<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1997
REGISTRATION NOS. 333-
333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
BEVERLY ENTERPRISES, INC.
NEW BEVERLY HOLDINGS, INC.
(Exact Name of Registrants as Specified in their Charters)
<TABLE>
<S> <C> <C>
DELAWARE 8051 95-4100309
DELAWARE 8051 62-1691861
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
5111 ROGERS AVENUE, SUITE 40-A
FORT SMITH, ARKANSAS 72919-0155
(501) 452-6712
(Address, Including Zip Code, And Telephone Number, Including Area Code,
of Registrants' Principal Executive Offices)
ROBERT W. POMMERVILLE, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
BEVERLY ENTERPRISES, INC.
NEW BEVERLY HOLDINGS, INC.
5111 ROGERS AVENUE, SUITE 40-A
FORT SMITH, ARKANSAS 72919-0155
(501) 452-6712
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
Copies to:
H. WATT GREGORY, III, ESQ.
MICHAEL E. KARNEY, ESQ.
GIROIR, GREGORY, HOLMES & HOOVER, PLC
111 CENTER STREET, SUITE 1900
LITTLE ROCK, ARKANSAS 72201
(501) 372-3000
<TABLE>
<C> <C>
WARREN T. BUHLE, ESQ. MARK C. SMITH, ESQ.
DAVID G. SCHWARTZ, ESQ. SKADDEN, ARPS, SLATE,
WEIL, GOTSHAL & MANGES, LLP MEAGHER & FLOM LLP
767 FIFTH AVENUE 919 THIRD AVENUE
NEW YORK, NY 10153 NEW YORK, NY 10022
(212) 310-8000 (212) 735-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions described herein have been satisfied or are waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE(1) REGISTRATION FEE(2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9% Senior Notes due 2006..... $180,000,000 100% $180,000,000 $54,546
========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(2) The registration fee has been calculated pursuant to Section 6(b) of the
Securities Act of 1933 as follows: one thirty-third of one percent of
$180,000,000, the proposed maximum offering price of the Securities.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
[LOGO OF BEVERLY APPEARS HERE]
, 1997
To All Holders of Beverly Enterprises, Inc.
9% Senior Notes due 2006
The Board of Directors (the "Board") of Beverly Enterprises, Inc.
("Beverly") is seeking your consent at this time to amend certain provisions of
the indenture (the "Indenture") under which Beverly's 9% Senior Notes due 2006
(the "Senior Notes") were issued. As described in the accompanying
Prospectus/Consent Solicitation Statement, the proposed Indenture amendments
(the "Proposed Amendments"), if adopted, would amend the Indenture to facilitate
consummation of the distribution (the "Distribution") and merger (the "Merger")
transactions contemplated by the Agreement and Plan of Distribution dated as of
April 15, 1997 (the "Distribution Agreement"), among Beverly, New Beverly
Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Beverly
("New Beverly"), and Capstone Pharmacy Services, Inc., a Delaware corporation
("Capstone"), and by the Agreement and Plan of Merger dated as of April 15, 1997
(the "Merger Agreement"), between Beverly and Capstone. The Distribution
Agreement and the Merger Agreement contemplate, among other matters: (i) the
transfer by Beverly to New Beverly of all of Beverly's assets and properties,
other than the capital stock of Beverly's Pharmacy Corporation of America
subsidiary ("PCA") and the capital stock of PCA's subsidiaries; (ii) the
assumption by New Beverly of all of Beverly's rights and obligations in respect
of the Senior Notes and the Indenture, as amended; (iii) the termination and
discharge of the obligations of Beverly, PCA and each of PCA's subsidiaries in
respect of the Senior Notes and the Indenture; (iv) the distribution by Beverly
to its stockholders of all of the outstanding capital stock of New Beverly such
that, immediately after such distribution, New Beverly will become an
independent, publicly held corporation (owned directly by Beverly's
stockholders); and (v) immediately following consummation of the transactions
described above, the Merger of Beverly with and into Capstone, with Capstone as
the surviving corporation in such Merger.
The purpose of the Proposed Amendments is to facilitate consummation of the
Distribution and the Merger. If the consents from registered holders of a
majority in aggregate principal amount of the Senior Notes outstanding and not
owned by Beverly or an Affiliate (as defined in the Indenture) of Beverly (the
"Requisite Consents") are received and a Supplemental Indenture (as hereinafter
defined) is executed and delivered by Beverly, New Beverly, certain of Beverly's
subsidiaries, as Guarantors (the "Guarantors") and the Trustee: (i) the Senior
Notes will be amended so that upon the Distribution New Beverly will become the
obligor in place of Beverly with respect to such Senior Notes, as amended (the
"Amended Senior Notes" and, together with the Senior Notes, the "Securities");
(ii) upon the Distribution PCA and its subsidiaries will be released from their
guarantee of the Senior Notes; (iii) the assets of New Beverly will become the
sole asset support for repayment of the Amended Senior Notes; and (iv) assuming
that all other conditions precedent to consummation of the Distribution and
Merger are satisfied or waived, as applicable, Beverly will be able to
consummate the Distribution and the Merger. Other than as set forth in the
immediately preceding clauses (i) through (iii) above, the Distribution and the
Merger will have no other effect on the holders of the Securities. If the
Proposed Amendments are not adopted, the Distribution and the Merger may not be
consummated.
To further facilitate consummation of the distribution transactions and the
Merger referred to above, the Board is also seeking your consent at this time to
amend the Indenture to permit Beverly, if it should so elect, to redeem the
entire outstanding principal amount of its 7 5/8% Convertible Subordinated
Debentures due 2003, without violating the restricted payment provisions
contained in the Indenture.
The purpose, effects and text of the Proposed Amendments are more fully
described in the accompanying Prospectus/Consent Solicitation Statement and
related materials which you are encouraged to read carefully and in their
entirety. In accordance with the terms and subject to the conditions set forth
in the accompanying Prospectus/Consent Solicitation Statement and the enclosed
consent form, Beverly will pay to holders of Senior Notes who consent to the
adoption of each of the Proposed Amendments, up to an aggregate of $ in
cash for each $1,000 principal amount of Senior Notes for which a validly
executed and timely delivered Consent (as hereinafter defined) has been accepted
by Beverly and not properly revoked by such holders ($ of which will be
paid at the time the Proposed Amendments are adopted pursuant to the execution
and delivery of a Supplemental Indenture, and $ of which will be paid
upon consummation of the Merger).
Beverly requests that all Consents be returned as promptly as possible and,
in any event, prior to 5:00 p.m., Eastern time, on October , 1997.
<PAGE> 3
Your prompt attention to this matter is greatly appreciated.
Sincerely,
BEVERLY ENTERPRISES, INC.
/s/ DAVID R. BANKS
------------------------------------
Chairman of the Board and
Chief Executive Officer
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1997
PROSPECTUS/CONSENT SOLICITATION STATEMENT
BEVERLY ENTERPRISES, INC.
NEW BEVERLY HOLDINGS, INC.
SOLICITATION OF CONSENTS FROM HOLDERS
OF 9% SENIOR NOTES DUE 2006
($180,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE SOLICITATION WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON OCTOBER ,
1997, UNLESS EXTENDED. BEVERLY RESERVES THE RIGHT TO EXTEND THE SOLICITATION
AT ANY TIME AND FROM TIME TO TIME, INCLUDING ON A DAILY BASIS, UNTIL 5:00 P.M.,
EASTERN TIME, ON THE DATE ON WHICH CONSENTS HAVE BEEN RECEIVED IN RESPECT OF A
MAJORITY IN AGGREGATE PRINCIPAL AMOUNT OF THE SENIOR NOTES OUTSTANDING
The Board of Directors (the "Board") of Beverly Enterprises, Inc., a
Delaware corporation ("Beverly") is hereby soliciting, upon the terms and
subject to the conditions set forth in this Prospectus/Consent Solicitation
Statement and in the related consent form, consents (the "Solicitation") from
the registered holders of Beverly's 9% Senior Notes due 2006 (the "Senior
Notes"), to amend certain provisions of that certain indenture dated as of
February 1, 1996 (as amended by Supplemental Indenture No. 1 thereto dated as of
December 16, 1996), (collectively, the "Indenture"), among Beverly, certain of
Beverly's subsidiaries, as guarantors (the "Guarantors"), and The Chase
Manhattan Bank (as successor by merger to Chemical Bank), as Trustee (the
"Trustee"). The Senior Notes are listed on the New York Stock Exchange, Inc. and
traded under the symbols "BEV.06"or "BEV/06." This Prospectus/Consent
Solicitation Statement is first being mailed, sent or given to Registered
Holders (as defined below) of Senior Notes on or about September , 1997.
Capitalized terms used in this Prospectus/Consent Solicitation Statement and not
otherwise defined shall have the meanings ascribed to them in the Indenture.
The Board is conducting the Solicitation at this time to obtain consents
from Registered Holders of a majority in aggregate principal amount of the
Senior Notes outstanding and not owned by Beverly or an Affiliate (as defined in
the Indenture) of Beverly (the "Requisite Consents") to amend the Indenture to
facilitate consummation of the distribution and merger transactions contemplated
by that certain Agreement and Plan of Distribution dated as of April 15, 1997
(the "Distribution Agreement"), among Beverly, New Beverly Holdings, Inc., a
Delaware corporation ("New Beverly") and Capstone Pharmacy Services, Inc., a
Delaware corporation ("Capstone"), and by that certain Agreement and Plan of
Merger dated as of April 15, 1997 (the "Merger Agreement"), between Beverly and
Capstone. The Distribution Agreement and the Merger Agreement contemplate, among
other matters: (i) the transfer by Beverly to New Beverly of all of Beverly's
assets and properties, other than the capital stock of Beverly's Pharmacy
Corporation of America subsidiary ("PCA") and the capital stock of PCA's
subsidiaries; (ii) the assumption by New Beverly of all of Beverly's rights and
obligations in respect of the Senior Notes and the Indenture; (iii) the
termination and discharge of the obligations of Beverly, PCA and each of PCA's
subsidiaries in respect of the Senior Notes and the Indenture, as amended by the
Proposed Amendments (as hereinafter defined); (iv) the distribution by Beverly
to its stockholders as of the distribution record date of all of the outstanding
capital stock of New Beverly such that, immediately after such distribution, New
Beverly will be an independent, publicly held corporation (owned directly by
Beverly's stockholders); and (v) following consummation of the transactions
described in clauses (i) through (iv) above (collectively, the "Distribution"),
the merger of Beverly with and into Capstone, with Capstone as the surviving
corporation (the "Surviving Corporation") in such merger (the "Merger", and
together with the Distribution, the "Transactions").
(Continued on next page)
------------------------
SEE "RISK FACTORS" ON PAGE 9 OF THIS PROSPECTUS/CONSENT SOLICITATION
STATEMENT FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY THE
HOLDERS OF THE SENIOR NOTES WITH RESPECT TO THE PROPOSALS DESCRIBED HEREIN.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/CONSENT
SOLICITATION STATEMENT AND CONSENT SOLICITATION. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this
Prospectus/Consent Solicitation Statement and , if given or made, such
information or representation may not be relied upon as having been
authorized by Beverly, New Beverly or the Solicitation Agent.
Please handle this matter through your bank or broker. You may direct any
questions concerning the Solicitation to your bank or broker.
For further information relating to the Solicitation, please call the
Solicitation Agent at the telephone numbers set forth on the back cover page
of this Prospectus/Consent Solicitation Statement.
THE SOLICITATION AGENT FOR THE CONSENT SOLICITATION IS:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT IS , 1997
<PAGE> 5
(Continued from previous page)
The purpose of the Proposed Amendments is to facilitate the consummation of
the Transactions. If the Requisite Consents are received and a Supplemental
Indenture (as hereinafter defined) is executed and delivered by Beverly, New
Beverly, the Guarantors and the Trustee: (i) the Senior Notes will be amended so
that upon the Distribution New Beverly will become the obligor in place of
Beverly with respect to such Senior Notes, as amended (the "Amended Senior
Notes", and together with the Senior Notes, the "Securities"); (ii) upon the
Distribution PCA and its subsidiaries will be released from their guarantee of
the Senior Notes; (iii) the assets of New Beverly will become the sole asset
support for repayment of the Amended Senior Notes; and (iv) assuming that all
other conditions precedent to consummation of the Distribution and the Merger
are satisfied or waived, as applicable, Beverly will be able to consummate the
Distribution and the Merger. Other than as set forth in the immediately
preceding clauses (i) through (iii) above, the Distribution and the Merger will
have no other effect on the holders of the Senior Notes, and if the Proposed
Amendments are not adopted, the Distribution and the Merger may not be
consummated. See "Background and Purpose of the Solicitation."
To further facilitate consummation of the Transactions, the Board is also
conducting the Solicitation at this time to obtain the Requisite Consents to
amend the Indenture to permit Beverly, if it should so elect, to redeem the
entire outstanding principal amount of its 7 5/8% Convertible Subordinated
Debentures due 2003 (the "7 5/8% Convertible Debentures") without violating the
Restricted Payment provisions of the Indenture. As of the date of this
Prospectus/Consent Solicitation Statement, there was issued and outstanding
approximately $62,480,000 aggregate principal amount of the 7 5/8% Convertible
Debentures.
If adopted by the Requisite Consents, the Proposed Amendments would:
(i) (x) amend Sections 5.1, 5.2 and 10.5 of the Indenture to (a) permit (as
a sale of substantially all the assets and properties of Beverly) the transfer
by Beverly to New Beverly of all Beverly's properties and assets, other than the
capital stock of PCA and the capital stock of PCA's subsidiaries,
notwithstanding that the Consolidated Net Worth of New Beverly, after giving
effect to such transfer, will be less than the Consolidated Net Worth of
Beverly, immediately prior to such transfer, and irrespective of whether New
Beverly, after giving effect to such transfer, will have the ability to incur
$1.00 of additional Indebtedness (as defined in the Indenture) pursuant to the
Fixed Charge Coverage Ratio prescribed by Section 4.9 of the Indenture, and (b)
provide that, upon New Beverly's assumption of all of Beverly's obligations
under the Indenture and the Senior Notes, the obligations thereunder of each of
Beverly, PCA and each subsidiary of PCA will terminate and be discharged; and
(y) amend Section 1.1 of the Indenture to (a) modify the definitions of
"Spinoff Transaction" and "Asset Sale" contained therein to include within the
scope of such definitions the transfer by Beverly to New Beverly of all of
Beverly's assets and properties, other than the capital stock of PCA and the
capital stock of PCA's subsidiaries, and (b) make certain additional technical
and conforming definitional changes to permit consummation of the Transactions
(collectively, with the other changes described in this clause (i), the
"Transactions Amendment"); and
(ii) amend Section 4.7 of the Indenture with the consent of the Majority
Holders to permit Beverly, if it should so elect, to redeem (the "Redemption")
the entire outstanding principal amount of its 7 5/8% Convertible Debentures,
without violating the Restricted Payment provisions contained therein (the
"Redemption Amendment", and together with the Transactions Amendment, the
"Proposed Amendments").
IRRESPECTIVE OF WHETHER THE PROPOSED AMENDMENTS BECOME EFFECTIVE, THE
SECURITIES WILL CONTINUE TO BE OUTSTANDING IN ACCORDANCE WITH ALL OTHER TERMS OF
THE INDENTURE AND THE SECURITIES. SEE "DESCRIPTION OF THE SENIOR NOTES."
In accordance with the terms and subject to the conditions set forth in this
Prospectus/Consent Solicitation Statement and in the related consent form,
Beverly will accept all properly completed, dated and executed consent forms
which are received by the Trustee at or prior to 5:00 p.m., Eastern time, on
October , 1997 (as such time may, from time to time, be extended as provided
in this Prospectus/Consent Solicitation Statement, the "Expiration Date").
Consent forms marked to indicate a vote FOR the Proposed Amendments and not
properly revoked before the Expiration Date (a "Consent") will receive a Consent
Payment (as defined below) in the manner and at the times described below, if
and only if (i) the Requisite Consents shall have been received by the Trustee
on or prior to the Expiration Date and not properly revoked, and (ii) a
supplemental indenture giving effect to the Proposed Amendments shall have been
executed and delivered by Beverly, New Beverly, the Guarantors and the Trustee
(the "Supplemental Indenture"). Subject to the conditions described in the
immediately following paragraph, Beverly will pay up to an aggregate of
$ in cash for each $1,000 principal amount of Senior Notes for which a
Consent has been accepted, $ of which will be payable at the time of the
execution and delivery of the Supplemental Indenture by Beverly, New Beverly,
the Guarantors and the Trustee, and $ of which will be payable promptly
following consummation of the Merger (the "Consent Payment"). Without limiting
the generality of the foregoing, Beverly reserves the right to delay making
Consent Payments, in whole or in part, to comply with any applicable law.
UNDER NO CIRCUMSTANCES WILL BEVERLY MAKE ANY CONSENT PAYMENT TO ANY PERSON
WHO DELIVERS A CONSENT FORM WITH THE "DO NOT CONSENT" OR "ABSTAIN" BOX MARKED
THEREON WITH RESPECT TO EITHER OF THE TRANSACTIONS AMENDMENT OR THE REDEMPTION
AMENDMENT UNLESS, ON OR PRIOR TO THE EXPIRATION DATE, SUCH PERSON DELIVERS AND
DOES NOT PROPERLY REVOKE A SUBSEQUENTLY DATED CONSENT FORM MARKED TO INDICATE A
VOTE FOR THE PROPOSED AMENDMENTS.
Approval of the Proposed Amendments requires receipt of the Requisite
Consents. As of the date hereof, $180,000,000 aggregate principal amount of
Senior Notes were outstanding. See "Principal Holders and Security Ownership of
Management."
Persons who do not deliver Consents on or prior to the Expiration Date will
not be entitled to receive any Consent Payment. The Expiration Date may be
extended (including on a daily basis) until 5:00 p.m., Eastern time, on the date
on which the Requisite Consents are received, at any time and from time to time
in the discretion of Beverly, and the Solicitation may be terminated at any time
(including after the Expiration Date and prior to the execution and delivery of
the Supplemental Indenture by Beverly, New Beverly, the Guarantors and the
Trustee) in the discretion of Beverly, whether or not the Requisite Consents
have been received. IF THE SOLICITATION IS SO TERMINATED BY BEVERLY, NO CONSENT
PAYMENTS WILL BE MADE, IRRESPECTIVE OF WHETHER THE REQUISITE CONSENTS WERE
RECEIVED. IF THE REQUISITE CONSENTS ARE RECEIVED ON OR PRIOR TO THE EXPIRATION
DATE AND THE SUPPLEMENTAL INDENTURE IS EXECUTED AND DELIVERED BY BEVERLY, NEW
BEVERLY, THE GUARANTORS AND THE TRUSTEE, CONSENT PAYMENTS PAYABLE AT THE TIME OF
EXECUTION AND DELIVERY OF THE SUPPLEMENTAL INDENTURE WILL BE MADE TO CONSENTING
HOLDERS WHETHER OR NOT THE DISTRIBUTION AND THE MERGER ARE CONSUMMATED. THAT
PORTION OF THE CONSENT PAYMENTS PAYABLE FOLLOWING THE CONSUMMATION OF THE MERGER
WILL NOT BE MADE IF THE MERGER IS NOT CONSUMMATED.
Only those persons ("Registered Holders") in whose name Senior Notes were
registered in the register maintained by the Trustee as of , 1997 (the
"Record Date"), or any other person who has obtained a proxy (in substantially
the form included with the consent form) authorizing such person (or any other
person claiming title by or through such person) to complete and deliver a
consent form and vote
<PAGE> 6
(Continued from previous page)
the related Senior Notes on behalf of a Registered Holder, will be eligible to
deliver a consent form and vote with respect to the Proposed Amendments and,
upon the terms and subject to the conditions set forth in this
Prospectus/Consent Solicitation Statement and in the related consent form,
receive a Consent Payment.
The transfer of Senior Notes after the Record Date will NOT have the effect
of revoking the election made in any consent form theretofore validly delivered,
and each properly completed and timely furnished consent form will be counted
notwithstanding any transfer of the Senior Notes to which the consent form
relates, unless the procedure for revoking Consents described in this
Prospectus/Consent Solicitation Statement has been complied with. A Consent
received by the Trustee on or prior to the Expiration Date relating to any
Senior Notes will be deemed to revoke any consent form in respect of such Senior
Notes having an earlier date that has the "DO NOT CONSENT" or "ABSTAIN" box
marked thereon.
With respect to Senior Notes registered in the name of CEDE & Co., which is
the nominee of The Depository Trust Company ("DTC"), the "DTC Participants"
(i.e., brokers, banks and other financial institutions that are participants in
DTC), rather than DTC, must execute and deliver the consent form. Participants
in The Midwest Depository Trust Company and Philadelphia Depository Trust
Company should inquire of such institutions regarding the procedure for
executing consent forms in respect of Senior Notes registered in the name of
their respective nominees.
BEVERLY WILL NOT BE DEEMED TO HAVE ACCEPTED ANY CONSENTS UNLESS AND UNTIL
THE SUPPLEMENTAL INDENTURE IS EXECUTED AND DELIVERED BY BEVERLY, NEW BEVERLY,
THE GUARANTORS AND THE TRUSTEE. IF BEVERLY, NEW BEVERLY, THE GUARANTORS AND THE
TRUSTEE EXECUTE AND DELIVER THE SUPPLEMENTAL INDENTURE, THE PROPOSED AMENDMENTS
WILL BE BINDING UPON ALL HOLDERS OF THE SECURITIES, WHETHER OR NOT SUCH HOLDERS
HAVE DELIVERED CONSENTS.
If, in accordance with the terms and subject to the conditions set forth in
this Prospectus/Consent Solicitation Statement and in the related consent form,
the Requisite Consents are received and the Supplemental Indenture is executed
and delivered by Beverly, New Beverly, the Guarantors and the Trustee,
non-consenting holders (whether or not they deliver a consent form or otherwise
affirmatively vote against the Proposed Amendments) will not be entitled to any
rights of appraisal or similar rights of dissenters (whether pursuant to the
Indenture, Beverly's organizational instruments or applicable provisions of
Delaware law) with respect to adoption of the Proposed Amendments.
CONSENTS CAN BE REVOKED ONLY IN ACCORDANCE WITH THE PROCEDURES THEREFOR SET
FORTH IN THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT AT ANY TIME UP TO, AND
WILL BECOME IRREVOCABLE UPON, THE LATER OF THE EXPIRATION DATE AND THE RECEIPT
BY THE TRUSTEE FROM BEVERLY OF AN OFFICER'S CERTIFICATE IN ACCORDANCE WITH THE
PROVISIONS OF THE INDENTURE CERTIFYING THAT THE REQUISITE CONSENTS HAVE BEEN
RECEIVED. ONLY HOLDERS WHO PROPERLY DELIVER THEIR CONSENTS ON OR PRIOR TO THE
EXPIRATION DATE AND DO NOT PROPERLY REVOKE SUCH CONSENTS WILL, IN ACCORDANCE
WITH THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS
PROSPECTUS/CONSENT SOLICITATION STATEMENT AND IN THE RELATED CONSENT FORM, BE
ENTITLED TO RECEIVE ANY CONSENT PAYMENTS.
IF ANY PERSON DELIVERS AN EXECUTED CONSENT FORM WITHOUT INDICATING A VOTE IN
RESPECT OF THE PROPOSED AMENDMENTS, SUCH DELIVERY WILL BE DEEMED TO CONSTITUTE A
VOTE FOR ADOPTION OF THE PROPOSED AMENDMENTS.
UNDER NO CIRCUMSTANCES SHOULD ANY PERSON TENDER OR DELIVER TO BEVERLY , THE
TRUSTEE OR THE SOLICITATION AGENT ANY SECURITIES WITH THEIR CONSENT FORMS, OR
OTHERWISE.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION....................................... (iv)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. (v)
CAUTIONARY STATEMENTS....................................... (vi)
SUMMARY..................................................... 1
The Consent Solicitation.................................. 1
The Solicitation....................................... 1
Consent Payments....................................... 2
Expiration Date; Termination........................... 2
Conditions to Proposed Amendments; Effectiveness....... 2
Registered Holders..................................... 3
Consent Procedures..................................... 3
Revocation of Consents................................. 3
Certain Federal Income Tax Considerations.............. 4
No Dissenters' Rights.................................. 4
Information; Assistance; Additional Materials.......... 4
Delivery of Consent Forms.............................. 4
Parties to the Transactions............................... 5
Beverly................................................ 5
New Beverly............................................ 5
PCA.................................................... 6
Capstone............................................... 6
Risk Factors.............................................. 6
Beverly Summary Financial Data............................ 7
Summary Historical Consolidated Financial Data of PCA..... 8
RISK FACTORS................................................ 9
Disposition of PCA........................................ 9
Substantial Indebtedness.................................. 9
Business to be Conducted by New Beverly................... 9
Debt Rating of the Amended Senior Notes................... 9
Terms of the Amended Senior Notes......................... 10
Uncertainty Associated with Healthcare Reform............. 10
Risks Involved with Reimbursement by Third Party Payors... 10
Government Regulation..................................... 11
Increased Labor Costs and Availability of Personnel....... 11
Dependence on Key Personnel............................... 12
Competition............................................... 12
Non-competition Agreement with Capstone................... 12
BACKGROUND AND PURPOSE OF THE SOLICITATION.................. 13
The Transactions.......................................... 13
The Transactions Amendment................................ 13
The Redemption Amendment.................................. 14
THE SOLICITATION............................................ 15
Terms of the Solicitation; Consent Payments............... 15
Consent Procedure......................................... 16
Revocation of Consents.................................... 18
Information; Assistance; Additional Materials............. 19
THE PROPOSED AMENDMENTS..................................... 19
Purpose and Effects of the Proposed Amendments............ 20
The Transactions Amendment................................ 20
Change of Control Definition in the Indenture.......... 20
Proposed Amendment..................................... 20
</TABLE>
(i)
<PAGE> 8
<TABLE>
<S> <C>
Spinoff Transaction Definition; Asset Sale Definition
in the Indenture...................................... 20
Proposed Amendment..................................... 21
Merger, Consolidation or Sale of Assets Covenant in the
Indenture............................................. 21
Proposed Amendment..................................... 21
Successor Corporation or Person Substituted; Release of
Guarantors in the Indenture........................... 21
Proposed Amendments.................................... 22
The Redemption Amendment.................................. 22
Restricted Payments Covenant in the Indenture.......... 22
Proposed Amendment..................................... 23
UNAUDITED PRO FORMA NEW BEVERLY FINANCIAL STATEMENTS........ 24
New Beverly Holdings, Inc. Pro Forma Condensed
Consolidated Statements of Income...................... 25
Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Income................................... 26
New Beverly Holdings, Inc. Pro Forma Condensed
Consolidated Balance Sheet June 30, 1997............... 27
Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet.......................................... 28
CAPITALIZATION.............................................. 29
DESCRIPTION OF NEW BEVERLY.................................. 31
Selected Historical Consolidated Financial Data........... 31
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 32
General................................................... 32
Operating Results......................................... 33
Six Months 1997 Compared to Six Months 1996............ 33
1996 Compared to 1995.................................. 34
1995 Compared to 1994.................................. 36
Liquidity and Capital Resources........................... 39
Business.................................................. 41
General................................................... 41
Operations................................................ 41
Long-Term Care......................................... 42
Rehabilitation Therapies............................... 42
Transitional Care...................................... 42
Other Services......................................... 42
Pharmacy Services...................................... 42
Governmental Regulation and Reimbursement................. 42
Competition............................................... 46
Employees................................................. 46
Properties................................................ 47
Legal Proceedings......................................... 48
Management................................................ 49
Dividend Policy........................................... 51
DESCRIPTION OF THE SENIOR NOTES............................. 52
General................................................... 52
Optional Redemption....................................... 52
Mandatory Redemption...................................... 53
Repurchase at the Option of Holders....................... 53
Change of Control......................................... 53
Asset Sales............................................... 54
Certain Covenants......................................... 56
Restricted Payments....................................... 56
Incurrence of Indebtedness and Issuance of Preferred
Stock.................................................. 57
Liens..................................................... 58
Dividend and Other Payment Restrictions Affecting
Subsidiaries........................................... 58
Line of Business.......................................... 59
</TABLE>
(ii)
<PAGE> 9
Merger, Consolidation or Sale of Assets................... 59
Transactions with Affiliates.............................. 59
Release of Guarantors..................................... 60
Reports................................................... 60
Events of Default and Remedies............................ 60
No Personal Liability of Directors, Officers, Employees
and Stockholders....................................... 61
Legal Defeasance and Covenant Defeasance.................. 61
Transfer and Exchange..................................... 62
Amendment, Supplement and Waiver.......................... 62
Concerning the Trustee.................................... 63
Certain Definitions....................................... 63
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....... 72
The Proposed Amendments................................... 72
Backup Withholding........................................ 72
Other Tax Considerations.................................. 73
PRINCIPAL HOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT...... 74
THE SOLICITATION AGENT...................................... 75
EXPENSES OF SOLICITATION.................................... 75
LEGAL MATTERS............................................... 75
EXPERTS..................................................... 76
BEVERLY ENTERPRISES, INC. INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.............. F-1
(iii)
<PAGE> 10
AVAILABLE INFORMATION
Beverly (File No. 1-9550) is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission") relating to its business, properties,
management, financial position, results of operations and other matters. Such
reports, proxy statements and other information can be inspected and copied at
the Public Reference Section maintained by the Commission at Judiciary Plaza,
450 Fifth Street N.W., Washington, D.C. 20549 and at its Regional Offices
located at The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2551, and 7 World Trade Center, New York, New York 10048. Copies
of such material also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The common stock, $0.10 par value, of Beverly (the "Beverly Common
Stock") is listed on the New York Stock Exchange, Inc. ("NYSE") and the Pacific
Stock Exchange ("PSE") under the symbol "BEV". Such reports, proxy statements
and other information also can be inspected at the offices of the NYSE located
at 20 Broad Street, New York, New York 10005 or at the offices of the PSE
located at 301 Pine Street, San Francisco, California 94104. In addition, such
reports, proxy statements and other information can be reviewed through the
Commission's Electronic Data Gathering Analysis and Retrieval System (a/k/a
EDGAR), which is publicly available through the Commissions' Web site
(http://www.sec.gov).
Beverly and New Beverly have filed with the Commission a Registration
Statement (Nos. 333- and 333- ) on Form S-4 (together with all
amendments thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to solicitation of
consents from the holders of the Senior Notes to amend certain provisions of the
Indenture and to substitute New Beverly in place of Beverly as the primary
obligor under the Amended Senior Notes. The prospectus contained in the
Registration Statement (the "Prospectus/Consent Solicitation Statement") does
not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. Statements made in the Prospectus/Consent
Solicitation Statement as to the contents of any contract, agreement or other
document referred to are not necessarily complete and with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement is deemed qualified in its entirety
by such reference.
New Beverly has filed with the Commission a Registration Statement (No.
333-28521) on Form S-1 (together with all amendments thereto, the "New Beverly
Registration Statement") with respect to the Common Stock, $.10 par value of New
Beverly proposed to be issued to Beverly stockholders in the Distribution.
Capstone has also filed with the Commission a Registration Statement (No.
333-28517) on Form S-4 (together with all amendments thereto, the "Capstone
Registration Statement"), which also constitutes a joint proxy statement of
Capstone and Beverly, with respect to the solicitation of proxies from holders
of the Common Stock, $.01 par value of Capstone ("Capstone Common Stock") and
the holders of Common Stock, $.10 par value of Beverly, in connection with the
Merger of Beverly with Capstone and the issuance of Capstone Common Stock to
Beverly stockholders upon consummation of the Merger. Copies of the Indenture,
the Distribution Agreement, the Merger Agreement and all other documents
incorporated herein by reference, together with the New Beverly Registration
Statement and the Capstone Registration Statement (excluding the exhibits
thereto), will be provided, without charge, by first class mail, to each person
to whom this Prospectus/Consent Solicitation Statement is delivered, within one
business day of oral or written request, to Beverly's principal executive
offices: Beverly Enterprises, Inc., 5111 Rogers Avenue, Suite 40-A, Fort Smith,
Arkansas 72919, Attention: Robert W. Pommerville, Secretary, telephone no.:
(501) 452-6712.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY BEVERLY, NEW BEVERLY OR ANY OTHER PERSON. THIS
PROSPECTUS/CONSENT SOLICITATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURI-
(iv)
<PAGE> 11
TIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS/CONSENT SOLICITATION STATEMENT NOR THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED BY THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF BEVERLY, NEW BEVERLY, PCA, OR CAPSTONE SINCE THE DATE
OF THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Beverly are
incorporated by reference in this Prospectus/Consent Solicitation Statement:
1. Beverly's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 Beverly 10-K");
2. Beverly's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997;
3. The portions of the Proxy Statement for the Annual Meeting of
Stockholders held on May 29, 1997, that have been incorporated by reference
in the 1996 Beverly 10-K;
4. Beverly's Current Report on Form 8-K dated April 15, 1997; and
5. Beverly's Registration Statement on Form 8-A relating to the Senior
Notes dated November 29, 1995, and any amendment or report filed for the
purpose of updating such description.
All documents and reports filed by Beverly pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus/Consent
Solicitation Statement shall be deemed to be incorporated by reference in this
Prospectus/Consent Solicitation Statement and to be a part hereof from the dates
of filing of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus/Consent Solicitation
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not constitute a part of this Prospectus/Consent
Solicitation Statement, except as so modified or superseded.
(v)
<PAGE> 12
CAUTIONARY STATEMENTS
This Prospectus/Consent Solicitation Statement contains statements relating
to future results of each of Beverly, PCA and New Beverly (including certain
projections and business trends) that are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from those projected as a result of certain risks and
uncertainties, including, but not limited to, changes in political and economic
conditions; regulatory conditions; government healthcare spending; integration
of acquisitions; and competitive product and pricing pressures, as well as other
risks and uncertainties, including but not limited to those detailed from time
to time in the filings of Beverly and New Beverly made with the Commission.
When used in this Prospectus/Consent Solicitation Statement with respect to
each of Beverly, PCA and New Beverly the words "estimate," "project," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Such
risks and uncertainties include those risks, uncertainties and risk factors
identified in this Prospectus/Consent Solicitation Statement under the headings
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Neither PCA, Beverly, nor New Beverly undertakes any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
(vi)
<PAGE> 13
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus/Consent Solicitation Statement. This summary is not intended to
be complete and is qualified in all respects by reference to the more detailed
information and financial statements contained elsewhere or incorporated by
reference in this Prospectus/Consent Solicitation Statement. Noteholders are
urged to read this Prospectus/ Consent Solicitation Statement in its entirety.
THE CONSENT SOLICITATION
THE SOLICITATION
The Beverly Board is conducting the Solicitation at this time to obtain the
Requisite Consents to adopt the Transactions Amendment for the purpose of
facilitating consummation of the Transactions. The Transactions contemplated by
the Distribution Agreement and the Merger Agreement include, among other
matters: (i) the transfer by Beverly to New Beverly of all of Beverly's assets
and properties, other than the capital stock of PCA and the capital stock of
PCA's subsidiaries; (ii) the assumption by New Beverly of all of Beverly's
rights and obligations in respect of the Senior Notes and the Indenture, as
amended; (iii) the termination and discharge of the obligations of Beverly, PCA
and each of PCA's subsidiaries in respect of the Senior Notes and the Indenture,
as amended; (iv) the distribution by Beverly to its stockholders of all of the
outstanding capital stock of New Beverly such that, immediately after such
distribution, New Beverly will become an independent, publicly held corporation
(owned directly by Beverly's stockholders); and (v) (following consummation of
the Distribution), the Merger.
If the Requisite Consents are obtained, Beverly, New Beverly, the
Guarantors and the Trustee will execute the Supplemental Indenture which shall
include the Proposed Amendments, and the Registered Holders will thereupon hold
the Amended Senior Notes. The Amended Senior Notes will be unsecured senior
obligations of New Beverly and will rank pari passu with all existing and future
senior indebtedness of New Beverly. The Indenture, as amended by the
Supplemental Indenture, will be identical in all material respects to the
Indenture prior to implementation of the Proposed Amendments except that (i) the
obligor on the Amended Senior Notes will be New Beverly in place of Beverly and
(ii) the Indenture in effect as to the Amended Senior Notes will be modified as
provided for by the Proposed Amendments. See "Description of the Amended Senior
Notes."
Approval of the Transactions Amendment is a condition precedent to
consummation of the Distribution and the Merger, and consummation of the
Distribution is a condition precedent to consummation of the Merger. If the
Proposed Amendments are not adopted, Beverly, New Beverly, the Guarantors and
the Trustee will not execute and deliver a Supplemental Indenture, and no
Consent Payments will be made to consenting holders. In such event Beverly will
be required to find alternative means of satisfying the conditions to
consummation of the Distribution. The Distribution Agreement requires that
Beverly and New Beverly take all commercially reasonable action to cause New
Beverly (or a subsidiary of New Beverly) to legally assume and become liable
with respect to, with certain exceptions, all of Beverly's consolidated
indebtedness. The Distribution Agreement requires Beverly (prior to the
effective time of the Distribution) and New Beverly (after the effective time of
Distribution) to pay, cause to be paid, or otherwise provide for assurances of
payment of (in each case satisfactory to Capstone) to the extent Beverly or New
Beverly is unable to effect releases of Beverly and PCA and its subsidiaries
from liability under Beverly's consolidated indebtedness, all Beverly or New
Beverly indebtedness or other non-contingent liabilities as to which Beverly or
PCA and its subsidiaries is presently a direct obligor. If the Proposed
Amendments are not adopted, and Beverly is unable to find an alternative means
of satisfying the aforementioned conditions precedent to consummation of the
Distribution, the Merger will not be consummated. See "Background and Purpose of
the Solicitation."
In addition, to further facilitate consummation of the Transactions, the
Board is conducting the Solicitation at this time to obtain the Requisite
Consents to adopt the Redemption Amendment and, if Beverly should so elect, to
effect the Redemption. As of the date of this Prospectus/Consent Solicitation
1
<PAGE> 14
Statement, there was issued and outstanding approximately $62,480,000 aggregate
principal amount of the 7 5/8% Convertible Debentures.
CONSENT PAYMENTS
Upon the terms and subject to the conditions set forth in this
Prospectus/Consent Solicitation Statement and in the related consent form,
Beverly will pay up to an aggregate of $ in cash for each $1,000
principal amount of Senior Notes for which a Consent has been accepted,
$ of which will be payable at the time the Supplemental Indenture is
executed and delivered by Beverly, New Beverly, the Guarantors and the Trustee,
and $ of which will be payable promptly following consummation of the
Merger. Each Consent Payment to be made to a consenting holder will be made by
check and delivered by first class mail to the address specified on the consent
form. Without limiting the generality of the foregoing, Beverly reserves the
right to delay making Consent Payments, in whole or in part, to comply with any
applicable law. Moreover, if the Solicitation is terminated by Beverly as
described in "-- Expiration Date; Termination" below, no Consent Payments will
be made irrespective of whether the Requisite Consents were received. If the
Requisite Consents are received on or prior to the Expiration Date and the
Supplemental Indenture is executed and delivered by Beverly, New Beverly, the
Guarantors and the Trustee, Consent Payments payable at the time of execution
and delivery of the Supplemental Indenture will be made to consenting holders
whether or not the Distribution and the Merger are consummated. That portion of
the Consent Payments payable following the consummation of the Merger will not
be made if the Merger is not consummated.
Under no circumstances will Beverly make any Consent Payment to any person
who delivers a consent form with the "DO NOT CONSENT" or "ABSTAIN" box marked
thereon with respect to either of the Transactions Amendment or the Redemption
Amendment unless, on or prior to the Expiration Date, such person delivers and
does not properly revoke a subsequently dated consent form marked to indicate a
vote FOR the Proposed Amendments. See "The Solicitation -- Terms of the
Solicitation; Consent Payments" and "Certain United States Federal Income Tax
Consequences."
EXPIRATION DATE; TERMINATION
The Expiration Date is 5:00 p.m., Eastern time, on October , 1997, unless
the Solicitation is extended, in which case the term "Expiration Date" means the
latest date and time to which the Solicitation is extended. Beverly may extend
the Solicitation at any time and from time to time in its discretion, including
on a daily basis, until 5:00 p.m., Eastern time, on the date on which the
Requisite Consents are received, and the Solicitation may be terminated at any
time (including after the Expiration Date and prior to the execution and
delivery of the Supplemental Indenture by Beverly, New Beverly, the Guarantors
and the Trustee) in the discretion of Beverly, whether or not the Requisite
Consents have been received.
Any extension, termination or amendment of the Solicitation, or delay in
making any Consent Payments, will be followed as promptly as practicable either
by notice delivered to Registered Holders or by public announcement thereof.
Without limiting the generality of the foregoing, Beverly, in the case of any
public announcement, will have no obligation to publish, advertise or otherwise
disseminate any information in respect of the Solicitation other than by means
of issuing a release through the Dow Jones News Service.
CONDITIONS TO PROPOSED AMENDMENTS; EFFECTIVENESS
The effectiveness of the Proposed Amendments is conditioned upon the
receipt of the Requisite Consents, acceptance thereof by Beverly, and the
execution and delivery of the Supplemental Indenture by Beverly, New Beverly,
the Guarantors and the Trustee. Beverly will not be deemed to accept any
Consents unless and until the Supplemental Indenture is executed and delivered
by Beverly, New Beverly, the Guarantors and the Trustee.
If the Proposed Amendments do not become effective, the Senior Notes will
continue to be outstanding in accordance with the terms of the Indenture.
2
<PAGE> 15
If Beverly, New Beverly, the Guarantors and the Trustee execute and deliver
the Supplemental Indenture, the Proposed Amendments will be binding upon all
holders of the Securities in accordance with the terms of the Supplemental
Indenture, whether or not such holders have delivered Consents, and the Amended
Senior Notes will continue to be outstanding in accordance with all other terms
of the Indenture, as amended.
REGISTERED HOLDERS
The term "Registered Holder," when used with respect to the Solicitation,
means any person in whose name a Senior Note was registered in the register
maintained by the Trustee as of the Record Date.
CONSENT PROCEDURES
Only (i) Registered Holders or (ii) any other person who has obtained a
proxy (in substantially the form included with the consent form) which
authorizes such person (or any other person claiming title by or through such
person) to complete and deliver a consent form and vote the related Senior Notes
on behalf of such Registered Holder, may execute and deliver a consent form and
vote with respect to the Proposed Amendments and, upon the terms and subject to
the conditions set forth in this Prospectus/Consent Solicitation Statement and
in the related consent form, receive Consent Payments. A beneficial owner who is
not the Registered Holder of Senior Notes but who desires to deliver a consent
form should either: (i) complete and sign the consent form, or a facsimile
thereof, have the signature thereon (and on any proxy delivered therewith)
guaranteed or notarized (unless such consent form or proxy, as the case may be,
is furnished by or for the account of an Eligible Institution) and mail or
otherwise deliver the consent form, or such facsimile (together with a duly
executed proxy in substantially the form included with the consent form,
authorizing such beneficial owner to complete and deliver the consent form and
vote such Senior Notes on behalf of the Registered Holder) to the Trustee at its
address set forth below; or (ii) request the Registered Holder of such Senior
Notes to effect the transaction for such beneficial owner and to forward any
Consent Payment received by the Registered Holder on such beneficial owner's
behalf. See "The Solicitation -- Consent Procedure."
The term "Eligible Institution" means a firm that is a member of a
registered national securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"), or a commercial bank or trust company having
an office or correspondent in the United States. IF ANY HOLDER DELIVERS AN
EXECUTED CONSENT FORM WITHOUT INDICATING A VOTE WITH RESPECT TO THE PROPOSED
AMENDMENTS, SUCH DELIVERY WILL BE DEEMED TO CONSTITUTE A VOTE FOR THE PROPOSED
AMENDMENTS.
With respect to Senior Notes registered in the name of CEDE & Co., which is
the nominee of DTC, the "DTC Participants" (i.e., brokers, banks and other
financial institutions that are participants in DTC) rather than DTC, must
execute and deliver the consent form. Participants in The Midwest Depository
Trust Company and Philadelphia Depository Trust Company should inquire of such
institutions regarding the procedure for executing consent forms in respect of
Senior Notes registered in the name of their respective nominees.
REVOCATION OF CONSENTS
Consents can be revoked only by delivering a written notice of revocation
to the Trustee prior to the later of the Expiration Date and receipt by the
Trustee from Beverly of an officer's certificate in accordance with the
Indenture certifying receipt of the Requisite Consents. Any person who properly
revokes a Consent will not receive a Consent Payment, unless and until such
person redelivers a Consent in accordance with the procedures therefor described
under "The Solicitation-Consent Procedure." The transfer of Senior Notes after
the Record Date will NOT have the effect of revoking the elections made in any
consent form theretofore validly delivered and each properly completed and
timely furnished consent form will be counted notwithstanding any transfer of
the Senior Notes to which such consent form relates, unless the procedure for
revoking consents described in this Prospectus/Consent Solicitation Statement
has been complied with. Consents received by the Trustee on or prior to the
Expiration Date relating to any Senior Notes will be
3
<PAGE> 16
deemed to revoke any consent form in respect of such Senior Notes having an
earlier date that has the "DO NOT CONSENT" or "ABSTAIN" box marked thereon. See
"The Solicitation -- Revocation of Consents."
UNDER NO CIRCUMSTANCES SHOULD ANY PERSON TENDER OR DELIVER TO BEVERLY, THE
TRUSTEE OR THE SOLICITATION AGENT ANY SENIOR NOTES WITH THEIR CONSENT FORMS OR
OTHERWISE.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
It is expected that the U.S. Federal income tax consequence of the adoption
of the Proposed Amendments to holders of the Senior Notes will be that the full
amount of the Consent Payments would be subject to taxation as ordinary income
to those holders who receive such payments. See "Certain Federal Income Tax
Considerations."
NO DISSENTERS' RIGHTS
If, in accordance with the terms and subject to the conditions set forth in
this Prospectus/Consent Solicitation Statement and in the related consent form,
the Requisite Consents are received and the Supplemental Indenture is executed
and delivered by Beverly, New Beverly, the Guarantors and the Trustee,
non-consenting holders (whether or not they deliver a consent form or otherwise
affirmatively vote against the Proposed Amendments) will not be entitled to any
rights of appraisal or similar rights of dissenters (whether pursuant to the
Indenture, Beverly's organizational instruments or applicable provisions of
Delaware law) with respect to adoption of the Proposed Amendments, and such
holders will be bound by the action of the consenting holders.
INFORMATION; ASSISTANCE; ADDITIONAL MATERIALS
Questions regarding the Solicitation relating to the procedure for
consenting as well as requests for assistance or for additional copies of this
Prospectus/Consent Solicitation Statement or the consent form should be directed
to the Solicitation Agent, as follows:
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Mr. Joe Muratore
Telephone: (212) 892-4753
Telecopier: (212) 892-4057
DELIVERY OF CONSENT FORMS
Each consent form should be delivered to the Trustee (and not Beverly or
the Solicitation Agent) on or prior to the Expiration Date as follows:
The Chase Manhattan Bank
c/o Texas Commerce Bank
Corporate Trust Services -- Dallas
1201 Main Street
Dallas, Texas 75202
Attention: Mr. Frank Ivins
Telephone: (214) 672-5678
Telecopier: (214) 672-5746
TERMS OF THE AMENDED SENIOR NOTES
The terms of the Amended Senior Notes will be identical in all material
respects to the terms of the Senior Notes prior to the adoption of the Proposed
Amendments, except that (i) the obligor under the
4
<PAGE> 17
Amended Senior Notes will be New Beverly in place of Beverly and (ii) the
Indenture in effect as to the Amended Senior Notes will be modified as provided
for by the Proposed Amendments.
OBLIGOR.................... New Beverly Holdings, Inc. Upon the consummation of
the Transactions, New Beverly will change its name
to Beverly Enterprises, Inc.
MATURITY DATE.............. February 15, 2006
INTEREST RATE.............. 9%
INTEREST PAYMENT DATES..... Payable semi-annually in arrears on February 15 and
August 15 of each year, with the next interest
payment date being February 15, 1998.
OPTIONAL REDEMPTION........ New Beverly will not have the right to redeem any
of the Amended Senior Notes prior to February 15,
2001. The Amended Senior Notes will be redeemable
at the option of New Beverly, in whole or in part,
at any time on or after February 15, 2001 at
certain prices and under certain conditions. See
"Description of the Senior Notes -- Optional
Redemption."
RANKING.................... The Amended Senior Notes will be unsecured senior
obligations of New Beverly and will rank pari passu
with all existing and future senior indebtedness of
New Beverly.
CERTAIN COVENANTS.......... The Supplemental Indenture will contain
substantially identical covenants to those
contained in the Indenture prior to implementation
of the Proposed Amendments, but will give effect to
the Proposed Amendments. See "Description of the
Senior Notes -- General" and " -- Certain Covenants
of New Beverly."
If the Proposed Amendments are adopted and the Distribution and the Merger
are consummated, the Amended Senior Notes will continue to be listed on the NYSE
and traded under the symbols "BEV.06" or "BEV/06," currently used by Beverly for
the Senior Notes.
For more detailed information regarding the Amended Senior Notes, see "The
Proposed Amendments" and "Description of the Senior Notes."
PARTIES TO THE TRANSACTIONS
BEVERLY
Beverly's business consists principally of providing long-term healthcare,
including the operation of nursing facilities, acute long-term transitional
hospitals, institutional and mail service pharmacies, rehabilitation therapy
services, outpatient therapy clinics, assisted living centers, hospices and home
healthcare centers. Beverly's principal executive offices are located at 5111
Rogers Avenue, Suite 40-A, Fort Smith, Arkansas 72919-0155, telephone number
(501) 452-6712.
Beverly is one of the largest operators of nursing facilities in the United
States. At June 30, 1997, Beverly operated 574 nursing facilities with 64,206
licensed beds. The facilities are located in 31 states and the District of
Columbia, and range in capacity from 20 to 355 beds. At June 30, 1997, Beverly
also operated 74 pharmacies through PCA, 33 assisted living centers containing
897 units, 12 transitional hospitals containing 639 beds, 46 outpatient therapy
clinics, 21 hospices and six home healthcare centers. Beverly's facilities had
average occupancy of 86.5%, 87.4%, 88.1% and 88.5% during the six months ended
June 30, 1997 and the years ended December 31, 1996, 1995, and 1994,
respectively.
5
<PAGE> 18
NEW BEVERLY
New Beverly is currently a wholly-owned subsidiary of Beverly. By virtue of
the restructuring of Beverly and the Distribution, New Beverly will own
Beverly's nursing facilities, acute long-term transitional hospitals,
rehabilitation therapy services, outpatient therapy clinics, assisted living
centers, hospices, home healthcare centers and other healthcare and related
services and businesses other than its institutional pharmacy business
(collectively, "the "Remaining Healthcare Business"), and New Beverly Common
Stock will be distributed to the stockholders of Beverly. New Beverly's
principal executive offices are located at 5111 Rogers Avenue, Suite 40-A, Fort
Smith, Arkansas 72919-0155, telephone number (501) 452-6712. Immediately
following the Merger, New Beverly will change its name to "Beverly Enterprises,
Inc." New Beverly will make application to list the New Beverly Common Stock for
trading on the NYSE and PSE under the symbol "BEV," currently used by Beverly.
PCA
PCA is presently a wholly-owned subsidiary of Beverly. Following the
Distribution and immediately prior to the Merger, Beverly's sole business will
consist of Beverly's institutional pharmacy business (the "Institutional
Pharmacy Business") operated through PCA and PCA's subsidiaries. PCA is a
leading provider of pharmaceuticals and related products and services in the
institutional healthcare market and is one of the nation's leading providers of
mail service pharmacy benefits in the workers' compensation market. As of June
30, 1997, PCA provided its institutional pharmacy products and services to
approximately 190,000 long-term care beds in 33 states.
CAPSTONE
The Merger of Beverly (after the Distribution) with and into Capstone will
result in Capstone's acquiring the Institutional Pharmacy Business of Beverly
represented by PCA and its subsidiaries. Capstone is a leading provider of
institutional pharmacy services to long-term care facilities and correctional
institutions located throughout the United States. Capstone provides long-term
care facilities with comprehensive institutional pharmacy services that include
the purchasing, repackaging and dispensing of pharmaceuticals, infusion therapy,
Medicare Part B services and pharmacy consulting services. These services are
supported by computerized recordkeeping and third-party billing services.
Capstone serves its long-term care clients primarily through regional
pharmacies, many of which are open 24 hours, seven days a week. Capstone has
established regional pharmacies in certain large metropolitan areas, each
capable of serving in excess of 10,000 patients. In the correctional market,
Capstone provides pharmaceuticals under capitated and other contracts to
correctional institutions that have privatized their inmate healthcare services.
Capstone services approximately 120,000 long-term care beds in 16 states and
over 110,000 inmates in correctional facilities nationwide.
RISK FACTORS
Holders of Senior Notes should carefully consider the specific factors set
forth under "Risk Factors" as well as the other information and data contained
in this Prospectus/Consent Solicitation Statement before deciding whether to
execute and deliver a Consent.
6
<PAGE> 19
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary historical consolidated financial data of Beverly has
been derived from the historical financial statements and should be read in
conjunction with such financial statements and notes thereto, which are included
elsewhere herein. Beverly data for the six months ended June 30, 1997 and 1996
have been derived from and should be read in conjunction with the unaudited
condensed consolidated financial statements which are also included elsewhere
herein. The pro forma condensed consolidated financial data of New Beverly gives
retroactive effect to (i) the Merger; (ii) the recapitalization/reorganization
of Beverly into New Beverly; and (iii) the receipt by Beverly of $275,000,000 as
a partial repayment of its intercompany receivable from PCA, as contemplated by
the Distribution Agreement, and the contribution to PCA's capital of Beverly's
remaining receivable from PCA. The pro forma condensed consolidated statement of
income data gives effect to the Transactions as if they occurred on January 1,
1996. The pro forma condensed consolidated balance sheet data gives effect to
the Transactions as if they occurred on June 30, 1997. The pro forma data should
be read in conjunction with the unaudited pro forma condensed consolidated New
Beverly financial statements, and notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
----------------------- --------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BEVERLY CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net operating revenues................ $1,634,219 $1,609,380 $3,267,189 $3,228,553 $2,969,239 $2,884,451 $2,607,756
Depreciation and amortization......... 54,806 51,023 105,468 103,581 88,734 82,938 80,226
Interest expense, net................. 37,961 39,193 77,272 70,017 50,214 50,927 56,441
Income (loss) from continuing
operations before income taxes...... 65,722 51,152 125,507 (6,154) 114,795 87,640 6,148
Income (loss) from continuing
operations.......................... 39,433 30,691 52,026 (8,123) 76,913 57,956 1,945
Earnings per share.................... 0.40 0.31 0.52 (0.16) 0.79 0.41 0.01
BEVERLY CONSOLIDATED BALANCE SHEET
DATA:
Working capital....................... 330,196 249,795 318,215 243,047 242,712 154,419 137,026
Total assets.......................... 2,490,966 2,524,904 2,525,082 2,506,461 2,322,578 2,000,804 1,859,361
Current portion of long-term
obligations......................... 35,669 37,710 38,826 84,639 60,199 43,125 30,466
Long-term obligations, excluding
current portion..................... 1,018,551 1,076,462 1,106,256 1,066,909 918,018 706,917 712,896
Stockholders' equity.................. 890,717 843,217 861,095 820,333 827,244 742,862 593,505
BEVERLY RATIO OF EARNINGS TO FIXED
CHARGES............................. 2.10 1.77 1.97 (1) 1.92 1.63 1.03
</TABLE>
- ---------------
(1) Earnings were inadequate to cover fixed charges by $9,726,000 for the year
ended December 31, 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
UNAUDITED NEW BEVERLY PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA:
Net operating revenues...................................... $1,383,195 $2,832,872
Depreciation and amortization............................... 44,898 89,076
Interest expense, net....................................... 25,599 51,808
Income from continuing operations before provision for
income taxes.............................................. 50,500 116,182
Income from continuing operations........................... 30,706 47,117
Earnings per share.......................................... 0.28 0.42
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
UNAUDITED NEW BEVERLY PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET DATA:
Working capital............................................. $ 250,524
Total assets................................................ 2,025,534
Current portion of long-term obligations.................... 24,124
Long-term obligations, excluding current portion............ 661,206
Stockholders' equity........................................ 835,680
</TABLE>
7
<PAGE> 20
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF PCA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary consolidated statement of operations data and summary
consolidated balance sheet data for the years ended and as of December 31, 1996,
1995 and 1994 have been derived from the audited consolidated financial
statements of PCA and should be read in conjunction with the financial
statements and notes thereto included herein. The summary consolidated statement
of operations and balance sheet data for the years ended and as of December 31,
1993 and 1992 have been derived from PCA's internal records. The summary
consolidated statement of operations and balance sheet data for the six months
ended and as of June 30, 1997 and 1996 have been derived from the unaudited
condensed consolidated financial statements of PCA and should be read in
conjunction with those financial statements and related notes thereto included
herein. The December 31, 1993 and 1992 financial statement data, and the June
30, 1997 and 1996 financial statement data, in the opinion of PCA's management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information for the unaudited periods.
Operating results for the six months ended June 30, 1997 are not necessarily
indicative of results that may be expected for the full calendar year ending
December 31, 1997. This information should be read in conjunction with the PCA
Consolidated Financial Statements, and notes thereto, included in this
Prospectus/Consent Solicitation Statement.
<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net operating
revenues............. $301,328 $249,231 $516,400 $451,685 $247,512 $201,670 $174,331
Gross profit............ 138,931 116,061 235,932 208,924 130,467 111,408 95,844
Costs and expenses...... 111,395 95,849 200,977 198,361 105,118 86,052 74,193
Income before provision
for income taxes..... 27,536 20,212 34,955 10,563 25,349 25,356 21,651
Net income.............. 16,115 11,731 20,287 4,586 15,058 15,075 13,055
Consolidated Balance Sheet
Data:
Working capital......... 108,078 81,406 92,134 77,512 71,794 24,537 19,754
Total assets............ 481,546 423,300 441,576 428,872 327,287 69,443 58,441
Due to Parent........... 333,115 304,045 312,395 318,610 225,006 7,267 12,446
Stockholder's equity.... 107,720 83,049 91,605 71,318 66,732 51,674 36,598
</TABLE>
8
<PAGE> 21
RISK FACTORS
The following factors and other information described elsewhere herein
should be carefully considered by each holder of Senior Notes before deciding
whether to execute and deliver a Consent.
DISPOSITION OF PCA
Currently Beverly, as the obligor of the Senior Notes, consists of both the
Remaining Healthcare Business to be conducted after the consummation of the
Transactions by New Beverly and the Institutional Pharmacy Business which is
currently conducted by PCA. Following the consummation of the Merger and the
Distribution, New Beverly, as the obligor of the Amended Senior Notes, will
consist of only the Remaining Healthcare Business. Therefore, the value of the
assets held in the Institutional Pharmacy Business by PCA will not be available
to satisfy New Beverly's obligations under the Amended Senior Notes. For more
information regarding the differences between Beverly and New Beverly, see
"Description of the Remaining Healthcare Business and New Beverly" and "New
Beverly -- Unaudited Pro Forma Condensed Consolidated Balance Sheet and
Unaudited Pro Forma Condensed Consolidated Statements of Income."
SUBSTANTIAL INDEBTEDNESS
New Beverly, as a result of the Distribution, will assume substantial
indebtedness from Beverly. Although the indebtedness of Beverly to be assumed by
New Beverly in connection with the Transactions will be reduced and
restructured, the amount of indebtedness ultimately assumed by New Beverly will
continue to be substantial. As of June 30, 1997, Beverly had total indebtedness
of approximately $1,054,200,000. In addition to such indebtedness, Beverly has
substantial obligations under operating leases which will be assumed by New
Beverly. For the six months ended June 30, 1997 and the year ended December 31,
1996, Beverly's rent expense was approximately $58,200,000 and $116,700,000,
respectively. The ability of New Beverly to satisfy its debt and operating lease
obligations will be dependent upon its future operating performance, which will
be subject to prevailing economic conditions and to financial, business and
other factors, including factors beyond New Beverly's control such as federal
and state healthcare reform. New Beverly's level of debt, and the covenants
contained in the debt instruments governing such obligations might impair New
Beverly's ability to take certain actions (including the incurrence of
additional debt and the acquisition or the disposition of assets).
BUSINESS TO BE CONDUCTED BY NEW BEVERLY
At the Time of Distribution (as defined in the Distribution Agreement), the
Remaining Healthcare Business will be transferred to New Beverly or one or more
direct or indirect subsidiaries of New Beverly, and will constitute all of the
businesses, assets and liabilities of New Beverly. The businesses, assets and
liabilities of New Beverly will not include the Institutional Pharmacy Business
represented by PCA, which accounted for approximately $251,000,000, or 15% of
net operating revenues for the six months ended June 30, 1997 (after elimination
of intercompany revenue between PCA and the Remaining Healthcare Business).
Following the Distribution, New Beverly will derive its revenues from a smaller
group of businesses and assets. While New Beverly intends to pursue strategies
to expand its businesses, there can be no assurance that New Beverly will be
successful in implementing such strategies or that, if implemented, such
strategies will result in additional growth in New Beverly's businesses.
DEBT RATING OF THE AMENDED SENIOR NOTES
Beverly has been advised by that the Amended Senior Notes
will have investment grade rating of . However, no assurance can
be given that the Amended Senior Notes will have this investment grade rating. A
reduction in the rating of the Amended Senior Notes would have an adverse effect
on their value.
9
<PAGE> 22
TERMS OF THE AMENDED SENIOR NOTES
The terms of the Amended Senior Notes will be identical in all material
respects to the terms of the Senior Notes prior to the Proposed Amendments
except that (i) the obligor on the Amended Senior Notes will be New Beverly in
place of Beverly and (ii) the Indenture in effect as to the Senior Notes shall
be modified as provided for by the Proposed Amendments. See "The Proposed
Amendments" and "Description of the Senior Notes."
UNCERTAINTY ASSOCIATED WITH HEALTHCARE REFORM
In addition to extensive government healthcare regulation, there are
numerous initiatives on the federal and state levels for comprehensive reforms
affecting the payment for and availability of healthcare services. It is not
clear at this time what proposals, if any, will be adopted or, if adopted, what
effect such proposals may have on New Beverly's future business. Certain aspects
of these healthcare proposals, such as cutbacks in Medicare and Medicaid
programs, containment of healthcare costs on an interim basis by means that
could include a short-term freeze on rates paid to healthcare providers and
permitting greater flexibility to the states in the administration of Medicaid,
could adversely affect New Beverly. There can be no assurance that currently
proposed or future healthcare legislation or other changes in the administration
or interpretation of governmental healthcare programs will not have an adverse
effect on New Beverly.
RISKS INVOLVED WITH REIMBURSEMENT BY THIRD PARTY PAYORS
For the years ended December 31, 1996, 1995 and 1994 Beverly derived
approximately 75%, 77% and 80%, respectively, of its net operating revenues from
funds under federal and state medical assistance programs, and it is expected
that New Beverly will continue to derive a significant portion of its revenue
from such federal and state reimbursement programs. There can be no assurance
that New Beverly will improve or achieve a better payor mix. Both governmental
and private payor sources have instituted cost containment measures designed to
limit payments made to long-term care providers, and there can be no assurance
that future measures will not adversely affect both the timing and amount of
reimbursement to New Beverly. Furthermore, government reimbursement programs are
subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which could
materially decrease the rates paid to New Beverly for its future services or the
services for which New Beverly is able to seek reimbursement. There have been,
and New Beverly expects that under the current and future presidential
administrations there will continue to be, a number of proposals to limit
Medicare and Medicaid reimbursement for long-term healthcare services. New
Beverly cannot predict at this time whether any of these proposals will be
adopted or, if adopted and implemented, what effect such proposals would have on
New Beverly. There can be no assurance that payments under state or federal
governmental programs will remain at levels comparable to present levels or will
be sufficient to cover the costs allocable to patients eligible for
reimbursement pursuant to such programs, particularly with respect to
individual, state-administered Medicaid programs, which generally provide lower
reimbursement rates than does the Medicare program. In addition, there can be no
assurance that the facilities to be operated by New Beverly and the services and
supplies to be provided by New Beverly will meet or continue to meet the
requirements for participation in such programs.
Federal law requires state Medicaid programs to reimburse long-term care
facilities for the costs that are incurred by efficiently and economically
operated providers in order to meet quality and safety standards. Long-term care
facilities may seek to enforce this requirement in the state or federal courts.
Nevertheless, there can be no assurance that budget constraints or other factors
will not cause states to reduce Medicaid reimbursement to long-term care
facilities or that litigation to prevent such reductions will be successful. As
a result, there can be no assurance that states in which New Beverly will
operate will continue to meet their Medicaid obligations on a timely basis. Any
failure by such states to meet their Medicaid obligations on a timely basis
could have a material adverse effect on New Beverly.
In addition, several states are considering various healthcare reforms,
including reforms through Medicaid managed care demonstration projects. Several
states in which Beverly operates and in which New
10
<PAGE> 23
Beverly will operate have applied for, or received, approval from the U.S.
Department of Health and Human Services for waivers from certain Medicaid
requirements which are generally required for managed care projects. Although
these demonstration projects generally exempt institutional care, including
long-term care facilities, no assurance can be given that these waiver projects
ultimately will not change the reimbursement system for long-term care from
fee-for-service to managed care negotiated or capitated rates. It is not
possible to predict which reforms of the healthcare system will be adopted and
the effect, if any, the reforms will have on New Beverly's business.
GOVERNMENT REGULATION
The federal government and all states in which New Beverly will operate
regulate various aspects of the Remaining Healthcare Business to be operated by
New Beverly. In particular, the operation of long-term care facilities and the
provision of specialty medical services are subject to federal, state and local
laws relating to the adequacy of medical care, equipment, personnel, operating
policies, fire prevention, zoning, rate-setting and compliance with building
codes and environmental and other laws. The facilities to be operated by New
Beverly are subject to periodic inspection by governmental and other regulatory
authorities to assure continued compliance with various standards and to provide
for their continued licensing under state law and certification under the
Medicare and Medicaid programs. Should New Beverly receive notifications of
deficiency in the future, New Beverly expects to implement plans of correction
with respect to any such statement to address any alleged deficiencies. While
New Beverly will endeavor to comply with federal, state and local regulatory
requirements for the maintenance and operation of its facilities, there can be
no assurance that all facilities will always be operated in full compliance. The
failure to obtain or renew any required regulatory approvals or licenses could
adversely affect New Beverly's operations.
New Beverly will also be subject to federal and state laws that govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. Such laws include the anti-kickback provisions of
the federal Medicare and Medicaid Patients and Program Protection Act of 1987.
These provisions prohibit, among other things, the offer, payment, solicitation
or receipt of any form of remuneration in return for the referral of Medicare
and Medicaid patients. In addition, many states prohibit business corporations
from providing, or holding themselves out as a provider of, medical care. These
laws vary from state to state and have seldom been interpreted by the courts or
regulatory agencies. Additionally, federal enactments that expand the list of
healthcare services subject to existing federal referral prohibitions became
effective on January 1, 1995.
INCREASED LABOR COSTS AND AVAILABILITY OF PERSONNEL
In recent years, Beverly has experienced increases in its labor costs
primarily due to higher wages and greater benefits required to attract and
retain qualified personnel, increased staffing levels in its nursing facilities
due to greater patient acuity and the hiring of therapists on staff. Although
New Beverly expects labor costs to continue to increase in the future, it is
anticipated that any increase in costs will generally result in higher patient
rates in subsequent periods, subject to the time lag in most states of up to 18
months between increases in reimbursable costs and the receipt of related
reimbursement rate increases. See "Description of the Remaining Healthcare
Business and New Beverly -- Management's Discussion and Analysis of Financial
Condition and Results of Operations."
In the past, the healthcare industry, including Beverly's long-term care
facilities, has experienced a shortage of nurses to staff healthcare operations,
and, more recently, the healthcare industry in general has experienced a
shortage of therapists. While Beverly is not currently experiencing a nursing or
therapist shortage, it competes with other healthcare providers for nursing and
therapist personnel and may compete with other service industries for persons
serving Beverly in other capacities, such as nurses' aides. A shortage of
nursing therapists or nurse's aides could force New Beverly to pay even higher
salaries and make greater use of higher cost temporary personnel. A lack of
qualified personnel might also require New Beverly to reduce its census or admit
patients requiring a lower level of care, both of which could adversely affect
operating results.
11
<PAGE> 24
DEPENDENCE ON KEY PERSONNEL
New Beverly's operations are dependent on the efforts, ability and
experience of its executive officers. New Beverly's continued growth and success
depends on its ability to attract and retain skilled employees and on the
ability of its officers and employees to successfully manage New Beverly's
expansion of service beyond the traditional long-term care services provided by
Beverly. The loss of some or all of these executive officers and skilled
employees could have a material adverse impact on New Beverly's future results
of operations.
COMPETITION
The long-term care industry is highly competitive. New Beverly will compete
with other providers on the basis of the breadth and quality of its services,
the quality of its facilities and, to a limited extent, price. New Beverly will
also compete with other providers in the acquisition and development of
additional facilities and healthcare services. New Beverly's long-term care
competitors will include national, regional and local operators of long-term
care facilities, acute care hospitals, rehabilitation hospitals, subacute
facilities, transitional hospitals, assisted living facilities, hospices, home
healthcare centers, healthcare therapy clinics, and similar institutions, many
of which have significantly greater financial and other resources than New
Beverly. In addition, New Beverly will compete 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 New
Beverly. There can be no assurance that New Beverly will not encounter increased
competition which could adversely affect its business, results of operations or
financial condition.
NON-COMPETITION AGREEMENT WITH CAPSTONE
Pursuant to a non-competition agreement to be entered into between New
Beverly and Capstone prior to consummation of the Merger, New Beverly has agreed
to refrain from competing with Capstone in the Institutional Pharmacy Business
in certain defined geographical areas for a period of five years. In the past, a
significant portion of Beverly's net income has been derived from the
Institutional Pharmacy Business, and in 1996, Beverly derived approximately 39%
of its net income from the Institutional Pharmacy Business. This agreement will
therefore restrict New Beverly's ability to pursue a line of business that
historically has contributed a significant portion of Beverly's net income.
12
<PAGE> 25
BACKGROUND AND PURPOSE OF THE SOLICITATION
THE TRANSACTIONS
Prior to the Distribution Record Date (as defined below), Beverly will
complete an internal restructuring pursuant to which all the assets and
liabilities relating to Beverly's nursing facilities, acute long-term
transitional hospitals, rehabilitation therapy services, outpatient therapy
clinics, assisted living centers, hospices, home healthcare centers and other
healthcare and related services and businesses (collectively, the "Remaining
Healthcare Business") will be transferred or contributed to New Beverly in one
or more transactions as to which Beverly expects to receive tax-free treatment.
Upon completion of such restructuring, the Remaining Healthcare Business will be
conducted by New Beverly and Beverly's Institutional Pharmacy Business,
presently conducted by PCA and its subsidiaries, will remain with Beverly.
Pursuant to the terms of the Merger Agreement, the Distribution will be
effected immediately prior to consummation of the Merger. The Distribution
Agreement contemplates the transfer by Beverly of all of the outstanding shares
of New Beverly Common Stock to holders of Beverly Common Stock as of the record
date therefor selected by Beverly (the "Distribution Record Date"); i.e., each
holder of Beverly Common Stock as of the Distribution Record Date will receive
one share of New Beverly Common Stock for each share of Beverly Common Stock
held as of the Distribution Record Date. The Distribution will not occur unless
all of the conditions to consummation of the Merger (other than the completion
of the Distribution) have been satisfied (or waived to the extent permitted
under the Merger Agreement). Immediately following consummation of the
Distribution, New Beverly will become an independent, publicly held corporation
(owned directly by Beverly's stockholders), and it is contemplated that the
shares of New Beverly Common Stock will be listed on the NYSE and PSE under the
symbol "BEV".
Following adoption of the Merger Agreement by the requisite holders of
Beverly Common Stock and Capstone Common Stock and the satisfaction (or waiver,
to the extent permitted by the Merger Agreement) of the other conditions to the
Merger, Beverly will be merged with and into Capstone, with Capstone as the
Surviving Corporation in the Merger.
Pursuant to the Merger Agreement, the obligations of Beverly and Capstone
to effect the Merger are subject to, among other things, the satisfaction (or
waiver) of the following conditions: (i) effectiveness of the registration
statement of Capstone ("Capstone Registration Statement") and the registration
statement of New Beverly ("New Beverly Registration Statement") under the
Securities Act; (ii) approval of the Merger by the requisite vote of the holders
of Capstone Common Stock and Beverly Common Stock; (iii) consummation of the
Distribution; (iv) receipt of all requisite regulatory consents and approvals;
(v) restructuring, modification, amendment or termination of Beverly's
indebtedness such that it will neither be assumed by nor otherwise become
obligations of Capstone pursuant to the Merger; (vi) receipt of either a
favorable letter ruling from the Internal Revenue Service or, at Beverly's
election, an opinion of counsel regarding the tax-free treatment of the
Transactions; and (vii) other customary conditions to closing.
THE TRANSACTIONS AMENDMENT
The Indenture currently restricts Beverly from merging into another entity,
such as Capstone, or from transferring substantially all its assets and
properties to another entity, such as New Beverly, unless certain conditions are
met, as more particularly described under the caption, "The Proposed
Amendments", below. The disposition of PCA and its subsidiaries under the
circumstances of the Distribution and the Merger, resulting in a removal of the
Institutional Pharmacy Business from Beverly on a consolidated basis, would also
preclude New Beverly from meeting a Consolidated Net Worth test and a Fixed
Charge Coverage test which would otherwise be applicable to the Transactions
under the Indenture. Moreover, while the Indenture permits a disposition of PCA
and its subsidiaries under the circumstances of a Spin Off Transaction (as
defined in the Indenture), the Transactions contemplated by the Distribution
Agreement and the Merger Agreement, as described above, are not technically
permitted as such under the Indenture.
The Board is seeking the Requisite Consents at this time to adopt the
Transactions Amendment and facilitate consummation of the Transactions.
13
<PAGE> 26
THE REDEMPTION AMENDMENT
The Distribution Agreement requires Beverly (prior to the effective time of
the Distribution) and New Beverly (after the effective time of the Distribution)
to pay, cause to be paid or otherwise provide for assurances of payment of, to
the extent Beverly is unable to effect releases of Beverly and PCA and its
subsidiaries from liability under Beverly's consolidated indebtedness, all
Beverly or New Beverly indebtedness or other noncontingent liabilities as to
which Beverly or PCA and its subsidiaries is a direct obligor. Accordingly,
Beverly may seek to restructure, amend, modify or terminate its indebtedness. To
provide Beverly with increased flexibility in satisfying such condition
precedent, Beverly desires to amend the Indenture to permit, if it should so
elect, the redemption of the entire outstanding principal amount of Beverly's
7 5/8% Convertible Debentures without violating the Restricted Payment
provisions contained in the Indenture.
The Board is seeking the Requisite Consents at this time to adopt the
Redemption Amendment to effect, should it so elect, the Redemption. Adoption of
the Redemption Amendment is not a condition precedent to the consummation of the
Merger because Beverly may seek to otherwise restructure, amend, modify or
terminate such indebtedness.
14
<PAGE> 27
THE SOLICITATION
TERMS OF THE SOLICITATION; CONSENT PAYMENTS
In accordance with the terms and subject to the conditions set forth in
this Prospectus/Consent Solicitation Statement and in the related consent form,
Beverly will pay a Consent Payment of up to an aggregate of $ for each
$1,000 principal amount of Senior Notes in respect of which a valid Consent is
(i) received by the Trustee on or prior to the Expiration Date, (ii) not
properly revoked (as provided in this Prospectus/Consent Solicitation Statement)
prior to the later of the Expiration Date and receipt by the Trustee from
Beverly of an officer's certificate in accordance with the provisions of the
Indenture certifying the receipt of the Requisite Consents, and (iii) accepted
by Beverly as provided in this Prospectus/Consent Solicitation Statement
($ of which Consent Payment will be paid at the time the Proposed
Amendments are adopted pursuant to the execution and delivery by Beverly, New
Beverly, the Guarantors and the Trustee of a Supplemental Indenture, and
$ of which Consent Payment will be paid promptly following consummation
of the Merger). Such payments will be made to consenting holders, by check
delivered by first class mail to the address specified in the consent form.
Without limiting the generality of the foregoing, Beverly reserves the right, in
its discretion, to delay making any Consent Payment, in whole or in part, to
comply with any applicable law.
CONSENT PAYMENTS WILL BE MADE ONLY TO PERSONS WHO, ON OR PRIOR TO THE
EXPIRATION DATE, HAVE DELIVERED VALID AND TIMELY CONSENTS TO THE PROPOSED
AMENDMENTS. ANY BENEFICIAL OWNER OF SENIOR NOTES WHO IS NOT THE REGISTERED
HOLDER THEREOF BUT WHO DESIRES TO DELIVER A CONSENT AND RECEIVE A CONSENT
PAYMENT MUST OBTAIN A PROXY (IN SUBSTANTIALLY THE FORM INCLUDED WITH THE CONSENT
FORM) FROM THE REGISTERED HOLDER OF SUCH SENIOR NOTES THAT AUTHORIZES SUCH
BENEFICIAL OWNER TO DELIVER A CONSENT FORM AND VOTE THE RELATED SENIOR NOTES ON
BEHALF OF SUCH REGISTERED HOLDER IN THE MANNER DESCRIBED BELOW, OR REQUEST THE
REGISTERED HOLDER OF SUCH SENIOR NOTES TO EFFECT THE TRANSACTION FOR SUCH
BENEFICIAL OWNER.
UNDER NO CIRCUMSTANCES WILL BEVERLY MAKE ANY CONSENT PAYMENT TO ANY PERSON
WHO DELIVERS A CONSENT FORM WITH THE "DO NOT CONSENT" OR "ABSTAIN" BOX MARKED
THEREON WITH RESPECT TO EITHER OF THE TRANSACTIONS AMENDMENT OR THE REDEMPTION
AMENDMENT UNLESS, ON OR PRIOR TO THE EXPIRATION DATE, SUCH PERSON DELIVERS AND
DOES NOT PROPERLY REVOKE A SUBSEQUENTLY DATED CONSENT FORM MARKED TO INDICATE A
VOTE FOR THE PROPOSED AMENDMENTS.
The Consents will become irrevocable on the later of the Expiration Date
and the date on which the Trustee receives from Beverly an officer's certificate
in accordance with the provisions of the Indenture certifying that the Requisite
Consents have been received. Following such delivery, the Trustee, New Beverly,
the Guarantors and Beverly intend to execute and deliver the Supplemental
Indenture. The Proposed Amendments will be adopted and become effective only
upon execution and delivery, and otherwise in accordance with the terms of, the
Supplemental Indenture. AFTER EXECUTION AND DELIVERY OF THE SUPPLEMENTAL
INDENTURE, ALL HOLDERS OF SENIOR NOTES, INCLUDING NON-CONSENTING HOLDERS AND ALL
SUBSEQUENT HOLDERS OF THE SECURITIES, WILL BE BOUND BY THE PROPOSED AMENDMENTS.
IF, IN ACCORDANCE WITH THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS
PROSPECTUS/CONSENT SOLICITATION STATEMENT AND IN THE RELATED CONSENT FORM, THE
REQUISITE CONSENTS ARE RECEIVED AND THE SUPPLEMENTAL INDENTURE IS EXECUTED AND
DELIVERED BY BEVERLY, NEW BEVERLY, THE GUARANTORS AND THE TRUSTEE,
NON-CONSENTING HOLDERS (WHETHER OR NOT THEY DELIVER A CONSENT FORM OR OTHERWISE
AFFIRMATIVELY VOTE AGAINST THE PROPOSED AMENDMENTS) WILL NOT BE ENTITLED TO ANY
RIGHTS OF APPRAISAL OR SIMILAR RIGHTS OF DISSENTERS (WHETHER PURSUANT TO THE
INDENTURE, BEVERLY'S ORGANIZATIONAL INSTRUMENTS OR APPLICABLE PROVISIONS OF
DELAWARE LAW) WITH RESPECT TO ADOPTION OF THE PROPOSED AMENDMENTS.
The term "Expiration Date" means 5:00 p.m., Eastern time, on October ,
1997, unless Beverly, in its discretion, extends the period during which the
Solicitation is open, in which event the term "Expiration Date" shall mean the
latest time and date on which the Solicitation, as so extended by Beverly,
expires.
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Beverly reserves the right to extend the Solicitation at any time and from time
to time, in its sole discretion, including on a daily basis, until 5:00 p.m.,
Eastern time, on the date on which the Requisite Consents are received.
Beverly expressly reserves the right in its discretion (i) to terminate the
Solicitation at any time (including after the Expiration Date) prior to the
execution and delivery of the Supplemental Indenture by Beverly, New Beverly,
the Guarantors and the Trustee (whether or not the Requisite Consents have been
received) by giving oral or written notice of such termination to the Trustee,
(ii) not to extend the Solicitation beyond the Expiration Date, and (iii) to
amend, at any time or from time to time, the terms of the Solicitation. IF THE
SOLICITATION IS SO TERMINATED, NO CONSENT PAYMENTS WILL BE MADE, IRRESPECTIVE OF
WHETHER THE REQUISITE CONSENTS WERE RECEIVED.
Subject to the foregoing, if the Requisite Consents are received (and not
properly revoked) as of the Expiration Date, Beverly presently intends to
deliver to the Trustee an officer's certificate in accordance with the
provisions of the Indenture certifying such receipt and promptly thereafter to
execute and deliver the Supplemental Indenture. Consents will be deemed to be
accepted only when the Supplemental Indenture has been executed and delivered by
Beverly, New Beverly, the Guarantors and the Trustee.
ANY EXTENSION, TERMINATION OR AMENDMENT OF THE SOLICITATION, OR DELAY IN
MAKING ANY CONSENT PAYMENTS WILL BE FOLLOWED AS PROMPTLY AS PRACTICABLE EITHER
BY NOTICE DELIVERED TO REGISTERED HOLDERS OR BY PUBLIC ANNOUNCEMENT THEREOF.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BEVERLY, IN THE CASE OF ANY
PUBLIC ANNOUNCEMENT WILL HAVE NO OBLIGATION TO PUBLISH, ADVERTISE OR OTHERWISE
DISSEMINATE ANY INFORMATION IN RESPECT OF THE SOLICITATION OTHER THAN BY MEANS
OF ISSUING A RELEASE THROUGH THE DOW JONES NEWS SERVICE.
CONSENT PROCEDURE
This Prospectus/Consent Solicitation Statement is first being mailed, sent
or given to Registered Holders of Senior Notes on or about September , 1997.
Beverly has established September , 1997 as the Record Date for the
Solicitation.
Adoption of the Proposed Amendments requires receipt by Beverly of the
Requisite Consents. Accordingly, the principal amount of the Senior Notes
outstanding for which the consent of the Registered Holders is required is
$90,001,000. Abstentions and broker non-votes will be considered in determining
the principal amount of Senior Notes required to obtain the Requisite Consents.
Because abstentions and broker non-votes are not affirmative consents, they will
have the same effect as marking the box entitled "DO NOT CONSENT".
ONLY (i) REGISTERED HOLDERS OR (ii) ANY OTHER PERSON WHO HAS OBTAINED A
PROXY (IN SUBSTANTIALLY THE FORM INCLUDED WITH THE CONSENT FORM) WHICH
AUTHORIZES SUCH PERSON (OR ANY OTHER PERSON CLAIMING TITLE BY OR THROUGH SUCH
PERSON) TO DELIVER A CONSENT FORM AND VOTE THE RELATED SENIOR NOTES ON BEHALF OF
SUCH REGISTERED HOLDER MAY EXECUTE AND DELIVER A CONSENT FORM AND VOTE WITH
RESPECT TO THE PROPOSED AMENDMENTS AND, UPON THE TERMS AND SUBJECT TO THE
CONDITIONS SET FORTH IN THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT AND IN
THE RELATED CONSENT FORM, RECEIVE CONSENT PAYMENTS. A beneficial owner of Senior
Notes who is not the Registered Holder of such Senior Notes (e.g., a holder
whose Senior Notes are registered in the name of a nominee such as a brokerage
firm) must either (i) arrange with the Registered Holder to execute and deliver
a consent form on such beneficial owner's behalf and to forward any Consent
Payment received by the Registered Holder on such beneficial owner's behalf or
(ii) obtain a proxy (in substantially the form included with the consent form)
from the Registered Holder authorizing such beneficial owner to deliver a
consent form and vote the related Senior Notes on behalf of the Registered
Holder. Brokerage firms or other Registered Holders that complete consent forms
on behalf of beneficial owners should contact the beneficial owners of their
Senior Notes regarding special payment and delivery instructions.
With respect to Senior Notes registered in the name of CEDE & Co., which is
the nominee of DTC, DTC Participants, rather than DTC, must execute and deliver
the consent form. Participants in The Midwest Depository Trust Company and
Philadelphia Depository Trust Company should inquire of such institutions
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<PAGE> 29
regarding the procedure for executing consent forms in respect of Senior Notes
registered in the name of their respective nominees.
Each Consent is a continuing Consent notwithstanding that registered
ownership of the Senior Notes to which the Consent relates has been transferred
subsequent to the Record Date, unless such Consent is properly revoked in
accordance with the procedures therefor described in this Prospectus/Consent
Solicitation Statement.
A Consent received by the Trustee on or prior to the Expiration Date
relating to any Senior Notes will be deemed to revoke any consent form in
respect of such Senior Notes having an earlier date that has the "DO NOT
CONSENT" or "ABSTAIN" box marked thereon. Any person who delivers a consent form
with the "DO NOT CONSENT" or "ABSTAIN" box marked thereon with respect to either
of the Transactions Amendment or the Redemption Amendment will not be entitled
to receive any Consent Payment in respect of the Senior Notes to which such
consent form relates unless, on or prior to the Expiration Date, such person
delivers and does not properly revoke a subsequently dated consent form marked
to indicate a vote FOR the Proposed Amendments.
The consent form accompanies this Prospectus/Consent Solicitation
Statement. A consent form (or, if the Registered Holder signing such consent
form is not the Registered Holder, the accompanying irrevocable proxy in
substantially the form included with the consent form), to be effective, must be
executed by the Registered Holder of the Senior Notes to which such consent form
(or such irrevocable proxy) relates in the same manner as the name of the
Registered Holder appears on the certificate(s) evidencing such Senior Notes. If
any certificate(s) evidencing such Senior Notes are held of record as of the
Record Date by two or more Registered Holders, all such Registered Holders must
sign the consent form (or such irrevocable proxy). If such Senior Notes are
registered in different names as of the Record Date, separate consent forms (or
irrevocable proxies) must be executed covering each form of registration. If a
consent form is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, or other person acting in a
fiduciary or representative capacity, such person must so indicate when signing
and must submit with the consent form appropriate evidence of authority to
execute the consent form. In addition, (i) if a consent form relates to less
than the aggregate principal amount of Senior Notes registered in the name of
the Registered Holder or (ii) if a person is not a Registered Holder and is
consenting pursuant to a proxy given by a Registered Holder and the consent form
relates to less than the total principal amount of Senior Notes to which such
proxy relates, such consent form must indicate the certificate numbers and
aggregate principal amount of Senior Notes to which the consent form relates.
Otherwise, the consent form will be deemed to relate to the entire principal
amount of Senior Notes registered in the name of such Registered Holder or to
which such proxy relates, as the case may be.
The ownership of Senior Notes shall be confirmed by the Trustee, as
registrar of the Senior Notes, in accordance with the provisions therefor
contained in the Indenture. All questions as to the validity, form, eligibility
(including time and receipt) and the acceptance of consent forms and revocations
of elections made on consent forms with respect to Senior Notes will be resolved
in the first instance by Beverly, whose determination shall be binding, subject
only to final review as may be prescribed by the Trustee in accordance with the
Indenture concerning proof of execution and ownership. Beverly reserves the
absolute right to reject any or all consent forms and revocations that are not
in proper form or the acceptance of which could, in the judgment of Beverly's
counsel, be unlawful. Beverly also reserves the right, subject to final review
as the Trustee may prescribe in accordance with the provisions of the Indenture
for proof of execution and ownership, to waive any irregularities or conditions
of delivery as to particular consent forms or revocations of Consents. Unless
waived, any irregularities in connection with the deliveries must be cured
within such time as Beverly determines. Neither Beverly, the Trustee, or any
other person shall be under any duty to provide notification of any such
irregularities or waiver, nor shall any of Beverly, the Trustee or any other
person incur any liability for failure to give notification. Deliveries of such
consent forms or notices of revocation will not be deemed to have been made
until such irregularities have been cured or waived. Beverly's interpretation of
the terms and conditions of the Solicitation shall be final and binding.
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Consents to the Proposed Amendments, to be effective, must be properly
executed and received by the Trustee on or prior to the Expiration Date. Each
person desiring to furnish a consent form in respect of the Proposed Amendments
must complete, sign and date the accompanying consent form (or a facsimile
thereof) in accordance with the instructions set forth in this
Prospectus/Consent Solicitation Statement and in the consent form, have the
signatures thereon (and on any proxy delivered therewith) notarized or
guaranteed and mail, hand deliver or send by overnight courier, or telecopy the
consent form and any other required documents to the Trustee. The method of
delivery of all documents, including fully executed consent forms, is at the
election and risk of the person delivering the consent form. Such delivery will
be deemed made only when actually received by the Trustee. A signature guarantee
must be by a firm that is a member of a registered national securities exchange
or a member of the NASD, or by a commercial bank or trust company having an
office or correspondent in the United States.
IF ANY HOLDER SUBMITS AN EXECUTED CONSENT FORM WITHOUT INDICATING A VOTE
WITH RESPECT TO THE PROPOSED AMENDMENTS, SUCH SUBMISSION WILL BE DEEMED TO
CONSTITUTE A VOTE FOR THE PROPOSED AMENDMENTS.
Each consent form should be sent to the Trustee, as follows:
The Chase Manhattan Bank
c/o Texas Commerce Bank
Corporate Trust Services -- Dallas
1201 Main Street
Dallas, Texas 75202
Attention: Mr. Frank Ivins
Telephone: (214) 672-5678
Telecopier: (214) 672-5746
PERSONS WHO DESIRE TO FURNISH THEIR CONSENT SHOULD MAIL, HAND DELIVER, SEND
BY OVERNIGHT COURIER, OR TELECOPY THEIR PROPERLY COMPLETED AND EXECUTED CONSENT
FORMS TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS TO THE TRUSTEE IN ACCORDANCE
WITH THE INSTRUCTIONS SET FORTH HEREIN AND THEREIN.
IN NO EVENT SHOULD A HOLDER TENDER OR DELIVER ANY SENIOR NOTES TO BEVERLY,
THE TRUSTEE OR THE SOLICITATION AGENT WITH THEIR CONSENT FORMS OR OTHERWISE.
REVOCATION OF CONSENTS
Any person who has furnished a Consent may revoke any such Consent as to
the Senior Notes or any portion of the Senior Notes (in integral multiples of
$1,000) to which the consent form relates only by filing a written notice of
revocation with the Trustee (at the address indicated above), prior to the later
of the Expiration Date and the time that the Trustee receives from Beverly an
officer's certificate in accordance with the provisions of the Indenture
certifying receipt of the Requisite Consents. The transfer of Senior Notes after
the Record Date will not have the effect of revoking the election made in any
consent form theretofore validly given, and each Consent will be counted
notwithstanding any transfer of the Senior Notes to which the Consent relates,
unless the procedure for revoking Consents described below has been complied
with. A Consent received by the Trustee on or prior to the Expiration Date in
respect of any Senior Notes will be deemed to revoke any consent form in respect
of such Senior Notes having an earlier date that has the "DO NOT CONSENT" or
"ABSTAIN" box marked thereon. A holder who delivers a consent form with the "DO
NOT CONSENT" or "ABSTAIN" box marked thereon will not be entitled to receive a
Consent Payment in respect of the Senior Notes to which such consent form
relates unless, on or prior to the Expiration Date, such person delivers and
does not properly revoke a subsequently dated consent form marked to indicate a
vote FOR the Proposed Amendments.
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A written notice of revocation, to be effective, must (i) contain the name
of the Registered Holder, the certificate numbers of the Senior Notes to which
such revocation relates, the aggregate principal amount of Senior Notes to which
such revocation relates and the signature of the person furnishing the
revocation (with such signature, and the signatures in any accompanying proxy,
notarized or guaranteed as described above) and (ii) be accompanied by a
properly completed irrevocable proxy (in substantially the form included with
the consent form) if the person furnishing the revocation is not the Registered
Holder of such Senior Notes.
The revocation (or, if the person furnishing the revocation is not the
Registered Holder, the accompanying irrevocable proxy), to be effective, must be
executed by the Registered Holder of such Senior Notes in the same manner as the
name of the Registered Holder appears on the Senior Notes to which the
revocation relates. If a revocation is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person must so
indicate when signing and must submit with the revocation appropriate evidence
of authority to execute the revocation. A revocation of the Consent shall be
effective only as to the Senior Notes listed on the revocation and only if such
revocation complies with the revocation procedures set forth in this
Prospectus/Consent Solicitation Statement. A beneficial owner of Senior Notes
who is not the Registered Holder must arrange with the Registered Holder to
execute and deliver on his, her or its behalf a revocation of any Consent
already given with respect to such Senior Notes, or obtain an irrevocable proxy
(in substantially the form included with the consent form) from the Registered
Holder authorizing such beneficial holder to revoke such Consent in accordance
with the procedures described in this Prospectus/Consent Solicitation Statement.
A PURPORTED NOTICE OF REVOCATION THAT IS NOT RECEIVED BY THE TRUSTEE IN A TIMELY
FASHION AND ACCEPTED AS A VALID REVOCATION WILL NOT BE EFFECTIVE TO REVOKE A
PREVIOUSLY FURNISHED CONSENT.
A revocation of a Consent previously furnished may only be rescinded by the
execution and delivery of a properly completed and timely received consent form.
A person who has delivered a revocation may thereafter deliver a new Consent by
following one of the described procedures therefor (see "The
Solicitation -- Consent Procedures") at any time on or prior to the Expiration
Date.
Prior to the execution and delivery of the Supplemental Indenture, Beverly
intends to consult with the Trustee to determine whether it has received any
revocations of Consents. Beverly reserves the right to contest the validity of
any such revocations.
INFORMATION; ASSISTANCE; ADDITIONAL MATERIALS
Questions relating to the procedure for delivering consent forms or the
Solicitation, as well as requests for assistance or for additional copies of
this Prospectus/Consent Solicitation Statement or the consent form, should be
directed to the Solicitation Agent, as follows:
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Mr. Joe Muratore
Telephone: (212) 892-4753
Telecopy: (212) 892-4057
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THE PROPOSED AMENDMENTS
SET FORTH BELOW IS A DESCRIPTION OF THE PROPOSED AMENDMENTS FOR WHICH THE
CONSENTS OF THE REGISTERED HOLDERS OF SENIOR NOTES ARE BEING SOLICITED. SUCH
DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL PROVISIONS OF
THE INDENTURE AND THE FORM OF SUPPLEMENTAL INDENTURE. ALL TERMS NOT OTHERWISE
DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE INDENTURE.
If the Requisite Consents are received and the Supplemental Indenture is
executed and delivered by Beverly, New Beverly, the Guarantors and the Trustee:
(i) (x) Sections 5.1, 5.2 and 10.5 of the Indenture will be amended to
(a) permit (as a sale of substantially all the assets and properties of
Beverly) the transfer by Beverly to New Beverly of all Beverly's properties
and assets, other than the capital stock of PCA and the capital stock of
PCA's subsidiaries, notwithstanding that the Consolidated Net Worth of New
Beverly, after giving effect to such transfer, will be less than the
Consolidated Net Worth of Beverly, immediately prior to such transfer, and
irrespective of whether New Beverly, after giving effect to such transfer,
will have the ability to incur $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio prescribed by Section 4.9 of the Indenture;
and (b) provide that upon New Beverly's assumption of all of the
obligations of Beverly under the Indenture and the Senior Notes, Beverly's
obligations thereunder will terminate and be discharged; and
(y) Section 1.1 of the Indenture will be amended to (a) modify
the definitions of "Spinoff Transaction" and "Asset Sale" contained therein
to include within the scope of such definitions the Distribution, and (b)
make certain additional technical and conforming definitional changes to
permit consummation of the Transactions; and
(ii) Section 4.7 of the Indenture will be amended to permit Beverly,
if it should so elect, to effect the Redemption, without violating the
Restricted Payment provisions contained therein.
PURPOSE AND EFFECTS OF THE PROPOSED AMENDMENTS
THE TRANSACTIONS AMENDMENT
Change of Control Definition in the Indenture
Section 4.13 of the Indenture provides in relevant part that upon the
occurrence of a Change of Control, each holder of Senior Notes has the right to
require Beverly to repurchase all or any part (equal to $1,000 principal amount
or an integral multiple thereof) of such holder's Senior Notes (pursuant to a
Change of Control Offer) at an offer price in cash equal to 101% of the
aggregate principal amount of such holder's Senior Notes, plus any accrued and
unpaid interest thereon to the date of purchase, with such payment to be made on
a date not later than 90 days next following the occurrence of such Change of
Control.
Generally, Change of Control is defined in the Indenture to include the (i)
transfer or sale of all or substantially all of the assets of Beverly and its
Subsidiaries to any Person or group who prior to such sale or transfer did not
own a majority of Beverly's voting stock, (ii) acquisition by any Person or
group of more than 50% of Beverly's voting stock by means of merger,
consolidation or otherwise, or (iii) any change in composition of the Board such
that the Board is no longer comprised of members the majority of whom were in
office on February 14, 1996 or who are otherwise Continuing Directors.
Proposed Amendment
The definition of Change of Control contained in Section 1.1 would be
amended to provide that consummation of the Transactions will not constitute a
Change of Control. Accordingly, consummation of the Transactions would not
constitute a Change of Control of Beverly and holders of Senior Notes would not
have the right to require that all or any part of their Senior Notes be
repurchased upon such consummation.
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Spinoff Transaction Definition; Asset Sale Definition in the Indenture
Section 4.10 of the Indenture provides in relevant part that Beverly will
not, and will not permit any of its Subsidiaries to, consummate an Asset Sale
unless: (i) Beverly (or the Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued, sold or otherwise disposed of
and (ii) at least 75% of the consideration received therefor by Beverly or such
Subsidiary is in the form of cash or Cash Equivalents.
The foregoing provision does not apply to a Spinoff Transaction, as set
forth in the second paragraph of Section 4.10, if, after giving effect thereto
(including the application by Beverly of the net proceeds therefrom, if any) as
if such transaction had occurred at the beginning of the Reference Period
immediately preceding the date on which such transaction occurs: (i) Beverly
would have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test; (ii) Beverly's Fixed Charge
Coverage Ratio would not be reduced by 15% or more from Beverly's actual Fixed
Charge Coverage Ratio for such Reference Period; (iii) Beverly's Debt to
Consolidated Cash Flow Ratio as of the date such transaction occurs would not be
increased by 15% or more from Beverly's actual Debt to Consolidated Cash Flow
Ratio as of such date; (iv) all Indebtedness of PCA and its Subsidiaries to
Beverly and its Subsidiaries is paid or otherwise satisfied in full; and (v) no
Default or Event of Default would exist. If a Spinoff Transaction (including
Beverly's proposed application of the net proceeds thereof, if any) satisfies
the foregoing requirements, the Indenture permits Beverly to consummate such
Spinoff Transaction and use up to $100 million of the Net Proceeds therefrom to
fund Restricted Payments or for any other purpose not prohibited by the
Indenture.
Proposed Amendment
No change would be made to the provisions of Section 4.10 directly;
however, the definition of "Spinoff Transaction" contained in Section 1.1 of the
Indenture would be amended to expressly include the Distribution within the
scope of such definition. Moreover, the definition of "Asset Sale" contained in
Section 1.1 of the Indenture would be amended to make clear that if the
Distribution (including the application of proceeds therefrom) complies with the
financial tests set forth in the second paragraph of Section 4.10 of the
Indenture, up to $100 million of proceeds therefrom may be used to fund
Restricted Payments and that the distribution of capital stock of New Beverly to
the stockholders of Beverly will not constitute an Asset Sale. Beverly presently
anticipates that the Distribution will meet the financial tests set forth in the
second paragraph of Section 4.10. Accordingly, if the Proposed Amendments are
adopted, Beverly will be permitted to consummate the Spinoff Transaction as a
permitted asset sale. If the Spinoff Transaction is consummated, (i) Beverly
could proceed with the transfer of all of its assets (except the capital stock
of PCA and its subsidiaries) to New Beverly; (ii) PCA and its subsidiaries would
be released as guarantors of the Senior Notes and (iii) the assets of New
Beverly would become the sole asset support for the repayment of the Senior
Notes. If the Proposed Amendments are not adopted, Beverly would not be able to
consummate the Transactions unless it complied with the financial tests
applicable to Spinoff Transactions.
Merger, Consolidation or Sale of Assets Covenant in the Indenture
Section 5.1(iv) of the Indenture provides that Beverly may not consolidate
or merge with or into (whether or not Beverly is the surviving or resulting
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to another Person unless Beverly or the Person formed by or
surviving any such consolidation or merger (if other than Beverly), or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made (A) shall have a Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of Beverly
immediately preceding the transaction (the "Consolidated Net Worth Test") and
(B) shall at the time of such transaction and after giving effect thereto as if
such transaction had occurred at the beginning of the Reference Period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9
of the Indenture.
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<PAGE> 34
Proposed Amendment
Section 5.1(iv) of the Indenture would be amended to expressly permit the
Transactions, irrespective of whether the Consolidated Net Worth Test or Fixed
Charge Coverage Test would be satisfied. Accordingly, consummation of the
Transactions would not result in the occurrence of an Event of Default under the
Indenture which would otherwise enable the Trustee or the holders of at least
25% in aggregate principal amount of the Senior Notes, by written notice to
Beverly and the Trustee, to declare all of the then outstanding Senior Notes to
be immediately due and payable.
Successor Corporation or Person Substituted; Release of Guarantors in the
Indenture
Section 10.5 of the Indenture provides that upon the sale or disposition
(whether by merger, stock purchase, asset sale or otherwise) of a Guarantor (or
all of its assets) to an entity which is not a Subsidiary of Beverly, or upon
the dissolution of any Guarantor, such Guarantor is released from its
obligations under its Guarantee of the Senior Notes provided that the sale,
disposition or dissolution otherwise is in compliance with the Indenture.
Notwithstanding the foregoing, the Indenture provides that if upon consummation
of the Spinoff Transaction (as presently defined in the Indenture), PCA ceases
to be a Subsidiary of Beverly, PCA would be deemed released from its Guarantee
of the Senior Notes.
Proposed Amendments
Section 10.5 of the Indenture would be amended to provide that although PCA
will continue to be owned by Beverly, upon the assumption by New Beverly of all
Beverly's rights and obligations under the Indenture and the Securities as
contemplated by the Transactions, PCA and each of PCA's Subsidiaries will be
unconditionally released from its Guarantee of the Senior Notes and shall have
no further duties or obligations under the Indenture or the Senior Notes.
Section 5.2 of the Indenture would also be amended to clarify that upon the
assignment of all of Beverly's rights and obligations under the Indenture and
the Securities, and the assumption thereof by the successor corporation or
Person, Beverly will be unconditionally released from any and all further
liability under the Indenture and the Senior Notes. Accordingly, PCA and its
subsidiaries would be released as Guarantors of the Senior Notes under the
Indenture and the holders of Securities would no longer have recourse to the
assets or the Guarantees of PCA and its subsidiaries as support for the
repayment of the Securities.
THE REDEMPTION AMENDMENT
Restricted Payments Covenant in the Indenture
Section 4.7 of the Indenture provides that Beverly shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any distribution on account of the Equity Interests of
Beverly or any of its Subsidiaries (other than (x) dividends or distributions
payable in Qualified Equity Interests of Beverly, (y) dividends or distributions
payable to Beverly or any Subsidiary of Beverly, and (z) dividends or
distributions by any Subsidiary of Beverly payable to all holders of a class of
Equity Interests of such Subsidiary on a pro rata basis); (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of Beverly or any
of its Subsidiaries; (iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Subordinated Indebtedness
(as defined in the Indenture), except at the original final maturity date
thereof; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being hereafter collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment (the amount of any such Restricted Payment, if
other than cash or Cash Equivalents, shall be the fair market value (as
conclusively evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee within 60 days prior to the date
of such Restricted Payment) of the asset(s) proposed to be transferred by
Beverly or such Subsidiary, as the case may be, pursuant to such Restricted
Payment):
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
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(b) Beverly, at the time of such Restricted Payment and after giving
effect thereto as if such Restricted Payment had been made at the beginning
of the Reference Period immediately preceding the date of such Restricted
Payment, would have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of Section 4.9 of the Indenture; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by Beverly and its Subsidiaries after December 31,
1995 (excluding Restricted Payments permitted by clauses (ii), (iii), (iv)
and (v) of the next succeeding paragraph), is less than the sum (without
duplication) of (1) 50% of the Consolidated Net Income of Beverly for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after December 31, 1995 to the end of Beverly's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus, (2) 100% of the aggregate net cash proceeds received by
Beverly from the issuance or sale (other than to a subsidiary of Beverly)
since December 31, 1995 of Qualified Equity Interests of Beverly or of debt
securities of Beverly or any of its Subsidiaries that have been converted
into or exchanged for such Qualified Equity Interests of Beverly; plus (3)
to the extent that any Restricted Investment that was made after the date
of the Indenture is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (net of taxes and the cost of disposition, if any) or
(B) the initial amount of such Restricted Investment, plus (4) $20 million.
The foregoing provisions do not prohibit the following Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
otherwise complied with the provisions of Section 4.7;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of Beverly or any Subsidiary in exchange for, or out
of the net cash proceeds of, the substantially concurrent sale (other than
to a Subsidiary of Beverly) of Qualified Equity Interests of Beverly;
provided that the amount of such net cash proceeds that are utilized for
any such redemption, repurchase retirement or other acquisition shall be
excluded from clause (c)(2) above;
(iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or in exchange for or out of the net cash proceeds
form the substantially concurrent sale (other than to a Subsidiary of
Beverly of Qualified Equity Interests of Beverly; provided that the amount
of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause
(c)(2) above;
(iv) any purchase or defeasance of Subordinated Indebtedness to the
extent required upon a change of control or asset sale (as defined therein)
by the Indenture or other agreement or instrument pursuant to which such
Subordinated Indebtedness was issued, but only if Beverly (1) in the case
of a Change of Control, has complied with its obligations under Section
4.13 of the Indenture ("Change of Control") or (2) in the case of an Asset
Sale, has applied the Net Proceeds from such Asset Sale in accordance with
the provisions of Sections 2.15 ("Offer to Purchase by Application of
Excess Proceeds") and 4.10 ("Asset Sales") of the Indenture; and
(v) any Restricted Payment permitted in accordance with the provisions
of the second paragraph of Section 4.10 of this Indenture; provided,
however, in the case of each of clauses (ii), (iii), (iv) and (v) of this
paragraph, no Default or Event of Default shall have occurred or be
continuing at the time of such Restricted Payment or would occur as a
consequence thereof.
23
<PAGE> 36
Proposed Amendment
Section 4.7 of the Indenture would be amended to expressly permit the
Redemption, if and to the extent Beverly should elect to effect such
transaction, so long as no Default or Event of Default shall have occurred and
be continuing at the time of such Restricted Payment or would occur as a
consequence thereof. Accordingly, the Redemption would not result in the
occurrence of an Event of Default under the Indenture which would otherwise
enable the Trustee or the holders of at least 25% in aggregate principal amount
of the Senior Notes, by written notice to Beverly and the Trustee, to declare
all of the then outstanding Senior Notes to be immediately due and payable.
24
<PAGE> 37
UNAUDITED PRO FORMA NEW BEVERLY FINANCIAL STATEMENTS
Under the Distribution Agreement and the Merger Agreement: (1) Beverly's
Remaining Healthcare Business is to be reorganized into New Beverly with all of
the shares of New Beverly Common Stock to be distributed to Beverly's
stockholders in a tax-free reorganization; (2) Beverly (then consisting solely
of the Institutional Pharmacy Business operated by PCA and its subsidiaries) is
to be acquired by and merged with and into Capstone through a tax-free exchange
of shares of Capstone Common Stock for shares of Beverly Common Stock; and (3)
New Beverly will become an independent, publicly-traded corporation upon the
completion of the Distribution and the Merger. New Beverly will immediately
change its name to Beverly Enterprises, Inc., will be treated as the
continuation of Beverly for financial reporting purposes and will continue to
reflect Beverly's historical cost basis of assets and liabilities. Closing under
the Merger Agreement is subject to a number of conditions, including, among
other things, the approval of the Merger and the Distribution by Beverly's
stockholders, and approval of the Merger by Capstone's stockholders. The
accompanying unaudited pro forma condensed consolidated balance sheet reflects
the historical balance sheets of Beverly and PCA at June 30, 1997 and as
adjusted to give effect to the Distribution and the Merger, as if such events
occurred at June 30, 1997. The accompanying unaudited pro forma condensed
consolidated statements of income for the year ended December 31, 1996 and for
the six months ended June 30, 1997 give effect to such transactions as if they
occurred on January 1, 1996. Furthermore, in conjunction with the Distribution,
Beverly will be required to restructure, repay or otherwise renegotiate
substantially all of its outstanding indebtedness and to renegotiate or make
certain payments under various employment and change in control severance
agreements with officers of Beverly. An estimate of the effects of these items
has been reflected in the accompanying unaudited pro forma condensed
consolidated balance sheet, but such items have not been reflected in the
accompanying unaudited pro forma condensed consolidated statements of income due
to their nonrecurring nature. The unaudited pro forma condensed consolidated
financial statements are not necessarily indicative of the operating results
that would have been achieved had the Distribution and the Merger been
consummated as of the indicated dates, nor are they necessarily indicative of
future operating results. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements of Beverly and PCA, and the related notes thereto, included
elsewhere in this Prospectus/Consent Solicitation Statement.
25
<PAGE> 38
NEW BEVERLY HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996
------------------------------------------------------
PRO FORMA
TRANSACTION NEW
BEVERLY PCA(1) ADJUSTMENTS BEVERLY
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net operating revenues............................ $3,267,189 $(516,400) $82,083(2) $2,832,872
Interest income................................... 13,839 (177) -- 13,662
---------- --------- ------- ----------
Total revenues........................... 3,281,028 (516,577) 82,083 2,846,534
Costs and expenses:
Operating and administrative:
Wages and related............................. 1,819,500 (118,888) -- 1,700,612
Other......................................... 1,139,442 (346,331) 82,083(2) 875,194
Interest........................................ 91,111 (11) (25,630)(3) 65,470
Depreciation and amortization................... 105,468 (16,392) -- 89,076
---------- --------- ------- ----------
Total costs and expenses................. 3,155,521 (481,622) 56,453 2,730,352
---------- --------- ------- ----------
Income from continuing operations before provision
for income taxes................................ 125,507 (34,955) 25,630 116,182
Provision for income taxes........................ 73,481 (14,668) 10,252(4) 69,065
---------- --------- ------- ----------
Income from continuing operations................. $ 52,026 $ (20,287) $15,378 $ 47,117
========== ========= ======= ==========
Per share data (primary):
Earnings per share from continuing operations... $ 0.52 $ 0.42
========== ==========
Weighted average shares outstanding............. 99,646 110,899
========== ==========
Per share data (fully diluted):
Earnings per share from continuing operations... $ 0.50 $ 0.42
========== ==========
Weighted average shares outstanding............. 111,002 111,002
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------------------
PRO FORMA
TRANSACTION NEW
BEVERLY PCA(1) ADJUSTMENTS BEVERLY
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net operating revenues............................ $1,634,219 $(301,328) $50,304(2) $1,383,195
Interest income................................... 6,726 (82) -- 6,644
---------- --------- ------- ----------
Total revenues........................... 1,640,945 (301,410) 50,304 1,389,839
Costs and expenses:
Operating and administrative:
Wages and related............................. 897,856 (65,476) -- 832,380
Other......................................... 577,874 (198,360) 50,304(2) 429,818
Interest........................................ 44,687 (130) (12,314)(3) 32,243
Depreciation and amortization................... 54,806 (9,908) -- 44,898
---------- --------- ------- ----------
Total costs and expenses................. 1,575,223 (273,874) 37,990 1,339,339
---------- --------- ------- ----------
Income from continuing operations before provision
for income taxes................................ 65,722 (27,536) 12,314 50,500
Provision for income taxes........................ 26,289 (11,421) 4,926(4) 19,794
---------- --------- ------- ----------
Income from continuing operations................. $ 39,433 $ (16,115) $ 7,388 $ 30,706
========== ========= ======= ==========
Per share data (primary):
Earnings per share from continuing
operations.................................. $ 0.40 $ 0.28
========== ==========
Weighted average shares outstanding........... 99,230 110,483
========== ==========
Per share data (fully diluted):
Earnings per share from continuing
operations.................................. $ 0.38 $ 0.28
========== ==========
Weighted average shares outstanding........... 110,865 110,865
========== ==========
</TABLE>
26
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(1) Reflects the historical stand-alone amounts of PCA which are eliminated to
arrive at New Beverly.
(2) Reflects add-back of intercompany revenues and costs of sales of PCA which
are eliminated in Beverly historical amounts.
(3) Reduction of interest expense related to: (i) debt paydowns described in
Note 2 to the Unaudited Pro Forma Condensed Consolidated Balance Sheet; and
(ii) repayment/conversion of $150,000,000 principal amount of 5 1/2%
convertible subordinated debentures ("5 1/2% Convertible Subordinated
Debentures") into shares of Beverly Common Stock as described in Note 4 to
the Unaudited Pro Forma Condensed Consolidated Balance Sheet.
(4) Income tax effect of pro forma adjustments using a 40% statutory rate.
- ---------------
Note: Nonrecurring Transaction costs of approximately $37.2 million, net of tax,
will be charged to the operations of New Beverly but are not reflected in
the Pro Forma Condensed Consolidated Statements of Income.
27
<PAGE> 40
NEW BEVERLY HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
TRANSACTION NEW
BEVERLY PCA(1) ADJUSTMENTS BEVERLY
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 71,756 $ (6,668) $ 58,893(2) $ 83,144
(40,000)(3)
(837)(4)
Accounts receivable -- patient, less allowance for
doubtful accounts................................... 502,511 (109,798) -- 392,713
Accounts receivable -- nonpatient, less allowance for
doubtful accounts................................... 10,429 (101) -- 10,328
Notes receivable, less allowance for doubtful notes... 9,260 (772) -- 8,488
Operating supplies.................................... 55,713 (25,322) -- 30,391
Deferred income taxes................................. 23,547 -- -- 23,547
Prepaid expenses...................................... 43,738 (494) -- 43,244
---------- --------- --------- ----------
Total current assets........................... 716,954 (143,155) 18,056 591,855
Property and equipment, net............................. 1,188,197 (35,215) -- 1,152,982
Other assets:
Notes receivable, less allowance for doubtful notes... 28,958 (810) -- 28,148
Designated and restricted funds....................... 74,182 -- -- 74,182
Goodwill, net......................................... 375,221 (290,931) -- 84,290
Other, net............................................ 107,454 (11,435) (1,942)(2) 94,077
---------- --------- --------- ----------
Total other assets............................. 585,815 (303,176) (1,942) 280,697
---------- --------- --------- ----------
Total assets................................... $2,490,966 $(481,546) $ 16,114 $2,025,534
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 96,854 (21,237) $ -- $ 75,617
Accrued wages and related liabilities................. 128,892 (6,006) -- 122,886
Accrued interest...................................... 17,683 -- -- 17,683
Other accrued liabilities............................. 107,660 (6,639) -- 101,021
Current portion of long-term debt..................... 35,669 (1,195) (10,350)(2) 24,124
---------- --------- --------- ----------
Total current liabilities...................... 386,758 (35,077) (10,350) 341,331
Long-term obligations................................... 1,018,551 (1,588) (205,757)(2) 661,206
(150,000)(4)
Deferred income taxes payable........................... 98,769 (4,046) (777)(2) 91,146
(2,800)(3)
Other liabilities and deferred items.................... 96,171 -- -- 96,171
Due to Parent........................................... -- (333,115) 333,115(2) --
Stockholders' equity:
Common stock.......................................... 10,471 (1) 1(5) 10,963(6)
(627)(7)
1,119(4)
Additional paid-in capital............................ 777,172 (3,866) 3,866(5) 855,527
(69,689)(7)
148,044(4)
Retained earnings..................................... 173,390 (103,853) (58,115)(2) (30,810)
(1,165)(2)
(3,867)(5)
(37,200)(3)
Treasury stock, at cost............................... (70,316) -- 70,316(7) --
---------- --------- --------- ----------
Total stockholders' equity..................... 890,717 (107,720) 52,683 835,680
---------- --------- --------- ----------
Total liabilities and stockholders'
equity....................................... $2,490,966 $(481,546) $ 16,114 $2,025,534
========== ========= ========= ==========
</TABLE>
28
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) Reflects the historical stand-alone amounts of PCA which are eliminated to
arrive at New Beverly.
(2) Reflects (i) repayment or defeasance of approximately $216,107,000 of
long-term obligations with the $275,000,000 of net proceeds to be received
as partial repayment of PCA's intercompany balance owed to Beverly, with the
remaining net proceeds used for one or more of the following purposes:
strategic investments; repayment of indebtedness; selective acquisitions,
including the purchase of previously leased facilities; construction of new
facilities; and to meet working capital requirements; (ii) write-off of
deferred financing costs on such repaid long-term obligations and (iii)
reduction in equity for the remaining intercompany balance owed by PCA which
will not be repaid.
The repayments of approximately $216,107,000 of long-term obligations, as
noted above, are comprised of the following (in thousands):
<TABLE>
<CAPTION>
CURRENT LONG-TERM TOTAL
------- --------- --------
<S> <C> <C> <C>
Revolver borrowings................................... $ -- $ 90,000 $ 90,000
Notes and mortgages................................... 2,450 27,182 29,632
8.75% Notes........................................... -- 24,805 24,805
7 5/8% Convertible Debentures......................... 7,500 54,980 62,480
Industrial revenue bonds.............................. 400 8,790 9,190
------- -------- --------
$10,350 $205,757 $216,107
======= ======== ========
</TABLE>
(3) Reflects payment of estimated Merger and Distribution costs (which have not
been reflected in the Unaudited Pro Forma Condensed Consolidated Statements
of Income due to their nonrecurring nature) as follows (assuming $7,000,000
of such costs are deductible for income tax purposes) (in thousands):
<TABLE>
<S> <C>
Estimated Merger costs:
Investment banker fees.................................... $ 5,200
Professional fees and other Merger-related costs.......... 2,800
-------
Total estimated Merger costs...................... 8,000
Estimated Distribution costs:
Consent fees to debt and lease holders.................... $10,200
Employee incentives and other related costs............... 14,000
Professional fees and other Distribution-related costs.... 7,800
-------
Total estimated Distribution costs................ 32,000
-------
Total estimated Transaction costs................. 40,000
Less: Estimated tax effect at a 40% statutory
rate............................................ (2,800)
-------
$37,200
=======
</TABLE>
(4) Reflects conversion of $149,162,550 principal amount of 5 1/2% Convertible
Subordinated Debentures into 11,189,924 shares of Beverly Common Stock and
repayment in cash of the remaining principal amount of $837,450. A condition
to closing under the Merger Agreement is that Beverly amend, modify or
replace substantially all of its existing indebtedness so that upon closing
the Merger, Beverly will have been released from liability under all of its
existing indebtedness for borrowed money, except for the Institutional
Pharmacy Liabilities and certain other pharmacy-related obligations. In
conjunction therewith, on July 17, 1997, Beverly called its 5 1/2%
Debentures for redemption on August 18, 1997, and substantially all of such
Debentures were converted as indicated.
(5) Reflects add-back of common stock and additional paid-in capital of PCA
which are eliminated in Beverly historical amounts.
(6) Reflects a one-for-one distribution of New Beverly Common Stock for each
share of Beverly Common Stock held by a Beverly stockholder as of the
Distribution Record Date.
(7) Reflects cancellation and retirement of Beverly Common Stock held in
treasury at the Effective Time of the Merger, pursuant to the terms of the
Merger Agreement.
29
<PAGE> 42
CAPITALIZATION
Following the Distribution and the Merger, New Beverly will change its name
to Beverly Enterprises, Inc. and will be treated as the continuation of Beverly
for financial reporting purposes. See "Unaudited Pro Forma New Beverly Financial
Statements" and the consolidated financial statements of Beverly and notes
thereto included elsewhere herein. The following table sets forth Beverly's
historical capitalization at June 30, 1997, and New Beverly's pro forma
capitalization to reflect the Distribution and the Merger:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------
BEVERLY NEW BEVERLY
ACTUAL PRO FORMA
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................. $ 71,756 $ 83,144(1)(2)(4)
========== ==========
Current portion of long-term debt......................... $ 35,669 $ 24,124(1)(2)
========== ==========
Long-term debt, net of current portion:
Revolver borrowings..................................... $ 90,000 $ --(2)
Industrial revenue bonds................................ 193,837 185,047(2)
Notes and mortgages..................................... 212,471 185,267(1)(2)
First Mortgage Bonds.................................... 46,864 46,864
8.75% Notes............................................. 24,805 --(2)
9% Senior Notes......................................... 180,000 180,000
7 5/8% Convertible Debentures........................... 54,980 --(2)
5 1/2% Debentures....................................... 150,000 --(4)
Medium term notes....................................... 50,000 50,000
Capital lease obligations............................... 15,594 14,028(1)
---------- ----------
Total long-term debt............................ 1,018,551 661,206
Stockholders' equity:
Preferred stock, 25,000,000 shares authorized........... -- --
Common stock, $0.10 par value; 300,000,000 shares
authorized; 104,712,723 shares issued; 98,438,615
shares outstanding; pro forma 109,628,539 shares
issued and outstanding............................... 10,471 10,963(4)(5)(6)
Additional paid-in capital.............................. 777,172 855,527(4)(5)
Retained earnings (deficit)............................. 173,390 (30,810)(1)(3)
Treasury stock, at cost; 6,274,108 shares............... (70,316) --(5)
---------- ----------
Total stockholders' equity...................... 890,717 835,680
---------- ----------
Total capitalization............................ $1,909,268 $1,496,886
========== ==========
</TABLE>
- ---------------
(1) Reflects the following adjustments to eliminate PCA's historical amounts (in
thousands):
<TABLE>
<S> <C>
Cash and cash equivalents................................... $ 6,668
Current portion of long-term debt........................... 1,195
Other notes and mortgages................................... 22
Capital leases, net of current portion...................... 1,566
Retained earnings........................................... 103,853
</TABLE>
(2) Reflects repayment or defeasance of approximately $216,107,000 of debt with
the $275,000,000 of net proceeds to be received by Beverly as a partial
repayment of PCA's intercompany balance in conjunction with the
Transactions, with the remaining net proceeds of approximately $58,893,000
to be used to pay approximately $40,000,000 of Transaction costs, and for
general corporate purposes, including: strategic investments; repayment of
other indebtedness; selective acquisitions, including the purchase of
previously leased facilities; construction of new facilities; and to meet
working capital requirements.
(3) Reflects the contribution to PCA's capital (after the repayment of
$275,000,000 (See Note 2 above)) of the remaining $58,115,000 of PCA's
intercompany balance, which will not be repaid to Beverly.
30
<PAGE> 43
(4) Reflects conversion of $149,162,550 principal amount of 5 1/2% Debentures
into 11,189,924 shares of Beverly Common Stock and repayment in cash of the
remaining principal amount of $837,450. A condition to closing under the
Merger Agreement is that Beverly amend, modify or replace substantially all
of its existing indebtedness so that upon closing the Merger, Beverly will
have been released from liability under all of its existing indebtedness for
borrowed money, except for the Institutional Pharmacy Liabilities and
certain other pharmacy-related obligations. In conjunction therewith, on
July 17, 1997, Beverly called its 5 1/2% Debentures for redemption on August
18, 1997, and substantially all of such Debentures were converted as
indicated.
(5) Reflects cancellation and retirement of Beverly Common Stock held in
treasury at the Effective Time of the Merger, pursuant to the terms of the
Merger Agreement.
(6) Reflects a one-for-one distribution of New Beverly Common Stock for each
share of Beverly Common Stock held by a Beverly stockholder as of the
Distribution Record Date.
31
<PAGE> 44
DESCRIPTION OF NEW BEVERLY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data and
selected consolidated balance sheet data for the periods ended and as of
December 31, 1996, 1995, 1994, 1993 and 1992 have been derived from the
consolidated financial statements of Beverly and should be read in conjunction
with the financial statements and notes thereto included herein. The
consolidated statements of operations data and selected balance sheet data for
the six months ended and as of June 30, 1997 and 1996 have been derived from the
unaudited condensed consolidated financial statements and should be read in
conjunction with those financial statements and related notes included herein.
Operating results for the six months ended June 30, 1997 are not necessarily
indicative of results that may be expected for the full calendar year ending
December 31, 1997.
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
JUNE 30, AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net operating revenues.......... $ 1,634,219 $ 1,609,380 $ 3,267,189 $ 3,228,553 $ 2,969,239 $ 2,884,451 $ 2,607,756
Interest income................. 6,726 6,935 13,839 14,228 14,578 15,269 14,502
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues.......... 1,640,945 1,616,315 3,281,028 3,242,781 2,983,817 2,899,720 2,622,258
Costs and expenses:
Operating and administrative:
Wages and related........... 897,856 894,522 1,819,500 1,736,151 1,600,580 1,593,410 1,486,191
Other....................... 577,874 573,490 1,139,442 1,224,681 1,114,916 1,069,536 921,750
Interest...................... 44,687 46,128 91,111 84,245 64,792 66,196 70,943
Depreciation and
amortization................ 54,806 51,023 105,468 103,581 88,734 82,938 80,226
Impairment of long-lived
assets:
Adoption of SFAS No. 121.... -- -- -- 68,130 -- -- --
Development and other
costs..................... -- -- -- 32,147 -- -- --
Restructuring costs........... -- -- -- -- -- -- 57,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and
expenses.............. 1,575,223 1,565,163 3,155,521 3,248,935 2,869,022 2,812,080 2,616,110
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before provision
for income taxes,
extraordinary charge and
cumulative effect of change in
accounting for income taxes... 65,722 51,152 125,507 (6,154) 114,795 87,640 6,148
Provision for income taxes...... 26,289 20,461 73,481 1,969 37,882 29,684 4,203
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary charge and
cumulative effect of change in
accounting for income taxes... 39,433 30,691 52,026 (8,123) 76,913 57,956 1,945
Extraordinary charge, net of
income taxes of $1,099 in
1996, $1,188 in 1994, $1,155
in 1993 and $5,415 in 1992.... -- -- (1,726) -- (2,412) (2,345) (8,835)
Cumulative effect of change in
accounting for income taxes... -- -- -- -- -- -- (5,454)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............... $ 39,433 $ 30,691 $ 50,300 $ (8,123) $ 74,501 $ 55,611 $ (12,344)
=========== =========== =========== =========== =========== =========== ===========
Net income (loss) applicable to
common shares................. $ 39,433 $ 30,691 $ 50,300 $ (14,998) $ 66,251 $ 31,173 $ (13,344)
=========== =========== =========== =========== =========== =========== ===========
Income (loss) per share of
common stock:
Before redemption premium on
preferred stock,
extraordinary charge and
cumulative effect of change
in accounting for income
taxes....................... $ .40 $ .31 $ .52 $ (.16) $ .79 $ .66 $ .01
Redemption premium on
preferred stock............. -- -- -- -- -- (.25) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Before extraordinary charge
and cumulative effect of
change in accounting for
income taxes................ .40 .31 .52 (.16) .79 .41 .01
Extraordinary charge.......... -- -- (.02) -- (.03) (.03) (.11)
Cumulative effect of change in
accounting for income
taxes....................... -- -- -- -- -- -- (.07)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ .40 $ .31 $ .50 $ (.16) $ .76 $ .38 $ (.17)
=========== =========== =========== =========== =========== =========== ===========
Shares used to compute per share
amounts....................... 99,230,000 100,028,000 99,646,000 92,233,000 87,087,000 81,207,000 77,685,000
CONSOLIDATED BALANCE SHEET DATA:
Total assets.................... $ 2,490,966 $ 2,524,904 $ 2,525,082 $ 2,506,461 $ 2,322,578 $ 2,000,804 $ 1,859,361
Current portion of long-term
obligations................... $ 35,669 $ 37,710 $ 38,826 $ 84,639 $ 60,199 $ 43,125 $ 30,466
Long-term obligations, excluding
current
portion....................... $ 1,018,551 $ 1,076,462 $ 1,106,256 $ 1,066,909 $ 918,018 $ 706,917 $ 712,896
Stockholders' equity............ $ 890,717 $ 843,217 $ 861,095 $ 820,333 $ 827,244 $ 742,862 $ 593,505
OTHER DATA:
Patient days.................... 11,173,000 11,902,000 23,670,000 25,297,000 26,766,000 29,041,000 29,341,000
Average occupancy percentage
(based on licensed beds)...... 86.5% 87.3% 87.4% 88.1% 88.5% 88.5% 88.4%
Number of nursing home beds..... 64,206 72,022 71,204 75,669 78,058 85,001 89,298
</TABLE>
32
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of financial condition and results of operations
for Beverly includes both the Remaining Healthcare Business and the
Institutional Pharmacy Business. After the Distribution and the Merger, the
financial condition and results of operations of New Beverly will not include
those of the Institutional Pharmacy Business. The following discussion is based
upon and should be read in conjunction with the Selected Historical Consolidated
Financial Data, the Unaudited Pro Forma Condensed Consolidated Financial
Statements and the historical consolidated financial statements of Beverly and
the notes thereto, included elsewhere herein.
GENERAL
Healthcare system reform and concerns over rising Medicare and Medicaid
costs continue to be high priorities for both federal and state governments.
Although no comprehensive healthcare, Medicare or Medicaid reform legislation
has yet been implemented, pressures to contain costs and the active discussions
between the Clinton Administration, Congress and various other groups have
impacted the healthcare delivery system. Many states are experimenting with
alternatives to traditional Medicaid delivery systems through federal waiver
programs, and efforts to provide these services more efficiently will continue
to be a priority. In August 1996, Congress passed the Health Insurance
Portability and Accountability Act of 1996 which, among other things, provides
favorable changes in the tax treatment of long-term care insurance and allows
inclusion of long-term care insurance in medical savings accounts. Although
Beverly believes this legislation will have a favorable impact on the long-term
care industry, the full effect is not readily determinable. There can be no
assurances made as to the ultimate impact of this, or future healthcare reform
legislation, on New Beverly's financial position, results of operations or cash
flows. However, future federal budget legislation and regulatory changes may
negatively impact New Beverly.
During the first quarter of 1997, proposed rules were issued by the Health
Care Financing Administration of the Department of Health and Human Services
which, if implemented in their proposed form, would establish guidelines for
maximum reimbursement to skilled nursing facilities for contracted speech and
occupational therapy services, based on equivalent salary amounts for on-staff
therapists. In addition, these proposed rules would revise the salary
equivalency rules already in effect for physical therapy services. The full
effect of the new rules is not readily determinable as the details of the
proposal have not yet been finalized; however, New Beverly does not expect this
will have a material adverse effect on its consolidated results of operations or
cash flows.
The federal government recently increased the minimum wage in two phases,
beginning October 1, 1996, and September 1, 1997, respectively. This new
legislation did not result in a material increase in Beverly's wage rates in
1996, and Beverly does not anticipate a material impact on its wage rates in
1997, since a substantial portion of Beverly's associates earn in excess of the
new minimum wage levels; however, Beverly believes there may continue to be
competitive pressures to increase the wage levels of associates earning above
the new minimum wage. The effect of the new minimum wage on New Beverly's future
operations is not expected to be material as New Beverly believes that a
significant portion of such increase will be reimbursed through Medicare and
Medicaid rate increases.
New Beverly's future operating performance will 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 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. New
Beverly's ability to control costs, including its wages and related expenses
which continue to rise and will represent the largest component of New Beverly's
operating and administrative expenses, will also significantly impact its future
operating results.
As a general matter, increases in operating costs of New Beverly will
result in higher patient rates under Medicaid programs in subsequent periods.
However, New Beverly's results of operations will continue to be affected by the
time lag in most states between increases in reimbursable costs and the receipt
of related
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reimbursement rate increases. Medicaid rate increases, adjusted for inflation,
are generally based upon changes in costs for a full calendar year period. The
time lag before such costs are reflected in permitted rates varies from state to
state, with a substantial portion of the increases taking effect up to 18 months
after the related cost increases.
OPERATING RESULTS
Six Months 1997 Compared to Six Months 1996
Beverly's net income was $39,433,000 for the six months ended June 30,
1997, as compared to net income of $30,691,000 for the same period in 1996.
Beverly's income before provision for income taxes was $65,722,000 for the six
months ended June 30, 1997, as compared to $51,152,000 for the same period in
1996. Beverly's estimated annual effective tax rate of 40% for 1997 and 1996 was
different than the federal statutory rate primarily due to the impact of state
income taxes and amortization of nondeductible goodwill.
Excluding the Institutional Pharmacy Business, net income for the six
months ended June 30, 1997 would have been $23,318,000 as compared to net income
of $18,960,000 for the same period in 1996. Income before provision for income
taxes for the six months ended June 30, 1997, excluding the Institutional
Pharmacy Business, would have been $38,186,000, as compared to $30,940,000 for
the same period in 1996. Excluding the Institutional Pharmacy Business,
Beverly's estimated annual effective tax rate for the six months ended June 30,
1997 and 1996 would have been 38.9% and 38.7%, respectively.
Beverly's net operating revenues and operating and administrative costs
increased approximately $24,800,000 and $7,700,000, respectively, for the six
months ended June 30, 1997, as compared to the same period in 1996. These
increases consist of the following: increases in net operating revenues and
operating and administrative costs of approximately $72,800,000 and $51,900,000,
respectively, for facilities which Beverly operated during each of the six-month
periods ended June 30, 1997 and 1996 ("same facility operations"); increases in
net operating revenues and operating and administrative costs of approximately
$42,200,000 and $37,300,000, respectively, related to the acquisitions of eight
nursing facilities in 1996, as well as certain pharmacy, hospice and outpatient
therapy businesses acquired in 1996 and 1997; partially offset by decreases in
net operating revenues and operating and administrative costs of approximately
$90,200,000 and $81,500,000, respectively, due to the disposition of, or lease
terminations on, 59 nursing facilities in 1997 and 83 nursing facilities and
Beverly's MedView Services unit ("MedView") in 1996.
Excluding the Institutional Pharmacy Business, net operating revenues would
have decreased approximately $16,000,000 for the six months ended June 30, 1997,
as compared to the same period in 1996. This decrease consisted of the
following: a decrease of approximately $90,200,000 due to certain dispositions,
as noted above; partially offset by increases of approximately $49,500,000 for
same facility operations and increases of approximately $24,700,000 related to
acquisitions of nursing facilities, hospices and outpatient therapy clinics.
Excluding the Institutional Pharmacy Business, operating and administrative
costs would have decreased approximately $23,500,000 for the six months ended
June 30, 1997, as compared to the same period in 1996. This decrease consisted
of the following: decreases of approximately $81,500,000 due to certain
dispositions, as noted above; partially offset by increases of approximately
$35,400,000 for same facility operations and increases of approximately
$22,600,000 related to acquisitions of nursing facilities, hospices and
outpatient therapy clinics.
The increase in Beverly's net operating revenues for same facility
operations for the six months ended June 30, 1997, as compared to the same
period in 1996, was due to the following: approximately $56,800,000 due
primarily to increases in room and board rates; approximately $23,400,000 due to
increases in pharmacy-related revenues and approximately $4,500,000 due
primarily to increases in ancillary revenues and various other items. These
increases in Beverly's net operating revenues were partially offset by
approximately $6,600,000 due to a decrease in same facility occupancy to 89.4%
for the six months ended June 30, 1997, as compared to 90.0% for the same period
in 1996 based on operational beds; and approximately $5,300,000 due to one less
calendar day for the six months ended June 30, 1997, as compared to the same
period in 1996.
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Excluding the Institutional Pharmacy Business, the increase in net
operating revenues for same facility operations for the six months ended June
30, 1997, as compared to the same period in 1996, was due to the following:
approximately $56,800,000 due primarily to increases in room and board rates and
approximately $4,600,000 due primarily to increases in ancillary revenues and
various other items; partially offset by approximately $6,600,000 due to a
decrease in same facility occupancy, and approximately $5,300,000 due to one
less calendar day for the six months ended June 30, 1997, as compared to the
same period in 1996.
The increase in Beverly's operating and administrative costs for same
facility operations for the six months ended June 30, 1997, as compared to the
same period in 1996, was due to the following: approximately $31,900,000 due to
increased wages and related expenses (excluding pharmacy) 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 Beverly's nursing facilities to cover
increased patient acuity; approximately $17,000,000 due to increases in
pharmacy-related costs; approximately $3,200,000 due to increases in nursing
supplies and other variable costs; and approximately $15,500,000 due to various
other items. These increases in Beverly's operating and administrative costs
were partially offset by approximately $15,700,000 due to a decrease in
contracted therapy expenses as a result of hiring therapists on staff as opposed
to contracting for their services.
Excluding the Institutional Pharmacy Business, the increase in operating
and administrative costs for same facility operations for the six months ended
June 30, 1997, as compared to the same period in 1996, was due to the following:
approximately $31,900,000 due to increased wages and related expenses;
approximately $3,200,000 due to increases in nursing supplies and other variable
costs; and approximately $16,000,000 due to various other items; partially
offset by approximately $15,700,000 due to a decrease in contracted therapy
expenses.
Beverly's interest expense decreased approximately $1,400,000 as compared
to the same period in 1996 primarily due to repayments of the term loan and
revolver borrowings under Beverly's 1994 Credit Agreement, the term loan under
Beverly's 1992 Credit Facility and the Nippon Term Loan during late 1996 with
the proceeds from a new credit facility. The increase in Beverly's depreciation
and amortization expense of approximately $3,800,000 as compared to the same
period in 1996, was affected by the following: approximately $6,300,000 increase
primarily due to capital additions and improvements, as well as, acquisitions;
partially offset by a decrease of approximately $2,500,000 related to the
disposition of, or lease terminations on, certain nursing facilities and
MedView.
The Institutional Pharmacy Business had an immaterial effect on the change
in interest expense for the six months ended June 30, 1997, as compared to the
same period in 1996. Excluding the Institutional Pharmacy Business, depreciation
and amortization expense increased approximately $1,700,000 for the six months
ended June 30, 1997, as compared to the same period in 1996. Such increase was
due to the following: approximately $4,200,000 increase primarily due to capital
additions and improvements, as well as, acquisitions; partially offset by a
decrease of approximately $2,500,000 related to the disposition of, or lease
terminations on, certain nursing facilities and MedView.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which is
required to be adopted in financial statements for periods ending after December
15, 1997. At that time, New Beverly will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements, primary earnings per share will be renamed basic
earnings per share and will exclude the dilutive effect of stock options. The
impact is not expected to result in a change in New Beverly's primary earnings
per share or fully diluted earnings per share (which will be renamed dilutive
earnings per share) for the six-month periods ended June 30, 1997 and 1996.
1996 Compared to 1995
Beverly's net income was $50,300,000 for the year ended December 31, 1996,
as compared to a net loss of $8,123,000 for the same period in 1995. Beverly's
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
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refinanced debt. Beverly's net loss for 1995 included a pre-tax charge of
$100,277,000 for impaired long-lived assets related primarily to the adoption of
SFAS No. 121 (as defined below) and the write-off of software and business
development costs, as well as a charge of $4,000,000 related to an overhead and
staff reduction program implemented during the fourth quarter of 1995.
Excluding the Institutional Pharmacy Business, net income for the year
ended December 31, 1996 would have been $31,739,000 as compared to a net loss of
$12,709,000 for the same period in 1995. Excluding the Institutional Pharmacy
Business, the net loss for 1995 would have included a pre-tax charge of
$90,734,000 for impaired long-lived assets related primarily to the adoption of
SFAS No. 121 and the write-off of software costs as well as the $4,000,000
overhead and staff reduction charge, as mentioned above.
Beverly had an annual effective tax rate of 59% for the year ended December
31, 1996, compared to a negative annual effective tax rate of 32% for the same
period in 1995. Beverly's 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 MedView. In addition, Beverly's annual effective tax
rate in 1995 was different than the federal statutory rate primarily due to the
impact of nondeductible goodwill included in the adjustments resulting from the
adoption of SFAS No. 121. At December 31, 1996, Beverly had general business tax
credit carryforwards of $12,236,000 for income tax purposes which expire in
years 2005 through 2011. For financial reporting purposes, the general business
tax credit carryforwards have been utilized to offset existing net taxable
temporary differences reversing during the carryforward periods.
Excluding the Institutional Pharmacy Business, Beverly would have had an
annual effective tax rate of 64.9% for the year ended December 31, 1996, as
compared to an annual effective tax rate of 24% for the same period in 1995.
Beverly's net operating revenues increased approximately $38,600,000 for
the year ended December 31, 1996, as compared to the same period in 1995. This
increase consisted of the following: increases of approximately $62,300,000 for
facilities which Beverly operated during each of the years ended December 31,
1996 and 1995 ("same facility operations"); increases of approximately
$91,700,000 related to the acquisition of Pharmacy Management Services, Inc.
("PMSI") in mid-1995, acquisitions of eight nursing facilities, and certain
pharmacy, hospice and outpatient therapy businesses during 1996 and the expanded
operations of American Transitional Hospitals, Inc. ("ATH"); partially offset by
decreases of approximately $115,400,000 due to the disposition of, or lease
terminations on, 83 nursing facilities and MedView in 1996 and 29 nursing
facilities in 1995. Beverly's operating and administrative costs decreased
approximately $1,900,000 for the year ended December 31, 1996, as compared to
the same period in 1995. This decrease consisted of the following: decreases of
approximately $114,200,000 due to the disposition of, or lease terminations on,
83 nursing facilities and MedView in 1996 and 29 nursing facilities in 1995;
offset by increases of approximately $39,000,000 for same facility operations
and increases of approximately $73,300,000 related to the acquisition of PMSI in
mid-1995, acquisitions of eight nursing facilities, and certain pharmacy,
hospice and outpatient therapy businesses during 1996 and the expanded
operations of ATH.
Excluding the Institutional Pharmacy Business, net operating revenues would
have decreased approximately $18,000,000 for the year ended December 31, 1996,
as compared to the same period in 1995. This decrease consisted of the
following: a decrease of approximately $115,400,000 due to certain dispositions,
as noted above; partially offset by increases of approximately $57,800,000 for
same facility operations; and increases of approximately $39,600,000 related to
acquisitions of nursing facilities, hospices and outpatient therapy clinics, the
acquisition of MedView in mid-1995 and the expanded operations of ATH. Excluding
the Institutional Pharmacy Business, operating and administrative costs would
have decreased approximately $40,500,000 for the year ended December 31, 1996,
as compared to the same period in 1995. This decrease consisted of the
following: decreases of approximately $114,200,000 due to certain dispositions,
as noted above; partially offset by increases of approximately $39,500,000 for
same facility operations and increases of approximately $34,200,000 related to
acquisitions of nursing facilities, hospices and outpatient therapy clinics, the
acquisition of MedView in mid-1995 and the expanded operations of ATH.
The increase in Beverly's net operating revenues for same facility
operations for the year ended December 31, 1996, as compared to the same period
in 1995, was due to the following: approximately
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$110,500,000 due primarily to increases in room and board rates; and
approximately $5,600,000 due to one additional calendar day for the year ended
December 31, 1996, as compared to the same period in 1995. These increases in
Beverly's net operating revenues were partially offset by approximately
$28,500,000 due to a decrease in same facility occupancy to 87.7% for the year
ended December 31, 1996, as compared to 88.9% for the same period in 1995;
approximately $19,700,000 due to decreases in ancillary revenues primarily due
to Beverly's continuing efforts to bring therapists on staff as opposed to
contracting for their services; and approximately $5,600,000 due to various
other items.
Excluding the Institutional Pharmacy Business, the increase in net
operating revenues for same facility operations for the year ended December 31,
1996, as compared to the same period in 1995, was due to the following:
approximately $110,500,000 due primarily to increases in room and board rates;
and approximately $5,600,000 due to one additional calendar day for the year
ended December 31, 1996, as compared to the same period in 1995. These increases
in net operating revenues were partially offset by approximately $28,500,000 due
to a decrease in same facility occupancy; approximately $19,700,000 due to a
decrease in ancillary revenues primarily due to bringing therapists on staff;
and approximately $10,100,000 due to various other items.
The increase in Beverly's operating and administrative costs for same
facility operations for the year ended December 31, 1996, as compared to the
same period in 1995, was due to the following: approximately $109,000,000 due to
increased wages and related expenses (excluding pharmacy) 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 Beverly's nursing facilities to cover
increased patient acuity; approximately $8,300,000 due to increases in nursing
supplies and other variable costs; and approximately $19,100,000 due to various
other items. These increases in Beverly's operating and administrative costs
were partially offset by approximately $93,400,000 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 $4,000,000 due to an
overhead and staff reduction program implemented during the fourth quarter of
1995.
Excluding the Institutional Pharmacy Business, the increase in operating
and administrative costs for same facility operations for the year ended
December 31, 1996, as compared to the same period in 1995, was due to the
following: approximately $109,000,000 due to increased wages and related
expenses; approximately $8,300,000 due to increases in nursing supplies and
other variable costs; and approximately $15,600,000 due to various other items.
These increases in operating and administrative costs were partially offset by
approximately $93,400,000 due to a decrease in contracted therapy expenses.
Beverly's interest expense increased approximately $6,900,000 as compared
to the same period in 1995 primarily due to the exchange of Preferred Stock into
5 1/2% Debentures in November 1995, the issuance and assumption of approximately
$40,000,000 of long-term obligations in conjunction with certain acquisitions
and the issuance of $25,000,000 of taxable revenue bonds during 1995, partially
offset by a reduction of approximately $52,800,000 of long-term obligations in
conjunction with the disposition of certain facilities. Although Beverly's
depreciation and amortization expense increased only $1,900,000 as compared to
the same period in 1995, it was affected by the following: approximately
$5,800,000 increase primarily due to capital additions and improvements and, to
a lesser extent, acquisitions; partially offset by a decrease of approximately
$3,900,000 related to the disposition of, or lease terminations on, certain
nursing facilities.
The Institutional Pharmacy Business had an immaterial effect on the change
in interest expense for the year ended December 31, 1996, as compared to the
same period in 1995. Excluding the Institutional Pharmacy Business, depreciation
and amortization expense decreased approximately $1,300,000 for the year ended
December 31, 1996, as compared to the same period in 1995, primarily due to the
disposition of, or lease terminations on certain nursing facilities, partially
offset by an increase due to capital additions and improvements.
1995 Compared to 1994
Beverly's net loss was $8,123,000 for the year ended December 31, 1995, as
compared to net income of $74,501,000 for the same period in 1994. Net loss for
1995 included a pre-tax charge of $100,277,000 for
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impaired long-lived assets related primarily to the adoption of SFAS No. 121 (as
defined below) and the write-off of software and business development costs, as
well as a charge of $4,000,000 related to an overhead and staff reduction
program implemented during the fourth quarter of 1995. Net income for 1994
included a $2,412,000 extraordinary charge, net of income taxes, related to the
write-off of unamortized deferred financing costs related to certain refinanced
debt.
Excluding the Institutional Pharmacy Business, net loss for the year ended
December 31, 1995 would have been $12,709,000 as compared to a net income of
$61,855,000 for the same period in 1994. Excluding the Institutional Pharmacy
Business, the net loss for 1995 would have included a pre-tax charge of
$90,734,000 for impaired long-lived assets related primarily to the adoption of
SFAS No. 121 and the write-off of software costs, as well as the $4,000,000
overhead and staff reduction charge, as mentioned above.
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 the fourth quarter of 1995, Beverly recorded an impairment loss of
approximately $68,130,000 upon adoption of SFAS No. 121. Such loss primarily
related to certain nursing facilities, transitional hospitals, institutional
pharmacies and assisted living centers with current period operating losses.
Such current period operating losses, combined with a history of operating
losses and anticipated future operating losses, led management to believe that
impairment existed at such facilities. In addition, there were certain nursing
facilities for which management expected an adverse impact on future earnings
and cash flows as a result of recent changes in state Medicaid reimbursement
programs. Accordingly, management estimated the undiscounted future cash flows
to be generated by each facility. If the undiscounted future cash flow estimates
were less than the carrying value of the corresponding facility, management
estimated the fair value of such facility and wrote the carrying value down to
their estimate of fair value. Management calculated the fair value 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 Beverly has purchased and sold in previous years.
In addition to the SFAS No. 121 charge, Beverly recorded a fourth quarter
impairment loss for other long-lived assets of approximately $32,147,000
primarily related to the write-off of software and business development costs.
During the fourth quarter of 1995, Beverly hired a new Senior Vice President of
Information Technology, who redirected Beverly's systems development
initiatives, causing a write-down, or a write-off, of certain software and
software development projects. In addition, Beverly wrote off certain business
development and other costs where Beverly believed the carrying amount was
unrecoverable.
The impairment loss recorded upon adoption of SFAS No. 121, excluding the
Institutional Pharmacy Business, would have been approximately $62,738,000 and
the impairment loss for other long-lived assets would have been approximately
$27,996,000, excluding the Institutional Pharmacy Business.
Beverly had a negative annual effective tax rate of 32% for the year ended
December 31, 1995, compared to an annual effective tax rate of 33% for the same
period in 1994. Beverly's annual effective tax rate in 1995 was different than
the federal statutory rate primarily due to the impact of nondeductible goodwill
included in the adjustments resulting from the adoption of SFAS No. 121. In
addition, Beverly's 1994 annual effective tax rate was lower than the federal
statutory rate primarily due to the utilization of certain tax credit
carryforwards, partially offset by the impact of state income taxes. At December
31, 1995, Beverly had general business tax credit carryforwards of $20,784,000
for income tax purposes which expire in years 2005 through 2009. For financial
reporting purposes, the general business tax credit carryforwards have been
utilized to offset existing net taxable temporary differences reversing during
the carryforward periods. Due to taxable losses in prior years, future taxable
income was not assumed and a valuation allowance of $198,000 for the year ended
December 31, 1994 was recognized to offset the deferred tax assets related to
those carryforwards. Beverly's valuation allowance was eliminated in 1995 due to
the utilization of general business tax credits.
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Excluding the Institutional Pharmacy Business, Beverly would have had an
annual effective tax rate of 24% for the year ended December 31, 1995, as
compared to an annual effective tax rate of 30.8% for the same period in 1994.
Beverly's net operating revenues and operating and administrative costs
increased approximately $259,300,000 and $245,300,000, respectively, for the
year ended December 31, 1995, as compared to the same period in 1994. These
increases consist of the following: increases in net operating revenues and
operating and administrative costs for facilities which Beverly operated during
each of the years ended December 31, 1995 and 1994 ("same facility operations")
of approximately $157,600,000 and $148,900,000, respectively; increases in net
operating revenues and operating and administrative costs of approximately
$239,500,000 and $222,400,000, respectively, related to the expanded operations
of ATH and the acquisitions of Insta-Care Holdings, Inc. ("Insta-Care") and
Synetic, Inc. ("Synetic") in late 1994 as well as PMSI in mid-1995; and
decreases in net operating revenues and operating and administrative costs of
approximately $137,800,000 and $126,000,000, respectively, due to the
disposition of, or lease terminations on, 29 facilities in 1995 and 77
facilities in 1994.
Excluding the Institutional Pharmacy Business, net operating revenues and
operating and administrative costs would have increased approximately
$51,900,000 and $39,900,000, respectively, for the year ended December 31, 1995,
as compared to the same period in 1994. These increases consist of the
following: increases in net operating revenues and operating and administrative
costs of $139,900,000 and $127,600,000 for same facility operations,
respectively; increases in net operating revenues and operating and
administrative costs of approximately $49,800,000 and $38,300,000, respectively,
related to the acquisition of MedView in mid-1995 and the expanded operations of
ATH; and decreases in net operating revenues and operating and administrative
costs of approximately $137,800,000 and $126,000,000, respectively, due to
certain dispositions, as noted above.
The increase in Beverly's net operating revenues for same facility
operations for the year ended December 31, 1995, as compared to the same period
in 1994, was due to the following: approximately $111,800,000 due primarily to
increases in Medicaid room and board rates, and to a lesser extent, private and
Medicare room and board rates; approximately $37,500,000 due primarily to
increases in pharmacy-related revenues; approximately $23,000,000 due to
increased ancillary revenues as a result of providing additional ancillary
services to Beverly's Medicare and private-pay patients; and approximately
$8,300,000 due to various other items. These increases in Beverly's net
operating revenues were partially offset by approximately $23,000,000 due to a
decrease in same facility occupancy to 88.5% for the year ended December 31,
1995, as compared to 89.5% for the same period in 1994.
Excluding the Institutional Pharmacy Business, the increase in net
operating revenues for same facility operations for the year ended December 31,
1995, as compared to the same period in 1994, was due to the following:
approximately $111,800,000 due primarily to increases in room and board rates;
approximately $23,000,000 due to increased ancillary revenues; and approximately
$28,100,000 due to various other items. These increases in net operating
revenues were partially offset by approximately $23,000,000 due to a decrease in
same facility occupancy.
The increase in Beverly's operating and administrative costs for same
facility operations for the year ended December 31, 1995, as compared to the
same period in 1994, was due to the following: approximately $125,700,000 due to
increased wages and related expenses (excluding pharmacy) 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 Beverly's nursing facilities to cover
increased patient acuity; approximately $4,000,000 due to an overhead and staff
reduction program implemented during the fourth quarter of 1995; approximately
$38,100,000 due to increases in nursing supplies and other variable costs; and
approximately $38,800,000 due primarily to increases in pharmacy-related costs
and various other items. These increases in Beverly's operating and
administrative costs were partially offset by approximately $57,700,000 due to a
decrease in contracted therapy expenses as a result of hiring therapists on
staff as opposed to contracting for their services.
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Excluding the Institutional Pharmacy Business, the increase in operating
and administrative costs for same facility operations for the year ended
December 31, 1995, as compared to the same period in 1994, was due to the
following: approximately $125,700,000 due to increased wages and related
expenses; approximately $4,000,000 due to the overhead and staff reduction
program discussed above; approximately $38,100,000 due to increases in nursing
supplies and other variable costs; and approximately $17,500,000 due to various
other items. These increases in operating and administrative costs were
partially offset by approximately $57,700,000 due to a decrease in contracted
therapy expenses.
Beverly's interest expense increased approximately $19,500,000 as compared
to the same period in 1994 primarily due to additional interest related to the
issuance of approximately $308,000,000 of long-term obligations during late 1994
and in 1995 primarily in conjunction with certain acquisitions. Beverly's
depreciation and amortization expense increased approximately $14,800,000 as
compared to the same period in 1994 primarily due to acquisitions, capital
additions and improvements and the opening of newly constructed facilities,
partially offset by a decrease due to the dispositions of, or lease terminations
on, certain facilities.
The Institutional Pharmacy Business had no effect on the increase in
interest expense for the year ended December 31, 1995, as compared to the same
period in 1994. Excluding the Institutional Pharmacy Business, depreciation and
amortization expense increased approximately $7,400,000 for the year ended
December 31,1995, as compared to the same period in 1994 primarily due to
capital additions and improvements and the opening of newly constructed
facilities, partially offset by a decrease due to the dispositions of, or lease
terminations on, certain facilities.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, Beverly had approximately $71,800,000 in cash and cash
equivalents and net working capital of approximately $330,200,000. Beverly
anticipates that approximately $42,700,000 of its existing cash at June 30,
1997, while not legally restricted, will be utilized to fund certain workers'
compensation and general liability claims, and Beverly does not expect to use
such cash for other purposes. Beverly had approximately $249,200,000 of unused
commitments under its Revolver/Letter of Credit Facility as of June 30, 1997.
Excluding the Institutional Pharmacy Business, cash and cash equivalents
were approximately $65,100,000 and net working capital was approximately
$222,100,000 as of June 30, 1997.
Beverly's net cash provided by operating activities for the six months
ended June 30, 1997 was approximately $61,500,000, an increase of approximately
$4,500,000 from the prior year. Beverly's net cash provided by investing
activities and net cash used for financing activities were approximately
$42,900,000 and $102,400,000, respectively, for the six months ended June 30,
1997. Beverly primarily used cash generated from operations to fund capital
expenditures totaling approximately $70,300,000. Beverly received net cash
proceeds of approximately $143,400,000 from the dispositions of facilities and
other assets and approximately $18,400,000 from collections on notes receivable
and Beverly's REMIC investment. Such net cash proceeds were used to fund
acquisitions of approximately $45,400,000, to repay approximately $28,200,000 of
long-term obligations, to repurchase shares of Beverly Common Stock, and to
repay Revolver borrowings.
Excluding the Institutional Pharmacy Business, net cash provided by
operating activities for the six months ended June 30, 1997 was approximately
$49,200,000, an increase of approximately $8,600,000 from the prior year. Net
cash provided by investing activities and net cash used for financing
activities, excluding the Institutional Pharmacy Business, were approximately
$76,100,000 and $101,900,000, respectively, for the six months ended June 30,
1997. Excluding the Institutional Pharmacy Business, cash from operations were
used to fund capital expenditures totalling approximately $64,700,000. Excluding
the Institutional Pharmacy Business, net cash proceeds of approximately
$143,400,000 from the dispositions of facilities and other assets and
approximately $17,800,000 from collections on notes receivable and Beverly's
REMIC investment were used to fund acquisitions of approximately $17,800,000, to
repay approximately $27,700,000 of long-term obligations, to repurchase shares
of Beverly Common Stock, and to repay Revolver borrowings.
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In April 1997, Beverly entered into a definitive agreement with Capstone to
combine PCA with Capstone to create one of the nation's largest independent
institutional pharmacy companies. Beverly will receive approximately
$275,000,000 of cash as partial repayment for PCA's intercompany debt, with any
remaining intercompany balance contributed to PCA's capital. Beverly intends to
use the $275,000,000 to repay Revolver borrowings, to pay off the 7 5/8%
Convertible Debentures, to pay off the 8.75% Notes, to repay certain other notes
and mortgages and for general corporate purposes. Pursuant to the Merger
Agreement, at the Effective Time, each share of Beverly Common Stock issued and
outstanding immediately prior to the Effective Time (other than fractional
shares) will be converted into the right to receive that number of newly issued
shares of Capstone Common Stock equal to the quotient, expressed to four decimal
places, of (a) 50,000,000 divided by (b) the number of shares of Beverly Common
Stock outstanding immediately prior to the Effective Time. The Merger, which is
subject to approvals by the stockholders of both Beverly and Capstone,
completion of the Distribution (as discussed below), and approvals by various
government agencies, is expected to close by year-end.
In connection with the restructuring, Beverly will transfer all of its
non-PCA assets and liabilities to New Beverly, in exchange for the issuance of
New Beverly Common Stock. Beverly will then distribute such New Beverly Common
Stock to the holders of Beverly's Common Stock on a one-for-one basis. In
connection with the Distribution, Beverly will be required to restructure, repay
or otherwise renegotiate substantially all of its outstanding debt instruments
and renegotiate or make certain payments under various employment agreements
with officers of Beverly. Beverly estimates that the costs of such undertakings
will approximate $10,200,000 as it relates to restructuring, repaying or
renegotiating debt instruments and approximately $14,000,000 as it relates to
renegotiating or paying certain amounts under various employment agreements. It
is expected that such amounts, along with other transaction costs, will be
funded with a portion of the $275,000,000 proceeds to be received as a partial
repayment of PCA's intercompany debt, as discussed above.
On July 17, 1997, Beverly called its 5 1/2% Convertible Subordinated
Debentures for redemption on August 18, 1997. A total of $149,162,550 of the
$150 million aggregate principal amount outstanding was converted to 11,189,924
shares of Beverly Common Stock, increasing the outstanding shares of Beverly
Common Stock by that amount, and which will result in holders of Beverly Common
Stock receiving a comparatively smaller number of shares of Capstone Common
Stock in the Merger. The payment of the redemption price of 103.3% of the
remaining principal amount plus the cash in lieu of fractional shares was within
the amount permitted under the Restrictive Payment provisions of the Indenture.
Beverly 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 $35,700,000
(including scheduled sinking fund redemption requirements with respect to
Beverly's 7 5/8% Convertible Debentures, which may be funded in whole or in part
from time to time through open market purchases of such debentures), to make
normal recurring capital additions and improvements of approximately
$138,000,000, 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 June 30, 1998.
As of June 30, 1997, Beverly had total indebtedness of approximately
$1,054,200,000 and total stockholders' equity of approximately $890,700,000. On
a pro forma basis, as of June 30, 1997, after giving effect to the Merger, the
Distribution and all transactions contemplated thereby, as described in the
section captioned "Capitalization," above, New Beverly would have total
indebtedness of approximately $685,300,000 and stockholders' equity of
approximately $835,700,000. The ability of Beverly, or New Beverly, 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 Beverly's, or New Beverly's, control, such as federal and
state healthcare reform. In addition, healthcare service providers operate in an
industry that is currently subject to significant changes from business
combinations, new strategic alliances, legislative reform, increased regulatory
oversight, aggressive marketing practices by competitors and market pressures.
In this environment, Beverly has been, and it is expected that New Beverly will
be, frequently contacted by, and otherwise engage in discussions with, other
healthcare companies and financial advisors regarding possible strategic
alliances, joint ventures, business combinations and other financial
alternatives. The terms of
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substantially all of New Beverly's debt instruments will require New Beverly to
repay or refinance indebtedness under such debt instruments in the event of a
change of control. There can be no assurance that New Beverly will have the
financial resources to repay such indebtedness upon a change of control. See
"-- General."
Following the Distribution and Merger, New Beverly believes that its 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, to make normal recurring capital additions and improvements, to make
selective acquisitions, including the purchase of previously leased facilities,
to construct new facilities and to meet working capital requirements. On a pro
forma basis, as of June 30, 1997, New Beverly would have debts due within one
year of approximately $24,100,000 and normal recurring capital additions and
improvements for the twelve months ending June 30, 1998 of approximately
$118,000,000.
BUSINESS
GENERAL
References herein to Beverly include Beverly Enterprises, Inc. and its
wholly-owned subsidiaries. References herein to New Beverly are to the Remaining
Healthcare Business after the consummation of the Transactions. Immediately
following the completion of the Transactions, New Beverly will change its name
to Beverly Enterprises, Inc.
The business of Beverly consists principally of providing long-term
healthcare, including the operation of nursing facilities, acute long-term
transitional hospitals, institutional and mail service pharmacies,
rehabilitation therapy services, outpatient therapy clinics, assisted living
centers, hospices and home healthcare centers. The business of New Beverly will
consist of all of the operations of Beverly except the institutional and mail
service pharmacies.
Beverly is, and New Beverly is expected to be, one of the largest operators
of nursing facilities in the United States. At June 30, 1997, Beverly operated
574 nursing facilities with 64,206 licensed beds. The facilities are located in
31 states and the District of Columbia, and range in capacity from 20 to 355
beds. At June 30, 1997, Beverly also operated 74 pharmacies, 33 assisted living
centers containing 897 units, 12 transitional hospitals containing 639 beds, 46
outpatient therapy clinics, 21 hospices and six home healthcare centers. It is
expected that New Beverly will operate all of such businesses after the
Transactions, except for the 74 pharmacies. Beverly's facilities had average
occupancy of 86.5% for the six months ended June 30, 1997 and 87.4%, 88.1% and
88.5% during the years ended December 31, 1996, 1995 and 1994, respectively. See
"Properties" below.
Healthcare service providers, such as Beverly, and after the Transactions
New Beverly, 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,
Beverly is, and it is expected that New Beverly will be frequently contacted by,
and otherwise engage in discussions with, other healthcare companies and
financial advisors regarding possible strategic alliances, joint ventures,
business combinations and other financial alternatives.
OPERATIONS
New Beverly will be organized into three operating units, which will
support New Beverly's delivery of vertically integrated services to the
long-term healthcare market. These operating units include: (i) Beverly Health
and Rehabilitation Services, Inc. ("BHRS") and its subsidiaries provide
long-term and subacute care through the operation of nursing facilities and
assisted living centers; (ii) Spectra Rehab Alliance, Inc. ("Spectra") and its
subsidiaries operate outpatient therapy clinics, and hospices and manage
Beverly's rehabilitation services business; and (iii) ATH and its subsidiaries
operate Beverly's transitional hospitals. Each operating unit will be headed by
a President who will be a senior officer of New Beverly and will report
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directly to the President of New Beverly. Each of the three operating units will
also have a separate Board of Directors consisting of four senior executives of
New Beverly and the President of the unit.
Long-Term Care. BHRS's nursing facilities provide, and BHRS will continue
to 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. BHRS's highly skilled staff also offers complex and
intensive medical services to patients with higher acuity disorders outside the
traditional acute care hospital setting.
Rehabilitation Therapies. Spectra has developed, and will continue to
develop and expand New Beverly's healthcare expertise in rehabilitation and
provide skilled rehabilitation (occupational, physical, speech and respiratory)
therapies in substantially all of BHRS's nursing facilities. Through Spectra,
Beverly offers, and New Beverly will offer, industrial rehabilitation,
outpatient therapy clinics, acute hospital therapy contracts,
management/consulting rehabilitation programs and hospice programs within
Beverly's, and after the Transactions New Beverly's, network of facilities, and
to other healthcare providers.
Transitional Care. ATH operates, and will continue to operate, transitional
hospitals which address the needs of patients requiring intense therapy
regimens, but not necessarily the breadth of services provided within
traditional acute care hospitals. The typical ATH patient requires an average of
six hours of nursing care per day for 30 to 45 days.
Other Services. Beverly offers, and New Beverly will offer, other
healthcare related services to payors and patients, including assisted living
and home healthcare services, and information and referral systems that link
payors and employees to long-term care providers.
Pharmacy Services. PCA is one of the nation's largest institutional
pharmacies delivering drugs and related products and services, infusion therapy
and other healthcare products (enteral and urological) to nursing facilities,
acute care and transitional care hospitals, home care providers, psychiatric
facilities, correctional facilities, assisted living centers, retirement homes
and their patients. PCA also provides consultant pharmacist services, which
include evaluations of patient drug therapy, and drug handling, distribution and
administration within a nursing facility as well as assistance with state and
federal regulatory compliance. PCA's mail service pharmacy delivers drugs and
medical equipment to workers' compensation payors, claimants and employers.
Pursuant to the Merger Agreement and the Distribution Agreement, the Remaining
Healthcare Business of Beverly will be transferred to New Beverly and the
Institutional Pharmacy Business, operated by PCA, which will be the sole
remaining business of Beverly, will be merged with and into Capstone.
Beverly has, and New Beverly will have, a Quality Management ("QM") program
to help ensure that high quality care is provided in each of its nursing,
transitional and outpatient facilities. Beverly's QM program has been a key
factor in helping Beverly to exceed the industry's nationwide average compliance
statistics, as determined by the Health Care Financing Administration of the
Department of Health and Human Services ("HCFA"). Beverly'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 Beverly's Quality Assessment and Assurance committee. With
a philosophy of quality improvement, Beverly-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 Beverly and the QM Committee of
Beverly's Board of Directors, and will report directly to the President of New
Beverly and the QM Committee of New Beverly's Board of Directors.
GOVERNMENTAL REGULATION AND REIMBURSEMENT
Beverly's nursing facilities are, and New Beverly's nursing facilities will
be, 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
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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 Beverly's and New
Beverly's financial position, results of operations and cash flows.
Beverly receives, and New Beverly will receive, payments for services
rendered to patients from (a) each of the states in which its nursing facilities
are located under the Medicaid program; (b) the federal government under the
Medicare program; and (c) private payors, including commercial insurers and
managed care payors, 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 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
------------------ ------------------ ------------------ ANCILLARY
ROOM AND ROOM AND ROOM AND AND
PATIENT BOARD PATIENT BOARD PATIENT BOARD OTHER
DAYS REVENUES DAYS REVENUES DAYS REVENUES REVENUES
------- -------- ------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months ended:
June 30, 1997.................... 68% 40% 13% 13% 19% 15% 32%
Year ended:
December 31, 1996................ 69% 42% 12% 12% 19% 14% 32%
December 31, 1995................ 68% 43% 12% 11% 20% 15% 31%
December 31, 1994................ 68% 47% 12% 11% 20% 16% 26%
</TABLE>
Excluding revenues from the Institutional Pharmacy Business, Medicaid,
Medicare, Private and VA, and Ancillary and Other Revenues would have been 47%,
15%, 18% and 20%, respectively, as a percentage of net operating revenues for
the six months ended June 30, 1997.
Consistent with the long-term care industry in general, changes in the mix
of Beverly's, or New Beverly's, patient population among the Medicaid, Medicare
and private categories can significantly affect revenues and profitability.
Although the level of cost reimbursement for Medicare patients typically
generates the highest revenue per patient day, profitability is not
proportionally increased due to the additional costs associated with the
required higher level of nursing care and other services for such patients. In
most states, private patients are the most profitable, and Medicaid patients are
the least profitable.
Beverly has experienced significant growth in ancillary revenues over the
past several years. Ancillary revenues are derived from providing services to
residents beyond room, board and custodial care and include occupational,
physical, speech, respiratory and 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 Beverly's nursing facilities. Beverly is pursuing, and New Beverly will
continue to pursue, further growth of ancillary revenues, through acquisitions
as well as internal expansion of specialty services such as rehabilitation. Due
to Beverly's continuing efforts to bring therapists on staff as opposed to
contracting for their services, and the corresponding reduction in costs, the
overall rate of growth in ancillary revenues has been adversely impacted.
Medicaid programs are currently in existence in all of the states in which
Beverly currently, and New Beverly will, operate 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 are provided by the federal government under a matching program.
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Medicare and most state Medicaid programs utilize a cost-based
reimbursement system for nursing facilities which reimburses facilities for the
reasonable direct and indirect allowable costs incurred in providing routine
patient care services (as defined by the programs) plus, in certain states,
efficiency incentives or a return on equity, subject to certain cost ceilings.
These costs normally include allowances for administrative and general costs as
well as the costs of property and equipment (e.g. depreciation and interest,
fair rental allowance or rental expense). In some states, cost-based
reimbursement is subject to retrospective adjustment through cost report
settlement. In other states, payments made to a facility on an interim basis
that are subsequently determined to be less than or in excess of allowable costs
may be adjusted through future payments to the affected facility and to other
facilities owned by the same owner. State Medicaid reimbursement programs vary
as to methodology used to determine the level of allowable costs which are
reimbursed to operators.
Arkansas, California, Louisiana and Texas provide for reimbursement at a
flat daily rate, as determined by the responsible state agency. In all other
states with a Medicaid program in which Beverly currently operates, and in which
New Beverly will operate, payments are based upon facility-specific cost
reimbursement formulas established by the applicable state. The Medicaid and
Medicare programs each contain specific requirements which must be adhered to by
healthcare facilities in order to qualify under the programs.
Governmental funding for healthcare programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all of which
may materially increase or decrease program reimbursement to healthcare
facilities. Healthcare system reform and concerns over rising Medicare and
Medicaid costs continue to be high priorities for both federal and state
governments. Although no comprehensive healthcare, Medicare or Medicaid reform
legislation has yet been implemented, pressures to contain costs and the active
discussions between the Clinton Administration, Congress and various other
groups have impacted the healthcare delivery system. Many states are
experimenting with alternatives to traditional Medicaid delivery systems through
federal waiver programs, and efforts to provide these services more efficiently
will continue to be a priority. In August 1996, Congress passed the Health
Insurance Portability and Accountability Act of 1996 which, among other things,
provides favorable changes in the tax treatment of long-term care insurance and
allows inclusion of long-term care insurance in medical savings accounts.
Although Beverly believes this legislation will have a favorable impact on the
long-term care industry, the full effect is not readily determinable. There can
be no assurances made as to the ultimate impact of this, or future healthcare
reform legislation, on Beverly's and New Beverly's financial position, results
of operations or cash flows. However, future federal budget legislation and
regulatory changes may negatively impact New Beverly.
During the first quarter of 1997, proposed rules were issued by HCFA which,
if implemented in their proposed form, would establish guidelines for maximum
reimbursement to skilled nursing facilities for contracted speech and
occupational therapy services based on equivalent salary amounts for on-staff
therapists. In addition, these proposed rules would revise the salary
equivalency rules currently in effect for physical therapy services. The full
effect of the new rules is not readily determinable as the details of the
proposal have not yet been finalized; however, New Beverly does not expect the
new rules to have a material adverse effect on its consolidated results of
operations or cash flows due to the fact that Beverly provides, and New Beverly
will provide, the majority of its therapy services through on-staff therapists.
In addition to the requirements to be met by nursing facilities for annual
licensure renewal, 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, New Beverly will be able to maintain
such licenses for its facilities or that New Beverly will not be required to
expend significant sums in order to do so.
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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 that
all deficiencies will not constitute noncompliance; and (iii) certain types of
deficiencies must result in the imposition of a sanction. The regulations also
identify alternative remedies and specify the categories of deficiencies for
which they will be applied. These remedies include: temporary management; denial
of payment for new admissions; denial of payment for all residents; civil money
penalties of $50 to $10,000 per day of violation; closure of facility and/or
transfer of residents in emergencies; directed plans of correction; and directed
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.
Beverly has undertaken an analysis of the procedures in respect of its programs
and facilities covered by the final HCFA regulations. While Beverly is unable to
predict with total accuracy the degree to which its programs and facilities will
be determined to be in compliance with regulations, compliance data for the past
year is available. Results of HCFA surveys for the past year determined that
approximately 96% of Beverly's facilities were in compliance with the HCFA
criteria. HCFA reports have determined that of the non-Beverly facilities
surveyed nationally, approximately 95% of such facilities were determined to be
in compliance with such HCFA criteria. Although New Beverly 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, New Beverly
believes its programs and facilities generally exceed industry standards.
Beverly believes that its facilities are in substantial compliance with the
various Medicaid and Medicare regulatory requirements currently applicable to
them. In the ordinary course of its business, however, Beverly receives notices
of deficiencies for failure to comply with various regulatory requirements.
Beverly reviews such notices and takes appropriate corrective action. In most
cases, Beverly and the reviewing agency will agree upon the steps to be taken to
bring the facility into compliance with regulatory requirements. In some cases
or upon repeat violations, the reviewing agency may take a number of adverse
actions against a facility. These adverse actions can include the imposition of
fines, temporary suspension of admission of new patients to the facility,
decertification from participation in the Medicaid or Medicare programs and, in
extreme circumstances, revocation of a facility's license.
The Medicaid and Medicare programs provide criminal penalties for entities
that knowingly and willfully offer, pay, solicit or receive remuneration in
order to induce business that is reimbursed under these programs. The illegal
remuneration provisions of the Social Security Act, also known as the
"anti-kickback" statute, prohibit the payment or receipt of remuneration
intended to induce the purchasing, leasing, ordering or arranging for any good,
facility, service or item paid by Medicaid or Medicare programs. The violation
of the illegal remuneration provisions is a felony and can result in the
imposition of fines of up to $25,000 per occurrence. In addition, certain states
in which Beverly's facilities are located, and in which New Beverly facilities
will be located, have enacted statutes which prohibit the payment of kickbacks,
bribes and rebates for the referral of patients. The Medicare program has
published certain "Safe Harbor" regulations which describe various criteria and
guidelines for transactions which are deemed to be in compliance with the anti-
remuneration provisions. Although Beverly has, and New Beverly will have,
contractual arrangements with some healthcare providers, management believes it
is in compliance with the anti-kickback statute and other provisions of the
Social Security Act and with the applicable state statutes. However, there can
be no assurance that government officials responsible for enforcing these
statutes will not assert that New Beverly or certain transactions in which it is
involved are in violation of these statutes. The Social Security Act also
imposes criminal and civil penalties for making false claims to the Medicaid and
Medicare programs for services not rendered or for misrepresenting actual
services rendered in order to obtain higher reimbursement.
The Medicare and Medicaid programs also provide for the mandatory and/or
permissive exclusion of providers of services who are convicted of certain
offenses or who have been found to have violated certain laws or regulations. In
certain circumstances, conviction of abusive or fraudulent behavior with respect
to one
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facility may subject other facilities under common control or ownership to
disqualification from participation in Medicaid and Medicare programs. In
addition, some federal and state regulations provide that all facilities under
common control or ownership licensed to do business within a state are subject
to delicensure if any one or more of such facilities is delicensed.
While federal regulations do not provide states with grounds to curtail
funding of their Medicaid cost reimbursement programs due to state budget
deficiencies, states have nevertheless curtailed funding in such circumstances
in the past. No assurance can be given that states will not do so in the future
or that the future funding of Medicaid programs will remain at levels comparable
to the present levels. The United States Supreme Court ruled in 1990 that
healthcare providers may bring suit in federal court to enforce the Medicaid Act
requirement that the states reimburse nursing facilities at rates which are
reasonable and adequate. Nursing facility operators, such as Beverly, and New
Beverly after the Transactions, have utilized and should continue to be able to
utilize the federal courts to require states to comply with their legal
obligation to adequately fund Medicaid programs. However, certain of the
legislative proposals discussed above contain provisions which would repeal the
provisions of the Medicaid Acts which require states to pay reasonable and
adequate rates and which would also eliminate the right to judicial review of
certain aspects of the reimbursement systems of state Medicaid programs;
therefore, there can be no assurance that nursing facility operators will be
able to utilize federal courts for such purposes in the future.
COMPETITION
The long-term care industry is highly competitive. Beverly's competitive
position has varied, and New Beverly's competitive position will vary, 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.
New Beverly's operations will compete with services provided by nursing
facilities, acute care hospitals, subacute facilities, transitional hospitals,
rehabilitation facilities, therapy clinics, hospices and home healthcare
centers. Beverly does, and New Beverly will, compete 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
Beverly, and New Beverly. There can be no assurance that New Beverly will not
encounter increased competition which could adversely affect its business,
results of operations or financial condition.
EMPLOYEES
At June 30, 1997, Beverly had approximately 80,000 employees (approximately
76,000 employees excluding those of the Institutional Pharmacy Business).
Beverly is, and New Beverly will be, subject to both federal minimum wage and
applicable federal and state wage and hour laws and maintains various employee
benefit plans.
The federal government recently increased the minimum wage in two phases,
beginning October 1, 1996, and September 1, 1997, respectively. This new
legislation did not result in a material increase in Beverly's wage rates in
1996, and Beverly does not anticipate a material impact on its wage rates in
1997, since a substantial portion of Beverly's associates earn in excess of the
new minimum wage levels; however, Beverly believes there may continue to be
competitive pressures to increase the wage levels of associates earning above
the new minimum wage. The effect of the new minimum wage on New Beverly's future
operations is not expected to be material as New Beverly believes that a
significant portion of such increase will be reimbursed through Medicare and
Medicaid rate increases.
In recent years, Beverly has experienced increases in its labor costs
primarily due to higher wages and greater benefits required to attract and
retain qualified personnel, increased staffing levels in its nursing facilities
due to greater patient acuity and the hiring of therapists on staff. Although
New Beverly expects labor costs to increase in the future, it is anticipated
that any increase in costs will generally result in higher patient rates in
subsequent periods, subject to the time lag in most states, of up to 18 months,
between
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increases in reimbursable costs and the receipt of related reimbursement rate
increases. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Operating Results."
In the past, the healthcare industry, including Beverly'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. Beverly is not currently experiencing a nursing or therapist
shortage, but it competes with other healthcare providers for nursing and
therapist personnel and may compete with other service industries for persons
serving Beverly in other capacities, such as nurses' aides. A nursing, therapist
or nurse's aide shortage could force New Beverly to pay even higher salaries and
make greater use of higher cost temporary personnel. A lack of qualified
personnel might also require New Beverly to reduce its census or admit patients
requiring a lower level of care, both of which could adversely affect operating
results.
Approximately 100 of Beverly's facilities, and after the Transactions New
Beverly's facilities, 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. Beverly, 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 Beverly's facilities. Although Beverly has never experienced any
material work stoppages and believes that its relations with its employees (and
the existing unions that represent certain of them) are generally good, Beverly
cannot predict the effect continued union representation or organizational
activities will have on its, or New Beverly'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 New Beverly's operations.
Excessive litigation is a tactic common to "corporate campaigns" and one
that is being employed against Beverly and is expected to continue against New
Beverly. There have been several proceedings against facilities to be operated
by New Beverly 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. Beverly has, and New
Beverly will continue to, vigorously defend these proceedings. Beverly believes,
based on advice of its general counsel, that many of these cases are without
merit, and further, it is Beverly's belief that the NLRB-related proceedings,
individually and in the aggregate, are not material to Beverly's financial
position or results of operations or cash flows.
PROPERTIES
At June 30, 1997, Beverly operated 574 nursing facilities, 33 assisted
living centers, 12 transitional hospitals, 74 pharmacies, 46 outpatient therapy
clinics, 21 hospices and six home healthcare centers in 36 states and the
District of Columbia. It is expected that New Beverly will operate all of such
businesses after the Transactions, except for the 74 pharmacies. Most of the 195
leased nursing facilities are subject to "net" leases which require the payment
of 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. New Beverly believes
that all of its physical properties are in good operating condition and suitable
for the purposes for which they are being used. Certain of the nursing
facilities and assisted living centers to be owned by New Beverly will be
included in the collateral securing the obligations under various debt
agreements to be assumed by New Beverly.
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<PAGE> 61
The following is a summary of Beverly's and, after the Transactions,
subject to adjustments for acquisitions, dispositions and construction after
June 30, 1997, New Beverly's nationwide network of nursing facilities, assisted
living centers, transitional hospitals, outpatient therapy clinics and hospices
at June 30, 1997:
<TABLE>
<CAPTION>
OUTPATIENT
ASSISTED LIVING TRANSITIONAL THERAPY
NURSING FACILITIES CENTERS HOSPITALS CLINICS HOSPICES
------------------- ---------------- ----------------- ---------- --------
TOTAL TOTAL
LICENSED TOTAL LICENSED
NUMBER BEDS NUMBER UNITS NUMBER BEDS NUMBER NUMBER
------- --------- ------- ------ ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOCATION:
Alabama....................... 21 2,701 -- -- -- -- -- --
Arizona....................... 3 480 -- -- 2 78 -- --
Arkansas...................... 31 3,803 3 48 -- -- -- 2
California.................... 69 7,323 2 113 -- -- -- 5
Connecticut................... 1 120 -- -- -- -- -- --
District of Columbia.......... 1 355 -- -- -- -- -- --
Florida....................... 64 8,049 5 290 -- -- -- --
Georgia....................... 17 2,100 4 72 -- -- 18 1
Hawaii........................ 2 396 -- -- -- -- -- --
Illinois...................... 3 275 -- -- -- -- -- --
Indiana....................... 26 3,817 1 16 1 40 -- 1
Kansas........................ 33 2,146 3 39 -- -- -- --
Kentucky...................... 8 1,041 -- -- -- -- -- --
Louisiana..................... 1 200 -- -- -- -- -- --
Maryland...................... 4 585 1 16 -- -- -- --
Massachusetts................. 24 2,402 -- -- -- -- -- --
Michigan...................... 2 206 -- -- -- -- -- --
Minnesota..................... 35 3,152 2 28 -- -- -- 1
Mississippi................... 21 2,466 -- -- -- -- -- --
Missouri...................... 29 3,038 3 101 -- -- -- 1
Nebraska...................... 24 2,205 1 16 -- -- -- 3
New Jersey.................... 1 120 -- -- -- -- -- --
North Carolina................ 11 1,398 1 16 -- -- -- --
Ohio.......................... 12 1,435 -- -- 1 44 3 --
Oklahoma...................... -- -- -- -- 2 64 -- --
Pennsylvania.................. 42 4,895 3 53 -- -- -- 3
South Carolina................ 3 302 -- -- -- -- 1 --
South Dakota.................. 17 1,232 -- -- -- -- -- --
Tennessee..................... 7 948 2 57 2 70 -- --
Texas......................... -- -- -- -- 4 343 24 3
Virginia...................... 16 2,113 2 32 -- -- -- --
Washington.................... 11 1,080 -- -- -- -- -- --
West Virginia................. 3 310 -- -- -- -- -- --
Wisconsin..................... 32 3,513 -- -- -- -- -- 1
--- ------ -- --- -- --- -- --
574 64,206 33 897 12 639 46 21
=== ====== == === == === == ==
CLASSIFICATION:
Owned......................... 378 41,656 29 705 1 198 -- --
Leased........................ 195 22,475 4 192 11 441 46 21
Managed....................... 1 75 -- -- -- -- -- --
--- ------ -- --- -- --- -- --
574 64,206 33 897 12 639 46 21
=== ====== == === == === == ==
</TABLE>
LEGAL PROCEEDINGS
There are various lawsuits and regulatory actions pending against Beverly
arising in the normal course of business, some of which seek punitive damages.
To the extent those actions relate to the Remaining Healthcare Business, they
will be assumed by New Beverly after the Disposition and the Merger. Management
does not believe that the ultimate resolution of these matters will have a
material adverse effect on Beverly's or New Beverly's financial position or
results of operations.
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<PAGE> 62
MANAGEMENT
The table below sets forth, as to each executive officer and director of
Beverly, such person's name, positions with Beverly and age. Each executive
officer and director of Beverly holds office until a successor is elected, or
until the earliest of death, resignation or removal. Each executive officer is
elected or appointed by the Beverly Board of Directors. It is expected that
most, if not all, of the executive officers listed below (other than Dr.
Renschler who will become the Chief Executive Officer and a director of Capstone
following the Distribution and the Merger) will be asked to continue their
employment with New Beverly in substantially the same capacity as such
individuals have served Beverly. It is also expected that the directors of
Beverly, listed below, will continue as directors of New Beverly.
The executive officers listed below have employment or severance agreements
that provide for certain payments in the event of a "change in control" (as
defined in the relevant employment or change in control severance agreements).
Executive officers entitled to payments in the event of a change in control
under current employment or change in control severance agreements with Beverly
will be asked to waive their right to such payments as a condition to entering
into a new employment agreement with New Beverly. It is anticipated that the
employment agreements to be entered into between such executive officers and New
Beverly will provide certain payments in the event of a "change in control" (as
such term will be defined in such employment agreements) of New Beverly. The
current directors of New Beverly are Messrs. Banks, Hendrickson, Pommerville,
Stephens and Tabakin. Immediately following the Distribution, Messrs.
Pommerville, Stephens and Tabakin will resign from the Board of Directors of New
Beverly and will be replaced by the then current non-employee directors of
Beverly. No assurance can be given that any of the executive officers or
directors listed below will accept any offered positions with New Beverly or
that the management team of New Beverly will remain substantially the same as
Beverly's management team. The information below is given as of August 15, 1997.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
David R. Banks(1)...................... Chairman of the Board, Chief Executive Officer
and Director 60
Boyd W. Hendrickson(1)................. President, Chief Operating Officer and
Director 52
William A. Mathies..................... Executive Vice President and President of BHRS 37
T. Jerald Moore........................ Executive Vice President and President of ATH 56
Robert W. Pommerville.................. Executive Vice President, General Counsel and
Secretary 56
C. Arnold Renschler, M.D............... Executive Vice President and President of PCA 55
Bobby W. Stephens...................... Executive Vice President -- Asset Management 52
Scott M. Tabakin....................... Executive Vice President and Chief Financial
Officer 38
Mark D. Wortley........................ Executive Vice President and President of
Spectra 42
Pamela H. Daniels...................... Vice President, Controller and Chief
Accounting Officer 33
Beryl F. Anthony, Jr.(1)(3)(5)......... Director 59
James R. Greene(2)(3)(4)............... Director 75
Edith E. Holiday(2)(4)(5).............. Director 45
Jon E. M. Jacoby(1)(2)................. Director 59
Risa J. Lavizzo-Mourey, M.D.(3)(4)..... Director 42
Marilyn R. Seymann(2)(4)(5)............ Director 54
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
(4) Member of Quality Management Committee.
(5) Member of Nominating Committee.
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<PAGE> 63
Mr. Banks has been a director of Beverly since 1979 and has served as Chief
Executive Officer since May 1989 and Chairman of the Board since March 1990. Mr.
Banks was President of Beverly from 1979 to September 1995. Mr. Banks is a
director of Nationwide Health Properties, Inc., Ralston Purina Company,
Wellpoint Health Networks, Inc., and trustee for the University of the Ozarks
and Occidental College.
Mr. Hendrickson joined Beverly in 1988 as a Division President. He was
elected Vice President of Marketing in May 1989, Executive Vice President of
Operations and Marketing in February 1990, President of BHRS in January 1995 and
President, Chief Operating Officer and a director of Beverly in September 1995.
Mr. Mathies joined Beverly in 1981 as an Administrator in training. He was
an Administrator until 1986 at which time he became a Regional Manager. In 1988,
Mr. Mathies was elected Vice President of Operations for the California region
and was elected Executive Vice President of Beverly and President of BHRS in
September 1995.
Mr. Moore joined Beverly as Executive Vice President in December 1992 and
was elected President of ATH in June 1996. Mr. Moore was employed at Aetna Life
and Casualty from 1963 to 1992 and was elected Senior Vice President in 1990.
Mr. Pommerville first joined Beverly in 1970 and left in 1976. He rejoined
Beverly as Vice President and General Counsel in 1984 and was elected Secretary
in February 1990, Senior Vice President in March 1990 and Executive Vice
President and Acting Compliance Officer in February 1995.
Dr. Renschler joined Beverly in 1996 as Executive Vice President and
President of PCA. In connection with the Merger, it is expected that Dr.
Renschler will resign as an officer of Beverly and become Chief Executive
Officer and a director of Capstone. From 1990 to 1996, Mr. Renschler was Senior
Vice President and Chief Clinical Officer, as well as President of three
operating divisions of NovaCare, Inc. and a member of its board of directors.
Prior to that time, he held a series of key executive positions at Manor
Healthcare Corp., including President and Chief Operating Officer.
Mr. Stephens joined Beverly as a staff accountant in 1969. He was elected
Assistant Vice President in 1978, Vice President of Beverly and President of
Beverly's Central Division in 1980, and Executive Vice President in February
1990. Mr. Stephens is a director of City National Bank in Fort Smith, Arkansas,
Beverly Japan Corporation, and Harbortown Properties, Inc.
Mr. Tabakin joined Beverly 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 Beverly as Senior Vice President and President of
Spectra 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.
Ms. Daniels joined Beverly 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 Beverly since January 1993.
Mr. Greene's principal occupation has been that of a director and
consultant to various U.S. and international businesses since 1986. He is a
director of a number of mutual funds of Alliance Capital Management Corporation,
Buck Engineering Company and Bank Leumi. He has been a director of Beverly since
January 1991.
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<PAGE> 64
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 Beverly since
March 1995.
Mr. Jacoby is Executive Vice President, Chief Financial Officer and a
director of Stephens Group, Inc. Mr. Jacoby has held the indicated positions
with Stephens Group, Inc. since 1986, and prior to that time, served as Manager
of the Corporate Finance Department and Assistant to the President of Stephens
Inc. Mr. Jacoby is a director of the American Classic Voyages Company, Delta and
Pine Land Company, Inc. and Medicus Systems, Inc. He has been a director of
Beverly since February 1987.
Dr. Lavizzo-Mourey is Director of the Institute of Aging, Chief of the
Division of Geriatric Medicine and Associate Executive Vice President for health
policy at the University of Pennsylvania, Ralston-Penn Center. From 1992 to
1994, Dr. Lavizzo-Mourey was in the Senior Executive Service in the Agency for
Health Care Policy and Research, U.S. Public Health Service of the Department of
Health and Human Services. She is a director of Medicus Systems, Inc. and
Nellcor Puritan Bennett. She has been a director of Beverly 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. From 1990 to 1993, Ms. Seymann was Director and Vice Chairman
of the Federal Housing Finance Board. Prior to that, she served as Managing
Director of Andersen Asset Based Services, a unit of Arthur Andersen LLP. From
1986 to 1990, Ms. Seymann was Executive Vice President of Chase Bank of Arizona
and served as President, Private Banking of Chase Trust Company from 1987 to
1990. She has been a director of Beverly since March 1995.
During 1996, there were nine meetings of Beverly's Board of Directors. Each
director attended 75% or more of the meetings of the Board and committees on
which he or she served.
DIVIDEND POLICY
Beverly currently does not pay dividends on any of its issued and
outstanding securities. New Beverly does not expect to pay any dividends for the
foreseeable future. Rather, New Beverly expects that it will reinvest any
earnings into funding future acquisitions and growth. Any future payments of
dividends and the amount thereof will be dependent upon New Beverly's results of
operations, financial condition, cash requirements, future prospects and other
factors deemed relevant by the Board of Directors of New Beverly from time to
time.
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<PAGE> 65
DESCRIPTION OF THE SENIOR NOTES
The Senior Notes, shall continue to be issued as Amended Senior Notes under
the Indenture, as amended by the Supplemental Indenture. The following summaries
of certain provisions of the Indenture as currently in effect do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indenture, including the definitions therein of
certain terms. Wherever particular Sections, Articles or defined terms of the
Indenture are referred to, it is intended that such Sections, Articles or
defined terms shall be incorporated herein by reference. The following sets
forth certain general terms of the Senior Notes. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture. Upon adoption of the Proposed Amendments and consummation of the
Distribution and the Merger, (i) references to the provisions of the Indenture
shall mean and include references to such provisions as amended by the Proposed
Amendments and incorporated into the Indenture by the terms of the Supplemental
Indenture, (ii) references to Beverly shall mean and include New Beverly in
place of Beverly, and (iii) references to Senior Notes shall mean the Amended
Senior Notes, all as more particularly described under the caption "The Proposed
Amendments" elsewhere in this Prospectus/Consent Solicitation Statement and in
the Supplemental Indenture, to which Supplemental Indenture reference is made in
its entirety.
GENERAL
The Senior Notes will be unsecured senior obligations of Beverly limited in
aggregate principal amount to $180 million and will mature on February 15, 2006.
The Senior Notes will be general unsecured obligations of Beverly ranking senior
to all existing and future subordinated Indebtedness of Beverly, and pari passu
in right of payment with all other existing and future Indebtedness of Beverly.
The Senior Notes will be guaranteed on a senior unsecured basis by substantially
all of the present and future Subsidiaries of Beverly.
Interest on the Senior Notes accrues at the rate per annum set forth on the
cover page of this Prospectus/Consent Solicitation Statement and will be payable
semi-annually in arrears on February 15 and August 15 of each year with the next
payment date being February 15, 1998, to Holders of record on the immediately
preceding February 1 and August 1, respectively. Interest on the Senior Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest on the
Senior Notes will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal, premium, if any, and interest on the Senior Notes will
be payable at the office or agency of Beverly maintained for such purpose within
the City and State of New York or, at the option of Beverly, payment of interest
may be made by check mailed to the Holders of the Senior Notes at their
respective addresses set forth in the register of Holders of Senior Notes;
provided that all payments with respect to Senior Notes, the Holders of which
have given wire transfer instructions to the paying agent on or prior to the
relevant record date will be required to be made by wire transfer of immediately
available funds to the accounts specified by such Holders. Until otherwise
designated by Beverly, Beverly's office or agency in New York will be the office
of the Trustee maintained for such purpose. The Senior Notes will be issued in
denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
Beverly will not have the right to redeem any Senior Notes prior to
February 15, 2001. The Senior Notes will be redeemable at the option of Beverly,
in whole or in part, at any time on or after February 15, 2001 upon not less
than 30 days nor more than 60 days notice to each Holder of Senior Notes, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the 12-month period commencing February 15 of the years
indicated below, in each case (subject to the right of Holders of
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<PAGE> 66
record on a Record Date to receive interest due on an Interest Payment Date that
is on or prior to such Redemption Date) together with accrued and unpaid
interest thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2001........................................................ 104.5%
2002........................................................ 103.0%
2003........................................................ 101.5%
2004 and thereafter......................................... 100.0%
</TABLE>
In the case of a partial redemption, the Trustee shall select the Senior
Notes or portions thereof for redemption on a pro rata basis, by lot or in such
other manner it deems appropriate and fair. The Senior Notes may be redeemed in
part in multiples of $1,000 only.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the Redemption Date to the Holder of
each Senior Note to be redeemed to such Holder's last address as then shown upon
the registry books of the Registrar. Any notice which relates to a Senior Note
to be redeemed in part only must state the portion of the principal amount equal
to the unredeemed portion thereof and must state that upon surrender of such
Senior Note, a new Senior Note in a principal amount equal to the unredeemed
portion thereof will be issued. On and after the Redemption Date, interest will
cease to accrue on the Senior Notes or portions thereof called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
Beverly will not be required to make any mandatory redemption or sinking fund
payments with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Senior Notes
will have the right to require Beverly to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant
to the offer described below (the "Change of Control Offer") at an offer price
in cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase (the "Change of Control
Payment") on a date that is not more than 90 days after the occurrence of such
Change of Control (the "Change of Control Payment Date"). Within 45 days
following any Change of Control, Beverly will mail, or at Beverly's request the
Trustee will mail, a notice to each Holder offering to repurchase the Senior
Notes held by such Holder pursuant to the procedures specified in such notice.
Beverly will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Senior
Notes as a result of a Change of Control.
On the Change of Control Payment Date, Beverly will, to the extent lawful,
(1) accept for payment all Senior Notes or portions thereof properly tendered
and not withdrawn pursuant to the Change of Control Offer, (2) deposit with the
paying agent an amount equal to the Change of Control Payment in respect of all
Senior Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by Beverly. The paying agent will promptly mail to each
Holder of Senior Notes so tendered the Change of Control Payment for such Senior
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Senior Note equal in principal
amount to any unpurchased portion of the Senior Notes surrendered, if any;
provided that each such new Senior Note will be in a principal amount of $1,000
or an integral multiple thereof. Beverly will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
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<PAGE> 67
A failure by Beverly to comply with the provisions of the two preceding
paragraphs will constitute an Event of Default. Except as described above with
respect to a Change of Control, the Indenture will not contain provisions that
permit the Holders of the Senior Notes to require that Beverly repurchase or
redeem the Senior Notes in the event of a takeover, recapitalization or similar
transaction. See "-- Certain Covenants -- Events of Defaults and Remedies."
The terms of substantially all of Beverly's Debt Instruments require that
Beverly repay or refinance indebtedness under such Debt Instruments in the event
of a change of control, as defined in such Debt Instruments. Such change of
control provisions may be triggered under such Debt Instruments prior to the
occurrence of a Change of Control, thereby requiring that the indebtedness under
such Debt Instruments be repaid or refinanced prior to Beverly repurchasing any
Senior Notes upon the occurrence of a Change of Control. As such, Beverly may
not be able to satisfy its obligations to repurchase the Senior Notes unless
Beverly is able to refinance or obtain waivers with respect to such Debt
Instruments. There can be no assurance that Beverly will have the financial
resources to repurchase the Senior Notes in the event of a Change of Control.
See "Description of Certain Indebtedness."
ASSET SALES
The Indenture provides that Beverly will not, and will not permit any of
its Subsidiaries to, consummate an Asset Sale unless (i) Beverly (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (as conclusively determined by a
resolution of the Board set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by Beverly or
such Subsidiary is in the form of cash or Cash Equivalents, provided that for
purposes of this provision, (x) the amount of (A) any liabilities (as shown on
the most recent balance sheet of Beverly or such Subsidiary or in the notes
thereto) of Beverly or such Subsidiary (other than liabilities that are by their
terms subordinated to the Senior Notes or the Guarantees) that are assumed by
the transferee of any such assets and (B) any securities or other obligations
received by Beverly or any such Subsidiary from such transferee that are
immediately converted by Beverly or such Subsidiary into cash or Cash
Equivalents (or as to which New Beverly or such Subsidiary has received at or
prior to the consummation of the Asset Sale a commitment (which may be subject
to customary conditions) from a nationally recognized investment, merchant or
commercial bank to convert into cash or Cash Equivalents within 90 days of the
consummation of such Asset Sale and which are thereafter actually converted into
cash or Cash Equivalents within such 90-day period) will be deemed to be cash or
Cash Equivalents (but shall not be deemed to be Net Proceeds for purposes of the
following provisions until reduced to cash or Cash Equivalents) and (y) the fair
market value of any Non-Cash Consideration received by Beverly or a Subsidiary
in any Non-Qualified Asset Sale shall be deemed to be cash to the extent that
the aggregate fair market value (as conclusively determined by resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of all Non-Cash Consideration (measured at the time received and
without giving effect to any subsequent changes in value) received by Beverly or
any of its Subsidiaries since the date of the Indenture in all Non-Qualified
Asset Sales does not exceed 6% of Beverly's Stockholders' Equity as of the date
of such consummation. Notwithstanding the foregoing, to the extent Beverly or
any of its Subsidiaries receives Non-Cash Consideration as proceeds of an Asset
Sale, such Non-Cash Consideration shall be deemed to be Net Proceeds for
purposes of (and shall be applied in accordance with) the following provisions
when Beverly or such Subsidiary receives cash or Cash Equivalents from a sale,
repayment, exchange, redemption or retirement of or extraordinary dividend or
return of capital on such Non-Cash Consideration.
The provisions of clauses (i) and (ii) of the immediately preceding
paragraph shall not apply to the Spinoff Transaction if, after giving pro forma
effect to such transaction, including the application by Beverly of the net
proceeds, if any, of any such transaction, as if it had occurred at the
beginning of the Reference Period immediately preceding the date on which such
transaction occurs, (i) Beverly would have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant in the Indenture described
below under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock", (ii) Beverly's Fixed Charge
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<PAGE> 68
Coverage Ratio would not be reduced by 15% or more from Beverly's actual Fixed
Charge Coverage Ratio for such Reference Period, (iii) Beverly's Debt to
Consolidated Cash Flow Ratio as of the date such transaction occurs would not be
increased by 15% or more from Beverly's actual Debt to Consolidated Cash Flow
Ratio as of such date, (iv) PCA shall have satisfied in full all Indebtedness of
PCA and its Subsidiaries to Beverly and its Subsidiaries and (v) no Default or
Event of Default would exist. If the Spinoff Transaction (including Beverly's
proposed application of the net proceeds thereof, if any) satisfies the
requirements of the immediately preceding sentence, Beverly shall be entitled to
(A) consummate the Spinoff Transaction and (B) use up to $100 million of the Net
Proceeds of such transaction to make Restricted Payments or for any other
purpose not prohibited by the Indenture; provided that (x) any Net Proceeds in
excess of $100 million shall be applied in accordance with the following
provisions and (y) all Non-Cash Consideration received by Beverly or any
Subsidiary of Beverly as a result of or in connection with the Spinoff
Transaction will be deemed to be Net Proceeds for purposes of (and shall be
applied in accordance with) the foregoing clause (B) and the following
provisions when Beverly or such Subsidiary receives cash or Cash Equivalents
from a sale, repayment, exchange, redemption or retirement of or extraordinary
dividend or return of capital on such Non-Cash Consideration.
Pursuant to the Indenture, within 365 days after the receipt of any Net
Proceeds from an Asset Sale, Beverly or such Subsidiary may apply such Net
Proceeds (i) to purchase one or more Nursing Facilities or Related Businesses
and/or a controlling interest in the Capital Stock of a Person owning one or
more Nursing Facilities and/or one or more Related Businesses, (ii) to make a
capital expenditure or to acquire other tangible assets, in each case, that are
used or useful in any business in which Beverly is permitted to be engaged
pursuant to the covenant described below under the caption "-- Certain
Covenants -- Line of Business," (iii) to permanently reduce Indebtedness (other
than Subordinated Indebtedness) of Beverly or its Subsidiaries, (iv) to
permanently reduce Senior Revolving Debt (and to correspondingly reduce
commitments with respect thereto, except that up to an aggregate of $20 million
of Net Proceeds from Asset Sales may be applied after the date of the Indenture
to reduce Senior Revolving Debt without a corresponding reduction in commitments
with respect thereto) or (v) if such Net Proceeds are derived from the Spinoff
Transaction, use up to $100 million of the Net Proceeds of such transaction to
make Restricted Payments or for any other purpose not prohibited by the
Indenture, in accordance with the second sentence of the preceding paragraph.
Pending the final application of any such Net Proceeds, Beverly or such
Subsidiary may temporarily reduce Senior Revolving Debt or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $25 million, Beverly will
be required to make an offer to all Holders of Senior Notes and holders of any
other Indebtedness of Beverly ranking on a parity with the Senior Notes from
time to time outstanding with similar provisions requiring Beverly to make an
offer to purchase or to redeem such Indebtedness with the proceeds from any
Asset Sales, pro rata in proportion to the respective principal amounts of
Senior Notes and such other Indebtedness then outstanding (a "Senior Asset Sale
Offer") to purchase the maximum principal amount of the Senior Notes and such
other Indebtedness that may be purchased out of the Excess Proceeds, at an offer
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Senior Notes and such other Indebtedness tendered pursuant to a Senior Asset
Sale Offer is less than the Excess Proceeds, Beverly may use any remaining
Excess Proceeds for general corporate purposes not prohibited at the time under
the Indenture. If the aggregate principal amount of Senior Notes and such other
Indebtedness surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Senior Notes and such other Indebtedness will be purchased on a
pro rata basis. Upon completion of a Senior Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
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CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that Beverly will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any distribution on account of the Equity Interests of Beverly or any of
its Subsidiaries (other than (x) dividends or distributions payable in Qualified
Equity Interests of Beverly, (y) dividends or distributions payable to Beverly
or any Subsidiary of Beverly, and (z) dividends or distributions by any
Subsidiary of Beverly payable to all holders of a class of Equity Interests of
such Subsidiary on a pro rata basis); (ii) purchase, redeem or otherwise acquire
or retire for value any Equity Interests of Beverly or any of its Subsidiaries;
(iii) make any principal payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Subordinated Indebtedness, except at the
original final maturity date thereof; or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment (the amount of any such
Restricted Payment, if other than cash or Cash Equivalents, shall be the fair
market value (as conclusively evidenced by a resolution of the Beverly Board set
forth in an Officers' Certificate delivered to the Trustee within 60 days prior
to the date of such Restricted Payment) of the asset(s) proposed to be
transferred by Beverly or such Subsidiary, as the case may be, pursuant to such
Restricted Payment):
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) Beverly would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the Reference Period immediately
preceding the date of such Restricted Payment, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph
of the covenant in the Indenture described below under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by Beverly and its Subsidiaries after
December 31, 1995 (excluding Restricted Payments permitted by
clauses (w), (x), (y) and (z) of the next succeeding paragraph),
is less than the sum (without duplication) of (i) 50% of the
Consolidated Net Income of Beverly for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after December 31, 1995 to the end of Beverly's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by Beverly from the issue or sale (other
than to a Subsidiary of Beverly) since December 31, 1995 of
Qualified Equity Interests of Beverly or of debt securities of
Beverly or any of its Subsidiaries that have been converted into
or exchanged for such Qualified Equity Interests of Beverly, plus
(iii) to the extent that any Restricted Investment that was made
after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return
of capital with respect to such Restricted Investment (net of
taxes and the cost of disposition, if any) or (B) the initial
amount of such Restricted Investment, plus (iv) $20 million.
The foregoing provisions will not prohibit the following Restricted
Payments: (v) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
otherwise complied with the provisions of the Indenture; (w) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of Beverly
or any Subsidiary in exchange for, or out of the net cash proceeds of, the
substantially concurrent sale (other than to a Subsidiary of Beverly) of
Qualified Equity Interests of Beverly; provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (x) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash
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proceeds from an incurrence of Permitted Refinancing Indebtedness or in exchange
for or out of the net cash proceeds from the substantially concurrent sale
(other than to a Subsidiary of Beverly) of Qualified Equity Interests of
Beverly; provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(ii) of the preceding paragraph; (y) any
purchase or defeasance of Subordinated Indebtedness to the extent required upon
a change of control or asset sale (as defined therein) by the indenture or other
agreement or instrument pursuant to which such Subordinated Indebtedness was
issued, but only if Beverly (i) in the case of a Change of Control, has complied
with its obligations under the provisions described under the covenant entitled
"Repurchase at the Option of the Holders -- Change of Control" or (ii) in the
case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in
accordance with the provisions under the covenant entitled "Repurchase at the
Option of the Holders -- Asset Sales" and (z) any Restricted Payment permitted
in accordance with the provisions of the second paragraph of the covenant
entitled "Repurchase at the Option of Holders -- Asset Sales"; provided,
however, in the case of each of clauses (w), (x), (y) and (z) of this paragraph
no Default or Event of Default shall have occurred or be continuing at the time
of such Restricted Payment or would occur as a consequence thereof.
Not later than the date of making any Restricted Payment, Beverly shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that Beverly will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") after the date of the
Indenture any Indebtedness (including Acquired Debt) and Beverly will not permit
any of its Subsidiaries (other than Beverly Funding), to issue any shares of
preferred stock; provided, however, that Beverly and its Subsidiaries may incur
Indebtedness (including Acquired Debt) if the Fixed Charge Coverage Ratio for
the Reference Period immediately preceding the date on which such additional
Indebtedness is incurred would have been at least 2.5 to 1, in each case
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred at the
beginning of such Reference Period. Indebtedness consisting of reimbursement
obligations in respect of a letter of credit will be deemed to be incurred when
the letter of credit is first issued.
The foregoing provisions will not apply to:
(i) the incurrence by Beverly or any of its Subsidiaries of Senior
Revolving Debt pursuant to the Credit Agreement in an aggregate
principal amount at any time outstanding (with letters of credit
being deemed to have a principal amount equal to the maximum
potential reimbursement obligation of Beverly or any Subsidiary
with respect thereto) not to exceed an amount equal to $150
million less the aggregate amount of all Net Proceeds of Asset
Sales applied to permanently reduce the commitments with respect
to such Indebtedness pursuant to the covenant described above
under the caption "-- Repurchase at the Option of
Holders -- Asset Sales" after the date of the Indenture;
(ii) the incurrence by Beverly and the Guarantors of Indebtedness
represented by the Senior Notes;
(iii) the incurrence by Beverly or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the
Indenture to be incurred (including, without limitation,
Existing Indebtedness);
(iv) the incurrence by Beverly or any of its Subsidiaries of
intercompany Indebtedness between or among Beverly and any of
its Subsidiaries: provided that in the case of such
Indebtedness of Beverly, such obligations shall be unsecured;
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(v) the incurrence by Beverly or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or
hedging interest rate or currency risk with respect to any
fixed or floating rate Indebtedness that is permitted by the
Indenture to be outstanding or any receivable or liability the
payment of which is determined by reference to a foreign
currency; provided that the notional principal amount of any
such Hedging Obligation does not exceed the principal amount of
the Indebtedness or the amount of such receivable or liability
to which such Hedging Obligation relates;
(vi) the incurrence by Beverly or any of its Subsidiaries of
Indebtedness represented by performance bonds, warranty or
contractual service obligations, standby letters of credit or
appeal bonds, in each case to the extent incurred in the
ordinary course of business of Beverly or such Subsidiary; and
(vii) the incurrence by Beverly or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other
clause of this paragraph) in an aggregate principal amount at
any time outstanding not to exceed $100 million.
For purposes of determining any particular amount of Indebtedness under
this covenant, guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included. For purposes of determining compliance
with this covenant, (i) in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness permitted by the second
paragraph of this covenant, Beverly shall classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
the categories of permitted Indebtedness described above and (ii) the
outstanding principal amount on any date of any Indebtedness issued with
original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness on such date.
LIENS
The Indenture provides that Beverly will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien (except Permitted Liens) on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom unless all payments due under the Indenture and the
Senior Notes are secured on an equal and ratable basis with the Obligations so
secured until such time as such Obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that Beverly will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Subsidiary (other than Beverly Funding) to (i)(a) pay dividends
or make any other distributions to Beverly or any of its Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness owed to Beverly or any of
its Subsidiaries, (ii) make loans or advances to Beverly or any of its
Subsidiaries or (iii) transfer any of its properties or assets to Beverly or any
of its Subsidiaries, except for such encumbrances or restrictions existing under
or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Indenture, (c) applicable law, (d) any instrument governing
Indebtedness or Capital Stock of a Person acquired by Beverly or any of its
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition or in violation of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock"), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that the Consolidated Cash Flow of such Person is
not taken into account in determining whether such acquisition was permitted by
the terms of the Indenture except to the extent that such Consolidated Cash Flow
would be permitted to be dividended to Beverly without the prior consent or
approval of any third party, (e) customary
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non-assignment provisions in leases entered into in the ordinary course of
business, (f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (g) Permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being refinanced, or (h) the Credit
Agreement and related documentation as the same is in effect on the date of the
Indenture and as amended or replaced from time to time, provided that no such
amendment or replacement is more restrictive as to the matters enumerated above
than the Credit Agreement and related documentation as in effect on the date of
the Indenture. Nothing contained in this "Dividend and Other Payment
Restrictions Affecting Subsidiaries" covenant shall prevent Beverly or any
Subsidiary of Beverly from creating, incurring, assuming or suffering to exist
any Permitted Liens or entering into agreements in connection therewith that
impose restrictions on the transfer or disposition of the property or assets
subject to such Permitted Liens.
LINE OF BUSINESS
The Indenture provides that Beverly will not, and will not permit any of
its Subsidiaries to, engage to any material extent in any business other than
the ownership, operation and management of Nursing Facilities and Related
Businesses.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that Beverly may not consolidate or merge with or
into (whether or not Beverly is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) Beverly is the surviving corporation or
the entity or the Person formed by or surviving any such consolidation or merger
(if other than Beverly) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than Beverly) or the entity or Person to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made assumes all the obligations of Beverly under the Senior Notes and
the Indenture pursuant to a supplemental Indenture in form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no Default
or Event of Default exists; and (iv) Beverly or the entity or Person formed by
or surviving any such consolidation or merger (if other than Beverly), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of Beverly
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the Reference Period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant in the Indenture
described above under the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that neither Beverly nor any of its Subsidiaries
will sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
Beverly or the relevant Subsidiary than those that could have been obtained in a
comparable transaction by Beverly or such Subsidiary with an unrelated Person
and (ii) Beverly delivers to the Trustee (a) with respect to an Affiliate
Transaction involving aggregate consideration in excess of $5 million, a
resolution of the Board set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (i) above and that such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board and (b) with respect to an Affiliate Transaction involving
aggregate consideration in excess of $10 million, an opinion as to the fairness
to Beverly or such Subsidiary of
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such Affiliate Transaction from a financial point of view issued by an
investment banking firm of national standing; provided that (x) transactions or
payments pursuant to any employment arrangements, director or officer
indemnification agreements or employee or director benefit plans entered into by
Beverly or any of its Subsidiaries in the ordinary course of business of Beverly
or such Subsidiary, (y) transactions between or among Beverly and/or its
Subsidiaries and (z) Restricted Payments permitted by the provisions of the
Indenture described above under the caption "-- Restricted Payments," in each
case, shall not be deemed to be Affiliate Transactions.
RELEASE OF GUARANTORS
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Guarantor (or all of its assets) to an entity which is not a
Subsidiary of Beverly, or upon the dissolution of any Guarantors which sale,
disposition or dissolution is otherwise in compliance with the Indenture, such
Guarantor shall be deemed released from its obligations under its Guarantee of
the Senior Notes; provided, however, that any such termination shall occur only
to the extent that all obligations of such Guarantor under all of its guarantees
of, and under all of its pledges of assets or other security interests which
secure any Indebtedness of Beverly shall also terminate upon such sale,
disposition or dissolution. Notwithstanding the foregoing, if upon consummation
of the Spinoff Transaction PCA ceases to satisfy the conditions necessary to be
a Subsidiary of Beverly under the definition of "Subsidiary", PCA shall be
deemed released from its Guarantee of the Senior Notes.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding,
Beverly will furnish to the Holders of Senior Notes all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if Beverly were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by Beverly's certified independent accountants. In addition,
whether or not required by the rules and regulations of the Commission, Beverly
will file a copy of all such information and reports with the Commission for
public availability and make such information available to securities analysts
and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment, when due, of interest on the
Senior Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Senior Notes; (iii) failure by Beverly or any Guarantor to comply
with the provisions described under the caption "-- Repurchase at the Option of
Holders -- Change of Control" or "-- Repurchase at the Option of
Holders -- Asset Sales,"; (iv) failure by Beverly or any Guarantor for 30 days
after notice to comply with the provisions described under the caption
"-- Certain Covenants -- Restricted Payments" or "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; (v)
failure by Beverly or any Guarantor for 60 days after notice to comply with any
of its agreements in the Indenture or the Senior Notes; (vi) any default occurs
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by Beverly or any of its Significant Subsidiaries (or the payment of which is
guaranteed by Beverly or any of its Significant Subsidiaries), whether such
Indebtedness or guarantee exists on the date of the Indenture or is thereafter
created, which default (a) constitutes a Payment Default or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or that has been so accelerated, aggregates in excess of $20 million;
(vii) failure by Beverly or any of its Significant Subsidiaries to pay final
judgments aggregating in excess of $20 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (viii) any Guarantee shall cease
for any reason not permitted by the Indenture to be in full force and effect or
any Guarantor, or any person acting on
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behalf of any Guarantor, shall deny or disaffirm its obligations under its
Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to
Beverly or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Senior Notes may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to Beverly, all
outstanding Senior Notes will become due and payable without further action or
notice. Holders of the Senior Notes may not enforce the Indenture or the Senior
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the then outstanding
Senior Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Senior Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee on behalf of the Holders of all of the
Senior Notes, may waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of the principal of, premium, if any, or interest on the Senior
Notes.
Beverly is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and Beverly is required upon becoming
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Beverly, as
such, shall have any liability for any obligations of Beverly under the Senior
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Senior Notes by accepting a
Senior Note waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Senior Notes. Such waiver may not
be effective to waive liabilities under the Federal securities laws and it is
the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Beverly may, at its option and at any time, elect to have all of its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Senior Notes ("Legal Defeasance") except for (i) the rights of
Holders of outstanding Senior Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Senior Notes when such
payments are due from the trust referred to below, (ii) Beverly's obligations
with respect to the Senior Notes concerning issuing temporary Senior Notes,
registration of Senior Notes, mutilated, destroyed, lost or stolen Senior Notes
and the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee, and Beverly's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, Beverly may, at its
option and at any time, elect to have its obligations and the obligations of the
Guarantors released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Senior Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Beverly must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior Notes, cash, U.S. Government Obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such outstanding Senior Notes on
the Maturity Date; (ii) in the case of Legal Defeasance, Beverly shall have
delivered to the Trustee an opinion of counsel in the United States confirming
that (A) Beverly has received
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from, or there has been published by, the Internal Revenue Service a ruling or
(B) since the date of the Indenture, there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of such outstanding
Senior Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such Legal Defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, Beverly shall have delivered to the Trustee an
opinion of counsel in the United States confirming that the Holders of such
outstanding Senior Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which Beverly or any of its Subsidiaries is a party or by
which Beverly or any of its Subsidiaries is bound (other than a breach,
violation or default resulting from the borrowing of funds to be applied to such
deposit); (vi) Beverly must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii)
Beverly must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by Beverly with the intent of preferring the Holders of
such Senior Notes over the other creditors of Beverly with the intent of
defeating, hindering, delaying or defrauding creditors of Beverly or others; and
(viii) Beverly must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and Beverly
may require a Holder to pay any taxes and fees required by law or permitted by
the Indenture.
The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Senior Notes may be amended or supplemented with the consent of the Holders
of at least a majority in principal amount of the Senior Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for such Senior Notes), and any existing default or compliance with any
provision of the Indenture or the Senior Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Senior
Notes (including consents obtained in connection with a tender offer or exchange
offer for such Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Senior Note, (iii) reduce the rate of or change the time for payment of
interest on any Senior Note, (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the Senior Notes
(except a rescission of acceleration of the Senior Notes by the Holders of at
least a majority in aggregate principal amount thereof and a waiver of the
Payment Default that resulted from such acceleration), (v) make any Senior Note
payable in money other than that stated in the Senior Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of
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Holders of Senior Notes to receive payments of principal of or premium, if any,
or interest on the Senior Notes, or (vii) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, Beverly, the Guarantors and the Trustee may amend or supplement the
Indenture or the Senior Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes, to provide for additional Guarantors of the Senior
Notes or the release, in accordance with the Indenture, of any Guarantor, to
provide for the assumption of Beverly's or any Guarantor's obligations to
Holders of Senior Notes in the case of a merger, consolidation or sale of
assets, to make any change that would provide any additional rights or benefits
to the Holders of Senior Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with requirements of
the Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act, to evidence and provide for the acceptance of the
appointment of a successor Trustee with respect to the Senior Notes, or in any
other case, pursuant to the provisions of the Indenture, where a supplemental
indenture is required or permitted to be entered into without the consent of any
Holder of Senior Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of Beverly, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will not be
under any obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback or by
merger or consolidation) other than in the ordinary course of business (provided
that the sale, lease, conveyance or other disposition of all or substantially
all of the assets of
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Beverly and its Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "-- Repurchase at the Option
of Holders -- Change of Control" and/or the provisions described above under the
caption "-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and
not by the provisions of the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales"), and (ii) the issuance
or sale by Beverly or any of its Subsidiaries of Equity Interests of any of
Beverly's Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $10 million or (b) for net proceeds in excess of $10
million. Notwithstanding the foregoing: (a) a transfer of assets by Beverly to a
Subsidiary or by a Subsidiary to Beverly or to another Subsidiary, (b) an
issuance of Equity Interests by a Subsidiary to Beverly or to another
Subsidiary, (c) a Restricted Payment that is permitted by the covenant described
above under the caption "-- Restricted Payments" and (d) a Nursing Facility Swap
will not be deemed to be an Asset Sale.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit with maturities
of one year or less from the date of acquisition, bankers' acceptances (or, with
respect to foreign banks, similar instruments) with maturities not exceeding one
year and overnight bank deposits, in each case with any domestic commercial bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia, or any United States branch of a foreign bank having
at the date of acquisition thereof combined capital and surplus of not less than
$100 million, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper having the highest rating
obtainable from Moody's or S&P and in each case maturing within one year after
the date of acquisition, and (vi) investments in money market funds which invest
substantially all their assets in securities of the types described in the
foregoing clauses (i) through (v).
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of Beverly and
its Subsidiaries taken as a whole to any Person or group (as such term is used
in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than to a Person or
group who, prior to such transaction, held a majority of the voting power of the
voting stock of Beverly, (ii) the acquisition by any Person or group (as defined
above) of a direct or indirect interest in more than 50% of the voting power of
the voting stock of Beverly, by way of merger or consolidation or otherwise, or
(iii) the first day on which a majority of the members of the Board of Beverly
are not Continuing Directors.
The phrase "all or substantially all" of the assets of Beverly will likely
be interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of the
assets of Beverly has occurred, in which case a Holder's ability to obtain the
benefit of a Change of Control Offer may be impaired. In addition, no assurances
can be given that Beverly will be able to acquire Senior Notes tendered upon the
occurrence of a Change of Control.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) provision
for taxes based on income or profits of such Person and its Subsidiaries for
such period, to the extent such provision for taxes was included in computing
such
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Consolidated Net Income, plus (ii) the Fixed Charges of such Person and its
Subsidiaries for such period, to the extent that such Fixed Charges were
deducted in computing such Consolidated Net Income, plus (iii) depreciation and
amortization (including amortization of goodwill and other intangibles) of such
Person and its Subsidiaries for such period to the extent that such depreciation
and amortization were deducted in computing such Consolidated Net Income, plus
(iv) other non-cash items of such Person and its Subsidiaries for such period to
the extent such non-cash items were deducted in computing such Consolidated Net
Income, in each case, on a consolidated basis and determined in accordance with
GAAP. Notwithstanding the foregoing, the provision for taxes on the income or
profits of, the depreciation and amortization of, and the other non-cash items
of, a Subsidiary of the referent Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent (and in the same
proportion) that the Net Income of such Subsidiary was included in calculating
the Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be dividended to Beverly by
such Subsidiary without prior approval (that has not been obtained), pursuant to
the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis; provided that, (i) the Net Income, if positive,
of any Person that is not a Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Subsidiary
thereof, (ii) the Net Income, if positive, of any Subsidiary shall be excluded
to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Redeemable Stock), less all write-ups
(other than write-ups resulting from foreign currency translations and write-ups
of tangible assets of a going concern business made in accordance with GAAP as a
result of the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a consolidated
Subsidiary of such Person, and excluding the cumulative effect of a change in
accounting principles, all as determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Beverly who (i) was a member of such Board on the date of the
Indenture or (ii) was nominated for election or elected to such Board with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Credit Agreement" means that certain Credit Agreement, dated as of
November 1, 1994, by and among Beverly California Corporation, now known as
Beverly Health and Rehabilitation Services, Inc., Beverly and Morgan Guaranty
Trust Company of New York and the other banks that are parties thereto,
providing for $225 million in aggregate principal amount of senior term debt and
up to $150 million in aggregate principal amount of Senior Revolving Debt,
including any related notes, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
extended, renewed, refunded, replaced or refinanced, in whole or in part, from
time to time.
"Debt to Consolidated Cash Flow Ratio" means with respect to any Person as
of any date of determination (the "Debt Ratio Calculation Date"), the ratio of
(i) the aggregate amount of Indebtedness of such Person and its Subsidiaries, on
a consolidated basis, outstanding as of the Debt Ratio Calculation Date to
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(ii) the Consolidated Cash Flow of such Person for the Reference Period
immediately preceding such Debt Ratio Calculation Date. In the event that such
Person or any of its Subsidiaries incurs, assumes, guarantees, redeems or repays
any Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the Reference Period but prior
to the Debt Ratio Calculation Date, then the Debt to Consolidated Cash Flow
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, redemption or repayment of Indebtedness, or such issuance
or redemption of preferred stock, as if the same had occurred at the beginning
of the applicable Reference Period. For purposes of making the computation
referred to above, (i) acquisitions that have been made by such Person or any of
its Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the Reference Period or subsequent to
such Reference Period and on or prior to the Debt Ratio Calculation Date shall
be deemed to have occurred on the first day of the Reference Period, (ii) the
Consolidated Cash Flow attributable to operations or businesses disposed of
prior to the Debt Ratio Calculation Date shall be excluded and (iii) in any
Reference Period commencing on or prior to November 1, 1995, the Exchange shall
be deemed to have occurred on the first day of such Reference Period.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Collateral" means property or assets of Beverly or its
Subsidiaries (other than Beverly Funding) that are, or since the date of the
Indenture have been, subject to one or more Permitted Liens.
"Existing Indebtedness" means Indebtedness of Beverly and its Subsidiaries
in existence on the date of the Indenture until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that such
Person or any of its Subsidiaries incurs, assumes, guarantees, redeems or repays
any Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee, redemption or
repayment of Indebtedness, or such issuance or redemption of preferred stock, as
if the same had occurred at the beginning of the applicable Reference Period. In
addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by Beverly or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the Reference Period or subsequent to such Reference Period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the Reference Period, (ii) the Consolidated Cash Flow and Fixed
Charges attributable to operations or businesses disposed of prior to the
Calculation Date shall be excluded and (iii) in any Reference Period commencing
on or prior to November 1, 1995, the Exchange shall be deemed to have occurred
on the first day of such Reference Period.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letters of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, and (iii) interest
actually paid by such Person or any of its Subsidiaries under any guarantee of
Indebtedness or other obligation of any other Person and (iv) the product of (a)
all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Subsidiary) on any series of preferred stock of such Person,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each
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case, on a consolidated basis and in accordance with GAAP; provided, however, in
the event that any cash dividend payment is deductible for federal, state and/or
local tax purposes, the amount of the tax deduction relating to such cash
dividend payment for such period shall be subtracted from the Fixed Charges for
such Person for such period.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, as in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts
or currency swap agreements and (iii) other agreements or arrangements designed
to protect such Person against fluctuations in interest rates or currency
values.
"Indebtedness" means, with respect to any Person, (i) any Redeemable Stock
of such Person, (ii) any indebtedness of such Person, whether or not contingent,
in respect of borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, (iii) all indebtedness of any other Person secured by a Lien on any asset
of such Person (whether or not such indebtedness is assumed by such Person) and,
(iv) to the extent not otherwise included, the guarantee by such Person of any
indebtedness of any other Person.
"Investment" by any Person in any other Person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such Person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
Person or any agreement to make any such acquisition; (b) the making by such
Person of any deposit with, or advance, loan or other extension of credit to,
such other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other Person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable or deposits arising in the
ordinary course of business); (c) other than guarantees of Indebtedness of
Beverly or any Subsidiary to the extent permitted by the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," the entering into by such Person of any guarantee
of, or other credit support or contingent obligation with respect to,
Indebtedness or other liability of such other Person; provided, however,
Investments shall not be deemed to include extensions of trade credit by such
Person or any of its Subsidiaries on commercially reasonable terms in accordance
with normal trade practices of such Person or such Subsidiary, as the case may
be.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
given to secure Indebtedness, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction with respect to any such lien, pledge, charge or
security interest).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, and before any reduction in
respect of preferred stock dividends, excluding, however,
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the effect of any extraordinary or other material non-recurring gain or loss
outside the ordinary course of business, together with any related provision for
taxes on such extraordinary or other material non-recurring gain or loss.
"Net Proceeds" means the aggregate cash or Cash Equivalent proceeds
received by Beverly or any of its Subsidiaries in respect of any Asset Sale, net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
other expenses incurred or to be incurred by Beverly or a Subsidiary as a direct
result of the sale of such assets (including, without limitation, severance,
relocation, lease termination and other similar expenses), taxes actually paid
or payable as a result thereof, amounts required to be applied to the repayment
of Indebtedness (other than Subordinated Indebtedness or Senior Revolving Debt)
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Cash Consideration" means any non-cash or non-Cash Equivalent
consideration received by Beverly or a Subsidiary of Beverly in connection with
an Asset Sale and any non-cash or non-Cash Equivalent consideration received by
Beverly or any of its Subsidiaries upon disposition thereof.
"Non-Qualified Asset Sale" means an Asset Sale in which the Non-Cash
Consideration received by Beverly or its Subsidiaries exceeds 25% of the total
consideration received in connection with such Asset Sale calculated in
accordance with clause (x), but not clause (y), of the proviso to the first
sentence under the caption "-- Repurchase at the Option of Holders -- Asset
Sales." The Spinoff Transaction shall be deemed not to constitute a
Non-Qualified Asset Sale.
"Nursing Facility" means a nursing facility, hospital, outpatient clinic,
assisted living center, hospice, long-term care facility or other facility that
is used or useful in the provision of healthcare services.
"Nursing Facility Swap" means an exchange of assets by Beverly or one or
more Subsidiaries of Beverly for one or more Nursing Facilities and/or one or
more Related Businesses or for the Capital Stock of any Person owning one or
more Nursing Facilities and/or one or more Related Businesses.
"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Payment Default" means any failure to pay any scheduled installment of
principal on any Indebtedness within the grace period provided for such payment
in the documentation governing such Indebtedness.
"PCA" means Pharmacy Corporation of America, a California corporation.
"Permitted Liens" means (i) Liens in favor of Beverly; (ii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with Beverly or any Subsidiary of Beverly or becomes a Subsidiary
of Beverly; provided that such Liens were in existence prior to the
contemplation of such merger, consolidation or acquisition and do not extend to
any assets other than those of the Person merged into or consolidated with
Beverly or that becomes a Subsidiary of Beverly; (iii) Liens on property
existing at the time of acquisition thereof by Beverly or any Subsidiary of
Beverly, provided that such Liens were in existence prior to the contemplation
of such acquisition; (iv) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; (v) Liens existing on
the date of the Indenture to the extent such Liens secure Indebtedness
outstanding on the date of the Indenture or permitted by the Indenture; (vi)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (vii) Liens to secure Permitted Refinancing Indebtedness
incurred to refinance Indebtedness that was secured by a Lien permitted under
the Indenture and that was incurred in accordance with the provisions of the
Indenture; provided that such Liens do not extend to or cover any property or
assets of Beverly or any of its Subsidiaries other than assets or property
securing the Indebtedness so refinanced or Substitute Mortgage Collateral
therefor; (viii) Liens on Substitute Mortgage Collateral; (ix) Purchase Money
Liens; (x) Liens on
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Medicare, Medicaid or other patient accounts receivable of Beverly or its
Subsidiaries and any other Liens granted by a Receivables Subsidiary, in each
case in connection with a Receivables Financing; provided that the aggregate
principal or redemption amount of Receivables Financing outstanding shall not
exceed 50% of the net amount of the uncollected Medicare, Medicaid or other
patient accounts receivable then owing to Beverly or its Subsidiaries; (xi)
Liens on real estate and related personal property with a fair market value not
in excess of 50% of the fair market value of any Existing Collateral which has
become free and clear of all Liens securing Indebtedness since the Closing Date;
(xii) Liens of carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen and other Liens imposed by law incurred in the ordinary course of
business; (xiii) easements, rights-of-way, zoning restrictions, reservations,
encroachments and other similar encumbrances in respect of real property; (xiv)
any interest or title of a lessor under any Capitalized Lease Obligation; (xv)
Liens upon specific items of inventory or equipment and proceeds of Beverly or
any subsidiary securing its obligations in respect of bankers' acceptances
issued or created for its account (whether or not under the Credit Agreement) to
facilitate the purchase, shipment, or storage of such inventory and equipment;
(xvi) Liens securing reimbursement obligations with respect to letters of credit
(whether or not issued under the Credit Agreement) otherwise permitted under the
Indenture and issued in connection with the purchase of inventory or equipment
by Beverly or any Subsidiary in the ordinary course of business; (xvii) Liens to
secure (or encumbering deposits securing) obligations arising from warranty or
contractual service obligations of Beverly or any Subsidiary, including rights
of offset and set-off; (xviii) Liens securing Acquired Debt or acquisition
Indebtedness otherwise permitted by the Indenture; provided that (A) the
Indebtedness secured shall not exceed the fair market value of the assets so
acquired (such fair market value to be determined in good faith by the Board of
Directors of Beverly at the time of such acquisition) and (B) such Indebtedness
shall be incurred, and the Lien securing such Indebtedness shall be created,
within 12 months after such acquisition; (xix) Liens securing Hedging
Obligations agreements relating to Indebtedness otherwise permitted under the
Indenture; (xx) Liens securing stay and appeal bonds or judgment Liens in
connection with any judgment not giving rise to a Default under the Indenture;
(xxi) Liens on property or assets ("Substitute Liens") in substitution for Liens
released on the stock of PCA and its Subsidiaries; provided that (A) the fair
market value of such property or assets subject to such Substitute Liens (as
conclusively evidenced by a resolution of the Board set forth in an Officers'
Certificate delivered to the Trustee) is substantially equivalent to or less
than the fair market value of the stock of PCA and its Subsidiaries, and (B) the
Indebtedness secured by such Substitute Liens is permitted by the terms of the
Indenture; and (xxii) other Liens on assets of Beverly or any of its
Subsidiaries securing Indebtedness that is permitted by the terms of the
Indenture to be outstanding having an aggregate principal amount at any one time
outstanding not to exceed $5 million.
"Permitted Refinancing Indebtedness" means any Indebtedness of Beverly or
any of its Subsidiaries issued in exchange for, or the net proceeds of which are
used solely to extend, refinance, renew, replace, defease or refund, other
Indebtedness of Beverly or any of its Subsidiaries; provided that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of any premiums paid and reasonable
expenses incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
Subordinated Indebtedness, such Permitted Refinancing Indebtedness has a final
maturity date of, and is subordinated in right of payment to, the Senior Notes
on terms at least as favorable to the Holders of the Senior Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) if the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is a Subsidiary that is not a Guarantor, such Permitted Refinancing
Indebtedness shall only be incurred by such Subsidiary.
"Purchase Money Indebtedness" means any Indebtedness of a Person to any
seller or other Person incurred to finance the acquisition or construction
(including in the case of a Capital Lease Obligation, the lease) of any asset or
property which is incurred within 180 days of such acquisition or completion of
construction and is secured only by the assets so financed.
70
<PAGE> 83
"Purchase Money Lien" means a Lien granted on an asset or property to
secure Purchase Money Indebtedness permitted to be incurred under the Indenture
and incurred solely to finance the acquisition or construction of such asset or
property; provided, however, that such Lien encumbers only such asset or
property and is granted within 180 days of such acquisition or completion of
construction.
"Qualified Equity Interests" shall mean all Equity Interests of Beverly
other than Redeemable Stock of Beverly.
"Receivables Financing" means the sale or other disposition of Medicare,
Medicaid or other patient accounts receivable of Beverly or any of its
Subsidiaries to a Receivables Subsidiary followed by a financing transaction in
connection with such sale or disposition of such accounts receivable.
"Receivables Subsidiary" means a Subsidiary of Beverly exclusively engaged
in Receivables Financing and activities reasonably related thereto.
"Redeemable Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Senior Notes mature.
"Reference Period" with regard to any Person means the four full fiscal
quarters (or such lesser period during which such Person has been in existence)
for which internal financial statements are available ended immediately
preceding any date upon which any determination is to be made pursuant to the
terms of the Senior Notes or the Indenture.
"Related Business" means the business conducted by Beverly and its
Subsidiaries as of the date of the Indenture and any and all healthcare service
businesses that in the good faith judgment of the Board of Directors of Beverly
are materially related businesses. Without limiting the generality of the
foregoing, Related Business shall include the operation of long-term and
specialty healthcare services, skilled nursing care, subacute care,
rehabilitation programs, pharmaceutical services, geriatric care and home
healthcare.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than (i) Investments in Cash Equivalents, (ii) Investments
in a Subsidiary, (iii) Investments in any Person that as a consequence of such
Investment becomes a Subsidiary, (iv) Investments existing on the date of the
Indenture, (v) accounts receivable, advances, loans, extensions of credit
created or acquired in the ordinary course of business, (vi) Investments made as
a result of the receipt of Non-Cash Consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "-- Repurchase at the Option of the Holders -- Asset Sales," including,
without limitation, as a result of the Spinoff Transaction, (vii) Investments
made as the result of the guarantee by Beverly or any of its Subsidiaries of
Indebtedness of a Person or Persons other than Beverly or any Subsidiary of
Beverly that is secured by Liens on assets sold or otherwise disposed of by
Beverly or such Subsidiary to such Person or Persons; provided, that such
Indebtedness was in existence prior to the contemplation of such sale or other
disposition and that the terms of such guarantee permit Beverly or such
Subsidiary to foreclose on the pledged or mortgaged assets if Beverly or such
Subsidiary are required to perform under such guarantee and (viii) Investments
in any Related Business; provided, however, that a merger of another person with
or into Beverly or a Guarantor shall not be deemed to be a Restricted Investment
so long as the surviving entity is Beverly or a direct wholly owned Guarantor.
"Senior Revolving Debt" means revolving credit loans and letters of credit
outstanding from time to time under the Credit Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 or Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indenture.
"Spinoff Transaction" means a pro rata distribution by Beverly to its
stockholders of all or a portion of the shares of PCA or a sale or other
disposition to a Person or Persons other than Beverly or a Subsidiary of Beverly
of all or a portion of the shares of PCA or all or substantially all of the
assets of PCA.
71
<PAGE> 84
"Stockholders' Equity" means, with respect to any Person as of any date,
the stockholders' equity of such Person determined in accordance with GAAP as of
the date of the most recent available internal financial statements of such
Person, and calculated on a pro forma basis to give effect to any acquisition or
disposition by such person consummated or to be consummated since the date of
such financial statements and on or prior to the date of such calculation.
"Subordinated Indebtedness" means Indebtedness of Beverly or a Guarantor
that is subordinated in right of payment to the Senior Notes or such
Subsidiary's Guarantee of the Senior Notes, as applicable.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Substitute Mortgage Collateral" means real estate and related personal
property on which Liens are created in substitution for the release of Liens on
other real estate and related personal property ("Initial Liens"); provided,
that (i) such Initial Liens were permitted by the terms of the Indenture, (ii)
the fair market value of the Substitute Mortgage Collateral (as conclusively
evidenced by an Officers' Certificate delivered to the Trustee within 60 days
prior to the date of such substitution of collateral) is substantially
equivalent to or less than the fair market value of the property subject to the
released Initial Liens and (iii) the Indebtedness secured by the Liens on
Substitute Mortgage Collateral is permitted by the terms of the Indenture.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity, or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
72
<PAGE> 85
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY DISCUSSION OF CERTAIN OF THE ANTICIPATED U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED AMENDMENTS AND THE CONSENT
PAYMENTS. THIS SUMMARY IS BASED UPON THE RELEVANT PROVISIONS OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), AND RELATED REGULATIONS, REVENUE
RULINGS AND DECISIONS NOW IN EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE. THE
SUMMARY DOES NOT ATTEMPT TO ADDRESS THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF
ALL CATEGORIES OF HOLDERS OF SECURITIES, SOME OF WHICH MAY BE SUBJECT TO SPECIAL
RULES (E.G., LIFE INSURANCE COMPANIES, TAX-EXEMPT ENTITIES AND FOREIGN
TAXPAYERS.) NO RULING HAS BEEN OR WILL BE SOUGHT FROM THE INTERNAL REVENUE
SERVICE (THE "SERVICE") REGARDING ANY MATTER DISCUSSED BELOW. ACCORDINGLY, NO
ASSURANCE CAN BE GIVEN THAT THE SERVICE WILL NOT CHALLENGE ANY OF THE FEDERAL
INCOME TAX CONSEQUENCES DESCRIBED BELOW OR THAT ANY SUCH CHALLENGE, IF MADE,
WOULD NOT BE SUSTAINED BY A COURT. ALL HOLDERS OF SECURITIES ARE URGED TO
CONSULT WITH THEIR OWN TAX ADVISERS IN DETERMINING THE FEDERAL, STATE, LOCAL AND
ANY OTHER TAX CONSEQUENCES OF THE PROPOSED AMENDMENTS.
THE PROPOSED AMENDMENTS
It is expected that the federal income tax consequence of the adoption of
the Proposed Amendments to holders of Senior Notes will be that the full amount
of the Consent Payment will be subject to tax as ordinary income to those
holders who receive it. This conclusion is based upon the view that such
adoption will not be treated as a constructive exchange of the Senior Notes for
Amended Senior Notes because of Beverly's belief that (i) the transfer of assets
by Beverly to New Beverly will be a transfer of substantially all of the assets
of Beverly, (ii) there will not be a change in payment expectations with respect
to the Senior Notes and (iii) the transaction does not result in a significant
alteration of the Senior Notes. Alternatively, even if the adoption of the
Proposed Amendments were treated as an exchange by the Service, any such
exchange may be a tax free exchange under Section 355 of the Code.
If the adoption of the Proposed Amendments were considered to be a
constructive exchange of the Senior Notes for Amended Senior Notes for federal
income tax purposes and such exchange did not qualify for tax-free treatment
under section 355 of the Code, holders would recognize gain or loss upon such
deemed exchange, equal to the difference between (i) the issue price of the
Senior Notes deemed received in exchange for the old securities (or possibly the
sum of such issue price and the amount of the Consent Payment received) and (ii)
the adjusted basis of the Senior Notes deemed surrendered. Any gain or loss
recognized on the exchange would generally be capital gain or loss if the Senior
Notes were held by a holder as a capital asset (and long-term capital loss if
the holder of the Senior Notes held the Senior Notes for more than one year at
the time of such deemed exchange) except to the extent of any accrued but
unrecognized market discount, which would be treated as ordinary income to the
extent of any gain. If the issue price of the Amended Senior Notes is less than
the principal amount thereof, then such Amended Senior Notes may be treated as
issued with original issue discount, which the holder would generally include in
income as it accrues on a constant yield basis over the remaining term of the
Amended Senior Notes.
BACKUP WITHHOLDING
Under the U.S. federal income tax laws, a holder of Senior Notes may, under
certain circumstances, be subject to backup withholding at the rate of 31% with
respect to the Consent Payment, unless such holder (i) is a corporation or is
otherwise exempt and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. See the instructions with respect to backup
withholding contained in the accompanying consent form.
73
<PAGE> 86
OTHER TAX CONSIDERATIONS
There may be other U.S. federal, state, local or foreign tax considerations
applicable to the circumstances of a holder of Senior Notes. Accordingly, all
holders of Senior Notes should consult with their own tax advisers as to any
particular tax consequences to them of the Proposed Amendments and the Consent
Payment.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES IS
INCLUDED HEREIN FOR GENERAL INFORMATION ONLY, AND DOES NOT CONSTITUTE AND IS NOT
A SUBSTITUTE FOR PROFESSIONAL TAX ADVICE. EACH HOLDER OF A SECURITY SHOULD
CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE U.S. FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES TO HIM, HER OR IT OF THE SOLICITATION.
74
<PAGE> 87
PRINCIPAL HOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
THE FOLLOWING TABLE SETS FORTH THE NAMES AND ADDRESSES OF (I) THOSE PERSONS
WHO ARE KNOWN BY BEVERLY TO BE THE RECORD OWNERS OF MORE THAN 5% IN AGGREGATE
PRINCIPAL AMOUNT OF THE SENIOR NOTES OUTSTANDING AS OF THE RECORD DATE, BASED ON
INFORMATION SUPPLIED TO BEVERLY BY THE TRUSTEE AND INFORMATION PUBLISHED IN
SECURITY POSITION LISTINGS OBTAINED FROM DTC AND (II) ALL EXECUTIVE OFFICERS AND
DIRECTORS OF BEVERLY WHO, AS OF THE DATE OF THIS PROSPECTUS/CONSENT SOLICITATION
STATEMENT, OWN SENIOR NOTES, AND AS TO EACH SUCH 5% OWNER, EXECUTIVE OFFICER AND
DIRECTOR, THE PRINCIPAL AMOUNT AND THE PERCENTAGE OF THE TOTAL SENIOR NOTES
WHICH ARE SO OWNED. WITH RESPECT TO SUCH PERSONS WHO ARE NOT EXECUTIVE OFFICERS
OR DIRECTORS OF BEVERLY, SUCH INFORMATION REPRESENTS RECORD OWNERSHIP OF SENIOR
NOTES, BECAUSE BEVERLY LACKS THE INFORMATION NECESSARY TO DETERMINE WHETHER, OR
BY WHOM, SUCH SENIOR NOTES ARE OWNED BENEFICIALLY AND OBTAINING SUCH
INFORMATION, WOULD INVOLVE CONSIDERABLE DELAY AND EXPENSE. BEVERLY DOES NOT
PRESENTLY KNOW WHETHER SUCH 5% HOLDERS WILL FURNISH CONSENTS TO THE PROPOSED
AMENDMENTS.
<TABLE>
<CAPTION>
PERCENTAGE
PRINCIPAL AMOUNT OF
NAME AND ADDRESS HELD OF RECORD AS SECURITIES
OF REGISTERED HOLDER OF THE RECORD DATE OUTSTANDING
-------------------- ------------------ -----------
<S> <C> <C>
SSB -- Custodian...................... $65,700,000 36.5%
Global Proxy Unit, ASNW
P.O. Box 1631
Boston, Massachusetts 02105-1831
Attention: Michael L. Cuneo
The Bank of New York.................. $25,880,000 14.4%
825 Patterson Plank Road
Seacaucus, New Jersey 07084
Attention: Cecile Lamaroo
The Chase Manhattan Bank.............. $12,450,000 11.9%
Two Chase Manhattan Plaza
5th Floor
New York, New York 10081
Attention: Orma Trim
Bankers Trust Company................. $ 9,485,000 5.3%
c/o BT Services Tennessee Inc.
Pereion Trust Services
648 Grassmere Park Drive
Nashville, Tennessee 37211
Attention: John Laster
Texas Commerce Bank, N.A.............. $ 9,021,000 5.0%
Corporate Action Unit
P.O. Box 2558, 12-HCB-06
Houston, Texas 77252
Attention: Barbara Myrck
Scott Tabakin......................... $ 127,000 *
(Executive Vice President and Chief
Financial Officer of Beverly)
2301 Ramsgate Way
Fort Smith, Arkansas 72903
Pamela Daniels........................ $ 10,000 *
(Vice President, Comptroller and Chief
Accounting Officer of Beverly)
3416 Sturbridge Place
Fort Smith, Arkansas 72903
</TABLE>
- ---------------
* Less than one percent.
75
<PAGE> 88
THE SOLICITATION AGENT
Donaldson, Lufkin & Jenrette Securities Corporation has agreed to act as
exclusive financial advisor and Solicitation Agent (the "Solicitation Agent")
for Beverly in respect of the Solicitation. In accordance with the terms and
subject to the conditions of a certain letter agreement dated June 19, 1997,
between Beverly and the Solicitation Agent, Beverly has agreed to pay the
Solicitation Agent a cash fee equal to (i) $500,000, if the aggregate Consent
Payments made by Beverly to holders of Securities is greater than $1,800,000 or
(ii) if the aggregate Consent Payments made to holders of Senior Notes is equal
to or less than $1,800,000, the sum of (x) 0.30% of the aggregate principal
amount of Senior Notes in respect of which Consents have been accepted by
Beverly and (y) 0.25% of the amount obtained by subtracting $1,800,000 from the
aggregate Consent Payments made by Beverly to holders of Senior Notes. The
Solicitation Agent will not be entitled to any fee in the event that the
Requisite Consents are not received. Beverly has further agreed to reimburse the
Solicitation Agent for its reasonable out-of-pocket expenses and to indemnify it
against certain liabilities in connection with its performance of services for
the Consent Solicitation. Questions, requests for assistance and additional
copies of the Consent Solicitation, the consent forms and accompanying materials
should be addressed to the Solicitation Agent at the address set forth below.
The Solicitation Agent may be contacted at the following address:
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Mr. Joe Muratore
Telephone: (212) 892-4753
Telecopy: (212) 892-4057
EXPENSES OF SOLICITATION
Beverly will bear the costs of the Solicitation. Beverly will reimburse the
Trustee for expenses that it incurs in connection with the Solicitation. Beverly
will also reimburse banks, trust companies, securities dealers, nominees,
custodians and fiduciaries for their reasonable out-of-pocket expenses in
forwarding consent forms and other materials to beneficial owners of the Senior
Notes. In addition to the solicitation of consents by mail, employees of Beverly
may solicit consents by personal interviews, by telephone, facsimile
transmission, or by telegraph. Employees of Beverly will not be specially
compensated for soliciting consents. If such personal interviews or telephone
conversations are used to solicit consents, this Prospectus/Consent Solicitation
Statement and the appropriate consent forms will precede the interview or
telephone conversation. If as a result of the interview or conversation
additional consent forms are required, they will be forwarded to the Registered
Holder.
LEGAL MATTERS
Certain legal matters in connection with the Solicitation will be passed
upon for Beverly by .
76
<PAGE> 89
EXPERTS
The consolidated financial statements and schedule of Beverly Enterprises,
Inc. at December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996, appearing in this Registration Statement and
related Prospectus/Consent Solicitation Statement, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Pharmacy Corporation
of America at December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996, appearing in this Registration Statement and
related Prospectus/Consent Solicitation Statement, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The balance sheet of New Beverly Holdings, Inc. as of May 31, 1997,
appearing in this Registration Statement and related Prospectus/Consent
Solicitation Statement, has been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
is included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
77
<PAGE> 90
BEVERLY ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following financial statements and schedules are included herein:
<TABLE>
<S> <C>
BEVERLY ENTERPRISES, INC.
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996................................... F-2
Condensed Consolidated Statements of Income for the
three-month and six-month periods ended June 30, 1997
and 1996................................................ F-3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996................. F-4
Notes to Condensed Consolidated Financial Statements...... F-5
PHARMACY CORPORATION OF AMERICA
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996................................... F-8
Condensed Consolidated Statements of Income for the
three-month and six-month periods ended June 30, 1997
and 1996................................................ F-9
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996................. F-10
Notes to Condensed Consolidated Financial Statements...... F-11
BEVERLY ENTERPRISES, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-13
Consolidated Balance Sheets as of December 31, 1996 and
1995.................................................... F-14
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994........................ F-15
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994............ F-16
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994........................ F-17
Notes to Consolidated Financial Statements................ F-18
Schedule II -- Valuation and Qualifying Accounts.......... F-36
PHARMACY CORPORATION OF AMERICA
Report of Ernst & Young LLP, Independent Auditors......... F-37
Consolidated Balance Sheets as of December 31, 1996 and
1995.................................................... F-38
Consolidated Statements of Income and Retained Earnings
for the years ended December 31, 1996, 1995 and 1994.... F-39
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994........................ F-40
Notes to Consolidated Financial Statements................ F-41
Schedule II -- Valuation and Qualifying Accounts.......... F-51
NEW BEVERLY HOLDINGS, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-52
Balance Sheet as of May 31, 1997.......................... F-53
Note to Balance Sheet..................................... F-54
</TABLE>
F-1
<PAGE> 91
BEVERLY ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 71,756 $ 69,761
Accounts receivable -- patient, less allowance for
doubtful accounts:
1997 -- $34,755; 1996 -- $25,618........................ 502,511 491,063
Accounts receivable -- nonpatient, less allowance for
doubtful accounts:
1997 -- $580; 1996 -- $401.............................. 10,429 13,480
Notes receivable.......................................... 9,260 10,746
Operating supplies........................................ 55,713 55,348
Deferred income taxes..................................... 23,547 14,543
Prepaid expenses and other................................ 43,738 42,304
---------- ----------
Total current assets................................ 716,954 697,245
Property and equipment, net of accumulated depreciation and
amortization:
1997 -- $635,982; 1996 -- $643,085...................... 1,188,197 1,248,785
Other assets:
Notes receivable, less allowance for doubtful notes:
1997 -- $5,674; 1996 -- $4,951.......................... 28,958 37,306
Designated and restricted funds........................... 74,182 75,848
Goodwill, net............................................. 375,221 356,197
Other, net................................................ 107,454 109,701
---------- ----------
Total other assets.................................. 585,815 579,052
---------- ----------
$2,490,966 $2,525,082
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 96,854 $ 99,121
Accrued wages and related liabilities..................... 128,892 131,072
Accrued interest.......................................... 17,683 16,969
Other accrued liabilities................................. 107,660 93,042
Current portion of long-term obligations.................. 35,669 38,826
---------- ----------
Total current liabilities........................... 386,758 379,030
Long-term obligations....................................... 1,018,551 1,106,256
Deferred income taxes payable............................... 98,769 83,610
Other liabilities and deferred items........................ 96,171 95,091
Commitments and contingencies
Stockholders' equity:
Preferred stock, shares authorized: 25,000,000............ -- --
Common stock, shares issued: 1997 -- 104,712,723;
1996 -- 104,432,848..................................... 10,471 10,443
Additional paid-in capital................................ 777,172 774,672
Retained earnings......................................... 173,390 133,957
Treasury stock, at cost: 1997 -- 6,274,108;
1996 -- 5,423,408....................................... (70,316) (57,977)
---------- ----------
Total stockholders' equity.......................... 890,717 861,095
---------- ----------
$2,490,966 $2,525,082
========== ==========
</TABLE>
- ---------------
NOTE: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
F-2
<PAGE> 92
BEVERLY ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net operating revenues.......................... $817,503 $798,333 $1,634,219 $1,609,380
Interest income................................. 3,161 3,475 6,726 6,935
-------- -------- ---------- ----------
Total revenues........................ 820,664 801,808 1,640,945 1,616,315
Costs and expenses:
Operating and administrative:
Wages and related.......................... 448,074 444,527 897,856 894,522
Other...................................... 287,944 280,006 577,874 573,490
Interest...................................... 21,971 22,983 44,687 46,128
Depreciation and amortization................. 27,725 25,967 54,806 51,023
-------- -------- ---------- ----------
Total costs and expenses.............. 785,714 773,483 1,575,223 1,565,163
-------- -------- ---------- ----------
Income before provision for income taxes........ 34,950 28,325 65,722 51,152
Provision for income taxes...................... 13,980 11,330 26,289 20,461
-------- -------- ---------- ----------
Net income...................................... $ 20,970 $ 16,995 $ 39,433 $ 30,691
======== ======== ========== ==========
Net income per share of common stock:
Primary:
Net income per share of common stock....... $ .21 $ .17 $ .40 $ .31
======== ======== ========== ==========
Shares used to compute net income per
share.................................... 99,048 100,079 99,230 100,028
======== ======== ========== ==========
Fully diluted:
Net income per share of common stock....... $ .20 $ .16 $ .38 $ .30
======== ======== ========== ==========
Shares used to compute net income per
share.................................... 110,640 111,341 110,865 111,299
======== ======== ========== ==========
</TABLE>
Primary earnings per share for the three-month and six-month periods ended
June 30, 1997 and 1996 were computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period and the
weighted average number of shares issuable upon exercise of common stock
equivalents (principally stock options), calculated using the treasury stock
method. Fully diluted earnings per share for the three-month and six-month
periods ended June 30, 1997 and 1996 were computed as above and assumed
conversion of the Company's 5 1/2% convertible subordinated debentures.
Conversion of the Company's 7 5/8% convertible subordinated debentures and zero
coupon notes would have an anti-dilutive effect and, therefore, were not
assumed.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which is
required to be adopted in financial statements for periods ending after December
15, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements, primary earnings per share will be renamed basic
earnings per share and will exclude the dilutive effect of stock options. The
impact is not expected to result in a change in the Company's primary earnings
per share or fully diluted earnings per share (which will be renamed dilutive
earnings per share) for the three-month and six-month periods ended June 30,
1997 and 1996.
See accompanying notes.
F-3
<PAGE> 93
BEVERLY ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 39,433 $ 30,691
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 54,806 51,023
Provision for reserves and discounts on patient, notes
and other receivables, net............................ 19,818 11,549
Amortization of deferred financing costs............... 1,336 2,726
Gains on dispositions of facilities and other assets,
net................................................... (20,842) (2,890)
Deferred taxes......................................... 6,632 8,271
Net increase (decrease) in insurance related
accounts.............................................. 383 (8,204)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable -- patient....................... (33,960) (22,809)
Operating supplies................................... (2,036) 2,247
Prepaid expenses and other receivables............... (727) (1,752)
Accounts payable and other accrued expenses.......... 829 (19,662)
Income taxes payable................................. (4,309) 6,199
Other, net........................................... 154 (359)
--------- ---------
Total adjustments................................. 22,084 26,339
--------- ---------
Net cash provided by operating activities......... 61,517 57,030
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired........... (45,373) (25,721)
Proceeds from dispositions of facilities and other
assets................................................. 143,409 12,579
Collections on notes receivable and REMIC investment...... 18,441 6,005
Capital expenditures...................................... (70,317) (61,392)
Other, net................................................ (3,263) (4,820)
--------- ---------
Net cash provided by (used for) investing
activities...................................... 42,897 (73,349)
Cash flows from financing activities:
Revolver borrowings....................................... 772,000 601,000
Repayments of Revolver borrowings......................... (838,000) (624,000)
Proceeds from issuance of long-term obligations........... 3,534 180,000
Repayments of long-term obligations....................... (28,242) (136,834)
Purchase of common stock for treasury..................... (14,736) (6,238)
Proceeds from exercise of stock options................... 2,546 2,426
Deferred financing costs.................................. (354) (5,893)
Dividends paid on preferred stock......................... -- (688)
Proceeds from designated funds, net....................... 833 1,676
--------- ---------
Net cash provided by (used for) financing
activities...................................... (102,419) 11,449
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 1,995 (4,870)
Cash and cash equivalents at beginning of period............ 69,761 56,303
--------- ---------
Cash and cash equivalents at end of period.................. $ 71,756 $ 51,433
========= =========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized).................. $ 42,637 $ 37,026
Income taxes (net of refunds).......................... 23,966 5,991
</TABLE>
See accompanying notes.
F-4
<PAGE> 94
BEVERLY ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
(i) The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, and include all adjustments of a
normal recurring nature which are, in the opinion of management, necessary for a
fair presentation of the results of operations for the three-month and six-month
periods ended June 30, 1997 and 1996 pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures in these condensed consolidated financial statements are adequate to
make the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements and the notes thereto included in the
Company's 1996 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the three-month and six-month periods
ended June 30, 1997 are not necessarily indicative of the results for a full
year. Unless the context indicates otherwise, the Company means Beverly
Enterprises, Inc. and its consolidated subsidiaries.
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.
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
(ii) The provisions for income taxes for the three-month and six-month
periods ended June 30, 1997 and 1996 were based on an estimated annual effective
tax rate of 40%. The Company's estimated annual effective tax rates for 1997 and
1996 are different than the federal statutory rate primarily due to the impact
of state income taxes and amortization of nondeductible goodwill. The provisions
for income taxes consist of the following for the three-month and six-month
periods ended June 30 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Federal:
Current...................................... $10,009 $ 4,946 $15,307 $ 9,499
Deferred..................................... 2,075 4,074 6,915 6,839
State:
Current...................................... 3,079 1,377 4,350 2,691
Deferred..................................... (1,183) 933 (283) 1,432
------- ------- ------- -------
$13,980 $11,330 $26,289 $20,461
======= ======= ======= =======
</TABLE>
(iii) During the six months ended June 30, 1997, the Company purchased six
previously leased nursing facilities (758 beds) and certain other assets
including, among other things, 14 institutional pharmacies and 17 outpatient
therapy clinics, for approximately $44,700,000 cash and approximately $3,800,000
closing and other costs. Also during such period, the Company sold or terminated
the leases on 59 nursing facilities (7,244 beds) and certain other assets for
cash proceeds of approximately $143,700,000. The Company primarily used the net
cash proceeds from the disposition of facilities and other assets to repay
Revolver borrowings, to repurchase the zero coupon notes and to repay various
other indebtedness. The operations of these facilities were immaterial to the
Company's financial position and results of operations.
F-5
<PAGE> 95
BEVERLY ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1997, the Company entered into a definitive agreement with
Capstone Pharmacy Services, Inc. ("Capstone") to combine Pharmacy Corporation of
America ("PCA"), a wholly-owned subsidiary of the Company, with Capstone (the
"Merger") to create one of the nation's largest independent institutional
pharmacy companies. The Company will receive approximately $275,000,000 of cash
as partial repayment for PCA's intercompany debt, with any remaining
intercompany balance contributed to PCA's capital. The Company intends to use
the $275,000,000 to repay Revolver borrowings, to pay off the 7 5/8% convertible
subordinated debentures, to pay off the 8 3/4% Senior Notes, to repay certain
other notes and mortgages and for general corporate purposes. Pursuant to the
Merger Agreement, at the effective time of the Merger (the "Effective Time")
each share of the Company's Common Stock issued and outstanding immediately
prior to the Effective Time (other than fractional shares) will be converted
into the right to receive that number of newly issued shares of Capstone common
stock equal to the quotient, expressed to four decimal places, of (a) 50,000,000
divided by (b) the number of shares of the Company's Common Stock outstanding
immediately prior to the Effective Time. The Merger, which is subject to
approvals by the shareholders of both the Company and Capstone, completion of
the Distribution (as discussed below), and approvals by various government
agencies, is expected to close by year-end.
In connection with the restructuring, the Company will transfer all of its
non-PCA assets and liabilities to New Beverly Holdings, Inc. ("New Beverly"), in
exchange for the issuance of New Beverly common stock. The Company will then
distribute (the "Distribution") such New Beverly common stock to the then
current shareholders of the Company's Common Stock on a one-for-one basis. In
connection with the Distribution, the Company will be required to restructure,
repay or otherwise renegotiate substantially all of its outstanding debt
instruments and renegotiate or make certain payments under various employment
agreements with officers of the Company. The Company estimates that the costs of
such undertakings will approximate $10,200,000 as it relates to restructuring,
repaying or renegotiating debt instruments and approximately $14,000,000 as it
relates to renegotiating or paying certain amounts under various employment
agreements. It is expected that such amounts, along with other transaction costs
will be funded with a portion of the $275,000,000 proceeds to be received as a
partial repayment of PCA's intercompany debt, as discussed above.
On July 17, 1997, the Company called its 5 1/2% convertible subordinated
debentures (the "5 1/2% Debentures") for redemption on August 18, 1997. The
Company has obtained a stand-by commitment for the issuance of subordinated
indebtedness, whose net cash proceeds would qualify under the restrictive
covenant contained in an indenture dated as of February 1, 1996, to be used to
redeem the 5 1/2% Debentures. The Company anticipates that if the price of the
Company's Common Stock is more than 3.30% above the conversion price of $13.33
immediately prior to the redemption date, the holders will be likely to convert
their 5 1/2% Debentures to the Company's Common Stock. The right to convert the
5 1/2% Debentures into shares of the Company's Common Stock will expire at the
close of business August 15, 1997. Conversion of all or substantially all of the
5 1/2% Debentures into the Company's Common Stock prior to the Effective Time of
the Merger would cause an increase in the Company's outstanding Common Stock of
approximately 11,250,000 shares and would result in holders of the Company's
Common Stock receiving a comparatively smaller number of shares of Capstone
common stock in the Merger.
(iv) There are various lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages. The Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on the Company's consolidated
financial position or results of operations.
(v) Effective July 31, 1987, Beverly Enterprises, a California corporation
("Beverly California"), became a wholly-owned subsidiary of Beverly Enterprises,
Inc., a Delaware corporation ("Beverly Delaware"). Effective January 1, 1995,
Beverly California changed its name to Beverly Health and Rehabilitation
Services, Inc. ("BHRS"). Beverly Delaware (the parent) provides financial,
administrative and legal services to its subsidiaries, including BHRS, for which
it charges management fees.
F-6
<PAGE> 96
BEVERLY ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarized unaudited financial information concerning BHRS is
being reported because BHRS's 7 5/8% convertible subordinated debentures due
March 2003 and its zero coupon notes (collectively, the "Debt Securities") are
publicly-held. Beverly Delaware is co-obligor of the Debt Securities. Summary
unaudited financial information for BHRS is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenues............................. $668,891 $664,929 $1,339,244 $1,345,202
Total costs and expenses................... 629,525 635,114 1,271,880 1,293,854
Net income................................. 23,619 17,889 40,418 30,809
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Current assets............................................. $ 362,080 $ 369,501
Long-term assets........................................... 1,318,214 1,404,292
Current liabilities........................................ 204,962 184,887
Long-term liabilities...................................... 641,584 795,593
</TABLE>
F-7
<PAGE> 97
PHARMACY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,668 $ 7,575
Accounts receivable, less allowance for doubtful accounts:
1997 -- $14,608; 1996 -- $13,070....................... 109,798 93,078
Notes and other receivables, less allowance for doubtful
accounts:
1997 -- $394; 1996 -- $820............................. 873 1,383
Inventory................................................. 25,322 22,025
Prepaid expenses and other................................ 494 335
-------- --------
Total current assets.............................. 143,155 124,396
Property and equipment, net of accumulated depreciation and
amortization:
1997 -- $27,307; 1996 -- $23,263.......................... 35,215 32,698
Other assets:
Goodwill, net............................................. 290,931 276,430
Systems development, net.................................. 4,720 4,837
Other, net................................................ 7,525 3,215
-------- --------
Total other assets................................ 303,176 284,482
-------- --------
$481,546 $441,576
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 21,237 $ 18,017
Accrued wages and related liabilities..................... 6,006 6,656
Other accrued liabilities................................. 6,639 6,621
Current portion of long-term obligations.................. 1,195 968
-------- --------
Total current liabilities......................... 35,077 32,262
Long-term obligations....................................... 1,588 1,334
Deferred income taxes payable............................... 4,046 3,980
Due to Parent............................................... 333,115 312,395
Commitments and contingencies
Stockholder's equity:
Common stock, 1,000 shares issued......................... 1 1
Additional paid-in capital................................ 3,866 3,866
Retained earnings......................................... 103,853 87,738
-------- --------
Total stockholder's equity........................ 107,720 91,605
-------- --------
$481,546 $441,576
======== ========
</TABLE>
NOTE: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes.
F-8
<PAGE> 98
PHARMACY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Non-affiliates................................ $128,634 $104,930 $251,024 $210,151
Affiliates.................................... 25,102 19,925 50,304 39,080
-------- -------- -------- --------
Total revenues........................ 153,736 124,855 301,328 249,231
Cost of goods sold.............................. 82,310 67,498 162,397 133,170
-------- -------- -------- --------
Gross profit.................................... 71,426 57,357 138,931 116,061
Costs and expenses:
Wages and related............................. 33,443 28,665 65,476 58,279
Selling, general and administrative........... 15,073 12,314 29,277 24,669
Provision for doubtful accounts............... 2,807 1,515 5,178 3,704
Depreciation and amortization................. 5,082 3,975 9,908 7,782
Management fees............................... 889 886 1,556 1,415
-------- -------- -------- --------
Total costs and expenses.............. 57,294 47,355 111,395 95,849
-------- -------- -------- --------
Income before provision for income taxes........ 14,132 10,002 27,536 20,212
Provision for income taxes...................... 5,845 4,197 11,421 8,481
-------- -------- -------- --------
Net income...................................... $ 8,287 $ 5,805 $ 16,115 $ 11,731
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-9
<PAGE> 99
PHARMACY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 16,115 $ 11,731
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 9,908 7,782
Provision for reserves on accounts, notes and other
receivables, net...................................... 5,178 3,704
Deferred taxes......................................... 66 2,405
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable.................................. (19,610) (5,194)
Inventory............................................ (1,839) 2,577
Prepaid expenses and other receivables............... (128) (464)
Accounts payable and other accrued expenses.......... 2,588 (6,152)
-------- --------
Total adjustments................................. (3,837) 4,658
-------- --------
Net cash provided by operating activities......... 12,278 16,389
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired........... (27,589) (110)
Capital expenditures...................................... (5,242) (3,498)
Systems development....................................... (365) (330)
Other, net................................................ (1) 1,810
-------- --------
Net cash used for investing activities............ (33,197) (2,128)
Cash flows from financing activities:
Advances (to) from Parent, net............................ 20,531 (12,787)
Repayments of long-term obligations....................... (519) (270)
-------- --------
Net cash provided by (used for) financing
activities...................................... 20,012 (13,057)
-------- --------
Net increase (decrease) in cash and cash equivalents........ (907) 1,204
Cash and cash equivalents at beginning of period............ 7,575 3,315
-------- --------
Cash and cash equivalents at end of period.................. $ 6,668 $ 4,519
======== ========
Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Interest............................................... $ 130 $ (28)
</TABLE>
See accompanying notes.
F-10
<PAGE> 100
PHARMACY CORPORATION OF AMERICA
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
(i) The condensed consolidated financial statements included herein have
been prepared by Pharmacy Corporation of America (the "Company"), without audit,
and include all adjustments of a normal recurring nature which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the three-month and six-month periods ended June 30, 1997 and
1996 pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures in these
condensed consolidated financial statements are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the Company's December 31, 1996 consolidated
financial statements and the notes thereto. The results of operations for the
three-month and six-month periods ended June 30, 1997 are not necessarily
indicative of the results for a full year. Unless the context indicates
otherwise, the Company means Pharmacy Corporation of America and its
consolidated subsidiaries.
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.
(ii) The provisions for income taxes for the three-month and six-month
periods ended June 30, 1997 and 1996 were based on estimated annual effective
tax rates of 41.5% and 42.0%, respectively. The Company's estimated annual
effective tax rates for 1997 and 1996 are different than the federal statutory
rate primarily due to the impact of state income taxes and amortization of
nondeductible goodwill. The provisions for income taxes consist of the following
for the three-month and six-month periods ended June 30 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- ------
<S> <C> <C> <C> <C>
Federal:
Current...................................... $5,617 $2,474 $ 9,345 $5,001
Deferred..................................... (807) 980 54 1,979
State:
Current...................................... 1,208 532 2,010 1,075
Deferred..................................... (173) 211 12 426
------ ------ ------- ------
$5,845 $4,197 $11,421 $8,481
====== ====== ======= ======
</TABLE>
(iii) During the six months ended June 30, 1997, the Company purchased 14
pharmacies for approximately $27,600,000 cash. The operations of these
pharmacies were immaterial to the Company's financial position and results of
operations.
In April 1997, Beverly Enterprises, Inc. ("Beverly") entered into a
definitive agreement with Capstone Pharmacy Services, Inc. ("Capstone") to
combine the Company, a wholly-owned subsidiary of Beverly, with Capstone (the
"Merger") to create one of the nation's largest independent institutional
pharmacy companies. Beverly will receive approximately $275,000,000 of cash as
partial repayment for the Company's intercompany debt, with any remaining
intercompany balance contributed to the Company's capital. Beverly intends to
use the $275,000,000 to repay Revolver borrowings, to pay off the 7 5/8%
convertible subordinated debentures, to pay off the 8 3/4% Notes, to repay
certain other notes and mortgages and for general corporate purposes. Pursuant
to the Merger Agreement, at the effective time of the Merger (the "Effective
Time") each share of Beverly's Common Stock issued and outstanding immediately
prior to the Effective Time (other than
F-11
<PAGE> 101
PHARMACY CORPORATION OF AMERICA
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fractional shares) will be converted into the right to receive that number of
newly issued shares of Capstone common stock equal to the quotient, expressed to
four decimal places, of (a) 50,000,000 divided by (b) the number of shares of
Beverly's Common Stock outstanding immediately prior to the Effective Time. In
connection with the Merger, Beverly will transfer all of its non-Company assets
and liabilities to New Beverly Holdings, Inc. ("New Beverly"), in exchange for
the issuance of New Beverly common stock. Beverly will then distribute (the
"Distribution") such New Beverly common stock to the then current stockholders
of Beverly's Common Stock on a one-for-one basis. The Merger, which is subject
to approvals by the stockholders of both Beverly and Capstone, completion of the
Distribution and approvals by various government agencies, is expected to close
by year-end.
(iv) There are various lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages. The Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on the Company's consolidated
financial position or results of operations.
(v) The Company provides its pharmaceutical dispensing, infusion therapy
products and services and its pharmacy and nursing consulting services to
nursing facilities operated by Beverly, and to the residents of Beverly
facilities. Revenues from sales directly to Beverly nursing facilities were
approximately $50,304,000 and $39,080,000 for the six months ended June 30, 1997
and 1996, respectively. Revenues from sales to residents of Beverly facilities,
which are not considered by the Company to be revenues from affiliates, are
estimated to be approximately $51,000,000 and $42,000,000 for the six months
ended June 30, 1997 and 1996, respectively.
Beverly provides certain administrative services to the Company. These
services have included, among others, cash management, finance, legal, tax,
financial reporting, executive management, payroll and payables processing and
employee benefit plans maintenance. The responsibility for certain of these
services, including finance, tax and payables processing was transferred to the
Company in mid-1996 as part of a consolidation and reorganization of the
Company's accounting and related functions. Substantially all cash received by
the Company is deposited daily and wired to Beverly's corporate cash account. In
turn, all of the Company's operating expenses, capital expenditures and other
cash needs are paid by Beverly, and charged back to the Company along with a
management fee for handling such services. Fees for these services amounted to
approximately $1,556,000 and $1,415,000 for the six months ended June 30, 1997
and 1996, respectively. The Company believes that the charges for services
provided by Beverly to the Company are a reasonable allocation of the costs
incurred by Beverly on behalf of the Company in providing these services;
however, such costs are not necessarily indicative of the costs that would have
been incurred if the Company operated as a stand-alone entity.
The net result of all intercompany transactions between the Company and
Beverly is recorded in the "Due to Parent" account in the accompanying
consolidated balance sheets. There are currently no required repayment terms for
this account nor do such amounts bear interest.
F-12
<PAGE> 102
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, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included
financial statement Schedule II-Valuation and Qualifying Accounts of Beverly
Enterprises, Inc. 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, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, 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 7, 1997, except
for Note 2, paragraph 3,
as to which the date is
March 13, 1997
F-13
<PAGE> 103
BEVERLY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 69,761 $ 56,303
Accounts receivable -- patient, less allowance for
doubtful accounts:
1996 -- $25,618; 1995 -- $22,860....................... 491,063 514,820
Accounts receivable -- nonpatient, less allowance for
doubtful accounts:
1996 -- $401; 1995 -- $497............................. 13,480 15,995
Notes receivable.......................................... 10,746 7,460
Operating supplies........................................ 55,348 59,109
Deferred income taxes..................................... 14,543 24,892
Prepaid expenses and other................................ 42,304 38,013
---------- ----------
Total current assets.............................. 697,245 716,592
Property and equipment, net................................. 1,248,785 1,189,985
Other assets:
Notes receivable, less allowance for doubtful notes:
1996 -- $4,951; 1995 -- $4,953......................... 37,306 41,915
Designated and restricted funds........................... 75,848 57,082
Goodwill, net............................................. 356,197 380,681
Other, net................................................ 109,701 120,206
---------- ----------
Total other assets................................ 579,052 599,884
---------- ----------
$2,525,082 $2,506,461
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 99,121 $ 155,385
Accrued wages and related liabilities..................... 131,072 134,391
Accrued interest.......................................... 16,969 10,261
Other accrued liabilities................................. 93,042 88,869
Current portion of long-term obligations.................. 38,826 84,639
---------- ----------
Total current liabilities......................... 379,030 473,545
Long-term obligations....................................... 1,106,256 1,066,909
Deferred income taxes payable............................... 83,610 54,687
Other liabilities and deferred items........................ 95,091 90,987
Commitments and contingencies
Stockholders' equity:
Preferred stock, shares authorized: 25,000,000............ -- --
Common stock, shares issued: 1996 -- 104,432,848;
1995 -- 102,618,241.................................... 10,443 10,262
Additional paid-in capital................................ 774,672 766,549
Retained earnings......................................... 133,957 83,657
Treasury stock, at cost: 1996 -- 5,423,408 shares;
1995 -- 3,972,208 shares............................... (57,977) (40,135)
---------- ----------
Total stockholders' equity........................ 861,095 820,333
---------- ----------
$2,525,082 $2,506,461
========== ==========
</TABLE>
See accompanying notes.
F-14
<PAGE> 104
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net operating revenues................................... $3,267,189 $3,228,553 $2,969,239
Interest income.......................................... 13,839 14,228 14,578
---------- ---------- ----------
Total revenues................................. 3,281,028 3,242,781 2,983,817
Costs and expenses:
Operating and administrative:
Wages and related................................... 1,819,500 1,736,151 1,600,580
Other............................................... 1,139,442 1,224,681 1,114,916
Interest............................................... 91,111 84,245 64,792
Depreciation and amortization.......................... 105,468 103,581 88,734
Impairment of long-lived assets:
Adoption of SFAS No. 121............................ -- 68,130 --
Development and other costs......................... -- 32,147 --
---------- ---------- ----------
Total costs and expenses....................... 3,155,521 3,248,935 2,869,022
---------- ---------- ----------
Income (loss) before provision for income taxes and
extraordinary charge................................... 125,507 (6,154) 114,795
Provision for income taxes............................... 73,481 1,969 37,882
---------- ---------- ----------
Income (loss) before extraordinary charge................ 52,026 (8,123) 76,913
Extraordinary charge, net of income taxes of $1,099 in
1996 and $1,188 in 1994................................ (1,726) -- (2,412)
---------- ---------- ----------
Net income (loss)........................................ $ 50,300 $ (8,123) $ 74,501
========== ========== ==========
Net income (loss) applicable to common shares............ $ 50,300 $ (14,998) $ 66,251
========== ========== ==========
Income (loss) per share of common stock:
Primary:
Before extraordinary charge......................... $ .52 $ (.16) $ .79
Extraordinary charge................................ (.02) -- (.03)
---------- ---------- ----------
Net income (loss)................................... $ .50 $ (.16) $ .76
========== ========== ==========
Shares used to compute per share amounts............ 99,646 92,233 87,087
========== ========== ==========
Fully-diluted:
Before extraordinary charge......................... $ .50 $ (.16) $ .78
Extraordinary charge................................ (.02) -- (.02)
---------- ---------- ----------
Net income (loss)................................... $ .48 $ (.16) $ .76
========== ========== ==========
Shares used to compute per share amounts............ 111,002 92,233 98,428
========== ========== ==========
</TABLE>
See accompanying notes.
F-15
<PAGE> 105
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
--------- -------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994................ $ 150,000 $ 8,825 $590,909 $ 33,263 $(40,135) $ 742,862
Exercise of stock option grant........... -- 100 11,900 -- -- 12,000
Employee stock transactions, net......... -- 37 4,830 -- -- 4,867
Preferred stock dividends................ -- -- -- (8,250) -- (8,250)
Issuance of ATH preferred stock(1)....... -- -- 1,264 -- -- 1,264
Accretion of amounts due upon redemption
of ATH preferred stock(1)............. -- -- 859 (859) -- --
Net income............................... -- -- -- 74,501 -- 74,501
--------- -------- -------- -------- -------- ---------
Balances at December 31, 1994.............. 150,000 8,962 609,762 98,655 (40,135) 827,244
Issuance of 12,361,184 shares of common
stock for the purchase of PMSI........ -- 1,236 149,693 -- -- 150,929
Exchange of Preferred Stock into 5 1/2%
Debentures............................ (150,000) -- -- -- -- (150,000)
Employee stock transactions, net......... -- 64 7,094 -- -- 7,158
Preferred stock dividends................ -- -- -- (6,875) -- (6,875)
Net loss................................. -- -- -- (8,123) -- (8,123)
--------- -------- -------- -------- -------- ---------
Balances at December 31, 1995.............. -- 10,262 766,549 83,657 (40,135) 820,333
Employee stock transactions, net......... -- 181 8,123 -- -- 8,304
Purchase of common stock for treasury.... -- -- -- -- (17,842) (17,842)
Net income............................... -- -- -- 50,300 -- 50,300
--------- -------- -------- -------- -------- ---------
Balances at December 31, 1996.............. $ -- $ 10,443 $774,672 $133,957 $(57,977) $ 861,095
========= ======== ======== ======== ======== =========
</TABLE>
- ---------------
(1) Amounts were recorded by ATH prior to its merger with the Company in
September 1994.
See accompanying notes.
F-16
<PAGE> 106
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ 50,300 $ (8,123) $ 74,501
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 105,468 103,581 88,734
Impairment of long-lived assets.................. -- 100,277 --
Provision for reserves and discounts on patient,
notes and other receivables, net............... 28,544 15,889 14,107
Amortization of deferred financing costs......... 3,210 4,379 4,241
Extraordinary charge............................. 2,825 -- 3,600
Gains on dispositions of facilities and other
assets, net.................................... (20,951) (2,253) (9,749)
Deferred taxes................................... 33,765 (20,394) (2,031)
Net increase (decrease) in insurance related
accounts....................................... (22,336) (10,531) 8,342
Changes in operating assets and liabilities, net
of acquisitions and dispositions:
Accounts receivable -- patient................. (25,851) (84,420) (76,320)
Operating supplies............................. 3,226 1,649 (2,777)
Prepaid expenses and other receivables......... 771 (154) 1,597
Accounts payable and other accrued expenses.... (53,029) 16,370 (2,809)
Income taxes payable........................... 26,711 (6,194) 7,332
Other, net..................................... 527 (3,867) (13,361)
----------- ---------- ---------
Total adjustments........................... 82,880 114,332 20,906
----------- ---------- ---------
Net cash provided by operating activities... 133,180 106,209 95,407
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired..... (80,981) (34,184) (267,227)
Proceeds from dispositions of facilities and other
assets........................................... 121,660 46,892 77,211
Collections on notes receivable and REMIC
investment....................................... 12,809 15,594 8,393
Capital expenditures................................ (136,442) (161,911) (124,742)
Other, net.......................................... (8,547) (10,945) (12,375)
----------- ---------- ---------
Net cash used for investing activities...... (91,501) (144,554) (318,740)
Cash flows from financing activities:
Revolver borrowings................................. 1,308,000 1,017,000 62,000
Repayments of Revolver borrowings................... (1,230,000) (939,000) (62,000)
Proceeds from issuance of long-term obligations..... 228,862 25,000 309,308
Repayments of long-term obligations................. (318,447) (68,400) (98,340)
Purchase of common stock for treasury............... (15,445) -- --
Proceeds from exercise of stock options............. 3,620 2,146 14,509
Proceeds from issuance of ATH preferred stock....... -- -- 1,264
Deferred financing costs............................ (7,560) (2,161) (7,653)
Dividends paid on preferred stock................... (688) (8,250) (8,250)
Proceeds from designated funds, net................. 3,437 349 3,401
----------- ---------- ---------
Net cash provided by (used for) financing
activities................................ (28,221) 26,684 214,239
----------- ---------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... 13,458 (11,661) (9,094)
Cash and cash equivalents at beginning of year........ 56,303 67,964 77,058
----------- ---------- ---------
Cash and cash equivalents at end of year.............. $ 69,761 $ 56,303 $ 67,964
=========== ========== =========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)............. $ 81,193 $ 80,433 $ 59,242
Income taxes (net of refunds).................... 11,906 28,557 31,501
</TABLE>
See accompanying notes.
F-17
<PAGE> 107
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
References herein to the Company include Beverly Enterprises, Inc. and its
wholly-owned subsidiaries. The Company provides long-term healthcare in 35
states and the District of Columbia. Its operations include nursing facilities,
acute long-term transitional hospitals, institutional and mail service
pharmacies, rehabilitation therapy services, outpatient therapy clinics,
assisted living centers, hospices and home healthcare centers. 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 $38,446,000 in
1996 and $30,431,000 in 1995) is being amortized over 40 years or, if
applicable, the life of the lease 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
$18,716,000 in 1996 and $19,040,000 in 1995) 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 cash flows over the remaining amortization period, the carrying
value of the intangible will be reduced by such shortfall. As of December 31,
1996, the Company does not believe there is any indication that the carrying
value or the amortization period of its intangibles needs to be adjusted. See
"-- Impairment of Long-Lived Assets."
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
F-18
<PAGE> 108
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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. There were no material impairment adjustments recorded
during the year ended December 31, 1996.
In the fourth quarter of 1995, the Company recorded an impairment loss of
approximately $68,130,000 upon adoption of SFAS No. 121. Such loss primarily
related to certain nursing facilities, transitional hospitals, institutional
pharmacies and assisted living centers with current period operating losses.
Such current period operating losses, combined with a history of operating
losses and anticipated future operating losses, led management to believe that
impairment existed at such facilities. In addition, there were certain nursing
facilities for which management expected an adverse impact on future earnings
and cash flows as a result of recent changes in state Medicaid reimbursement
programs. Accordingly, management estimated the undiscounted future cash flows
to be generated by each facility. If the undiscounted future cash flow estimates
were less than the carrying value of the corresponding facility, management
estimated the fair value of such facility and wrote the carrying value down to
their estimate of fair value. Management calculated the fair value 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.
In addition to the SFAS No. 121 charge, the Company recorded a fourth
quarter of 1995 impairment loss for other long-lived assets of approximately
$32,147,000 primarily related to the write-off of software and business
development costs. During the fourth quarter of 1995, the Company hired a new
Senior Vice President of Information Technology, who redirected the Company's
systems development initiatives, causing a write-down, or a write-off, of
certain software and software development projects. In addition, the Company
wrote off certain business development and other costs where the Company
believed the carrying amount was unrecoverable.
Insurance
The Company insures auto liability, general liability and workers'
compensation risks, in most states, through insurance policies with third
parties, some of which may be subject to reinsurance agreements between the
insurer and Beverly Indemnity, Ltd., a wholly-owned subsidiary of the Company.
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. The discounted insurance
liabilities are included in the consolidated balance sheet captions as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued wages and related liabilities....................... $ 32,644 $ 35,265
Other accrued liabilities................................... 8,226 6,572
Other liabilities and deferred items........................ 90,714 84,720
-------- --------
$131,584 $126,557
======== ========
</TABLE>
On an undiscounted basis, the total insurance liabilities as of December
31, 1996 and 1995 were $170,099,000 and $164,060,000, respectively. As of
December 31, 1996, the Company had deposited approximately $94,500,000 in funds
(the "Beverly Indemnity funds") that are restricted for the payment of
F-19
<PAGE> 109
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
insured claims. In addition, the Company anticipates that approximately
$21,700,000 of its existing cash at December 31, 1996, while not legally
restricted, will be utilized to fund certain workers' compensation and general
liability claims, and the Company does not expect to use such cash for other
purposes.
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. See
Note 6 for the pro forma effects on the Company's reported net income and
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 75%, 77% and 80% of the Company's net
operating revenues for 1996, 1995 and 1994, respectively, were derived from
funds under federal and state medical assistance programs, and approximately
73%, 72% and 78% of the Company's net patient accounts receivable at December
31, 1996, 1995 and 1994, respectively, are due from such programs. 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, $19,700,000 and $11,000,000 of revenues for the years ended
December 31, 1996, 1995 and 1994, respectively.
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. 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.
Earnings per Share
For the years ended December 31, 1995 and 1994, net income (loss)
applicable to common shares was computed by deducting preferred stock dividends
from net income (loss), when dilutive. During the fourth quarter of 1995, the
Company exchanged its cumulative convertible exchangeable preferred stock into
5 1/2% convertible subordinated debentures. Primary earnings per share for the
years ended December 31, 1996 and 1994 were computed by dividing net income
applicable to common shares by the weighted average number of shares of Common
Stock outstanding during the period and the weighted average number of shares
issuable upon exercise of stock options, calculated using the treasury stock
method. Fully diluted earnings per share for the year ended December 31, 1996
was computed as above and assumed conversion of the Company's 5 1/2% convertible
subordinated debentures. Fully diluted earnings per share for the year ended
December 31, 1994
F-20
<PAGE> 110
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
was computed as above and assumed conversion of the Company's cumulative
convertible exchangeable preferred stock. Conversion of the Company's 7 5/8%
convertible subordinated debentures and zero coupon notes would have an
anti-dilutive effect and, therefore, were not assumed. For the year ended
December 31, 1995, primary and fully diluted earnings per share were computed by
dividing net loss applicable to common shares by the weighted average number of
shares of Common Stock outstanding during the period.
Other
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
2. ACQUISITIONS AND DISPOSITIONS
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 therapy
businesses, for approximately $80,000,000 cash, approximately $7,500,000
acquired debt, approximately $7,000,000 closing and other costs, approximately
$4,800,000 reduction in receivables and approximately $1,900,000 security and
other deposits. The acquisitions of such facilities and other assets were
accounted for as purchases. The Company does not operate three of such nursing
facilities which were 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 operations of these facilities and certain
other assets were immaterial to the Company's 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). MedView
provides a full range of managed care services to the workers' compensation
market and is the nation's largest workers' compensation-related preferred
provider organization with 120,000 member providers. It also offers case
management and injury reporting and tracking services. The operations of MedView
were immaterial to the Company's financial position and results of operations.
On March 13, 1997, the Company announced that it has entered into a
definitive agreement to sell 49 of its skilled nursing facilities in the state
of Texas to Complete Care Services, L.P. The transaction is scheduled to close
during the second quarter of 1997 and is subject to normal regulatory review.
The Company anticipates using the net cash proceeds generated from the sale for
one or more of the following purposes: strategic investments; repay
indebtedness; and repurchase Common Stock. The operations of these facilities
are immaterial to the Company's financial position and results of operations.
During the year ended December 31, 1995, the Company purchased 17
previously leased nursing facilities (2,118 beds), one previously leased
retirement living center (17 units) and certain other assets for approximately
$32,700,000 cash, approximately $40,400,000 acquired debt and approximately
$1,700,000 security and other deposits. The Company does not operate four of
such facilities which were subleased to other nursing home operators in prior
year transactions. Also during such period, the Company sold, subleased or
terminated the leases on 11 nursing facilities (1,199 beds), 12 homes for the
developmentally disabled (1,065 beds), six retirement living centers (1,141
units) and certain other assets for cash proceeds of approximately $39,400,000,
approximately $3,700,000 of notes receivable and the assumption of approximately
$52,800,000 of debt. In addition, the Company terminated a management agreement
on two nursing
F-21
<PAGE> 111
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)
facilities (150 beds) and four assisted living centers (510 units). The
operations of these facilities were immaterial to the Company's financial
position and results of operations.
In June 1995, the Company acquired Pharmacy Management Services, Inc.
("PMSI") in exchange for approximately 12,400,000 shares of the Company's Common
Stock plus closing and related costs. PMSI is a leading nationwide provider of
medical cost containment and managed care services to workers' compensation
payors and claimants. The acquisition was accounted for as a purchase and was
not material to the Company's financial position or results of operations.
During the year ended December 31, 1994, the Company purchased 19
previously leased nursing facilities (2,202 beds), one previously leased
retirement living center (20 units) and certain other assets for approximately
$43,600,000 cash, approximately $1,000,000 issuance of debt, approximately
$16,900,000 assumed and acquired debt and approximately $1,400,000 security and
other deposits. Also during such period, the Company sold, subleased or
terminated the leases on 77 nursing facilities (7,192 beds) and certain other
assets for cash proceeds of approximately $80,200,000, approximately $700,000 of
notes receivable and the assumption of approximately $40,000 of debt. The
operations of these facilities were immaterial to the Company's financial
position and results of operations.
During the third quarter of 1994, the Company issued 2,400,000 shares of
Common Stock for all of the outstanding stock of American Transitional
Hospitals, Inc. ("ATH"). ATH operates licensed hospitals specializing in
long-term acute care and transitional acute care to medically complex,
chronically ill patients. The merger was accounted for as a pooling of interests
and, accordingly the Company's consolidated financial statements were restated
to reflect ATH's financial position, results of operations and cash flows for
each period prior to the merger. All transactions between the Company and ATH
prior to the merger were eliminated in the restated consolidated financial
statements. The merger of ATH was not material to the Company's financial
position or results of operations.
In November 1994, Pharmacy Corporation of America ("PCA"), a wholly-owned
subsidiary of the Company, acquired Insta-Care Holdings, Inc. ("Insta-Care"),
for cash of approximately $112,000,000, as well as other costs incurred totaling
approximately $10,500,000. Insta-Care provides pharmaceutical dispensing
services in six states to approximately 65,000 patients in nursing homes and
correctional facilities. In December 1994, PCA acquired three institutional
pharmacy subsidiaries of Synetic, Inc. ("Synetic pharmacies"), for cash of
approximately $107,300,000, as well as other costs incurred totaling
approximately $6,000,000. The Synetic businesses provide pharmaceutical
dispensing services in the New England area and the state of Indiana to
approximately 45,000 patients in various institutions, including nursing homes,
transitional care facilities, correctional facilities and group homes. These
acquisitions were accounted for as purchases and were not material to the
Company's financial position or results of operations.
F-22
<PAGE> 112
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3. 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
----------------------- ----------------------- -----------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Land, buildings and improvements................ $1,476,988 $1,375,945 $1,424,517 $1,319,008 $52,471 $56,937
Furniture and equipment......................... 375,479 347,478 365,678 340,220 9,801 7,258
Construction in progress........................ 39,403 47,587 39,403 47,587 -- --
---------- ---------- ---------- ---------- ------- -------
1,891,870 1,771,010 1,829,598 1,706,815 62,272 64,195
Less accumulated depreciation and
amortization.................................. 643,085 581,025 601,330 537,704 41,755 43,321
---------- ---------- ---------- ---------- ------- -------
$1,248,785 $1,189,985 $1,228,268 $1,169,111 $20,517 $20,874
========== ========== ========== ========== ======= =======
</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 for
the years ended December 31, 1996, 1995 and 1994 was $85,221,000, $82,752,000
and $77,575,000, respectively.
F-23
<PAGE> 113
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31 (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Notes and mortgages, less imputed interest: 1996 -- $257,
1995 -- $312; due in installments through the year 2031,
at effective interest rates of 5.89% to 14.00%, a portion
of which is secured by property, equipment and other
assets with a net book value of $272,875 at December 31,
1996...................................................... $ 178,983 $ 158,597
Industrial development revenue bonds, less imputed interest:
1996 -- $48, 1995 -- $61; due in installments through the
year 2013, at effective interest rates of 4.99% to 10.52%,
a portion of which is secured by property and other assets
with a net book value of $221,964 at December 31, 1996.... 203,606 214,107
9% Senior Notes due February 15, 2006, unsecured............ 180,000 --
1996 Credit Agreement due December 31, 2001................. 156,000 --
1994 Credit Agreement (repaid in December 1996)............. -- 280,500
Term Loan under the 1992 Credit Facility (repaid in December
1996)..................................................... -- 55,000
Nippon Term Loan under the Nippon Credit Agreement (repaid
in December 1996)......................................... -- 20,000
Term Loan under the GE Capital Facility..................... 9,547 --
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 $16,924 at December 31,
1996...................................................... 19,362 19,765
8 5/8% First Mortgage Bonds due October 1, 2008, secured by
first mortgages on 11 nursing facilities with an aggregate
net book value of $30,417 at December 31, 1996............ 29,062 29,788
8 3/4% Notes due December 31, 2003, unsecured............... 24,845 24,875
7 3/4% Note due in quarterly installments through June 1,
2001, secured by first mortgages on 11 nursing facilities
and one assisted living center with an aggregate net book
value of $22,109 at December 31, 1996..................... 22,554 23,589
Series 1995 Bonds due June 2005, at interest rates 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 $70,902 at
December 31, 1996, which cannot be used to satisfy claims
of the Company or any of its subsidiaries................. 50,000 50,000
7 5/8% convertible subordinated debentures due March 15,
2003, convertible at $20.47 per share of Common Stock..... 67,924 67,924
5 1/2% convertible subordinated debentures due August 1,
2018, convertible at $13.33 per share of Common Stock..... 150,000 150,000
Zero coupon notes, face amount, less unamortized discount:
1996 -- $785, 1995 -- $1,039; maturing July 16, 2003,
anticipated to be due September 30, 1997, convertible into
13.32 shares of Common Stock per $1 note.................. 1,172 1,288
---------- ----------
1,118,055 1,120,433
Present value of capital lease obligations, less imputed
interest: 1996 -- $863, 1995 -- $972, at effective
interest rates of 5.71% to 13.00%......................... 27,027 31,115
---------- ----------
1,145,082 1,151,548
Less amounts due within one year............................ 38,826 84,639
---------- ----------
$1,106,256 $1,066,909
========== ==========
</TABLE>
F-24
<PAGE> 114
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4. LONG-TERM OBLIGATIONS -- (CONTINUED)
In February 1996, the Company completed the sale of $180,000,000 of 9%
Senior Notes due February 15, 2006 (the "Senior Notes") through a public
offering (the "Senior Notes offering") for net cash proceeds of approximately
$174,850,000. The Company used approximately $87,500,000 of such net proceeds to
prepay certain scheduled maturities on the Term Loan under its 1994 Credit
Agreement, approximately $28,000,000 to prepay certain scheduled maturities on
the Term Loan under its 1992 Credit Facility, approximately $8,750,000 to prepay
certain scheduled maturities under its Nippon Term Loan, and the remaining net
proceeds to repay Revolver borrowings and for general corporate purposes. The
Senior Notes are unsecured obligations, guaranteed by substantially all of the
Company's present and future subsidiaries (collectively, 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.
In July 1996, the Company entered into a term loan facility (the "GE
Capital Facility"), whereby the Company may borrow up to $25,000,000 from time
to time in separate series, in amounts and at interest rates based on the
three-year U.S. Treasury Note rate plus 230 basis points at the date of funding.
The GE Capital Facility requires monthly principal and interest payments and is
secured by a security interest in certain lighting equipment of various nursing
facilities. As of December 31, 1996, approximately $14,900,000 of aggregate
principal amount under the GE Capital Facility remained unissued.
In December 1996, the Company entered into a $375,000,000 Amended and
Restated Credit Agreement (the "1996 Credit Agreement") which provides for a
Revolver/Letter of Credit Facility (the "Revolver/LOC Facility"). The proceeds
from the 1996 Credit Agreement were used to repay the Term Loan and Revolver
borrowings under the 1994 Credit Agreement, the Term Loan under the 1992 Credit
Facility and the Nippon Term Loan. Borrowings under the 1996 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 $186,800,000 of unused commitments
under such facility at December 31, 1996. The 1996 Credit Agreement is secured
by a security interest in the stock of PCA and certain of its subsidiaries and
imposes on the Company certain financial tests and restrictive covenants. The
Company incurred a $1,726,000 extraordinary charge, net of income taxes, in 1996
related to the write-off of unamortized deferred financing costs associated with
the repayment of these debt instruments, as well as certain bond refundings.
The Company entered into various other notes and mortgages during 1996
totaling approximately $38,700,000 in conjunction with the purchase of certain
nursing facilities. Such debt instruments bear interest at rates ranging from
8.25% to 9.08%, 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 purchased nursing facilities.
During 1996, the Company filed a Registration Statement covering
$200,000,000 of debt securities, shares of preferred stock, shares of Common
Stock and warrants to purchase Common Stock which may be offered, separately or
together, in separate series in amounts, at prices and on terms to be determined
at the time of sale. The net proceeds from the offerings are anticipated to be
used for general corporate purposes,
F-25
<PAGE> 115
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4. LONG-TERM OBLIGATIONS -- (CONTINUED)
which may include, but are not limited to, working capital, capital
expenditures, repayments of indebtedness and acquisitions. As of December 31,
1996, no securities have been issued under such registration statement.
In 1993, the Company registered with the Securities and Exchange Commission
$100,000,000 aggregate principal amount of certain debt securities, which are to
be offered from time to time as separate series in amounts, at prices and on
terms to be determined at the time of sale. The Company issued $20,000,000 of
8 3/4% First Mortgage Bonds, $30,000,000 of 8 5/8% First Mortgage Bonds and
$25,000,000 of 8 3/4% Notes under such registration. As of December 31, 1996,
$25,000,000 of aggregate principal amount of debt securities under such
registration remained unissued.
Maturities and sinking fund requirements of long-term obligations,
including capital leases, for the years ending December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER TOTAL
------- ------- ------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Future minimum lease payments.................... $ 6,682 $ 5,191 $ 4,272 $ 3,202 $ 3,228 $ 24,920 $ 47,495
Less interest.................................... 2,457 2,127 1,839 1,620 1,446 10,979 20,468
------- ------- ------- ------- -------- -------- ----------
Net present value of future minimum lease
payments....................................... 4,225 3,064 2,433 1,582 1,782 13,941 27,027
Notes, mortgages, bonds and debentures........... 34,601 39,790 34,687 87,076 205,525 716,376 1,118,055
------- ------- ------- ------- -------- -------- ----------
$38,826 $42,854 $37,120 $88,658 $207,307 $730,317 $1,145,082
======= ======= ======= ======= ======== ======== ==========
</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 1996, 1995 or 1994.
5. 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, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997............................................................... $ 73,533
1998............................................................... 58,579
1999............................................................... 47,373
2000............................................................... 32,578
2001............................................................... 22,036
Thereafter......................................................... 57,076
--------
$291,175
========
</TABLE>
Total future minimum rental commitments are net of approximately
$15,194,000 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:
1996 -- $116,718,000; 1995 -- $127,074,000; 1994 -- $127,187,000. Sublease rent
income was approximately $4,595,000, $5,426,000 and
F-26
<PAGE> 116
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
5. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
$5,410,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Contingent rent expense, based primarily on revenues, was approximately
$18,000,000, $22,000,000 and $22,000,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
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. The future minimum
commitments as of December 31, 1996 required under such agreement, as amended,
are as follows: 1997 -- $6,133,000; 1998 -- $6,133,000; 1999 -- $3,578,000. The
Company incurred approximately $8,711,000, $8,529,000 and $8,906,000 under such
agreement during the years ended December 31, 1996, 1995 and 1994, respectively.
The Company is contingently liable for approximately $105,596,000 of
long-term obligations maturing on various dates through 2019, as well as annual
interest and letter of credit fees of approximately $8,460,000. 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 $25,891,000 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 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 (and the existing unions that
represent certain of them) are generally good, the Company cannot predict the
effect continued union representation or organizational activities will have on
the Company's future activities. 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.
There are various lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages. The Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on the Company's consolidated
financial position or results of operations.
6. STOCKHOLDERS' EQUITY
The Company had 300,000,000 shares of authorized $.10 par value common
stock ("Common Stock") at December 31, 1996 and 1995. 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, 1996 and 1995, all of
which remained 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. During 1996, the Company repurchased approximately
1,500,000 shares of its Common Stock at a cost of approximately $17,800,000. The
repurchases were financed primarily through proceeds from dispositions and
borrowings under the Company's Revolver/LOC Facility.
F-27
<PAGE> 117
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
During 1994, the Board of Directors of the Company adopted a Stockholder
Rights Plan (the "Rights Plan"). The Rights Plan provides for the distribution
of one Common Stock Purchase Right (the "Rights") for each share of Common Stock
outstanding at the close of business on November 2, 1994. Under certain
circumstances, the Rights become exercisable to purchase shares of Common Stock,
or securities of an acquiring entity, at one-half of market value. The Rights
are designed to protect stockholders in the event of an unsolicited attempt to
acquire the Company and to deal with the possibility of unilateral actions by
hostile acquirors. These Rights are redeemable at the option of the Company at
$.01 per Right. The issuance of the Rights has no dilutive effect on the
Company's earnings per share.
During 1996, the Beverly Enterprises, Inc. 1996 Long-Term Incentive Plan
was approved (the "1996 Long-Term Incentive Plan"). Such plan became effective
July 1, 1996 and will remain in effect until December 31, 2006, subject to the
earlier termination by the Board of Directors. The Company has 4,000,000 shares
of Common Stock authorized for issuance, subject to certain adjustments, under
the 1996 Long-Term Incentive Plan in the form of nonqualified stock options,
incentive stock options, stock appreciation rights, restricted stock,
performance awards and other stock unit awards. Nonqualified and incentive stock
options must be granted at a purchase price equal to market price on the date of
grant. All options are exercisable no sooner than six months from the grant date
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 are exercisable no sooner than six months from the
grant date 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 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. The Compensation Committee of the Board of Directors
is responsible for administering the 1996 Long-Term Incentive Plan and will have
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 200,000 shares of Common Stock authorized for issuance,
subject to certain adjustments, under its Nonemployee Directors' Plan. The
Nonemployee Directors' Plan provides that 2,500 nonqualified 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. Such nonqualified 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.
The Company has 3,000,000 shares of Common Stock authorized for issuance,
subject to certain adjustments, under its 1993 Incentive Stock Plan in the form
of nonqualified stock options, incentive stock options, restricted stock,
performance awards and other stock unit awards. Incentive stock options must be
granted at a purchase price equal to market price on the date of grant.
Nonqualified stock options may be granted at no less than 85% of market price on
the date of grant. All grants made at less than market price must be in lieu of
cash payments. All options are exercisable no sooner than one year from the
grant date 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 and other stock unit awards, including phantom units, may be
granted based on the achievement of certain performance or other goals and will
carry certain restrictions, as defined. The Compensation Committee of the Board
of Directors is responsible for administering the 1993 Incentive Stock Plan and
will have 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.
F-28
<PAGE> 118
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
The Company has 2,400,000 shares of Common Stock authorized for issuance
under its 1985 Nonqualified Stock Option Plan. Under the plan, options are
granted at a purchase price equal to market price on the date of grant, become
exercisable no sooner than one year after date of grant and expire no later than
12 years after date of grant, as determined by the Compensation Committee of the
Board of Directors. In addition to options, the plan provides for outright
grants of Common Stock, subject to forfeiture provisions. As a condition
precedent to the release of such shares, the employee must be continuously
employed with the Company from and after the date of grant and remain employed
on share release dates. Commencing one year after the grant date, the shares
will be released in accordance with a schedule determined at the time of grant.
During 1995, in conjunction with the acquisition of PMSI, the Company
assumed PMSI's 1990 Incentive and Non-statutory Stock Option Plan, as amended,
(the "PMSI Plan") and issued options to purchase shares of the Company's Common
Stock in exchange for each option then outstanding under the PMSI Plan. During
1994, in conjunction with the merger of ATH, the Company assumed ATH's 1993
Nonqualified Stock Option Plan (the "ATH Plan") and issued options to purchase
shares of the Company's Common Stock in exchange for each option then
outstanding under the ATH Plan. In addition, the Company signed an option
agreement with an officer of ATH and issued options to purchase shares of ATH
stock previously held by such officer. Also during 1994, in conjunction with the
acquisition of Insta-Care, the Company issued options to purchase shares of its
Common Stock in exchange for each option then outstanding under the Insta-Care
Holdings, Inc. First Employees Stock Option Plan (the "Insta-Care Plan"). No
options are available for grant under the PMSI Plan, the ATH Plan or the
Insta-Care Plan.
F-29
<PAGE> 119
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
The following table summarizes stock option, restricted stock and other
stock units data relative to the Company's 1996 Long-Term Incentive Plan, the
Nonemployee Directors' Plan, the 1993 Incentive Stock Plan, the 1985
Nonqualified Stock Option Plan, the PMSI Plan, the ATH Plan and the Insta-Care
Plan for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year...... 4,394,382 $ 9.02 4,375,441 $ 8.74 3,989,411 $ 8.26
Changes during the year:
Granted................ 1,696,500 12.38 355,500 13.04 635,000 14.01
Acquired............... -- -- 342,311 6.17 269,620 1.22
Exercised.............. (833,587) 5.41 (416,010) 5.22 (375,369) 6.35
Cancelled.............. (348,568) 12.39 (262,860) 12.19 (143,221) 10.82
--------- --------- ---------
Options outstanding at
end of year............ 4,908,727(1) 10.55 4,394,382 9.02 4,375,441 8.74
========= ========= =========
Options exercisable at
end of year............ 2,560,209 8.75 3,028,903 7.52 2,340,512 7.24
========= ========= =========
Options available for
grant.................. 3,052,403 1,243,953 1,735,318
========= ========= =========
Restricted stock
outstanding at
beginning of year...... 306,052 267,353 431,800
Changes during the year:
Granted................ 29,000 236,555 14,553
Vested................. (148,352) (182,153) (167,000)
Forfeited.............. (41,500) (15,703) (12,000)
--------- --------- ---------
Restricted stock
outstanding at end of
year................... 145,200 306,052 267,353
========= ========= =========
Phantom units outstanding
at beginning of year... 90,942 44,529 --
Changes during the year:
Granted................ -- 54,110 44,529
Vested................. (6,982) -- --
Cancelled.............. (7,191) (7,697) --
--------- --------- ---------
Phantom units outstanding
at end of year......... 76,769 90,942 44,529
========= ========= =========
Performance units
outstanding at
beginning of year...... -- -- --
Changes during the year:
Granted................ 1,040,000 -- --
Cancelled.............. (48,000) -- --
--------- --------- ---------
Performance units
outstanding at end of
year................... 992,000 -- --
========= ========= =========
</TABLE>
- ---------------
(1) Exercise prices for options outstanding as of December 31, 1996 ranged from
$0.83 to $18.63. The weighted-average remaining contractual life of these
options is seven years.
F-30
<PAGE> 120
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
The Company accounts for its stock-based awards in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and related Interpretations because, as discussed
below, the alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") requires use of option valuation models that
were not developed for use in valuing employee stock options. Since the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized for
employee stock options under APB No. 25. The Company recognizes compensation
expense for its restricted stock grants, performance unit grants (when the
performance targets are achieved) and other stock unit awards. The total charges
to the Company's consolidated statements of operations for the years ended
December 31, 1996, 1995 and 1994 related to these stock-based awards were
approximately $509,000, $3,065,000 and $1,189,000, respectively.
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 1996 and 1995 stock option and performance unit 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, 1996 and 1995, respectively: risk-free interest rates of 6.5% and
6.0%; volatility factors of the expected market price of the Company's Common
Stock of .34 and .35; and a weighted-average expected life of the option of 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 1996 and
1995 of $7.30 per share and $7.65 per share, respectively. The fair value of the
performance unit grants was based on the market value of the Company's Common
Stock on the date of grant.
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 units is amortized to expense over their
respective vesting periods. The pro forma effects on reported net income (loss)
and earnings per share assuming the Company had elected to account for its stock
option and performance unit grants in accordance with SFAS No. 123 for the years
ended December 31, 1996 and 1995, respectively, would have been net income of
$48,964,000 or $.49 per share and net loss of $8,408,000 or $.17 per share. 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, 1996, 1995 and 1994 related to this
plan were approximately $2,258,000, $2,201,000 and $1,790,000, respectively.
F-31
<PAGE> 121
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. INCOME TAXES
The provisions for taxes on income before extraordinary charge consist of
the following for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Federal:
Current............................................ $31,615 $ 17,518 $31,523
Deferred........................................... 29,466 (16,877) (2,824)
State:
Current............................................ 8,101 4,845 8,390
Deferred........................................... 4,299 (3,517) 793
------- -------- -------
$73,481 $ 1,969 $37,882
======= ======== =======
</TABLE>
The Company had an annual effective tax rate of 59% for the year ended
December 31, 1996, compared to a negative annual effective tax rate of 32% and
an annual effective tax rate of 33% for the years ended December 31, 1995 and
1994, respectively. 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 MedView disposition (see Note 2). The annual effective tax
rate in 1995 was different than the federal statutory rate primarily due to the
impact of nondeductible goodwill included in the adjustments resulting from the
adoption of SFAS No. 121. In addition, the Company's annual effective tax rate
for 1994 was lower than the federal statutory rate primarily due to the
utilization of certain tax credit carryforwards, partially offset by the impact
of state income taxes.
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>
1996 1995 1994
-------------- -------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------- --- ------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Tax (benefit) at statutory
rate........................... $43,927 35 $(2,154) 35 $ 40,178 35
General business tax credits..... -- -- (1,014) 17 (16,199) (14)
State tax provision, net......... 8,060 6 863 (14) 6,130 5
Nondeductible intangibles........ 20,881 17 3,797 (62) 940 1
Other............................ 613 1 477 (8) 6,833 6
------- -- ------- --- -------- ---
$73,481 59 $ 1,969 (32) $ 37,882 33
======= == ======= === ======== ===
</TABLE>
F-32
<PAGE> 122
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. INCOME TAXES -- (CONTINUED)
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, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Insurance reserves.............................. $ 55,540 $ -- $ 53,333 $ --
General business tax credit carryforwards....... 12,236 -- 20,784 --
Alternative minimum tax credit carryforwards.... 14,698 -- 15,129 --
Provision for dispositions...................... 11,009 6,152 17,825 6,771
Depreciation and amortization................... 1,401 141,804 25,395 143,267
Operating supplies.............................. -- 14,206 -- 13,378
Other........................................... 22,995 24,784 23,666 22,511
-------- -------- -------- --------
$117,879 $186,946 $156,132 $185,927
======== ======== ======== ========
</TABLE>
At December 31, 1996, the Company had general business tax credit
carryforwards of $12,236,000 for income tax purposes which expire in years 2005
through 2011. For financial reporting purposes, the general business tax credit
carryforwards have been utilized to offset existing net taxable temporary
differences reversing during the carryforward periods.
8. 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 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 other loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.
F-33
<PAGE> 123
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
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. Such funds are 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. These funds are invested primarily in United States
government securities with maturity dates ranging primarily from one to five
years. The Company intends to hold such securities to maturity.
Investment in a Real Estate Mortgage Investment Conduit (REMIC)
The fair value of the Company's REMIC investment, which is included in the
consolidated balance sheet caption "Other, net," is based on information
obtained from the REMIC servicer. The Company intends to convert the REMIC
investment to notes receivable from the underlying note makers during 1997. Such
conversion to notes in 1997 is not expected to have a material adverse effect on
the carrying amount or fair value disclosed.
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.
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents......... $ 69,761 $ 69,761 $ 56,303 $ 56,303
Notes receivable, net (including
current portion)................ 48,052 49,900 49,375 51,800
Beverly Indemnity funds........... 94,472 94,821 58,284 59,806
REMIC investment.................. 8,052 8,084 17,974 18,000
Long-term obligations (including
current portion)................ 1,145,082 1,161,031 1,151,548 1,175,000
</TABLE>
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 was not practicable to estimate
the fair value of the Company's off-balance sheet guarantees (See Note 5). 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.
9. ADDITIONAL INFORMATION
Effective July 31, 1987, Beverly Enterprises, a California corporation
("Beverly California"), became a wholly-owned subsidiary of Beverly Enterprises,
Inc., a Delaware corporation ("Beverly Delaware"). Effective
F-34
<PAGE> 124
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
9. ADDITIONAL INFORMATION -- (CONTINUED)
January 1, 1995, Beverly California changed its name to Beverly Health and
Rehabilitation Services, Inc. ("BHRS") and distributed certain of its
wholly-owned subsidiaries to Beverly Delaware in an effort to better focus
management's attention on specific services delivered by the Company within the
long-term healthcare arena. Beverly Delaware (the parent) provides financial,
administrative and legal services to its subsidiaries, including BHRS, for which
it charges management fees.
The following summarized financial information concerning BHRS is being
reported because BHRS's 7 5/8% convertible subordinated debentures due March
2003 and its zero coupon notes (collectively, the "Debt Securities") are
publicly-held. Beverly Delaware is co-obligor of these Debt Securities. Summary
financial information for BHRS is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues.......................................... $2,717,360 $2,797,348 $2,985,107
Total costs and expenses................................ 2,581,647 2,780,463 2,870,529
Income before extraordinary charge...................... 80,071 7,598 76,767
Net income.............................................. 78,345 7,598 74,777
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C> <C>
Current assets.......................................... $ 369,501 $ 421,641
Long-term assets........................................ 1,404,292 1,365,413
Current liabilities..................................... 184,887 367,074
Long-term liabilities................................... 795,593 709,515
</TABLE>
F-35
<PAGE> 125
BEVERLY ENTERPRISES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
DUE TO
BALANCE AT CHARGED ACQUISITIONS BALANCE
BEGINNING (CREDITED) TO AND AT END OF
DESCRIPTION OF YEAR OPERATIONS WRITE-OFFS DISPOSITIONS OTHER YEAR
----------- ---------- ------------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
======= ======== ======== ======== ======== ========
Year ended December 31, 1995:
Allowance for doubtful accounts:
Accounts receivable -- patient.... $28,293 $ 21,008 $(30,326) $ 3,885 $ -- $ 22,860
Accounts
receivable -- non-patient....... 2,802 (1,919) (70) -- -- 813*
Notes receivable.................. 6,429 (3,200) (61) 1,285 500 4,953
------- -------- -------- -------- -------- --------
$37,524 $ 15,889 $(30,457) $ 5,170 $ 500 $ 28,626
======= ======== ======== ======== ======== ========
Valuation allowance on deferred tax
assets............................ $ 198 $ (198) $ -- $ -- $ -- $ --
======= ======== ======== ======== ======== ========
Year ended December 31, 1994:
Allowance for doubtful accounts:
Accounts receivable -- patient.... $19,999 $ 18,124 $(20,109) $ 10,339 $ (60) $ 28,293
Accounts
receivable -- nonpatient........ 343 233 (334) -- 2,560 2,802*
Notes receivable.................. 10,440 (4,250) (58) -- 297 6,429
------- -------- -------- -------- -------- --------
$30,782 $ 14,107 $(20,501) $ 10,339 $ 2,797 $ 37,524
======= ======== ======== ======== ======== ========
Accrued restructuring costs......... $34,310 $ (2,400) $ -- $(15,684) $(16,226)(1) $ --
======= ======== ======== ======== ======== ========
Valuation allowance on deferred tax
assets............................ $15,097 $(14,899) $ -- $ -- $ -- $ 198
======= ======== ======== ======== ======== ========
</TABLE>
- ---------------
* Includes amounts classified in long-term other assets as well as current
assets.
(1) Primarily relates to costs of relocating certain administrative, operations
and management information system support functions.
F-36
<PAGE> 126
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Pharmacy Corporation of America
We have audited the accompanying consolidated balance sheets of Pharmacy
Corporation of America as of December 31, 1996 and 1995, and the related
consolidated statements of income and retained earnings, and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement Schedule II -- Valuation and Qualifying
Accounts of Pharmacy Corporation of America. 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
Pharmacy Corporation of America at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, 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
April 18, 1997
F-37
<PAGE> 127
PHARMACY CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,575 $ 3,315
Accounts receivable, less allowance for doubtful accounts:
1996 -- $13,070, 1995 -- $17,913....................... 93,078 84,651
Notes and other receivables, less allowance for doubtful
accounts: 1996 -- $820, 1995 -- $352................... 1,383 2,892
Inventory................................................. 22,025 25,175
Prepaid expenses and other................................ 335 298
-------- --------
Total current assets.............................. 124,396 116,331
Property and equipment, net (Note 3)........................ 32,698 28,551
Other assets:
Goodwill, net............................................. 276,430 277,360
Systems development, net.................................. 4,837 4,627
Other, net................................................ 3,215 2,003
-------- --------
Total other assets................................ 284,482 283,990
-------- --------
$441,576 $428,872
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 18,017 $ 25,039
Accrued wages and related liabilities..................... 6,656 4,212
Other accrued liabilities................................. 6,621 8,938
Current portion of long-term obligations (Note 4)......... 968 630
-------- --------
Total current liabilities......................... 32,262 38,819
Long-term obligations (Note 4).............................. 1,334 125
Deferred income taxes....................................... 3,980 --
Due to Parent (Notes 4, 6, 9 and 10)........................ 312,395 318,610
Commitments and contingencies (Note 5)
Stockholder's equity:
Common stock, $1.00 par value, 1,000 shares authorized,
issued and outstanding................................. 1 1
Additional paid-in capital................................ 3,866 3,866
Retained earnings......................................... 87,738 67,451
-------- --------
Total stockholder's equity........................ 91,605 71,318
-------- --------
$441,576 $428,872
======== ========
</TABLE>
See accompanying notes.
F-38
<PAGE> 128
PHARMACY CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Non-affiliates............................................ $434,317 $377,664 $170,299
Affiliates (Note 9)....................................... 82,083 74,021 77,213
-------- -------- --------
Total revenues.................................... 516,400 451,685 247,512
Cost of goods sold.......................................... 280,468 242,761 117,045
-------- -------- --------
Gross profit................................................ 235,932 208,924 130,467
Operating expenses:
Wages and related......................................... 118,888 106,742 61,619
Selling, general and administrative....................... 50,377 48,334 28,302
Provision for doubtful accounts........................... 13,500 17,679 7,388
Depreciation and amortization............................. 16,392 13,219 5,734
Management fees (Note 9).................................. 1,820 2,844 2,075
Impairment of long-lived assets (Note 1):
Adoption of SFAS No. 121............................... -- 5,392 --
Development costs...................................... -- 4,151 --
-------- -------- --------
Total operating expenses.......................... 200,977 198,361 105,118
-------- -------- --------
Income before provision for income taxes.................... 34,955 10,563 25,349
Provision for income taxes (Note 6)......................... 14,668 5,977 10,291
-------- -------- --------
Net income.................................................. 20,287 4,586 15,058
Retained earnings, beginning of year........................ 67,451 62,865 47,807
-------- -------- --------
Retained earnings, end of year.............................. $ 87,738 $ 67,451 $ 62,865
======== ======== ========
</TABLE>
See accompanying notes.
F-39
<PAGE> 129
PHARMACY CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 20,287 $ 4,586 $ 15,058
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 16,392 13,219 5,734
Impairment of long-lived assets........................ -- 9,543 --
Gain on dispositions of assets......................... (250) -- --
Provision for doubtful accounts........................ 13,500 17,679 7,388
Deferred income taxes (benefit)........................ 4,159 (909) 635
Change in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable.................................. (21,474) (22,489) (14,972)
Inventory............................................ 3,510 2,282 (1,173)
Prepaid expenses and other receivables............... (44) 614 147
Accounts payable and accrued expenses................ (7,498) (2,836) 6,595
-------- -------- ---------
Total adjustments................................. 8,295 17,103 4,354
-------- -------- ---------
Net cash provided by operating activities......... 28,582 21,689 19,412
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired........... (10,835) (2,151) (223,435)
Proceeds from dispositions................................ 2,152 -- --
Capital expenditures...................................... (7,803) (10,497) (6,903)
Systems development....................................... (1,813) (2,601) (504)
Other, net................................................ 329 1,852 (11)
-------- -------- ---------
Net cash used for investing activities............ (17,970) (13,397) (230,853)
Cash flows from financing activities:
Advances (to) from Parent, net............................ (5,064) (9,716) 216,735
Proceeds from issuance of long-term obligations........... -- 143 --
Repayments of long-term obligations....................... (1,288) (877) (1,079)
-------- -------- ---------
Net cash provided by (used for) financing
activities...................................... (6,352) (10,450) 215,656
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents........ 4,260 (2,158) 4,215
Cash and cash equivalents at beginning of year.............. 3,315 5,473 1,258
-------- -------- ---------
Cash and cash equivalents at end of year.................... $ 7,575 $ 3,315 $ 5,473
======== ======== =========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest............................................... $ 11 $ 35 $ 517
</TABLE>
See accompanying notes.
F-40
<PAGE> 130
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Pharmacy Corporation of America (the "Company") is a wholly-owned
subsidiary of Beverly Enterprises, Inc. ("Beverly"). The Company is one of the
nation's largest institutional pharmacies delivering drugs and related products
and services, infusion therapy and other healthcare products (enteral and
urological) to nursing facilities, acute care and transitional care hospitals,
home care providers, psychiatric facilities, correctional facilities, assisted
living centers, retirement homes and their patients. The Company also provides
consultant pharmacist services, which include evaluations of patient drug
therapy, and drug handling, distribution and administration within a nursing
facility as well as assistance with state and federal regulatory compliance. The
Company's mail service pharmacy delivers drugs and medical equipment to workers'
compensation payors, claimants and employers. As of December 31, 1996, the
Company operated 57 pharmacies and pharmacy-related outlets located in 25
states. All references to the Company shall mean Pharmacy Corporation of America
and its consolidated subsidiaries. All significant intercompany accounts and
transactions between the Company and its subsidiaries have been eliminated. (See
Note 10.)
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.
INVENTORY
Inventory, consisting of pharmaceuticals and other products held for
resale, are carried primarily at the lower of cost (first-in, first-out) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation or,
where appropriate, the present value of the related capital lease obligation
less accumulated amortization. Depreciation and amortization are computed by the
straight-line method over the estimated useful lives of the assets.
INTANGIBLES
Goodwill (stated at cost less accumulated amortization of approximately
$17,865,000 and $10,586,000 in 1996 and 1995, respectively) is being amortized
over 40 years using the straight-line method.
Software development (stated at cost less accumulated amortization of
approximately $5,674,000 and $4,068,000 in 1996 and 1995, respectively) is being
amortized over five years using the straight-line method. Software development
costs consist of incremental wages and related costs as well as travel expenses
directly attributable to the development of software to be used in the
operations of the Company and the cost of any purchased software packages.
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 cash flows over the remaining amortization period, the carrying
value of the intangible will be reduced by such
F-41
<PAGE> 131
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
shortfall. As of December 31, 1996, the Company does not believe there is any
indication that the carrying value or the amortization period of its intangibles
needs to be adjusted.
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 future
cash flows are not sufficient to recover the assets' carrying amounts. The
impairment loss is measured by comparing the fair value of an asset to its
carrying amount.
In 1995, the Company recorded an impairment loss of approximately
$5,392,000 upon adoption of SFAS No. 121. The impairment indicators which led to
recording this loss were as follows: two pharmacies, purchased by the Company in
late 1994, had operating losses in 1995, and the Company anticipated future
operating losses for these facilities primarily related to Beverly's lack of
presence in the markets; one pharmacy, located in a state where Beverly had
recently sold all of its interest, began to lose the contracts that had been
assumed by the new owners, and it became apparent that the operations would not
recover to their previous level; and, lastly, the Company operates a medical
records servicing business which lost approximately half of its business in 1995
when Beverly pursued a different vendor for this service. Accordingly,
management estimated the undiscounted future cash flows to be generated by each
business. The undiscounted future cash flow estimates were less than the
carrying value of such businesses, so management estimated the fair value of
such businesses and wrote the carrying values down to their estimates of fair
value. Management calculated the fair values of the impaired businesses by using
the present values of estimated future cash flows.
In addition to the SFAS No. 121 charge, the Company recorded an impairment
loss in 1995 of approximately $4,151,000 primarily related to the write-off of
software costs. In conjunction with the Company's 1995 acquisition of
Prescription Management Services, Inc. ("PMSI") (see Note 2), PMSI's Vice
President of Management Information Systems assumed the management information
systems' functions for the Company and redirected the Company's systems
development initiatives, which caused a write-off of certain software and
systems development costs.
INSURANCE
The Company is insured for general liability and workers' compensation
risks through Beverly's self-insurance programs. Beverly allocates expense to
the Company based on the relative percentage of insurance costs incurred by
Beverly on behalf of the Company. Total insurance allocations to the Company
were approximately $1,829,000, $1,409,000 and $919,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Management believes these
charges represent a reasonable allocation of the costs incurred by Beverly on
behalf of the Company.
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 stock-based awards in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees,"
F-42
<PAGE> 132
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
and, accordingly, recognizes no compensation expense for stock option grants.
See Note 7 for the pro forma effects on the Company's reported net income
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 pharmaceuticals
and related healthcare products and services to long-term care facilities, acute
care and transitional care hospitals, home care providers, psychiatric
facilities, correctional facilities and their patients. The Company's mail
service pharmacy delivers drugs and medical equipment to workers' compensation
payors, claimants and employers. The Company records fees at the time the
services or products are provided. These revenues are reported at the estimated
net amounts to be received from individuals, third party payors, nursing
facilities and others. Approximately 37%, 41% and 41% of the Company's operating
revenues for 1996, 1995 and 1994, respectively, were derived from funds under
federal and state medical assistance programs, and approximately 43% of the
Company's net accounts receivable at December 31, 1996 and 1995 are due from
such programs.
Concentration of Credit Risk
The Company has significant accounts receivable whose collectibility or
realizability is dependent upon the performance of certain governmental
programs, primarily Medicaid and Medicare. These receivables represent the only
concentration of credit risk for the Company. 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 proving uncollectible and continually monitors and adjusts
these allowances as necessary. See also Note 9 for a discussion of business with
Beverly.
2. ACQUISITIONS
During 1996, the Company acquired three institutional pharmacies for cash
of approximately $10,835,000 and disposed of one institutional pharmacy for cash
proceeds of approximately $2,152,000. The acquisitions were accounted for as
purchases.
In June 1995, Beverly acquired Pharmacy Management Services, Inc. ("PMSI")
in exchange for approximately 12,361,000 shares of Beverly common stock, plus
closing and related costs, for a total purchase price of approximately
$162,900,000. As a leading independent nationwide provider of medical cost
containment and managed care services to workers' compensation payors and
claimants, PMSI's services included pharmacy benefit management through both a
national retail pharmacy network and home delivery of prescription drugs,
medical supplies and medical equipment ("mail service business") as well as
workers' compensation preferred provider organization ("PPO business"). The
mail-service business was contributed by Beverly to the Company in June 1995,
and has been operated by the Company since that time. The PPO business was
transferred to another of Beverly's wholly-owned subsidiaries. Beverly's
acquisition of PMSI was accounted for as a purchase and resulted in additional
goodwill to Beverly of approximately $139,600,000. Based on the fair value of
the mail service net assets, Beverly allocated approximately $97,700,000 of the
PMSI purchase price to the Company, including goodwill of approximately
$83,800,000. The Company also purchased one institutional pharmacy during 1995
for cash of approximately $2,492,000. This acquisition was accounted for as a
purchase.
In November 1994, the Company acquired Insta-Care Holdings, Inc.,
("Insta-Care") for cash of approximately $112,000,000 as well as other costs
incurred totaling approximately $8,600,000. Insta-Care provided pharmaceutical
dispensing services in six states to approximately 65,000 patients in nursing
homes
F-43
<PAGE> 133
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. ACQUISITIONS -- (CONTINUED)
and correctional facilities. In December 1994, the Company acquired three
institutional pharmacy subsidiaries of Synetic, Inc., ("Synetic") for cash of
approximately $107,300,000, as well as other costs incurred totaling
approximately $6,000,000. The Synetic businesses provided pharmaceutical
dispensing services in New England and Indiana to approximately 45,000 patients
in various institutions, including nursing homes, transitional care facilities,
correctional facilities and group homes. These acquisitions were accounted for
as purchases and resulted in additional goodwill for the Company of
approximately $95,100,000 related to Insta-Care and approximately $90,800,000
related to Synetic. The Company consummated such transactions with funds
provided by Beverly. Beverly borrowed such funds through banking arrangements
(see Note 4). The Company also purchased one institutional pharmacy during 1994
for cash of approximately $782,000. This acquisition was accounted for as a
purchase.
Summarized below are the unaudited proforma consolidated results of
operations of the Company for the years ended December 31, 1995 and 1994,
assuming the PMSI, Insta-Care and Synetic transactions discussed above had
occurred as of January 1, 1994. The operations of all of the other pharmacies
acquired or disposed of during 1996, 1995 and 1994 were immaterial to the
Company's financial position and results of operations.
These unaudited proforma consolidated results of operations have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had those transactions been made at January 1, 1994, or
of results which may occur in the future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994
-------- ------------------------
INSTA-CARE,
INSTA-CARE SYNETIC
PMSI & SYNETIC & PMSI
-------- ---------- -----------
<S> <C> <C> <C>
Revenues.................................................... $493,262 $421,379 $505,350
Income before provision for income taxes.................... 12,827 30,217 35,863
Net income.................................................. 5,567 17,950 21,304
</TABLE>
3. PROPERTY AND EQUIPMENT
Following is a summary of property and equipment and related accumulated
depreciation and amortization by major classifications at December 31 (in
thousands):
<TABLE>
<CAPTION>
TOTAL OWNED LEASED
----------------- ----------------- ---------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Leasehold improvements..................... $11,460 $ 9,941 $11,460 $ 9,941 $ -- $ --
Furniture and equipment.................... 44,156 34,859 39,764 33,146 4,392 1,713
Construction in progress................... 345 550 345 550 -- --
------- ------- ------- ------- ------ ------
55,961 45,350 51,569 43,637 4,392 1,713
Less: accumulated depreciation and
amortization......................... 23,263 16,799 21,238 15,456 2,025 1,343
------- ------- ------- ------- ------ ------
$32,698 $28,551 $30,331 $28,181 $2,367 $ 370
======= ======= ======= ======= ====== ======
</TABLE>
The estimated useful lives of the assets are as follows: 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 initial terms of
the leases.
Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1996, 1995 and 1994 was approximately $6,737,000,
$4,534,000 and $3,363,000, respectively.
F-44
<PAGE> 134
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Present value of capital lease obligations, at effective
interest rates of 6.25% to 9.25%.......................... $2,262 $412
Non-interest bearing note due July 1996..................... -- 250
Other notes payable......................................... 40 93
------ ----
2,302 755
Less amounts due within one year............................ 968 630
------ ----
$1,334 $125
====== ====
</TABLE>
Scheduled maturities of long-term obligations, including capital leases,
for the years ending December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER TOTAL
------ ---- ---- ---- ---- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Future minimum lease payments................ $1,088 $983 $440 $4 $4 $1 $2,520
Less interest................................ 157 82 18 1 -- -- 258
------ ---- ---- -- -- --- ------
Net present value of future minimum lease
payments................................... 931 901 422 3 4 1 2,262
Notes payable................................ 37 3 -- -- -- -- 40
------ ---- ---- -- -- --- ------
$ 968 $904 $422 $3 $4 $1 $2,302
====== ==== ==== == == === ======
</TABLE>
Included in the Company's "Due to Parent" account at December 31, 1996 and
1995 is a $225,000,000 obligation to repay Beverly for certain bank debt, as
discussed below. Beverly executed a credit agreement on November 1, 1994, which
provided for, among other things, a $225,000,000 Term Loan (the "Term Loan").
The proceeds from the Term Loan were used to consummate the Insta-Care and
Synetic acquisitions (as previously discussed). No interest has been charged to
the Company related to this debt obligation or any other amounts included in the
"Due to Parent" account. In December 1996, Beverly repaid the Term Loan with the
net proceeds from a $375,000,000 Amended and Restated Credit Agreement. Such
credit agreement provides for a Revolver/Letter of Credit Facility (the
"Revolver/LOC Facility"). Borrowings under the Revolver/LOC Facility bear
interest at adjusted LIBOR plus .875%, the Prime Rate, as defined, or the
adjusted CD rate, as defined, plus 1%, at Beverly's option. Such interest rates
may be adjusted quarterly based on certain financial ratio calculations. The
Revolver/LOC Facility is secured by a security interest in the stock of the
Company and matures on December 31, 2001.
F-45
<PAGE> 135
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
5. COMMITMENTS AND CONTINGENCIES
The future minimum rental commitments required by noncancelable operating
leases on the Company's pharmacy locations with initial or remaining terms in
excess of one year as of December 31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997...................................................... $ 3,830
1998...................................................... 3,215
1999...................................................... 2,586
2000...................................................... 1,895
2001...................................................... 1,493
Thereafter................................................ 3,610
-------
$16,629
=======
</TABLE>
The Company leases all of its pharmacy locations and certain of its
equipment primarily under operating leases. Rent expense on operating leases for
the years ended December 31 was as follows: 1996 -- $12,142,000;
1995 -- $13,005,000; 1994 -- $8,037,000. Contingent rent, based primarily on
increases in the consumer price index, was approximately $343,000, $437,000 and
$511,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company's capital and operating leases primarily have initial terms of
five years with renewal options (which could extend the term of the leases by up
to five years), contain escalation clauses and have provisions for payments by
the Company of real estate taxes, insurance and maintenance costs.
The Company is contingently liable for Beverly's $180,000,000 of 9% Senior
Notes due February 15, 2006 (the "Senior Notes"). Beverly issued the Senior
Notes in February 1996 through a public offering and used the net cash proceeds
to repay indebtedness. The Senior Notes are unsecured obligations of Beverly,
guaranteed by substantially all of Beverly's present and future subsidiaries and
impose certain restrictive covenants.
There are various lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages. The Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
F-46
<PAGE> 136
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. INCOME TAXES
The Company joins with Beverly in the filing of consolidated income tax
returns. The tax provisions for Beverly subsidiaries, including the Company, are
determined on a separate company basis, as required. The resultant income taxes
payable to, or tax benefit receivable from, Beverly flows through the "Due to
Parent" account. Beverly accounts for income taxes using the liability method
required by Financial Accounting Standards Statement No. 109, "Accounting for
Income Taxes." The Company's provision for income taxes consists of the
following for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Federal:
Current.................................................. $ 8,649 $5,667 $ 7,946
Deferred................................................. 3,423 (748) 523
State:
Current.................................................. 1,860 1,219 1,710
Deferred................................................. 736 (161) 112
------- ------ -------
$14,668 $5,977 $10,291
======= ====== =======
</TABLE>
The Company's annual effective tax rate was approximately 42%, 56.6% and
40.6% for the years ended December 31, 1996, 1995 and 1994, respectively. A
reconciliation of the provision for income taxes, computed at the statutory
rate, to the Company's annual effective tax rate is summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- --------------
AMOUNT % AMOUNT % AMOUNT %
------- ---- ------ ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate.................. $12,234 35.0 $3,697 35.0 $ 8,872 35.0
State tax provision.................... 1,688 4.8 688 6.5 1,185 4.7
Amortization of intangibles............ 561 1.6 1,519 14.4 182 0.7
Other.................................. 185 0.6 73 0.7 52 0.2
------- ---- ------ ---- ------- ----
$14,668 42.0 $5,977 56.6 $10,291 40.6
======= ==== ====== ==== ======= ====
</TABLE>
In accordance with Statement No. 109, deferred income taxes for 1996, 1995
and 1994 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,
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
ASSET LIABILITY ASSET LIABILITY
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Provision for bad debts...................... $5,014 $ -- $6,582 $ --
Uniform capitalization of inventory.......... 363 -- 363 --
Depreciation and amortization................ -- 9,569 -- 7,230
Other........................................ 212 -- 464 --
------ ------ ------ ------
$5,589 $9,569 $7,409 $7,230
====== ====== ====== ======
</TABLE>
Due to Parent includes cumulative amounts for current and deferred income
taxes as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Current taxes payable....................................... $56,700 $46,191
Deferred taxes payable (receivable)......................... 3,980 (179)
------- -------
$60,680 $46,012
======= =======
</TABLE>
F-47
<PAGE> 137
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. STOCK-BASED AWARDS
The Company accounts for stock-based awards granted to its employees by
Beverly in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and related
Interpretations because, as discussed below, the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") requires use of
option valuation models that were not developed for use in valuing employee
stock options. Since the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized for employee stock options under APB No. 25.
The Company recognizes compensation expense for its restricted stock grants,
performance unit grants (when the performance targets are achieved) and other
stock unit awards. The total charges to the Company's consolidated statements of
income and retained earnings for the years ended December 31, 1996, 1995 and
1994 related to these stock-based awards were approximately $24,000, $616,000
and $104,000, respectively.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its 1996 and 1995 stock
option and performance unit 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, 1996 and 1995,
respectively: risk-free interest rates of 6.5% and 6.0%; volatility factors of
the expected market price of Beverly's common stock of .34 and .35; and a
weighted-average expected life of the option of 10 years. Beverly 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 1996 and 1995 of $7.11 per share
and $7.31 per share, respectively. The fair value of the performance unit grants
was based on the market value of Beverly's common stock on the date of grant.
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 Beverly'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 employee
stock options and performance units granted by Beverly to employees of the
Company is amortized to expense over their respective vesting periods. Pro forma
net income, assuming the Company had elected to account for these stock option
and performance unit grants in accordance with SFAS No. 123, would have been
approximately $19,987,000 and $4,577,000 for the years ended December 31, 1996
and 1995, respectively. Such pro forma effects are not necessarily indicative of
the effects on future years.
8. 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 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
F-48
<PAGE> 138
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
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 Company used the following methods and assumptions in estimating its
fair value disclosures for financial instruments. The carrying amount of cash
and cash equivalents reported in the consolidated balance sheets approximates
its fair value. The fair value of notes receivable, net, which are included in
the consolidated balance sheet captions "Notes and other receivables" and
"Other, net" was estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. The fair value of long-term obligations was estimated
using discounted cash flow analyses based on the Company's incremental borrowing
rates for similar types of borrowing arrangements.
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents.......................... $7,575 $7,575 $3,315 $3,315
Notes receivable, net.............................. 1,163 1,163 1,735 1,701
Long-term obligations.............................. 2,302 2,274 755 730
</TABLE>
It was not practicable to estimate the fair value of the "Due to Parent"
account as no formal agreement exists for repayment of the balance. It was also
not practicable to estimate the fair value of the Company's off-balance sheet
guarantee of Beverly's Senior Notes (see Note 4) since the Company did not
charge a fee for entering into this agreement and contracting with a financial
institution to estimate such amount could not be done without incurring
excessive costs.
9. RELATED PARTY TRANSACTIONS
The Company provides its pharmaceutical dispensing, infusion therapy
products and services and its pharmacy and nursing consulting services to
nursing facilities operated by Beverly, and to the residents of Beverly
facilities. Revenues from sales directly to Beverly nursing facilities were
approximately $82,083,000, $74,021,000 and $77,213,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Revenues from sales to residents
of Beverly facilities, which are not considered by the Company to be revenues
from affiliates, are estimated to be approximately $78,000,000, $89,000,000 and
$80,000,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Beverly provides certain administrative services to the Company. These
services have included, among others, cash management, finance, legal, tax,
financial reporting, executive management, payroll and payables processing and
employee benefit plans maintenance. The responsibility for certain of these
services, including finance, tax and payables processing was transferred to the
Company in mid-1996 as part of a consolidation and reorganization of the
Company's accounting and related functions. Substantially all cash received by
the Company is deposited daily and wired to Beverly's corporate cash account. In
turn, all of the Company's operating expenses, capital expenditures and other
cash needs are paid by Beverly, and charged back to the Company along with a
management fee for handling such services. Fees for these services amounted to
approximately $1,820,000, $2,844,000 and $2,075,000 for the years ended December
31, 1996, 1995, and 1994, respectively. See Note 1 for a description of the
charges for insurance. The Company believes that the charges for services
provided by Beverly to the Company are a reasonable allocation of the costs
incurred by Beverly
F-49
<PAGE> 139
PHARMACY CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
9. RELATED PARTY TRANSACTIONS -- (CONTINUED)
on behalf of the Company in providing these services; however, such costs are
not necessarily indicative of the costs that would have been incurred if the
Company operated as a stand-alone entity.
The net result of all intercompany transactions between the Company and
Beverly are recorded in the "Due to Parent" account in the accompanying
consolidated balance sheets. There are currently no required repayment terms for
this account nor do such amounts bear interest.
10. SUBSEQUENT EVENTS
In January 1997, the Company purchased 12 pharmacies from Interstate
Pharmacy Corporation for cash of approximately $19,800,000. The acquisition was
accounted for as a purchase and was not material to the Company's financial
position or results of operations.
In April 1997, Beverly signed a definitive agreement to combine the Company
with Capstone Pharmacy Services, Inc. ("Capstone"), which will create one of the
nation's largest independent institutional pharmacy companies. Capstone will
issue approximately 50,000,000 shares of its common stock to Beverly
stockholders and Beverly will be repaid approximately $275,000,000 of the
Company's "Due to Parent," with any remaining balance contributed to capital.
Beverly stockholders will own a majority of the combined pharmacy company after
the combination; however, Beverly will not retain any ownership interest. The
exact conversion ratio of Beverly to Capstone shares will be determined based on
the total number of shares of Beverly stock outstanding on the record date of
this transaction. The record date has not yet been set. The transaction is
subject to approval by the stockholders of both Beverly and Capstone, as well as
to approvals by various government agencies. It is expected to close by year-end
1997.
F-50
<PAGE> 140
PHARMACY CORPORATION OF AMERICA
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
DUE TO
BALANCE AT ACQUISITIONS BALANCE
BEGINNING CHARGED TO AND AT END
DESCRIPTION OF YEAR OPERATIONS WRITE-OFFS, NET DISPOSITIONS OTHER OF YEAR
----------- ---------- ---------- --------------- ------------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts:
Accounts
receivable -- patient....... $17,913 $12,840 $(17,304) $ (8) $(371) $13,070
Notes and other receivables... 995 660 (371) 0 371 1,655*
------- ------- -------- ------ ----- -------
$18,908 $13,500 $(17,675) $ (8) $ 0 $14,725
======= ======= ======== ====== ===== =======
Year ended December 31, 1995:
Allowance for doubtful accounts:
Accounts
receivable -- patient....... $11,469 $17,679 $(10,966) $ 459 $(728) $17,913
Notes and other receivables... 92 -- 175 -- 728 995*
------- ------- -------- ------ ----- -------
$11,561 $17,679 $(10,791) $ 459 $ 0 $18,908
======= ======= ======== ====== ===== =======
Year ended December 31, 1994:
Allowance for doubtful accounts:
Accounts
receivable -- patient....... $ 2,671 $ 7,362 $ (6,453) $7,949 $ (60) $11,469
Notes and other receivables... 66 26 (60) -- 60 92*
------- ------- -------- ------ ----- -------
$ 2,737 $ 7,388 $ (6,513) $7,949 $ 0 $11,561
======= ======= ======== ====== ===== =======
</TABLE>
- ---------------
* Includes amounts classified in long-term other assets as well as current
assets.
F-51
<PAGE> 141
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholder
New Beverly Holdings, Inc.
We have audited the accompanying balance sheet of New Beverly Holdings,
Inc. as of May 31, 1997. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of New Beverly Holdings, Inc. at May
31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Little Rock, Arkansas
June 2, 1997
F-52
<PAGE> 142
NEW BEVERLY HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BEVERLY ENTERPRISES, INC.)
BALANCE SHEET
MAY 31, 1997
ASSETS
<TABLE>
<S> <C>
Cash.................................... $100
----
Total assets.................. $100
====
STOCKHOLDER'S EQUITY
Stockholder's equity:
Common stock, $.10 par value; 3,000
shares authorized; 1,000 shares
issued and outstanding............. $100
----
Total stockholder's equity.... $100
====
</TABLE>
See accompanying note.
F-53
<PAGE> 143
NOTE TO BALANCE SHEET
MAY 31, 1997
New Beverly Holdings, Inc. ("New Beverly") was incorporated in the state of
Delaware on April 15, 1997, as a wholly-owned subsidiary of Beverly Enterprises,
Inc. ("Beverly"). New Beverly was formed in connection with the execution of an
Agreement and Plan of Distribution (the "Distribution Agreement") by and between
Beverly and New Beverly dated April 15, 1997. Under the Distribution Agreement,
Beverly will transfer all of its skilled nursing and rehabilitation facilities,
transitional acute care hospitals, outpatient therapy clinics, assisted living
facilities, hospice and home health agencies and other health care and related
services and businesses, other than its institutional and mail service pharmacy
business currently operated by Pharmacy Corporation of America ("PCA"), to New
Beverly, and shares of New Beverly will be distributed to the Beverly
stockholders in a tax-free spin-off. Beverly, then consisting solely of the
institutional and mail service pharmacy business operated by PCA, will merge
into and be acquired by Capstone Pharmacy Services, Inc. ("Capstone") through a
tax-free exchange of shares of common stock of Capstone for Beverly common
shares (the "Merger"), all as contemplated by an Agreement and Plan of Merger
dated April 15, 1997 (the "Merger Agreement").
New Beverly has filed a Registration Statement (No. 333-28521) under the
Securities Act of 1933, as amended, on Form S-1 with the Commission with respect
to the New Beverly Common Stock to be distributed pursuant to the Distribution
Agreement to holders of Beverly Common Stock. New Beverly will become a public
company upon the effectiveness of such Registration Statement, will change its
name to Beverly Enterprises, Inc. and will be treated as the continuation of
Beverly. Closing under the Merger Agreement is subject to certain conditions,
including but not limited to the approvals of both Beverly and Capstone
stockholders, completion of all requirements under the Distribution Agreement,
customary regulatory approvals and the receipt, at the option of Beverly, of
either a favorable tax ruling from the Internal Revenue Service or an opinion of
counsel or Ernst & Young LLP concerning the tax-free nature of the transaction.
For accounting and financial reporting purposes, such transactions will be
treated as the spin-off of PCA and a reorganization/recapitalization of Beverly
into New Beverly since New Beverly will continue the majority of the Beverly
businesses. No gain will be recognized as a result of the spin-off for the
difference between the market value of the Capstone shares received and the
carrying value of the net assets of PCA. In addition, since Beverly stockholders
will own a majority of the outstanding shares of Capstone after the Merger, the
Merger transaction will be accounted for as a reverse acquisition of Capstone by
PCA.
New Beverly has had no operations from its inception through May 31, 1997.
Therefore, the Statement of Operations and the Statement of Cash Flows have been
omitted from these financial statements.
F-54
<PAGE> 144
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL applies to Beverly and New Beverly, and the
relevant portion of the DGCL provides as follows:
145. Indemnification of Officers, Directors, Employees and Agents;
Insurance.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be
II-1
<PAGE> 145
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Certificates of Incorporation of Beverly and New Beverly limit the
liability of directors (in their capacity as directors, but not in their
capacity as officers) to the Registrants or their stockholders to the fullest
extent permitted by the DGCL, as amended. Specifically, no director of the
Registrants will be personally liable to the Registrant or their stockholders
for monetary damages for breach of the director's fiduciary duty as a director,
except as provided in Section 102 of the DGCL for liability: (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders; (ii)
for acts or omissions not in good faith and which involve intentional misconduct
or knowing violation of law; (iii) under Section 174 of the DGCL, which relates
to unlawful payments of dividends or unlawful stock repurchases or redemptions;
or (iv) for any transaction from which the director derived an improper personal
benefit. The inclusion of this provision in the Certificates of Incorporation of
Beverly and New Beverly may have the effect of reducing the likelihood of
II-2
<PAGE> 146
derivative litigation against directors, and may discourage or deter
stockholders or management from bringing a lawsuit against directors for breach
of their duty of care, even though such action, if successful, might otherwise
have benefitted the Registrants and their stockholders.
Under the Certificates of Incorporation and in accordance with Section 145
of the DGCL, the Registrants will indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than a "derivative" action by or in the right of a
Registrant) by reason of the fact that such person was or is a director or
officer of a Registrant, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Registrant, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such acts were unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such an action and then, where the person is adjudged to be liable to a
Registrant, only if and to the extent that the Court of Chancery of the State of
Delaware or the court in which such action was brought determines that such
person is fairly and reasonably entitled to such indemnity and then only for
such expenses as the court deems proper. The Registrants will each indemnify,
pursuant to the standard enumerated in Section 145 of the DGCL, any past or
present officer or director who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed derivative action by or in the
right of such Registrant.
The Certifications of Incorporation of the Registrants provides that each
Registrant may pay for the expenses incurred by an indemnified director or
officer in defending the proceedings specified above in advance of their final
disposition, provided that, if the DGCL so requires, such indemnified person
agrees to reimburse such Registrant if it is ultimately determined that such
person is not entitled to indemnification. The Registrants Certificates of
Incorporation also allows each Registrant, in their sole discretion, to
indemnify any person who is or was one of its employees and agents to the same
degree as the foregoing indemnification of directors and officers. To the extent
that a director, officer, employee or agent of a Registrant has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b) of Section 145 of the DGCL, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith. In addition, each Registrant may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of such Registrant or another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against and
incurred by such person in such capacity, or arising out of the person's status
as such whether or not such Registrant would have the power or obligation to
indemnify such person against such liability under the provisions of the DGCL.
Each Registrant maintains insurance for the benefit of the Registrants' officers
and directors insuring such persons against certain liabilities, including civil
liabilities under the Securities laws. Additionally, each Registrant has entered
into indemnification agreements with each of the Directors of such Registrant,
which, among other things, provides that each Registrant will indemnify such
Directors to the fullest extent permitted by the respective Certificates of
Incorporation and the DGCL and will advance expenses of defending claims against
such Directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Reference is made to the exhibit index immediately following the
signature page to the Registration Statement.
(b) The Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
(c) The following opinions are included in the Prospectus/Consent
Solicitation Statement as indicated:
None
II-3
<PAGE> 147
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
1. (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however, that paragraphs (1)(a)(i) and (1)(a)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the Securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the
termination of the offering.
2. That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
Securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
3. That prior to any public reoffering of the Securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
4. That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the Securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
5. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling
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<PAGE> 148
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the Securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
6. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form S-4, within one business
day of receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
7. The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-5
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort Smith,
State of Arkansas, on the 5th day of September, 1997.
BEVERLY ENTERPRISES, INC.
By: /s/ DAVID R. BANKS
----------------------------------
David R. Banks
Chairman of the Board,
Chief Executive Officer and
Director
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints John W. MacKenzie and Belinda Marcotte, and each of them, as his
or her attorneys-in-fact to execute in the name and on behalf of any such
person, individually and in the capacity stated below, and to file all
amendments and post-effective amendments to this Registration Statement, which
amendment or amendments may make such changes and additions to this Registration
Statement as such attorneys-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on the dates indicated by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID R. BANKS Chairman of the Board, Chief September 5, 1997
- ----------------------------------------------------- Executive Officer and
David R. Banks Director
/s/ BOYD W. HENDRICKSON President, Chief Operating September 5, 1997
- ----------------------------------------------------- Officer and Director
Boyd W. Hendrickson
/s/ SCOTT M. TABAKIN Executive Vice President, September 5, 1997
- ----------------------------------------------------- Chief Financial Officer
Scott M. Tabakin
/s/ PAMELA H. DANIELS Vice President, Controller September 5, 1997
- ----------------------------------------------------- and Chief Accounting
Pamela H. Daniels Officer
/s/ BERYL F. ANTHONY, JR. Director September 5, 1997
- -----------------------------------------------------
Beryl F. Anthony, Jr.
/s/ JAMES R. GREENE Director September 5, 1997
- -----------------------------------------------------
James R. Greene
/s/ EDITH E. HOLIDAY Director September 5, 1997
- -----------------------------------------------------
Edith E. Holiday
/s/ JON E. M. JACOBY Director September 5, 1997
- -----------------------------------------------------
Jon E. M. Jacoby
/s/ RISA J. LAVIZZO-MOWERY Director September 5, 1997
- -----------------------------------------------------
Risa J. Lavizzo-Mowery
/s/ MARILYN R. SEYMANN Director September 5, 1997
- -----------------------------------------------------
Marilyn R. Seymann
</TABLE>
II-6
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort Smith,
State of Arkansas, on the 5th day of September, 1997.
NEW BEVERLY HOLDINGS, INC.
By: /s/ DAVID R. BANKS
----------------------------------
David R. Banks
Chairman of the Board,
Chief Executive Officer and
Director
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints John W. MacKenzie and Belinda Marcotte, and each of them, as his
or her attorneys-in-fact to execute in the name and on behalf of any such
person, individually and in the capacity stated below, and to file all
amendments and post-effective amendments to this Registration Statement, which
amendment or amendments may make such changes and additions to this Registration
Statement as such attorneys-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on the dates indicated by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID R. BANKS Chairman of the Board, September 5, 1997
- ----------------------------------------------------- Chief Executive Officer
David R. Banks and Director
/s/ BOYD W. HENDRICKSON President, Chief Operating September 5, 1997
- ----------------------------------------------------- Officer and Director
Boyd W. Hendrickson
/s/ ROBERT W. POMMERVILLE Executive Vice President, September 5, 1997
- ----------------------------------------------------- General Counsel,
Robert W. Pommerville Secretary and Director
/s/ BOBBY W. STEPHENS Executive Vice September 5, 1997
- ----------------------------------------------------- President -- Asset
Bobby W. Stephens Management and Director
/s/ SCOTT M. TABAKIN Executive Vice President, September 5, 1997
- ----------------------------------------------------- Chief Financial Officer
Scott M. Tabakin and Director
/s/ PAMELA H. DANIELS Vice President, Controller September 5, 1997
- ----------------------------------------------------- and Chief Accounting
Pamela H. Daniels Officer
</TABLE>
II-7
<PAGE> 151
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger dated April 15, 1997 by and
between Beverly Enterprises, Inc. and Capstone Pharmacy
Services, Inc. (incorporated by reference to Exhibit 2.1
to Beverly Enterprises, Inc.'s Current Report on Form 8-K
dated April 15, 1997).
2.2 -- Agreement and Plan of Distribution by and among Beverly
Enterprises, Inc., New Beverly Holdings, Inc. and
Capstone Pharmacy Services, Inc. dated as of April 15,
1997 (incorporated by reference to Exhibit 2.2 to Beverly
Enterprises, Inc.'s Current Report on Form 8-K dated
April 15, 1997).
3.1 -- Restated Certificate of Incorporation of Beverly
Enterprises, Inc. (incorporated by reference to Exhibit
4.1 to Beverly Enterprises, Inc.'s Current Report on Form
8-K dated July 31, 1987)
3.2 -- By-Laws of Beverly Enterprises, Inc. (incorporated by
reference to Exhibit 3 to Beverly Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992)
3.3 -- Certificate of Incorporation of New Beverly Holdings,
Inc. dated April 15, 1997 (incorporated by reference to
Exhibit 3.1 to New Beverly Holdings, Inc.'s Registration
Statement on Form S-1 filed June 4, 1997 (File No.
333-28521)).
3.4 -- Amended Certificate of Incorporation of New Beverly
Holdings, Inc. dated May 29, 1997 (incorporated by
reference to Exhibit 3.2 to New Beverly Holdings, Inc.'s
Registration Statement on Form S-1 filed June 4, 1997
(File No. 333-28521)).
3.5** -- Amended and Restated Certificate of Incorporation of New
Beverly Holdings, Inc. dated , 1997.
3.6 -- Bylaws of New Beverly Holdings, Inc. (incorporated by
reference to Exhibit 3.4 to New Beverly Holdings, Inc.'s
Registration Statement on Form S-1 filed 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 (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 Second Supplemental Indenture dated , 1997
between Beverly Enterprises, Inc., New Beverly Holdings,
Inc., certain subsidiaries of Beverly Enterprises, Inc.
as guarantors and The Chase Manhattan Bank, as Trustee,
with respect to Beverly's 9% Senior Notes due February
15, 2006.
4.3 -- Indenture dated as of August 1, 1993 between Beverly
Enterprises, Inc. and Chemical Bank, as Trustee, with
respect to Beverly Enterprises, Inc.'s 5 1/2% Convertible
Subordinated Debentures due August 1, 2018, issuable upon
exchange of Beverly Enterprises, Inc.'s $2.75 Cumulative
Convertible Exchangeable Preferred Stock (the
"Subordinated Debenture Indenture") (incorporated by
reference to Exhibit 4.10 to Beverly Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June
30, 1993).
4.4 -- 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).
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.5 -- 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).
4.6 -- 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).
4.7 -- Indenture dated as of December 30, 1993 (the "Notes
Indenture"), between Beverly Enterprises, Inc. and
Boatmen's Trust Company, as Trustee, with respect to the
Notes (incorporated by reference to Exhibit 4.2 to
Beverly Enterprises, Inc.'s Registration Statement on
Form S-3 filed on November 9, 1993 (File No. 33-50965)).
4.8 -- First Supplemental Indenture dated as of December 30,
1993 to the Notes Indenture, with respect to 8 3/4% Notes
due 2003 (incorporated by reference to Exhibit 4.4 to
Beverly Enterprises, Inc.'s Current Report on Form 8-K
dated January 4, 1994).
4.9 -- Rights Agreement dated as of September 29, 1994, between
Beverly Enterprises, Inc. and The Bank of New York, as
Rights Agent (incorporated by reference to Exhibit 1 to
Beverly Enterprises, Inc.'s Registration Statement on
Form 8-A filed on October 18, 1994).
4.10 -- Amendment, dated as of April 6, 1995, to the Rights
Agreement between Beverly Enterprises, Inc. and The Bank
of New York, as Rights Agent (incorporated by reference
to Exhibit 4.20 to Beverly Enterprises, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
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.
5.1** -- Opinion of as to certain
legal matters.
10.1 -- Executive Medical Reimbursement Plan assumed by New
Beverly Holdings, Inc. (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).
10.2 -- Amended and Restated Beverly Enterprises, Inc. Executive
Life Insurance Plan and Summary Plan Description (the
"Executive Life Plan") assumed by New Beverly Holdings,
Inc. (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).
10.3 -- Amendment No. 1, effective September 29, 1994, to the
Executive Life Plan assumed by New Beverly Holdings, Inc.
(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)).
10.4 -- Executive Physicals Policy assumed by New Beverly
Holdings, Inc. (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).
</TABLE>
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.5 -- Amended and Restated Deferred Compensation Plan effective
July 18, 1991 assumed by New Beverly Holdings, Inc.
(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).
10.6 -- Amendment No. 1, effective September 29, 1994, to the
Deferred Compensation Plan assumed by New Beverly
Holdings, Inc. (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)).
10.7 -- Executive Retirement Plan assumed by New Beverly
Holdings, Inc. (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).
10.8 -- Amendment No. 1, effective as of July 1, 1991, to the
Executive Retirement Plan assumed by New Beverly
Holdings, Inc. (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).
10.9 -- Amendment No. 2, effective as of December 12, 1991, to
the Executive Retirement Plan assumed by New Beverly
Holdings, Inc. (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).
10.10 -- Amendment No. 3, effective as of July 31, 1992, to the
executive Retirement Plan assumed by New Beverly
Holdings, Inc. (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).
10.11 -- Amendment No. 4, effective as of January 1, 1993, to the
Executive Retirement Plan assumed by New Beverly
Holdings, Inc. (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).
10.12 -- Amendment No. 5, effective as of September 29, 1994, to
the Executive Retirement Plan assumed by New Beverly
Holdings, Inc. (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).
10.13 -- Beverly Enterprises, Inc. Executive Deferred Compensation
Plan assumed by New Beverly Holdings, Inc. (incorporated
by reference to Exhibit 10.23 to Beverly Enterprises,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996).
10.14 -- Beverly Enterprises, Inc. Supplemental Long-Term
Disability Plan assumed by New Beverly Holdings, Inc.
(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).
10.15 -- Severance Plan for Corporate and Regional Employees
effective December 1, 1989 assumed by New Beverly
Holdings, Inc. (incorporated by reference to Exhibit
10.21 to Amendment No. 1 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-1 filed on February 26,
1990 (File No. 33-33052)).
10.16 -- Employment Contract, made as of December 8, 1995, between
Beverly Enterprises, Inc. and David R. Banks
(incorporated by reference to Exhibit 10.2 to Beverly
Enterprises, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
</TABLE>
<PAGE> 154
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17 -- Employment Contract, made as of December 8, 1995, between
Beverly Enterprises, Inc. and Boyd W. Hendrickson
(incorporated by reference to Exhibit 10.3 to Beverly
Enterprises, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
10.18 -- Form of Change In Control Severance Agreement, made as of
December 8, 1995, between Beverly Enterprises, Inc. and
its Executive Vice Presidents (incorporated by reference
to Exhibit 10.31 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31,
1995).
10.19 -- Form of Change In Control Severance Agreement, made as of
December 8, 1995, between Beverly Enterprises, Inc. and
certain of its officers (incorporated by reference to
Exhibit 10.32 to Beverly Enterprises, Inc.'s Annual
Report on Form 10-K for the year ended December 31,
1995).
10.20 -- Amended and Restated Credit Agreement, dated as of
December 20, 1996, among Beverly Enterprises, Inc., the
Banks listed therein, and Morgan Guaranty Trust Company
of New York, as Issuing Bank and as Agent (incorporated
by reference to Exhibit 10.44 to Beverly Enterprises,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996).
10.21 -- 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)).
10.22 -- 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)).
10.23 -- 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).
10.24 -- 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 on Form S-4 filed on
February 13, 1995 (File No. 33-57663)).
11.1 -- Computation of Net Income (Loss) Per Share for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992
(incorporated by reference to Exhibit 11.1 to Beverly
Enterprises, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1996).
12.1* -- Beverly Enterprises, Inc. Computation of Ratio of
Earnings to Fixed Charges.
</TABLE>
<PAGE> 155
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
21.1 -- Subsidiaries of Registrant (incorporated by reference to
Exhibit 21.1 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1996).
23.1* -- Consent of Ernst & Young LLP, Independent Auditors.
24.1 -- Power of Attorney (incorporated by reference to the
signature page of New Beverly Holdings, Inc.'s
Registration Statement on Form S-1 Filed June 4, 1997
(File No. 333-28521)).
25.1* -- Form T-1 Statement of Eligibility of Trustee.
27.1 -- New Beverly Holdings, Inc. Financial Data Schedule
(incorporated by reference to Exhibit 27.1 to New Beverly
Holdings, Inc.'s Registration Statement on Form S-1 filed
on June 4, 1997 (File No. 333-28521)).
99.1* -- Consent with respect to the Proposed Amendments.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 4.2
BEVERLY ENTERPRISES, INC.
---------------------
$180,000,000
9% SENIOR NOTES DUE 2006
---------------------
SUPPLEMENTAL INDENTURE NO. 2
DATED AS OF , 1997
---------------------
THE CHASE MANHATTAN BANK,
AS TRUSTEE
A-1
<PAGE> 2
FORM OF
SUPPLEMENTAL INDENTURE NO. 2
SUPPLEMENTAL INDENTURE NO. 2 dated as of , 1997 among BEVERLY
ENTERPRISES, INC., a Delaware corporation ("Beverly"), NEW BEVERLY HOLDINGS,
INC., a Delaware corporation ("New Beverly"), the corporations listed on the
signature pages hereto in their capacity as guarantors (each a "Guarantor" and
collectively, the "Guarantors") and THE CHASE MANHATTAN BANK (successor by
merger to Chemical Bank), as trustee (the "Trustee").
WITNESSETH:
WHEREAS, Beverly, certain of its subsidiaries and the Trustee have
heretofore entered into an Indenture dated as of February 1, 1996 (the "Original
Indenture", as supplemented by Supplemental Indenture No. 1, dated as of
December 16, 1996 and as supplemented hereby, the "Indenture");
WHEREAS, Beverly desires and has requested the Trustee to join with it in
the execution and delivery of this Supplemental Indenture No. 2 and the Holders
of a majority in principal amount of the Senior Notes outstanding have consented
to such execution and delivery;
WHEREAS, Beverly has entered into an agreement and plan of distribution
dated as of April 15, 1997, with New Beverly and Capstone Pharmacy Services,
Inc., a Delaware corporation ("Capstone"), pursuant to which, among other
things, (i) Beverly will transfer all of its assets and properties to New
Beverly other than the stock of Pharmacy Corporation of America, a Delaware
corporation ("PCA") and the Subsidiaries of PCA; (ii) New Beverly will assume
all of Beverly's rights and obligations under the Indenture and the Senior
Notes; (iii) Beverly, PCA and each of PCA's Subsidiaries shall be released from
all obligations under the Indenture and the Senior Notes; (iv) Beverly will
distribute all of the issued and outstanding capital stock of New Beverly to the
stockholders of Beverly; and (v) thereafter Beverly will merge with and into
Capstone with Capstone as the surviving corporation in such merger (the
"Merger") pursuant to an Agreement and Plan of Merger dated as of April 15,
1997, between Beverly and Capstone (all of the foregoing being collectively
called the "New Beverly Transaction");
WHEREAS, Article 5 of the Indenture permits Beverly to transfer all or
substantially all of its assets and properties to another Person if certain
conditions set forth in Section 5.1 of the Indenture have been met, which
conditions require modification as herein provided to facilitate the New Beverly
Transaction;
WHEREAS, prior to consummation of the New Beverly Transaction Beverly
desires to prepay all its 7 5/8% Convertible Subordinated Debentures due 2003
regardless of any limitation on Restricted Payments under Section 4.7 of the
Indenture; and
WHEREAS, Beverly has represented to the Trustee that all conditions
precedent to the execution and delivery of this Supplemental Indenture No. 2
have been satisfied;
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1. Definitions; References. All capitalized terms used and not
defined herein have the respective meaning assigned to them in the Indenture.
Each reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference contained in the Indenture or in any Security shall from and
after the date hereof refer to the Indenture, as amended hereby.
SECTION 2. Amendment of Indenture. Effective as of the date hereof the
Indenture is hereby amended as follows:
a. The definitions contained in Section 1.1 of the Indenture are amended to
add the following new definitions in their correct alphabetical sequence:
"New Beverly" means New Beverly Holdings, Inc., a Delaware corporation
(to be renamed Beverly Enterprises, Inc., upon consummation of the New
Beverly Transaction) and, prior to the distribution
A-2
<PAGE> 3
referred to in clause (iv) of the definition of New Beverly Transaction,
a wholly-owned Subsidiary of Beverly.
"New Beverly Transaction" means the transactions contemplated by that
certain Agreement and Plan of Distribution dated as of April 15, 1997,
among Beverly, New Beverly and Capstone pursuant to which (i) Beverly
will transfer all of its assets and properties to New Beverly other than
the stock of PCA and the Subsidiaries of PCA; (ii) New Beverly will
assume all of the rights and obligations of Beverly under the Indenture
and the Senior Notes; (iii) Beverly, PCA and each of PCA's Subsidiaries
shall be released from all obligations under the Indenture and the
Senior Notes; (iv) Beverly will distribute all of the issued and
outstanding capital stock of New Beverly to the stockholders of Beverly;
and (v) Beverly will merge with and into Capstone pursuant to that
certain Agreement and Plan of Merger dated as of April 15, 1997, between
Beverly and Capstone, with Capstone as the surviving corporation in such
merger.
b. The definition of "Asset Sale" contained in Section 1.1 is amended to
add the following at the end of the first sentence thereof immediately preceding
the period:
"; provided that the second paragraph of Section 4.10 shall apply to the
New Beverly Transaction and the disposition of all the capital stock of
New Beverly to the stockholders of Beverly as described in subclause
(iv) of the definition of New Beverly Transaction shall not constitute
an Asset Sale."
c. The definition of "Change of Control" contained in Section 1.1 is
amended to add the following at the end thereof immediately preceding the
period:
"; provided that the New Beverly Transaction shall not constitute a
Change of Control."
d. The definition of "Spinoff Transaction" contained in Section 1.1 is
amended by adding at the end thereof the following proviso:
"provided, however, that such term shall also be deemed to mean and
include the New Beverly Transaction."
e. Section 4.7 of the Indenture is amended to delete the word "and" at the
end of subclause (iv) following Section 4.7(c), to insert "; and" in place of
the period after subclause (v) following Section 4.7(c) and to delete the
proviso immediately after subclause (v) following Section 4.7(c) and to add a
new subclause (vi) and the paragraph appearing below in replacement thereof:
"(vi) the redemption of all of Beverly's 7 5/8% Convertible
Subordinated Debentures due 2003."
"provided, however, in the case of each of clauses (ii), (iii), (iv),
(v) and (vi) of this paragraph, no Default or Event of Default shall
have occurred and be continuing at the time of such Restricted Payment
or would occur as a consequence thereof."
f. Section 5.1(iv) of the Indenture is amended by inserting at the end
thereof immediately preceding the period the following:
"; provided, however, that this Section 5.1(iv) shall not apply to the
New Beverly Transaction and the New Beverly Transaction shall be deemed
to satisfy this Section 5.1(iv)."
g. Section 5.2 of the Indenture is hereby amended by inserting at the end
thereof immediately preceding the period the following:
"and upon such assignment of all of Beverly's rights and obligations
under this Indenture and the Senior Notes, and the assumption thereof by
the successor corporation or Person, Beverly shall be unconditionally
released from any and all further liability under this Indenture and the
Senior Notes."
A-3
<PAGE> 4
h. Section 10.5 of the Indenture is amended to insert at the end of the
first paragraph thereof immediately preceding the period, the following:
"provided that upon the assumption by New Beverly of all Beverly's
rights and obligations under the Indenture and the Senior Notes as
contemplated by subclause (ii) of the definition of New Beverly
Transaction pursuant to Section 3 of Supplemental Indenture No. 2 dated
as of , 1997 to this Indenture, PCA and each of PCA's
Subsidiaries shall be unconditionally released from its Guarantee of the
Senior Notes and shall have no obligation under the Indenture or the
Senior Notes."
SECTION 3. Assumption, Release and Discharge. Effective upon the transfer
by Beverly to New Beverly of all of Beverly's assets and properties other than
the stock of PCA and the Subsidiaries of PCA pursuant to the New Beverly
Transaction, New Beverly hereby assumes all of Beverly's rights and obligations
under the Indenture and the Securities. The Trustee is hereby authorized to
evidence the release and discharge of Beverly, PCA and each Subsidiary of PCA
from all of their rights and obligations hereunder upon the assumption by New
Beverly of all Beverly's rights and obligations under the Indenture and the
Senior Notes (as provided in Section 10.5 of the Indenture) by executing and
delivering a release and discharge confirmation in the form of Exhibit A hereto.
SECTION 4. Governing Law. This Supplemental Indenture No. 2 shall be
governed by and construed in accordance with the laws of the State of New York,
applicable to instruments made and performed entirely in such state.
SECTION 5. Counterparts; Effectiveness. This Supplemental Indenture No. 2
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.
SECTION 6. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or the sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by Beverly and the Guarantors.
IN WITNESS WHEREOF, the parties hereto have caused this SUPPLEMENTAL
INDENTURE NO. 2 to be duly executed as of the date hereof.
BEVERLY ENTERPRISES, INC.
By:
-----------------------------------------
Title:
NEW BEVERLY HOLDINGS, INC.
By:
-----------------------------------------
Title:
GUARANTORS
A.B.C. HEALTH CARE EQUIPMENT CORP.
A-1 HOME HEALTH SERVICES, INC.
ADVINET, INC.
AGI -- CAMELOT, INC.
AGI -- McDONALD COUNTY HEALTH CARE, INC.
ALLIANCE HEALTH SERVICES, INC.
A-4
<PAGE> 5
ALLIANCE HOME HEALTH CARE, INC.
AMCO MEDICAL SERVICE, INC.
AMERICAN TRANSITIONAL CARE CENTERS OF
TEXAS, INC.
AMERICAN TRANSITIONAL CARE DALLAS --
FT. WORTH, INC.
AMERICAN TRANSITIONAL HEALTH CARE, INC.
AMERICAN TRANSITIONAL HOSPITALS, 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.
ATH -- CLEAR LAKE, INC.
ATH COLUMBUS, INC.
ATH DEL ORO, INC.
ATH HEIGHTS, INC.
ATH OKLAHOMA CITY, INC.
ATH TUCSON, INC.
BEVERLY ACQUISITION CORPORATION
BEVERLY ASSISTED LIVING, INC.
BEVERLY BELLA VISTA HOLDING, 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.
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.
A-5
<PAGE> 6
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 JAPAN LIMITED
BEVERLY ENTERPRISES MEDICAL EQUIPMENT
CORPORATION
BEVERLY ENTERPRISES REHABILITATION
CORPORATION
BEVERLY HOLDINGS I, INC.
BEVERLY INDEMNITY, LTD.
BEVERLY MANOR INC. OF HAWAII
BEVERLY MISSOURI VALLEY HOLDING, INC.
BEVERLY RAPID CITY HOLDING, INC.
BEVERLY REAL ESTATE HOLDINGS, INC.
BEVERLY REMIC DEPOSITOR, INC.
BEVERLY SAVANA CAY MANOR, INC.
BROWNSTONE PHARMACY, INC.
COLUMBIA -- VALLEY NURSING HOME, INC.
COMMERCIAL MANAGEMENT, INC.
COMPUTRAN SYSTEMS, INC.
CONTINENTAL CARE CENTERS OF COUNCIL
BLUFFS, INC.
DD WHOLESALE, INC.
DUNNINGTON DRUG, INC.
DUNNINGTON RX SERVICES OF RHODE ISLAND,
INC.
DUNNINGTON RX SERVICES OF MASSACHUSETTS,
INC.
FOREST CITY BUILDING LTD.
A-6
<PAGE> 7
HALLMARK CONVALESCENT HOMES, INC.
HEALTHCARE PRESCRIPTION SERVICES, INC.
HOME MEDICAL SYSTEMS, INC.
HOSPICE PREFERRED CHOICE, INC.
HOSPITAL FACILITIES CORPORATION
INSTA-CARE HOLDINGS, INC.
INSTA-CARE PHARMACY SERVICES
CORPORATION
INSURANCE SOFTWARE PACKAGES, INC.
KENWOOD VIEW NURSING HOME, INC.
LIBERTY NURSING HOMES, INCORPORATED
MEDICAL ARTS HEALTH FACILITY OF
LAWRENCEVILLE, INC.
MODERNCARE OF LUMBERTON, INC.
NEBRASKA CITY S-C-H, INC.
NURSING HOME OPERATORS, INC.
OMNI MED B, INC.
PETEREN HEALTH CARE, INC.
PHARMACY CORPORATION OF AMERICA
PHARMACY CORPORATION OF AMERICA --
MASSACHUSETTS, INC.
PHARMACY DYNAMICS GROUP, INC.
PHYMEDSCO, INC.
RESOURCE OPPORTUNITIES, INC.
SALEM NO. 1, INC.
SOUTH ALABAMA NURSING HOME, INC.
SOUTH DAKOTA -- BEVERLY ENTERPRISES, INC.
SPECTRA REHAB ALLIANCE, INC.
SYNERGOS -- NORTH HOLLYWOOD, INC.
SYNERGOS -- PLEASANT HILL, INC.
SYNERGOS -- SCOTTSDALE, INC.
TAYLOR COUNTY HEALTH FACILITY, INC.
TMD DISPOSITION COMPANY
VANTAGE HEALTHCARE CORPORATION
By:
-----------------------------------------
Title:
THE CHASE MANHATTAN BANK, as Trustee
By:
-----------------------------------------
Title:
A-7
<PAGE> 8
EXHIBIT A
RELEASE AND DISCHARGE CONFIRMATION
THIS IS TO CONFIRM THAT each of Beverly Enterprises, Inc. and the
Guarantors listed on Schedule 1 hereto are released from any and all obligations
under the Indenture dated as of February 1, 1996 between Beverly Enterprises,
Inc., a Delaware corporation, certain of its subsidiaries and The Chase
Manhattan Bank (successor by merger to Chemical Bank), as trustee, as
supplemented by a Supplemental Indenture No. 1 dated as of December 16, 1996 and
a Supplemental Indenture No. 2 dated as of , 1997.
THE CHASE MANHATTAN BANK,
as Trustee
By:
---------------------------------
Title:
<PAGE> 9
SCHEDULE 1
PHARMACY CORPORATION OF AMERICA
- - Alliance Health Services, Inc.
- - Alliance Home Health Care, Inc.
- - America-Massachusetts, Inc.
- - Beverly Acquisition Corporation
- - Brownstone Pharmacy, Inc.
- - Computran Systems, Inc.
- - D D Wholesale, Inc.
- - Dunnington Drug, Inc.
- - Dunnington Rx Services of Massachusetts, Inc.
- - Dunnington Rx Services of Rhode Island, Inc.
- - Healthcare Prescription Services, Inc.
- - Insta-Care Holdings, Inc.
- - Insta-Care Pharmacy Services Corporation
- - Medical Health Industries, Inc.
- - Omni Med B, Inc.
- - Pharmacy Corporation of America-Massachusetts, Inc.
- - Pharmacy Dynamics Group, Inc.
<PAGE> 1
EXHIBIT 12
BEVERLY ENTERPRISES, INC.
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1996 1995 1994 1993 1992 1997 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
provision for (benefit
from) Income taxes,
extraordinary charge and
cumulative effect of change
in accounting for income
taxes...................... 125,507 (6,154) 114,795 87,640 6,148 65,722 51,152
======= ======= ======= ======= ======= ======= =======
Add fixed charges:
Interest expense (including
capitalized interest)... 89,911 83,294 60,268 62,614 62,077 44,491 44,305
Interest factor in rent
expense................. 33,572 46,740 55,831 67,916 77,372 12,887 18,129
Amortization of debt issue
costs................... 3,210 4,379 4,241 3,743 8,226 1,336 2,726
Amortization of debt
discounts............... 101 144 2,206 1,794 2,126 39 52
------- ------- ------- ------- ------- ------- -------
Total fixed charges.......... 126,794 134,557 122,546 136,067 149,801 58,753 65,212
------- ------- ------- ------- ------- ------- -------
Less capitalized interest.... (2,111) (3,572) (1,923) (1,955) (1,486) (1,179) (955)
------- ------- ------- ------- ------- ------- -------
Total earnings............... 250,190 124,831 235,418 221,752 154,463 123,296 115,409
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed
charges.................... 1.97 (1) 1.92 1.63 1.03 2.10 1.77
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Earnings were inadequate to cover fixed charges by $9,726,000 for the year
ended December 31, 1995.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 7, 1997 (except for Note 2, paragraph 3, as
to which the date is March 13, 1997) with respect to the consolidated financial
statements and schedule of Beverly Enterprises, Inc. included in the
Registration Statement (Form S-4 No. 333-00000) and related Prospectus/Consent
Solicitation Statement of Beverly Enterprises, Inc. for the registration of
$180,000,000 of its Senior Notes.
We also consent to the reference to our firm under the caption "Experts"
and to the use of our report dated April 18, 1997, with respect to the
consolidated financial statements and schedule of Pharmacy Corporation of
America included in the above mentioned Registration Statement and
Prospectus/Consent Solicitation Statement of Beverly Enterprises, Inc.
In addition we consent to the reference to our firm under the caption
"Experts" and to the use of our report dated June 2, 1997, with respect to the
balance sheet of New Beverly Holdings, Inc., included in the above mentioned
Registration Statement and Prospectus/Consent Solicitation Statement of Beverly
Enterprises, Inc.
ERNST & YOUNG LLP
September 3, 1997
Little Rock, Arkansas
<PAGE> 1
EXHIBIT 25.1
-------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
---------------------------------------------
BEVERLY ENTERPRISES, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 95-4100309
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
5111 ROGERS AVENUE - SUITE 40-A
FORT SMITH, ARKANSAS 72919-0155
(Address of principal executive offices) (Zip Code)
-------------------------------------------
9% SENIOR NOTES DUE 2006
(Title of the indenture securities)
-------------------------------------------------------------------
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New
York 12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
<PAGE> 3
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in effect,
including the Organization Certificate and the Certificates of Amendment dated
February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form
T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being contained
in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act (see
Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York, on the 5TH day
of SEPTEMBER, 1997.
THE CHASE MANHATTAN BANK
By /s/ Ron Sarubbi
----------------------------
Ron Sarubbi
Trust Officer
- 3 -
<PAGE> 4
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business June 30, 1997,
in accordance with a call made by the Federal
Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
------ --------------
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin .................................................... $ 13,892
Interest-bearing balances ............................................ 4,282
Securities:
Held to maturity securities ............................................... 2,857
Available for sale securities ............................................. 34,091
Federal Funds sold and securities purchased under
agreements to resell ................................................. 29,970
Loans and lease financing receivables:
Loans and leases, net of unearned income ............................. $124,827
Less: Allowance for loan and lease losses ............................ 2,753
Less: Allocated transfer risk reserve ................................ 13
--------
Loans and leases, net of unearned income,
allowance, and reserve ............................................... 122,061
Trading Assets ............................................................ 56,042
Premises and fixed assets (including capitalized
leases) .............................................................. 2,904
Other real estate owned ................................................... 306
Investments in unconsolidated subsidiaries and
associated companies ................................................. 232
Customers' liability to this bank on acceptances
outstanding .......................................................... 2,092
Intangible assets ......................................................... 1,532
Other assets .............................................................. 10,448
--------
TOTAL ASSETS .............................................................. $280,709
========
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
Deposits
<S> <C>
In domestic offices .................................................. $ 91,249
Noninterest-bearing .................................................. $ 38,157
Interest-bearing ..................................................... 53,092
---------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's ............................................................ 70,192
Noninterest-bearing .................................................. $ 3,712
Interest-bearing ..................................................... 66,480
Federal funds purchased and securities sold under agree-
ments to repurchase ....................................................... 35,185
Demand notes issued to the U.S. Treasury .................................. 1,000
Trading liabilities ....................................................... 42,307
OtherBorrowed money (includes mortgage indebtedness and obligations under
calitalized leases):
With a remaining maturity of one year or less ........................ 4,593
With a remaining maturity of
more than one year
through three years ........................................... 260
With a remaining maturity of more than three years .................. 146
Bank's liability on acceptances executed and outstanding .................. 2,092
Subordinated notes and debentures ......................................... 5,715
Other liabilities ......................................................... 11,373
TOTAL LIABILITIES ......................................................... 264,112
---------
EQUITY CAPITAL
Perpetual Preferred stock and related surplus ............................. 0
Common stock .............................................................. 1,211
Surplus (exclude all surplus related to preferred stock) ................. 10,283
Undivided profits and capital reserves .................................... 5,280
Net unrealized holding gains (Losses)
on available-for-sale securities .......................................... (193)
Cumulative foreign currency translation adjustments ....................... 16
TOTAL EQUITY CAPITAL ...................................................... 16,597
---------
TOTAL LIABILITIES AND EQUITY CAPITAL ...................................... $ 280,709
=========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR. )
-5-
<PAGE> 1
EXHIBIT 99.1
CONSENT SOLICITATION BY THE BOARD OF DIRECTORS
OF
BEVERLY ENTERPRISES, INC.
9% Senior Notes due 2006
CONSENT FORM
for Consent to the Proposed Amendments
Pursuant to the Consent Solicitation Statement
Dated September , 1997
TO: The Chase Manhattan Bank
c/o Texas Commerce Bank
Corporate Trust Services -- Dallas
1201 Main Street
Dallas, Texas 75202
Attention: Frank Ivins
Telephone: (214) 672-5678
Telecopier: (214) 672-5746
The Solicitation is being made by the Board of Directors of Beverly
Enterprises Inc., a Delaware corporation (the "Company") to solicit consents
from the Registered Holders of Beverly's 9% Senior Notes due 2006 (the "Senior
Notes") as described in the accompanying Prospectus and Consent Solicitation
Statement dated , 1997 (the "Prospectus/Consent Solicitation
Statement"). The term "Registered Holder" as used herein means any person in
whose name Senior Notes were registered in the register maintained by The Chase
Manhattan Bank, as Trustee and Registrar under the Indenture (the "Trustee"), as
of , 1997 (the "Record Date"). All capitalized terms used and not
defined in this consent form have the respective meanings assigned to them in
the Consent Solicitation Statement.
CONSENT FORMS SHOULD NOT BE DELIVERED TO ANY PERSON OTHER THAN THE TRUSTEE.
UNDER NO CIRCUMSTANCE SHOULD ANY PERSON DELIVER ANY SENIOR NOTES WITH THEIR
CONSENT FORMS OR OTHERWISE.
ANY BENEFICIAL OWNER OF SECURITIES WHO IS NOT THE REGISTERED HOLDER AS OF
THE RECORD DATE BUT WHO DESIRES TO FURNISH A CONSENT AND RECEIVE A CONSENT
PAYMENT IN ACCORDANCE WITH THE TERMS AND SUBJECT TO THE CONDITIONS DESCRIBED IN
THE ACCOMPANYING CONSENT SOLICITATION STATEMENT MUST OBTAIN A PROXY (IN
SUBSTANTIALLY THE FORM INCLUDED WITH THIS CONSENT FORM) FROM THE REGISTERED
HOLDER OF SUCH SECURITIES AND DELIVER SUCH PROXY TO THE TRUSTEE WITH THE
EXECUTED CONSENT FORM.
IF ANY HOLDER SUBMITS THIS CONSENT FORM WITHOUT INDICATING A VOTE WITH RESPECT
TO THE PROPOSED AMENDMENTS, SUCH SUBMISSION WILL BE DEEMED TO CONSTITUTE A VOTE
FOR THE PROPOSED AMENDMENTS.
UNDER NO CIRCUMSTANCES WILL BEVERLY MAKE ANY CONSENT PAYMENT TO ANY PERSON WHO
DELIVERS THIS CONSENT FORM WITH THE "DO NOT CONSENT" OR "ABSTAIN" BOX MARKED
HEREON WITH RESPECT TO EITHER OF THE TRANSACTIONS AMENDMENT OR THE REDEMPTION
AMENDMENT UNLESS, ON OR PRIOR TO THE EXPIRATION DATE, SUCH PERSON DELIVERS AND
DOES NOT PROPERLY REVOKE A SUBSEQUENTLY DATED CONSENT FORM MARKED TO INDICATE A
VOTE FOR THE PROPOSED AMENDMENTS.
1
<PAGE> 2
BEVERLY WILL NOT BE DEEMED TO HAVE ACCEPTED ANY CONSENTS UNLESS AND UNTIL THE
SUPPLEMENTAL INDENTURE IS EXECUTED AND DELIVERED BY BEVERLY AND THE TRUSTEE. IF
BEVERLY AND THE TRUSTEE EXECUTE AND DELIVER THE SUPPLEMENTAL INDENTURE, THE
PROPOSED AMENDMENTS WILL BE BINDING UPON ALL HOLDERS OF SECURITIES, WHETHER OR
NOT SUCH HOLDERS HAVE DELIVERED CONSENTS.
IF THIS CONSENT FORM IS VALIDLY DELIVERED, PROPERLY COMPLETED AND TIMELY
FURNISHED (IN THE MANNER DESCRIBED IN THE ACCOMPANYING CONSENT SOLICITATION
STATEMENT), THIS CONSENT FORM (AND THE VOTES CAST HEREBY IN RESPECT OF THE
PROPOSED AMENDMENTS) WILL BE COUNTED NOTWITHSTANDING ANY TRANSFER OF THE BEVERLY
SENIOR NOTES TO WHICH THIS CONSENT FORM RELATES, UNLESS THE PROCEDURE FOR
REVOKING THIS CONSENT FORM (DESCRIBED IN THE CONSENT SOLICITATION STATEMENT) IS
COMPLIED WITH.
IRRESPECTIVE OF WHETHER THE PROPOSED AMENDMENTS BECOME EFFECTIVE, THE BEVERLY
SENIOR NOTES WILL CONTINUE TO BE OUTSTANDING IN ACCORDANCE WITH ALL OTHER TERMS
OF THE INDENTURE AND THE BEVERLY SENIOR NOTES.
2
<PAGE> 3
CONSENT
By execution hereof, the undersigned acknowledges receipt of the
Prospectus/Consent Solicitation Statement and all other information it deems
necessary to make an informed investment decision with respect to the
Solicitation and the furnishing of this consent form. The undersigned hereby
represents and warrants that the undersigned is a holder of the Senior Notes
indicated below and has full power and authority to take the action indicated
below in respect of such Senior Notes. The undersigned will, upon request,
execute and deliver any additional documents deemed by Beverly to be necessary
or desirable to perfect the undersigned's consent.
The undersigned acknowledges that it must comply with the provisions of
this consent form, and complete the information required herein, to validly
consent to adoption of the Proposed Amendments.
The undersigned further acknowledges that, if adopted, the Proposed
Amendments would amend the Indenture to facilitate the Transactions contemplated
by the Distribution Agreement and Merger Agreement. The Distribution Agreement
and the Merger Agreement contemplate, among other matters, (i) the transfer by
Beverly to New Beverly of all of Beverly's assets and properties, other than the
capital stock of PCA and the capital stock of PCA's subsidiaries, in exchange
for all outstanding shares of capital stock of New Beverly; (ii) the assumption
by New Beverly as obligor under the Senior Notes in place of Beverly and of all
of Beverly's rights and obligations in respect of the Senior Notes and the
Indenture; (iii) the release of the obligations of Beverly, PCA and each of
PCA's subsidiaries in respect of the Senior Notes and the Indenture; (iv) the
distribution by Beverly to its stockholders of all of the outstanding capital
stock of New Beverly such that, immediately after such distribution, New Beverly
will be an independent publicly-traded corporation owned directly by Beverly's
stockholders; and (v) following consummation of the transactions described in
clauses (i) through (iv) above, the Merger.
The Proposed Amendments, if adopted, would also amend the Indenture to
permit Beverly, if it should so elect, to redeem all outstanding principal
amount of its 7 5/8% Convertible Debentures due 2003 without violating the
Restricted Payment provisions of the Indenture.
Please indicate by marking the appropriate box below whether you wish (i)
to consent to the Proposed Amendments, (ii) not to consent to the Proposed
Amendments, or (iii) to abstain from taking any action with respect to the
Proposed Amendments. The undersigned acknowledges that Consents delivered
pursuant to any one of the procedures described under the heading "The
Solicitation -- Consent Procedures" in the accompanying Prospectus/Consent
Solicitation Statement and in the instructions hereto will constitute a binding
agreement between the undersigned and Beverly upon the terms and subject to the
conditions of the Solicitation. The undersigned further understands that (i) if
no box is checked but this Consent form is executed, dated and delivered to the
Solicitation Agent, the undersigned will be deemed to have consented to the
Proposed Amendments and (ii) if either the "DO NOT CONSENT" or "ABSTAIN" box
below is checked, the undersigned will be deemed not to have consented to the
Proposed Amendments and will not be entitled to receive any Consent Payment
unless, on or prior to the Expiration Date, such person delivers and does not
properly revoke a subsequently dated consent form marked to indicate a vote FOR
the Proposed Amendments.
3
<PAGE> 4
PROPOSAL NO. 1 THE TRANSACTIONS AMENDMENT:
<TABLE>
<S> <C> <C>
CONSENT DO NOT CONSENT ABSTAIN
[ ] [ ] [ ]
</TABLE>
PROPOSAL NO. 2 THE REDEMPTION AMENDMENT:
<TABLE>
<S> <C> <C>
CONSENT DO NOT CONSENT ABSTAIN
[ ] [ ] [ ]
</TABLE>
Unless otherwise specified in the table below, this consent form relates to
(i) the aggregate principal amount of Senior Notes held of record by the
undersigned at the close of business on the Record Date or (ii) if the
undersigned is not a Registered Holder and this consent form relates to Senior
Notes in respect of which the undersigned is acting pursuant to an irrevocable
proxy furnished by the Registered Holder, the total principal amount of Senior
Notes to which such irrevocable proxy relates. If this consent form relates to
less than the total principal amount of Senior Notes so registered in the name
of the undersigned or to which such a proxy relates, the undersigned has listed
on the table below the serial numbers and principal amount of Senior Notes for
which this consent form is furnished. If the space provided below is inadequate,
please list the certificate numbers and principal amounts on a separate signed
schedule and affix the list to this consent form.
4
<PAGE> 5
DESCRIPTION OF SECURITIES AS TO WHICH THIS CONSENT FORM RELATES
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL
PRINCIPAL WITH RESPECT TO AMOUNT WITH RESPECT
NAME(S) AND ADDRESS(ES) CERTIFICATE AMOUNT OF WHICH THIS CONSENT TO WHICH THIS CONSENT
OF REGISTERED HOLDER(S) NUMBER(S)* CERTIFICATE(S)** FORM RELATES** FORM RELATES $
- --------------------------------- ----------- ---------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- ---------------
* Need not be completed by persons whose Senior Notes are held of record by
depositories.
** Unless otherwise indicated in the column labeled "Principal Amount with
Respect to which an Election is Being Made," the person executing this
consent form will be deemed to have taken the action indicated above in
respect of (i) if such person is the Registered Holder of the total principal
amount of Senior Notes registered in the name of such Registered Holder as of
the Record Date and (ii) if such person is not a Registered Holder and is
executing this consent form pursuant to a proxy given by a Registered Holder
and delivered with this consent form, the total principal amount of Senior
Notes to which such proxy relates.
5
<PAGE> 6
IMPORTANT -- READ CAREFULLY
This consent form (or, if the person signing this consent form is not the
Registered Holder, the accompanying irrevocable proxy), to be effective, must be
executed by the Registered Holder(s) of the Senior Notes to which this consent
form relates in the same manner as the name of the Registered Holder(s) appears
on such Senior Notes. If such Senior Notes are held of record as of the Record
Date by two or more Registered Holders, all such Registered Holders must sign
this consent form (or such irrevocable proxy). If such Senior Notes are
registered in different names as of the Record Date, separate consent forms must
be executed covering each form of registration. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation,
or other person acting in a fiduciary or representative capacity, such person
should so indicate when signing and must submit proper evidence satisfactory to
Beverly of such person's authority to so act. Except as provided in Instruction
4, signatures on this consent form (and any such irrevocable proxy) must be
either (1) guaranteed by a firm that is a member of the National Association of
Securities Dealers, Inc., or a member of a registered national securities
exchange or by a commercial bank or trust company having an office or
correspondent in the United States, or (2) notarized.
SIGN HERE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated: , 1997
--------------------------------------------------------------------
Name(s):
------------------------------------------------------------------------
------------------------------------------------------------------------
(Please Print)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No. ( )
-----------------------------------------------
Tax Identification or Social Security No.
---------------------------------------
6
<PAGE> 7
GUARANTEE OF SIGNATURE(S)
Authorized Signature:
-----------------------------------------------------------
Name and Title:
-----------------------------------------------------------------
(Please Print)
Dated:
--------------------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
* * * * * OR * * * * *
STATE OF )
) ss.
COUNTY OF )
Before me, a Notary Public in and for said County
and State, personally appeared who acknowledged before
me that (s)he signed the foregoing Consent and that facts contained therein are
true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this day of
, 19 .
------------------------------------
Notary Public
My Commission expires:
--------------
7
<PAGE> 8
IMPORTANT TAX INFORMATION
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR
GENERAL INFORMATION ONLY. EACH HOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN
PROFESSIONAL TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH
HOLDER (INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL STATE, LOCAL AND
OTHER TAX LAWS) OF THE CONSENTS PURSUANT TO THE SOLICITATION, CERTAIN HOLDERS
(INCLUDING INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, FINANCIAL
INSTITUTIONS, DEALERS IN SECURITIES AND FOREIGN PERSONS OR ENTITIES) MAY BE
SUBJECT TO SPECIAL RULES NOT DISCUSSED BELOW. THE DISCUSSION DOES NOT CONSIDER
THE EFFECT OF ANY APPLICABLE FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
SUBSTITUTE FORM W-9
Under the Federal income tax laws, Beverly may be required to withhold 31%
of the amount of any payment made to certain holders pursuant to the
Solicitation. In order to avoid such backup withholding, each holder must
provide the correct taxpayer identification number ("TIN") by completing the
Substitute Form W-9 set forth below. In general, if a holder is an individual,
the TIN is the Social Security number of such individual. If the Correct TIN is
not provided, the holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. Certain holders (including, among others, all corporations) are
not subject to these backup withholding and reporting requirements. These
holders should enter the correct TIN in Part 1 of the Substitute Form W-9, write
"Exempt" in Part 2 of the Substitute Form W-9, sign under the certification and
date the form. For further information regarding backup withholding and
instructions for completing the Substitute Form W-9 (including how to obtain a
TIN if you do not have one and how to complete the Substitute Form W-9 if Senior
Notes are held in more than one name), consult the Guidelines for Certification
of Taxpayer Identification Number.
CONSEQUENCES OF FAILURE TO FILE SUBSTITUTE FORM W-9
Failure to complete Substitute Form W-9 may require Beverly to withhold 31%
of the amount of any Consent Payments made pursuant to the Solicitation. Backup
withholding is not an additional Federal income tax. Rather, the U.S. Federal
income tax liability of a person subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, the holder may claim a refund from the Internal Revenue Service.
8
<PAGE> 9
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME
------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THIS BOX AND
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW -------------------------------------
Department of the Treasury Social Security Number
Internal Revenue Service or
-------------------------------------
Employee Identification Number
---------------------------------------------------------------------------------------------
PART 2 -- Check the box if you are not subject to backup withholding either because (1) you
PAYER'S REQUEST have not been notified that you are subject to backup withholding as a result of failure to
FOR TAXPAYER IDENTIFICATION report all interest or dividends or (2) the Internal Revenue Service has notified you that
NUMBER (TIN) you are no longer subject to backup withholding.
CERTIFICATION: UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS
FORM IS TRUE, CORRECT AND COMPLETE.
Name
-----------------------------------------------------------------------------------
(Please Print)
Address
---------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
(Include Zip Code)
---------------------------------------------------------------------------------------------
PART 3 --
Signature
------------------------------------------ Awaiting TIN [ ]
Date
-----------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE SOLICITATION. PLEASE
REVIEW THE "GUIDELINES" FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER" FOR ADDITIONAL DETAILS.
9
<PAGE> 10
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to obtain a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty days of the
date hereof, 31% of all reportable payments due to me will be withheld until I
provide a number.
Signature: Date:
-------------------------------------------- ------------------
10
<PAGE> 11
IRREVOCABLE PROXY WITH RESPECT TO
THE CONSENT SOLICITATION
RELATED TO
9% SENIOR NOTES DUE 2006
OF
BEVERLY ENTERPRISES, INC.
The undersigned hereby irrevocably appoints as
attorney-in-fact and proxy of the undersigned, with full power of substitution,
to execute consent forms and notices of revocation of consents in respect of the
Proposed Amendments to the Indenture governing the 9% Senior Notes due 2006
("Senior Notes") of Beverly Enterprises, Inc., a Delaware corporation
("Beverly"), pursuant to the Solicitation whereby Beverly is soliciting the
consent of Registered Holders of Senior Notes as of , 1997 (the
"Record Date") to the Proposed Amendments to the Indenture, with all the power
the undersigned would possess if executing such consent forms or revocation
notices personally. THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST.
The aggregate principal amount of Senior Notes as to which this Proxy is
furnished is set forth below. The undersigned represents and agrees that (i) the
undersigned was the registered holder of the Senior Notes set forth below on the
Record Date and (ii) the undersigned has not consented, and will not consent or
revoke a Consent, with respect to the Proposed Amendments.
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
AMOUNT OF CERTIFICATE(S) CERTIFICATE NUMBER(S)
------------------------ ---------------------
<S> <C>
</TABLE>
If the Senior Notes are owned as of the Record Date by two or more persons,
each should sign. Executors, administrators, trustees, guardians and
attorneys-in-fact should add their titles. If signer is a corporation, please
give full corporate name and have a duly authorized officer sign, stating title.
If signer is a partnership, please sign in partnership name by a duly authorized
person.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Registered Holder(s)
Dated:
--------------------------------------------------------------------------
Name(s):
------------------------------------------------------------------------
------------------------------------------------------------------------
(Please Print)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
(include Zip Code)
Area Code and Telephone No.: ( )
-------------------------------------------
Tax Identification or Social Security No.:
--------------------------------------
11
<PAGE> 12
GUARANTEE OF SIGNATURES
Authorized Signature:
-----------------------------------------------------------
Name and Title:
-----------------------------------------------------------------
(Please Print)
Dated:
--------------------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
* * * * * OR * * * * *
STATE OF )
) ss.
COUNTY OF )
Before me, a Notary Public in and for said County and
State, personally appeared who acknowledged
before me that (s)he signed the foregoing Proxy and that the facts contained
therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this day
of , 19 .
------------------------------------
Notary Public
My Commission expires:
--------------
12
