivables Financing Securities and make advances to the Borrower
and its
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<PAGE> 21
Subsidiaries secured by security interests in such Medicare, Medicaid or other
patient accounts receivable and/or Permitted Receivables Financing Securities,
which accounts receivable, Permitted Receivables Financing Securities and/or
security interests therein may be pledged to secure such debt securities and/or
preferred stock and/or borrowings by such Special Purpose Receivables Financing
Subsidiary under a Receivables Financing Backstop Facility.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person; provided that, with respect to the Borrower, Subsidiary shall not
(except for financial reporting purposes and determination of compliance with
financial covenants) include any corporations or other entities (i) which are
inactive, (ii) each of which has neither assets nor liabilities, calculated on
a consolidated basis for each such corporation or other entity, of $1,600,000
or more and (iii) which taken together have neither aggregate assets nor
aggregate liabilities, calculated on a consolidated basis, of $3,000,000 or
more.
"SUBSIDIARY GUARANTOR" means, at any time, a Subsidiary of the
Borrower party to the Subsidiary Guaranty at such time.
"SUBSIDIARY GUARANTY" means the Amended and Restated Subsidiary
Guaranty dated as of the date hereof by the Borrower and the Subsidiaries of
the Borrower parties thereto in favor of the Banks, the Agent and the Issuing
Bank, substantially in the form of Exhibit B hereto, as the same may be amended
from time to time.
"TEMPORARY CASH INVESTMENT" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
with maturities of not more than 180 days rated at least P-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Ratings Group, (iii)
deposit accounts in, and certificates of deposit, repurchase agreements and
bankers' acceptances of, United States branches of commercial banks whose
unsecured senior long-term debt is rated A or better by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group, in each case maturing within
one year from the date of acquisition thereof or (iv) in addition to the
accounts and instruments referred to in clause (iii), deposit accounts and
certificates of deposit in United States branches of banks insured by the
Federal Deposit Insurance Corporation which do not aggregate more than $100,000
in any one bank.
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"TERMINATION DATE" means December 31, 2001.
"TOTAL EXPOSURE" means, for any day and with respect to any Bank, the
greater of (x) the Commitment of such Bank and (y) the Exposure of such Bank.
"UNFUNDED LIABILITIES" means, with respect to any employee pension
benefit plan which is covered by Title IV of ERISA, or subject to the minimum
funding standards under Section 412 of the Internal Revenue Code, at any time,
the amount (if any) by which (i) the present value of all benefit liabilities
(within the meaning of Section 4001(a)(16) of ERISA) under such plan exceeds
(ii) the fair market value of all plan assets allocable to such benefit
liabilities (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such plan in accordance with the
relevant provisions of Title IV of ERISA and regulations promulgated
thereunder, but only to the extent that such excess represents a potential
liability of a member of the ERISA Group to the PBGC or any other Person under
Title IV of ERISA.
"VOTING STOCK" means capital stock of any class or classes (however
designated) having ordinary voting power for the election of directors of the
Borrower, other than stock having such power only by reason of the happening of
a contingency.
"WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, any
Subsidiary of such Person all of the shares of Voting Stock or other ownership
interests of which (except directors' qualifying shares) are at the time
directly or indirectly owned by such Person.
"WORKOUT TRANSACTION" means any adjustment, renegotiation, exchange,
subordination, amendment, sale or other disposition of any note receivable,
Investment or other similar asset of the Borrower or any of its Subsidiaries,
any release, subordination, renegotiation or other adjustment or any Lien
securing any Debt or other obligation of any Person held by or owed to the
Borrower or any of its Subsidiaries, any acquisition of any asset by the
Borrower or any of its Subsidiaries or the making of any Investment by the
Borrower or any of its Subsidiaries, in each case in connection with (i) the
foreclosure, enforcement or realization by the Borrower or any such Subsidiary
on any Lien securing any Debt or other obligation of any Person held by or owed
to the Borrower or any such Subsidiary or (ii) any renegotiation, composition,
adjustment, amendment or restructuring of, or any other similar arrangement
with respect to, any such Debt or obligation, in each case in connection with
the bankruptcy, insolvency, financial distress or other similar condition of
such Person; provided that any such adjustment, renegotiation, exchange,
subordination, amendment, sale, disposition, release or acquisition or the
making of any such Investment (A) will, in the
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reasonable opinion of an Authorized Financial Officer of the Borrower, in light
of the circumstances affecting the relevant obligor, be likely to maximize the
amount to be realized by the Borrower and its Subsidiaries with respect to such
Debt or other obligation or (B) is imposed on the Borrower or any of its
Subsidiaries pursuant to voting arrangements mandated by any law or contract
arrangements binding upon the Borrower or such Subsidiary.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time,
applied on a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the Base Financials; provided
that if any change in generally accepted accounting principles after December
31, 1997 in itself materially affects the calculation of any financial covenant
in Article 5, the Borrower may by notice to the Agent, or the Agent (at the
request of the Required Banks) may by notice to the Borrower, require that such
covenant thereafter be calculated in accordance with generally accepted
accounting principles as in effect, and applied by the Borrower, immediately
before such change in generally accepted accounting principles occurs. If such
notice is given, the compliance certificates delivered pursuant to Section
5.01(d) after such change occurs shall be accompanied by reconciliations of the
difference between the calculation set forth therein and a calculation made in
accordance with generally accepted accounting principles as in effect from time
to time after such change occurs.
SECTION 1.03. Types of Loans and Borrowings. The term "BORROWING"
denotes the aggregation of Loans made to the Borrower pursuant to Article 2 on
a single date and, in the case of a Borrowing consisting of Fixed Rate Loans,
for a single Interest Period. Loans and Borrowings are distinguished by "type".
The "TYPE" of a Loan (or a Borrowing consisting of such Loans) refers to the
pricing of the Loans, whether such Loan is a Euro-Dollar Loan, a CD Loan or a
Base Rate Loan, each of which constitutes a type.
ARTICLE 2
THE CREDITS
SECTION 2.01. The Loans. (a) Existing Loans. Prior to the Effective
Date, each Existing Bank has made Existing Loans to, or that have been assumed
by, the Borrower pursuant to the Existing Credit Agreement. On and after the
Effective Date, all Existing Loans outstanding under the Existing Credit
Agreement shall remain outstanding as Loans hereunder and be governed by the
terms and conditions of this Agreement.
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(b) Loans on and after the Effective Date. Each Bank severally agrees,
on the terms and conditions set forth in this Agreement, to make loans to the
Borrower pursuant to this Section 2.01(b) from time to time from and including
the Effective Date to but excluding the Termination Date in amounts such that
such Bank's Exposure shall not exceed such Bank's Commitment. Each Borrowing
under this Section 2.01(b) shall be in an aggregate principal amount of
$1,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing
may be in the aggregate amount available under Section 3.02(b)) and shall be
made from the several Banks ratably in proportion to their respective
Commitments. Within the foregoing limits, the Borrower may borrow under this
Section 2.01(b), prepay loans to the extent permitted by Section 2.12, and
reborrow pursuant to this Section 2.01(b).
SECTION 2.02. Notice of Borrowing. The Borrower shall give the Agent
notice (a "NOTICE OF BORROWING") not later than (x) 12:00 Noon (New York City
time) on the date of each Base Rate Borrowing, (y) 12:00 Noon (New York City
time) on the second Domestic Business Day before each CD Borrowing and (z)
12:00 Noon (New York City time) on the third Euro-Dollar Business Day before
each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day
in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case
of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to bear interest
initially calculated on the basis of the Base Rate, a CD Rate or a Euro-Dollar
Rate,
(d) in the case of a Borrowing consisting of Fixed Rate Loans, the
duration of the Interest Period applicable thereto, subject to the provisions
of the definition of Interest Period.
SECTION 2.03. Notice to Banks; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Bank of the contents thereof and of such Bank's share of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower.
(b) Not later than 3:00 P.M. (New York City time) on the date of each
Borrowing, each Bank shall (except as provided in subsection (c) below) make
available its ratable share of such Borrowing, in Federal or other funds
immediately
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available in New York City, to the Agent at its address specified in or pursuant
to Section 9.01. Unless the Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Agent will promptly make the
funds so received from the Banks available to the Borrower at the Agent's
aforesaid address.
(c) If any Bank that makes any Loan on the Effective Date is the
holder, on the Effective Date, of any Existing Loan that is to be repaid on the
Effective Date, such Bank shall apply the proceeds of its Loan to make such
repayment and only an amount equal to the difference (if any) between the
amount of the Loan being borrowed and the amount of such Existing Loan to be so
repaid shall be made available by the Bank to the Agent as provided in
subsection (b) or remitted by the Borrower to such Bank as provided in the
Existing Credit Agreement.
(d) Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank will not make available to the Agent
such Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsection (b) of this Section 2.03 and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Agent, such Bank and the Borrower severally
agree to repay to the Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from and including the date such
amount is made available to the Borrower to but excluding the date such amount
is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum
equal to the higher of the Federal Funds Rate and the interest rate then
applicable to the Loans contained in such Borrowing pursuant to Section 2.06
and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall
repay to the Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
SECTION 2.04. Notes.
(a) In connection with the effectiveness of the Assumption Agreement,
the Borrower delivered to the Agent, for the account of each Existing Bank,
duly executed "NOTES" substantially in the form of Exhibit A to the Existing
Credit Agreement (collectively, the "EXISTING NOTES") to evidence the Existing
Loans of each bank under the Existing Credit Agreement. On or prior to the
Effective Date, the Borrower shall deliver to the Agent, for the account of
each Bank, duly executed Notes, substantially in the form of Exhibit A hereto.
On the Effective Date, each Bank's Existing Note shall be automatically
canceled, and from and after the Effective Date, the Loans of each Bank shall
be evidenced by a single
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Note payable to the order of such Bank for the account of its Applicable
Lending Office in an amount equal to the aggregate unpaid principal amount of
such Bank's Loans. On or promptly after the Effective Date, each Existing Bank
shall deliver to the Agent for delivery to the Borrower its Existing Note (or
in the case of loss thereof, a written agreement of indemnity by such Bank for
such loss in customary form and executed by such Bank) marked "CANCELLED".
(b) Each Bank may, by notice to the Borrower and the Agent, request
that its Loans of a particular type be evidenced by a separate Note in an
amount equal to the aggregate unpaid principal amount of its Loans of such
type. Each such Note shall be in substantially the form of Exhibit A hereto
with appropriate modifications to reflect the fact that it evidences solely
Loans of the relevant type. Each reference in this Agreement to the "Note" of
such Bank shall be deemed to refer to and include any or all of such Notes, as
the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the
Agent shall forward such Note to such Bank. Each Bank shall record the date,
amount and type of each Loan made by it and the date and amount of each payment
of principal made by the Borrower with respect thereto, and prior to any
transfer of its Note may endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information with respect to
each such Loan then outstanding; provided that the failure of any Bank to make
any such recordation or endorsement shall not affect the obligations of the
Borrower hereunder or of the Borrower under the Notes. Each Bank is hereby
irrevocably authorized by the Borrower so to endorse its Note and to attach to
and make a part of its Note a continuation of any such schedule as and when
required.
SECTION 2.05. Maturity of Loans. Each Loan shall mature, and the
principal amount thereof shall be due and payable in full, on the Termination
Date.
SECTION 2.06. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from and
including the date such Loan is made to but excluding the date it becomes due,
at a rate per annum equal to the sum of the Base Rate Margin for such day plus
the Base Rate for such day. Such interest shall be payable quarterly in arrears
on each Quarterly Date and, with respect to the principal amount of any Base
Rate Loan converted to a Fixed Rate Loan, on each day a Base Rate Loan is so
converted. Any overdue principal of or interest on any Base Rate Loan shall
bear interest, payable on demand, for each day from and including the date upon
which it becomes due to but excluding the date upon which it is paid, at a rate
per annum equal to the sum of 2% plus the rate otherwise applicable to Base
Rate Loans for such day.
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"BASE RATE MARGIN" means a rate per annum determined in accordance
with the Pricing Schedule.
(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the CD Margin for such day plus the
Adjusted CD Rate applicable to such Interest Period; provided that if any CD
Loan or any portion thereof shall, as a result of clause (2)(b)(i) of the
definition of Interest Period, have an Interest Period of less than 30 days,
such portion shall bear interest during such Interest Period at the rate
applicable to Base Rate Loans during such period. Such interest shall be
payable for each Interest Period on the last day thereof and, if such Interest
Period is longer than 90 days, at intervals of 90 days after the first day
thereof. Any overdue principal of or interest on any CD Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of 2% plus (i) for each day during such Interest Period, the sum of
the CD Margin for such day plus the Adjusted CD Rate applicable to such Loan,
and (ii) for each day after the end of such Interest Period, the rate
applicable to Base Rate Loans for such day.
"CD MARGIN" means a rate per annum determined in accordance with the
Pricing Schedule.
The "ADJUSTED CD RATE" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
[ CDBR ]1
ACDR = [ ------------ ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
The "CD BASE RATE" applicable to any Interest Period is the rate of
interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum
bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable)
on the first day of such Interest Period by two or more New York certificate of
deposit dealers of
- -----------------
(1) The amount in brackets being rounded upward, if necessary, to the
next higher 1/100 of 1%
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recognized standing for the purchase at face value from each CD Reference Bank
of its certificates of deposit in an amount comparable to the principal amount
of the CD Loan of such CD Reference Bank to which such Interest Period applies
and having a maturity comparable to such Interest Period.
"DOMESTIC RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation, any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"ASSESSMENT RATE" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. ss. 327.3(e) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the
United States. The Adjusted CD Rate shall be adjusted automatically on and as
of the effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for
such day plus the Adjusted London Interbank Offered Rate applicable to such
Interest Period. Such interest shall be payable for each Interest Period on the
last day thereof and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof.
The "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any
Interest Period means the rate per annum equal to the quotient obtained
(rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i)
the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage.
"EURO-DOLLAR MARGIN" means a rate per annum determined in accordance
with the Pricing Schedule.
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The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "EUROCURRENCY LIABILITIES" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any Bank to
United States residents).
(d) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day from and including the date upon
which it becomes due to but excluding the date upon which it is paid, at a rate
per annum equal to the sum of 2% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate
applicable to such Loan at the date such payment was due and (ii) the
Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded
upward, if necessary, to the next higher 1/16 of 1%) of the respective rates
per annum at which one day (or, if such amount due remains unpaid more than
three Euro-Dollar Business Days, then for such other period of time not longer
than six months as the Agent may select) deposits in dollars in an amount
approximately equal to such overdue payment due to each of the Euro-Dollar
Reference Banks are offered to such Euro-Dollar Reference Bank in the London
interbank market for the applicable period determined as provided above by (y)
1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances
described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum
equal to the sum of 2% plus the rate applicable to Base Rate Loans for such
day).
(e) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
Banks by telex, cable or facsimile transmission of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.
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(f) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference Bank
does not furnish a timely quotation, the Agent shall determine the relevant
interest rate on the basis of the quotation or quotations furnished by the
remaining Reference Bank or Reference Banks, or if none of such quotations is
available on a timely basis, the provisions of Section 8.01 shall apply.
SECTION 2.07. Letters of Credit.
(a) Commitment to Issue Letters of Credit.
(i) The Borrower may from time to time request that the Issuing
Bank issue a letter of credit pursuant to which the Issuing Bank shall
be obligated to the beneficiary to pay any drawings made thereunder
and the Banks shall be obligated to the Issuing Bank to participate
ratably in such drawings in proportion to their respective Commitments
as hereinafter provided.
(ii) Subject to Section 2.07(a)(iv) below, and in accordance with
its customary procedures (to the extent such procedures are not
inconsistent with the terms of this Agreement), the Issuing Bank
agrees, on the terms and conditions set forth in this Agreement and at
the request of the Borrower, to issue Letters of Credit for the
account of the Borrower or any of its Subsidiaries from time to time
prior to the Termination Date. Each Bank agrees to participate ratably
in proportion to its Commitment in any drawings made under each Letter
of Credit.
(iii) Notwithstanding any reference in any Existing Letter of
Credit to the Existing Credit Agreement, on and as of the Effective
Date, each Existing Letter of Credit shall be deemed to be a Letter of
Credit and to have been issued pursuant to clause (ii) above.
(iv) In addition to the conditions precedent set forth in Article
3, the obligations of the Issuing Bank to issue Letters of Credit
pursuant to clause (ii) above are subject to the additional conditions
that:
(A) no Letter of Credit shall have an expiry date later than one
Domestic Business Day prior to the Termination Date; provided that
with respect to a Letter of Credit issued for the purpose of
providing credit support for obligations of the Borrower or any of
its Subsidiaries in connection with self-insurance provided by or
insurance procured on behalf of the Borrower and its Subsidiaries,
it shall not be a violation of the condition set forth in
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<PAGE> 31
this clause (iv) if such Letter of Credit (1) is certified by an
Authorized Officer of the Borrower to be required by applicable
insurance law or regulation to provide, and does provide, that if
there shall occur with respect to the Issuing Bank one of the
events described in Article 17 of the 1993 revision of the Uniform
Customs and Practice for Documentary Credits of the International
Chamber of Commerce (Publication No. 500), as the same may be
revised, amended, supplemented or superseded, the expiry date shall
be extended until not later than a specified number of days (the
"EXTENSION PERIOD") after the resumption of business of the Issuing
Bank following such event and (2) provides for an expiry date prior
to the Termination Date by at least 30 days more than the number of
days included in the Extension Period; and
(B) the fact that, immediately after the issuance of such Letter
of Credit, no Bank's Letter of Credit Exposure will exceed such
Bank's Letter of Credit Commitment.
(b) Notice of Issuance. Except in the case of Letters of Credit
deemed, pursuant to clause (iii) of Section 2.07(a) above, to be issued on the
Effective Date, the Borrower shall give the Agent and the Issuing Bank notice
(a "NOTICE OF ISSUANCE") at least three Domestic Business Days before each
Letter of Credit is to be issued, specifying: (i) the date of issuance and
expiry date of such Letter of Credit, (ii) the proposed terms of such Letter of
Credit, including the face amount thereof and (iii) the transaction that is to
be supported or financed by such Letter of Credit. Upon receipt of a Notice of
Issuance, the Issuing Bank shall promptly notify each Bank and the Agent of the
contents thereof and of the amount of such Bank's participation in such Letter
of Credit and such Notice of Issuance shall not thereafter be revocable by the
Borrower.
(c) Drawings under Letters of Credit.
(i) Upon receipt from the beneficiary of any Letter of Credit of
demand for payment under such Letter of Credit, the Issuing Bank shall
determine in accordance with the terms of such Letter of Credit
whether such demand for payment should be honored.
(ii) If the Issuing Bank determines that a demand for payment by
the beneficiary of a Letter of Credit should be honored, the Issuing
Bank shall make available to the beneficiary in accordance with the
terms of such Letter of Credit the amount of the drawing under such
Letter of Credit. The Issuing Bank shall thereupon notify the
Borrower, the Agent and each
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Bank of the amount of such drawing paid by it and the amount of each
Bank's participation therein.
(d) Reimbursement and Other Payments by the Borrower.
(i) If any amount is drawn under any Letter of Credit, the Borrower
irrevocably and unconditionally agrees to reimburse the Issuing Bank
for all amounts paid by the Issuing Bank upon such drawing, together
with any and all reasonable charges and expenses which any Bank or the
Issuing Bank may pay or incur relative to such drawing and interest on
the amount drawn at the average rate charged to the Issuing Bank on
overnight Federal funds transactions for each day from and including
the date such amount is drawn to but excluding the date such
reimbursement payment is due and payable. Such reimbursement payment
shall be due and payable (x) not later than 12:00 Noon (New York City
time) on the date the Issuing Bank notifies the Borrower of such
drawing, if such notice is given at or before 10:00 A.M. (New York
City time) on such date, or (y) not later than 12:00 Noon (New York
City time) on the first Domestic Business Day succeeding the date such
notice is given, if such notice is given after 10:00 A.M. (New York
City time); provided that no payment otherwise required by this
sentence to be made by the Borrower not later than 12:00 Noon (New
York City time) on any day shall be overdue hereunder if arrangements
for such payment satisfactory to the Issuing Bank, in its sole
discretion, shall have been made by the Borrower not later than 12:00
Noon (New York City time) on such day and such payment is actually
made not later than 3:00 P.M. (New York City time) on such day. The
Issuing Bank shall provide a copy of any such notice to the Agent.
(ii) In addition, the Borrower agrees to pay to the Issuing Bank
(A) interest on any and all amounts unpaid by the Borrower when due
hereunder with respect to a Letter of Credit, for each day from and
including the date when such amount becomes due to but excluding the
date such amount is paid in full, whether before or after judgment,
payable on demand, at a rate per annum equal to the sum of 2% plus the
rate applicable to Base Rate Loans for such day, and (B) upon each
transfer of any Letter of Credit in accordance with its terms, a sum
equal to such amount as shall be necessary to cover the reasonable
costs and expenses of the Issuing Bank incurred in connection with
such transfer.
(iii) Each payment to be made by the Borrower pursuant to this
Section 2.07(d) shall be made, in Federal or other funds immediately
available in New York City, to the Issuing Bank at its address
referred to in or pursuant to Section 9.01.
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(e) Payments by Banks with Respect to Letters of Credit.
(i) Each Bank shall make available an amount equal to its ratable
share of any drawing under a Letter of Credit, in Federal or other
funds immediately available in New York City, to the Issuing Bank by
3:00 P.M. (New York City time) on the Domestic Business Day following
such drawing, together with interest on such amount at the average
rate charged to the Issuing Bank on overnight Federal funds
transactions on the date of such drawing as determined by the Issuing
Bank, at the Issuing Bank's address specified in or pursuant to
Section 9.01; provided that each Bank's obligation shall be reduced by
its pro rata share of any reimbursement theretofore paid by the
Borrower in respect of such drawing pursuant to Section 2.07(d)(i).
The Issuing Bank shall notify each Bank and the Agent of the amount of
such Bank's obligation in respect of any drawing under a Letter of
Credit not later than 1:00 P.M. (New York City time) on the day such
payment by such Bank is due. Each Bank shall be subrogated to the
rights of the Issuing Bank against the Borrower to the extent of all
amounts due from such Bank to the Issuing Bank, plus interest thereon,
for each day from and including the day such amount is due from such
Bank to the Issuing Bank to but excluding the day the Borrower makes
payment to the Issuing Bank pursuant to Section 2.07(d) above, whether
before or after judgment, at a rate per annum equal to the sum of 2%
plus the rate applicable to Base Rate Loans for such day.
(ii) If any Bank fails to pay any amount required pursuant to
clause (i) of this subsection on the date on which such payment is
due, interest shall accrue on such Bank's obligation to make such
payment, for each day from and including the date such payment becomes
due to but excluding the date such Bank makes such payment, whether
before or after judgment, at a rate per annum equal to (A) in the case
of each day from and including the day such payment is due through and
including the first succeeding Domestic Business Day (and any
intervening days), the average rate charged to the Issuing Bank on
overnight Federal funds transactions for each such day as determined
by the Issuing Bank and (B) thereafter, the sum of 2% plus the rate
applicable to Base Rate Loans for such day. Any payment made by any
Bank after 3:00 P.M., New York City time, on any Domestic Business Day
shall be deemed for purposes of the preceding sentence to have been
made on the next succeeding Domestic Business Day.
(iii) If the Borrower shall reimburse the Issuing Bank for any
drawing under a Letter of Credit after the Banks shall have made funds
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available to the Issuing Bank with respect to such drawing in
accordance with clause (i) of this subsection, the Issuing Bank shall
promptly upon receipt of such reimbursement distribute to each Bank
its pro rata share thereof, including interest, to the extent received
by the Issuing Bank.
(f) Letter of Credit Commission; Fronting Fee.
(i) The Borrower shall pay to the Agent for the account of the
Banks, ratably in proportion to their Commitments or, if all
Commitments have been terminated, in proportion to their Commitments
immediately before such termination, a letter of credit commission at
a rate per annum (the "LETTER OF CREDIT COMMISSION RATE") determined
daily in accordance with the Pricing Schedule on the daily average
amount available for drawing (whether or not any conditions to drawing
can then be met) on all outstanding Letters of Credit. Such letter of
credit commission shall accrue from and including the Effective Date
to but excluding the Termination Date (or later date of expiration or
termination of the last Letter of Credit to expire or be terminated)
and shall be payable quarterly in arrears on each Quarterly Date, on
the date of termination of the Commitments in their entirety and, if
later, on the date of expiration or termination of the last Letter of
Credit to expire or be terminated.
(ii) The Borrower agrees to pay to the Agent for the account of the
Issuing Bank a fronting fee in the amounts and at the times previously
agreed between the Borrower and the Issuing Bank.
(g) Payment upon Acceleration. If the Commitments shall be terminated
or the principal of the Notes shall become immediately due and payable pursuant
to Section 6.01, the Borrower shall pay to the Agent for deposit in a
segregated collateral account an amount equal to the aggregate amount which is
then, or may thereafter become, available for drawing under all outstanding
Letters of Credit and pledge such amount to the Agent for the benefit of the
Issuing Bank and the Banks to secure the Borrower's obligations in respect of
such Letters of Credit.
(h) Limited Liability of the Issuing Bank. The Borrower assumes all
risks of the acts or omissions of any beneficiary and any transferee of any
Letter of Credit with respect to its use of such Letter of Credit. The Banks,
the Issuing Bank and their respective officers, directors, employees and agents
shall not be liable or responsible for, and the obligations of each Bank to
make payments (other than obligations of such Bank resulting solely from the
gross negligence or willful misconduct of the Issuing Bank), and of the
Borrower to reimburse the Issuing Bank for payments, pursuant to this Section
shall not be excused by, any action or inaction of any Bank or the Issuing Bank
related to (i) the use which may be made
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of any Letter of Credit or any acts or omissions of any beneficiary or
transferee in connection therewith; (ii) the validity, sufficiency or
genuineness of documents presented under any Letter of Credit, or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, insufficient, fraudulent or forged; or (iii) payment
by the Issuing Bank against presentation of documents to the Issuing Bank which
do not comply with the terms of any Letter of Credit, including failure of any
documents to bear any reference or adequate reference to the Letter of Credit.
Notwithstanding the foregoing, the Borrower shall have a claim against the
Issuing Bank, and the Issuing Bank shall be liable to the Borrower, to the
extent, but only to the extent, of any direct, as opposed to consequential,
damages suffered by the Borrower which were caused by (i) the Issuing Bank's
willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit comply with the terms thereof or (ii) the
Issuing Bank's willful failure to pay under any Letter of Credit after the
presentation to the Issuing Bank by any beneficiary (or a successor beneficiary
to whom such Letter of Credit has been transferred in accordance with its
terms) of documents strictly complying with the terms and conditions of such
Letter of Credit. Subject to the preceding sentence, the Issuing Bank may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary unless any beneficiary (or a successor beneficiary
to whom such Letter of Credit has been transferred in accordance with its
terms) and the Borrower shall have notified the Issuing Bank that such
documents do not comply with the terms and conditions of such Letter of Credit.
Each Bank shall, ratably in accordance with its Commitment, indemnify the
Issuing Bank (to the extent not reimbursed by the Borrower) against any cost,
expense (including counsel fees and disbursements), claim, demand, action, loss
or liability (except such as result from the Issuing Bank's gross negligence or
willful misconduct) that the Issuing Bank may suffer or incur in connection
with this Agreement or any action taken or omitted by the Issuing Bank
hereunder.
SECTION 2.08. Fees.
(a) The Borrower shall pay to the Agent for the account of the Banks,
ratably in proportion to their Commitments, a commitment fee at a rate per
annum (the "COMMITMENT FEE RATE") determined daily in accordance with the
Pricing Schedule, on the daily average amount by which the aggregate amount of
the Commitments exceeds the aggregate Exposure. Such commitment fee shall
accrue from and including the date of the last payment of such commitment fee
under the Existing Credit Agreement to but excluding the Termination Date (or
earlier date of termination of the Commitments in their entirety).
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(b) On the Effective Date, the Borrower shall pay to J.P. Morgan
Securities Inc., for its own account, an arrangement fee in the amount
previously agreed between the Borrower and the Agent.
(c) On the Effective Date, the Borrower shall pay to the Agent for the
account of each Bank, a participation fee in an amount equal to 0.05% of the
amount of such Bank's Commitment on the Effective Date.
(d) Accrued fees under Section 2.08(a) above shall be payable
quarterly in arrears on each Quarterly Date and upon the date of termination of
the Commitments in their entirety.
SECTION 2.09. Optional Termination or Reduction of Commitments.
(a) The Borrower may, upon at least three Domestic Business Days'
notice to the Agent, (i) terminate the Commitments at any time, if the
aggregate Exposures of all Banks shall be zero at the time of such termination,
or (ii) ratably reduce from time to time by an aggregate amount of $5,000,000
or any larger multiple of $1,000,000, the aggregate amount of the Commitments
in excess of the aggregate Exposures of all Banks.
(b) Each reduction of the Commitments pursuant to this Section 2.09
shall be applied ratably to the respective Commitments of all Banks.
SECTION 2.10. Mandatory Termination of Commitments. All Commitments
shall terminate in their entirety on the Termination Date.
SECTION 2.11. Method of Electing Interest Rates. (a) The Loans
included in each Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Borrowing. Thereafter,
the Borrower may from time to time elect to change or continue the type of
interest rate borne by each Group of Loans (subject in each case to the
provisions of Article 8), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to CD Loans as of any Domestic Business Day or to
Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to convert
such Loans to Base Rate Loans or Euro-Dollar Loans or elect to
continue such Loans as CD Loans for an additional Interest Period, in
each case effective on the last day of the then current Interest
Period applicable to such Loans; and
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(iii) if such Loans are Euro-Dollar Loans, the Borrower may elect
to convert such Loans to Base Rate Loans or CD Loans or elect to
continue such Loans as Euro-Dollar Loans for an additional Interest
Period, in each case effective on the last day of the then current
Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST
RATE ELECTION") to the Agent not later than 12:00 Noon (New York City time) (x)
if the relevant Loans are to be converted to Domestic Loans or continued as
Domestic Loans for an additional Interest Period, the second Domestic Business
Day before such conversion or continuation is to be effective and (y) if the
relevant Loans are to be converted to Euro-Dollar Loans or continued as
Euro-Dollar Loans for an additional Interest Period, the third Euro-Dollar
Business Day before such conversion or continuation is to be effective. A
Notice of Interest Rate Election may, if it so specifies, apply to only a
portion of the aggregate principal amount of the relevant Group of Loans;
provided that (i) such portion is allocated ratably among the Loans comprising
such Group of Loans and (ii) the portion to which such Notice of Interest Rate
Election applies, and the remaining portion to which it does not apply, are
each at least $1,000,000 and not more than one of such portions is other than a
multiple of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of Section 2.11(a) above;
(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if such new Loans are Fixed Rate Loans, the
duration of the initial Interest Period applicable thereto; and
(iv) if such Loans are to be continued as Fixed Rate Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to Section 2.11(a) above, the Agent shall promptly notify
each Bank of
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the contents thereof and such notice shall not thereafter be revocable by the
Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate
Election to the Agent for any Group of Fixed Rate Loans, such Loans shall be
converted into Base Rate Loans on the last day of the then current Interest
Period applicable thereto.
SECTION 2.12. Optional Prepayments.
(a) The Borrower may, upon notice to the Agent not later than 11:00
A.M. (New York City time) on the date of such prepayment, prepay a Group of
Base Rate Loans in whole at any time, or from time to time in part in amounts
aggregating $1,000,000 or any larger multiple of $1,000,000, by paying the
principal amount to be prepaid together with accrued interest thereon to the
date of prepayment.
(b) The Borrower may, upon at least three Domestic Business Days'
notice to the Agent, in the case of a Group of CD Loans, or upon at least three
Euro-Dollar Business Days' notice to the Agent, in the case of a Group of
Euro-Dollar Loans, prepay the Loans comprising such Group in whole at any time,
or from time to time in part in amounts aggregating $1,000,000 or any larger
multiple of $1,000,000, by paying the principal amount to be prepaid together
with accrued interest thereon to the date of prepayment; provided that the
Borrower shall reimburse each Bank for any loss or expense incurred by it as a
result of any such prepayment in accordance with Section 2.14.
(c) Each prepayment of all or part of a Group of Loans pursuant to
this Section 2.12 shall be applied to prepay ratably the Loans of the several
Banks included in such Group.
(d) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Bank of the contents thereof and of such
Bank's ratable share of such prepayment and such notice shall not thereafter be
revocable by the Borrower.
SECTION 2.13. General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of, and interest
on, the Loans and of commissions and fees hereunder, not later than 12:00 Noon
(New York City time) on the date when due, in Federal or other funds
immediately available in New York City, to the Agent at its address referred to
in or pursuant to Section 9.01. The Agent will promptly distribute to each Bank
its ratable share of each such payment received by the Agent for the account of
the Banks. Whenever any payment of principal of, or interest on, the Domestic
Loans or of
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commissions or fees shall be due on a day which is not a Domestic Business Day,
the date for payment thereof shall be extended to the next succeeding Domestic
Business Day. Whenever any payment of principal of, or interest on, the
Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business
Day, the date for payment thereof shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the next
preceding Euro-Dollar Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable
for such extended time.
(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that the Borrower shall not have so made such payment, each Bank shall
repay to the Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from and including the date such
amount is distributed to such Bank to but excluding the date such Bank repays
such amount to the Agent, at the Federal Funds Rate.
SECTION 2.14. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted to a Base Rate Loan (whether such payment or conversion is pursuant
to Article 2, 6 or 8 or otherwise) on any day other than the last day of an
Interest Period applicable thereto, or the last day of an applicable period
fixed pursuant to Section 2.06(d), or if the Borrower fails to borrow or prepay
any Fixed Rate Loans after notice has been given to any Bank in accordance with
Section 2.03(a) or 2.12(d), the Borrower shall reimburse each Bank within 15
days after demand for any resulting loss or expense incurred by it (or by an
existing or prospective Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties or terminating, covering, reversing or closing out interest
rate swap agreements with third parties, but excluding loss of margin for the
period after any such payment or conversion or failure to borrow or prepay;
provided that such Bank shall have promptly delivered to the Borrower a
certificate as to the amount of such loss or expense (setting forth in
reasonable detail, if the Borrower so requests, the calculation thereof), which
certificate shall be conclusive in the absence of manifest error.
SECTION 2.15. Computation of Interest, Fees and Commissions. Interest
based on the Prime Rate hereunder shall be computed on the basis of a year of
365
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days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day). All other
interest, fees and commissions shall be computed on the basis of a year of 360
days and paid for the actual number of days elapsed (including the first day
but excluding the last day).
SECTION 2.16. Withholding Tax Exemption. At least five Domestic
Business Days prior to the first date on which interest, fees or commissions
are payable hereunder for the account of any Bank, each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to each of the Borrower and the Agent (and, in the
case of any Bank with any Letter of Credit Exposure, the Issuing Bank) two duly
completed copies of United States Internal Revenue Service Form 1001 or 4224,
certifying in either case that such Bank is entitled to receive payments under
this Agreement and the Notes without deduction or withholding of any United
States federal income taxes. Each Bank which so delivers a Form 1001 or 4224
further undertakes to deliver to each of the Borrower and the Agent (and, in
the case of any Bank with any Letter of Credit Exposure, the Issuing Bank) two
additional copies of such form (or a successor form) on or before the date that
such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent (or, in the case of any Bank with any
Letter of Credit Exposure, the Issuing Bank), in each case certifying that such
Bank is entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes, unless an
event (including, without limitation, any change in any treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form with
respect to it and such Bank advises the Borrower and the Agent (and, in the
case of any Bank with any Letter of Credit Exposure, the Issuing Bank) that it
is not capable of receiving payments without any deduction or withholding of
United States federal income tax.
SECTION 2.17. Maximum Interest Rate. (a) Nothing contained in this
Agreement or the Notes shall require the Borrower to pay interest at a rate
exceeding the maximum rate permitted by applicable law. Neither this Section
nor Section 9.08 is intended to limit the rate of interest payable for the
account of any Bank or the Issuing Bank, as the case may be, to the maximum
rate permitted by the laws of the State of New York if a higher rate is
permitted with respect to such Bank or the Issuing Bank, as the case may be, by
supervening provisions of United States federal law.
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(b) If the amount of interest payable for the account of any Bank or
the Issuing Bank, as the case may be, on any date in respect of the immediately
preceding interest computation period, computed pursuant to Section 2.06 or, in
the case of interest on Reimbursement Obligations or other amounts payable in
respect of Letters of Credit, Section 2.07, would exceed the maximum amount
permitted by applicable law to be charged by such Bank or the Issuing Bank, as
the case may be, the amount of interest payable for its account on such date
shall be automatically reduced to such maximum permissible amount.
(c) If the amount of interest payable for the account of any Bank or
the Issuing Bank, as the case may be, in respect of any interest computation
period is reduced pursuant to clause (b) of this Section and the amount of
interest payable for its account in respect of any subsequent interest
computation period, computed pursuant to Section 2.06 or, in the case of
interest on Reimbursement Obligations or other amounts payable in respect of
Letters of Credit, Section 2.07, would be less than the maximum permissible
amount permitted by applicable law to be charged by such Bank or the Issuing
Bank, as the case may be, then the amount of interest payable for its account
in respect of such subsequent interest computation period shall be
automatically increased to such maximum permissible amount; provided that at no
time shall the aggregate amount by which interest paid for the account of any
Bank or the Issuing Bank, as the case may be, has been increased pursuant to
this clause (c) exceed the aggregate amount by which interest paid for its
account has theretofore been reduced pursuant to clause (b) of this Section.
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective on
the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.05):
(a) receipt by the Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any such party as to which an executed
counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex, facsimile transmission or other
written confirmation from such party of execution of a counterpart hereof by
such party);
(b) receipt by the Agent for the account of each Bank of a duly
executed Note dated on or before the Effective Date complying with the
provisions of Section 2.04;
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(c) receipt by the Agent of duly executed counterparts of the
Subsidiary Guaranty duly executed by all Subsidiary Guarantors;
(d) receipt by the Agent of evidence satisfactory to it of the fact
that all amounts payable by the Borrower to the Agent or the Banks on or before
such date shall have been paid or arrangements satisfactory to the Agent shall
have been made for such payment;
(e) receipt by the Agent and the Issuing Bank of evidence satisfactory
to the Agent and the Issuing Bank that each Existing Letter of Credit shall
have been amended to the extent, if any, necessary to reflect the fact that on
and after the Effective Date such Letter of Credit shall be deemed to have been
issued hereunder; and
(f) upon the effectiveness of this Agreement, the aggregate amount of
the Letter of Credit Exposures shall not exceed the aggregate amount of the
Letter of Credit Commitments.
Prior to the effectiveness of this Agreement in accordance with this Section
3.01, none of the terms and conditions of the Existing Credit Agreement or any
Existing Financing Document shall be amended, waived or otherwise modified by
this Agreement and all such terms and conditions shall remain in full force and
effect and are hereby ratified and confirmed in all respects. The Agent shall
promptly notify the Borrower, the Issuing Bank and the Banks of the Effective
Date, and such notice shall be conclusive and binding on all parties hereto.
SECTION 3.02. Borrowings and Letter of Credit Issuances. The
obligation of any Bank to make a Loan on the occasion of any Borrowing, and the
obligation of the Issuing Bank to issue any Letter of Credit, are subject to
the satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing or Notice of
Issuance as required by Section 2.02 or 2.07(b), as the case may be;
(b) in the case of any Borrowing or the issuance of a Letter of
Credit, the fact that, immediately after such Borrowing or the issuance of such
Letter of Credit, as the case may be, the aggregate Exposures of all Banks does
not exceed the aggregate Commitments of all Banks;
(c) the fact that, immediately before and after such Borrowing, or the
issuance of such Letter of Credit, as the case may be, no Default shall have
occurred and be continuing; and
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(d) the fact that the representations and warranties of the Borrower
or any of its Subsidiaries contained in the Financing Documents shall be true
in all material respects on and as of the date of such Borrowing or issuance,
as the case may be.
Each Borrowing and each issuance of a Letter of Credit hereunder shall be
deemed to be a representation and warranty by the Borrower to the Agent, each
of the Banks and, in the case of an issuance of a Letter of Credit, the Issuing
Bank on the date of such Borrowing or issuance, as the case may be, as to the
facts specified in clauses (b), (c) and (d) of this Section.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and
warranties:
SECTION 4.01. Corporate Existence and Power. Each of the Borrower and
its Subsidiaries party to any Financing Document is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted except where the failure to obtain such
governmental licenses, authorizations, consents and approvals would not
materially adversely affect the business, consolidated financial position or
consolidated results of operations of the Borrower and its Consolidated
Subsidiaries and would not in any manner draw into question the validity of any
Financing Document. The Borrower has no Subsidiaries on the Effective Date
other than those listed on Schedule IV hereto.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by each of the Borrower
and its Subsidiaries of each Financing Document to which it is a party are
within the Borrower's and each such Subsidiary's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the certificate of incorporation or by-laws of the Borrower
or any such Subsidiary or of any agreement, judgment, injunction, order, decree
or other instrument that is material, individually or in the aggregate, and
that is binding upon the Borrower or any such Subsidiary or result in the
creation or imposition of any Lien on any asset of the Borrower or any of its
Subsidiaries.
SECTION 4.03. Binding Effect. Each Financing Document other than the
Notes constitutes a valid and binding agreement of the Borrower and each of the
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Subsidiaries party thereto, enforceable against them in accordance with its
terms, and the Notes, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of the Borrower,
enforceable against it in accordance with their terms.
SECTION 4.04. Financial Information. (a) The Base Financials, copies
of which have been delivered to each of the Banks, fairly present, in
conformity with generally accepted accounting principles, the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as of
December 31, 1997 and their consolidated results of operations and cash flows
for the fiscal year of the Borrower then ended.
(b) Since December 31, 1997, there has been no material adverse change
in the business, financial position, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.05. Litigation. Except as disclosed in the Borrower's 1997
Form 10-K, there is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official in which there is a reasonable possibility of an adverse
decision which could materially adversely affect the business, consolidated
financial position or consolidated results of operations of the Borrower and
its Consolidated Subsidiaries or which in any manner draws into question the
validity of any Financing Document.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group
has complied with its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standards under Section 412 of
the Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan, or made any
amendment to any Plan, which has resulted or could reasonably be expected to
result, prior to the first anniversary of the Termination Date, in the
imposition of a Lien or the posting of a bond or other security under Section
302(f) of ERISA or Section 401(a)(29) or 412(n) of the Internal Revenue Code,
(iii) incurred any liability under Title IV of ERISA other than a liability to
the PBGC for premiums under Section 4007 of ERISA or (iv) within the preceding
five plan years, with respect to any Other Plan, engaged in any transaction
described in Section 4069 or Section 4212(c) of ERISA.
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SECTION 4.07. Environmental Matters. (a) In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of the Borrower
and its Subsidiaries, in the course of which it identifies and evaluates
associated liabilities and costs. On the basis of this review, the Borrower has
reasonably concluded that Environmental Laws are unlikely to have a material
adverse effect on the business, financial condition, results of operations or
prospects of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
(b) As of the Effective Date, to the knowledge of the Borrower and its
Subsidiaries no material claim, investigation or written inquiry has been made,
and the Borrower is not aware of any circumstance which would warrant or give
rise to such a claim, investigation or inquiry, with regard to the Borrower or
any of its Subsidiaries, in respect of any facility owned, or to the knowledge
of the Borrower and its Subsidiaries, leased or operated, either now or in the
past, by the Borrower or any of its Subsidiaries, under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended and
in effect, or pursuant to any other Environmental Law, or by the Environmental
Protection Agency or by any state, local, municipal or foreign enforcement
agency having jurisdiction over the protection of the environment, or by any
other Person in respect of or under any Environmental Law.
SECTION 4.08. Taxes. United States federal income tax returns of the
Borrower and its Subsidiaries have been closed through the fiscal year ended
December 31, 1992. The Borrower and its Subsidiaries have filed all United
States federal income tax returns and all other material tax returns which are
required to be filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Borrower or any of its
Subsidiaries other than any such taxes the amount or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with generally accepted accounting
principles have been established. The charges, accruals and reserves on the
books of the Borrower and its Subsidiaries in respect of taxes or other
governmental charges are, in the opinion of the Borrower, adequate.
SECTION 4.09. Title to and Condition of Properties. As of the
Effective Date (a) the Borrower and its Subsidiaries have good and marketable
title to all of the properties and other assets (real or personal, tangible,
intangible or mixed) they own or purport to own and (b) all leases to which the
Borrower or any of its Subsidiaries is a party as lessee or sublessee are in
full force and effect, except for such defects in title and such invalidity or
unenforceability of leases as, in the aggregate, could not materially adversely
affect the condition (financial
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or otherwise), earnings, business affairs or business prospects of the Borrower
and its Subsidiaries taken as a whole.
SECTION 4.10. Not an Investment Company. Neither the Borrower nor any
of its Subsidiaries is an "INVESTMENT COMPANY" or a company "CONTROLLED" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.11. Full Disclosure. All information heretofore furnished in
writing by the Borrower to the Agent, the Issuing Bank or any Bank or otherwise
to the Banks generally for purposes of or in connection with this Agreement or
any transaction contemplated hereby was true and accurate in all material
respects on the date as of which such information was stated or certified. The
Borrower has disclosed to the Agent, the Issuing Bank and the Banks in writing
any and all facts which materially and adversely affect, or may so affect (to
the extent the Borrower can now reasonably foresee), the business, operations
or financial condition of the Borrower and its Consolidated Subsidiaries, taken
as a whole, or the ability of the Borrower or any of its Subsidiaries party to
any of the Financing Documents to perform its obligations under any Financing
Document to which it is a party.
SECTION 4.12. Representations in Subsidiary Guaranty. Each
representation and warranty contained in the Subsidiary Guaranty is true and
correct.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment or
Letter of Credit Exposure hereunder or any amount payable under any Note
remains unpaid:
SECTION 5.01. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 90 days after the end
of each fiscal year of the Borrower, consolidated balance sheets of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year
and the related consolidated statements of operations, stockholders' equity and
cash flows for such fiscal year, setting forth in each case in comparative form
the figures for the previous fiscal year, all reported on in a manner
acceptable to the Securities and Exchange Commission by Ernst & Young LLP or
other independent public
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accountants of nationally recognized standing and certified as to consistency
in compliance with Section 1.02 by an Authorized Financial Officer of the
Borrower;
(b) as soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of the Borrower,
condensed consolidated balance sheets of the Borrower and its Consolidated
Subsidiaries as of the end of such quarter and the related condensed
consolidated statements of income and cash flows for such quarter and for the
portion of the Borrower's fiscal year ended at the end of such quarter, setting
forth in each case in comparative form the figures for the corresponding
quarter and the corresponding portion of the Borrower's previous fiscal year,
all certified (subject to normal year-end adjustments and condensation pursuant
to the rules of the Securities and Exchange Commission) as to fairness of
presentation and consistency in compliance with Section 1.02 by an Authorized
Financial Officer of the Borrower;
(c) as soon as available and in any event within 30 days after the end
of each calendar month, consolidated balance sheets of the Borrower and its
Consolidated Subsidiaries as of the end of such month and the related
consolidated statements of operations, stockholders' equity and cash flows for
such month and for the portion of the Borrower's fiscal year ending at the end
of such month, setting forth in each case in comparative form the figures for
the corresponding month and the corresponding portion of the Borrower's
previous fiscal year, all certified (subject to normal year-end adjustments) as
to fairness of presentation and consistency in compliance with Section 1.02 by
an Authorized Financial Officer of the Borrower;
(d) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of an
Authorized Financial Officer of the Borrower (i) setting forth in reasonable
detail the calculations required to establish whether the Borrower was in
compliance with the requirements of Sections 5.05, 5.06, 5.07, 5.09, 5.10, 5.11
and 5.13 hereof on the date of such financial statements, (ii) setting forth in
reasonable detail calculations of the Pricing Ratio as at the date of the
balance sheet contained therein and for the period of four fiscal quarters
ending on such date and (iii) stating whether any Default exists on the date of
such certificate and, if any Default then exists, setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto; and if such compliance is being determined on a pro forma
basis in accordance with the proviso to the definition in Consolidated EBITDA,
setting forth in reasonable detail the nature and amount of each pro forma
adjustment included in such calculations.
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<PAGE> 48
(e) promptly upon the occurrence of any Default, a certificate of an
Authorized Financial Officer of the Borrower setting forth the details thereof
and the action which the Borrower is taking or proposes to take with respect
thereto;
(f) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the Securities and
Exchange Commission;
(h) if and when any member of the ERISA Group (i) provides or is
required to provide notice to the PBGC of any "REPORTABLE EVENT" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has provided or is required to provide notice of any
such reportable event, a copy of the notice of such reportable event provided
or required to be provided to the PBGC; (ii) receives notice of complete or
partial withdrawal liability under Title IV of ERISA or notice that any
Multiemployer Plan is in reorganization, is insolvent or has been terminated, a
copy of such notice; (iii) receives notice from the PBGC under Title IV of
ERISA of an intent to terminate, impose liability (other than for premiums
under Section 4007 of ERISA) in respect of, or appoint a trustee to administer
any Plan, a copy of such notice; (iv) applies for a waiver of the minimum
funding standards under Section 412 of the Internal Revenue Code with respect
to any Plan, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and
such other information as is filed with the PBGC in connection therewith; (vi)
gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a
copy of such notice; (vii) receives notice from the PBGC or any plan
administrator of an intent to impose liability on any member of the ERISA Group
with respect to any Other Plan on account of a transaction described in Section
4069 or 4212(c) of ERISA, a copy of such notice; (viii) receives notice from
the PBGC or any plan administrator of an intent to impose liability on any
member of the ERISA Group with respect to any Other Plan on the basis that such
member of the ERISA Group is a member of the "CONTROLLED GROUP" with respect to
such Other Plan under Section 412(c)(11) of the Internal Revenue Code or
Section 4001(a)(14) of ERISA, a copy of such notice; or (ix) fails to make any
payment or contribution to any Plan or Multiemployer Plan or makes any
amendment to any Plan which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security under Section 302(f) of ERISA
or Section 401(a)(29) or 412(n) of the Internal Revenue Code, a
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certificate of an Authorized Financial Officer of the Borrower setting forth
all material and relevant details as to such occurrence or event and the
action, if any, which the Borrower, the Borrower or the applicable member of
the ERISA Group proposes or, after consultation with counsel, believes that it
is required to take; and
(i) from time to time such additional information regarding the
financial position or business of the Borrower or any of its Subsidiaries as
any Bank may reasonably request.
SECTION 5.02. Maintenance of Property; Insurance. (a) The Borrower
will keep, and will cause each of its Subsidiaries to keep, all property
necessary in its business in good working order and condition, ordinary wear
and tear excepted.
(b) The Borrower will, and will cause each of its Subsidiaries to,
maintain (either in the name of the Borrower or in such Subsidiary's own name)
with financially sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts and against at least such
risks (and with such risk retention and self insurance) as are usually insured
against in the same general area by companies of established repute engaged in
the same or a similar business at a substantial number of different facilities.
The Borrower will furnish to the Banks, upon request from the Agent,
information presented in reasonable detail as to the insurance so carried.
SECTION 5.03. Compliance with Laws. The Borrower will comply, and will
cause each of its Subsidiaries to comply, with all applicable laws, ordinances,
rules, regulations, and requirements of governmental authorities (including,
without limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) (except (i) where the failure to so comply would not materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Subsidiaries and would not in any
manner draw into question the validity of any Financing Document or (ii) where
the necessity of compliance therewith is contested in good faith by appropriate
proceedings and for which adequate reserves have been established in accordance
with generally accepted accounting principles) and will maintain and cause each
of its Subsidiaries to maintain all governmental licenses, approvals,
authorizations and consents necessary for the conduct of the business of the
Borrower and its Subsidiaries (except where the failure to maintain such
governmental licenses, approvals, authorizations and consents would not
materially adversely affect the business, consolidated financial position or
consolidated results of operations of the Borrower and its Subsidiaries and
would not in any manner draw into question the validity of any Financing
Document).
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SECTION 5.04. Inspection of Property, Books and Records. The Borrower
will keep, and will cause each of its Subsidiaries to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities and will
permit, and will cause each such Subsidiary to permit, representatives of any
Bank to visit and inspect any of its properties, to examine and make abstracts
from any of its books and records and to discuss its affairs, finances and
accounts with its officers, employees and independent public accountants, all
at such reasonable times and upon reasonable notice to the Borrower and as
often as may reasonably be desired; provided that (i) subject to the provisions
of Section 9.03(a), the Borrower shall not be obligated to pay the expenses of
the Banks' respective representatives and (ii) the Borrower will have an
opportunity to participate in any discussions that take place between
representatives of any Bank and the Borrower's independent public accountants.
SECTION 5.05. Minimum Consolidated Net Worth. Consolidated Net Worth
shall be at least $690,000,000 plus 50% of the aggregate positive Consolidated
Net Income (excluding any consolidated net loss) of the Borrower and its
Consolidated Subsidiaries for each fiscal quarter ending after January 1, 1998.
SECTION 5.06. Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio at any date shall not be less than the ratio set forth below opposite the
period in which such date falls:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through March 30, 1999............................. 1.25 to 1.0
March 31, 1999 through March 30, 2000 1.35 to 1.0
March 31, 2000 through March 30, 2001 1.45 to 1.0
March 31, 2001 and thereafter..................................... 1.50 to 1.0
</TABLE>
SECTION 5.07. Leverage Ratio. The ratio at any date of (a) Adjusted
Consolidated Debt to (b) EBITDAR shall not be more than the ratio set forth
below opposite the period in which such date falls:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through June 29, 1999....................................... 4.95 to 1.0
June 30, 1999 through December 30, 1999.................................... 4.85 to 1.0
December 31, 1999 through June 29, 2000.................................... 4.75 to 1.0
June 30, 2000 through December 30, 2000.................................... 4.60 to 1.0
December 31, 2000 through June 29, 2001.................................... 4.50 to 1.0
June 30, 2001 and thereafter............................................... 4.45 to 1.0
</TABLE>
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SECTION 5.08. Ownership of Stock of Wholly-Owned Subsidiaries. The
Borrower will at all times maintain, or cause a Wholly-Owned Subsidiary of the
Borrower to maintain, ownership of 100% of each class of voting securities of,
and all other equity securities (except for directors' qualifying shares) in,
each of its Subsidiaries that shall be a Wholly-Owned Subsidiary of the
Borrower on the date hereof and each Person that shall become a Wholly-Owned
Subsidiary of the Borrower after the date hereof, except in each case any such
Wholly-Owned Subsidiary that shall hereafter be disposed of in its entirety,
consolidated or merged with or into the Borrower or another such Wholly-Owned
Subsidiary or liquidated.
SECTION 5.09. Investments. Neither the Borrower nor any of its
Subsidiaries will make or acquire after the date hereof any Investment in any
Person other than:
(a) Investments in the Borrower or in Persons that were Subsidiaries
of the Borrower on the Original Effective Date;
(b) Investments in Persons that are (i) primarily engaged in the
health-care business and (ii) after the making of such Investment, are
Subsidiaries of the Borrower;
(c) Temporary Cash Investments;
(d) extensions of credit or Guarantees of obligations of one or more
other Persons (other than Encore Nursing Center Partners, Ltd.-85 and Encore
Retirement Partners, Ltd.-85) as an integral part of the financing of the
acquisition, construction, equipping or improving of facilities from which the
Borrower or its Subsidiaries will provide medical or related services;
(e) other miscellaneous Investments related to the acquisition and
financing (in the ordinary course of the Borrower's business) of health-care
facilities through industrial development revenue bonds issued for the benefit
of the Borrower and its Subsidiaries;
(f) capital contributions required to be made by the Borrower to
Beverly Indemnity, Ltd. in accordance with applicable law and insurance
regulations;
(g) stock, obligations or securities received from nursing home
patients in the ordinary course of business of the Borrower and its
Subsidiaries;
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(h) negotiable instruments endorsed for deposit or collection or
similar instruments in the ordinary course of business;
(i) promissory notes and other Investments received as consideration
for facilities sold, provided that the aggregate net book value of all
outstanding Investments permitted by this clause (i) shall not, at any time,
exceed $25,000,000;
(j) Guarantees permitted by Section 5.13;
(k) any Investment made by the Borrower or any of its Subsidiaries in
connection with and as part of a Workout Transaction;
(l) Investments made by the Borrower or any of its Subsidiaries in one
or more Special Purpose Receivables Financing Subsidiaries by means of the sale
of, or the granting of security interests in, Medicare, Medicaid or other
patient accounts receivable owing to the Borrower or such Subsidiary, in either
case to such Special Purpose Receivables Financing Subsidiaries pursuant to a
Receivables Financing Program, provided that the net amount of all uncollected
accounts receivable owing to the Borrower or any of its Subsidiaries that have
been so sold or in which a security interest has been so granted shall not
exceed 200% of the aggregate principal or redemption amount of all Permitted
Receivables Financing Securities then outstanding;
(m) Investments made in Beverly Japan Corporation in an aggregate
amount outstanding at any time not to exceed $10,000,000;
(n) Investments made in Persons that are primarily engaged in the
health-care business, the consideration for which consists exclusively of
common stock of the Borrower or Permitted Preferred Stock; and
(o) any Investment not otherwise permitted by the foregoing clauses of
this Section (other than promissory notes and other Investments received as
consideration for facilities sold) in any Person engaged primarily in the
health-care business if, immediately after such Investment is made or acquired,
the aggregate net book value of all such Investments then held by the Borrower
or its Subsidiaries and permitted by this clause (o) does not exceed
$75,000,000.
SECTION 5.10. Restricted Payments on Stock. Neither the Borrower nor
any of its Subsidiaries shall (x) declare or make any dividend payment or other
distribution on any capital stock of the Borrower (other than dividends payable
solely in shares of the Borrower's capital stock) or (y) declare or make any
payment on account of the purchase, redemption, retirement or acquisition of
the Borrower's capital stock; provided that, so long as at the time of and
after giving
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<PAGE> 53
effect to any such payment no Event of Default shall have occurred and be
continuing,
(i) the Borrower may make any such payment or distribution from the
proceeds of the sale by the Borrower (other than a sale to a
Subsidiary of the Borrower) after the Original Effective Date of its
common stock,
(ii) the Borrower may make dividend payments with respect to its
preferred stock (A) from any source in an amount not to exceed
$2,500,000 in any fiscal quarter and (B) from proceeds of the sale by
the Borrower (other than a sale to a Subsidiary of the Borrower) after
the Original Effective Date of Permitted Preferred Stock in any
amount,
(iii) the Borrower may make payments on account of the purchase,
redemption, retirement or acquisition of its preferred stock from the
proceeds of the sale by the Borrower (other than a sale to a
Subsidiary of the Borrower) after the Original Effective Date of any
Permitted Preferred Stock,
(iv) the Borrower may make odd-lot repurchases of its common stock
for an aggregate consideration not exceeding $10,000 in any calendar
year, and
(v) the Borrower may make any such payment or distribution if,
after giving effect thereto, the aggregate amount of all such payments
or distributions made after the Existing Credit Agreement Effective
Date (including, without limitation, any such payments or
distributions permitted under subclause (ii)(A) or clause (iv) above)
does not exceed the sum of $75,000,000 plus 50% of Consolidated Net
Income for the period after June 30, 1997 through the date of such
declaration, payment or distribution.
Nothing in this Section shall prohibit the payment of any dividend or
distribution within 45 days after the declaration thereof if such declaration
was not prohibited by this Section.
SECTION 5.11. Negative Pledge. Neither the Borrower nor any of its
Subsidiaries will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(i) Liens existing on the Effective Date securing Debt and other
obligations outstanding on the Effective Date;
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(ii) any Lien on any asset of any corporation that becomes a
Consolidated Subsidiary of the Borrower after the Effective Date that
exists at the time such corporation becomes such a Consolidated
Subsidiary and (other than in a Workout Transaction) not created in
contemplation thereof;
(iii) any Lien existing on any asset prior to the acquisition
thereof, acquired after the Effective Date by the Borrower or a
Subsidiary of the Borrower and (other than in a Workout Transaction)
not created in contemplation thereof;
(iv) any Lien on any asset securing Debt or lease obligations
incurred or assumed for the purpose of financing all or any part of
the cost of acquiring or constructing such asset or reconstructing
substantially all of such asset, provided that such Lien attaches to
such asset concurrently with or within one year after such
acquisition, construction or reconstruction;
(v) any Lien on any asset securing Debt or lease obligations
incurred or assumed for the purpose of improving or making any
addition to such asset, provided that (A) such Lien attaches to such
asset concurrently with or within one year after the completion of the
improvement thereof or addition thereto and (B) the aggregate
outstanding principal amount of all such Debt incurred after the
Original Effective Date secured by such Liens shall not, at any time,
exceed $30,000,000;
(vi) Liens securing Debt incurred in connection with Lease
Cancellation Payments, provided that the aggregate amount of all such
Debt incurred after the Original Effective Date secured by such Liens
shall not, at any time, exceed $20,000,000;
(vii) Liens securing industrial development revenue bonds (or
securing contingent obligations to issuers of letters of credit issued
to support industrial development revenue bonds) arising in connection
with the conversion of the interest rate on such bonds from floating
to long-term fixed rates or from fixed rates to other long-term fixed
rates;
(viii) any Lien arising out of the refinancing, extension, renewal
or refunding of any Debt secured by any Lien permitted by any of the
foregoing clauses of this Section, provided that the principal amount
of such Debt is not increased and such Debt is not secured by any
additional assets other than assets that relate directly to the
facility subject to the original financing;
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<PAGE> 55
(ix) Liens on Medicare, Medicaid or other patient accounts
receivable of the Borrower or any of its Subsidiaries, or on Permitted
Receivables Financing Securities, granted to secure Permitted
Receivables Financing Securities, provided that the net amount of all
uncollected accounts receivable owing to the Borrower or any of its
Subsidiaries over which such a Lien is granted, together, without
duplication, with the net amount of all uncollected accounts
receivable owing to the Borrower or any of its Subsidiaries that are
assigned to secure such Permitted Receivables Financing Securities,
shall not exceed, at any time, 200% of the aggregate principal or
redemption amount of all Permitted Receivables Financing Securities
then outstanding;
(x) Liens incidental to the conduct of its business or the
ownership of its assets which (A) do not secure Debt or Derivatives
Obligations and (B) do not in the aggregate materially detract from
the value of its assets or materially impair the use thereof in the
operation of its business;
(xi) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $10,000,000;
(xii) Liens on nursing homes and related real estate improvements
and equipment ("MORTGAGE ASSETS") given in substitution for Liens on
Mortgage Assets existing on the Existing Credit Agreement Effective
Date or for Liens on Mortgage Assets incurred pursuant to this clause
(xii) or clause (xiii) below, provided that the sum of (A) the excess
of the Appraised Value of all Mortgage Assets subjected to Liens
pursuant to this clause (xiii) on or after the Existing Credit
Agreement Effective Date over the Appraised Value of all such Mortgage
Assets released from Liens on or after the Existing Credit Agreement
Effective Date and (B) all Debt incurred after the Existing Credit
Agreement Effective Date and secured by Liens permitted under clause
(xiii) below shall not at any time exceed $50,000,000; and
(xiii) Liens not otherwise permitted under clauses (i) through
(xii) of this Section, provided that the sum of the amounts set forth
in subclause (A) of clause (xii) above and the aggregate principal
amount of all Debt incurred after the Existing Credit Agreement
Effective Date and secured by Liens permitted under this clause (xiii)
shall not at any time exceed $50,000,000.
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SECTION 5.12. Consolidations, Mergers and Sales of Assets. (a) Neither
the Borrower nor any of its Subsidiaries will (i) consolidate or merge with or
into any other Person, unless the Borrower or, except in the case of a merger
or consolidation to which the Borrower is a party, a Wholly-Owned Subsidiary of
the Borrower is the surviving corporation or (ii) sell, lease or otherwise
transfer all or any substantial part of the assets of the Borrower and its
Subsidiaries, taken as a whole, to any other Person, provided that (A) this
Section shall not apply to mergers, dissolutions, reorganizations or
liquidations of Subsidiaries of the Borrower that have disposed of all or
substantially all of their assets and (B) the Borrower and its Subsidiaries may
assign or grant security interests in their Medicare, Medicaid or other patient
accounts receivable to a Special Purpose Receivables Financing Subsidiary to
secure Permitted Receivables Financing Securities (provided that the net amount
at any time of all uncollected accounts receivable owing to the Borrower or any
of its Subsidiaries that are so assigned or in which a security interest is so
granted shall not exceed 200% of the aggregate principal or redemption amount
of all Permitted Receivables Financing Securities then outstanding).
SECTION 5.13. Incurrence of Debt. The Borrower will not permit any of
its Subsidiaries to incur, assume or suffer to exist any Debt, except:
(i) Debt outstanding on the Effective Date and included either in
the Base Financials or listed in Schedule III hereto;
(ii) Debt incurred after the Effective Date in connection with
Lease Cancellation Payments, provided that the aggregate principal
amount of all such Debt outstanding at any time shall not exceed
$20,000,000;
(iii) Debt secured by a Lien permitted pursuant to clause (iii) of
Section 5.11(a);
(iv) Debt of any corporation that becomes a Consolidated Subsidiary
of the Borrower after the Effective Date that exists at the time such
corporation becomes such a Consolidated Subsidiary and (other than in
a Workout Transaction) not created in contemplation thereof;
(v) Debt ("REFINANCING DEBT") incurred to refinance Debt
("REFINANCED DEBT") permitted under clauses (i) through (iv) above,
provided that (A) the principal amount of such Refinancing Debt shall
not exceed the principal amount of such Refinanced Debt and (B) such
Refinancing Debt shall have a weighted average life of not less than
the remaining weighted average life of such Refinanced Debt or such
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Refinancing Debt shall not have any required payments of principal
prior to the first anniversary of the Termination Date;
(vi) Permitted Receivables Financing Securities, provided that the
aggregate principal and redemption amount of all Permitted Receivables
Financing Securities outstanding at any time shall not exceed
$150,000,000;
(vii) Debt incurred under the Financing Documents;
(viii) Guarantees by any Subsidiary of the Borrower of any
obligation of the Borrower or any of its other Subsidiaries that such
guaranteeing Subsidiary would have been permitted to incur hereunder
as a primary obligation;
(ix) Debt consisting of advances from the Borrower or any of its
Subsidiaries in connection with the normal operation of the business
of the Borrower and its Subsidiaries;
(x) Debt incurred in connection with and as part of a Workout
Transaction;
(xi) Debt incurred or assumed for the purpose of financing the cost
of acquiring, constructing or improving an asset of the Borrower or
any of its Subsidiaries;
(xii) Permitted Preferred Stock; and
(xiii) Debt not otherwise permitted under clauses (i) through (xii)
of this Section, provided that the aggregate principal amount of all
Debt permitted under this clause (xiii) that is incurred on or after
the Existing Credit Agreement Effective Date shall not at any time
exceed $75,000,000.
SECTION 5.14. Use of Proceeds and Letters of Credit. The Letters of
Credit issued (or deemed issued), and the proceeds of the Loans made, under
this Agreement will be used for (i) the repayment or prepayment of loans made
under the Existing Credit Agreement and (ii) general corporate purposes. None
of such proceeds will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any "margin stock"
within the meaning of Regulation U.
SECTION 5.15. Additional Subsidiary Guarantors. The Borrower agrees to
cause each Person, other than a Special Purpose Receivables Financing
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Subsidiary, that shall, at any time after the date hereof, become a
Wholly-Owned Subsidiary of the Borrower to enter into the Subsidiary Guaranty.
SECTION 5.16. Lease Conversions. The Borrower will not, and will not
permit any of its Subsidiaries to, make any Lease Conversion in any calendar
year unless:
(i) the aggregate consideration paid or to be paid by the Borrower
and its Subsidiaries in connection with the termination of leases or
the acquisition of facilities and related property pursuant to such
Lease Conversion and all other Lease Conversions made during such
calendar year would not exceed $100,000,000; and
(ii) to the extent such Lease Conversion is financed or will be
financed with Debt of the Borrower or any of its Subsidiaries, such
Debt is incurred within one year of such Lease Conversion.
SECTION 5.17. Transactions with Affiliates. The Borrower will not,
after the date hereof, and will not permit any of its Subsidiaries to, after
the date hereof, enter into any transaction or arrangement with any Affiliate
(including, without limitation, the purchase from, sale to or exchange of
property with, or the rendering of any service by or for, any Affiliate),
except in the ordinary course of and pursuant to the reasonable requirements of
the Borrower's or such Subsidiary's (as the case may be) business and upon fair
and reasonable terms no less favorable to the Borrower or such Subsidiary than
would be obtained in a comparable arm's-length transaction with a Person other
than an Affiliate.
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Defaults. If one or more of the following
events ("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) the Borrower shall fail to pay (i) on the date when due any
principal of any Loan or any Reimbursement Obligation or (ii) within five
Domestic Business Days after the date when due any interest on any Loan or
Reimbursement Obligation or any fees, commissions or other amounts payable
hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.05, 5.06, 5.07, 5.10, 5.12, 5.13, 5.14 or 5.16;
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(c) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.08, 5.09, 5.11 or 5.15 for 10 days after the Borrower
shall have obtained actual knowledge of such failure or after written notice
thereof has been given to the Borrower by the Agent at the request of any Bank;
(d) the Borrower or any Subsidiary Guarantor shall fail to observe or
perform any covenant or agreement contained herein or in the Subsidiary
Guaranty (other than those covered by clause (a), (b) or (c) above) for 30 days
after written notice thereof has been given to the Borrower by the Agent at the
request of any Bank;
(e) any representation, warranty, certification or statement made by
the Borrower or any of its Subsidiaries in any Financing Document or in any
certificate, financial statement or other document delivered pursuant to any
Financing Document shall prove to have been incorrect in any material respect
when made (or deemed made);
(f) the Borrower or any of its Subsidiaries shall fail to make any
payment in respect of any Material Financial Obligations when due or, if later,
within any applicable grace period;
(g) (i) any event or condition shall occur which results in the
acceleration of the maturity, or requires the early redemption or prepayment,
of any Material Financial Obligations or any event or condition shall occur and
be continuing which enables (or, with the giving of notice or lapse of time or
both, would enable) the holder of any Material Financial Obligations or any
Person acting on such holder's behalf to accelerate the maturity, or require
the early redemption or prepayment, of such Material Financial Obligations
(unless such event or condition shall have been waived and any acceleration or
required redemption or prepayment rescinded), provided that the fact that the
interest paid on any industrial development revenue bonds ceases to be exempt
from federal income taxation shall not constitute an Event of Default under
this subsection (g) unless such industrial development revenue bonds are
accelerated, redeemed or prepaid or the aggregate principal amount of
industrial development revenue bonds subject to acceleration or early
redemption or prepayment as a result of such event or condition shall be at
least $20,000,000 or (ii) any event or condition constituting a default or
event of default under the agreement, instrument or other document relating
thereto shall occur which results in the termination of any Material Commitment
or any such event or condition shall occur and be continuing which enables (or
with the giving of notice or lapse of time or both, would enable) the provider
of any Material Commitment or any Person acting on such provider's behalf to
require the early termination of such Material Commitment (unless such event or
condition shall have been waived and any termination rescinded);
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(h) the Borrower or any Material Subsidiary (or any combination of
Subsidiaries that, if treated as a single Subsidiary, would at such time
constitute a Material Subsidiary) shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the appointment of
or taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the foregoing;
(i) an involuntary case or other proceeding shall be commenced against
the Borrower or any Material Subsidiary (or any combination of Subsidiaries
that, if treated as a single Subsidiary, would at such time constitute a
Material Subsidiary) seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Material Subsidiary (or any
combination of Subsidiaries that, if treated as a single Subsidiary, would at
such time constitute a Material Subsidiary) under the federal bankruptcy laws
as now or hereafter in effect;
(j) (i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $1,000,000 which it shall have
become liable to pay under Title IV of ERISA; or (ii) notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any member
of the ERISA Group, any plan administrator or any combination of the foregoing;
or (iii) any member of the ERISA Group has been notified in writing that the
PBGC has instituted proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or to cause a trustee to be appointed to administer any Material Plan; or (iv)
a condition shall exist by reason of which the PBGC would be entitled to obtain
a decree adjudicating that any Material Plan must be terminated; or (v) any of
the events described in clause (iii) above shall occur with respect to any
Other Plan or Other Plans (other than a multiemployer plan within the meaning
of Section 4001(a)(3) of ERISA) (A) that have aggregate Unfunded Liabilities in
excess of $1,000,000 and (B) with respect to which either (1) one or more
members of the ERISA Group have engaged in a transaction or transactions
described in Section 4069 of
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ERISA or (2) one or more members of the ERISA Group is a member of the
"CONTROLLED GROUP" under Section 412(c)(11) of the Internal Revenue Code or
Section 4001(a)(14) of ERISA; or (vi) there shall occur a complete or partial
withdrawal from, or a default, within the meaning of Section 4219(c)(5) of
ERISA, with respect to, one or more (A) multiemployer plans, within the meaning
of Section 4001(a)(3) of ERISA (which plans are not Multiemployer Plans), with
respect to which a member of the ERISA Group shall have engaged, within the
previous five plan years, in a transaction described in Section 4212(c) of
ERISA, or (B) Multiemployer Plans, which could reasonably be expected to result
in the incurrence by one or more members of the ERISA Group of a current
payment obligation in excess of $1,000,000; provided that no Event of Default
shall occur under clause (v) or (vi) if (A) the Unfunded Liabilities of the
Other Plans in respect of which events described in clause (v) have occurred,
together with the current payment obligations that could reasonably be expected
to result from complete or partial withdrawals or defaults described in clause
(vi), shall not exceed $2,500,000 and (B) each member of the ERISA Group that
could reasonably be expected to be liable for such Unfunded Liabilities or
current payment obligations is diligently contesting, in good faith, by
appropriate proceedings, the imposition of such liabilities or obligations;
(k) (i) one or more judgments or orders for the payment, in the
aggregate, of money in excess of $20,000,000 shall be rendered against the
Borrower or any of its Subsidiaries and such judgments or orders shall continue
unsatisfied and unstayed for a period of 30 days or (ii) one or more judgments
or orders shall be rendered against the Borrower or any of its Subsidiaries,
which judgments or orders shall be stayed on condition that a bond or
collateral equal to or greater than, in the aggregate, $250,000,000 be posted
or provided, and such judgments or orders shall not be overturned or lifted
within a period of 10 days; or
(l) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) of 25% or more of the
outstanding shares of common stock of the Borrower;
then, and in every such event, the Agent shall (i) if requested by Banks having
more than 66 2/3% in aggregate amount of the Commitments, by notice to the
Borrower terminate the Commitments and they shall thereupon terminate, and (ii)
if requested by Banks holding more than 66 2/3% of the sum of (A) the aggregate
principal amount of the Loans and (B) the aggregate Letter of Credit Exposures,
by notice to the Borrower declare the Notes and any Reimbursement Obligations
(together with accrued interest thereon and all fees, commissions and other
amounts payable by the Borrower hereunder) to be, and the same shall thereupon
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become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower;
provided that in the case of any of the Events of Default specified in clause
(h) or (i) above with respect to the Borrower, without any notice to the
Borrower or any other act by the Agent or the Banks, the Commitments shall
thereupon terminate and the Notes and any Reimbursement Obligations (together
with accrued interest thereon and all fees, commissions and other amounts
payable by the Borrower hereunder) shall become immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.
SECTION 6.02. Notice of Default. The Agent shall give notice to the
Borrower under Section 6.01(c) or 6.01(d) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks and the Issuing Bank
thereof.
ARTICLE 7
THE AGENT
SECTION 7.01. Appointment and Authorizations. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under the Financing Documents as are delegated to
the Agent by the terms thereof, together with all such powers as are reasonably
incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of
New York shall have the same rights and powers under the Financing Documents as
any other Bank and may exercise or refrain from exercising the same as though
it were not the Agent or the Issuing Bank, and Morgan Guaranty Trust Company of
New York and its affiliates may accept deposits from, lend money to, and
generally engage in any kind of business with the Borrower or any Subsidiary or
affiliate of the Borrower as if it were not the Agent or the Issuing Bank
hereunder.
SECTION 7.03. Action by Agent. The obligations of the Agent hereunder
are only those expressly set forth herein. Without limiting the generality of
the foregoing, the Agent shall not be required to take any action with respect
to any Default, except as expressly provided in Article 6.
SECTION 7.04. Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action
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taken or omitted to be taken by it in good faith in accordance with the advice
of such counsel, accountants or experts.
SECTION 7.05. Liability of Agent. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken
or not taken by it in connection herewith (a) with the consent or at the
request of the Required Banks or (b) in the absence of its own gross negligence
or willful misconduct. Neither the Agent nor any of its directors, officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation made in
connection with the Financing Documents or any borrowing or letter of credit
hereunder, (ii) the performance or observance of any of the covenants or
agreements of the Borrower or any of its Subsidiaries party to any Financing
Document, (iii) the satisfaction of any condition specified in Article 3,
except receipt of items required to be delivered to the Agent, or (iv) the
validity, effectiveness or genuineness of any Financing Document or any other
instrument or writing furnished in connection therewith. The Agent shall not
incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex,
facsimile transmission or similar writing) believed by it to be genuine or to
be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance
with its Total Exposure, indemnify the Agent (to the extent not reimbursed by
the Borrower) against any cost, expense (including counsel fees and
disbursements), claim, demand, action, loss or liability (except such as result
from the Agent's gross negligence or willful misconduct) that the Agent may
suffer or incur in connection with any Financing Document or any action taken
or omitted by the Agent hereunder or thereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent, the Issuing Bank or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Bank also acknowledges that it will, independently and without
reliance upon the Agent, the Issuing Bank or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking any action under this
Agreement.
SECTION 7.08. Successor Agent. The Agent may resign at any time,
effective upon the appointment of a successor Agent and such successor Agent's
acceptance of such appointment, by giving written notice thereof to the Banks,
the Issuing Bank and the Borrower. Upon the giving of any such notice of
resignation, the Required Banks (with, unless an Event of Default shall have
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occurred and be continuing, the written consent of the Borrower (which shall
not be unreasonably withheld)) shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Required
Banks, and shall have accepted such appointment, within 30 days after the
retiring Agent gives notice of resignation, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$1,000,000,000. Upon the acceptance of its appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After the
effectiveness of any retiring Agent's resignation hereunder as Agent, the
provisions of this Article shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent.
SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent for its
own account fees in the amounts and at the times previously agreed upon between
the Borrower and the Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any Fixed
Rate Loan:
(a) the Agent is advised by the Reference Banks that deposits in
dollars (in the applicable amounts) are not being offered to the Reference
Banks in the relevant market for such Interest Period, or
(b) Banks having 50% or more of the aggregate principal amount of the
affected Loans advise the Agent that the Adjusted CD Rate or the Adjusted
London Interbank Offered Rate, as the case may be, as determined by the Agent
will not adequately and fairly reflect the cost to such Banks of funding their
CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Banks to
make CD Loans or Euro-Dollar Loans, as the case may be, or to convert
outstanding Loans into CD Loans or Euro-Dollar Loans shall be suspended and
(ii) each outstanding CD Loan or Euro-Dollar Loan shall be converted into a
Base Rate Loan on the last day of the then current Interest Period applicable
thereto. Unless the Borrower notifies the Agent at least two Domestic Business
Days before the date
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of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been
given that it elects not to borrow on such date, such Borrowing shall instead
be made as a Base Rate Borrowing.
SECTION 8.02. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Euro-Dollar Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar
Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank
shall so notify the Agent, the Agent shall forthwith give notice thereof to the
other Banks and the Borrower, whereupon until such Bank notifies the Borrower
and the Agent that the circumstances giving rise to such suspension no longer
exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert
outstanding Domestic Loans into Euro-Dollar Loans, shall be suspended. Before
giving any notice to the Agent pursuant to this Section, such Bank shall
designate a different Euro-Dollar Lending Office if such designation will avoid
the need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such notice is given, each
Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base
Rate Loan either (a) on the last day of the then current Interest Period
applicable to such Euro-Dollar Loan if such Bank may lawfully continue to
maintain and fund such Loan to such day or (b) immediately if such Bank shall
determine that it may not lawfully continue to maintain and fund such Loan to
such day.
SECTION 8.03. Increased Cost and Reduced Return.
(a) If on or after the date hereof the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Applicable Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency:
(i) shall subject any Bank (or its Applicable Lending Office) to
any tax, duty or other charge with respect to its Fixed Rate Loans,
its Note or its obligation to make Fixed Rate Loans, or shall change
the basis of taxation of payments to any Bank (or its Applicable
Lending Office) of the principal of or interest on its Fixed Rate
Loans or any other amounts due
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under this Agreement in respect of its Fixed Rate Loans or its
obligation to make Fixed Rate Loans (except for changes in the rate of
tax on the overall net income of such Bank or its Applicable Lending
Office imposed by the jurisdiction in which such Bank's principal
executive office or Applicable Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any
such requirement imposed by the Board of Governors of the Federal
Reserve System, but excluding (A) with respect to any CD Loan any such
requirement included in an applicable Domestic Reserve Percentage or
Assessment Rate and (B) with respect to any Euro-Dollar Loan any such
requirement included in a Euro-Dollar Reserve Percentage) against
assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any
Bank (or its Applicable Lending Office) or on the United States market
for certificates of deposit or the London interbank market any other
condition affecting its Fixed Rate Loans, its Note or its obligation
to make Fixed Rate Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making or maintaining any Fixed Rate Loan or
to reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Bank to be material, then, within 15 days
after demand by such Bank (with a copy to the Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction.
(b) If, after the date hereof, the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Issuing Bank or any Bank with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall either (i) impose, modify or deem applicable any
reserve, special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System) against letters of credit issued by the Issuing Bank or participations
in letters of credit by any Bank or (ii) impose on the Issuing Bank or any Bank
any other condition (including, without limitation, any assessment for federal
deposit insurance) regarding any Letter of Credit, the Issuing Bank's
obligation to issue any Letter of Credit or any Bank's obligation to pay the
Issuing Bank its ratable share of any drawing under any Letter of Credit, and
the result of any event referred to in clause (i) or (ii) of this
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subsection is to increase the cost to the Issuing Bank or such Bank of issuing
or maintaining any Letter of Credit or participating therein or making any
payment under any Letter of Credit (which increase in cost shall be determined
on the basis of the Issuing Bank's or such Bank's reasonable allocation of the
aggregate of such cost increases resulting from such events), then, within 15
days after demand by the Issuing Bank or such Bank (with a copy to the Agent),
the Borrower shall pay to the Issuing Bank or such Bank such additional amount
or amounts as will compensate the Issuing Bank or such Bank for such increased
cost.
(c) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on capital of such Bank (or its Parent)
as a consequence of such Bank's obligations hereunder or under or with respect
to the Letters of Credit (including any participation therein) to a level below
that which such Bank (or its Parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time, within 15 days after demand by such Bank (with a copy
to the Agent), the Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank (or its Parent) for such reduction.
(d) Each of the Issuing Bank and the Banks will promptly notify the
Borrower and the Agent of any event of which it has knowledge, occurring after
the date hereof, which will entitle such Bank to compensation pursuant to this
Section. Each Bank will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in its judgment, be otherwise disadvantageous to it. A
certificate of the Issuing Bank or any Bank claiming compensation under this
Section and setting forth in reasonable detail an explanation of the basis for
requesting such compensation and stating the additional amount or amounts to be
paid to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, the Issuing Bank or such Bank may use any reasonable
averaging and attribution methods.
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed Rate
Loans. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans
has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded
compensation under Section 8.03(a) with respect to its CD Loans or Euro-Dollar
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Loans or its obligation to make CD Loans or Euro-Dollar Loans and the Borrower
shall, by at least five Euro-Dollar Business Days' prior notice to such Bank
through the Agent, have elected that the provisions of this Section shall apply
to such Bank, then, unless and until such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted to) CD Loans or Euro-Dollar Loans, as the case may
be, shall instead be made as (or continued as or, effective (i) on the last day
of the then current Interest Period applicable thereto unless clause (b) of the
last sentence of Section 8.02 shall apply or (ii) immediately upon the giving
of notice referred to in such sentence if such clause (b) shall apply,
converted to) Base Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Fixed Rate Loans of the other Banks), and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid (or converted to a Base Rate Loan), all payments of
principal which would otherwise be applied to repay such Fixed Rate Loans shall
be applied to repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be converted into a CD Loan or a Euro-Dollar Loan, as the case may be, on the
first day of the next succeeding Interest Period applicable to the related CD
Loans or Euro-Dollar Loans of the other Banks.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party:
(x) in the case of the Borrower, the Issuing Bank or the Agent, at its address
or telex or facsimile transmission number set forth on the signature pages
hereof, (y) in the case of any Bank, at its address or telex or facsimile
transmission number set forth in its Administrative Questionnaire or (z) in the
case of any party, at such other address or telex or facsimile transmission
number as such party may hereafter specify for the purpose by notice to the
Agent and the Borrower. Each such notice, request or other communication shall
be effective (i) if given by telex, when such telex is transmitted to the telex
number specified in or pursuant to this Section and the appropriate answerback
is received, (ii) if given by facsimile transmission, when such facsimile is
transmitted to the facsimile transmission number specified in or
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pursuant to this Section and telephonic confirmation of receipt thereof is
received, (iii) if given by mail, 72 hours after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iv) if given by any other means, when delivered at the address specified in
or pursuant to this Section; provided that notices to the Agent or the Issuing
Bank under Article 2 or Article 8 shall not be effective until received.
SECTION 9.02. No Waivers. No failure or delay by the Agent, the
Issuing Bank or any Bank in exercising any right, power or privilege under any
Financing Document shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 9.03. Expenses; Documentary Taxes; Indemnification. (a) The
Borrower shall pay (i) all out-of-pocket expenses of the Agent and the Issuing
Bank, including reasonable fees and disbursements of any special counsel to the
Agent, in connection with the preparation of the Financing Documents, any
waiver or consent thereunder or any amendment thereof or any Default or alleged
Default thereunder and (ii) if an Event of Default occurs, all out-of-pocket
expenses incurred by the Agent, the Issuing Bank or any Bank, including
reasonable fees and disbursements of counsel, including in-house counsel, in
connection with such Event of Default and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom. The Borrower shall
indemnify each Bank, the Agent and the Issuing Bank against any transfer taxes,
documentary taxes, assessments or charges made by any governmental authority by
reason of the execution and delivery of the Financing Documents.
(b) The Borrower agrees to indemnify the Agent, each Bank and the
Issuing Bank and hold the Agent, each Bank and the Issuing Bank harmless from
and against any and all liabilities, losses, damages, costs and expenses of any
kind, including, without limitation, the reasonable fees and disbursements of
counsel, which may be incurred by the Agent, any Bank or the Issuing Bank in
connection with any investigative, administrative or judicial proceeding
(whether or not the Agent, such Bank or the Issuing Bank shall be designated a
party thereto) relating to or arising out of the Financing Documents or any
actual or proposed use of Letters of Credit or proceeds of Loans hereunder;
provided that neither the Agent nor the Issuing Bank or any Bank shall have the
right to be indemnified hereunder for its own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive
payment of a
64
<PAGE> 70
proportion of the aggregate amount of principal and interest due with respect
to any Note held by it and its participation in any Reimbursement Obligation
and interest (if any) thereon (collectively, its "RELEVANT DEBT") which is
greater than the proportion received by any other Bank in respect of the
Relevant Debt of such other Bank, the Bank receiving such proportionately
greater payment shall purchase such participations in the Relevant Debt of the
other Banks, and such other adjustments shall be made, as may be required so
that all such payments with respect to the Relevant Debt of the Banks shall be
shared by the Banks pro rata; provided that nothing in this Section shall
impair the right of any Bank to exercise any right of set-off or counterclaim
it may have and to apply the amount subject to such exercise to the payment of
indebtedness of the Borrower other than its Relevant Debt. The Borrower agrees,
to the fullest extent it may effectively do so under applicable law, that any
holder of a participation in a Note or Reimbursement Obligation, whether or not
acquired pursuant to the foregoing arrangements, may exercise rights of set-off
or counterclaim and other rights with respect to such participation as fully as
if such holder of a participation were a direct creditor of the Borrower in the
amount of such participation.
SECTION 9.05. Amendments and Waivers. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Issuing Bank or the Agent are affected thereby, by the
Agent or the Issuing Bank, as the case may be); provided that no such amendment
or waiver shall, unless signed by all the Banks, (i) increase or decrease any
Commitment of any Bank (except for a ratable decrease in the Commitments of all
Banks) or subject any Bank to any additional obligation, (ii) reduce the
principal of or the rate of interest on any Loan or Reimbursement Obligation or
any commissions or fees hereunder, (iii) postpone the date fixed pursuant to
Section 2.05, 2.06, 2.07, 2.08 or 2.10 for any payment of principal of or
interest on any Loan or Reimbursement Obligation or any commissions or fees
hereunder or for the termination of any Commitment, (iv) release any Material
Subsidiary from its obligations under the Subsidiary Guaranty (other than
pursuant to the terms thereof) or (v) change the percentage of the Commitments,
the aggregate unpaid principal amount of the Notes or the Loans or of the
aggregate Letter of Credit Exposures, or the number of Banks, which shall be
required for the Banks or any of them to take any action under this Section or
any other provision of this Agreement.
SECTION 9.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of all Banks.
65
<PAGE> 71
(b) Any Bank may, without the consent of the Borrower, the Agent or
the Issuing Bank, upon notice to the Borrower, the Agent and, if any
participating interest in any Letter of Credit or Commitment is to be so
granted, the Issuing Bank, grant to one or more banks or other institutions
(each a "PARTICIPANT") participating interests in its Commitments or any or all
of its Loans or its participations in Letters of Credit; provided that each
participating interest shall represent an aggregate interest therein of at
least $1,000,000. In the event of any such grant by a Bank of a participating
interest to a Participant, whether or not upon notice to the Borrower, the
Agent and the Issuing Bank, such Bank shall remain responsible for the
performance of its obligations hereunder, and the Borrower, the Agent and the
Issuing Bank shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement described in clause (i), (ii) or (iii) of Section 9.05
without the consent of the Participant. The Borrower agrees that each
Participant shall, to the extent provided in its participation agreement, be
entitled to the benefits of Article 8 with respect to its participating
interest. An assignment or other transfer which is not permitted by Section
9.06(c) or (d) below shall be given effect for purposes of this Agreement only
to the extent of a participating interest granted in accordance with this
subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "ASSIGNEE") all, or a proportionate part of all, of its
rights and obligations under this Agreement and the Notes, and such Assignee
shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit C hereto executed by
such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Borrower, which shall not be unreasonably withheld, the Agent
and, if any participation in any Letter of Credit or Commitment is to be
assigned, the Issuing Bank; provided that if an Assignee is, prior to such
assignment, a Bank or an affiliate of a Bank, no such consent shall be
required; and provided further that, (i) unless the Loans, Commitments and
participations in Letters of Credit assigned shall constitute all Loans,
Commitments and participations in Letters of Credit of such assignor Bank, the
aggregate principal amount of the Loans, Commitments and participations in
Letters of Credit assigned shall not be less than $10,000,000 and (ii) any such
assignment shall include a pro rata portion of the assigning Bank's Commitment,
Loans and participations in Letters of Credit. Upon the execution and delivery
of such instrument, payment by such Assignee to such transferor Bank
66
<PAGE> 72
of an amount equal to the purchase price agreed between such transferor Bank
and such Assignee and delivery of notice to the Borrower, such Assignee shall
be a Bank party to this Agreement and shall have all the rights and obligations
of a Bank with Commitments as set forth in such instrument of assumption, and
the transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection
(c), the transferor Bank, the Agent and the Borrower shall make appropriate
arrangements so that, if required, a new Note is issued to the Assignee. In
connection with any such assignment, the transferor Bank shall pay to the Agent
an administrative fee for processing such assignment in the amount of $2,500;
provided that no such fee shall be required if the Assignee is, prior to any
such assignment, an affiliate of such Bank. If the Assignee is not incorporated
under the laws of the United States of America or a state thereof, it shall,
prior to the first date on which interest, fees or commissions are payable
hereunder for its account, deliver to the Borrower and the Agent (and, in the
case of any such Assignee to whom any Letter of Credit Exposure or Commitment
has been assigned, the Issuing Bank) certification as to exemption from
deduction or withholding of any United States federal income taxes in
accordance with Section 2.16.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 than such
Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.02 or 8.03 requiring such
Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
SECTION 9.07. Margin Stock. Each of the Banks represents to the Agent,
the Issuing Bank and each of the other Banks that it in good faith is not
relying upon any "MARGIN STOCK" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
AGREEMENT AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK. THE BORROWER HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY
67
<PAGE> 73
NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. THE BORROWER IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
SECTION 9.09. Consent to Execution and Delivery of Certain Financing
Documents; Release of Existing Collateral.
(a) The Issuing Bank, the Agent and the Banks each consents and agrees
to the terms of the Subsidiary Guaranty.
(b) On the Effective Date, the Pledge Agreement (as defined in the
Existing Credit Agreement) (other than Sections 12, 15 and 17 thereof) shall be
terminated, all Security Interests (as defined in such Pledge Agreement) shall
be released and the Agent shall deliver to the Pledgor (as defined in such
Pledge Agreement) all Collateral (as so defined) then held by it and execute
and deliver to the Pledgor or the Borrower such documents as the Borrower shall
reasonably request to evidence the release of such Security Interests.
SECTION 9.10. Counterparts; Integration. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement, the Notes and the Subsidiary Guaranty constitute
the entire agreement and understanding among the parties hereto and supersede
any and all prior agreements and understandings, oral or written, relating to
the subject matter hereof.
SECTION 9.11. Confidentiality. Each Bank agrees not to disclose to any
Person other than the Agent or another Bank any information delivered or made
available by the Borrower or any of its Subsidiaries to it and indicated in
writing as confidential; provided that nothing herein shall prevent any Bank
from disclosing such information (a) to any other Person who is a director,
officer or employee of such Bank or any of its affiliates if reasonably
incidental to the administration of the Loans, (b) upon the order of any court
or administrative agency, (c) upon the request or demand of, or pursuant to any
regulation of, any regulatory agency or authority, (d) which had been publicly
disclosed other than as a result of a disclosure by the Agent or any Bank
prohibited by this Agreement, (e) in
68
<PAGE> 74
connection with any litigation related to the transactions contemplated by the
Financing Documents to which the Agent, any Bank or its subsidiaries or parent
may be a party, (f) to the extent reasonably required in connection with the
exercise of any remedy hereunder, (g) to such Bank's or Agent's legal counsel
or independent auditors, and (h) to any actual or proposed Assignee or
Participant of all or part of its rights hereunder provided that such actual or
proposed Assignee or Participant agrees in writing to be bound by the
provisions of this Section.
SECTION 9.12. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT,
THE ISSUING BANK AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE
FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
69
<PAGE> 75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
THE BORROWER
BEVERLY ENTERPRISES, INC.
By: /s/ Schuyler Hollingsworth
------------------------------------------
Title: Senior Vice President & Treasurer
5111 Rogers Avenue, Suite 40-A
Fort Smith, Arkansas 72919-0155
Attention: Chief Financial Officer
Telephone number: (501) 452-6712
Facsimile transmission number: (501) 484-8489
BANKS
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/ John M. Mikolay
------------------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Dawn Lee Lum
------------------------------------------
Title: Vice President
70
<PAGE> 76
BANK OF AMERICA NATIONAL TRUST
& SAVINGS ASSOCIATION
By: /s/ Edward S. Han
------------------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Rebecca Levine
------------------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ W. J. Brown
------------------------------------------
Title: Vice President
DEUTSCHE BANK AG NEW YORK BRANCH
By: /s/ Susan L. Pearson
------------------------------------------
Title: Director
By: /s/ Robert Wood
------------------------------------------
Title: Director
71
<PAGE> 77
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY
By: /s/ Pieji Sakata
------------------------------------------
Title: Joint General Manager
NATIONSBANK OF TEXAS, N.A.
By: /s/ Scott Singhoff
------------------------------------------
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Connie R. Field
------------------------------------------
Title: Assistant Vice President
BANK OF MONTREAL
By: /s/ John T. Mead, Jr.
------------------------------------------
Title: Director
72
<PAGE> 78
BANK OF HAWAII
By: /s/ Donna Parker
------------------------------------------
Title: Vice President
BHF - BANK AKTIENGESELLSCHAFT
By: /s/ Dan Dobrjanskyj
------------------------------------------
Title: Assistant Vice President
By: /s/ Ralph Della Rocca
------------------------------------------
Title: Assistant Treasurer
AGENT
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/ John M. Mikolay
------------------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260
Attention: Cynthia Whaley
Telephone number: (212) 648-6696
Telex number: 177615
Facsimile transmission number: (212) 648-5018
73
<PAGE> 79
ISSUING BANK
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Issuing Bank
By: /s/ John M. Mikolay
------------------------------------------
Title: Vice President
c/o J.P. Morgan Services Inc.
P.O. Box 6071
500 Stanton Christiana Road
Newark, Delaware 19713
Attention: International Trade Services
Standby Unit
Telephone number: (302) 634-4234
Facsimile transmission number: (302) 634-4061
74
<PAGE> 80
SCHEDULE I
PRICING SCHEDULE
The "EURO-DOLLAR MARGIN", "CD MARGIN", "BASE RATE MARGIN", "LETTER OF
CREDIT COMMISSION RATE" and "COMMITMENT FEE RATE" for any day are the
respective rates per annum set forth below in the applicable row in the column
corresponding to the Pricing Level that applies on such day:
<TABLE>
<CAPTION>
=========================================================================================================
Level I Level II Level III Level IV Level V
=========================================================================================================
<S> <C> <C> <C> <C> <C>
Euro-Dollar Margin 0.500% 0.750% 0.875% 1.125% 1.500%
- ---------------------------------------------------------------------------------------------------------
CD Margin 0.625% 0.875% 1.000% 1.250% 1.625%
- ---------------------------------------------------------------------------------------------------------
Base Rate Margin 0.000% 0.000% 0.000% 0.500% 1.000%
- ---------------------------------------------------------------------------------------------------------
Letter of Credit
Commission Rate 0.500% 0.750% 0.875% 1.125% 1.500%
- ---------------------------------------------------------------------------------------------------------
Commitment Fee 0.175% 0.200% 0.225% 0.275% 0.350%
Rate
=========================================================================================================
</TABLE>
For purposes of this Pricing Schedule, the following terms have the
following meanings:
"PRICING RATIO" means the ratio of Consolidated EBITDAR to the sum of
Consolidated Interest Charges and Consolidated Rental Expense.
"LEVEL I PRICING" applies on any day if, as of the last day of the
fiscal quarter of the Borrower most recently ended on or prior to such day and
as to which the Borrower shall have delivered, or been required to deliver, on
or prior to such day a certificate pursuant to Section 5.01(d), the Pricing
Ratio is greater than 2.50 to 1.0.
"LEVEL II PRICING" applies on any day if, as of the last day of the
fiscal quarter of the Borrower most recently ended on or prior to such day and
as to which the Borrower shall have delivered, or been required to deliver, on
or prior to such day a certificate pursuant to Section 5.01(d), (i) the Pricing
Ratio is greater than 2.25 to 1.0 and (ii) Level I Pricing does not apply.
"LEVEL III PRICING" applies on any day if, as of the last day of the
fiscal quarter of the Borrower most recently ended on or prior to such day and
as to which the Borrower shall have delivered, or been required to deliver, on
or prior to
<PAGE> 81
such day a certificate pursuant to Section 5.01(d), (i) the Pricing Ratio is
greater than 2.00 to 1.0 and (ii) neither Level I Pricing nor Level II Pricing
applies.
"LEVEL IV PRICING" applies on any day if, as of the last day of the
fiscal quarter of the Borrower most recently ended on or prior to such day and
as to which the Borrower shall have delivered, or been required to deliver, on
or prior to such day a certificate pursuant to Section 5.01(d), (i) the Pricing
Ratio is greater than 1.75 to 1.0 and (ii) none of Level I Pricing, Level II
Pricing or Level III Pricing applies.
"LEVEL V PRICING" applies on any day if, on such day, no other Pricing
Level applies.
"PRICING LEVEL" means any one of the five pricing levels denominated
Level I Pricing, Level II Pricing, Level III Pricing, Level IV Pricing or Level
V Pricing.
2
<PAGE> 82
SCHEDULE II
COMMITMENT SCHEDULE
<TABLE>
<CAPTION>
Bank Commitments
- ---- -------------
<S> <C>
Morgan Guaranty Trust Company of New York $ 42,500,000
The Chase Manhattan Bank $ 37,500,000
Bank of America National Trust & Savings Association $ 35,000,000
The Bank of Nova Scotia, Atlanta Agency $ 35,000,000
Deutsche Morgan Grenfell Inc. $ 35,000,000
The Long-Term Credit Bank of Japan, Ltd., Los Angeles
Agency $ 35,000,000
NationsBank of Texas, N.A. $ 35,000,000
The Bank of New York $ 35,000,000
PNC Bank, National Association $ 30,000,000
Bank of Montreal $ 25,000,000
Bank of Hawaii $ 15,000,000
BHF - BANK Aktiengesellschaft $ 15,000,000
-------------
Total $ 375,000,000
=============
</TABLE>
3
<PAGE> 83
SCHEDULE III
EXISTING SUBSIDIARY DEBT(2)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TYPE BALANCE
@ MARCH 31, 1998
- -------------------------------------------------------------------------------
<S> <C>
NOTES & MORTGAGES $144,909,600
- -------------------------------------------------------------------------------
TAX EXEMPT BONDS $184,077,000
- -------------------------------------------------------------------------------
FIRST MORTGAGE REVENUE BONDS $46,945,000
- -------------------------------------------------------------------------------
MIFA TAXABLE BONDS $25,000,000
- -------------------------------------------------------------------------------
9% SENIOR NOTES $180,000,000
- -------------------------------------------------------------------------------
REVOLVER OUTSTANDING $40,000,000
- -------------------------------------------------------------------------------
MEDIUM TERM NOTES $40,000,000
- -------------------------------------------------------------------------------
ATRS NOTES $21,076,000
- -------------------------------------------------------------------------------
BANK UNITED $14,601,000
- -------------------------------------------------------------------------------
DEPOSIT GUARANTY LOAN $9,993,400
- -------------------------------------------------------------------------------
GE CAPITAL CORPORATION LOAN $9,287,000
- -------------------------------------------------------------------------------
CAPITAL LEASES $18,460,000
- -------------------------------------------------------------------------------
TOTAL $734,349,000
- -------------------------------------------------------------------------------
</TABLE>
- -------------------
(2) Including debt guaranteed by Subsidiaries
4
<PAGE> 84
SCHEDULE IV
SUBSIDIARIES OF THE BORROWER
A-1 Home Health Services, Inc.
AdviNet, Inc.
AGI-Camelot, Inc.
American Transitional Care Dallas - Ft. Worth, Inc.
American Transitional Hospitals, Inc.
American Transitional Hospitals of East Tennessee, Inc.
American Transitional Hospitals of Indiana, Inc.
American Transitional Hospitals of Oklahoma, Inc.
American Transitional Hospitals of Tennessee, Inc.
American Transitional Hospitals -- Texas Medical Center, Inc.
Arborland Management Company, Inc.
ATH Columbus, Inc.
ATH -- Fort Smith, Inc.
ATH Heights, Inc.
ATH-Little Rock, Inc.
ATH-Memphis, Inc.
ATH Oklahoma City, Inc.
ATH Tucson, Inc.
Beverly - Bella Vista Holding, Inc.
Beverly - Missouri Valley Holding, Inc.
Beverly - Rapid City Holding, Inc.
Beverly Assisted Living, Inc.
Beverly Health and Rehabilitation Services, Inc.
Beverly Enterprises - Alabama, Inc.
Beverly Enterprises - Arizona, Inc.
Beverly Enterprises - Arkansas, Inc.
Beverly Enterprises - California, Inc.
Beverly Enterprises - Colorado, Inc.
Beverly Enterprises - Connecticut, Inc.
Beverly Enterprises - Delaware, Inc.
Beverly Enterprises - Distribution Services, Inc.
Beverly Enterprises - District of Columbia, Inc.
Beverly Enterprises - Florida, Inc.
Beverly Enterprises - Garden Terrace, Inc.
Beverly Enterprises - Georgia, Inc.
Beverly Enterprises - Hawaii, Inc.
Beverly Enterprises - Idaho, Inc.
Beverly Enterprises - Illinois, Inc.
Beverly Enterprises - Indiana, Inc.
5
<PAGE> 85
Beverly Enterprises - Iowa, Inc.
Beverly Enterprises - Kansas, Inc.
Beverly Enterprises - Kentucky, Inc.
Beverly Enterprises - Louisiana, Inc.
Beverly Enterprises - Maine, Inc.
Beverly Enterprises - Maryland, Inc.
Beverly Enterprises - Massachusetts, Inc.
Beverly Enterprises - Michigan, Inc.
Beverly Enterprises - Minnesota, Inc.
Beverly Enterprises - Mississippi, Inc.
Beverly Enterprises - Missouri, Inc.
Beverly Enterprises - Montana, Inc.
Beverly Enterprises - Nebraska, Inc.
Beverly Enterprises - Nevada, Inc.
Beverly Enterprises - New Hampshire, Inc.
Beverly Enterprises - New Jersey, Inc.
Beverly Enterprises - New Mexico, Inc.
Beverly Enterprises - North Carolina, Inc.
Beverly Enterprises - North Dakota, Inc.
Beverly Enterprises - Ohio, Inc.
Beverly Enterprises - Oklahoma, Inc.
Beverly Enterprises - Oregon, Inc.
Beverly Enterprises - Pennsylvania, Inc.
Beverly Enterprises - Rhode Island, Inc.
Beverly Enterprises - South Carolina, Inc.
Beverly Enterprises - Tennessee, Inc.
Beverly Enterprises - Texas, Inc.
Beverly Enterprises - Utah, Inc.
Beverly Enterprises - Vermont, Inc.
Beverly Enterprises - Virginia, Inc.
Beverly Enterprises - Washington, Inc.
Beverly Enterprises - West Virginia, Inc.
Beverly Enterprises - Wisconsin, Inc.
Beverly Enterprises - Wyoming, Inc.
Beverly Enterprises International Limited
Beverly Enterprises Medical Equipment Corporation
Beverly Holdings I, Inc.
Beverly Indemnity, Ltd.
Beverly Manor Inc. of Hawaii
Beverly Real Estate Holdings, Inc.
Beverly Savana Cay Manor, Inc.
Columbia-Valley Nursing Home, Inc.
Commercial Management, Inc.
6
<PAGE> 86
Community Care, Inc.
Compassion and Personal Care Services, Inc.
Continental Care Centers of Council Bluffs, Inc.
Doctor's Urgent Care Centre, Inc.
Eastern Carolina Home Health Agency, Inc.
Eastern Home Health Supply & Equipment Co., Inc.
ECT, Inc.
Forest City Building Ltd.
Hallmark Convalescent Homes, Inc.
Health Services Management, Inc.
Homecare Preferred Choice, Inc.
Home Health Care of Carteret County, Inc.
Home Technology Heathcare - Mid Cumberland, Inc.
Home Technology Healthcare - Mid South, Inc.
Home Technology Healthcare - Nursing, Inc.
Home Technology Healthcare - St. Louis, Inc.
Home Technology Healthcare - Tennessee, Inc.
Hospice of Eastern Carolina, Inc.
Hospice of Tennessee, Inc.
Hospice Preferred Choice, Inc.
Hospital Facilities Corporation
HTHC Holdings, Inc.
J. David Butler, I.P.T., Inc.
Kenwood View Nursing Home, Inc.
Liberty Nursing Home, Incorporated
MATRIX Healthcare Network, Inc.
MATRIX Occupational Health, Inc.
MATRIX Rehabilitation, Inc.
Medical Arts Health Facility of Lawrenceville, Inc.
Moderncare of Lumberton, Inc.
Nebraska City S-C-H, Inc.
Nursing Home Operators, Inc.
Petersen Health Care, Inc.
Physician's Home Health Care, Incorporated
South Alabama Nursing Home, Inc.
South Dakota - Beverly Enterprises, Inc.
Spectra Healthcare Alliance, Inc.
Synergos, Inc.
Synergos - Scottsdale, Inc.
Tar Heel Health Care Services, Inc.
Tar Heel Holdings, Inc.
Tar Heel Home Health, Inc.
Tar Hell Home Health of Cape Fear, Inc.
7
<PAGE> 87
Tar Heel Home Health of Dare County, Inc.
Tar Heel Home Health of North Central North Carolina, Inc.
Tar Heel Infusion Company, Inc.
TMD Disposition Company
Vantage Healthcare Corporation
Vaughn, Buchanan, Shelley & Associates,
Physical Therapists, Inc.
Vaughn Home Health Care & Services, Inc.
8
<PAGE> 88
EXHIBIT A
NOTE
New York, New York
____________, 1998
For value received, BEVERLY ENTERPRISES, INC., a Delaware corporation
(the "Borrower"), promises to pay to the order of (the "Bank"), for the
account of its Applicable Lending Office, the unpaid principal amount of each
Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred
to below on the Termination Date provided for in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal amount of each such
Loan on the dates and at the rate or rates provided for in the Credit Agreement.
All such payments of principal and interest shall be made in lawful money of the
United States in Federal or other immediately available funds at the office of
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the type thereof and all repayments of the
principal thereof shall be recorded by the Bank and, prior to any transfer
hereof, appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding may be endorsed by the Bank on the
schedule attached hereto, or on a continuation of such schedule attached to and
made a part hereof; provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the Amended and Restated
Credit Agreement dated as of April 30, 1998 among the Borrower, the banks
listed on the signature pages thereof and Morgan Guaranty Trust Company of New
York, as Issuing Bank and Agent (as the same may be amended from time to time,
the "Credit Agreement"). Terms defined in the Credit Agreement are used herein
with the same meanings. Reference is made to the Credit Agreement for
provisions for the mandatory and optional repayment and prepayment hereof and
the acceleration of the maturity hereof.
9
<PAGE> 89
Payment of principal and interest on this Note is unconditionally
guaranteed, subject to the limitations contained in the Subsidiary Guaranty, by
the Subsidiary Guarantors pursuant to the Subsidiary Guaranty.
BEVERLY ENTERPRISES, INC.
By
-----------------------------------------
Title:
10
<PAGE> 90
NOTE (CONT'D)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Type of Amount of Principal Notation Made
Amount of Loan Loan Repaid By
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 91
EXHIBIT C
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 199_ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "Assignee"), and MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Agent (the "Agent") and Issuing Bank (the "Issuing Bank").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the Amended and Restated Credit Agreement dated as of April 30, 1997
among Beverly Enterprises, Inc., as borrower (the "Borrower"), the Assignor and
the other banks party thereto, as banks (the "Banks"), and the Agent and the
Issuing Bank (the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has
Commitments to make Revolving Loans to the Borrower, and to participate in
Letters of Credit issued for the benefit of the Borrower and its Subsidiaries,
in an aggregate amount equal to $__________;
WHEREAS, (i) Revolving Loans made to the Borrower by the Assignor
under the Credit Agreement are outstanding on the date hereof in the aggregate
amount of $__________ and (ii) participations by the Assignor in Letters of
Credit issued by the Issuing Bank for the benefit of the Borrower and its
Subsidiaries under the Credit Agreement are outstanding on the date hereof in
the aggregate amount of $__________.
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of (i) a portion
of its Revolving Commitment thereunder in an amount equal to $__________,
together with a corresponding portion of its outstanding Revolving Loans, and
its participations in outstanding Letters of Credit (the "Assigned Amounts"),
and the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follow
12
<PAGE> 92
SECTION 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amounts, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amounts. Upon the execution and
delivery hereof by the Assignor, the Assignee, the Agent and, if any
participation in a Letter of Credit or any Revolving Commitment is being
assigned, the Issuing Bank and the payment of the amounts specified in Section
3 required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with Commitments in amounts equal to, holding
Loans in aggregate principal amounts and holding participations in Letters of
Credit to the extent of, the Assigned Amounts, and (ii) the Commitments, Loans
and Letter of Credit participations of the Assignor shall, as of the date
hereof, be reduced by like amounts and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them. It is
understood that commitment and other fees and Letter of Credit commissions
accrued under the Credit Agreement to the date hereof are for the account of
the Assignor and such fees and commissions accruing from and including the date
hereof are for the account of the Assignee. Each of the Assignor and the
Assignee hereby agrees that if it receives any amount under the Credit
Agreement which is for the account of the other party hereto, it shall receive
the same for the account of such other party to the extent of such other
party's interest therein and shall promptly pay the same to such other party.
SECTION 4. Consent of the Agent and the Issuing Bank. This Agreement
is conditioned upon the consent of the Agent and the Borrower and, if any
participation in a Letter of Credit or any Revolving Commitment is being
assigned, the Issuing Bank, pursuant to Section 9.06(c) of the Credit
Agreement. The execution of this Agreement by the Agent, the Borrower and, if
applicable, the Issuing Bank is evidence of such consent.
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition or statements of the
Borrower or any
13
<PAGE> 93
Subsidiary Guarantor, or the validity and enforceability of the obligations of
the Borrower or any Subsidiary Guarantor in respect of the Credit Agreement,
the Subsidiary Guaranty, any Note or the Pledge Agreement. The Assignee
acknowledges that it has, independently and without reliance on the Assignor,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement and will
continue to be responsible for making its own independent appraisal of the
business, affairs and financial condition of the Borrower and the Subsidiary
Guarantors.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
14
<PAGE> 94
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date
first above written.
[ASSIGNOR]
By
--------------------------------------
Title:
[ASSIGNEE]
By
-------------------------------------
Title:
[BORROWER]
By
-------------------------------------
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent
By
-------------------------------------
Title:
15
<PAGE> 95
[MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Issuing Bank]
By
-------------------------------------
Title:
16
<PAGE> 1
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
A-1 Home Health Services, Inc. Georgia
A.B.C. Health Equipment Corp. New York
AdviNet, Inc. Delaware
AGI-Camelot, Inc. Missouri
Arborland Management Company, Inc. South Carolina
Associated Physical Therapy Practitioners, Inc. Pennsylvania
Bercy International, Inc. California
Beverly Assisted Living, Inc. Delaware
Beverly Enterprises International Limited California
Beverly Enterprises Medical Equipment Corporation California
Beverly Enterprises - Alabama, Inc. California
Beverly Enterprises - Arizona, Inc. California
Beverly Enterprises - Arkansas, Inc. California
Beverly Enterprises - California, Inc. California
Beverly Enterprises - Colorado, Inc. California
Beverly Enterprises - Connecticut, Inc. California
Beverly Enterprises - Delaware, Inc. California
Beverly Enterprises - Distribution Services, Inc. California
Beverly Enterprises - District of Columbia, Inc. California
Beverly Enterprises - Florida, Inc. California
Beverly Enterprises - Garden Terrace, Inc. California
Beverly Enterprises - Georgia, Inc. California
Beverly Enterprises - Hawaii, Inc. California
Beverly Enterprises - Idaho, Inc. California
</TABLE>
1
<PAGE> 2
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
Beverly Enterprises - Illinois, Inc. California
Beverly Enterprises - Indiana, Inc. California
Beverly Enterprises - Iowa, Inc. California
Beverly Enterprises - Kansas, Inc. California
Beverly Enterprises - Kentucky, Inc. California
Beverly Enterprises - Louisiana, Inc. California
Beverly Enterprises - Maine, Inc. California
Beverly Enterprises - Maryland, Inc. California
Beverly Enterprises - Massachusetts, Inc. California
Beverly Enterprises - Michigan, Inc. California
Beverly Enterprises - Minnesota, Inc. California
Beverly Enterprises - Mississippi, Inc. California
Beverly Enterprises - Missouri, Inc. California
Beverly Enterprises - Montana, Inc. California
Beverly Enterprises - Nebraska, Inc. California
Beverly Enterprises - Nevada, Inc. California
Beverly Enterprises - New Hampshire, Inc. California
Beverly Enterprises - New Jersey, Inc. California
Beverly Enterprises - New Mexico, Inc. California
Beverly Enterprises - North Carolina, Inc. California
Beverly Enterprises - North Dakota, Inc. California
Beverly Enterprises - Ohio, Inc. California
Beverly Enterprises - Oklahoma, Inc. California
Beverly Enterprises - Oregon, Inc. California
</TABLE>
2
<PAGE> 3
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
Beverly Enterprises - Pennsylvania, Inc. California
Beverly Enterprises - Rhode Island, Inc. California
Beverly Enterprises - South Carolina, Inc. California
Beverly Enterprises - Tennessee, Inc. California
Beverly Enterprises - Texas, Inc. California
Beverly Enterprises - Utah, Inc. California
Beverly Enterprises - Vermont, Inc. California
Beverly Enterprises - Virginia, Inc. California
Beverly Enterprises - Washington, Inc. California
Beverly Enterprises - West Virginia, Inc. California
Beverly Enterprises - Wisconsin, Inc. California
Beverly Enterprises - Wyoming, Inc. California
Beverly - Bella Vista Holding, Inc. Delaware
Beverly - Branson Holdings, Inc. Delaware
Beverly Clinical, Inc. Delaware
Beverly Funding Corporation Delaware
Beverly Health and Rehabilitation Services, Inc. California
Beverly Healthcare, LLC Indiana
Beverly Holdings I, Inc. Delaware
Beverly Indemnity, Ltd. Vermont
Beverly Manor Inc. of Hawaii California
Beverly Manor Inc. of Phoenix California
Beverly - Missouri Valley Holding, Inc. Delaware
Beverly - Plant City Holdings, Inc. Delaware
</TABLE>
3
<PAGE> 4
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
Beverly - Rapid City Holding, Inc. Delaware
Beverly Real Estate Holdings, Inc. Delaware
Beverly Rehabilitation, Inc. Delaware
Beverly Savana Cay Manor, Inc. California
Beverly - Tamarac Holdings, Inc. Delaware
Beverly - Tampa Holdings, Inc. Delaware
Carrollton Physical Therapy Clinic, Inc. Texas
Columbia Valley Nursing Home, Inc. Ohio
Commercial Management, Inc. Iowa
Community Care, Inc. North Carolina
Compassion and Personal Care Services, Inc. North Carolina
Continental Care Centers of Council Bluffs, Inc. Iowa
Doctor's Urgent Care Centre, Inc. Delaware
Eastern Carolina Home Health Agency, Inc. North Carolina
Eastern Home Health Supply & Equipment Co., Inc. North Carolina
ECT, Inc. North Carolina
Edgewood Convalescent Hospital California
Forest City Building Ltd. Missouri
Fort Smith Hospital, Inc. Delaware
Greenville Rehabilitation Services, Inc. Texas
Hallmark Convalescent Homes, Inc. Michigan
HomeCare Preferred Choice, Inc. Delaware
Home Health and Rehabilitation Services, Inc. Texas
Home Health Care of Carteret County, Inc. North Carolina
</TABLE>
4
<PAGE> 5
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
Home Medical Systems, Inc. Delaware
Home Technology Healthcare - Mid Cumberland, Inc. Tennessee
Home Technology Healthcare - Mid South, Inc. Delaware
Home Technology Healthcare - Nursing, Inc. Delaware
Home Technology Healthcare - St. Louis, Inc. Delaware
Home Technology Healthcare - Tennessee, Inc. Tennessee
Hospice of Eastern Carolina, Inc. North Carolina
Hospice of Tennessee, Inc. Delaware
Hospice Preferred Choice, Inc. Delaware
Hospital Facilities Corporation California
HTHC Holdings, Inc. Delaware
J. David Butler, L.P.T., Inc. Texas
Kenwood View Nursing Home, Inc. Kansas
Las Colinas Physical Therapy, Inc. Texas
Liberty Nursing Homes, Incorporated Virginia
Long Beach Sports Medicine and Physical Therapy Center, Inc. California
MATRIX HealthCare Network, Inc. Delaware
MATRIX Occupational Health, Inc. Delaware
MATRIX Rehabilitation, Inc. Delaware
Medical Arts Health Facility of Lawrenceville, Inc. Georgia
Moderncare of Lumberton, Inc. North Carolina
Nebraska City S-C-H, Inc. Nebraska
Network for Physical Therapy, Inc. Texas
North Dallas Physical Therapy Associates, Inc. Texas
</TABLE>
5
<PAGE> 6
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
Nursing Home Operators, Inc. Ohio
Petersen Health Care, Inc. Florida
Physician's Home Health Care, Incorporated Tennessee
Piedmont No. 1, Inc. Missouri
PPI, Inc. New Mexico
PT Net, Inc. Tennessee
PT Net (Colorado), Inc. Colorado
Rehabilitation Associates of Lafayette, Inc. Louisiana
Riverside Physical Therapy, Inc. California
Shastina Properties Inc. California
Shastina Realty Inc. California
South Alabama Nursing Home, Inc. Alabama
South Dakota - Beverly Enterprises, Inc. California
Spectra Healthcare Alliance, Inc. Delaware
Tar Heel Health Care Services, Inc. North Carolina
Tar Heel Holdings, Inc. Delaware
Tar Heel Home Health, Inc. North Carolina
Tar Heel Home Health of Cape Fear, Inc. North Carolina
Tar Heel Home Health of Dare County, Inc. North Carolina
Tar Heel Home Health of North Central North Carolina, Inc. North Carolina
Tar Heel Infusion Company, Inc. North Carolina
The Parks Physical Therapy and Work Hardening Center, Inc. Texas
Theraphysics Corp. Delaware
Theraphysics Corp. of New York IPA, Inc. New York
</TABLE>
6
<PAGE> 7
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
Theraphysics Partners of Colorado, Inc. Delaware
Theraphysics Partners of Louisiana, Inc. Delaware
Theraphysics Partners of Western Pennsylvania, Inc. Delaware
Theraphysics Partners of Texas, Inc. Delaware
TP Acquisition, Inc. Delaware
TMD Disposition Company Florida
Vantage Healthcare Corporation Delaware
Vaughn, Buchanan, Shelley & Associates, Physical Therapists, Inc. South Carolina
Vaughn Home Health Care & Services, Inc. Illinois
</TABLE>
7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following
Registration Statements and amendments thereto
<TABLE>
<S> <C>
Form S-8 No. 33-21505 Employee Stock Purchase Plan
Form S-8 No. 333-41671 Non-Employee Director Deferred Compensation Plan
Form S-8 No. 333-41669 1997 Long-Term Incentive Plan
Form S-8 No. 333-41673 Executive Deferred Compensation Plan
Form S-8 No. 333-42131 Non-Employee Directors' Stock Option Plan
</TABLE>
of Beverly Enterprises, Inc. of our report dated February 3, 1999 with respect
to the consolidated financial statements and schedule of Beverly Enterprises,
Inc. included in this Annual Report (Form 10-K) for the year ended December 31,
1998.
/s/ ERNST & YOUNG LLP
Little Rock, Arkansas
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITS ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 17,278
<SECURITIES> 0
<RECEIVABLES> 592,687<F1>
<ALLOWANCES> 22,205<F2>
<INVENTORY> 32,133
<CURRENT-ASSETS> 695,970
<PP&E> 1,814,637
<DEPRECIATION> 694,322
<TOTAL-ASSETS> 2,160,511
<CURRENT-LIABILITIES> 357,156
<BONDS> 878,270
0
0
<COMMON> 11,028
<OTHER-SE> 765,178
<TOTAL-LIABILITY-AND-EQUITY> 2,160,511
<SALES> 2,812,232
<TOTAL-REVENUES> 2,822,940
<CGS> 0
<TOTAL-COSTS> 2,633,135
<OTHER-EXPENSES> 174,749
<LOSS-PROVISION> 0<F3>
<INTEREST-EXPENSE> 65,938
<INCOME-PRETAX> (50,882)
<INCOME-TAX> (25,936)
<INCOME-CONTINUING> (24,946)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,660)
<CHANGES> (4,415)
<NET-INCOME> (31,021)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
<FN>
<F1>EXCLUDES $24,184 OF LONG-TERM NOTES RECEIVABLE.
<F2>EXCLUDES $2,921 OF ALLOWANCE FOR LONG-TERM NOTES RECEIVABLE.
<F3>INCLUDED IN TOTAL COSTS AND EXPENSES LINE.
</FN>
</TABLE>
