-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OCNMPs1EUw2wEZjoiUK1wGMkYuKwQYoaZmobkqAvJGobrIWuO+UuIgHufrb4YvXV prRplmjPI8nJ1v3yFVblSw== 0000950134-99-010119.txt : 19991117 0000950134-99-010119.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950134-99-010119 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEVERLY ENTERPRISES INC CENTRAL INDEX KEY: 0001040441 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 621691861 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09550-2B FILM NUMBER: 99753827 BUSINESS ADDRESS: STREET 1: 5111 ROGERS AVE STREET 2: SUITE 40-A CITY: FORT SMITH STATE: AR ZIP: 72903 BUSINESS PHONE: 5014526712 MAIL ADDRESS: STREET 1: 511 ROGERS AVE STREET 2: SUITE 40-A CITY: FORT SMITH STATE: AR ZIP: 72903 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEVERLY HOLDINGS INC DATE OF NAME CHANGE: 19970604 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1999 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----- ----- COMMISSION FILE NUMBER 1-9550 BEVERLY ENTERPRISES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 62-1691861 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1000 BEVERLY WAY FORT SMITH, ARKANSAS 72919 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (501) 201-2000 INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- SHARES OF REGISTRANT'S COMMON STOCK, $.10 PAR VALUE, OUTSTANDING, EXCLUSIVE OF TREASURY SHARES, AT OCTOBER 29, 1999 -- 102,495,556 ================================================================================ 2 BEVERLY ENTERPRISES, INC. FORM 10-Q SEPTEMBER 30, 1999 TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets...................... 2 Condensed Consolidated Statements of Operations............ 3 Condensed Consolidated Statements of Cash Flows............ 4 Notes to Condensed Consolidated Financial Statements....... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 11 PART II -- OTHER INFORMATION Item 1. Legal Proceedings................................................. 19 Item 6. Exhibits and Reports on Form 8-K.................................. 20
1 3 PART I BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 (DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------ ----------- (UNAUDITED) (NOTE) ASSETS Current assets: Cash and cash equivalents ................................................... $ 17,462 $ 17,278 Accounts receivable - patient, less allowance for doubtful accounts: 1999 - $60,073; 1998 - $21,764 ........................................... 341,658 463,822 Accounts receivable - nonpatient, less allowance for doubtful accounts: 1999 - $631; 1998 - $441 ................................................. 18,519 85,585 Notes receivable ............................................................ 21,560 21,075 Operating supplies .......................................................... 32,577 32,133 Deferred income taxes ....................................................... 44,028 56,512 Prepaid expenses and other .................................................. 16,415 19,565 ----------- ----------- Total current assets .................................................. 492,219 695,970 Property and equipment, net of accumulated depreciation and amortization: 1999 - $750,494; 1998 - $694,322 ............................................ 1,108,188 1,120,315 Other assets: Notes receivable, less allowance for doubtful notes: 1999 - $2,462; 1998 - $2,921 ............................................. 4,003 21,263 Designated funds ............................................................ 3,092 4,029 Goodwill, net ............................................................... 229,479 217,066 Other, net .................................................................. 133,091 101,868 ----------- ----------- Total other assets .................................................... 369,665 344,226 ----------- ----------- $ 1,970,072 $ 2,160,511 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................................ $ 71,660 $ 85,533 Accrued wages and related liabilities ....................................... 88,368 96,092 Accrued interest ............................................................ 12,236 12,783 Other accrued liabilities ................................................... 149,120 134,975 Current portion of long-term debt ........................................... 23,810 27,773 ----------- ----------- Total current liabilities ............................................. 345,194 357,156 Long-term debt ................................................................. 776,276 878,270 Deferred income taxes payable .................................................. 39,566 114,962 Other liabilities and deferred items ........................................... 135,130 33,917 Commitments and contingencies Stockholders' equity: Preferred stock, shares authorized: 25,000,000 ............................. -- -- Common stock, shares issued: 1999 - 110,382,356; 1998 - 110,275,714 ........ 11,038 11,028 Additional paid-in capital .................................................. 875,850 876,383 Accumulated deficit ......................................................... (106,835) (4,782) Accumulated other comprehensive income ...................................... 1,036 760 Treasury stock, at cost: 7,886,800 shares .................................. (107,183) (107,183) ----------- ----------- Total stockholders' equity ............................................ 673,906 776,206 ----------- ----------- $ 1,970,072 $ 2,160,511 =========== ===========
NOTE: The balance sheet at December 31, 1998 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. 2 4 BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Net operating revenues ..................................... $ 637,396 $ 697,937 $ 1,903,748 $ 2,107,752 Interest income............................................. 935 2,698 3,290 7,958 ------------ ------------ ------------ ------------ Total revenues.................................... 638,331 700,635 1,907,038 2,115,710 Costs and expenses: Operating and administrative: Wages and related.................................... 389,710 428,284 1,177,676 1,284,506 Other................................................ 186,993 196,493 549,692 614,293 Interest................................................ 20,001 16,788 54,029 48,869 Depreciation and amortization........................... 25,669 23,711 74,511 69,947 Special charges related to tentative settlements of federal government investigations.................... -- -- 199,043 -- Year 2000 remediation................................... 3,423 2,041 10,672 3,875 Investigation costs..................................... -- 496 3,404 496 ------------ ------------ ------------ ------------ Total costs and expenses.......................... 625,796 667,813 2,069,027 2,021,986 ------------ ------------ ------------ ------------ Income (loss) before provision for (benefit from) income taxes and cumulative effect of change in accounting for start-up costs...................................... 12,535 32,822 (161,989) 93,724 Provision for (benefit from) income taxes................... 4,638 11,487 (59,936) 32,803 ------------ ------------ ------------ ------------ Income (loss) before cumulative effect of change in accounting for start-up costs........................... 7,897 21,335 (102,053) 60,921 Cumulative effect of change in accounting for start-up costs, net of income tax benefit of $2,811..................... -- -- -- (4,415) ------------ ------------ ------------ ------------ Net income (loss)........................................... $ 7,897 $ 21,335 $ (102,053) $ 56,506 ============ ============ ============ ============ Income (loss) per share of common stock: Basic: Before cumulative effect of change in accounting for start-up costs................................ $ 0.08 $ 0.21 $ (1.00) $ 0.58 Cumulative effect of change in accounting for start-up costs.................................... -- -- -- (0.04) ------------ ------------ ------------ ------------ Net income (loss).................................... $ 0.08 $ 0.21 $ (1.00) $ 0.54 ============ ============ ============ ============ Shares used to compute per share amounts............. 102,495 103,019 102,490 104,225 ============ ============ ============ ============ Diluted: Before cumulative effect of change in accounting for start-up costs................................ $ 0.08 $ 0.21 $ (1.00) $ 0.58 Cumulative effect of change in accounting for start-up costs.................................... -- -- -- (0.04) ------------ ------------ ------------ ------------ Net income (loss).................................... $ 0.08 $ 0.21 $ (1.00) $ 0.54 ============ ============ ============ ============ Shares used to compute per share amounts............. 102,715 103,610 102,490 105,391 ============ ============ ============ ============
See accompanying notes. 3 5 BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (IN THOUSANDS)
1999 1998 ---------- --------- Cash flows from operating activities: Net income (loss)............................................................................. $ (102,053) $ 56,506 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................................................... 74,511 69,947 Provision for reserves on patient, notes and other receivables, net......................... 20,345 13,626 Amortization of deferred financing costs.................................................... 2,562 1,784 Special charges related to tentative settlements of federal government investigations....... 199,043 -- Cumulative effect of change in accounting for start-up costs................................ -- 7,226 Losses (gains) on dispositions of facilities and other assets, net.......................... 4,002 (20,496) Deferred taxes.............................................................................. (62,122) 12,877 Net increase (decrease) in insurance related accounts....................................... 4,008 (26,906) Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable - patient............................................................. (8,927) (89,693) Operating supplies........................................................................ (495) (437) Prepaid expenses and other receivables.................................................... 523 2,170 Accounts payable and other accrued expenses............................................... (31,706) 14,584 Income taxes payable...................................................................... 21,545 (4,919) Other, net................................................................................ (2,549) (3,997) ---------- --------- Total adjustments....................................................................... 220,740 (24,234) ---------- --------- Net cash provided by operating activities............................................... 118,687 32,272 Cash flows from investing activities: Proceeds from dispositions of facilities and other assets................................... 41,044 67,740 Payments for acquisitions, net of cash acquired............................................. (5,927) (146,672) Capital expenditures........................................................................ (69,007) (103,234) Collections on notes receivable............................................................. 16,589 3,800 Other, net.................................................................................. (27,886) (11,422) ---------- -------- Net cash used for investing activities................................................. (45,187) (189,788) Cash flows from financing activities: Revolver borrowings......................................................................... 854,000 944,000 Repayments of Revolver borrowings........................................................... (975,000) (763,000) Proceeds from issuance of long-term debt.................................................... 125,820 -- Repayments of long-term debt................................................................ (75,602) (52,040) Purchase of common stock for treasury....................................................... -- (56,332) Proceeds from exercise of stock options..................................................... 129 3,090 Deferred financing costs.................................................................... (2,963) (624) Proceeds from designated funds, net......................................................... 300 730 ---------- --------- Net cash provided by (used for) financing activities.................................... (73,316) 75,824 ---------- --------- Net increase (decrease) in cash and cash equivalents............................................. 184 (81,692) Cash and cash equivalents at beginning of period................................................. 17,278 105,230 ---------- --------- Cash and cash equivalents at end of period....................................................... $ 17,462 $ 23,538 ========== ========= Supplemental schedule of cash flow information: Cash paid (received) during the period for: Interest, net of amounts capitalized........................................................ $ 52,014 $ 52,078 Income tax payments (refunds), net.......................................................... (19,359) 22,034
See accompanying notes. 4 6 BEVERLY ENTERPRISES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (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 nine-month periods ended September 30, 1999 and 1998 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 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the three-month and nine-month periods ended September 30, 1999 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. The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the three-month and nine-month periods ended September 30 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ------------------------ 1999 1998 1999 1998 ---------- --------- ---------- --------- NUMERATOR: Numerator for basic and diluted income (loss) per share from continuing operations................................... $ 7,897 $ 21,335 $ (102,053) $ 60,921 ========== ========= ========== ========= DENOMINATOR: Denominator for basic income (loss) per share - weighted average shares............................................... 102,495 103,019 102,490 104,225 Effect of dilutive securities: Employee stock options....................................... 220 591 -- 1,166 ---------- --------- ---------- --------- Denominator for diluted income (loss) per share - adjusted weighted average shares and assumed conversions.............. 102,715 103,610 102,490 105,391 ========== ========= ========== ========= Basic income (loss) per share.................................. $ 0.08 $ 0.21 $ (1.00) $ 0.58 ========== ========= ========== ========= Diluted income (loss) per share................................ $ 0.08 $ 0.21 $ (1.00) $ 0.58 ========== ========= ========== =========
5 7 BEVERLY ENTERPRISES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) Comprehensive income (loss) includes net income (loss), as well as charges and credits directly to stockholders' equity which are excluded from net income (loss). The components of comprehensive income (loss), net of income taxes, consist of the following for the three-month and nine-month periods ended September 30 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- -------- --------- --------- Net income (loss)........................................ $ 7,897 $ 21,335 $(102,053) $ 56,506 Unrealized gains on securities, net of income taxes...... 324 505 276 682 ---------- -------- --------- --------- Comprehensive income (loss).............................. $ 8,221 $ 21,840 $(101,777) $ 57,188 ========== ======== ========= =========
Accumulated other comprehensive income, net of income taxes, consists of unrealized gains on securities of $1,036,000 and $760,000 at September 30, 1999 and December 31, 1998, respectively. Results of operations for the nine months ended September 30, 1998 have been restated for a cumulative effect adjustment of $4,415,000, net of income taxes, or $0.04 per share, resulting from the adoption, effective January 1, 1998, of Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," which requires costs of start-up activities and organization costs to be expensed as incurred. Certain prior year amounts have been reclassified to conform with the 1999 presentation. (ii) The provision for (benefit from) taxes on income (loss) before the cumulative effect of a change in accounting for start-up costs for the three-month and nine-month periods ended September 30, 1999 and 1998 were based on estimated annual effective tax rates of 37% and 35%, respectively. The Company's estimated annual effective tax rates for 1999 and 1998 were different than the federal statutory rate primarily due to the impact of state income taxes, amortization of nondeductible goodwill and the benefit of certain tax credits. The Company's 1998 estimated annual effective tax rate was further impacted by the sale of American Transitional Hospitals, Inc., which operated as Beverly Specialty Hospitals, in 1998. The Company's net deferred tax assets at September 30, 1999 will be realized primarily through the reversal of temporary taxable differences and future taxable income. Accordingly, the Company does not believe that a deferred tax valuation allowance is necessary at September 30, 1999. The provision for (benefit from) taxes on income (loss) before the cumulative effect of a change in accounting for start-up costs consists of the following for the three-month and nine-month periods ended September 30 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- 1999 1998 1999 1998 --------- -------- --------- --------- Federal: Current................................................ $ -- $ 6,348 $ -- $ 15,685 Deferred............................................... 3,168 3,036 (56,044) 10,861 State: Current................................................ (169) 1,771 2,186 4,241 Deferred............................................... 1,639 332 (6,078) 2,016 --------- -------- --------- --------- $ 4,638 $ 11,487 $ (59,936) $ 32,803 ========= ======== ========= =========
6 8 BEVERLY ENTERPRISES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) (iii) During the nine months ended September 30, 1999, the Company purchased three outpatient clinics, two home care centers, two nursing facilities (284 beds), one previously leased nursing facility (190 beds) and certain other assets for cash of approximately $5,000,000, acquired debt of approximately $15,100,000 and closing and other costs of approximately $1,700,000. The acquisitions of such facilities and other assets were accounted for as purchases. Also during such period, the Company sold or terminated the leases on 10 nursing facilities (1,075 beds), one assisted living center (10 units), 17 home care centers and certain other assets for cash proceeds of approximately $6,200,000 and notes receivable of approximately $1,000,000. The Company did not operate two of these nursing facilities (166 beds) which were leased to other nursing home operators in prior year transactions. The Company recognized net pre-tax losses, which were included in net operating revenues during the nine months ended September 30, 1999, of approximately $4,000,000 as a result of these dispositions. The operations of these facilities and certain other assets were immaterial to the Company's consolidated financial position and results of operations. (iv) In January 1999, the Company entered into a $65,000,000 promissory note at an annual interest rate of 6.50%. In October 1999, the note was renegotiated to allow the Company to make an interest-only payment in January 2000 at an annual interest rate of 6.50%, with the principal balance payable in two equal installments in January 2001 and in January 2002 at an annual interest rate of 7.00%. The proceeds from this promissory note were used to pay down Revolver borrowings and is secured by a surety bond. During the nine months ended September 30, 1999, the Company entered into promissory notes totaling approximately $10,820,000 in conjunction with the construction of certain nursing facilities. Such debt instruments bear interest at rates ranging from 7.75% to 8.00%, require monthly installments of principal and interest and are secured by mortgage interests in the real property and security interests in the personal property of the nursing facilities. Also during such period, the Company entered into promissory notes totaling approximately $15,100,000 in conjunction with the acquisitions of certain facilities (see Note iii). Such debt instruments bear interest at rates ranging from 7.00% to 8.00%, 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 acquired facilities. In June 1999, the Company refinanced its Medium Term Notes, increasing its borrowings from $40,000,000 to $50,000,000. The Medium Term Notes are collateralized by patient accounts receivable, which are sold by Beverly Health and Rehabilitation Services, Inc. ("BHRS") (currently operating as Beverly Healthcare), a wholly-owned subsidiary of the Company, to Beverly Funding Corporation ("BFC"), a wholly-owned bankruptcy remote subsidiary of the Company. As a result of this refinancing, the Company was required by Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," ("SFAS No. 125") to deconsolidate BFC. SFAS No. 125 provides accounting and reporting standards for sales, securitizations, and servicing of receivables and other financial assets, secured borrowing and collateral transactions, and the extinguishments of liabilities. It requires companies to recognize the financial and servicing assets it controls and the liabilities it has incurred and to deconsolidate financial assets when control has been surrendered in accordance with the criteria provided in SFAS No. 125. Deconsolidation of BFC, which had total assets of approximately $74,200,000, total liabilities of approximately $55,800,000 and total stockholder's equity of approximately $18,400,000 at June 30, 1999, caused a reduction in the Company's accounts receivable-patient and long-term debt. In addition, the Company recorded its ongoing investment in BFC as an increase in other, net assets. During July 1999, BFC increased its borrowings under the Medium Term Notes to $70,000,000. In conjunction therewith, the Company, through BHRS, sold an additional $25,000,000 of patient accounts receivable and made an additional capital contribution of $5,000,000 to BFC. At September 30, 1999, BFC had total assets of approximately $108,000,000, total liabilities of approximately $74,100,000, and total stockholder's equity of approximately $33,900,000. The Company's Statement of Cash Flows reflects the change from June 30, 1999 to September 30, 1999 in receivables sold to BFC in the caption Accounts receivable - - patient and the change from June 30, 1999 to September 30, 1999 in the Company's investment in BFC in the caption Other, net - investing. Effective September 30, 1999, the Company executed an amendment to the Credit Agreement covering the Company's $375,000,000 Revolver/Letter of Credit Facility, as well as amendments with certain of its other lenders covering debt of approximately $199,000,000 (collectively, the "Amendments"). Such Amendments were required since recording of the special charges related to the tentative settlements, as discussed in Note vii, would have resulted in the Company's noncompliance with certain financial covenants contained in those debt agreements. The Amendments modify certain financial covenant levels and increase the annual interest rates for such debt. (v) Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" provides disclosure guidelines for segments of a company based on a management approach to defining operating segments. 7 9 BEVERLY ENTERPRISES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) The following table summarizes certain information for each of the Company's operating segments (in thousands):
BEVERLY BEVERLY BEVERLY CARE SPECIALTY HEALTHCARE ALLIANCE HOSPITALS (1) ALL OTHER (2) TOTALS ----------- ----------- ------------- -------------- ----------- Three months ended September 30, 1999 Revenues from external customers ............. $ 580,961 $ 55,128 $ -- $ 1,307 $ 637,396 Intercompany revenues ........................ -- 34,263 -- 2,937 37,200 Interest income .............................. 61 20 -- 854 935 Interest expense ............................. 7,933 107 -- 11,961 20,001 Depreciation and amortization ................ 20,537 3,401 -- 1,731 25,669 Pre-tax income (loss) ........................ 26,643 4,279 -- (18,387) 12,535 Total assets ................................. 1,543,726 327,219 -- 99,127 1,970,072 Capital expenditures ......................... 16,401 2,491 -- (1,324) 17,568 Three months ended September 30, 1998 Revenues from external customers ............. $ 642,209 $ 53,740 $ -- $ 1,988 $ 697,937 Intercompany revenues ........................ -- 3,416 -- 2,741 6,157 Interest income .............................. 100 34 -- 2,564 2,698 Interest expense ............................. 7,277 46 -- 9,465 16,788 Depreciation and amortization ................ 19,499 2,426 -- 1,786 23,711 Pre-tax income (loss) ........................ 42,535 2,595 -- (12,308) 32,822 Total assets ................................. 1,550,126 296,208 -- 352,619 2,198,953 Capital expenditures ......................... 16,065 4,372 -- 19,258 39,695 Nine months ended September 30, 1999 Revenues from external customers ............. $ 1,716,246 $ 184,337 $ -- $ 3,165 $ 1,903,748 Intercompany revenues ........................ -- 105,191 -- 8,553 113,744 Interest income .............................. 169 50 -- 3,071 3,290 Interest expense ............................. 21,246 334 -- 32,449 54,029 Depreciation and amortization ................ 60,020 9,806 -- 4,685 74,511 Pre-tax income (loss) ........................ 84,710 16,248 -- (262,947) (161,989) Total assets ................................. 1,543,726 327,219 -- 99,127 1,970,072 Capital expenditures ......................... 55,902 8,773 -- 4,332 69,007 Nine months ended September 30, 1998 Revenues from external customers ............. $ 1,904,420 $ 131,914 $ 61,775 $ 9,643 $ 2,107,752 Intercompany revenues ........................ -- 10,491 539 7,965 18,995 Interest income .............................. 257 34 3 7,664 7,958 Interest expense ............................. 22,326 61 93 26,389 48,869 Depreciation and amortization ................ 58,124 5,958 1,578 4,287 69,947 Pre-tax income (loss) ........................ 129,341 7,231 (670) (42,178) 93,724 Total assets ................................. 1,550,126 296,208 -- 352,619 2,198,953 Capital expenditures ......................... 56,846 9,585 4,937 31,866 103,234
- -------------- (1) The Company completed the sale of Beverly Specialty Hospitals in June 1998. (2) All Other consists of the operations of the Company's corporate headquarters and related overhead, as well as certain other non-operating revenues and expenses. 8 10 BEVERLY ENTERPRISES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) (vi) The Company has been the subject of a federal government investigation relating to the allocation to the Medicare program of certain nursing labor costs in its skilled nursing facilities from 1990 to 1998. The investigation has been conducted by the Office of Inspector General of the Department of Health and Human Services and by the U.S. Department of Justice. In addition, a federal grand jury in San Francisco has investigated business practices which are the subject of the above civil investigation, and the Company's current Medicare fiscal intermediary, Blue Cross of California, is examining cost reports of the Company's facilities with respect to the areas that are the focus of the government investigation. In late July 1999, the Company announced it had reached a tentative understanding with the U.S. Department of Justice to settle the civil and criminal aspects of all investigations by the federal government and its fiscal intermediary into the allocation of nursing labor hours to the Medicare program from 1990 to 1998 (the "Allocation Investigations"). Since that time, the Company has continued to negotiate with the federal government to complete and execute definitive settlement documents, certain of which are subject to court approval. As previously reported, if the tentative civil settlement is consummated, the Company would be obligated to reimburse the federal government $170,000,000 as follows: (i) $25,000,000 within 30 days of signing the definitive civil settlement agreement; and (ii) $145,000,000 to be withheld from the Company's biweekly Medicare periodic interim payments in equal installments over eight years. In addition, the Company would agree to resubmit certain Medicare filings to reflect reduced direct labor costs. If the tentative criminal settlement is consummated, a subsidiary of the Company would pay a fine of $5,000,000. The effect of this settlement would be to exclude such subsidiary's nursing facilities from the Medicare and Medicaid programs and would require the subsidiary to dispose of such facilities. It is expected that this will affect no more than 10 nursing facilities. On July 6, 1999, an amended complaint was filed by the plaintiffs in the previously disclosed purported class action lawsuit pending against the Company and certain of its officers in the United States District Court for the Eastern District of Arkansas (the "Class Action"). Plaintiffs filed a second amended complaint on September 9, 1999 which asserted claims under Section 10(b) (including Rule 10b-5 promulgated thereunder) and under Section 20 of the Securities Exchange Act of 1934 arising from practices that are the subject of the Allocation Investigations. The defendants filed a motion to dismiss that complaint on October 8, 1999. Due to the preliminary state of the Class Action and the fact the second amended complaint does not allege damages with any specificity, the Company is unable at this time to assess the probable outcome of the Class Action or the materiality of the risk of loss. However, the Company believes that it acted lawfully with respect to plaintiff investors and will vigorously defend the Class Action. In addition, since July 29, 1999, seven derivative lawsuits have been filed in the state courts of Arkansas, California and Delaware (collectively, the "Derivative Actions"). Norman M. Lyons v. David R. Banks, et al., Case No. OT99-4041, was filed in the Chancery Court of Pulaski County, Arkansas (4th Division) on or about July 29, 1999; Alfred Badger, Jr. v. David R. Banks, et al., Case No. OT99-4353, was filed in the Chancery Court of Pulaski County, Arkansas (1st Division) on or about August 17, 1999 and voluntarily dismissed on November 3, 1999. On November 1, 1999, the defendants filed a motion to dismiss the Lyons and Badger actions. James L. Laurita v. David R. Banks, et al., Case No. 17348NC, was filed in the Delaware Chancery Court on or about August 2, 1999; Kenneth Abbey v. David R. Banks, et al., Case No. 17352NC, was filed in the Delaware Chancery Court on or about August 4, 1999; Alan Friedman v. David R. Banks, et al., Case No. 17355NC, was filed in the Delaware Chancery Court on or about August 9, 1999. The Laurita, Abbey and Friedman actions were subsequently consolidated by order of the Delaware Chancery Court. On or about October 1, 1999, the defendants moved to dismiss the Laurita, Abbey and Friedman actions. Elles Trading Company v. David R. Banks, et al., was filed in the Superior Court for San Francisco County, California on or about August 4, 1999. That action was removed to United States District Court for the Northern District, and plaintiff filed a motion to remand the action to state court on or about October 14, 1999. The defendants have not yet responded to the complaint in the Elles Trading Company action. Richardson v. David R. Banks, et al., Case No. LR-C-99-826, was filed in United States District Court for the Eastern District of Arkansas (Western Division) on November 4, 1999. The Derivative Actions each name the Company's directors as defendants, as well as the Company as a nominal defendant. The Badger and Lyons actions also name as defendants certain of the Company's officers. The Derivative Actions each allege breach of fiduciary duties to the Company and its stockholders arising 9 11 BEVERLY ENTERPRISES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) primarily out of the Company's alleged exposure to loss due to the Class Action and the Allocation Investigations. The Lyons, Badger and Richardson actions also assert claims for abuse of control and constructive fraud arising from the same allegations, and the Richardson action also claims unjust enrichment. Due to the preliminary state of the Derivative Actions and the fact the complaints do not allege damages with any specificity, the Company is unable at this time to assess the probable outcome of the Derivative Actions or the materiality of the risk of loss. However, the Company believes that it acted lawfully with respect to the allegations of the Derivative Actions and will vigorously defend the Derivative Actions. On March 4, 1998, a jury in California returned a verdict of $95,100,000 against a nursing facility operated by a subsidiary of the Company. The verdict, which was based on findings of fraud as well as negligence and abuse, consisted of $365,580 in compensatory damages and $94,700,000 in punitive damages. At a post-trial hearing on June 3, 1998, the trial judge reduced the compensatory damages to $125,000 and reduced the punitive damages to $3,000,000. The Company believes that these reduced damages are excessive and has appealed on this basis. The plaintiff has cross-appealed. The Company intends to aggressively pursue all appellate remedies available. There are various other lawsuits and regulatory actions pending against the Company arising in the normal course of business, some of which seek punitive damages that are generally not covered by insurance. The Company does not believe that the ultimate resolution of such other matters will have a material adverse effect on the Company's consolidated financial position or results of operations. (vii) In late July 1999, the Company reached a tentative understanding with the U.S. Department of Justice to settle the Allocation Investigations (See Note vi). As a result, during the second quarter ended June 30, 1999, the Company recorded a special pre-tax charge of approximately $199,000,000 ($125,400,000, net of income taxes, or $1.22 per share diluted) which includes: (i) provisions totaling approximately $128,800,000 representing the net present value of the tentative civil and criminal settlements; (ii) impairment losses of approximately $17,000,000 on certain nursing facilities which would be excluded from the Medicare and Medicaid programs in conjunction with the tentative criminal settlement; (iii) approximately $39,000,000 for certain prior year cost report related items affected by the tentative settlements; (iv) approximately $3,100,000 of debt issuance and refinancing costs related to various bank debt modifications as a result of the tentative settlements; and (v) approximately $11,100,000 for other investigation and settlement related costs. 10 12 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEPTEMBER 30, 1999 (UNAUDITED) GENERAL FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-Q, and other information provided by the Company from time to time, contains certain "forward-looking" statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding the Company's expected future financial position, results of operations, cash flows, continued performance improvements, ability to settle the civil and criminal aspects of the federal government investigations, ability to service and refinance its debt obligations, ability to finance growth opportunities, ability to respond to changes in government regulations, and similar statements including, without limitation, those containing words such as "believes," "anticipates," "expects," "intends," "estimates," "plans," and other similar expressions are forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements as a result of, but not limited to, the following factors: national and local economic conditions, including their effect on the availability and cost of labor and materials; the effect of government regulations and changes in regulations governing the healthcare industry, including the Company's compliance with such regulations; changes in Medicare and Medicaid payment levels; liabilities and other claims asserted against the Company, including the final settlements of the criminal and civil aspects of the federal government investigations and the outcome of the Class Action and Derivative Lawsuits (see "Part II, Item 1. Legal Proceedings"); the ability to attract and retain qualified personnel; the availability and terms of capital to fund acquisitions and capital improvements; the competitive environment in which the Company operates; demographic changes; and the ability of the Company and its significant vendors, suppliers and payors to timely locate and correct all relevant computer codes and identify and remediate date-sensitive embedded chips prior to the year 2000. Given these risks and uncertainties, the Company can give no assurances that these forward-looking statements will, in fact, transpire and, therefore, cautions investors not to place undue reliance on them. Investors also should refer to Item 1. Business - Governmental Regulation and Reimbursement in the Company's Form 10-K for the year ended December 31, 1998 for a discussion of various governmental regulations relating to the healthcare industry and various risk factors inherent in them. YEAR 2000 REMEDIATION GENERAL Computer programs and embedded chips that utilize a two digit year in their processing logic may interpret the year "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Through the year 2000 project (the "Y2K Project"), the Company is addressing its own processing logic issues, as well as those of third parties, which may impact the Company. In 1996, the Company began a major systems initiative to upgrade or replace all of its integrated financial application software to facilitate the adoption of a new standard chart of accounts. As part of that major initiative, the Company took the necessary steps to upgrade or replace the applications with year 2000 compliant releases of the software whenever possible. For those purchased software applications where the year 2000 release was not available at that time, the upgrades to the compliant releases are being addressed as part of the Y2K Project. The Company has not postponed any of its other significant information technology projects as a result of the Y2K Project. 11 13 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) Y2K PROJECT The Company's Y2K Project is divided into four major components: technology infrastructure; applications software; third party vendors, suppliers and major customers; and business unit operating equipment. The phases of the Y2K Project that are common to all components include: inventory of date-dependent hardware, software, and operating equipment; assessment of identified items to determine current year 2000 compliance status; repair or replacement of material non-compliant items; testing of material items for compliance; and development of contingency plans for each operating unit. The technology infrastructure component and the applications software component, together, comprise all of the Company's hardware and systems software, as well as all electronic interfaces with external parties. The testing phase for these components is divided into two distinct types of testing, each with its own timetable. The initial phase of year 2000 testing consists of remediating, upgrading, or replacing hardware and software. Upon successful completion of this phase of testing, the application is moved back into the production environment. At that time, the second phase of year 2000 testing is done in a parallel operating environment in which the applications are tested using year 2000 dates. The remediation, upgrade, replacement, and initial testing of all mission critical mainframe hardware and software was complete as of September 30, 1999. Trans-century compliance testing began during the first quarter of 1999 and was substantially complete as of September 30, 1999. The third party vendors, suppliers and major customers component of the Y2K Project includes the process of identifying and prioritizing critical vendors, suppliers and customers, and communicating with them about their plans and progress in addressing the year 2000 problem. The Company has completed the inventory phase of this component of the Y2K Project and has initiated formal communications with all of the vendors, suppliers, and customers identified as critical to the Company's operations. During the fourth quarter of 1998, follow-up inquiries were initiated with any critical third parties that did not respond to the first communication, and detailed evaluations of the responses for the most critical third parties were initiated. Based on the data obtained and the detailed evaluations performed, contingency planning began in the fourth quarter of 1998 and was substantially complete as of September 30, 1999. The Company has no means of ensuring that third parties will be year 2000 ready. The inability of third parties to complete their year 2000 resolution process in a timely manner could materially impact the Company. The Company cannot determine the effect of non-compliance by third parties. Due to these and other uncertainties, as part of the Company's contingency planning process, the Company is taking appropriate measures to ensure that an uninterrupted supply of critical products is available into the new century, including additional monitoring of the Company's critical third party vendors and suppliers, replacing vendors and suppliers where necessary and increasing inventories when possible. For the business unit operating equipment component of the Y2K Project, the inventories of each individual operating unit were completed during the third quarter of 1998, and the data has been compiled and summarized by major operating category, including: medical devices and equipment; environmental systems; security systems; telecommunication and office equipment. The Company is utilizing external resources to test critical equipment impacted by the year 2000 problem, retrofit or replace equipment where necessary, and certify year 2000 compliance of all material date-sensitive equipment. All such remediation and testing will be completed during the fourth quarter of 1999. COSTS The Company has, and will continue to, utilize both internal and external resources to reprogram or replace, test, and implement the software and operating equipment for year 2000 modifications. The total cost of the Company's Y2K Project is estimated at approximately $29,000,000 and is being funded through operating cash flows. The total amount expended on the Y2K Project through September 30, 1999 was approximately $23,000,000 ($20,400,000 expensed and $2,600,000 capitalized for new systems and equipment), related to the activities completed to date for all components and phases of the Y2K Project. Of the total remaining Y2K Project costs, $2,000,000 is attributable to the purchase of new hardware, software and operating equipment, which will be capitalized. The remaining $4,000,000 relates to remediation of hardware, software, and operating equipment, as well as expenses related to certain contingency planning preparations, and will be expensed as incurred. 12 14 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) RISKS The failure to correct a material year 2000 problem could result in significant disruptions in, or failures of, normal business activities. Due to the general uncertainty inherent in the year 2000 problem, due in part to the uncertainty of the year 2000 readiness of third party vendors, suppliers and customers, the Company is unable to determine at this time if it will be impacted by year 2000 disruptions or failures, or whether the consequences of such year 2000 disruptions or failures will have a material impact on the Company's consolidated financial position, results of operations or cash flows. The Company believes that, with the completion of all phases of each component of the Y2K Project as scheduled, the possibility of significant disruptions of normal operations should be significantly reduced. However, in the event of any unforeseen Y2K issues not discovered during the remediation and testing phases, a possible worst case scenario might be that the Company would be unable to provide uninterrupted service to its patients, invoice customers, or collect payments. In addition, due to the Company's dependence on Medicare and Medicaid revenue sources, disruptions in the processing and payment of Medicare or Medicaid claims could also materially adversely affect the Company. The General Accounting Office has reported that the Health Care Financing Administration, which runs Medicare, is behind schedule in taking steps to deal with the year 2000 issue, and that it is highly unlikely that all of the Medicare systems will be compliant in time to ensure the delivery of uninterrupted benefits and services into the year 2000. The Company does not know at this time whether there will in fact be a disruption of Medicare or Medicaid reimbursements and is, therefore, unable to determine the impact on the Company, its operations or cash flows. In addition, the Company could be subject to litigation for equipment shutdown or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The Company is in the process of developing contingency plans for certain critical applications and will continue development and enhancement of such plans for all critical business functions throughout 1999. These contingency plans involve, among other actions, manual workarounds, increasing inventories and staffing adjustments. OPERATING RESULTS THIRD QUARTER 1999 COMPARED TO THIRD QUARTER 1998 RESULTS OF OPERATIONS Net income was $7,897,000 for the third quarter of 1999, as compared to net income of $21,335,000 for the same period in 1998. The Company had an estimated annual effective tax rate of 37% and 35% in 1999 and 1998, respectively. The Company's estimated annual effective tax rates for 1999 and 1998 were different than the federal statutory rate primarily due to the impact of state income taxes, amortization of nondeductible goodwill and the benefit of certain tax credits. The Company's 1998 estimated annual effective tax rate was further impacted by the sale of American Transitional Hospitals, Inc. ("ATH"), which operated as Beverly Specialty Hospitals, in 1998. The Company's net deferred tax assets at September 30, 1999 will be realized primarily through the reversal of temporary taxable differences and future taxable income. Accordingly, the Company does not believe that a deferred tax valuation allowance is necessary at September 30, 1999. NET OPERATING REVENUES The Company reported net operating revenues of $637,396,000 during the third quarter of 1999 compared to $697,937,000 for the same period in 1998. Approximately 91% and 92% of the Company's total net operating revenues for the quarters ended September 30, 1999 and 1998, respectively, were derived from services provided by the Company's Beverly Healthcare segment. The decrease in net operating revenues of approximately $60,500,000 for the third quarter of 1999, as compared to the same period in 1998, consists of the following: a decrease of approximately $54,100,000 due to facilities which the Company operated during each of the quarters ended September 30, 1999 and 1998 ("same facility operations"); a decrease of approximately $31,800,000 due to the disposition of, or lease terminations on, 10 nursing facilities, one assisted living center and 17 home care centers in 1999 and 26 nursing facilities in 1998; partially offset by an increase of approximately $25,400,000 due to the acquisitions of nursing facilities and outpatient and home care businesses during 1999 and 1998. 13 15 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) The decrease in net operating revenues of approximately $54,100,000 for same facility operations for the third quarter of 1999, as compared to the same period in 1998, was due to the following: approximately $31,300,000 decrease in ancillary revenues and approximately $13,500,000 decrease in Medicare rates both primarily due to the impact of the Medicare prospective payment system ("PPS") and other provisions of the Balanced Budget Act of 1997; approximately $13,400,000 decrease due to a decline in same facility occupancy; approximately $9,000,000 decrease due to a shift in the Company's patient mix; and approximately $7,700,000 due to various other items; partially offset by an increase of approximately $20,800,000 due primarily to increases in Medicaid and private rates. The Company's same facility occupancy was 87.7% for the third quarter of 1999, as compared to 89.3% for the same period in 1998. The Company has implemented a series of initiatives to improve its occupancy levels and has experienced some initial success; however, it is still too early to determine the long-term effectiveness of these initiatives. No assurance can be given that these initiatives will in fact improve the Company's occupancy levels. The Company's Medicare, private and Medicaid census for same facility operations was 9%, 19% and 71%, respectively, for the third quarter of 1999, as compared to 10%, 20% and 69%, respectively, for the same period in 1998. The decrease in net operating revenues of approximately $31,800,000 for the third quarter of 1999, as compared to the same period in 1998, resulting from dispositions and lease terminations that occurred during the nine months ended September 30, 1999 and the year ended December 31, 1998 are described below. During the nine months ended September 30, 1999, the Company sold or terminated the leases on 10 nursing facilities (1,075 beds), one assisted living center (10 units), 17 home care centers and certain other assets. The Company did not operate two of these nursing facilities (166 beds) which were leased to other nursing home operators in prior year transactions. The Company recognized net pre-tax losses, which were included in net operating revenues during the nine months ended September 30, 1999, of approximately $4,000,000 as a result of these dispositions. During the year ended December 31, 1998, the Company sold or terminated the leases on 26 nursing facilities (3,203 beds) and certain other assets. The Company did not operate seven of these nursing facilities (893 beds) which were leased to other nursing home operators in prior year transactions. The increase in net operating revenues of approximately $25,400,000 for the third quarter of 1999, as compared to the same period in 1998, resulting from acquisitions which occurred during the nine months ended September 30, 1999 and the year ended December 31, 1998 are described below. During the nine months ended September 30, 1999, the Company purchased three outpatient clinics, two home care centers, two nursing facilities (284 beds), one previously leased nursing facility (190 beds) and certain other assets. During the year ended December 31, 1998, the Company purchased 111 outpatient clinics, 50 home care centers, eight nursing facilities (823 beds), one assisted living center (48 units), two previously leased nursing facilities (228 beds) and certain other assets. OPERATING AND ADMINISTRATIVE EXPENSES The Company reported operating and administrative expenses of $576,703,000 during the third quarter of 1999 compared to $624,777,000 for the same period in 1998. The decrease of approximately $48,100,000 consists of the following: a decrease of approximately $43,800,000 due to same facility operations; a decrease of approximately $29,900,000 due to dispositions; partially offset by an increase of approximately $25,600,000 due to acquisitions. (See above for a discussion of dispositions and acquisitions). The decrease in operating and administrative expenses of approximately $43,800,000 for same facility operations for the third quarter of 1999, as compared to the same period in 1998, was due primarily to a shift in the Company's patient mix, as well as a decline in same facility occupancy, and consists of the following: approximately $31,100,000 due to a decrease in wages and related expenses; approximately $10,700,000 due to a decrease in contracted therapy expenses; and approximately $2,000,000 due primarily to decreases in purchased ancillary products, nursing supplies and other variable costs. Although the Company's wages and related expenses decreased for the third quarter of 1999, as compared to the same period in 1998, the Company's weighted average wage rate and use of registry personnel continue to increase, both of which underscore the increased difficulties many of the Company's nursing facilities are having attracting nursing aides, assistants and other important personnel. The Company is addressing this through several ongoing programs and training initiatives. No assurance can be given that these programs and training initiatives will in fact improve the Company's ability to attract these nursing personnel. 14 16 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) INTEREST EXPENSE, NET Interest income decreased to $935,000 for the third quarter of 1999, as compared to $2,698,000 for the same period in 1998 primarily due to the sale of securities in conjunction with a loss portfolio transfer transaction during the fourth quarter of 1998. Interest expense increased to $20,001,000 for the third quarter of 1999, as compared to $16,788,000 for the same period in 1998 primarily due to imputed interest on the tentative civil settlement of approximately $2,100,000, an increase in net borrowings under the Revolver/Letter of Credit Facility during the third quarter of 1999 as compared to the same period in 1998, and the write-off of deferred financing costs in conjunction with certain bond refundings. DEPRECIATION AND AMORTIZATION Depreciation and amortization expense increased to $25,669,000 for the third quarter of 1999, as compared to $23,711,000 for the same period in 1998. Such increase was affected by the following: approximately $2,700,000 increase due to capital additions and improvements, as well as acquisitions; partially offset by a decrease of approximately $700,000 due to dispositions of, or lease terminations on, certain facilities. NINE MONTHS 1999 COMPARED TO NINE MONTHS 1998 RESULTS OF OPERATIONS Net loss was $102,053,000 for the nine months ended September 30, 1999, as compared to net income of $56,506,000 for the same period in 1998. Net loss for the nine months ended September 30, 1999 included a special pre-tax charge of approximately $199,000,000 related to the tentative settlements of the Allocation Investigations (as discussed herein). Results of operations for the nine months ended September 30, 1998 have been restated for a cumulative effect adjustment of $4,415,000, net of income taxes, resulting from the adoption, effective January 1, 1998, of Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," which requires costs of start-up activities and organization costs to be expensed as incurred. In late July 1999, the Company reached a tentative understanding with the U.S. Department of Justice to settle the civil and criminal aspects of all investigations by the federal government and its fiscal intermediary into the allocation of nursing labor hours to the Medicare program from 1990 to 1998 (the "Allocation Investigations") (See "Part II, Item 1. Legal Proceedings"). As a result, during the second quarter ended June 30, 1999, the Company recorded a special pre-tax charge of approximately $199,000,000 ($125,400,000, net of income taxes, or $1.22 per share diluted) which includes: (i) provisions totaling approximately $128,800,000 representing the net present value of the tentative civil and criminal settlements; (ii) impairment losses of approximately $17,000,000 on certain nursing facilities which would be excluded from the Medicare and Medicaid programs and would be required to be disposed of in conjunction with the tentative criminal settlement; (iii) approximately $39,000,000 for certain prior year cost report related items affected by the tentative settlements; (iv) approximately $3,100,000 of debt issuance and refinancing costs related to various bank debt modifications as a result of the tentative settlements; and (v) approximately $11,100,000 for other investigation and settlement related costs. It is anticipated that the tentative civil settlement will include a $170,000,000 non-interest bearing obligation due as follows: (i) $25,000,000 due within 30 days of signing the final civil settlement documents; and (ii) the $145,000,000 balance due over an eight-year period in the form of reductions in the Company's future biweekly Medicare periodic interim payments. Because this obligation will not bear interest, the Company is required to impute interest over the eight-year period. This imputed 15 17 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) interest expense, along with an increase in interest and rent expense resulting from the Amendments, will adversely impact the Company's future operating results. In addition, it is anticipated that a subsidiary of the Company will pay a fine of approximately $5,000,000 in connection with the criminal settlement. The effect of this settlement would be to exclude such subsidiary's nursing facilities from the Medicare and Medicaid programs and would require the subsidiary to dispose of such facilities. It is expected that this will affect no more than 10 nursing facilities. If, prior to January 1, 1999, the tentative settlement obligations and related items had been finalized and recorded, the Company's bank debt had been refinanced and the Company had closed or sold the facilities that are expected to be impacted by the tentative criminal settlement, the Company's net income would have been reduced by approximately $4,100,000, or $.04 per share diluted, for the quarter ended September 30, 1999, and approximately $10,400,000, or $.10 per share diluted, for the nine months ended September 30, 1999. NET OPERATING REVENUES The Company reported net operating revenues of $1,903,748,000 during the nine months ended September 30, 1999 compared to $2,107,752,000 for the same period in 1998. Approximately 90% of the Company's total net operating revenues for the nine months ended September 30, 1999 and 1998 were derived from services provided by the Company's Beverly Healthcare segment. The decrease in net operating revenues of approximately $204,000,000 for the nine months ended September 30, 1999, as compared to the same period in 1998, consists of the following: a decrease of approximately $161,400,000 due to dispositions (as discussed above), as well as the sale of ATH in June 1998 to Select Medical Corporation; a decrease of approximately $152,000,000 due to facilities which the Company operated during each of the nine months ended September 30, 1999 and 1998 ("same facility operations"); partially offset by an increase of approximately $109,400,000 due to acquisitions. (See above for a discussion of dispositions and acquisitions). The decrease in net operating revenues of approximately $152,000,000 for same facility operations for the nine months ended September 30, 1999, as compared to the same period in 1998, was due to the following: approximately $74,200,000 decrease in ancillary revenues and approximately $36,400,000 decrease in Medicare rates both primarily due to the impact of PPS and other provisions of the Balanced Budget Act of 1997; approximately $45,800,000 decrease due to a shift in the Company's patient mix; approximately $37,400,000 decrease due to a decline in same facility occupancy; and approximately $12,600,000 due to various other items; partially offset by an increase of approximately $54,400,000 due primarily to increases in Medicaid and private rates. The Company's same facility occupancy was 87.7% for the nine months ended September 30, 1999, as compared to 89.2% for the same period in 1998. The Company has implemented a series of initiatives to improve its occupancy levels and has experienced some initial success; however, it is still too early to determine the long-term effectiveness of these initiatives. No assurance can be given that these initiatives will in fact improve the Company's occupancy levels. The Company's Medicare, private and Medicaid census for same facility operations was 9%, 20% and 70%, respectively, for the nine months ended September 30, 1999, as compared to 11%, 20% and 68%, respectively, for the same period in 1998. OPERATING AND ADMINISTRATIVE EXPENSES The Company reported operating and administrative expenses of $1,727,368,000 during the nine months ended September 30, 1999 compared to $1,898,799,000 for the same period in 1998. The decrease of approximately $171,400,000 consists of the following: a decrease of approximately $141,300,000 due to dispositions; a decrease of approximately $132,600,000 due to same facility operations; partially offset by an increase of approximately $102,500,000 due to acquisitions. (See above for a discussion of dispositions and acquisitions). The decrease in operating and administrative expenses of approximately $132,600,000 for same facility operations for the nine months ended September 30, 1999, as compared to the same period in 1998, was due primarily to a shift in the Company's patient mix, as well as a decline in same facility occupancy, and consists of the following: approximately $70,300,000 due to a decrease in wages and related expenses; approximately $42,300,000 due to a decrease in contracted therapy expenses; and approximately $20,000,000 due primarily to decreases in purchased ancillary products, nursing supplies and other variable costs. Although, the Company's wages and related expenses decreased for the nine months ended September 30, 1999, as compared to the same period in 1998, the Company's weighted average wage rate and use of registry personnel continue to increase, both of which underscore the increased difficulties many of the Company's nursing facilities are having attracting nursing aides, assistants and other important personnel. The Company is addressing this through several ongoing programs and training initiatives. No assurance can be given that these programs and training initiatives will in fact improve the Company's ability to attract these nursing personnel. 16 18 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) INTEREST EXPENSE, NET Interest income decreased to $3,290,000 for the nine months ended September 30, 1999, as compared to $7,958,000 for the same period in 1998 primarily due to the sale of securities in conjunction with a loss portfolio transfer transaction during the fourth quarter of 1998. Interest expense increased to $54,029,000 for the nine months ended September 30, 1999, as compared to $48,869,000 for the same period in 1998 primarily due to an increase in net borrowings under the Revolver/Letter of Credit Facility during the nine months ended September 30, 1999 as compared to the same period in 1998, imputed interest on the tentative civil settlement of approximately $2,100,000, and the write-off of deferred financing costs in conjunction with certain bond refundings. DEPRECIATION AND AMORTIZATION Depreciation and amortization expense increased to $74,511,000 for the nine months ended September 30, 1999, as compared to $69,947,000 for the same period in 1998. Such increase was affected by the following: approximately $8,800,000 increase due to acquisitions, as well as capital additions and improvements; partially offset by a decrease of approximately $4,200,000 due to dispositions of, or lease terminations on, certain facilities and ATH. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1999, the Company had approximately $17,500,000 in cash and cash equivalents, approximately $147,000,000 of net working capital and approximately $191,700,000 of unused commitments under its Revolver/Letter of Credit Facility. Net cash provided by operating activities for the nine months ended September 30, 1999 was approximately $118,700,000, an increase of approximately $86,400,000 from the prior year primarily due to a reduction in patient accounts receivable as a result of the sale of receivables to BFC (as defined below), as well as the Company's continuing focus on cash collections, and certain income tax refunds received during the nine months ended September 30, 1999. Net cash used for investing and financing activities were approximately $45,200,000 and $73,300,000, respectively, for the nine months ended September 30, 1999. The Company received net cash proceeds of approximately $126,000,000 from the issuance of long-term debt, approximately $41,000,000 from the dispositions of facilities and other assets and approximately $16,600,000 from collections on notes receivable. Such net cash proceeds, along with cash generated from operations and cash on hand, were used to repay approximately $121,000,000 of net borrowings under its Revolver/Letter of Credit Facility, to repay approximately $75,600,000 of long-term debt and to fund capital expenditures totaling approximately $69,000,000. In January 1999, the Company entered into a $65,000,000 promissory note at an annual interest rate of 6.50%. In October 1999, the note was renegotiated to allow the Company to make an interest-only payment in January 2000 at an annual interest rate of 6.50%, with the principal balance payable in two equal installments in January 2001 and in January 2002 at an annual interest rate of 7.00%. The proceeds from this promissory note were used to pay down Revolver borrowings and is secured by a surety bond. During the nine months ended September 30, 1999, the Company entered into promissory notes totaling approximately $10,820,000 in conjunction with the construction of certain nursing facilities. Such debt instruments bear interest at rates ranging from 7.75% to 8.00%, require monthly installments of principal and interest, and are secured by mortgage interests in the real property and security interests in the personal property of the nursing facilities. Also during such period, the Company entered into promissory notes totaling approximately $15,100,000 in conjunction with the acquisitions of certain facilities. Such debt instruments bear interest at rates ranging from 7.00% to 8.00%, 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 acquired facilities. 17 19 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) In June 1999, the Company refinanced its Medium Term Notes, increasing its borrowings from $40,000,000 to $50,000,000. The Medium Term Notes are collateralized by patient accounts receivable, which are sold by Beverly Health and Rehabilitation Services, Inc. ("BHRS") (currently operating as Beverly Healthcare), a wholly-owned subsidiary of the Company, to Beverly Funding Corporation ("BFC"), a wholly-owned bankruptcy remote subsidiary of the Company. As a result of this refinancing, the Company was required by Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," ("SFAS No. 125") to deconsolidate BFC. SFAS No. 125 provides accounting and reporting standards for sales, securitizations, and servicing of receivables and other financial assets, secured borrowing and collateral transactions, and the extinguishments of liabilities. It requires companies to recognize the financial and servicing assets it controls and the liabilities it has incurred and to deconsolidate financial assets when control has been surrendered in accordance with the criteria provided in SFAS No. 125. Deconsolidation of BFC, which had total assets of approximately $74,200,000, total liabilities of approximately $55,800,000 and total stockholder's equity of approximately $18,400,000 at June 30, 1999, caused a reduction in the Company's accounts receivable-patient and long-term debt. In addition, the Company recorded its ongoing investment in BFC as an increase in other, net assets. During July 1999, BFC increased its borrowings under the Medium Term Notes to $70,000,000. In conjunction therewith, the Company, through BHRS, sold an additional $25,000,000 of patient accounts receivable and made an additional capital contribution of $5,000,000 to BFC. At September 30, 1999, BFC had total assets of approximately $108,000,000, total liabilities of approximately $74,100,000, and total stockholder's equity of approximately $33,900,000. The Company's Statement of Cash Flows reflects the change from June 30, 1999 to September 30, 1999 in receivables sold to BFC in the caption Accounts receivable - - patient and the change from June 30, 1999 to September 30, 1999 in the Company's investment in BFC in the caption Other, net - investing. The Company has a $125,000,000 financing arrangement available for the construction of certain facilities. The Company leases the facilities, under operating leases with the creditor, upon completion of construction. The Company has the option to purchase these facilities at the end of the initial lease terms at fair market value. Total construction advances under the financing arrangement as of September 30, 1999 were approximately $107,100,000. Effective September 30, 1999, the Company executed an amendment to the Credit Agreement covering the Company's $375,000,000 Revolver/Letter of Credit Facility, as well as amendments with certain of its other lenders covering debt of approximately $199,000,000 (collectively, the "Amendments"). Such Amendments were required since recording of the special charges related to the tentative settlements, as discussed herein, would have resulted in the Company's noncompliance with certain financial covenants contained in those debt agreements. The Amendments modify certain financial covenant levels and increase the annual interest rates for such debt. It is anticipated that the settlements of the Allocation Investigations, if consummated, will require payments totaling $30,000,000 ($25,000,000 for the tentative civil settlement and $5,000,000 for the tentative criminal settlement) due within 30 days of signing the final settlement documents, with the remaining $145,000,000 to be withheld from the Company's bi-weekly Medicare periodic interim payments beginning in the year 2000 and continuing for a period of eight years. The Company expects to use borrowings under its Revolver/Letter of Credit Facility to make the initial $30,000,000 payments. The Company anticipates cash flows from operations to decline approximately $18,100,000 per year as a result of the reduction in Medicare periodic interim payments and, therefore, may incur additional borrowings to fund ongoing cash needs in the future. The Company currently anticipates that cash flows from operations and borrowings under its banking arrangements will be adequate to repay its debts due within one year of approximately $23,800,000, to fund the settlement obligations to the federal government, to make normal recurring capital additions and improvements of approximately $102,000,000, to make selective acquisitions, including the purchase of previously leased facilities, to construct new facilities, and to meet working capital requirements for the twelve months ending September 30, 2000. If cash flows from operations or availability under existing banking arrangements fall below expectations, the Company may be required to delay capital expenditures, dispose of certain assets, issue additional debt securities, or consider other alternatives to improve liquidity. 18 20 PART II BEVERLY ENTERPRISES, INC. OTHER INFORMATION SEPTEMBER 30, 1999 (UNAUDITED) ITEM 1. LEGAL PROCEEDINGS The Company has been the subject of a federal government investigation relating to the allocation to the Medicare program of certain nursing labor costs in its skilled nursing facilities from 1990 to 1998. The investigation has been conducted by the Office of Inspector General of the Department of Health and Human Services and by the U.S. Department of Justice. In addition, a federal grand jury in San Francisco has investigated business practices which are the subject of the above civil investigation, and the Company's current Medicare fiscal intermediary, Blue Cross of California, is examining cost reports of the Company's facilities with respect to the areas that are the focus of the government investigation. In late July 1999, the Company announced it had reached a tentative understanding with the U.S. Department of Justice to settle the civil and criminal aspects of all investigations by the federal government and its fiscal intermediary into the allocation of nursing labor hours to the Medicare program from 1990 to 1998 (the "Allocation Investigations"). Since that time, the Company has continued to negotiate with the federal government to complete and execute definitive settlement documents, certain of which are subject to court approval. As previously reported, if the tentative civil settlement is consummated, the Company would be obligated to reimburse the federal government $170,000,000 as follows: (i) $25,000,000 within 30 days of signing the definitive civil settlement agreement; and (ii) $145,000,000 to be withheld from the Company's biweekly Medicare periodic interim payments in equal installments over eight years. In addition, the Company would agree to resubmit certain Medicare filings to reflect reduced direct labor costs. If the tentative criminal settlement is consummated, a subsidiary of the Company would pay a fine of $5,000,000. The effect of this settlement would be to exclude such subsidiary's nursing facilities from the Medicare and Medicaid programs and would require the subsidiary to dispose of such facilities. It is expected that this will affect no more than 10 nursing facilities. On July 6, 1999, an amended complaint was filed by the plaintiffs in the previously disclosed purported class action lawsuit pending against the Company and certain of its officers in the United States District Court for the Eastern District of Arkansas (the "Class Action"). Plaintiffs filed a second amended complaint on September 9, 1999 which asserted claims under Section 10(b) (including Rule 10b-5 promulgated thereunder) and under Section 20 of the Securities Exchange Act of 1934 arising from practices that are the subject of the Allocation Investigations. The defendants filed a motion to dismiss that complaint on October 8, 1999. Due to the preliminary state of the Class Action and the fact the second amended complaint does not allege damages with any specificity, the Company is unable at this time to assess the probable outcome of the Class Action or the materiality of the risk of loss. However, the Company believes that it acted lawfully with respect to plaintiff investors and will vigorously defend the Class Action. In addition, since July 29, 1999, seven derivative lawsuits have been filed in the state courts of Arkansas, California and Delaware (collectively, the "Derivative Actions"). Norman M. Lyons v. David R. Banks, et al., Case No. OT99-4041, was filed in the Chancery Court of Pulaski County, Arkansas (4th Division) on or about July 29, 1999; Alfred Badger, Jr. v. David R. Banks, et al., Case No. OT99-4353, was filed in the Chancery Court of Pulaski County, Arkansas (1st Division) on or about August 17, 1999 and voluntarily dismissed on November 3, 1999. On November 1, 1999, the defendants filed a motion to dismiss the Lyons and Badger actions. James L. Laurita v. David R. Banks, et al., Case No. 17348NC, was filed in the Delaware Chancery Court on or about August 2, 1999; Kenneth Abbey v. David R. Banks, et al., Case No. 17352NC, was filed in the Delaware Chancery Court on or about August 4, 1999; Alan Friedman v. David R. Banks, et al., Case No. 17355NC, was filed in the Delaware Chancery Court on or about August 9, 1999. The Laurita, Abbey and Friedman actions were subsequently consolidated by order of the Delaware Chancery Court. On or about October 1, 1999, the defendants moved to dismiss the Laurita, Abbey and Friedman actions. Elles Trading Company v. David R. Banks, et al., was filed in the Superior Court for San Francisco County, California on or about August 4, 1999. That action was removed to United States District Court for the Northern District, and plaintiff filed a motion to 19 21 BEVERLY ENTERPRISES, INC. OTHER INFORMATION (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) remand the action to state court on or about October 14, 1999. The defendants have not yet responded to the complaint in the Elles Trading Company action. Richardson v. David R. Banks, et al., Case No. LR-C-99-826, was filed in the United States District Court for the Eastern District of Arkansas (Western Division) on November 4, 1999. The Derivative Actions each name the Company's directors as defendants, as well as the Company as a nominal defendant. The Badger and Lyons actions also name as defendants certain of the Company's officers. The Derivative Actions each allege breach of fiduciary duties to the Company and its stockholders arising primarily out of the Company's alleged exposure to loss due to the Class Action and the Allocation Investigations. The Lyons, Badger and Richardson actions also assert claims for abuse of control and constructive fraud arising from the same allegations, and the Richardson action also claims unjust enrichment. Due to the preliminary state of the Derivative Actions and the fact the complaints do not allege damages with any specificity, the Company is unable at this time to assess the probable outcome of the Derivative Actions or the materiality of the risk of loss. However, the Company believes that it acted lawfully with respect to the allegations of the Derivative Actions and will vigorously defend the Derivative Actions. On March 4, 1998, a jury in California returned a verdict of $95,100,000 against a nursing facility operated by a subsidiary of the Company. The verdict, which was based on findings of fraud as well as negligence and abuse, consisted of $365,580 in compensatory damages and $94,700,000 in punitive damages. At a post-trial hearing on June 3, 1998, the trial judge reduced the compensatory damages to $125,000 and reduced the punitive damages to $3,000,000. The Company believes that these reduced damages are excessive and has appealed on this basis. The plaintiff has cross-appealed. The Company intends to aggressively pursue all appellate remedies available. There are various other lawsuits and regulatory actions pending against the Company arising in the normal course of business, some of which seek punitive damages that are generally not covered by insurance. The Company does not believe that the ultimate resolution of such other matters will have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 6(a). EXHIBITS EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1 Amendment No. 1 to Amended and Restated Credit Agreement, dated as of September 30, 1999, among Beverly Enterprises, Inc., the Banks listed therein and Morgan Guaranty Trust Company of New York, as Issuing Bank and Agent 10.2 First Amendment and Restatement, dated as of June 1, 1999, of Trust Indenture, dated as of December 1, 1994, from Beverly Funding Corporation, as Issuer, to The Chase Manhattan Bank, as Trustee 10.3 Series Supplement, dated as of June 1, 1999, by and between Beverly Funding Corporation and The Chase Manhattan Bank ("1999-1 Series Supplement") 10.4 First Amendment, dated as of July 14, 1999, to the 1999-1 Series Supplement 10.5 Master Amendment No. 1 to Amended and Restated Participation Agreement and Amended and Restated Master Lease and Open-End Mortgage, entered into as of September 30, 1999, among Beverly Enterprises, Inc. as Representative, Construction Agent, Parent Guarantor and Lessee; Bank of Montreal Global Capital Solutions, Inc., as Lessor and Agent Lessor; and Bank of Montreal, as Administrative Agent, Arranger and Syndication Agent 27.1 Financial Data Schedule for the nine months ended September 30, 1999 27.2 Restated Financial Data Schedule for the nine months ended September 30, 1998 ITEM 6(b). REPORTS ON FORM 8-K The Company filed a Current Report on Form 8-K, dated July 27, 1999, which reported under Item 5 that the Company would record a special pre-tax charge against 1999 second quarter earnings totaling between $175,000,000 and $225,000,000, related to a tentative understanding reached with the U.S. Department of Justice on potential settlements of the previously announced federal investigations into the allocation of nursing labor hours to the Medicare Program. 20 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BEVERLY ENTERPRISES, INC. Registrant Dated: November 15, 1999 By: /s/ PAMELA H. DANIELS ------------------------ Pamela H. Daniels Vice President, Controller and Chief Accounting Officer 23 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1 Amendment No. 1 to Amended and Restated Credit Agreement, dated as of September 30, 1999, among Beverly Enterprises, Inc., the Banks listed therein and Morgan Guaranty Trust Company of New York, as Issuing Bank and Agent 10.2 First Amendment and Restatement, dated as of June 1, 1999, of Trust Indenture, dated as of December 1, 1994, from Beverly Funding Corporation, as Issuer, to The Chase Manhattan Bank, as Trustee 10.3 Series Supplement, dated as of June 1, 1999, by and between Beverly Funding Corporation and The Chase Manhattan Bank ("1999-1 Series Supplement") 10.4 First Amendment, dated as of July 14, 1999, to the 1999-1 Series Supplement 10.5 Master Amendment No. 1 to Amended and Restated Participation Agreement and Amended and Restated Master Lease and Open-End Mortgage, entered into as of September 30, 1999, among Beverly Enterprises, Inc. as Representative, Construction Agent, Parent Guarantor and Lessee; Bank of Montreal Global Capital Solutions, Inc., as Lessor and Agent Lessor; and Bank of Montreal, as Administrative Agent, Arranger and Syndication Agent 27.1 Financial Data Schedule for the nine months ended September 30, 1999 27.2 Restated Financial Data Schedule for the nine months ended September 30, 1998
EX-10.1 2 AMENDMENT NO 1 TO AMENDED/RESTATED CREDIT AGRMT 1 EXHIBIT 10.1 AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT dated as of September 30, 1999 amending the $375,000,000 Amended and Restated Credit Agreement dated as of April 30, 1998 (the "CREDIT AGREEMENT") among BEVERLY ENTERPRISES, INC. (the "BORROWER"), the BANKS listed therein (the "BANKS"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Issuing Bank (the "ISSUING BANK"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT"). W I T N E S S E T H : WHEREAS, the Borrower and certain of its Subsidiaries propose to enter into a Settlement (the "SETTLEMENT") referred to in the Waiver dated as of June 30, 1999 to the Credit Agreement; WHEREAS, in connection with its entry into the Settlement, the parties hereto wish to amend the Credit Agreement as set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each capitalized term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "HEREOF", "HEREUNDER", "HEREIN" and "HEREBY" and each other similar reference and each reference to "THIS AGREEMENT" and each other similar reference contained in the Credit Agreement shall from and after the Amendment No. 1 Effective Date refer to the Credit Agreement as amended and restated hereby. SECTION 2. Definitions. Section 1.01 of the Credit Agreement is hereby amended by: (a) amending the definition of "ADJUSTED CONSOLIDATED DEBT" to read in its entirety as follows: "'ADJUSTED CONSOLIDATED DEBT' means at any date the sum, without duplication, of (i) all liabilities of the Borrower and its Subsidiaries at such date of the types classified as "current liabilities: short-term borrowings", "current liabilities: current portion of long-term obligations," "long-term obligations" and, to the extent arising out of claims made by governmental authorities relating to reimbursement obligations or settlements thereof, "other liabilities and deferred items" on the consolidated balance sheet included in the Base Financials, (ii) all guarantees at such date of obligations of other issuers (other than guarantees outstanding on the Effective Date of obligations outstanding on the Effective Date, in amounts not in excess of $79,375,000 and reported in the Base 2 Financials) and (iii) an amount equal to the product of eight multiplied by the Consolidated Rental Expense for the four fiscal quarters of the Borrower most recently completed on or prior to such date."; (b) amending the definition of "BASE FINANCIALS" by deleting each reference to the year "1997" and substituting therefor a reference to the year "1998"; (c) amending the definition of "Borrower's 1997 Form 10-K" by deleting in such defined term and in such definition each reference to the year "1997" and substituting therefor a reference to a reference to the year "1998"; (d) amending the definition of "Financing Documents" by (A) deleting the word "and" and substituting therefor a comma and (B) inserting at the end of such definition the phrase ", the Mortgages and the Pledge Agreement"; and (e) adding the following new definitions in the appropriate alphabetical order: "AMENDMENT NO. 1 EFFECTIVE DATE" means the date upon which Amendment No. 1 to the Credit Agreement dated as of September 30, 1999 became effective in accordance with its terms. "ATTRIBUTABLE DEBT" means, on any date, in respect of any lease of the Borrower or any of its Subsidiaries entered into as part of a Sale and Leaseback Transaction, (i) if such lease is a lease that is required to be capitalized in accordance with GAAP, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (ii) if such lease is not a lease that is required to be capitalized in accordance with GAAP, the capitalized amount of the remaining lease payments under such lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were a lease that is required to be capitalized in accordance with GAAP. "BANK OF MONTREAL SYNTHETIC LEASE" means the Amended and Restated Participation Agreement (the "PARTICIPATION AGREEMENT"), dated as of August 28, 1998, as amended, among certain Subsidiaries of the Borrower, the Borrower as Representative, Construction Agent and Parent Guarantor therein, Bank of Montreal Global Capital Solutions, Inc. as Agent Lessor and Lessor therein, The Long-Term Credit Bank of Japan, Ltd., Los Angeles Agency, Bank of America National Trust and Savings Associations and Bank of Montreal as Lenders therein, The Long-Term Credit Bank of Japan, Ltd., Los Angeles Agency as Arranger therein and Bank of Montreal as Co-Arranger, Syndication Agent and Administrative Agent for the Lenders therein and the Operative Documents (as defined in the Participation Agreement). 2 3 "BEVERLY HEALTH" means Beverly Health and Rehabilitation Services, Inc., a California corporation, and its successors. "BORROWER'S JUNE 30, 1999 FORM 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended June 30, 1999, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. "COLLATERAL" means the property in which the Agent is granted, or is purported to be granted, a lien or security interest from time to time under any Security Document, which lien or security interest has not been released in accordance with the terms hereof or thereof. "ENCORE FACILITY" means the Term Loan Agreement, dated as of December 30,1985, as amended, among Encore Nursing Center Partners, Ltd. - 85, a New York limited partnership, Beverly Health, the Borrower and the Bank of New York. "FINAL SETTLEMENT" means the execution and delivery of settlement agreements among the Borrower (and, in some cases, certain of its Subsidiaries), the United States Department of Health and Human Services and the United States Department of Justice finally settling the claims and allegations referred to in the first four paragraphs under "Item 1. Legal Proceedings" of the Borrower's June 30, 1999 Form 10-Q. "ISSUER" has the meaning set forth in the Pledge Agreement. "MORTGAGES" means the deeds of trust relating to the real property collateral described in Schedule V hereto, in form and substance reasonably satisfactory to the Agent, in each case as the same may be amended from time to time. "OTHER FINANCING AGREEMENTS" means the Bank of Montreal Synthetic Lease, the PNC Facility and the Encore Facility. "OTHER FINANCING AGREEMENTS LIENS" means the (i) Liens created under the mortgages granted by the Borrower and certain of its Subsidiaries in connection with the Final Settlement to secure the obligations of the Borrowers and certain of its Subsidiaries under the Other Financing Agreements; provided that the value (determined on the basis of an amount equal to (A) annualized Consolidated EBITDA for such property based on the two consecutive fiscal quarters most recently completed prior to the date upon which such Liens are granted for which financial statements have been delivered pursuant to Section 5.01(a) or (b) multiplied by (B) 7) of the property subject to such Liens shall not exceed (x) in the case of the Liens securing the Bank of Montreal Synthetic Lease $27,000,000, (y) in the case of Liens securing the PNC Facility, $47,000,000 and (z) in the case 3 4 of Liens securing the Encore Facility $20,000,000 and (ii) Liens on property ("SUBSTITUTE COLLATERAL") substituted for property (the "ORIGINAL COLLATERAL") subject to a Lien referred to in clause (i) above; provided that (x) such Lien on Substitute Collateral secures the same obligations as the Lien on the Original Collateral for which it is substituted and (y) the value (determined on the basis of an amount equal to (A) Consolidated EBITDA for such Substituted Property for the four consecutive fiscal quarters most recently completed prior to the date upon which such substitution is made for which financial statements have been delivered pursuant to Section 5.01(a) or (b) (or, in the case of any substitution prior to the delivery of financial statements for the fiscal year ending December 31, 1999 pursuant to Section 5.01(a), the annualized Consolidated EBITDA for such Substitute Collateral based on the 1999 fiscal quarters for which financial statements have been delivered pursuant to Section 5.01(b)) multiplied by (B) 7) of such Substitute Collateral shall not exceed the value (as so determined) of the Original Collateral for which it is substituted. "PERMITTED ENCUMBRANCES" has the meaning set forth in the Mortgages. "PLEDGE AGREEMENT" means the Pledge Agreement dated as of the Amendment No. 1 Effective Date among the Borrower, Beverly Health and the Agent, substantially in the form of Exhibit D hereto, as the same has been or may be amended from time to time. "PLEDGED STOCK" has the meaning set forth in the Pledge Agreement. "PNC FACILITY" means the Amended and Restated Reimbursement Agreement, dated as of June 20, 1997, as amended, by and among Beverly Health, Beverly Enterprises - Massachusetts, Inc., Beverly Enterprises - Pennsylvania, Inc. and Beverly Enterprises - Ohio, Inc. as Borrowers therein and PNC Bank, National Association as the Issuer of Letters of Credit therein. "SALE AND LEASEBACK TRANSACTION" has the meaning set forth in Section 5.19. "SECURED OBLIGATIONS" has the meaning set forth in the Pledge Agreement and the Mortgages. "SECURED PARTIES" has the meaning set forth in the Pledge Agreement and the Mortgages. "SECURITY DOCUMENTS" means the Pledge Agreement and the Mortgages, together with all related filings, assignments, instruments, mortgages and other papers. "SEGREGATED COLLATERAL ACCOUNT" has the meaning set forth in the Pledge Agreement. 4 5 "UCC" means the Uniform Commercial Code as in effect in the State of New York. SECTION 3. Accounting Terms and Determinations. Section 1.02 of the Credit Agreement is hereby amended by deleting the reference to the year "1997" and substituting therefor a reference to the year "1998". SECTION 4. Representations and Warranties. (a) Section 4.02 of the Credit Agreement is hereby amended by (i) adding immediately after the expression "or filing" on the fifth line thereof, the parenthetical expression "(other than filings necessary to perfect the Liens granted by the Security Documents)" and (ii) adding, at the end thereof, the expression "(except the Liens created pursuant to the Security Documents)". (b) Section 4.03 of the Credit Agreement is hereby amended by (i) adding at the end of the title thereof the phrase "; Liens", (ii) designating the paragraph immediately following such title as paragraph "(a)" and (iii) adding immediately after such paragraph the following new paragraph (b): "(b) The Security Documents create valid security interests in and Mortgage liens on the Collateral purported to be covered thereby, which security interests and mortgage liens are and will remain perfected security interests and mortgage liens, prior to all Liens other than Permitted Encumbrances, and as to which, in the case of the Pledged Stock, the Agent has control (within the meaning of Sections 8-110 and 9-115 of the UCC), subject, in the case of the Pledged Stock, to the Agent's maintaining possession thereof, and, in the case of the Mortgages, to the recording of the Mortgages in the county recording offices set forth on Schedules 1 thereto and the filing of Uniform Commercial Code financing statements in the Uniform Commercial Code filing offices and county recording offices set forth or Schedules 2 thereto." (c) Subsection 4.04(a) of the Credit Agreement is hereby amended by deleting the reference to the year "1997" and substituting therefor a reference to the year "1998". (d) Subsection 4.04(b) of the Credit Agreement is hereby redesignated as Subsection 4.04(c) and amended to read in its entirety as follows: "(c) Except for the matters referred to in the first four paragraphs under "Item 1. Legal Proceedings" in the Borrower's June 30, 1999 Form 10-Q, since December 31, 1998 there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole." (e) Section 4.04 of the Credit Agreement is hereby amended by adding, immediately after Subsection 4.04(a), the following new Subsection 4.04(b): 5 6 "(b) The unaudited consolidated balance sheets of the Borrower and its Consolidated Subsidiaries as of June 30, 1999 and the related unaudited consolidated statements of operations, stockholders' equity and cash flows for the six months then ended, set forth in the Borrower's June 30, 1999 Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the Base Financials, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such six month period (subject to normal year-end adjustments, the absence of footnote disclosure and condensation pursuant to the rules of the Securities and Exchange Commission)." (f) Section 4.05 of the Credit Agreement is hereby amended by substituting the phrase "1998 Form 10-K or the first four paragraphs under "Item 1. Legal Proceedings" in the Borrower's June 30, 1999 Form 10-Q" for the phrase "1997 Form 10-K". (g) Section 4.12 of the Credit Agreement is hereby amended by (i) adding at the end of the title thereof the phrase "and the Pledge Agreement" and (ii) inserting immediately following the reference to "Subsidiary Guaranty" the phrase "or the Pledge Agreement". (h) Article 4 of the Credit Agreement is hereby amended by adding the following new Section 4.13 immediately following Section 4.12 of the Credit Agreement: "Section 4.13. Year 2000 Compliance. The Borrower has (i) initiated a review and assessment of all areas within the business and operations of the Borrower and each of its Subsidiaries (including those areas affected by suppliers and vendors) that could be adversely affected by the "YEAR 2000 PROBLEM" (that is, the risk that computer applications used by it or any of its Subsidiaries (or their respective suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in accordance with such timetable. The Borrower reasonably believes that all computer applications (including those of suppliers and vendors) that are material to the business or operations of the Borrower or any of its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000 (that is, be "YEAR 2000 COMPLIANT"), except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect on the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, taken as a whole." 6 7 SECTION 5. Information. Section 5.01(d) of the Credit Agreement is hereby amended by (i) replacing the word "and" after the expression "5.11" on the fifth line thereof with a comma and (ii) replacing the word "hereof", following the expression "5.13" on such fifth line, with the expression ", 5.18 and 5.19 hereof and Section 5(C) of the Pledge Agreement". SECTION 6. Maintenance of Property; Insurance. Section 5.02(b) of the Credit Agreement is hereby amended by adding at the end of the first sentence thereof but before the period the following proviso: "; provided that physical damage insurance with respect to all real and personal property subject to a Mortgage shall, subject to reasonable deductibles, be in an amount sufficient to cover the repair and replacement cost of all such property and shall include a lenders loss payable endorsement. The Borrower will furnish to the Banks, upon request from the Agent, information presented in reasonable detail as to the insurance so carried." SECTION 7. Minimum Consolidated Net Worth. Section 5.05 of the Credit Agreement is hereby amended to read in its entirety as follows: "Consolidated Net Worth shall be at least 90% of Consolidated Net Worth at June 30, 1999 plus (i) 50% of the aggregate positive Consolidated Net Income (excluding any consolidated net loss) of the Borrower and its Consolidated Subsidiaries for each fiscal quarter ending after June 30, 1999 plus (ii) 50% of the aggregate net proceeds, including the fair market value of property other than cash (as determined in good faith by the Borrower's board of directors), received by the Borrower from the issuance and sale after June 30, 1999 of any capital stock of the Borrower (other than the proceeds of any issuance and sale of any capital stock (x) to a Subsidiary or (y) which is required to be redeemed, or is redeemable at the option of the holder, if certain events or conditions occur or exist or otherwise) or in connection with the conversion or exchange of any Debt of the Borrower into capital stock of the Borrower after June 30, 1999.". SECTION 8. Fixed Charge Coverage Ratio. Section 5.06 of the Credit Agreement is hereby amended by (i) deleting the phrase "the ratio set forth below opposite the period in which such date falls:" and substituting therefor the phrase "1.15 to 1.0." and (ii) deleting the table set forth therein. 7 8 SECTION 9. Leverage Ratio. Section 5.07 of the Credit Agreement is hereby amended by (i) inserting immediately before the reference to "EBITDAR" the word "Consolidated" and (ii) deleting the table set forth therein and substituting therefor the following table:
Period Ratio ------ ----- - ------------------------------------------------------------------------------------------------ Amendment No. 1 Effective Date through September 29, 2000 ........................ 5.75 to 1.0 - ------------------------------------------------------------------------------------------------ September 30, 2000 and thereafter ................................................ 5.50 to 1.0 - ------------------------------------------------------------------------------------------------
SECTION 10. Restricted Payments on Stock. Clause (v) of the proviso in Section 5.10 of the Credit Agreement is hereby amended to read in its entirety as follows: "(v) the Borrower may make any such payment or distribution if, after giving effect thereto, the aggregate amount of all such payments or distributions made after the Amendment No. 1 Effective Date (including, without limitation, any such payments or distributions permitted under subclause (ii)(A) or clause (iv) above) does not exceed (A) on any date on and after the Final Settlement on which (x) no Event of Default shall have occurred and be continuing or shall result from such payment and (y) the ratio of (x) Adjusted Consolidated Debt to (y) Consolidated EBITDAR is (I) less than 5.00 to 1.00 but not less than 4.75 to 1.00, $25,000,000, (II) less than 4.75 to 1.00 but not less than 4.50 to 1.00, $30,000,000, and (III) less than 4.50 to 1.00, $40,000,000 and (B) on any other date, $10,000,000." SECTION 11. Negative Pledge. Section 5.11 of the Credit Agreement is hereby amended by: (a) inserting, prior to the existing paragraph thereof, the expression "(a)"; (b) adding, at the end of clause (i) thereof, the expression "and Liens (other than Liens of the types referred to in clauses (v), (vi), (viii) (to the extent such Liens constitute refinancing of Liens permitted under such clauses (v) and (vi)) or (xi)) existing on the Amendment No. 1 Effective Date securing Debt and other obligations outstanding on the Amendment No. 1 Effective Date". (c) replacing the amount "$50,000,000" in clauses (xii) and (xiii) thereof with the amount "$25,000,000"; (d) deleting the word "and" at the end of clause (xii) thereof; (e) replacing the period at the end of clause (xiii) thereof with a semicolon; (f) adding a new clause (xiv) to read in its entirety "(xiv) Liens created under the Security Documents; and"; 8 9 (g) adding a new clause (xv) to read in its entirety "(xv) the Other Financing Agreements Liens."; and (h) adding a new clause (b) at the end thereof, to read in its entirety as follows: "(b) The Borrower will not permit any Issuer or any Subsidiary of an Issuer to create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it except (i) Liens permitted by clauses (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xiv) and (xv) of Section 5.11(a) above, (ii) Liens on nursing homes and related real estate improvements and equipment of Issuers and their Subsidiaries ("PLEDGED SUBSIDIARY MORTGAGE ASSETS") given in substitution for Liens on Pledged Subsidiary Mortgage Assets incurred pursuant to this clause (ii) or clause (iii) below, provided that the sum of (A) the excess of the Appraised Value of all Pledged Subsidiary Mortgage Assets subjected to Liens pursuant to this clause (ii) on or after the Amendment No. 1 Effective Date over the Appraised Value of all such Pledged Subsidiary Mortgage Assets released from Liens on or after the Amendment No. 1 Effective Date and (B) all Debt incurred after the Amendment No. 1 Effective Date and secured by Liens permitted under clause (iii) below shall not at any time exceed $25,000,000 and (iii) Liens not otherwise permitted under clauses (i) and (ii) of this subsection (b), provided, that the sum of the amounts set forth in subclause (A) of clause (ii) above and the aggregate principal amount of all Debt incurred after the Amendment No. 1 Effective Date and secured by Liens permitted under this clause (iii) shall not exceed $25,000,000.". SECTION 12. Incurrence of Debt. (a) Subsection 5.13(i) of the Credit Agreement is hereby amended by adding, at the end thereof but before the semicolon, the expression "and Debt (other than Debt of the types referred to in clauses (ii) through (xii) hereof) outstanding on the Amendment No. 1 Effective Date". (b) (i) Subsection 5.13(vi) of the Credit Agreement is hereby amended by deleting the reference to the amount $150,000,000 and substituting therefor a reference to the amount "$100,000,000". (ii) Subsection 5.13(xiii) of the Credit Agreement is hereby amended by deleting the reference to the amount "$75,000,000" and substituting therefor a reference to the amount "$20,000,000". (c) Section 5.13 of the Credit Agreement is hereby amended by (i) inserting the subsection designation "(a)" immediately after the title thereof and (ii) adding the following new Subsection (b) at the end of Section 5.13: "(b) The Borrower will not permit any Issuer or any Subsidiary of any Issuer to incur, assume or suffer to exist Debt other than (A) Debt permitted under clauses (i), (ii) (but only to the extent that the Lease Cancellation Payments relate 9 10 to a facility operated by any such Issuer or Subsidiary), (iii), (iv), (v) (to the extent the Refinanced Debt referred to therein is Debt referred to in clauses (i), (ii) (but only to the extent that the Lease Cancellation Payments relate to a facility operated by any such Issuer or Subsidiary), (iii) and (iv)), (vi), (vii), (viii), (ix), (x), (xi) (but only to the extent that the assets acquired, constructed or approved with the proceeds of such Debt are assets of such Issuer or such Subsidiary) and (xiii) of subsection 5.13(a) above; provided that the aggregate principal amount of Debt of such Issuers and Subsidiaries permitted under clauses (viii) (other than guarantees by an Issuer or any of its Subsidiaries of Debt of an Issuer or any of its Subsidiaries) and (xiii) shall not exceed, in the aggregate, $20,000,000 and (B) guarantees of obligations of Subsidiaries of the Borrower, which obligations are permitted under clause (xi) of Section 5.13(a) above and arise under any of the Other Financing Agreements and refinancings, extensions, replacements and increases of any of the foregoing, provided that the aggregate principal amount of Debt permitted under this clause (B) may not exceed $178,000,000.". SECTION 13. Consolidated Capital Expenditures. Article 5 of the Credit Agreement is hereby amended by adding, immediately after Section 5.17, new Sections 5.18, 5.19 and 5.20, to read in their entirety as follows: "SECTION 5.18. Consolidated Gross Capital Expenditures. Consolidated Gross Capital Expenditures will not, for any of the fiscal years set forth below, exceed the amount indicated opposite such fiscal year:
Fiscal Year Ending Amount ------------------ ------ - -------------------------------------------------------------------------------- December 31, 1999 $120,000,000 - -------------------------------------------------------------------------------- December 31, 2000 $120,000,000 - -------------------------------------------------------------------------------- December 31, 2001 $125,000,000 - --------------------------------------------------------------------------------
To the extent that Consolidated Gross Capital Expenditures for any fiscal year set forth above are less than the applicable amount specified in the table, the difference may be carried forward to the next fiscal year (and for this purpose, Consolidated Gross Capital Expenditures in any subsequent fiscal year shall be applied, first, to any such carry-forward amount and, second, to the specified amount for such year). SECTION 5.19. Sale and Leaseback Transactions. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, which property has been owned by the Borrower and its Subsidiaries for more than 180 days, and 10 11 thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred (each, a "SALE AND LEASEBACK TRANSACTION"), except for Sale and Leaseback Transactions the aggregate amount of Attributable Debt in respect of which does not exceed $20,000,000 at any time outstanding. Section 5.20. Mortgages. On or prior to the date (the "MORTGAGE DUE DATE") that is on or prior to October 31, 1999, (a) each party to any Mortgage shall have delivered to the Agent duly executed counterparts of each Mortgage to which it is a party; (b) the Borrower shall deliver, or cause to be delivered, to the Agent legal opinions of local counsel reasonably satisfactory to the Agent with respect to each of the Mortgages, which legal opinions shall be in form and in substance reasonably satisfactory to the Agent; (c) the Borrower shall deliver, or cause to be delivered, to the Agent evidence satisfactory to the Agent that such action (including, without limitation, the filing of appropriately completed and duly executed Uniform Commercial Code financing statements and the recording of Mortgages) as may be necessary or as the Agent shall have reasonably requested to perfect the Liens created pursuant to the Mortgages shall have been taken, or that arrangements therefor satisfactory to the Agent shall have been made; (d) the Borrower shall deliver, or cause to be delivered, to the Agent policies of title insurance (or commitments therefor with all conditions marked satisfied), in form and substance satisfactory to the Agent and issued by an insurance company or companies as are acceptable to the Agent (the "TIC"), insuring the perfection, enforceability and priority of the Liens created under the Mortgages in amounts acceptable to the Agent, subject only to prior liens permitted by the applicable Mortgage and to such exceptions as are satisfactory to the Agent, containing such endorsements and affirmative assurances as have been previously agreed to by, or are otherwise satisfactory to, the Agent, and reinsured in amounts and under reinsurance agreements in form and substance satisfactory to the Agent; and the Borrower shall have paid or made arrangements satisfactory to the Agent to pay to the TIC all expenses and premiums of the TIC in connection with the issuance of such policies and in addition shall have paid or made arrangements satisfactory to the Agent to pay to the TIC an amount equal to the recording and stamp taxes payable in connection with recording the Mortgages in the appropriate county land offices; 11 12 (e) the Borrower shall deliver, or cause to be delivered, to the Agent copies of file search reports from the Uniform Commercial Code filing office in each jurisdiction (i) in which is located any Collateral (other than Pledged Stock) or (ii) in which is located the chief executive office of any Subsidiary of the Borrower that owns or holds any right, title or interest in any property that constitutes Collateral (other than the Pledged Stock), setting forth the results of Uniform Commercial Code file searches conducted in the name of the Borrower or such Subsidiary, as the case may be; (f) the Borrower shall deliver, or cause to be delivered, to the Agent all documents the Agent may reasonably request relating to the existence of each Subsidiary of the Borrower party to any Mortgage, the corporate authority for and the validity of the Mortgages, and any other matters relevant thereto, all in form and substance satisfactory to the Agent; and (g) the Borrower shall have paid all other costs, fees and expenses (including, without limitation, reasonable legal fees and expenses), and other compensation payable to the Agent with respect to the Mortgages, in each case invoiced prior to the Mortgage Due Date.". SECTION 14. Events of Default. (a) Section 6.01 of the Credit Agreement is amended by: (i) replacing the word "or" on the second line of clause (b) thereof with a comma; (ii) adding, following the expression "5.16" on the second line of clause (b) thereof, the expression "5.18, 5.19 or 5.20"; (iii) deleting the word "or" at the end of subsection (k); and (iv) inserting immediately after Subsection (l), the following new subsections (m), (n) and (o): "(m) the Borrower or any of the Borrower's Subsidiaries party thereto shall fail to observe or perform any of its obligations under any of the Security Documents within any applicable grace period; (n)(i) the Security Documents shall at any time after the Amendment No. 1 Effective Date (or, in the case of any Mortgage, the date upon which such Mortgage is executed and delivered in accordance with Section 5.20), for any reason (other than solely due to actions taken by the Agent or any Bank) fail to create Liens in favor of the Secured Parties on the Collateral, securing all of the Secured Obligations purported to be secured thereby, and as to which, in the case of Pledged Stock, the Agent has control (within the meaning of Sections 8-110 12 13 and 9-115 of the UCC), subject to no other Liens other than, in the case of Collateral covered by any Mortgage, Permitted Encumbrances, or, in the case of any Collateral other than Pledged Stock, Liens permitted under Section 5.11(a)(x) as to which the Liens created under the Security Documents have priority; (ii) in the case of Collateral consisting of Pledged Stock, at any time after the Amendment No. 1 Effective Date, such Liens shall fail to be perfected or the Agent shall fail to have control (within the meaning of Sections 8-110 and 9-115 of the UCC) of such Pledged Stock or (iii) in the case of Collateral not constituting Pledged Stock, at any time after the filing of the Mortgages and UCC financing statements delivered by the Borrower and its Subsidiaries to the Agent pursuant to Section 5.20 in the recording or filing offices indicated thereon, such Liens shall fail to be perfected; or (o) the terms of the Final Settlement shall require payments by the Borrower and its Subsidiaries to the United States Federal government and agencies and instrumentalities thereof (i) in the aggregate in excess of $225,000,000, (ii) up-front in excess of $30,000,000 or (iii) with a final maturity of less than eight (8) years;" SECTION 15. Indemnification. Section 9.03(a) of the Credit Agreement is hereby amended by (i) inserting immediately after the word "against" in the last sentence thereof the clause designation "(A)" and (ii) adding at the end of such sentence but before the period the following phrase: ", (B) all costs, expenses and taxes, assessments or other charges incurred in connection with any filing, registration, recording or perfection of any Lien contemplated by any of the Financing Documents or any document referred to therein or the filing or recording of any termination statement with respect to the release of any Lien on any Collateral and (C) all costs, expenses and other charges in respect of title insurance procured with respect to the Liens created pursuant to the Mortgages". SECTION 16. Amendments and Waivers. Section 9.05 of the Credit Agreement is hereby amended by (i) replacing the word "or" at the end of clause (iv) thereof with a comma and (ii) inserting, immediately after clause (v) thereof but before the period, the following expression: "or (vi) agree to release all or substantially all of the Collateral". SECTION 17. Consent to Execution and Deliver of Certain Financing Documents. Section 9.09 of the Credit Agreement is hereby amended by (i) deleting the phrase "; Release of Existing Collateral" in the title of such Section, (ii) deleting the subsection designation "(a)" immediately after the title of such Section, (iii) adding, at the end of the first sentence of such Section but before the period, the expression ", each of the Mortgages and the Pledge Agreement" and (iv) deleting in its entirety subsection (b) thereof. 13 14 SECTION 18. Counterparts; Integration. Section 9.10 of the Credit Agreement is hereby amended by (i) deleting the word "and" immediately after the word "Notes" and substituting therefor a comma and (ii) inserting immediately after the reference to "Subsidiary Guaranty" the phrase ", the Pledge Agreement and the Mortgages". SECTION 19. Amendments to Pricing Schedule. Schedule I of the Credit Agreement is hereby replaced in its entirety by Schedule I hereto. SECTION 20. Additional Schedule and Exhibits. Schedule V and Exhibit D hereto are hereby added as Schedule V and Exhibit D to the Credit Agreement. SECTION 21. New Subsidiary Guarantors. Each Subsidiary of the Borrower listed as a "New Subsidiary Guarantor" on the signature pages hereof (each a "NEW SUBSIDIARY GUARANTOR") hereby agrees that, as of the Amendment No. 1 Effective Date, such New Subsidiary Guarantor shall be a party to the Subsidiary Guaranty and shall be bound for all purposes by the obligations of a Subsidiary Guarantor set forth therein as if each such New Subsidiary Guarantor was an original party to the Subsidiary Guaranty. In addition, the Borrower agrees it shall cause each New Subsidiary Guarantor to sign and deliver to the Agent an originally executed Subsidiary Guaranty no later than the Mortgage Due Date. SECTION 22. Representations and Warranties. The Borrower represents and warrants that as of the date hereof and after giving effect hereto: (i) no Default has occurred and is continuing; and (ii) each representation and warranty of the Borrower set forth in the Credit Agreement after giving effect to this Amendment is true and correct as though made on and as of such date. SECTION 23. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 24. Counterparts; Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective on the date upon which each of the following conditions shall have been satisfied (the "AMENDMENT NO. 1 EFFECTIVE DATE"): (i) the Agent shall have received duly executed counterparts hereof signed by the Borrower, the Subsidiary Guarantors, the Agent and the Required Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); 14 15 (ii) the Agent shall have received, for the ratable accounts of the Banks, a fee in an amount equal to 0.20% of the aggregate Commitments. (iii) the Agent shall have received duly executed counterparts of the Pledge Agreement signed by each of the parties thereto (or, in the case of any such party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex, facsimile transmission or other written confirmation from such party of execution of a counterpart thereof by such party), together with all certificates evidencing Pledged Stock required to be delivered thereunder; (iv) the Agent shall have received, with sufficient copies for each Bank, opinions of Weil, Gotshal & Manges LLP, special New York counsel to the Borrower, and the Vice President and Deputy General Counsel of the Borrower, substantially in the forms of Exhibit A hereto and in each case covering such other matters relating to the Amendment and the Pledge Agreement as the Agent may reasonably request; (v) the Agent shall have received a certificate signed by the chief financial officer or treasurer of the Borrower to the effect set forth in clauses (viii) and (ix) of this Section 24; (vi) the Agent shall have received evidence satisfactory to it that such action (including, without limitation, the filing of appropriately completed and duly executed Uniform Commercial Code financing statements) as may be necessary or as the Agent shall have reasonably requested to perfect the Liens created pursuant to the Pledge Agreement shall have been taken, or that arrangements therefor satisfactory to the Agent shall have been made; (vii) the Agent shall have received all documents it may reasonably request relating to the existence of the Borrower and each of its Subsidiaries party to any Financing Document, the corporate authority for and the validity of the Financing Documents, and any other matters relevant thereto, all in form and substance satisfactory to the Agent; (viii) the fact that, immediately after the effectiveness of this Amendment, no Default shall have occurred and be continuing; (ix) the fact that the representations and warranties of the Borrower or any of its Subsidiaries contained in the Financing Documents shall be true in all material respects on and as of the Amendment No. 1 Effective Date after giving effect to this Amendment; 15 16 (x) the Agent shall have received copies of all amendments, waivers and other modifications entered into in connection with the Final Settlement to any documents (other than the Financing Documents) under which the Borrower and any of its Subsidiaries has or may incur Debt, in each case in form and substance satisfactory to the Required Banks in their sole discretion; and (xi) the Agent shall have received payment of all other costs, fees and expenses (including, without limitation, reasonable legal fees and expenses), and other compensation payable to the Agent on or prior to the Amendment No. 1 Effective Date in connection with this Amendment, in each case invoiced prior to the Amendment No. 1 Effective Date. The Agent shall promptly notify the Borrower and the Banks of the effectiveness of this Amendment, and such notice shall be conclusive and binding on all parties hereto. 16 17 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written. BEVERLY ENTERPRISES, INC. By: ------------------------------ Title: BANKS MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ------------------------------ Name: Title: THE CHASE MANHATTAN BANK By: ------------------------------ Name: Title: BANK OF AMERICA, N.A. By: ------------------------------ Name: Title: 18 THE BANK OF NEW YORK By: ------------------------------ Name: Title: THE BANK OF NOVA SCOTIA, ATLANTA AGENCY By: ------------------------------ Name: Title: PNC BANK, N.A. By: ------------------------------ Name: Title: BANK OF MONTREAL By: ------------------------------ Name: Title: BANK OF HAWAII By: ------------------------------ Name: Title: 19 BHF (USA) CAPITAL CORPORATION By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By: ------------------------------ Name: Title: 20 AGENT MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: ------------------------------ Name: Title: ISSUING BANK MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Issuing Bank By: ------------------------------ Name: Title: 21 NEW SUBSIDIARY GUARANTORS Associated Physical Therapy Practitioners, Inc. Beverly - Branson Holdings, Inc. Beverly - Indianapolis, LLC Beverly - Plant City Holdings, Inc. Beverly - Tamarac Holdings, Inc. Beverly - Tampa Holdings, Inc. Beverly Clinical, Inc. Beverly Healthcare, LLC Beverly Healthcare - California, Inc. Beverly Rehabilitation, Inc. Carrollton Physical Therapy Clinic, Inc. Greenville Rehabilitation Services, Inc. Home Health and Rehabilitation Services, Inc. Las Colinas Physical Therapy, Inc. Network for Physical Therapy, Inc. North Dallas Physical Therapy Associates, Inc. PT NET, Inc. PT Net (Colorado), Inc. Rehabilitation Associates of Lafayette, Inc. The Parks Physical Therapy and Work Hardening Center, Inc. Theraphysics Corp. Theraphysics of New York IPA, Inc. Theraphysics Partners of Colorado, Inc. Theraphysics Partners of Louisiana, Inc. Theraphysics Partners of Western Pennsylvania, Inc. Theraphysics Partners of Texas, Inc. All by ---------------------------------- Name: Title: 22 The undersigned Subsidiary Guarantors each hereby consents to the foregoing Amendment: SUBSIDIARY GUARANTORS A-1 Home Health Services, Inc. AGI-Camelot, Inc. Arborland Management Company, Inc. Beverly Assisted Living, Inc. Beverly - Bella Vista Holding, Inc. Beverly - Missouri Valley Holding, Inc. Beverly - Rapid City Holding, Inc. Beverly Enterprises International Limited 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. Beverly Enterprises - Michigan, Inc. Beverly Enterprises - Minnesota, Inc. Beverly Enterprises - Mississippi, Inc. Beverly Enterprises - Missouri, Inc. Beverly Enterprises - Montana, Inc. Beverly Enterprises - Nebraska, Inc. 23 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 Health and Rehabilitation Services, Inc. Beverly Holdings I, Inc. Beverly Indemnity, Ltd. Beverly Manor Inc. of Hawaii Beverly Real Estate Holdings, Inc. Beverly Savana Cay Manor, Inc. Columbia-Valley Nursing Home, Inc. Commercial Management, Inc. Community Care, Inc. Compassion and Personal Care Services, Inc. Continental Care Centers of Council Bluffs, Inc. Eastern Home Health Supply & Equipment Co., Inc. Forest City Building Ltd. Hallmark Convalescent Homes, Inc. HomeCare Preferred Choice, Inc. Home Technology Healthcare - Mid Cumberland, Inc. Home Technology Healthcare - Mid South, Inc. Home Technology Healthcare - Nursing, Inc. Home Technology Healthcare - St. Louis, Inc. HTHC Holdings, Inc. Hospice of Eastern Carolina, Inc. Hospice Preferred Choice, Inc. Hospital Facilities Corporation 24 Kenwood View Nursing Home, Inc. Liberty Nursing Homes, Incorporated MATRIX Occupational Health, Inc. MATRIX Rehabilitation, Inc. Medical Arts Health Facility of Lawrenceville, Inc. Moderncare of Lumberton, Inc. Nebraska City S-C-H, Inc. Nursing Home Operators, Inc. Petersen Health Care, Inc. South Alabama Nursing Home, Inc. South Dakota - Beverly Enterprises, Inc. Spectra Healthcare Alliance, Inc. Tar Heel Holdings, Inc. Tar Heel Home Health, Inc. Tar Heel Home Health of Cape Fear, Inc. Tar Heel Home Health of Dare County, Inc. Tar Heel Home Health of North Central North Carolina, Inc. Tar Heel Infusion Company, Inc. TMD Disposition Company Vantage Healthcare Corporation Vaughn Home Health Care & Services, Inc. All by -------------------------------------- Name: Title: 25 SCHEDULE I PRICING SCHEDULE The "EURO-DOLLAR MARGIN", "CD MARGIN", "BASE RATE MARGIN", "LETTER OF CREDIT COMMISSION RATE" and "COMMITMENT FEE RATE" for any day are the respective rates per annum set forth below in the applicable row in the column corresponding to the Pricing Level that applies on such day:
Level I Level II Level III Level IV Level V =========================================================================== Euro-Dollar Margin 1.125 1.375 1.750 2.000 2.250% - --------------------------------------------------------------------------- CD Margin 1.250 1.500 1.875 2.125 2.375% - --------------------------------------------------------------------------- Base Rate Margin 0.125 0.375 0.750 1.000 1.250% - --------------------------------------------------------------------------- Letter of Credit Commission Rate 1.125 1.375 1.750 2.000 2.250% - --------------------------------------------------------------------------- Commitment Fee Rate 0.250 0.275 0.300 0.350 0.375% - ---------------------------------------------------------------------------
For purposes of this Pricing Schedule, the following terms have the following meanings: "PRICING RATIO" means the ratio of Adjusted Consolidated Debt to Consolidated EBITDAR. "LEVEL I PRICING" applies on any day if, as of the last day of the fiscal quarter of the Borrower most recently ended on or prior to such day and as to which the Borrower shall have delivered, or been required to deliver, on or prior to such day a certificate pursuant to Section 5.01(d), the Pricing Ratio is less than 3.50 to 1.0. "LEVEL II PRICING" applies on any day if, as of the last day of the fiscal quarter of the Borrower most recently ended on or prior to such day and as to which the Borrower shall have delivered, or been required to deliver, on or prior to such day a certificate pursuant to Section 5.01(d), (i) the Pricing Ratio is less than 4.0 to 1.0 and (ii) Level I Pricing does not apply. 26 "LEVEL III PRICING" applies on any day if, as of the last day of the fiscal quarter of the Borrower most recently ended on or prior to such day and as to which the Borrower shall have delivered, or been required to deliver, on or prior to such day a certificate pursuant to Section 5.01(d), (i) the Pricing Ratio is less than 4.5 to 1.0 and (ii) neither Level I Pricing nor Level II Pricing applies. "LEVEL IV PRICING" applies on any day if, as of the last day of the fiscal quarter of the Borrower most recently ended on or prior to such day and as to which the Borrower shall have delivered, or been required to deliver, on or prior to such day a certificate pursuant to Section 5.01(d), (i) the Pricing Ratio is less than 5.0 to 1.0 and (ii) none of Level I Pricing, Level II Pricing or Level III Pricing applies. "LEVEL V PRICING" applies on any day if, on such day, no other Pricing Level applies. "PRICING LEVEL" means any one of the five pricing levels denominated Level I Pricing, Level II Pricing, Level III Pricing, Level IV Pricing or Level V Pricing. 27 SCHEDULE V
FACILITY NAME ADDRESS COUNTY TOTAL OWNER # BEDS - ------------------------------------------------------------------------------------------------------------------------------------ 208 Valley Nursing & 1140 Knoxville Road Auglaize 100 Nursing Home Operators, Inc. Rehabilitation Center St. Marys, OH 45885 - ------------------------------------------------------------------------------------------------------------------------------------ 209 Community Nursing Home 850 W Poe Road Wood 100 Nursing Home Operators, Inc. Bowling Green, OH 43402 - ------------------------------------------------------------------------------------------------------------------------------------ 210 Northcrest Nursing Home Northcrest Drive, Route 6 Henry 100 Nursing Home Operators, Inc. Napoleon, OH 43545 - ------------------------------------------------------------------------------------------------------------------------------------ 261 Beverly Health & Rehab 2004 N. 22nd Street Franklin 125 Beverly Enterprises-Washington, Inc. Center-Pasco Pasco, WA 99301 - ------------------------------------------------------------------------------------------------------------------------------------ 2132 Benson Heights Rehab 22410 Benson Road SE King 91 Beverly Enterprises-Washington, Inc. Kent, WA 98031 - ------------------------------------------------------------------------------------------------------------------------------------ 2554 Gray's Harbor Health & 920 Anderson Drive Grays Harbor 136 Beverly Enterprises-Washington, Inc. Rehab Center Aberdeen, WA 98520 - ------------------------------------------------------------------------------------------------------------------------------------ 660 Beverly Manor-Honolulu 1930 Kam IV Road Honolulu 108 Beverly Manor Inc. of Hawaii Honolulu, HI 96819 - ------------------------------------------------------------------------------------------------------------------------------------ 71 Green Hill Manor Nursing 213 Industrial Road Green 126 Beverly Health and Rehabilitation Services, Facility Greensburg, KY 42743 Inc. - ------------------------------------------------------------------------------------------------------------------------------------ 984 Beverly Health & Old Soldiers Lane Frankiln 100 Beverly Health and Rehabilitation Services, Rehab-Frankfort Frankfort, KY 40601 Inc. - ------------------------------------------------------------------------------------------------------------------------------------
28 EXHIBIT A OPINION OF SPECIAL NEW YORK COUNSEL TO THE BORROWER September 30, 1999 To the Banks, the Issuing Bank and the Agent referred to below c/o Morgan Guaranty Trust Company of New York, as Agent, 60 Wall Street New York, New York 10260 Ladies and Gentlemen: We have acted as special counsel to Beverly Enterprises, Inc., a Delaware corporation (the "BORROWER"), and certain subsidiaries of the Borrower, in connection with the preparation, authorization, execution and delivery of, and the consummation of the transactions contemplated by (i) the Amended and Restated Credit Agreement, dated as of April 30, 1998, as amended by Amendment No. 1 to the Credit Agreement dated as of September 30, 1999 ("AMENDMENT NO. 1") (as so amended, the "CREDIT AGREEMENT"), among the Borrower, the banks listed on the signature pages thereto (the "BANKS"), Morgan Guaranty Trust Company of New York, as Issuing Bank (the "ISSUING BANK"), and Morgan Guaranty Trust Company of New York, as Agent (the "AGENT"), and (ii) the Pledge Agreement, dated as of September 30, 1999 (the "PLEDGE AGREEMENT"), among the Borrower, Beverly Health and Rehabilitation Services, Inc., a California corporation ("BHRS"), and the Agent. Amendment No. 1, the Credit Agreement and the Pledge Agreement are collectively referred to in this opinion as the "FINANCING DOCUMENTS" and the Borrower, BHRS and the other Subsidiaries of the Borrower party to any Financing Document are collectively referred to in this opinion as the "LOAN PARTIES". Capitalized terms defined in the Credit Agreement and used but not otherwise defined herein are used herein as so defined. In so acting, we have examined originals or copies, certified or otherwise identified to our satisfaction, of each of the Financing Documents and such corporate records, agreements, documents, and other instruments, and such certificates or comparable documents of public officials and of officers and representatives of each of the Loan Parties, and have made such inquiries of such officers and representatives as we have deemed relevant and necessary as a basis for the opinions hereinafter set forth. 29 In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such latter documents. As to all questions of fact material to this opinion that have not been independently established, we have relied upon certificates or comparable documents of officers and representatives of the Loan Parties and upon the representations and warranties of each of the Loan Parties contained in the Financing Documents. We have also assumed (i) the valid existence of each of the Loan Parties, (ii) that each of the Loan Parties has the requisite corporate power and authority to enter into and perform each of the Financing Documents to which it is a party and (iii) the due authorization, execution and delivery of each of the Financing Documents by each party thereto. Based on the foregoing, and subject to the qualifications stated herein, we are of the opinion that: 1. Each Financing Document constitutes the legal, valid and binding obligation of each Loan Party which is a party thereto, in each case enforceable against them in accordance with its terms, and subject to the qualification that certain remedial provisions of the Pledge Agreement are or may be unenforceable in whole or in part under the laws of the State of New York, but the inclusion of such provisions does not affect the validity of the Pledge Agreement, and the Pledge Agreement contains adequate provisions for the practical realization of the rights and benefits afforded thereby. No opinion is expressed in this paragraph as to the attachment, perfection or priority of any liens granted pursuant to the Financing Documents. 2. Assuming (i) delivery in New York to, and continued possession in New York by, the Agent (the "PLEDGEE") of all certificates that represent the Pledged Stock (as defined in the Pledge Agreement), together with stock powers properly executed in blank with respect thereto, and (ii) that the Pledgee was without notice of any adverse claim (as such term is defined in Section 8-105 of the Uniform Commercial Code in effect in the State of New York (the "UCC")) with respect to the Pledged Stock, the execution and delivery of the Pledge Agreement creates a valid and duly perfected lien on and security interest in the Pledged Stock, as security for the Secured Obligations, as defined in the Pledge Agreement, which is free of any adverse claim and as to which the Pledgee has control (within the meaning of Section 8-106 of the UCC). 3. The security interests created under the Pledge Agreement validly secure the Secured Obligations in respect of all future Loans made by the Banks, and all future Letters of Credit issued by the Issuing Bank, under the Credit Agreement, whether or not at the time such Loans are made or such Letters of Credit are issued any Event of Default or other condition or event not within the control of the Banks or, in the case of Letters of Credit only, the Issuing Bank, has relieved or may relieve the Banks from their obligations to make such Loans or the Issuing Bank from its 30 obligations to issue such Letters of Credit, and are perfected to the extent set forth in paragraph 2 above and have the same priority with respect to Secured Obligations in respect of future Loans and future Letters of Credit as they do with respect to Loans made or Letters of Credit issued on the date hereof. The opinions in paragraphs 2 and 3 are subject to the following exceptions: A. that with respect to BHRS's rights in or title to the Collateral, we express no opinion, and have assumed that BHRS has title to the Collateral pledged by it; B. that with respect to (i) existing and future federal tax liens accorded priority under law and (ii) liens created under Title IV of the Employee Retirement Income Security Act of 1974 which are properly filed after the date hereof, we express no opinion as to the relative priority of such liens and the security interests created by the Pledge Agreement; and C. that with respect to any claim (including for taxes) in favor of any state or any of its respective agencies, authorities, municipalities or political subdivisions which claim is given lien status and/or priority under any law of such state, we express no opinion as to the relative priority of such liens and the security interests created by the Pledge Agreement. In addition, the opinions in paragraphs 2 and 3 are subject to (i) the limitations on perfection of security interests in proceeds resulting from the operation of Section 9-306 of the UCC; (ii) the limitations with respect to buyers in the ordinary course of business imposed by Sections 9-307 and 9-308 of the UCC; (iii) the limitations with respect to documents, instruments and securities imposed by Sections 8-302, 9-304 and 9-309 of the UCC; (iv) the provisions of Section 9-203 of the UCC relating to the time of attachment; and (v) Section 552 of Title 11 of the United States Code (the "BANKRUPTCY CODE") with respect to any Collateral acquired by BHRS subsequent to the commencement of a case against or by BHRS under the Bankruptcy Code. 4. No New York or Federal governmental registration, recordation or filing by any Loan Party is required in connection with the execution or delivery of the Financing Documents or is necessary for the validity or enforceability thereof. 5. The execution and delivery of the Financing Documents, the consummation of the transactions contemplated thereby and compliance by each Loan Party party thereto with any of the provisions thereof will not conflict with, constitute a default under, or violate any of the terms, conditions or provisions of the Senior Note Agreement on the date hereof. The opinions expressed above are subject to the following comments and qualifications. The opinions set forth above are subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting 31 creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). We wish to point out that provisions of the Financing Documents that permit any party to take action or make determinations or benefit from indemnities and similar undertakings may be subject to a requirement that such action be taken or such determinations be made, or that any action or inaction by any party that may give rise to a request for payment under such undertaking be taken or not taken, as the case may be, on a reasonable basis and in good faith. The opinions expressed herein are limited to the laws of the State of New York and the federal laws of the United States, and we express no opinion as to the effect on the matters covered by this letter of the laws of any other jurisdiction. The opinions expressed herein are rendered solely for your benefit in connection with the transactions described herein. Those opinions are delivered to you pursuant to Section 24 of Amendment No. 1 and may not be used or relied upon by any other person (other than a Participant or Assignee permitted under Section 9.06 of the Credit Agreement), nor may this letter or any copies hereof be furnished to a third party (other than any such Participant or Assignee or prospective Participant or Assignee), filed with a governmental agency, quoted, cited or otherwise referred to without our prior written consent. Very truly yours, 32 OPINION OF VICE PRESIDENT AND DEPUTY GENERAL COUNSEL OF THE BORROWER September 30, 1999 To the Banks, the Issuing Bank and the Agent referred to below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Ladies and Gentlemen: I am Vice President, Deputy General Counsel and Assistant Secretary of Beverly Enterprises, Inc., a Delaware corporation (the "BORROWER"), and have acted as counsel for the Borrower and the Subsidiaries of the Borrower in connection with the preparation, authorization, execution and delivery of, and the consummation of the transactions contemplated by (i) the Amended and Restated Credit Agreement, dated as of April 30, 1998, as amended by Amendment No. 1 to the Credit Agreement dated as of September 30, 1999 ("AMENDMENT NO. 1") (as so amended, the "CREDIT AGREEMENT"), among the Borrower, the banks listed on the signature pages thereto (the "BANKS"), Morgan Guaranty Trust Company of New York, as Issuing Bank (the "ISSUING BANK"), and Morgan Guaranty Trust Company of New York, as Agent (the "AGENT"), and (ii) the Pledge Agreement, dated as of September 30, 1999 (the "PLEDGE AGREEMENT"), among the Borrower, Beverly Health and Rehabilitation Services, Inc., a California corporation, and the Agent. Amendment No. 1, the Credit Agreement and the Pledge Agreement are collectively referred to in this opinion as the "FINANCING DOCUMENTS" and the Borrower and its Subsidiaries party to any Financing Document are collectively referred to in this opinion as the "LOAN PARTIES". Capitalized terms defined in the Credit Agreement and used but not otherwise defined herein are used herein as so defined. I, or other lawyers in the law department of the Borrower under my supervision, have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and officers of the Loan Parties and other instruments as I have deemed appropriate and, subject to the limitations expressed below, have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I have assumed the due authorization, execution and delivery of the documents referred to in paragraph 2 below by each party thereto other than the Loan Parties. 33 I am opining herein only to the application of United States Federal law and the General Corporation Law of the State of Delaware. Based upon the foregoing, I am of the opinion that: 1. Each Loan Party is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted except where the failure to obtain such governmental licenses, authorizations, consents and approvals would not, in my reasonable judgment, have a material adverse effect on the consolidated financial position of the Borrower and its Consolidated Subsidiaries. 2. The execution, delivery and performance by each Loan Party of each Financing Document to which it is a party (i) are within the corporate powers of such Loan Party and have been duly authorized by all necessary corporate action of such Loan Party, (ii) except for the filing and recording necessary to perfect a Lien or security interest in the Collateral, require no action by or in respect of, or filing with, any governmental body, agency or official by any Loan Party, (iii) do not contravene the certificate of incorporation or by-laws of any Loan Party, (iv) to the best of my knowledge, do not contravene any material provision of law or regulation applicable to any Loan Party, (v) to the best of my knowledge, do not contravene or constitute a default under any agreement, judgment, injunction, order, decree or other instrument that is material individually or in the aggregate and that is binding upon any Loan Party, and (vi) to the best of my knowledge, will not result in the creation or imposition of any Lien on any asset of any Loan Party (except the Liens created or to be created pursuant to the Pledge Agreement). 3. Each Loan Party owns the Pledged Stock delivered by it pursuant to the Pledge Agreement, free and clear of all Liens (other than Liens created or to be created pursuant to the Pledge Agreement). 4. Except as disclosed in the Borrower's 1998 Form 10-K or the Borrower's June 30, 1999 Form 10-Q, to the best of my knowledge, there is no action, suit or proceeding pending against, or threatened against or affecting, any Loan Party before any court or arbitrator or any governmental body, agency or official in which, in my judgment, there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries or which in any manner draws into question the validity of any of the Financing Documents. The opinions expressed above should be read in conjunction with the following: (A) The opinion expressed in paragraph 1 above as to due incorporation, valid existence, good standing and corporate power, and the opinion expressed in clauses (i) and (iii) of paragraph 2 above as to corporate powers and non-contravention of the certificate of incorporation or by-laws, insofar as such opinions apply to Subsidiaries of the Borrower that are incorporated under the laws of any jurisdiction other than 34 the State of Delaware, is based upon my general knowledge and experience rather than upon the opinions or advice of counsel licensed to practice law in jurisdictions other than the State of Delaware. (B) The opinion as to governmental licenses, governmental authorizations, governmental consents and governmental approvals expressed in paragraph 1 above is based upon my general knowledge and experience rather than upon the opinions or advice of counsel licensed to practice law in the applicable jurisdictions. (C) The opinions as to filings and actions, contravention of law and creation or imposition of Liens expressed in clauses (ii), (iv) and (vi) of paragraph 2 are based upon my general knowledge and experience and are to the best of my knowledge rather than based upon the opinions or advice of counsel licensed to practice law in the applicable jurisdictions. (D) Please be advised that several of the instruments described in clause (v) of paragraph 2 provide that they are governed by the laws of jurisdictions in which I am not licensed to practice law. I have not obtained opinions or advice of counsel licensed to practice law in these jurisdictions in rendering the opinion expressed in clause (v) of paragraph 2. I am not aware of any provision in the instruments described in clause (v) of paragraph 2 which the execution, delivery or performance of the Financing Documents would violate. Please be further advised that there may be law or other precedent in jurisdictions governing such documents which would expand or contradict the plain meaning of the language contained in the documents. In giving the foregoing opinions, I express no opinion as to the effect (if any) of any law of any jurisdiction in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is delivered to you pursuant to Section 24 of Amendment No. 1 and is not to be used, quoted or relied upon by any other person or entity (other than Participants and Assignees permitted under Section 9.06 of the Credit Agreement), without my prior written consent. Very truly yours, John W. MacKenzie, Vice President, Deputy General Counsel and Assistant Secretary 35 EXHIBIT D FORM OF PLEDGE AGREEMENT AGREEMENT dated as of September 30, 1999 among BEVERLY ENTERPRISES, INC., a Delaware corporation (the "BORROWER"), BEVERLY HEALTH AND REHABILITATION SERVICES, INC., a California corporation (the "PLEDGOR"), and Morgan Guaranty Trust Company of New York, as Agent (the "AGENT"). W I T N E S S E T H : WHEREAS, the Borrower, certain banks (the "BANKS"), Morgan Guaranty Trust Company of New York, as issuing bank (the "ISSUING BANK"), and the Agent have entered into an Amended and Restated Credit Agreement dated as of April 30, 1998, as amended by Amendment No. 1 dated as of September 30, 1999 ("AMENDMENT NO. 1") (as so amended and as may be further amended from time to time, the "CREDIT AGREEMENT"); WHEREAS, in order to induce the Banks, the Agent and the Issuing Bank to enter into Amendment No. 1, the Borrower has agreed to cause the Pledgor to grant a continuing security interest in and to the Collateral (as hereafter defined) to secure the Borrower's obligations under the Credit Agreement and the Notes issued pursuant thereto: NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Definitions. Terms defined in the Credit Agreement and not otherwise defined herein have, as used herein, the respective meanings provided for therein. Unless otherwise defined herein, or unless the context otherwise requires, all terms used herein which are defined in the New York Uniform Commercial Code as in effect on the date hereof shall have the meanings therein stated. The following additional terms, as used herein, have the following respective meanings: "COLLATERAL" has the meaning set forth in Section 3(A). "COLLATERAL ACCOUNT" has the meaning set forth in Section 9(A). "CONTINGENT DEBT" means any obligation of any Obligor in respect of any undrawn Letter of Credit. 36 "FINANCIAL ASSET" means: (i) a Security; or (ii) an obligation of a person or a share, participation, or other interest in a person or in property or an enterprise of a person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment. As context requires, the term means either the interest itself or the means by which a person's claim to it is evidenced, including a certificated or uncertificated Security, a Security certificate, or a Security Entitlement. "ISSUER" means each company listed on Schedule I hereto; "LIQUID INVESTMENTS" has the meaning set forth in Section 9(B). "OBLIGORS" means the Borrower and the Pledgor. "OUTSTANDING" means, when used with respect to Contingent Debt at any time, the aggregate Letter of Credit Exposures of the Banks at such time. "PLEDGED STOCK" means (i) the Schedule Shares and (ii) any other capital stock required to be pledged to the Agent pursuant to Section 3(B). "PLEDGOR" means Beverly Health and Rehabilitation Services, Inc., a California corporation, and its successors. "PROCEEDS" means, with respect to any property or assets, all proceeds of such property or assets, within the meaning of the UCC, together with all interest, dividends, profits, cash and other property from time to time received, receivable or otherwise distributed in respect of such property or assets. "SCHEDULE SHARES" means the shares of capital stock of the Issuers listed on Schedule I hereto; provided that upon the consummation of any merger of any Issuer into any other Issuer that is permitted under the Credit Agreement, the Schedule Shares shall not include any capital stock of such Issuer that is canceled or extinguished upon the consummation of such merger. "SECURED OBLIGATIONS" means the obligations secured under this Agreement, including (i) all obligations of the Obligors in respect of principal of and interest on the Loans and the Notes, (ii) all Reimbursement Obligations (including interest thereon) and other obligations of the Obligors in respect of Letters of Credit, (iii) all other amounts payable by the Obligors under the Credit Agreement or any other Financing Document and (iv) any renewals or extensions of any of the foregoing. The Secured Obligations shall include, without limitation, any interest, costs, fees and expenses which accrue on or with respect to any of the foregoing, whether before or 37 after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of any Obligor, and any such interest, costs, fees and expenses that would have accrued but for the commencement of any such case, proceeding or other action. "SECURED PARTIES" means the Banks, the Issuing Bank and the Agent. "SECURITY" means an obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer: (i) which is represented by a Security certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer; (ii) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations; and (iii) which: (A) is, or is of a type, dealt in or traded on securities exchanges or securities markets; or (B) is a medium for investment and by its terms expressly provides that it is a security governed by Article 8 of the UCC. "SECURITY ENTITLEMENT" means the rights and property interest of an entitlement holder with respect to a Financial Asset specified in Part 5 of Article 8 of the UCC. "SECURITY INTERESTS" means the security interests in the Collateral granted hereunder securing the Secured Obligations. "SEGREGATED COLLATERAL ACCOUNT" has the meaning set forth in Section 9(C). "UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided that if, by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the Security Interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. 38 SECTION 2. Representations and Warranties. Each Obligor represents and warrants as follows: (a) Title to Pledged Stock. The Pledgor owns all of the Pledged Stock, free and clear of any Liens other than the Security Interests. The Pledged Stock described on Schedule I hereto constitutes all of the issued and outstanding capital stock of each Issuer as of the date hereof and the Pledged Stock will constitute all of the issued and outstanding capital stock of each Issuer at all times hereafter. All of the Pledged Stock has been duly authorized and validly issued, is fully paid and non-assessable and is subject to no options to purchase or similar rights of any Person. The Obligors are not and will not become a party to or otherwise bound by any agreement, other than this Agreement and the Credit Agreement, which restricts in any manner the rights of any present or future holder of any of the Pledged Stock with respect thereto, except for (x) restrictions on the ability of the Borrower and its Subsidiaries to sell, transfer or otherwise dispose of all or substantially all of their assets, taken as a whole, or (y) negative pledge provisions, provided that such provisions permit Liens on the Collateral securing the Secured Obligations. (b) Validity, Perfection and Priority of Security Interests. (i) Upon the delivery of the certificates representing the Pledged Stock to the Agent in accordance with Section 4 hereof, the Agent will have valid and perfected security interests in the Collateral subject to no prior Lien. No registration, recordation or filing with any governmental body, agency or official is required in connection with the execution or delivery of this Agreement or necessary for the validity or enforceability hereof or for the perfection or enforcement of the Security Interests, except for any filing that may be required to continue the perfection of the Security Interests in proceeds under Section 9-306 of the UCC. Neither Obligor and none of their respective Subsidiaries has performed or will perform any acts which might prevent the Agent from enforcing any of the terms and conditions of this Agreement or which would limit the Agent in any such enforcement. (ii) If and when any Financial Asset or Security Entitlement is held in the Collateral Account, the Agent will have "control" (as defined in Article 8 of the UCC) thereof and will be a "protected purchaser" (as defined in said Article 8) thereof. (c) UCC Filing Locations. The chief executive office of each Obligor is located at its address set forth on Schedule II hereto. Under the Uniform Commercial Code as in effect in the State in which such office is located, no filing (other than in the county in which such office is located and the office of the secretary of state of such State) is required to perfect a security interest in collateral consisting of general intangibles. 39 SECTION 3. The Security Interests. (a) In order to secure the full and punctual payment of (i) in the case of the Pledgor, its obligations with respect to any Secured Obligation arising under or in respect of the Subsidiary Guaranty or this Agreement or (ii) in the case of the Borrower, its obligations with respect to any Secured Obligation, in each case in accordance with the terms thereof, each Obligor hereby assigns and pledges to and with the Agent for the benefit of the Secured Parties and grants to the Agent for the benefit of the Secured Parties, security interests in all of the following property of such Obligor, whether now owned or existing or hereafter acquired or arising (all being collectively referred to as the "COLLATERAL"): (xii) the Pledged Stock, all of its rights and privileges with respect to the Pledged Stock and all Proceeds of the foregoing; (xiii) the Collateral Account, all cash deposited therein from time to time, the Liquid Investments made pursuant to Section 9(B) and all Proceeds of such Liquid Investments; and (xiv) the Segregated Collateral Account, all cash deposited therein from time to time, the Liquid Investments made pursuant to Section 9(C) and all Proceeds of such Liquid Investments. The security interests granted pursuant to clauses (i) and (ii) of the preceding sentence shall be for the benefit of all Secured Parties and the security interests granted pursuant to clause (iii) of the preceding sentence shall be solely for the benefit of the Issuing Bank and, to the extent that amounts held in the Segregated Collateral Account are subject to transfer to the Collateral Account pursuant to Section 9(C), for the benefit of all Secured Parties. Contemporaneously with the execution and delivery hereof, the Pledgor is delivering certificates representing the Schedule Shares in pledge hereunder. (b) In the event that any Issuer at any time issues any additional or substitute shares of capital stock of any class, the Pledgor will immediately pledge and deposit with the Agent certificates representing all such shares as additional security for the Secured Obligations of the Pledgor. All such shares constitute Pledged Stock and are subject to all provisions of this Agreement. (c) The Security Interests are granted as security only and shall not subject any Secured Party to, or transfer or in any way affect or modify, any obligation or liability of any Obligor or any of its Subsidiaries with respect to any of the Collateral or any transaction in connection therewith. 40 SECTION 4. Delivery of Pledged Stock. All certificates representing Pledged Stock delivered to the Agent by the Pledgor pursuant hereto shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with (if requested by the Agent) signatures guaranteed, and accompanied by any required transfer tax stamps, all in form and substance satisfactory to the Agent. SECTION 5. Further Assurances. (a) Each Obligor agrees that it will, at its expense and in such manner and form as the Agent may require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or desirable, or that the Agent may request, in order to create, preserve, perfect or validate any Security Interest or to enable the Agent to exercise and enforce its rights hereunder with respect to any of the Collateral. To the extent permitted by applicable law, each Obligor hereby authorizes the Agent to execute and file, in the name of such Obligor or otherwise, Uniform Commercial Code financing statements (which may be carbon, photographic, photostatic or other reproductions of this Agreement or of a financing statement relating to this Agreement) which the Agent in its sole discretion may deem necessary or appropriate to further perfect the Security Interests. (b) Each Obligor agrees that it will not change (i) its name, identity or corporate structure in any manner or (ii) the location of its chief executive office, in each case, unless it shall have given the Agent not less than 30 days' prior notice thereof. (c) The Pledgor will not permit any Issuer or any Subsidiary of any Issuer to (i) consolidate or merge with or into any other Person, unless (I) an Issuer is the surviving corporation, (II) all of the outstanding capital stock of such Issuer remains pledged hereunder and (III) no consideration other than capital stock of such Issuer is paid to any Person or (ii) sell, lease or otherwise transfer (including by merger or dividend or distribution), in one or more transactions (other than (I) transactions each of which, together with any related transactions, relates to assets with a fair market value of less than $10,000,000 and (II) assignments or grants of security interests in receivables permitted under clause (B) of the proviso to Section 5.12 of the Credit Agreement), assets with an aggregate fair market value of more than $50,000,000, unless either (x) prior to such sale, lease or transfer, the Borrower reduces the aggregate amount of the Commitments by at least 50% of the amount of the net proceeds received by the Borrower and its Subsidiaries in connection with such sale, lease or transfer or (y) the Borrower and its Subsidiaries grant to the Agent Liens on property reasonably acceptable to the Required Banks having an aggregate value (determined on the basis of an amount equal to (1) Consolidated EBITDA for such property for the four consecutive fiscal quarters most recently completed prior to the date upon which such Liens are granted for which financial statements have been delivered pursuant to Section 5.01(a) or (b) of the Credit Agreement (or, if such determination is being made prior to the delivery of financial statements for the fiscal 41 year ending December 31, 1999 pursuant to Section 5.01(a) of the Credit Agreement, the annualized Consolidated EBITDA for such property based on the 1999 fiscal quarters for which such financial statements have been delivered pursuant to Section 5.01(b) of the Credit Agreement) multiplied by (2) 7) at least equal to the value (as so determined) of the property so sold, leased or transferred; provided that if, prior to such sale, lease or transfer, the Borrower gives the Agent written notice that it, in good faith, intends to acquire or construct additional operating assets of the Issuers and their Subsidiaries in an amount at least equal to the net proceeds of such sale, lease or transfer within 180 days after the consummation of such sale, lease or transfer, then no such Commitment reduction or new Liens shall be required on or prior to the date of consummation of such sale, lease or transfer so long as the Borrower and its Subsidiaries (A) expend an amount at least equal to the amount of such net proceeds to acquire or construct operating assets owned by the Issuers and their Subsidiaries within 180 days following such consummation or (B) the Borrower shall reduce the Commitments or provide Liens in the amounts and in the manner provided in clauses (x) and (y) above on the earlier of the 180th day following such consummation and the date upon which it shall determine that it will not make the expenditures provided for in clause (A) above. SECTION 6. Record Ownership of Pledged Stock. The Agent may at any time or from time to time, in its sole discretion, cause any or all of the Pledged Stock to be transferred of record into the name of the Agent or its nominee. The Pledgor will promptly give to the Agent copies of any notices or other communications received by it with respect to Pledged Stock registered in the name of the Pledgor and the Agent will promptly give to the Pledgor copies of any notices and communications received by the Agent with respect to Pledged Stock registered in the name of the Agent or its nominee. SECTION 7. Right to Receive Distributions on Collateral. (a) Unless an Event of Default shall have occurred and be continuing, the Pledgor shall have the right to retain all dividends and other payments and distributions made upon or with respect to the Pledged Stock other than: (xv) dividends paid or payable other than in cash in respect of, or instruments or other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Stock, (xvi) dividends or other distributions paid or payable in cash in respect of any Pledged Stock in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, or (xvii) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Stock, all of which shall be forthwith delivered to the Agent to hold as Collateral. 42 (b) Upon the occurrence and during the continuance of an Event of Default all rights of the Pledgor to receive dividends and other payments and distributions which it would otherwise be authorized to receive and retain pursuant to Section 7(A) above shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to receive and hold as Collateral all Proceeds on the Collateral. (c) All amounts which are received by the Pledgor contrary to the provisions of this Section shall be received in trust for the benefit of the Agent, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Agent as Collateral in the same form as received (with any necessary endorsement). SECTION 8. Right to Vote Pledged Stock. Unless an Event of Default shall have occurred and be continuing, the Pledgor shall have the right, from time to time, to vote and to give consents, ratifications and waivers with respect to the Pledged Stock, and the Agent shall, upon receiving a written request from the Pledgor accompanied by a certificate signed by its principal financial officer stating that no Event of Default has occurred and is continuing, deliver to the Pledgor or as specified in such request such proxies, powers of attorney, consents, ratifications and waivers in respect of any of the Pledged Stock which is registered in the name of the Agent or its nominee as shall be specified in such request and be in form and substance satisfactory to the Agent. If an Event of Default shall have occurred and be continuing, the Agent shall have the right to the extent permitted by law and the Pledgor shall take all such action as may be necessary or appropriate to give effect to such right, to vote and to give consents, ratifications and waivers, and take any other action with respect to any or all of the Pledged Stock with the same force and effect as if the Agent were the absolute and sole owner thereof. The Agent will promptly notify the Borrower of any action taken by it pursuant to this Section, provided that the absence of such notification shall not limit any right of the Agent hereunder. SECTION 9. Collateral Account. (a) There is hereby established with the Agent a cash collateral account (the "COLLATERAL ACCOUNT") in the name and under the control of the Agent into which there shall be deposited from time to time the cash proceeds of the Collateral required to be delivered to the Agent pursuant to any provision of the Financing Documents, but not moneys received by the Agent for deposit in the Segregated Collateral Account. Any income received by the Agent with respect to the balance from time to time standing to the credit of the Collateral Account, including any interest or capital gains on Liquid Investments, shall remain, or be deposited, in the Collateral Account. All right, title and interest in and to the cash amounts on deposit from time to time in the Collateral Account together with any Liquid Investments from time to time made pursuant to Section 9(B) shall vest in the Agent, shall constitute part of the Collateral 43 hereunder and shall not constitute payment of the Secured Obligations until applied thereto as hereinafter provided. (b) Amounts on deposit in the Collateral Account shall be invested and re-invested from time to time in such Liquid Investments as the Borrower shall determine, which Liquid Investments shall be held in the name and be under the control of the Agent, provided that, if an Event of Default has occurred and is continuing, the Agent shall, if instructed by the Required Banks, liquidate any such Liquid Investments and apply or cause to be applied the proceeds thereof to the payment of the Secured Obligations in the manner specified in Section 14. For this purpose, "LIQUID INVESTMENTS" means Temporary Cash Investments; provided that (i) each Liquid Investment shall mature within 30 days after it is acquired by the Agent and (ii) in order to provide the Agent, for the benefit of itself, the Issuing Bank and the Banks, with a perfected security interest therein, each Liquid Investment shall be either: (xviii) evidenced by negotiable certificates or instruments, or if non-negotiable then issued in the name of the Agent, which (together with any appropriate instruments of transfer) are delivered to, and held by, the Agent or an agent thereof (which shall not be the Borrower or any of its affiliates) in the State of New York; or (xix) in book-entry form and issued by the United States and subject to pledge under applicable state law and Treasury regulations and as to which (in the opinion of counsel to the Agent) appropriate measures shall have been taken for perfection of the Security Interests. (c) Amounts otherwise distributable by the Agent in accordance with Section 14 in respect of any Outstanding Contingent Debt shall (in lieu of being distributed in accordance with Section 14), and amounts paid to the Agent pursuant to Section 2.07(g) of the Credit Agreement shall, be deposited in a segregated collateral account (the "SEGREGATED COLLATERAL ACCOUNT") for the benefit of the Issuing Bank. If all or any portion of any Outstanding Contingent Debt thereafter becomes due and payable and is not timely paid by any Obligor, the Agent, upon notice from the Issuing Bank of the amount so due and unpaid, shall pay to the Issuing Bank an amount equal to the product of (i) such due and unpaid amount multiplied by (ii) a fraction, the numerator of which is the balance in the Segregated Collateral Account immediately prior to such payment and the denominator of which is the aggregate principal amount of all Contingent Debt Outstanding immediately prior to the time at which the applicable Outstanding Contingent Debt became due and payable. If at any time when an Event of Default has occurred and is continuing the aggregate principal amount of all Outstanding Contingent Debt shall be reduced other than by such Contingent Debt becoming due, the excess of (i) the balance in the Segregated Collateral Account over (ii) an amount equal to the product of (A) the balance in the Segregated Collateral Account multiplied by (B) a fraction, the numerator of which is the aggregate principal amount of Contingent Debt Outstanding immediately after such reduction and the denominator of which is the aggregate principal amount of all Contingent 44 Debt Outstanding immediately prior to such reduction, shall be withdrawn from the Segregated Collateral Account and deposited in the Collateral Account for distribution in accordance with the terms of Section 14. If at any time when there is no Event of Default which has occurred and is continuing the balance in the Segregated Collateral Account exceeds the greater of (i) the aggregate Revolving Commitments of all Banks and (ii) the aggregate Revolving Exposures of all Banks, such excess shall be withdrawn from the Segregated Collateral Account and paid over to the Borrower. The Agent shall invest and reinvest moneys on deposit in the Segregated Collateral Account in such Liquid Investments as directed by the Issuing Bank or, in the absence of such direction, in such Liquid Investments as the Agent shall deem appropriate in its sole discretion and, in the absence of gross negligence or willful misconduct, the Agent shall not be responsible for any loss resulting from any such investment. The Agent shall pay into the Segregated Collateral Account any interest or other income derived from the investment or reinvestment of moneys from such account. SECTION 10. General Authority. Each Obligor hereby irrevocably appoints the Agent its true and lawful attorney, with full power of substitution, in the name of such Obligor, the Agent, the Issuing Bank, the Banks or otherwise, for the sole use and benefit of the Agent, the Issuing Bank and the Banks, but at the expense of such Obligor, to the extent permitted by law to exercise, at any time and from time to time while an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral: (xx) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof, (xxi) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto, (xxii) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Agent were the absolute owner thereof, and (xxiii) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; provided that the Agent shall give the applicable Obligor not less than ten days' prior written notice of the time and place of any sale or other intended disposition of any of the Collateral of such Obligor except any Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Agent and the Obligors agree that such notice constitutes "REASONABLE NOTIFICATION" within the meaning of Section 9-504(3) of the Uniform Commercial Code. 45 SECTION 11. Remedies upon Event of Default. If any Event of Default shall have occurred and be continuing, the Agent may exercise on behalf of the Banks all the rights of a secured party under the UCC (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Agent may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, (i) withdraw all cash and Liquid Investments in the Collateral Account and apply such cash and Liquid Investments and other cash, if any, then held by it as Collateral as specified in Section 14 and (ii) if there shall be no such cash or Liquid Investments or if such cash and Liquid Investments shall be insufficient to pay all the Secured Obligations in full, sell the Collateral or any part thereof at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Agent may deem satisfactory. Any Bank may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale). The Agent is authorized, in connection with any such sale, if it deems it advisable so to do, (i) to restrict the prospective bidders on or purchasers of any of the Pledged Stock to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Pledged Stock, (ii) to cause to be placed on certificates for any or all of the Pledged Stock or on any other securities pledged hereunder a legend to the effect that such security has not been registered under the Securities Act of 1933 and may not be disposed of in violation of the provisions of said Act, and (iii) to impose such other limitations or conditions in connection with any such sale as the Agent deems necessary or advisable in order to comply with said Act or any other law. Each Obligor covenants and agrees that it will execute and deliver such documents and take such other action as the Agent deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale the Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold absolutely and free from any claim or right of whatsoever kind, including any equity or right of redemption of any Obligor which may be waived, and each Obligor, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice (if any) of such sale required by Section 10 shall (1) in case of a public sale, state the time and place fixed for such sale, (2) in case of sale at a broker's board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Collateral, or the portion thereof so being sold, will first be offered for sale at such board or exchange, and (3) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Agent may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Agent 46 may determine. The Agent shall not be obligated to make any such sale pursuant to any such notice. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Agent until the selling price is paid by the purchaser thereof, but the Agent shall not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may again be sold upon like notice. The Agent, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. SECTION 12. Expenses. Each Obligor agrees that it will forthwith upon demand pay to the Agent: (i) the amount of any taxes which the Agent may have been required to pay by reason of the Security Interests or to free any of the Collateral from any Lien thereon, and (ii) the amount of any and all out-of-pocket expenses, including the fees and disbursements of counsel and of any other experts, which the Agent may incur in connection with (w) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank and value of any Security Interest, (x) the collection, sale or other disposition of any of the Collateral, (y) the exercise by the Agent of any of the rights conferred upon it hereunder or (z) any Default or Event of Default. Any such amount not paid on demand shall bear interest for each day until paid at 2% plus the rate applicable to Base Rate Loans for such day. SECTION 13. Limitation on Duty of Agent in Respect of Collateral. Beyond the exercise of reasonable care in the custody thereof, the Agent shall have no duty as to any Collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal 47 to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Agent in good faith. SECTION 14. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral and any cash held in the Collateral Account shall be applied (subject to Section 9(C)) by the Agent in the following order of priorities: first, to payment of the expenses of such sale or other realization, including reasonable compensation to agents and counsel for the Agent, and all expenses, liabilities and advances incurred or made by the Agent in connection therewith, and any other unreimbursed expenses for which the Agent or any Bank is to be reimbursed pursuant to Section 9.03 of the Credit Agreement or Section 12 hereof and unpaid fees owing to the Agent under the Credit Agreement; second, to the ratable payment of accrued but unpaid interest, commitment fees, letter of credit fees or commissions or similar charges in respect of the Secured Obligations in accordance with the provisions of the Credit Agreement; third, to the ratable payment of unpaid principal of the Secured Obligations; provided that for purposes of this clause, the unpaid principal amount of the Secured Obligations in respect of Contingent Debt at any time shall be deemed to be equal to the aggregate Letter of Credit Exposures of all Banks at such time less the balance held at such time in the Segregated Collateral Account; fourth, to the ratable payment of all other Secured Obligations, until all Secured Obligations shall have been paid in full; and finally, to payment to the applicable Obligor or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. SECTION 15. Concerning the Agent. The provisions of Article 7 of the Credit Agreement shall inure to the benefit of the Agent in respect of this Agreement and shall be binding upon the parties to the Credit Agreement in such respect. In furtherance and not in derogation of the rights, privileges and immunities of the Agent therein set forth: (a) The Agent is authorized to take all such action as is provided to be taken by it as Agent hereunder and all other action reasonably incidental thereto. As to any matters not expressly provided for herein (including, without limitation, the timing and 48 methods of realization upon the Collateral) the Agent shall act or refrain from acting in accordance with written instructions from the Required Banks or, in the absence of such instructions, in accordance with its discretion. (b) The Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Security Interests in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder. The Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Agreement by any Obligor. SECTION 16. Appointment of Co-Agents. At any time or times, in order to comply with any legal requirement in any jurisdiction, the Agent may appoint another bank or trust company or one or more other persons, either to act as co-agent or co-agents, jointly with the Agent, or to act as separate agent or agents on behalf of the Banks with such power and authority as may be necessary for the effectual operation of the provisions hereof and may be specified in the instrument of appointment (which may, in the discretion of the Agent, include provisions for the protection of such co-agent or separate agent similar to the provisions of Section 15). SECTION 17. Termination of Security Interests; Release of Collateral. (a) Upon the repayment in full of all Secured Obligations and the termination of the Commitments under the Credit Agreement, the Security Interests shall terminate and all rights to the Collateral shall revert to the Obligors. At any time and from time to time prior to such termination of the Security Interests, the Agent may release any of the Collateral with the prior written consent of the Required Banks (or, if required under Section 9.05 of the Credit Agreement, all the Banks). Upon any such termination of the Security Interests or release of Collateral, the Agent will, at the expense of the Borrower, execute and deliver to the Obligors such documents as the Borrower shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. (b) Upon the consummation of any merger of any Issuer into any other Issuer that is permitted under the Credit Agreement, the Agent will, upon the request and at the expense of the Borrower, deliver to the Borrower any certificates then held by it evidencing exclusively capital stock of such Issuer canceled or extinguished upon the consummation of such merger. SECTION 18. Notices. All notices hereunder shall be given, in the case of the Borrower or the Agent, in accordance with Section 9.01 of the Credit Agreement and, in the case of any other party hereto, in accordance with Section 5.01 of the Subsidiary Guaranty. 49 SECTION 19. Waivers, Non-Exclusive Remedies. No failure on the part of the Agent to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent of any right under the Credit Agreement or this Agreement preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the Credit Agreement are cumulative and are not exclusive of any other remedies provided by law. SECTION 20. Successors and Assigns. This Agreement is for the benefit of the Agent, the Issuing Bank and the Banks and their successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Agreement shall be binding on the Obligors and their respective successors and assigns. SECTION 21. Changes in Writing. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by or on behalf of the Obligors and the Agent with the consent of the Required Banks. SECTION 22. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN NEW YORK ARE GOVERNED BY THE LAWS OF SUCH JURISDICTION. EACH OBLIGOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OBLIGOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OBLIGOR AND THE AGENT HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 50 SECTION 23. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Agent and the Banks in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECTION 24. Effectiveness. This Agreement shall become effective immediately at such time as the Agent shall have received duly executed counterparts hereof signed by each Obligor and the Agent (or, in the case of any party as to which an executed counterpart hereof shall not have been received, the Agent shall have received, in form satisfactory to it, telegraphic, telex or other written confirmation from such party of the execution of a counterpart hereof by such party). SECTION 25. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 51 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written. BEVERLY ENTERPRISES, INC. By: -------------------------- Name: Title: BEVERLY HEALTH AND REHABILITATION SERVICES, INC. By: -------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: -------------------------- Name: Title: 52 Schedule I to Pledge Agreement Pledged Stock
NUMBER OF NUMBER PERCENTAGE ISSUER HOLDER CLASS OF SHARES OF SHARES OWNED BY STOCK AUTHORIZED ISSUED HOLDER Beverly Enterprises-Alabama, Inc. Beverly Health and Rehabilitation Services, Inc. Common 1,000,000 10,000 100% Beverly Enterprises-Arkansas, Inc. Beverly Health and Rehabilitation Services, Inc. Common 10,000 10,000 100% Beverly Enterprises-Florida, Inc. Beverly Health and Rehabilitation Services, Inc. Common 1,000,000 10,000 100% Beverly Enterprises-Georgia, Inc. Beverly Health and Rehabilitation Services, Inc. Common 10,000 10,000 100% Beverly Enterprises-Massachusetts, Inc. Beverly Health and Rehabilitation Services, Inc. Common 10,000 10,000 100% Beverly Enterprises-Minnesota, Inc. Beverly Health and Rehabilitation Services, Inc. Common 1,000,000 10,000 100% Beverly Enterprises-Mississippi, Inc. Beverly Health and Rehabilitation Services, Inc. Common 1,000,000 10,000 100% Beverly Enterprises-Missouri, Inc. Beverly Health and Rehabilitation Services, Inc. Common 10,000 10,000 100% Beverly Enterprises-Nebraska, Inc. Beverly Health and Rehabilitation Services, Inc. Common 10,000 10,000 100% Beverly Enterprises-North Carolina, Inc. Beverly Health and Rehabilitation Services, Inc. Common 1,000,000 10,000 100% Beverly Enterprises-Ohio, Inc. Beverly Health and Rehabilitation Services, Inc. Common 10,000 10,000 100% Beverly Enterprises-Pennsylvania, Inc. Beverly Health and Rehabilitation Services, Inc. Common 10,000 10,000 100% Beverly Enterprises-South Carolina, Inc. Beverly Health and Rehabilitation Services, Inc. Common 10,000 10,000 100% South Dakota-Beverly Enterprises, Inc. Beverly Health and Rehabilitation Services, Inc. Common 10,000 10,000 100% Beverly Enterprises-Virginia, Inc. Beverly Health and Rehabilitation Services, Inc. Common 50,000 10,000 100% Beverly Enterprises-Wisconsin, Inc. Beverly Health and Rehabilitation Services, Inc. Common 1,000,000 10,000 100%
53 SCHEDULE II The chief executive office of the Obligors is located at: Prior to October 15, 1999: 5111 Rogers Avenue, Suite 40-A Fort Smith, Arkansas 72919-0155 On and after October 15, 1999: Beverly Corporate Center 1000 Beverly Way Fort Smith, Arkansas 72919 EX-10.2 3 1ST AMENDMENT & RESTATEMENT OF TRUST INDENTURE 1 EXHIBIT 10.2 FIRST AMENDMENT AND RESTATEMENT dated as of June 1, 1999 of TRUST INDENTURE dated as of December 1, 1994 FROM BEVERLY FUNDING CORPORATION (as Issuer) TO THE CHASE MANHATTAN BANK (as Trustee) 2 TABLE OF CONTENTS
Page ---- PRELIMINARY STATEMENT.........................................................1 GRANTING CLAUSES..............................................................1 ARTICLE I DEFINITIONS SECTION 1.1. Definitions.................................................1 ARTICLE II THE HEALTH CARE NOTES SECTION 2.1. Forms Generally.............................................9 SECTION 2.2. Terms of Health Care Notes.................................10 SECTION 2.3. Denominations; Health Care Notes Issuable in Series........10 SECTION 2.4. Execution, Authentication, and Delivery....................11 SECTION 2.5. Temporary Health Care Notes................................12 SECTION 2.6. Registration; Registration of Transfer and Exchange........12 SECTION 2.7. Mutilated, Destroyed, Lost, or Stolen Health Care Notes....13 SECTION 2.8. Persons Deemed Owner.......................................14 SECTION 2.9. Payment of Principal and Interest; Principal and Interest Rights Preserved....................................14 SECTION 2.10. Cancellation..............................................16 SECTION 2.11. Amount and Delivery of Health Care Notes..................16 SECTION 2.12. Book-Entry Health Care Notes..............................18 SECTION 2.13. Notices to Clearing Agency................................19 SECTION 2.14. Definitive Notes..........................................19 SECTION 2.15. Transfer Restrictions.....................................20 ARTICLE III COVENANTS SECTION 3.1. Payment of Principal and Interest..........................22 SECTION 3.2. Maintenance of Office or Agency............................22 SECTION 3.3. Money for Payments To Be Held in Trust.....................23 SECTION 3.4. Opinions as to Trust Estate................................24 SECTION 3.5. Performance of Obligations: Servicing of Receivables.......25 SECTION 3.6. Annual Statement as to Compliance..........................26 SECTION 3.7. Purchase of Receivables....................................27 SECTION 3.8. Lines of Business; Change of Location......................27 SECTION 3.9. Additional Stock...........................................27
ii 3 SECTION 3.10. Maintenance of Existence..................................27 SECTION 3.11. Compliance with Laws......................................27 SECTION 3.12. Notice of Proceedings.....................................28 SECTION 3.13. Limitation on Debt........................................28 SECTION 3.14. Negative Pledge...........................................28 SECTION 3.15. Consolidations, Mergers and Sales of Assets...............28 SECTION 3.16. Restricted Payments.......................................28 SECTION 3.17. Corporate Existence.......................................29 SECTION 3.18. Books and Records.........................................31 SECTION 3.19. Notice of Events of Default or Defaults...................31 SECTION 3.20. Representations and Warranties of the Issuer Relating to the Issuer..........................................31 SECTION 3.21. Representations and Warranties of the Issuer Relating to this Indenture, any Series Supplement, the Related Documents and the Purchased Receivables.............33 SECTION 3.22. Rating Agency Information.................................34 SECTION 3.23. Subordination of Officer and Director Indemnification.....34 ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1. Satisfaction and Discharge of Indenture....................34 SECTION 4.2. Application of Trust Money.................................35 SECTION 4.3. Repayment of Moneys Held by Paying Agent...................35 ARTICLE V REMEDIES SECTION 5.1. Events of Default..........................................35 SECTION 5.2. Acceleration of Maturity: Rescission and Annulment.........37 SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.............................................38 SECTION 5.4. Additional Remedies........................................40 SECTION 5.5. Appointment of Servicers; Collection of Medicaid, Medicare and Department of Veterans' Affairs Receivables; Sale of Purchased Receivables.......................42 SECTION 5.6. Limitation of Suits........................................42 SECTION 5.7. Unconditional Rights of Health Care Noteholders To Receive Principal and Interest........................43 SECTION 5.8. Restoration of Rights and Remedies.........................43 SECTION 5.9. Rights and Remedies Cumulative.............................44 SECTION 5.10. Delay or Omission Not a Waiver............................44 SECTION 5.11. Control by Health Care Noteholders........................44 SECTION 5.12. Waiver of Past Defaults...................................45 SECTION 5.13. Undertaking for Costs.....................................45 SECTION 5.14. Waiver of Stay or Extension Laws..........................45 SECTION 5.15. Action on Health Care Notes...............................46 SECTION 5.16. Performance and Enforcement of Certain Obligations........46 SECTION 5.17. Application of Proceeds...................................46
iii 4 ARTICLE VI THE TRUSTEE SECTION 6.1. Certain Duties and Responsibilities........................47 SECTION 6.2. Notice of Defaults and Amortization Events.................49 SECTION 6.3. Certain Rights of the Trustee..............................49 SECTION 6.4. Not Responsible for Recitals or Issuance of Health Care Notes...............................................50 SECTION 6.5. May Hold Health Care Notes.................................51 SECTION 6.6. Interest on Money Held in Trust............................51 SECTION 6.7. Compensation and Reimbursement.............................52 SECTION 6.8. Corporate Trustee Required; Eligibility....................52 SECTION 6.9. Resignation and Removal; Appointment of Successor..........53 SECTION 6.10. Acceptance of Appointment by Successor Trustee............54 SECTION 6.11. Merger, Conversion, Consolidation or Succession to Business of Trustee.................................55 SECTION 6.12. Co-Trustee and Separate Trustee...........................55 SECTION 6.13. Reports to Holders of Health Care Notes...................57 ARTICLE VII ACCOUNTS, DISBURSEMENTS AND RELEASES SECTION 7.1. Collection of Money........................................57 SECTION 7.2. Trust Accounts.............................................57 SECTION 7.3. General Provisions Regarding Accounts......................60 SECTION 7.4. Release of Trust Estate....................................61 SECTION 7.5. Opinion of Counsel.........................................61 ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION 8.1. Supplemental Indentures Without Consent of Health Care Noteholders.........................................62 SECTION 8.2. Supplemental Indentures with Consent of Health Care Noteholders.........................................64 SECTION 8.3. Execution of Supplemental Indentures or Amendments to Sale and Servicing Agreement.............................65 SECTION 8.4. Effect of Supplemental Indenture...........................65 SECTION 8.5. Reference in Health Care Notes to Supplemental Indentures..66 SECTION 8.6. Amendments of Sale and Servicing Agreement Without Consent of Health Care Noteholders..........................66 SECTION 8.7. Amendment of Sale and Servicing Agreement With Consent of Health Care Noteholders.............................67
iv 5 ARTICLE IX OPTIONAL REDEMPTION OF HEALTH CARE NOTES SECTION 9.1. Optional Redemption by Issuer..............................67 SECTION 9.2. Form of Optional Redemption Notice.........................68 SECTION 9.3. Health Care Notes Payable on Redemption Date or Optional Partial Optional Redemption Date....................69 SECTION 9.4. Sale of Collateral to Effect Redemption....................69 ARTICLE X MISCELLANEOUS SECTION 10.1. Compliance Certificates and Opinions, etc.................70 SECTION 10.2. Form of Documents Delivered to Trustee....................71 SECTION 10.3. Acts of Health Care Noteholders...........................71 SECTION 10.4. Notices to Health Care Noteholders; Waiver................72 SECTION 10.5. Alternative Payment and Notice Provisions.................73 SECTION 10.6. Effect of Headings and Table of Contents..................73 SECTION 10.7. Successors and Assigns....................................73 SECTION 10.8. Separability..............................................73 SECTION 10.9. Benefits of Indenture.....................................73 SECTION 10.10. [Intentionally Omitted]..................................73 SECTION 10.11. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL................................73 SECTION 10.12. Counterparts.............................................74 SECTION 10.13. Nonpetition Covenant.....................................74 SECTION 10.14. Confidentiality..........................................74 SECTION 10.15. Effect on Existing Indenture.............................74
v 6 FIRST AMENDMENT AND RESTATEMENT, dated as of June 1, 1999 (this "Indenture"), of the TRUST INDENTURE, dated as of December 1, 1994 (as heretofore amended or otherwise modified, the "Existing Indenture"), between BEVERLY FUNDING CORPORATION, a Delaware corporation (the "Issuer"), and THE CHASE MANHATTAN BANK (as successor to CHEMICAL BANK), a New York banking corporation, as trustee (the "Trustee"). PRELIMINARY STATEMENT The Issuer has duly authorized the execution and delivery of this Indenture to provide for one or more Series of Health Care Notes, issuable as provided in this Indenture. Each such Series of Health Care Notes will be issued only under a separate Series Supplement to this Indenture duly executed and delivered by the Issuer and the Trustee. The Issuer is entering into this Indenture, and the Trustee is accepting the trusts created hereby, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. GRANTING CLAUSES For the consideration recited above and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Issuer, and as security for the due and punctual payment in full of the Obligations, the Issuer hereby pledges, assigns, transfers, sets over, conveys, hypothecates, delivers and confirms the Collateral, all and singular, to the Trustee, and hereby grants to the Trustee a continuing first and prior security interest in, and general first lien on, the Collateral. The Issuer further assigns to the Trustee all of the Issuer's right to take, or consent to, any action, inaction, condition or circumstance under, or with respect to, any or all of the Collateral. Until payment in full of all the Obligations, the pledge, assignment, transfer, setting over, conveyance, hypothecation, delivery and confirmation of, and security interest in, the Collateral pursuant hereto shall continue in full force and effect. The security interests granted pursuant hereto (and the rights and powers granted to the Trustee hereunder with respect thereto or to the Collateral) are granted as security only, and shall not subject the Trustee to, or transfer or in any way affect or modify, any obligation or liability of the Issuer under any of the Collateral or any transaction which gave rise thereto. ARTICLE I DEFINITIONS SECTION 1.1 Definitions. For all purposes of this Indenture, unless otherwise specified in the applicable Series Supplement, or as the context may otherwise require, capitalized 1 7 terms used herein shall have the respective meanings set forth below, or if not defined below, the respective meanings set forth in the Sale and Servicing Agreement: "Accumulation Subaccount" has the meaning specified in Section 7.2(b). "Act" has the meaning specified in Section 10.3(a). "Aggregate Outstanding Amount" means, with respect to any Series, the principal amount of all Outstanding Health Care Notes of such Series at the date of determination. "Authorized Officer" means any officer of the Issuer who is authorized to act for the Issuer in matters relating hereto and who is identified on the list of Authorized Officers delivered to the Trustee on the date hereof (as such list may be modified or supplemented by the Issuer from time to time thereafter). "Book-Entry Health Care Notes" means a beneficial interest in the Health Care Notes, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 2.12. "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions or trust companies in New York, New York, Fort Smith, Arkansas or the city in which the Corporate Trust Office is located, are authorized or obligated by law, regulation or executive order to remain closed. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means, with respect to any Series of Health Care Notes, the date of issuance of such Series specified in the applicable Series Supplement. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and Treasury Regulations promulgated thereunder. "Collateral" shall mean all of the Issuer's right, title and interest in, to and under the following, whether now owned or hereafter acquired: (a) the Sale and Servicing Agreement and the other Related Documents, (b) the Purchased Receivables and all accounts, chattel paper, contract rights, instruments, general intangibles and other obligations of any kind consisting of, arising from, or relating to the Purchased Receivables and all rights in and to all other Contractual Obligations securing or otherwise relating to the Purchased Receivables, (c) all bank accounts (including, without 2 8 limitation, the Collection Account and the Distribution Account (and all subaccounts thereof) and the Expense Account) and all amounts, instruments, Securities and investments credited to, deposited or held in any such account, (d) the Records, (e) all Eligible Investments and (f) all additions and accessions to, and all substitutions or replacements for, and all payments, dividends, interest, cash, instruments, proceeds, products, distributions (whether in money, Securities or other property) and collections from or with respect to any or all of the foregoing. "Collection Account" has the meaning specified in Section 7.2(a). "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution and delivery of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body then performing such duties. "Corporate Trust Office" means the principal corporate trust office of the Trustee located at 450 West 33rd Street, 14th Floor, New York, New York 10001 Attention: Capital Markets Fiduciary Services; or such other address as the Trustee may designate from time to time by notice to the Health Care Noteholders and the Issuer, or the principal corporate trust office of any successor Trustee (or such other addresses as a successor Trustee may designate from time to time by notice to the Health Care Noteholders and the Issuer). "Debt" of any Person means, at any date, without duplication: (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business and payable no more than 120 days from the date of incurrence thereof, (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person under take-or-pay or similar contracts, (vi) all obligations of such Person to reimburse or indemnify the issuer of a letter of credit or Guaranty for drawings or payments thereunder, (vii) all obligations of such Person in respect of interest rate swap agreements, currency swap agreements and other similar agreements and arrangements designed to protect such person against adverse movements in interest rates or foreign exchange rates, (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; and (ix) all Debt of others Guaranteed by such Person; provided, that, the obligations created pursuant to the daily estimated settlement procedures set forth in Article VI of the Sale and Servicing Agreement shall not constitute "Debt". "Default" means any occurrence that is, or with notice or the lapse of time or both would become, an Event of Default. "Definitive Notes" has the meaning specified in Section 2.12. "Distribution Account" has the meaning specified in Section 7.2(b). 3 9 "DTC Agreement" has the meaning, with respect to any Series, specified in the applicable Series Supplement. "Event of Default" has the meaning specified in Section 5.1. "Executive Officer" means, with respect to any corporation, the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, President, any Vice President, the Secretary or the Treasurer of such corporation; and with respect to any partnership, any general partner thereof. "Existing Indenture" has the meaning specified in the preamble. "Expense Account" has the meaning specified in Section 7.2(c). "Expense Subaccount" has the meaning specified in Section 7.2(b). "Final Maturity Date" means, with respect to any Health Care Note of any Series, the date, if any, specified in such Health Care Note and the applicable Series Supplement as the fixed date on which the unpaid principal amount of such Health Care Note is due and payable. "Guaranty" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person or in any manner providing for the payment of any Debt of any other Person or otherwise protecting the holder of such Debt against loss (whether by agreement to keep-well, to purchase assets, goods, securities or services, or to maintain financial statement condition or otherwise); provided, that, the term "Guaranty" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guaranty" used as a verb has a corresponding meaning. "Health Care Note Owner" means, with respect to a Book-Entry Health Care Note, the Person who is the beneficial owner of such Book-Entry Health Care Note, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly or as an indirect participant, in accordance with the rules of such Clearing Agency). "Health Care Noteholder" means the Person in whose name a Health Care Note is registered. "Health Care Notes" means the medium term health care-related receivables backed notes of one or more Series each authorized by, and authenticated and delivered under, this Indenture and the related Series Supplements. "Health Care Note Register" and "Health Care Note Registrar" have the respective meanings specified in Section 2.6. "Holder" has the same meaning specified in the definition of "Health Care Noteholder" in this Section 1.1. 4 10 "Indenture" means this instrument as originally executed and, as from time to time supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, as so supplemented or amended, or both, and shall include the forms and terms of the Health Care Notes established hereunder. The words "herein", "hereof", "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Independent" means, when used with respect to any specified Person, that the Person (1) is in fact independent of the Issuer and any other obligor upon the Health Care Notes and any other Person with an ownership interest in the Trust Estate and of any Affiliate of any of the foregoing Persons, (2) does not have any direct financial interest or any material indirect financial interest in the Issuer or in any such other obligor or any such other Person with such an ownership interest in the Trust Estate or in any Affiliate of any of the foregoing Persons, and (3) is not connected with the Issuer or any such other obligor or any Affiliate of the Issuer or any such other Person with such an ownership interest in the Trust Estate as an officer, employee, promoter, underwriter, trustee, partner, director, or person performing similar functions. "Independent Certificate" means a certificate or opinion to be delivered to the Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 10.1 hereof, made by an Independent appraiser or other expert appointed by an Issuer Order, and such opinion or certificate shall state that the signer has read the definition of "Independent" in the Indenture and that the signer is Independent within the meaning thereof. "Interest Accrual Period" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Issuer Order" and "Issuer Request" means a written order or request signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Trustee. "Maturity" means, with respect to any Series of Health Care Notes, the date on which the unpaid principal of such Series of Health Care Notes becomes due and payable, whether at the Final Maturity Date or by declaration of acceleration, call for redemption, or otherwise. "Maximum Rate" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Minimum Denomination" means, with respect to any Health Care Note, the minimum denomination therefor specified in the applicable Series Supplement, which minimum denomination shall not be less than $1,000,000. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. 5 11 "Obligations" means all principal, premium, if any, interest on, and any other amounts payable with respect to, all Health Care Notes of all Series. "Officer's Certificate" means a certificate signed by any Authorized Officer of the Issuer, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 10.1 hereof, and delivered to the Trustee. Unless otherwise specified, any reference in this Indenture to an Officer's Certificate shall be to an Officer's Certificate of any Authorized Officer of the Issuer. "Opinion of Counsel" means one or more written opinions of counsel who may, except as otherwise expressly provided in this Indenture, be counsel for the Issuer and who shall be satisfactory to the Trustee, and which opinion shall be addressed to the Trustee as Trustee, shall comply with any applicable requirements of Section 10.1 hereof, and shall be in form and substance satisfactory to the Trustee. "Outstanding" means, as of the date of determination, all Health Care Notes theretofore authenticated and delivered under the Indenture except: (i) Health Care Notes theretofore canceled by the Health Care Note Registrar or delivered to the Health Care Note Registrar for cancellation; (ii) Health Care Notes or portions thereof for whose payment money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Health Care Notes (provided, however, that if such Health Care Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor, satisfactory to the Trustee, has been made); and (iii) Health Care Notes in exchange for or in lieu of which other Health Care Notes have been authenticated and delivered pursuant to this Indenture unless proof satisfactory to the Trustee is presented that any such Health Care Notes are held by a bona fide purchaser; provided that in determining whether the Holders of the requisite Aggregate Outstanding Amount of the Health Care Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Health Care Notes owned by the Issuer, any other obligor upon the Health Care Notes, any other Person with an ownership interest in the Trust Estate or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Health Care Notes that a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Health Care Notes so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Health Care Notes and that the pledgee is not the Issuer, any other obligor upon the Health Care Notes, any other Person with an ownership interest in the Trust Estate or any Affiliate of any of the foregoing Persons. 6 12 "Optional Partial Redemption" means a redemption of a portion of the Health Care Notes of a Series at the applicable Redemption Price pursuant to Section 9.1 (b). "Optional Partial Redemption Date" means any Distribution Date (including any Payment Date) on which the Trustee, on behalf of the Issuer, redeems Health Care Notes pursuant to an Optional Partial Redemption. "Paying Agent" means the Trustee or any other Person (which other Person shall have a short-term deposit rating in the highest rating category issued by the Rating Agency) that meets the eligibility standards for the Trustee specified in Section 6.8 and is authorized by the Issuer to make the payments to and distributions from the Collection Account, the Distribution Account (and all subaccounts thereof) and the Expense Account, including, without limitation, payment of principal of and/or interest on the Health Care Notes on behalf of the Issuer. "Payment Date" means, with respect to any Series, the date or dates specified as Payment Dates in the applicable Series Supplement. "Payment Subaccount" has the meaning specified in Section 7.2(b). "Person" means any individual, corporation, estate, partnership, joint venture, association, joint stock company, trust (including any beneficiary thereof), unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Health Care Note" means, with respect to any particular Health Care Note, every previous Health Care Note evidencing all or a portion of the same debt as that evidenced by such particular Health Care Note; and, for the purpose of this definition, any Health Care Note authenticated and delivered under Section 2.7 in lieu of a mutilated, lost, destroyed, or stolen Health Care Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed, or stolen Health Care Note. "Proceeding" means any suit in equity, action at law, or other judicial or administrative proceeding. "Rating Agency" means Moody's. "Record Date" means, with respect to a Payment Date, the close of business on the last day of the calendar month preceding such Payment Date. "Redemption Date" means, with respect to any Series, the Payment Date specified by the Issuer for the redemption of the Health Care Notes of such Series pursuant to Section 9.1. 7 13 "Redemption Price" means, at any time with respect to any Series, the then applicable redemption price as specified in the applicable Series Supplement. "Registered Holder" means the Person in whose name a Health Care Note is registered on the Health Care Note Register on the applicable Record Date. "Related Documents" means the Sale and Servicing Agreement, the Selling Subsidiary Agreement, the DTC Agreements, each Series Supplement and other documents and certificates delivered in connection therewith. "Required Reserve" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Reserve Deficiency" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Reserve Subaccount" has the meaning specified in Section 7.2(b). "Responsible Officer" means, when used with respect to the Trustee, any officer of the Trustee assigned by the Trustee to administer its corporate trust affairs and having direct responsibility for the administration of this Agreement, including any Vice President, Assistant Vice President, Trust Officer, any Assistant Secretary, any trust officer or any officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers. "Restricted Payment" has the meaning specified in Section 3.16. "Sale and Servicing Agreement" means the Second Amendment and Restatement, dated as of June 1, 1999, of the Master Sale and Servicing Agreement, originally dated as of December 1, 1990, among the Issuer, Beverly Enterprises Inc. and various wholly-owned subsidiaries of Beverly Enterprises Inc., as from time to time amended, supplemented or modified. "Scheduled Amortization Date" means, with respect to any Health Care Note of any Series, the date, if any, specified in such Health Care Note and the applicable Series Supplement as the fixed date on which the unpaid principal amount, if any, of such Health Care Note begins to be amortized. "Series" means each series of Health Care Notes issued and authenticated pursuant to this Indenture and a related Series Supplement. "Series Alternate Note Interest Rate" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Series Base Reserve Percent" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. 8 14 "Series Dynamic Reserve Floor Percent" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Series Interest Rate Spread" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Series Liquidation Payment Frequency" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Series Note Interest Rate" means, with respect to any Series, the annual rate at which interest accrues on the Health Care Notes of such Series, as specified (or, in the case of a floating interest rate, determined as specified) in the related Series Supplement. "Series Special Obligations" means all amounts payable to the Health Care Noteholders of any Series specified as such in the applicable Series Supplement. "Series Rate Increment" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Series Rating Multiple" shall have the meaning, with respect to any Series, specified in the applicable Series Supplement. "Series Supplement" means an indenture supplemental to this Indenture entered into pursuant to Section 2.11(8) that authorizes a particular Series of Health Care Notes. "State" means any one of the 50 States of the United States of America, or the District of Columbia. "Trust Estate" means the Collateral and all other money, instruments, and other property that are subject or intended to be subject to the lien and security interest of this Indenture. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or any similar Federal statute hereafter enacted. "UCC" means, unless the context otherwise requires, the Uniform Commercial Code, as in effect in the jurisdiction, relevant to the related Purchased Receivables, as amended from time to time. ARTICLE II THE HEALTH CARE NOTES SECTION 2.1. Forms Generally. The Health Care Notes of any Series and the Trustee's certificate of authentication shall be in substantially the form set forth in the related Series 9 15 Supplement, with such appropriate insertions, omissions, substitutions, and other variations as are required or permitted by this Indenture or by the related Series Supplement and may have such letters, numbers, or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange on which the Health Care Notes may be listed, or as may, consistently herewith, be determined by the officers executing such Health Care Notes, as evidenced by their execution of the Health Care Notes. Any portion of the text of any Health Care Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Health Care Note. The Definitive Notes shall be printed, lithographed, or engraved or produced by any combination of these methods (with or without steel engraved borders) or may be produced in any other manner permitted by the rules of any securities exchange on which the Health Care Notes may be listed, all as determined by the officers executing such Health Care Notes, as evidenced by their execution of such Health Care Notes. SECTION 2.2. Terms of Health Care Notes. The terms of the Health Care Notes contained in any Series Supplement are part of the terms of such Series Supplement and this Indenture. SECTION 2.3. Denominations; Health Care Notes Issuable in Series. The Health Care Notes shall be issuable as registered Health Care Notes in the Minimum Denomination specified in the applicable Series Supplement and, except as otherwise provided in such Series Supplement, in integral multiples of $1,000. The Health Care Notes may, at the election of and as authorized by an Authorized Officer of the Issuer, be issued in one or more Series, and shall be designated generally as the "Health Care Notes" of the Issuer, with such further particular designations added or incorporated in such title for the Health Care Notes of any particular Series as an Authorized Officer of the Issuer may determine. Each Health Care Note shall bear upon its face the designation so selected for the Series to which it belongs. The Health Care Notes of each Series are and will be equally and ratably secured by the Collateral and each Series of Health Care Notes will rank pari passu with each other Series of Health Care Notes issued hereunder. All Health Care Notes of the same Series shall be identical in all respects except for the denominations thereof. All Health Care Notes of a particular Series issued under this Indenture shall be in all respects equally and ratably entitled to the benefits hereof without preference, priority, or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Indenture. Each Series of Health Care Notes shall be created by a Series Supplement authorized by an Authorized Officer of the Issuer and establishing the terms and provisions of such Series. The several Series may differ as between Series, in respect of any of the following matters: (1) designation of the Series; 10 16 (2) its Series Note Interest Rate (or, in the case the Series Note Interest Rate is to be a floating rate, the method of determining the Series Note Interest Rate and its Maximum Rate, if any) and the Series Alternate Note Interest Rate, if applicable; (3) its Payment Dates; (4) its Scheduled Amortization Date and its Final Maturity Date; (5) the place or places for the payment of principal; (6) its Scheduled Accumulation Date, Accumulation Period, Required Reserve, and its Reserve Deficiency; (7) the authorized denominations and whether such Health Care Notes shall be Book-Entry Health Care Notes; (8) the provisions for optional redemption by the Issuer; (9) its amortization terms; (10) the definitions of terms related to such Series to be specified in the related Series Supplement pursuant to Article I; and (11) any other provisions expressing or referring to the terms and conditions upon which the Health Care Notes of the applicable Series are to be issued under this Indenture that are not in conflict with the provisions of this Indenture and that do not prevent the satisfaction of the Rating Agency Condition upon the issuance of the Health Care Notes of such Series. SECTION 2.4. Execution, Authentication, and Delivery. The Health Care Notes shall be executed on behalf of the Issuer by any one of its Authorized Officers. The signature of any such Authorized Officers on the Health Care Notes may be manual or facsimile. Health Care Notes bearing the manual or facsimile signature of individuals who were at any time Authorized Officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Health Care Notes or did not hold such offices at the date of such Health Care Notes. At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Health Care Notes executed by the Issuer to the Trustee for authentication and delivery pursuant to an Issuer Order; and the Trustee shall authenticate and deliver such Health Care Notes as in this Indenture provided and not otherwise. Each Health Care Note shall be dated as of the date of its authentication. 11 17 No Health Care Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Health Care Note a certificate of authentication substantially in the form provided for in the related Series Supplement executed by the Trustee by the manual signature of one of its authorized signatories, and such certificate upon any Health Care Note shall be conclusive evidence, and the only evidence, that such Health Care Note has been duly authenticated and delivered hereunder. SECTION 2.5. Temporary Health Care Notes. Pending the preparation of Definitive Notes, the Issuer may execute, and upon receipt of an Issuer Order the Trustee shall authenticate and deliver, temporary Health Care Notes which are printed, lithographed, typewritten, mimeographed, or otherwise produced, in any denomination, substantially of the tenor of the Definitive Notes in lieu of which they are issued and with such variations not inconsistent with the terms of this Indenture as the Authorized Officers executing such Health Care Notes may determine, as evidenced by their execution of such Health Care Notes. If temporary Health Care Notes are issued, the Issuer will cause Definitive Notes to be prepared without unreasonable delay. After the preparation of Definitive Notes, the temporary Health Care Notes shall be exchangeable for Definitive Notes upon surrender of the temporary Health Care Notes at the office or agency of the Issuer to be maintained as provided in Section 3.2 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Health Care Notes, the Issuer shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of Definitive Notes of authorized denominations. Until so exchanged, the temporary Health Care Notes shall in all respects be entitled to the same benefits under this Indenture as Definitive Notes. SECTION 2.6. Registration; Registration of Transfer and Exchange. The Issuer shall cause to be kept a register (the "Health Care Note Register") in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Health Care Notes and the registration of transfers of Health Care Notes. Unless otherwise specified in a Series Supplement, the Trustee shall be "Health Care Note Registrar" for the purpose of registering Health Care Notes and transfers of Health Care Notes as herein provided. Upon any resignation of any Health Care Note Registrar, the Issuer shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Health Care Note Registrar. If a Person other than the Trustee is appointed by the Issuer as Health Care Note Registrar, the Issuer shall give the Trustee prompt written notice of the appointment of such Health Care Note Registrar and of the location, and any change in the location, of the Health Care Note Register, and the Trustee shall have the right to inspect the Health Care Note Register at all reasonable times and to obtain copies thereof, and the Trustee shall have the right to rely upon and shall be protected in relying upon a certificate executed on behalf of the Health Care Note Registrar by an Executive Officer thereof as to the names and addresses of the Holders of the Health Care Notes and the principal amounts and number of such Health Care Notes. Upon surrender for registration of transfer of any Health Care Note at the office or agency of the Issuer to be maintained as provided in Section 3.2 hereof, the Issuer shall execute, 12 18 and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Health Care Notes in any authorized denominations, of a like Series and aggregate principal amount. At the option of the Holder thereof, Health Care Notes may be exchanged for other Health Care Notes in any authorized denominations, of a like Series and aggregate principal amount, upon surrender of the Health Care Notes to be exchanged at such office or agency. Whenever any Health Care Notes are so surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and deliver, the Health Care Notes which the Health Care Noteholder making the exchange is entitled to receive. All Health Care Notes issued upon any registration of transfer or exchange of Health Care Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Health Care Notes surrendered upon such registration of transfer or exchange. Every Health Care Note presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing, with such signature guaranteed by a commercial bank or trust company located, or having a correspondent located, in The City of New York or the city in which the Corporate Trust Office is located, or by a member firm of a national securities exchange, and such other documents as the Trustee may require. No service charge shall be made to a Holder for any registration of transfer or exchange of Health Care Notes, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Health Care Notes, other than exchanges pursuant to Section 2.5 hereof not involving any transfer. SECTION 2.7. Mutilated, Destroyed, Lost, or Stolen Health Care Notes. If (i) any mutilated Health Care Note is surrendered to the Trustee, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Health Care Note, and (ii) there is delivered to the Trustee such security or indemnity as may be required by it to hold the Issuer and the Trustee harmless, then, in the absence of notice to the Issuer, the Health Care Note Registrar or the Trustee that such Health Care Note has been acquired by a bona fide purchaser, the Issuer shall execute and upon its request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Health Care Note, a new Health Care Note of like Series, tenor and principal amount, bearing a number not contemporaneously outstanding; provided, however, that if any such destroyed, lost or stolen Health Care Note, but not a mutilated Health Care Note, shall have become or within seven days shall be due and payable, or shall have been selected or called for redemption, instead of issuing a new Health Care Note, the Issuer may pay such destroyed, lost or stolen Health Care Note when so due or payable or upon the Redemption Date without surrender thereof. If, after the delivery of such new Health Care Note or payment of a destroyed, lost or stolen 13 19 Health Care Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of the original Health Care Note in lieu of which such new Health Care Note was issued presents for payment such original Health Care Note, the Issuer and the Trustee shall be entitled to recover such new Health Care Note (or such payment) from the Person to whom it was delivered or any Person taking such new Health Care Note from such Person to whom such new Health Care Note was delivered or any assignee of such Person, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer or the Trustee in connection therewith. Upon the issuance of any new Health Care Note under this Section 2.7, the Issuer may require the payment by the Holder of such Health Care Note of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Trustee) connected therewith. Every new Health Care Note issued pursuant to this Section 2.7 in replacement of any mutilated, destroyed, lost or stolen Health Care Note shall constitute an original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Health Care Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Health Care Notes duly issued hereunder. The provisions of this Section 2.7 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Health Care Notes. SECTION 2.8. Persons Deemed Owner. Prior to due presentment for registration of transfer of any Health Care Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Person in whose name any Health Care Note is registered (as of the day of determination or as of such other date as may be specified in the applicable Series Supplement) as the owner of such Health Care Note for the purpose of receiving payments of principal of and interest, if any, on, or any other amounts with respect to, such Health Care Note and for all other purposes whatsoever, whether or not such Health Care Note be overdue, and neither the Issuer, the Trustee nor any agent of the Issuer or the Trustee shall be affected by notice to the contrary. SECTION 2.9. Payment of Principal and Interest; Principal and Interest Rights Preserved. (1) The Health Care Notes shall accrue interest as provided in the form of the Health Care Note attached to the related Series Supplement at the Series Note Interest Rate (or, if applicable, the Series Alternate Note Interest Rate) specified or as determined therein, and such interest shall be payable on each Payment Date as specified therein. Any installment of interest or principal, if any, payable on any Health Care Note which is punctually paid or duly provided for by the Issuer on the applicable Payment Date shall be paid to the Person in whose name such Health Care Note (or one or more Predecessor Health Care Notes) is registered on the Record Date for such Payment Date, by check mailed first-class, postage prepaid to such Person's address as it appears on the Health Care 14 20 Note Register on such Record Date or in such other manner as may be provided in the related Series Supplement, except that with respect to Health Care Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.) or in the name of a Holder of Health Care Notes representing at least $5,000,000 in aggregate initial principal amount of any Series, payments will be made by wire transfer in immediately available funds to the account designated by such nominee or Holder in writing in form satisfactory to the Trustee at least five (5) Business Days prior to such Payment Date and, except for the final installment of principal payable with respect to such Health Care Note on a Payment Date or on any Final Maturity Date (or the Redemption Price for any Health Care Note called for redemption), which shall be payable as provided below. The funds represented by any such checks returned undelivered shall be held in accordance with Section 3.3 hereof. (2) Unless otherwise provided in the applicable Series Supplement, the Health Care Notes of each Series shall have the Scheduled Amortization Date and Final Maturity Date as shall be specified in such Health Care Notes and the related Series Supplement. The principal of each Health Care Note shall be payable in one or more installments ending no later than the Final Maturity Date thereof unless payable earlier either because (x) an Event of Default shall have occurred and be continuing and the Health Care Notes have been accelerated in accordance with Section 5.2 hereof, or (y) the Issuer shall have called for the redemption of the Health Care Notes of the applicable Series pursuant to Section 9.1. The entire unpaid principal amount of each Health Care Note shall be due and payable on the earliest of the Final Maturity Date thereof, the date of the acceleration referred to above and the Redemption Date, if any, thereof. In addition, payments of principal on the Health Care Notes of any Series may be made in whole or in part on any Payment Date on or following its Scheduled Amortization Date or following the occurrence of an Amortization Event, until paid in full. The Issuer may also elect to make Optional Partial Redemptions pursuant to Section 9.1(b). All principal payments on the Health Care Notes of a Series (including Optional Partial Redemption payments) shall be made pro rata to the Health Care Noteholders entitled thereto. The Trustee shall notify the Person in whose name a Health Care Note is registered at the close of business on the Record Date immediately preceding the Payment Date on which the Issuer expects that the final installment of principal of and interest on the Health Care Notes of each Series will be paid (together with any other amounts due and payable to the Health Care Noteholders of such Series). The Issuer agrees to notify the Trustee of any Event of Default and, no later than 15 days prior to the related Record Date, of the Payment Date on which the Issuer expects the final installment of principal of and interest on the Health Care Notes of each Series will be paid. The notice to be mailed by the Trustee shall be mailed no later than ten days prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of such Health Care Note and shall specify the place where such Health Care Note may be presented and surrendered for payment of such installment. Notices in connection with redemptions of Health Care Notes shall be mailed to Health Care Noteholders as provided in Section 9.2 hereof. (3) Subject to the foregoing provisions of this Section, each Health Care Note delivered under this Indenture upon registration or transfer of or in exchange for or in lieu of any other Health 15 21 Care Note shall carry the rights to unpaid principal and interest, if any, that were carried by such other Health Care Note. SECTION 2.10. Cancellation. All Health Care Notes surrendered for payment, registration of transfer, exchange or redemption shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Issuer may at any time deliver to the Trustee for cancellation any Health Care Notes previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever, and all Health Care Notes so delivered shall be promptly canceled by the Trustee. No Health Care Notes shall be authenticated in lieu of or in exchange for any Health Care Notes canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Health Care Notes may be held or disposed of by the Trustee in accordance with its standard retention or disposal policy as in effect at the time unless the Issuer shall direct by an Issuer Order that they be destroyed or returned to it. SECTION 2.11. Amount and Delivery of Health Care Notes. The aggregate principal amount of Health Care Notes that may be authenticated and delivered under this Indenture is unlimited, subject to the following: With respect to only the original issuance of the Health Care Notes of any Series, compliance with the following conditions and delivery of the following documents are required: (1) Issuer Order. An Issuer Order authorizing and directing the execution, authentication and delivery of the Health Care Notes of such Series by the Trustee and specifying the principal amount of Health Care Notes of such Series to be authenticated. (2) Authorizations. Either (i) a certificate of authorization or other official document evidencing the due authorization, approval or consent of any governmental body or bodies at the time having jurisdiction in the premises, together with an Opinion of Counsel that the Trustee is entitled to rely thereon and that the authorization, approval, or consent of no other governmental body is required for the valid issuance, authentication and delivery of such Health Care Notes, or (ii) an Opinion of Counsel that no such authorization, approval, or consent of any governmental body is required. (3) Authorizing Certificate. A certificate of an Authorized Officer of the Issuer certifying that (i) the Issuer has duly authorized the execution and delivery of this Indenture (in the case of the first Series issued pursuant to this Indenture), the related Series Supplement and the execution, authentication and delivery of the Health Care Notes of such Series, (ii) the Indenture remains in full force and effect as to the Issuer (in the case of subsequent Series issued pursuant to this Indenture and a related Series Supplement), (iii) the representations and warranties of the Issuer contained in this Indenture and any other Related Documents are true and correct as of the date of issuance of such new Series and (iv) the Series Supplement for such Series of Health Care Notes shall be in the form attached thereto, which Series Supplement shall specify the terms and provisions of such Series, including, without limitation, the Final Maturity Date, if any, the principal amount and the Series Note 16 22 Interest Rate (and, if applicable, the Series Alternate Note Interest Rate) of such Health Care Notes to be authenticated and delivered. (4) Certificates of the Issuer. An Officer's Certificate from the Issuer, dated as of the applicable Closing Date, to the effect that no Default or Event of Default under this Indenture has occurred and is continuing and that the issuance of the Health Care Notes applied for will not result in any Default or Event of Default or in any breach of any of the terms, conditions or provisions of or constitute a default under any indenture, mortgage, deed of trust or other agreement or instrument to which the Issuer is a party or by which it or its property is bound or any order of any court or administrative agency entered in any Proceeding to which the Issuer is a party or by which it or its property may be bound or to which it or its property may be subject; and that all conditions precedent provided in this Indenture relating to the authentication and delivery of the Health Care Notes applied for have been complied with. (5) Opinion of Counsel. An Opinion of Counsel, portions of which may be delivered by counsel for the Issuer and portions of which may be delivered by counsel for the Servicer, dated the applicable Closing Date, to the collective effect that: (a) the Indenture and such Series Supplement have been duly qualified under the Trust Indenture Act or no such qualification is necessary; (b) the Issuer has the power and authority to execute and deliver such Series Supplement (and, in the case of the first Series to be authenticated hereunder, this Indenture) and to issue the Health Care Notes, and each of such Series Supplement (and, in the case of the first Series to be authenticated hereunder, this Indenture), and the Health Care Notes of such Series have been duly authorized and the Issuer is duly organized and in good standing under the laws of the jurisdiction of its organization; (c) such Series Supplement and the Indenture have been duly authorized, executed and delivered by the Issuer; (d) the Health Care Notes applied for have been duly authorized and executed and, when authenticated in accordance with the provisions of the Indenture and delivered, will constitute valid and binding obligations of the Issuer entitled to the benefits of the Indenture and such Series Supplement; (e) either (A) the Registration Statement covering the Health Care Notes of such Series is effective under the Securities Act of 1933 and, to the best of such counsel's knowledge and information, no stop order suspending the effectiveness of such Registration Statement has been issued under the Securities Act of 1933 nor have proceedings therefor been instituted or threatened by the Commission or (B) the Health Care Notes of such Series are exempt from the registration requirements under the Securities Act of 1933; 17 23 (f) the Issuer is not now and, assuming that the Issuer uses the proceeds of the sale of the Health Care Notes of such Series for the purpose of acquiring Receivables in accordance with the terms of the Sale and Servicing Agreement, following the sale of the Health Care Notes to the underwriter, underwriters, placement agent or agents or similar Person or to the Health Care Noteholder thereof, the Issuer will not be required to be registered under the Investment Company Act of 1940; and (g) such other matters as required by the related Series Supplement or as the Trustee may reasonably require. (6) Sale and Servicing Agreement; No Amortization Event or Default. Delivery of an Officer's Certificate from the Issuer dated the date of delivery of the Health Care Notes to the effect that the conditions precedent to the Effective Date under the Sale and Servicing Agreement shall have been fulfilled; and no Amortization Event, Default or Event of Default shall have occurred and is continuing. (7) Required Rating. The Trustee shall receive written evidence that the issuance of the Health Care Notes of such new Series satisfies the Rating Agency Condition. (8) Series Supplement. A Series Supplement providing for the issuance of such new Series shall be entered into between the Issuer and Trustee. (9) Requirements of Series Supplement. Such other funds, accounts, documents, certificates, agreements, instruments or opinions as may be required by the terms of the Series Supplement creating such Series or as the Trustee may reasonably require. (10) Notices. At least five (5) Business Days prior to the effectiveness thereof, the Trustee shall provide any Holder of at least 50% of the Aggregate Outstanding Amount of each preexisting Series a copy of the Series Supplement creating such new Series. (11) Other Requirements. Such other documents, certificates, agreements, instruments or opinions as the Trustee may reasonably require. SECTION 2.12. Book-Entry Health Care Notes. If specified in the related Series Supplement, any Series of Health Care Notes, upon original issuance, shall be issued in the form of a single typewritten Health Care Note representing the Book-Entry Health Care Notes, to be delivered to The Depository Trust Company, the initial Clearing Agency (in the United States) or Cedel or Euroclear (in Europe) or indirectly through organizations that are participants in such systems, by, or on behalf of, the Issuer. Such Health Care Note shall initially be registered on the Health Care Note Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Health Care Note Owner shall receive a definitive Health Care Note representing such Health Care Note Owner's interest in such Health Care Note, except as provided in Section 2.14. Cedel and Euroclear will hold omnibus positions on behalf of Cedel's participants and Euroclear's participants, 18 24 respectively, through customers' securities accounts in Cedel's and Euroclear's names on the books of their respective depositories (collectively, the "Depositaries") which in turn will hold such positions in customers' securities accounts in the Depositaries' names on the books of DTC. Unless and until definitive, fully registered Health Care Notes (the "Definitive Notes") have been issued to Health Care Note Owners pursuant to Section 2.14: (i) the provisions of this Section 2.12 shall be in full force and effect; (ii) the Health Care Note Registrar and the Trustee may deal with the Clearing Agency for all purposes (including the payment of principal of and interest on, or any other amounts with respect to, the Health Care Notes) as the authorized representative of the Health Care Note Owners; (iii) to the extent that the provisions of this Section 2.12 conflict with any other provisions of this Agreement, the provisions of this Section 2.12 shall control; (iv) the rights of Health Care Note Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Health Care Note Owners and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the DTC Agreement, unless and until Definitive Notes are issued pursuant to Section 2.14, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments of principal of and interest on, or any other amounts with respect to, the Health Care Notes to such Clearing Agency Participants; and (v) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Holders of Health Care Notes evidencing a specified percentage of the Aggregate Outstanding Amount of the Health Care Notes, the Clearing Agency shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from Health Care Note Owners and/or Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Health Care Notes and has delivered such instructions to the Trustee. SECTION 2.13. Notices to Clearing Agency. With respect to any Series of Health Care Notes originally issued in the form of a Book-Entry Health Care Note, whenever a notice or other communication to the Health Care Noteholders is required under this Indenture, unless and until Definitive Notes shall have been issued to Health Care Note Owners pursuant to Section 2.14, the Trustee shall give all such notices and communications specified herein to be given to Holders of the Health Care Notes to the Clearing Agency. SECTION 2.14. Definitive Notes. With respect to any Series of Health Care Notes originally issued in the form of a Book-Entry Health Care Note, if (i)(A) the Issuer advises the Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its 19 25 responsibilities under the related DTC Agreement, and (B) the Servicers or Master Servicer are unable to locate a qualified successor, (ii) the Issuer at its option advises the Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency or (iii) after the occurrence of an Event of Default, Health Care Note Owners representing beneficial interests aggregating more than 50% of the Aggregate Outstanding Amount of the Health Care Notes of such Series advise the Trustee and the Clearing Agency Participants in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Health Care Note Owners of such Series, then the Trustee shall notify all Health Care Note Owners, through the Clearing Agency, of the occurrence of any such event and of the availability of Definitive Notes to Health Care Note Owners requesting the same. Upon surrender to the Trustee of the single typewritten Health Care Note representing the Book-Entry Health Care Notes by the Clearing Agency, accompanied by registration instructions, the Trustee shall issue the Definitive Notes in accordance with the instructions of the Clearing Agency. None of the Issuer, the Health Care Note Registrar or the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes, the Trustee shall recognize the Holders of the Definitive Notes as Health Care Noteholders. SECTION 2.15. Transfer Restrictions. (1) General. No Holder may, in any transaction or series of transactions, directly or indirectly (each of the following, a "transfer"), (i) sell, assign or otherwise in any manner dispose of all or any part of its interest in any Health Care Note issued to it, whether by act, deed, merger or otherwise or (ii) mortgage, pledge or create a lien or security interest in such interest unless such transfer satisfies the conditions set forth in this Section 2.15. No purported transfer of any interest in any Health Care Note or any portion thereof which is not made in accordance with this Section shall be given effect by or be binding upon the Trustee and any such purported transfer shall be null and void ab initio and vest in the transferee no rights against the Trustee. (2) Conditions to Transfer. A Holder may transfer a Health Care Note only in accordance with the following provisions: (i) Transfer of Interests in Health Care Notes. Health Care Notes may be transferred for one another only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.15 (including the certification requirements) intended to ensure that such exchanges or transfers are exempt from the registration requirements of the Securities Act and as may from time to time be adopted by the Issuer. (ii) Transfer Restrictions. No transfer of any Health Care Note shall be made unless (A) the registration requirements of the Securities Act of 1933 (the "1933 Act") and any applicable state securities or "blue sky" laws are complied with, or (B) such transfer is made to a Person (1) that the transferor reasonably believes after due inquiry is a "qualified institutional buyer" (a "QIB") as defined in Rule 144A ("Rule 144A") under the 1933 Act that is acting for its own account (and not for the account of others) or as a fiduciary or agent 20 26 for others (which others are QIBs) to whom notice is given that the transfer is being made in reliance on Rule 144A under the 1933 Act or (2) in an offshore transaction in accordance with Regulation S under the 1933 Act. In addition, no transfer of a Health Care Note, or interest therein, is to be made unless the prospective transferee can represent, and such transferee shall be deemed to have represented, that at least one of the following statements is an accurate representation as to the source of funds to be used by it to pay the purchase price of the Health Care Note, or interest therein, or as to its acquisition of the Health Care Note, or interest therein, as applicable: (i) if it is an insurance company, either (1) the source is a separate account that is maintained solely in connection with such prospective transferee's fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plans subject to Part 4, Subtitle B, Title I of Employee Retirement Security Act of 1974, as amended ("ERISA"), plans within the meaning of Section 497(e)(1) of the Code (including an individual retirement account or Keogh plan) and persons treated as using "plan assets" of such plans pursuant to the United States Department of Labor Regulation Section 2510.3-101 or other applicable law (each a "Benefit Plan") and to any participant or beneficiary of such Benefit Plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (2) the source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Class Exemption ("PTCE")95-60, and the amount of reserves and liabilities for the contract(s) held by or on behalf of each Benefit Plan which has an interest in such prospective transferee's general account as a contract holder, together with the amount of reserves and liabilities for the general account contracts held by or on behalf of any such other Benefit Plan maintained by the same employer (or an affiliate thereof) or by the same employee organization, does not exceed and, so long as such Health Care Note, or interest therein, is held by such insurance company general account, will not exceed (unless no portion of such excess results from an increase in the assets allocated to such insurance company general account by such a Benefit Plan, not including the reinvestment of such insurance company general account's earnings as assets allocated to such insurance company general account by such a Benefit Plan), 10% of the total reserves and liabilities of such prospective transferee's general account plus surplus as determined pursuant to the provisions of Section I(a) of PTCE 95-60; or (ii) its acquisition and holding of the Health Care Note, or interest therein, will not give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code; or (iii) the source does not include assets of any Benefit Plan. Such prospective transferee shall also be deemed to agree not to sell or otherwise transfer the Health Care Note to any person without obtaining the same representation and warranties and the same obligations from such purchaser or other transferee. (iii) Intentionally omitted. (3) Invalid Transfers. If a Responsible Officer of the Trustee becomes aware that (i) a transfer or attempted or purported transfer of any interest in any Health Care Note was consummated 21 27 in compliance with the provisions of this Section 2.15 on the basis of an incorrect certification from the transferee or purported transferee, (ii) a transferee failed to deliver to the Trustee any certificate required to be delivered hereunder or (iii) the holder of any interest in a Health Care Note is in breach of any representation or agreement set forth in any certificate or any deemed representation or agreement of such holder, the Trustee shall not register such attempted or purported transfer, and if such a transfer has been registered, such transfer shall be absolutely null and void ab initio and shall vest no rights in the purported transferee (such purported transferee, a "Disqualified Transferee") and the last preceding Holder of such Health Care Note that was not a Disqualified Transferee shall be restored to all rights as a Holder thereof retroactively to the date of transfer of such Health Care Note by such Holder. Notwithstanding anything contained herein to the contrary, the Trustee shall not be responsible for ascertaining whether any transfer complies with the registration provisions or exemptions from the Securities Act or applicable state securities law; provided that if a certificate is specifically required to be delivered to the Trustee by a purchaser or transferee of a Health Care Note, the Trustee shall be under a duty to examine the same to determine whether on its face it conforms to the requirements of this Indenture and shall promptly notify the party delivering the same if such certificate does not so conform. ARTICLE III COVENANTS SECTION 3.1. Payment of Principal and Interest. The Issuer will duly and punctually pay the principal of, interest on and any other amounts due with respect to the Health Care Notes in accordance with the terms of the Health Care Notes, the related Series Supplements and this Indenture. Amounts properly withheld under the Code by any Person from a payment to any Health Care Noteholder of interest, principal and/or any other amount shall be considered as having been paid by the Issuer to such Health Care Noteholder for all purposes of this Indenture. SECTION 3.2. Maintenance of Office or Agency. The Issuer will maintain in the Borough of Manhattan, The City of New York, State of New York, an office or agency where Health Care Notes may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Issuer in respect of the Health Care Notes and this Indenture may be served. The Issuer hereby initially appoints the Trustee to serve as its agent for the foregoing purposes. The Issuer will give prompt written notice to the Trustee of the location, and of any change in the location, of any such office or agency. If at any time the Issuer shall fail to maintain any such office or agency or shall fail to furnish the Trustee with the address thereof, such surrenders, notices, and demands may be made or served at the Corporate Trust Office, and the Issuer hereby appoints the Trustee as its agent to receive all such surrenders, notices, and demands. 22 28 SECTION 3.3. Money for Payments To Be Held in Trust. As provided herein, all payments of amounts due and payable with respect to any Health Care Notes that are to be made from amounts withdrawn from the Collection Account and the Distribution Account (and all subaccounts thereof) pursuant to Sections 7.2(e), 7.2(f), 9.1 and 9.4, as applicable, hereof shall be made on behalf of the Issuer by the Trustee or by another Paying Agent, and no amounts so withdrawn from the Distribution Account (or any subaccount thereof) shall be paid over to the Issuer except as provided in Section 7.2. If the Paying Agent is not the Trustee, the Issuer will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of amounts due with respect to the Health Care Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided; (2) give the Trustee notice of any default of which it has actual knowledge by the Issuer (or any other obligor upon the Health Care Notes) in the making of any payment required to be made with respect to the Health Care Notes; (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; (4) immediately resign as a Paying Agent and forthwith pay to the Trustee all sums held by it in trust for the payment of Health Care Notes if at any time it ceases to meet the standards required to be met by a Paying Agent at the time of its appointment; and (5) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Health Care Notes of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the Trustee all sums held in trust by such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which the sums were held by such Paying Agent; and upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Subject to applicable laws with respect to escheat of funds, any money held by the Trustee or any Paying Agent in trust for the payment of any amount due with respect to any Health Care Note 23 29 and remaining unclaimed for six years after such amount has become due and payable shall be discharged from such trust and be paid to the Issuer on Issuer Request; and the Holder of such Health Care Note shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof (but only to the extent of the amounts so paid to the Issuer), and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense and direction of the Issuer cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, or in the city in which the Corporate Trust Office is located, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. The Trustee shall also adopt and employ, at the expense and direction of the Issuer, any other reasonable means of notification of such repayment (including, but not limited to, mailing notice of such repayment to Holders whose Health Care Notes have been called but have not been surrendered for redemption or whose right to or interest in moneys due and payable but not claimed is determinable from the records of the Trustee or of any Paying Agent, at the last address of record for each such Holder). SECTION 3.4. Opinions as to Trust Estate. (a) On or before the Closing Date for each Series, the Issuer shall furnish to the Trustee an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken with respect to the Collateral, the recording and filing of this Indenture, any indentures supplemental hereto, and any other requisite documents, and with respect to the execution and filing of any financing statements and continuation statements, as are necessary to perfect and make effective (or continue) the lien and security interest of this Indenture therein and reciting the details of such action, or stating that, in the opinion of such counsel, no such action is necessary to perfect or to make such lien and security interest effective. (b) On or before March 31 in each calendar year beginning at least six (6) months after the issuance of any Series of the Health Care Notes while such Series is outstanding, the Issuer shall furnish to the Trustee an Opinion of Counsel either stating that, in the opinion of such counsel, all required action has been taken with respect hereto, to the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and with respect to the execution and filing of any Uniform Commercial Code financing statements and continuation statements as is necessary to perfect or to maintain the lien and security interest created hereby in the Collateral and reciting the details of such action or stating that in the opinion of such counsel no such action is necessary to perfect or to maintain such lien and security interest. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and the execution and filing of any financing statements and continuation statements that will, in the opinion of such counsel, be required to maintain the lien and security interest of this Indenture until March 31 in the following calendar year. 24 30 SECTION 3.5. Performance of Obligations: Servicing of Receivables. (a) The Issuer will not take any action, and will use its best efforts not to permit any action to be taken by others, that would release any Person from any material covenant or obligation under any instrument or agreement included in the Trust Estate or that would result in the amendment, hypothecation, subordination, termination, or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except as expressly provided in this Indenture or such other instrument or agreement. (b) The Issuer may contract with other Persons to assist it in performing its duties hereunder, and any performance of such duties by a Person identified to the Trustee in an Officer's Certificate of the Issuer shall be deemed to be action taken by the Issuer. Initially, the Issuer has, pursuant to the Sale and Servicing Agreement, contracted with the Master Servicer and the Servicers to assist the Issuer in performing its duties hereunder. (c) The Issuer will punctually perform and observe all of its obligations and agreements contained in this Indenture, the Related Documents and in the instruments and agreements included in the Trust Estate, including but not limited to filing or causing to be filed all Uniform Commercial Code financing statements and applications required to be filed by the terms of this Indenture and the Related Documents in accordance with and within the time periods provided for herein and therein. Except as otherwise expressly provided therein, the Issuer shall not waive, amend, modify, supplement or terminate any Related Document or any provision thereof without the consent of the Trustee. (d) If the Issuer shall have knowledge of the occurrence of a Servicing Default under the Sale and Servicing Agreement, the Issuer shall promptly notify the Trustee and the Rating Agency thereof, and shall specify in such notice the action, if any, the Issuer is taking with respect of such default. If a Servicing Default shall arise from the failure of the Servicer to perform any of its duties or obligations under the Sale and Servicing Agreement with respect to the Receivables, the Issuer shall take all reasonable steps available to it to remedy such failure. (e) The Issuer agrees that: (i) It will defend its title to the Collateral against all claims of all Persons whomsoever. (ii) It will keep the Collateral free from all Liens, other than the Lien created pursuant hereto, and will pay or cause to be paid promptly when due all taxes, fees, assessments and other charges now or hereafter imposed upon any of the Collateral. (iii) Except pursuant to the Sale and Servicing Agreement, it will not sell, assign, pledge, exchange or dispose of any of the Collateral in any manner whatsoever or attempt to do any of the foregoing or agree to any modification or cancellation of, or substitution for, 25 31 any of the Collateral. In the event of any disposition of any of the Collateral, the Proceeds will remain Collateral hereunder. The receipt by the Trustee of all or any part of the Proceeds of any sale, assignment, pledge, exchange or disposition of any of the Collateral shall not be deemed or construed to be a consent by the Trustee to any such sale, assignment, pledge, exchange or other disposition. (iv) It will keep or cause to be kept accurate and complete records concerning the Collateral, including without limitation all payments and Proceeds received therefrom. (v) It will execute and file such financing statements (including without limitation amendments thereto and continuation statements thereof), assignments, and other documents and instruments, and do all such other acts, relating to the Collateral and the Trustee's and Health Care Noteholders' respective interests therein as the Trustee or the Holders of at least 50% in Aggregate Outstanding Amount of Health Care Notes of any Series may reasonably request; and will not file or permit to be filed any financing statement (or amendment or continuation statement) with respect to any of the Collateral not naming the Trustee (or the Master Servicer who then assigns its rights thereunder to the Trustee) as the only secured party. The Issuer hereby appoints the Trustee as its attorney-in-fact (without requiring the Trustee to act as such) to execute any financing statements (including without limitation any amendments thereto or continuation statements thereof). (vi) It will at any time and from time to time, at its expense promptly execute and deliver all further instruments and documents and take all further action that may be necessary or that the Trustee or the Holders of at least 50% in Aggregate Outstanding Amount of Health Care Notes of any Series may reasonably request, to perfect and protect any security interest granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Collateral including, without limitation, (i) if any Collateral is evidenced by a promissory note or other instrument, such note or instrument shall be duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Trustee and (ii) the Issuer shall execute and file such financing or continuation statements or amendments thereto, and such other instruments or notices as may be necessary or as the Trustee or the Holders of at least 50% in Aggregate Outstanding Amount of Health Care Notes of any Series may reasonably request, in order to perfect and preserve the pledge, assignment and security interest granted or purported to be granted hereby. SECTION 3.6. Annual Statement as to Compliance. The Issuer will deliver to the Trustee, within 90 days after the end of each fiscal year of the Issuer (commencing with the 1999 fiscal year) an Officer's Certificate stating, as to the Authorized Officer signing such Officer's Certificate, that: 26 32 (1) a review of the activities of the Issuer during such year and of performance under this Indenture and the Related Documents has been made under such Authorized Officer's supervision; and (2) to the best of such Authorized Officer's knowledge, based on such review, the Issuer has fulfilled all its obligations under this Indenture and the Related Documents throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such Authorized Officer and the nature and status thereof. SECTION 3.7. Purchase of Receivables. After the Transfer Termination Date, the Issuer shall not purchase or otherwise fund the purchase of any Receivables until the Net Note Balance of Health Care Notes of all Series has been reduced to zero and any other amounts due thereunder, hereunder or under any Related Document have been paid. The Issuer will not take any action which would permit the Seller, Beverly or any Selling Subsidiary to have the right to refuse to perform any of its respective obligations under the Sale and Servicing Agreement. SECTION 3.8. Lines of Business; Change of Location. (a) The Issuer shall not engage directly or indirectly in any line of business except as permitted by its Certificate of Incorporation as in effect on the date of issuance of the initial Series of Health Care Notes hereunder, and the Issuer shall not amend the related provision of its Certificate of Incorporation unless the Rating Agency Condition shall have been satisfied. (b) The Issuer will not, without providing at least 20 days notice to the Trustee and without filing such new financing statements or amendments to any previously filed financing statements as the Trustee may require, (i) change the location of its chief executive office, principal place of business or the location of the offices where any Records the Issuer maintains relating to the Receivables are kept or (ii) change its name, identity or corporate structure in any manner which would, could or might make any financing statement or continuation statement filed by the Issuer in accordance herewith seriously misleading within the meaning of ?9-402(7) of any applicable enactment of the UCC. SECTION 3.9. Additional Stock. The Issuer shall not issue any additional shares of capital stock of any class or issue warrants or grant any options or other similar rights with respect thereto. SECTION 3.10. Maintenance of Existence. The Issuer shall preserve and maintain its corporate existence and all of its rights, privileges and franchises necessary in the normal conduct of its business. SECTION 3.11. Compliance with Laws. The Issuer shall take no action that would require the registration of the Issuer or any of its Securities under any Applicable Securities Laws. 27 33 The Issuer shall comply in all respects with the requirements of all applicable Requirements of Law, such compliance to include, without limitation, paying all taxes, assessments, pension obligations and governmental charges imposed upon the Issuer or its properties, except such taxes, assessments and governmental charges, if any, as are being contested in good faith and as to which adequate reserves have been provided. SECTION 3.12. Notice of Proceedings. The Issuer shall promptly give notice in writing to the Trustee and the Rating Agency of all litigation, arbitration proceedings and regulatory proceedings affecting the Issuer, the Collateral or the property of the Issuer. SECTION 3.13. Limitation on Debt. The Issuer shall not create, assume or suffer to exist any Debt, except for Health Care Notes of one or more Series issued in compliance with the provisions hereof. SECTION 3.14. Negative Pledge. Except for (x) Liens created hereby and (y) Liens (not incurred in connection with the borrowing of money) which in the aggregate are not material to the Issuer or its assets (which, in the case of this clause (y) shall not exceed $25,000 in the aggregate outstanding during the term of this Indenture), the Issuer shall not create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it. SECTION 3.15. Consolidations, Mergers and Sales of Assets. The Issuer shall not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer (by investment, assignment, contribution or otherwise) all or any substantial portion of its assets to any other Person (except as permitted by its Certificate of Incorporation as in effect on the date of the issuance of the initial Series of Health Care Notes hereunder, by Sections 2.2 or 5.4 of the Sale and Servicing Agreement or by Sections 5.11 and 9.4 of this Indenture). The Issuer will not make loans or advance credit to other Persons, purchase other assets other than Purchased Receivables or Eligible Investments, nor make capital expenditures greater than $25,000 per year. SECTION 3.16. Restricted Payments. The Issuer shall not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or return any capital to its shareholders as such, or purchase, redeem or otherwise acquire for value any shares of any class of its capital stock or any warrants, rights or options to acquire any such shares, now or hereafter outstanding (collectively, a "Restricted Payment"), unless (x) immediately after (and giving effect to) payment of such Restricted Payment (1) no Amortization Event, Default or Event of Default (without regard to any grace periods referenced in the definitions thereof) has occurred and is continuing and (2) the Net Purchased Receivables equals or exceeds the Minimum Required Receivables Balance; and (y) declaration and payment of such Restricted Payment is permitted under (and complies with) all applicable Requirements of Law. 28 34 SECTION 3.17. Corporate Existence. (a) The Issuer shall keep in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of the Related Documents and each other instrument or agreement necessary or appropriate to the proper administration thereof and the transactions contemplated thereby. (b) The Issuer shall observe the applicable legal requirements for the recognition of the Issuer as a legal entity separate and apart from Beverly and its other Affiliates, including, without limitation, as follows: (i) the Issuer shall maintain separate corporate records, books of account and financial statements (each of which shall be sufficiently full and complete to permit a determination of the Issuer's assets and liabilities and to permit a determination of the obligees thereon and the time for performance on each of the Issuer's obligations) from those of Beverly and its other Affiliates; (ii) except as expressly permitted by the Sale and Servicing Agreement for Collections of Purchased Receivables prior to transfer thereof to the Collection Account (which transfer is to occur within two Business Days of receipt of such Collection by the applicable Servicer), the Issuer shall not commingle any of its assets or funds with those of Beverly or any of its other Affiliates; (iii) the Issuer shall maintain records permitting a determination on a daily basis of the amount and location of any of its funds which are commingled as permitted under clause (ii) above; (iv) the Board of Directors of the Issuer shall be elected independently from the Board of Directors of Beverly and its other Affiliates and shall at all times include at least two Independent Directors (for purposes hereof, "Independent Directors" means shall mean the members of the Board of Directors of the Issuer who are not, and have not at any time been: (x) a director, officer, employee or shareholder of Beverly or any other Affiliate thereof, (y) a director, officer, employee or shareholder of any other Person or entity that, directly or indirectly, controls or is under common control with Beverly) or (z) a member of the immediate family of any of the foregoing; (v) the Board of Directors and stockholders of the Issuer shall hold all regular and special meetings appropriate to authorize corporate actions. Regular meetings of directors will be held at least annually. The Board of Directors may act from time to time through one or more committees of the Board in accordance with the Issuer's by-laws. Appropriate minutes of all meetings of the Issuer's Board of Directors (and committees thereof) and of the stockholders meetings shall be kept by the Issuer; 29 35 (vi) taking into account the services to be performed on the Issuer's behalf by the Servicers and the Master Servicer under the Sale and Servicing Agreement, the Issuer shall have sufficient officers and employees to run its business and operations. At least one senior officer of the Issuer (who may also be a member of the Board of Directors of the Issuer) shall not be a director, officer or employee of Beverly or any of its other Affiliates; (vii) decisions with respect to the Issuer's business and daily operations shall be independently made by the Issuer (although the officer making any particular decision may also be an officer or director of Beverly) and shall not be dictated by Beverly or any of its other Affiliates. Any permitted transactions between the Issuer and Beverly or any of its other Affiliates shall be on arms-length terms and (other than the purchase of Receivables pursuant to the Sale and Servicing Agreement) shall receive prior approval of a majority of the Board of Directors including at least two Independent Directors of the Issuer; provided, that dividends from the Issuer to Beverly shall not require the approval of any Independent Director of the Issuer if the requisite dividend committee has approved such dividend; (viii) the Issuer shall act solely in its own corporate name and through its own authorized officers and agents. Neither Beverly nor any of its other Affiliates shall be appointed or act as agent of the Issuer, except as expressly contemplated by the Sale and Servicing Agreement; (ix) the Issuer shall prepare instruments of assignment naming it as purchaser for all Purchased Receivables sold to it. In all cases, the data and records (including computer records) used by the Issuer or the Servicers in the collection and administration of Purchased Receivables shall reflect the Issuer's ownership interest therein; (x) although the Issuer's directors, officers and employees (other than the Independent Directors referred to in clause (vi) above) may also be employees of Beverly or any of its other Affiliates and may participate in their employee benefit plans, and the Issuer shall reimburse Beverly or any of its other Affiliates in full for their services, all of which efforts and services shall be carried on in arms length transactions; (xi) the Issuer shall be responsible for the payment of all expenses, indebtedness and other obligations incurred by it and shall reimburse Beverly or any of its other Affiliates for any organizational expenses related to the Issuer and the expenses of the initial offering and sale of the Health Care Notes that Beverly or any such other Affiliate had incurred; (xii) neither Beverly nor any of its other Affiliates shall advance funds to the Issuer, other than capital contributions from Beverly made to enable the Issuer to pay the purchase price of Purchased Receivables, and neither Beverly nor any other Affiliate of Beverly will otherwise supply funds to, or Guaranty debts of, the Issuer; 30 36 (xiii) the Issuer will maintain (x) a separate office which shall be physically separate from space occupied by Beverly, or any of its other Affiliates (but may be separate space occupied solely by the Issuer at the offices of Beverly or any of its other Affiliates) and shall be identified as the Issuer's office so it can be identified by outsiders and (y) a phone number separate from Beverly and its other Affiliates; (xiv) the Issuer shall not enter into any Guaranty, or otherwise become liable, with respect to any obligation of Beverly or any of its other Affiliates; (xv) the Issuer shall at all times hold itself out to the public under the Issuer's own name as a legal entity separate and distinct from Beverly and its Affiliates (the foregoing to include, but not be limited to, use of materially separate and distinct letterhead and telephone number(s)); and (xvi) any financial reports required of the Issuer shall comply with generally accepted accounting principles and shall be issued separately from any reports prepared for Beverly and any of its Affiliates. SECTION 3.18. Books and Records. The Issuer shall keep proper books of record and account, in which full and correct entries shall be made of all its financial transactions and its assets and business in accordance with United States generally accepted accounting principles, consistently applied. SECTION 3.19. Notice of Events of Default or Defaults. The Issuer agrees to give the Trustee and the Rating Agency prompt written notice of each Event of Default or Default hereunder, each default on the part of the Master Servicer, any Servicer or any Seller, as the case may be, of its obligations under the Sale and Servicing Agreement and any Amortization Event under the Sale and Servicing Agreement. SECTION 3.20. Representations and Warranties of the Issuer Relating to the Issuer. The Issuer hereby represents and warrants to the Trustee as of the date hereof and as of the applicable Closing Date of each Series of Health Care Notes that: (1) Organization and Good Standing. The Issuer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization or incorporation and has full corporate power and authority and legal right to own its properties and conduct its business as presently owned or conducted, to execute, deliver and perform its obligations under this Indenture, each Series Supplement and the other Related Documents to which it is a party and to execute and deliver to the Trustee the Health Care Notes of each Series. (2) Due Qualification. The Issuer is duly qualified to do business and is in good standing as a foreign corporation (or is exempt from such requirements), and has obtained all necessary licenses and approvals in each jurisdiction in which failure to so qualify or to obtain such licenses and 31 37 approvals would render any Purchased Receivable unenforceable by the Issuer or the Trustee or would have a material adverse effect on the Collateral, the Trust Estate or the Health Care Noteholders; provided, however, that no representation or warranty is made with respect to any qualifications, licenses or approvals which the Trustee would have to obtain to do business in any jurisdiction in which the Trustee seeks to enforce directly any Purchased Receivable. (3) Due Authorization. The execution, delivery and performance of this Indenture, each Series Supplement and each other Related Documents to which is a party by the Issuer and the execution and delivery to the Trustee of the Health Care Notes of each Series and the consummation by the Issuer of the transactions provided for in this Indenture and the Related Documents, have been duly authorized by the Issuer by all necessary corporate action on the part of the Issuer. (4) No Conflict. The execution and delivery by the Issuer of this Indenture, each Series Supplement, each other Related Document to which it is a party and the Health Care Notes of each Series, the performance of the transactions contemplated by this Indenture, each Series Supplement and each Related Document to which it is a party and the fulfillment of the terms hereof and thereof applicable to the Issuer (including, without limitation, the transfer of the Purchased Receivables to the Issuer and the granting of a security interest on such Purchased Receivables (and the other Collateral) to the Trustee), will not conflict with or violate any Requirements of Law applicable to the Issuer or conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a material default under, any indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Issuer is a party or by which it or its properties are bound. (5) No Proceedings. There are no proceedings or investigations pending or, to the best knowledge of the Issuer, threatened against or affecting the Issuer before any Governmental Authority seeking to prevent the consummation of any of the transactions contemplated by this Indenture, each Series Supplement and each other Related Document to which it is a party or seeking any determination or ruling that, in the reasonable judgment of the Issuer, would materially and adversely affect the performance by the Issuer of its obligations under this Indenture, each Series Supplement and each Related Document to which it is a party. (6) All Consents. All authorizations, consents, orders or approvals of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by the Issuer in connection with the execution and delivery by the Issuer of the Indenture, each Series Supplement and each other Related Document to which it is a party have been duly obtained, effected or given and are in full force and effect. (7) Investment Company. The Issuer is not an "investment company", or a company "controlled" by an "investment company," within the meaning of the Investment Company Act. 32 38 (8) Place of Business. The Issuer's principal place of business and chief executive office and the location of the Records pertaining to the Receivables is 5111 Rogers Avenue, Suite 40-A, Fort Smith, Arkansas 72919. SECTION 3.21. Representations and Warranties of the Issuer Relating to this Indenture, any Series Supplement, the Related Documents and the Purchased Receivables. The Issuer hereby represents and warrants to the Trustee as of the date hereof and, as of the Closing Date of each Series of Health Care Notes, or as of such other date or times as are specified therein, that: (a) this Indenture, each Series Supplement and each Related Documents to which it is a party constitutes a legal, valid and binding obligation of the Issuer enforceable against the Issuer in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting the enforcement or creditors' rights in general, and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); (b) each Purchased Receivable and all other Collateral have been conveyed to the Trust Estate free and clear of any Lien; (c) all authorizations, consents, orders or approvals of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by the Issuer in connection with the conveyance of each Purchased Receivable and all other Collateral to the Trustee have been duly obtained, effected or given and are in full force and effect; (d) the Issuer has taken all reasonable steps necessary for this Indenture to constitute a grant of a first priority perfected "security interest" (as defined in the UCC) in the Trust Estate, which, in the case of existing Collateral and then proceeds thereof, is enforceable by the Trustee upon execution and delivery of this Indenture and which will be enforceable by the Trustee with respect to such Purchased Receivables and all other Collateral hereafter created and the proceeds thereof upon such creation. Upon the filing of the Uniform Commercial Code financing statements and, in the case of Purchased Receivables and all other Collateral hereafter created and the proceeds thereof, upon the creation thereof, the Trustee shall have a first priority perfected security or ownership interest in such property and proceeds; and (e) except as otherwise expressly provided in this Indenture or any Series Supplement, neither the Issuer nor any Person claiming through or under the Issuer has any claim to or interest in the Collection Account, the Distribution Account (or any subaccount thereof) or the Expense Account. 33 39 SECTION 3.22. Rating Agency Information. The Issuer will provide the Rating Agency with all financial and operational information with respect to the Issuer as the Rating Agency may reasonably require, including but not limited to financial statements of Beverly (including the Selling Subsidiaries) and delinquency, default and recovery information on the Purchased Receivables. SECTION 3.23. Subordination of Officer and Director Indemnifications. Any indemnification obligations of the officers and the directors of the Issuer arising under the Certificate of Incorporation or Bylaws of the Issuer shall be subordinated to any obligations of the Issuer under the Related Documents. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect with respect to the Health Care Notes of any Series except as to: (i) rights of registration of transfer and exchange, (ii) substitution of mutilated, destroyed, lost or stolen Health Care Notes, (iii) rights of Health Care Noteholders to receive payments of principal and premium thereof, interest thereon and any amounts due with respect thereto, (iv) the rights, obligations, and immunities of the Trustee hereunder and (v) the rights of Health Care Noteholders as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, and the Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to Health Care Notes of such Series, when (1) either: (A) all Health Care Notes of such Series theretofore authenticated and delivered (other than (i) Health Care Notes that have been destroyed, lost, or stolen and that have been replaced or paid as provided in Section 2.7 hereof and (ii) Health Care Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in Section 3.3 hereof) have been delivered to the Trustee for cancellation; or (B) all Health Care Notes of such Series not theretofore delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable at their Final Maturity Date within one year, or 34 40 (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuer, and the Issuer, in the case of (i), (ii) or (iii) above, has, pursuant to the terms of this Indenture, deposited or caused to be deposited with the Trustee cash or direct obligations of or obligations guaranteed by the United States of America, in trust for such purpose, an amount sufficient to pay and discharge the entire indebtedness on such Health Care Notes not theretofore delivered to the Trustee for cancellation, for principal, premium, interest and any other amounts that would be payable at their Final Maturity Date or Redemption Date (if Health Care Notes shall have been called for redemption pursuant to Section 9.1 hereof), as the case may be; (2) the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer; and (3) the Issuer has delivered to the Trustee an Officer's Certificate, an Opinion of Counsel, and an Independent Certificate from a firm of certified public accountants, each meeting the applicable requirements of Section 10.1 hereof and each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. SECTION 4.2. Application of Trust Money. All moneys deposited with the Trustee pursuant to Section 4.1 hereof shall be held in trust and applied by it, in accordance with the provisions of the Health Care Notes and this Indenture, to the payment, either directly or through any Paying Agent, as the Trustee may determine, to the Holders of the particular Health Care Notes for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal, interest and other applicable amounts; but such moneys need not be segregated from other funds except to the extent required herein or required by law. SECTION 4.3. Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture with respect to the Health Care Notes, all moneys then held by any Paying Agent other than the Trustee under the provisions of this Indenture with respect to such Health Care Notes shall, upon demand of the Issuer, be paid to the Trustee to be held and applied according to Section 3.3 hereof, and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. ARTICLE V REMEDIES SECTION 5.1. Events of Default. "Event of Default" with respect to any Series, wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or 35 41 pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest on any Health Care Note when and as the same becomes due and payable, and such default shall continue for a period of five (5) Business Days; or (2) default in the payment of the principal of or any installment of the principal of any Health Care Note when and as the same becomes due and payable; or (3) default in the observance or performance of any covenant or agreement of the Issuer made in this Indenture, in any Series Supplement or in any Related Document (other than a covenant or agreement, a default in the observance or performance of which is elsewhere in this Section 5.1 specifically dealt with), or any representation or warranty of the Issuer made in this Indenture or in any Series Supplement, or in any Related Document or in any certificate or other writing delivered pursuant hereto or thereto or in connection herewith or therewith proving to have been incorrect in any material respect as of the time when the same shall have been made, and such default shall continue or not be cured, or the circumstance or condition in respect of which such misrepresentation or warranty was incorrect shall not have been eliminated or otherwise cured, for a period of 30 days after there shall have been given, by registered or certified mail, to the Issuer by the Trustee or to the Issuer and the Trustee by the Holders of at least 25% of the Aggregate Outstanding Amount of the Health Care Notes of such Series, a written notice specifying such default or incorrect representation or warranty and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (4) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of the Issuer or any substantial part of its property or any part of the Trust Estate in an involuntary case under any applicable Federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official or the Issuer or for any substantial part of its property or any part of the Trust Estate, or ordering the winding-up or liquidation of the Issuer's affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (5) the commencement by the Issuer of a voluntary case under any applicable Federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Issuer to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of its property or any part of the Trust Estate, or make any general assignment for the benefit of creditors, or the failure by the Issuer generally to pay its debts as such debts become due, or the taking of action by the Issuer in furtherance of any of the foregoing; or 36 42 (6) any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied in respect of an obligation (alleged or otherwise) of the Issuer in excess of $5,000,000 against any of the property of the Issuer and such judgment, writ or similar process shall not be released, vacated or stayed or fully bonded within 30 days after its issue of levy; or (7) any default shall occur under any obligation of the Issuer with an outstanding principal of greater than $5,000,000 which default shall, if not cured, permit the acceleration of all amounts due and payable under such obligation; or (8) this Indenture shall, for any reason (other than pursuant to the terms hereof), cease to create a valid and perfected first priority lien and security interest in the Collateral, or any Lien, other than as expressly permitted hereby or by the Related Documents, shall exist in respect of the Collateral. SECTION 5.2. Acceleration of Maturity: Rescission and Annulment. Subject to the following sentence, if an Event of Default should occur and be continuing with respect to a Series, then and in every such case the Trustee may, and upon the request of the Holders of Health Care Notes representing more than 50% of the Aggregate Outstanding Amount of the Health Care Notes of such Series the Trustee shall, declare all the Health Care Notes of all Series to be immediately due and payable, by a notice in writing to the Issuer, and upon any such declaration the unpaid principal amount of all such Health Care Notes, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable. Notwithstanding the foregoing sentence, if an Event of Default described in Section 5.1(4) or (5) should occur and be continuing, all Series of Health Care Notes shall be automatically accelerated without delivery of any notice to the Issuer. At any time after such declaration of acceleration of maturity has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, except with respect to an Event of Default described in Section 5.1(4) or (5), the Holders of Health Care Notes representing more than 50% of the Aggregate Outstanding Amount of the Health Care Notes of each Series, by written notice to the Issuer and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Issuer has paid or deposited with the Trustee a sum sufficient to pay (A) all payments of principal of and interest on all Health Care Notes of all Series and all other amounts that would then be due hereunder or upon such Health Care Notes if the Event of Default giving rise to such acceleration had not occurred; and 37 43 (B) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements, and advances of the Trustee and its agents and counsel; and (2) all Events of Default with respect to all Series, other than the nonpayment of the principal of the Health Care Notes of all Series that has become due solely by such acceleration, have been cured or waived as provided in Section 5.12 hereof. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. (1) The Issuer covenants that (i) if default is made in the payment of any interest on, or any other amounts owing with respect to, any Health Care Note of a Series (other than the principal and premium thereof), when and as the same becomes due and payable, and such default continues for a period of five (5) Business Days, or (ii) default is made in the payment of the principal of or any installment of the principal and premium of any Health Care Note of a Series, when and as the same becomes due and payable, the Issuer will, upon demand of the Trustee, pay to it, for the benefit of the Holders of the Health Care Notes of such Series, the whole amount then due and payable on such Health Care Notes for principal, premium and interest (including by way of acceleration of the Health Care Notes), with interest upon the overdue principal and any other amounts due hereunder and, to the extent payment at such rate of interest shall be legally enforceable, upon overdue installments of interest, at the rate then borne by the Health Care Notes of such Series (or, if the applicable Series Supplement so provides, the default rate specified therein) and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel. (2) In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a Proceeding for the collection of the sums so due and unpaid and to foreclose upon or take any other action in respect of the Collateral, and may prosecute such Proceeding to judgment or final decree, and may enforce the same against the Issuer or other obligor upon such Health Care Notes and collect in the manner provided by law out of the Collateral or any property of the Issuer (but subject to the provisions of Section 5.5) or other obligor upon such Health Care Notes, wherever situated, the moneys adjudged or decreed to be payable. (1) (3) If an Event of Default occurs and is continuing, the Trustee may, as more particularly provided in Section 5.4, in its discretion, proceed to protect and enforce its rights and the rights of the Health Care Noteholders, by such appropriate Proceedings as the Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or any Related Document or in aid of the exercise of any power granted herein or any Related Document, or to enforce any other proper remedy or legal or equitable 38 44 right vested in the Trustee by this Indenture or any Related Document or by law (but subject to the provisions of Section 5.5). (4) In case there shall be pending, relative to the Issuer or any other obligor upon the Health Care Notes or any Person having or claiming an ownership interest in the Trust Estate, Proceedings under Title 11 of the United States Code or any other applicable Federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or its property or such other obligor or Person, or in case of any other comparable judicial Proceedings relative to the Issuer or other obligor upon the Health Care Notes of any Series or any Person having or claiming any ownership interest in the Trust Estate, or to the creditors or property of the Issuer or such other obligor or Person, the Trustee, irrespective of whether the principal of any Health Care Notes of any Series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 5.3, shall be entitled and empowered, by intervention in such Proceedings or otherwise: (i) to file and prove a claim or claims for the whole amount of principal, interest and any other documents owing and unpaid in respect of the Health Care Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith) and of the Health Care Noteholders allowed in such Proceedings, (ii) unless prohibited by applicable law and regulations, to vote on behalf of the Holders of Health Care Notes in any election of a trustee, a standby trustee or Person performing similar functions in any such Proceedings, (iii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Health Care Noteholders and of the Trustee on their behalf, and (iv) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee or the Holders of Health Care Notes allowed in any judicial proceedings relative to the Issuer, its creditors and its property; and any trustee, receiver, liquidator, custodian or other similar official in any such Proceeding is hereby authorized by each of such Health Care Noteholders to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of payments directly to such Health Care Noteholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable 39 45 compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith. (5) Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Health Care Noteholder any plan of reorganization, arrangement, adjustment, or composition affecting the Health Care Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Health Care Noteholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar person. (6) All rights of action and of asserting claims under this Indenture, or under any of the Health Care Notes of any Series, may be enforced by the Trustee without the possession of any of the Health Care Notes of such Series or the production thereof in any trial or other Proceedings relative thereto, and any such action or Proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Trustee, each predecessor Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Health Care Notes of such Series. (7) In any Proceedings brought by the Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party), the Trustee shall be held to represent all the Holders of the Health Care Notes, and it shall not be necessary to make any Health Care Noteholder a party to any such Proceedings. SECTION 5.4. Additional Remedies. If an Event of Default shall have occurred and be continuing with respect to a Series, the Trustee may do one or more of the following (subject to Section 5.5 hereof): (1) institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Health Care Notes of such Series or under this Indenture with respect thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Issuer and any other obligor upon such Health Care Notes moneys adjudged due; (2) the Trustee shall have the right to receive, endorse, assign or deliver, in its own name or the name of the Issuer, any and all checks, drafts and other instruments for the payment of money relating to or constituting part of the Collateral, and the Issuer hereby waives notice of presentment, protest and nonpayment of any instrument so endorsed. In furtherance of the foregoing, the Issuer hereby irrevocably appoints the Trustee, or any of its officers or designees, the Issuer's lawful attorney-in-fact (without requiring any of them so to act), with power of substitution, in the name of the Issuer (i) to endorse the name of the Issuer upon any of the Collateral, including Proceeds; (ii) to demand, collect, receive payment 40 46 of, receipt for and give discharges and releases of any of the Collateral; (iii) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on any of the Collateral or to enforce any rights in respect thereof; (iv) to initiate, settle, compromise, adjust or defend any actions, suits or proceedings relating to or pertaining to any of the Collateral; (v) if directed by the Holders of Health Care Notes pursuant to Section 5.11, to sell, transfer, assign, discount, negotiate or otherwise deal in all or any portion of the Collateral or Proceeds; (vi) generally to perform all other acts necessary or desirable to realize on, and obtain the benefits of, the Collateral and otherwise to carry out the intention of this Agreement, as fully and effectively as though the Trustee were the absolute owner thereof, and the Issuer hereby ratifies and confirms all that the Trustee shall do by virtue of this appointment; and (vii) to direct the actions of the Master Servicer and the Servicers and to take any and all other actions as, and in the name of, the Issuer pursuant to the Sale and Servicing Agreement. In any action hereunder, the Trustee shall be entitled to the appointment of a receiver to take possession of all or any portion of the Trust Estate and the Trustee shall not be responsible or liable for any loss or destruction of all or any part of the Collateral unless the same shall happen through negligence or willful misconduct of the Trustee. Subject to Section 6.1(a), the Trustee shall not, under any circumstances, absent its negligence or willful misconduct, have any liability for any error or omission made in the settlement, collection or payment or other disposition of any or all of the Collateral or of any instrument received in payment therefor. The costs of collection, sale or other disposition, notification and enforcement, including, without limitation, reasonable counsel fees and disbursements, shall be borne solely, or reimbursed to the Trustee by, the Issuer. (3) After receipt of directions from the requisite Health Care Noteholders pursuant to Section 5.11 hereof, the Trustee, with or without taking possession, may on behalf of the Health Care Noteholders sell or cause to be sold, in one or more sales, at such price as the Trustee may deem adequate, and for cash or on credit or for future delivery, with or without assumption of any credit risk the Collateral in its entirety but not in part, at a public or private sale, without demand of performance or notice or intention to sell or of time or place of sale (except such notice as may be required by applicable statute and cannot be waived), and the Trustee may be the purchaser of all or any portion of the Collateral so sold. The purchaser(s) at any such sale shall thereafter hold the same absolutely, free from any claim or right of whatever kind, including any equity of redemption, of the Issuer, any such demand, notice, claim, right or equity being hereby expressly waived and released. The Trustee shall under no circumstances incur any liability as a result of the sale of the Collateral or any part thereof, at any sale conducted in accordance with the foregoing. The Issuer hereby waives any claims against the Trustee, and the Health Care Noteholders arising by reason of the fact that the price at which the Collateral may have been sold at any private sale was less than the price which might have been obtained at a public sale or was less than the then total unpaid Obligations. 41 47 SECTION 5.5. Appointment of Servicers; Collection of Medicaid, Medicare and Department of Veterans' Affairs Receivables; Sale of Purchased Receivables. (1) The Trustee (at the express direction of the Issuer) hereby irrevocably appoints the Servicers as its agents for purposes of enforcing all rights and remedies of the Trustee in the Collateral set forth herein, and the Trustee shall in no way be liable for the failure of any such agents to enforce such rights and remedies, the manner in which such rights and remedies are enforced or the supervision of such agents. At the request of the Trustee, the Issuer shall cause the Servicers to promptly pay to the Trustee, for the benefit of Health Care Noteholders, all proceeds realized upon the enforcement of such remedies. (2) Notwithstanding anything to the contrary in this Agreement, the Trustee shall not be liable or responsible for servicing the Receivables or for any of the duties or obligations of the Master Servicer or any Servicer, as the case may be, under the Sale and Servicing Agreement or this Indenture or otherwise (and shall not be liable or responsible for the acts or omissions of the Master Servicer or any Servicer, as the case may be, or failure to act in reliance upon any action or failure to act by the Master Servicer or any Servicer, as the case may be). Subject to Section 6.1(a), the Trustee shall not be bound to ascertain or inquire as to the truth or accuracy of any information provided to it by the Master Servicer or any Servicer, as the case may be, but may for any purpose conclusively rely upon any information given to it by any of them. (3) Notwithstanding any provision hereof or of any Related Document to the contrary, all Medicaid, Medicare or Department of Veterans' Affairs or other payments which are made by an Obligor with respect to any Purchased Receivable shall be collected from such Obligor only by the Servicer which furnished the services for which such payments are made, except to the extent that an Obligor may be required to submit any such payments directly to a Person other than the Servicer pursuant to a court-ordered assignment which is valid, binding and enforceable under applicable federal and state Medicaid, Medicare and Department of Veterans' Affairs laws, rules and regulations; neither this Indenture nor any Related Document shall be construed to permit any other Person, in violation of applicable federal and state Medicaid, Medicare or Department of Veterans' Affairs laws, rules and regulations to collect or receive, or to be entitled to collect or receive, any such payments prior to the Servicer's receipt thereof. The Trustee shall not be responsible for the collection of Receivables. SECTION 5.6. Limitation of Suits. No Holder of any Health Care Note of a Series shall have any right to institute any Proceeding, judicial or otherwise, with respect to this Indenture and such Series, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to such Series; 42 48 (2) the Holders of more than 50% of the then Aggregate Outstanding Amount of the Health Care Notes of such Series shall have made written request to the Trustee to institute such Proceeding in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in complying with such request; (4) the Trustee for 60 days after its receipt of such notice, request, and offer of indemnity has failed to institute such Proceedings; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of at least 50% of the Aggregate Outstanding Amount of the Health Care Notes of such Series; it being understood and intended that no one or more Holders of Health Care Notes of a Series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Health Care Notes or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided. In the event the Trustee shall receive conflicting or inconsistent requests and indemnity from groups of the requisite amounts of Holders of Health Care Notes of two or more Series, the Trustee shall act at the direction of the group of Holders of Health Care Notes with the greater Aggregate Outstanding Amount of Health Care Notes, however should the Trustee receive conflicting or inconsistent requests and indemnity from groups of the requisite amount of Holders of the Health Care Notes of two or more Series with the same Aggregate Outstanding Amount of Health Care Notes the Trustee in its sole discretion may determine what action, if any, shall be taken, notwithstanding any other provisions of this Indenture. SECTION 5.7. Unconditional Rights of Health Care Noteholders To Receive Principal and Interest. Notwithstanding any other provisions in this Indenture, the Holder of any Health Care Note shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest, if any, on, and any other amounts with respect to, such Health Care Note on or after the respective due dates thereof expressed in such Health Care Note or in this Indenture (or, in the case of redemption, on or after the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 5.8. Restoration of Rights and Remedies. If the Trustee or any Health Care Noteholder has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Trustee or to such Health Care Noteholder, then and in every such case the Issuer, the Trustee and the Health Care Noteholders shall, subject to any determination in such Proceeding, be restored 43 49 severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Health Care Noteholders shall continue as though no such Proceeding had been instituted. SECTION 5.9. Rights and Remedies Cumulative. No right or remedy conferred upon or reserved to the Trustee or to the Health Care Noteholders herein or any Related Document is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, under any Related Document or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.10. Delay or Omission Not a Waiver. No delay or omission of the Trustee or any Holder of any Health Care Note to exercise any right or remedy accruing hereunder or under any Related Document upon any Default or Event of Default shall impair any such right or remedy or constitute a waiver of any such Default or Event of Default or an acquiescence therein. Every right and remedy given herein or in any Related Document or by law to the Trustee or to the Health Care Noteholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Health Care Noteholders, as the case may be. SECTION 5.11. Control by Health Care Noteholders. The Holders of more than 50% of the Aggregate Outstanding Amount of the Health Care Notes of any Series shall have the right to direct the time, method, and place of (x) conducting any Proceeding for any remedy available to the Trustee with respect to the Health Care Notes of such Series or (y) exercising any trust or power conferred on the Trustee hereunder or under any Related Document with respect to such Series; provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture or any Related Document; (2) any direction to the Trustee to sell or liquidate the Trust Estate pursuant to Section 5.4 of this Indenture shall be by the Holders of the Health Care Notes of any Series representing not less than 50% of the Aggregate Outstanding Amount of such Series, shall be subject to Section 5.5 hereof. The direction of such Holders of Health Care Notes shall specify the time and place of such proposed sale and the proposed Person to acquire the Collateral to be sold or liquidated; and (3) the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction; provided, however, that, subject to Section 6.1 hereof, the Trustee need not take any action that it determines might involve it in liability or might materially adversely affect the rights of any Health Care Noteholders not consenting to such action. 44 50 SECTION 5.12. Waiver of Past Defaults. Prior to the acceleration of the Maturity of the Health Care Notes of all Series as provided in Section 5.2 hereof, the Holders of Health Care Notes of not less than 50% of the then Aggregate Outstanding Amount of the Health Care Notes of each Series may waive any past Default or Event of Default and its consequences except a Default (a) in payment of principal and premium of, interest on, or any Series Special Obligations with respect to, any of the Health Care Notes, (b) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each Health Care Note of all Series affected or (c) with respect to an Event of Default described in Section 5.1(4) or (5). In the case of any such waiver, the Issuer, the Trustee and the Holders of the Health Care Notes shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other Default or impair any right consequent therein. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 5.13. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Health Care Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered, or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.13 shall not apply to (a) any suit instituted by the Trustee, (b) any suit instituted by any Health Care Noteholder, or group of Health Care Noteholders, in each case holding in the aggregate more than 10% of the Aggregate Outstanding Amount of the Health Care Notes of a Series, or (c) any suit instituted by any Health Care Noteholder for the enforcement of the payment of principal of or interest on, or any other amounts with respect to, any Health Care Note on or after the respective due dates expressed in such Health Care Note and in this Indenture (or, in the case of redemption, on or after the Redemption Date). SECTION 5.14. Waiver of Stay or Extension Laws. The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture or the Related Documents; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay, or impede the execution of any power granted to the Trustee herein or in the Related Documents, but will suffer and permit the execution of every such power as though no such law had been enacted. 45 51 SECTION 5.15. Action on Health Care Notes. The Trustee's right to seek and recover judgment on the Health Care Notes of a Series or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture or the Sale and Servicing Agreement. Neither the Lien of this Indenture, the absolute sale represented by the Sale and Servicing Agreement nor any rights or remedies of the Trustee or the Health Care Noteholders for any Series shall be impaired by the recovery of any judgment by the Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Trust Estate or upon any of the assets of the Issuer. SECTION 5.16. Performance and Enforcement of Certain Obligations. (1) Whether or not an Amortization Event, a Default or an Event of Default has occurred or is continuing, the Issuer agrees to take all such lawful action to compel or secure the performance and observance by the Seller, the Master Servicer, Beverly and the Servicers, as applicable, of each of its obligations to the Issuer under or in connection with the Sale and Servicing Agreement, in accordance with the terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with the Sale and Servicing Agreement, including, without limitation, the transmission of notices of default on the part of the Seller, the Master Servicer, Beverly or the Servicers and the institution of legal or administrative actions or proceedings to compel or secure performance by the Seller, the Master Servicer, Beverly or the Servicers of each of their obligations under the Sale and Servicing Agreement. The Issuer hereby appoints the Trustee its attorney-in-fact, with full power of substitution, for the purpose of taking such action in the name of the Issuer, in the event the Issuer fails to take such action, which appointment is coupled with an interest and is irrevocable. Under no circumstances shall this Section 5.16(a) be construed to create any duty of the Trustee not otherwise expressly provided for in this Indenture. (2) If an Event of Default has occurred and is continuing, the Trustee may, and, at the direction (which direction shall be in writing or by telephone (confirmed in writing promptly thereafter)) of the Holders of at least 50% of the Aggregate Outstanding Amount of any Series of Health Care Notes shall, exercise all rights, remedies, powers, privileges and claims of the Issuer against the Seller, the Master Servicer, Beverly or the Servicers under or in connection with the Sale and Servicing Agreement, including the right or power to take any action to compel or secure performance or observance by the Seller, the Master Servicer or the Servicers of each of their obligations thereunder and to give any consent, request, notice, direction, approval, extension or waiver to the Sale and Servicing Agreement, and any right of the Issuer to take such action shall be suspended. SECTION 5.17. Application of Proceeds. The proceeds of any sale or liquidation of Collateral pursuant to Section 5.11 of this Indenture taken by the Trustee shall (after payment of the costs and expenses of the Trustee) be applied as provided in Section 6.3 of the Sale and Servicing Agreement and Article VII of this Indenture. In the event of any conflict between the Sale and 46 52 Servicing Agreement and Article VII of this Indenture, whether existing now or by virtue of any amendment or supplement to either of such documents, the provisions of Article VII of this Indenture shall control. ARTICLE VI THE TRUSTEE SECTION 6.1. Certain Duties and Responsibilities. (1) Except during the continuance of an Event of Default as to which a Responsible Officer the Trustee has actual knowledge: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof or any Related Document are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture or such Related Document. (2) In case an Event of Default of which a Responsible Officer of the Trustee has actual knowledge has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (3) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this subsection shall not be construed to limit the effect of subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and 47 53 (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with this Agreement or at the direction of the Holders of at least 50% of the Aggregate Outstanding Amount of the Health Care Notes of any Series, relating to the time, method and place of conducting any Proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture or any Related Document. (4) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the eligibility of or affording protection to the Trustee shall be subject to the provisions of this Section. (5) Except as provided in Section 7.3(c), the Trustee shall not be liable for interest on any money received by it. (6) No provision of this Indenture or any Related Document shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, unless it shall have first received indemnity reasonably satisfactory to it against such risk or liability. (7) The permissive right of the Trustee to take actions enumerated in this Indenture or any Related Document shall not be construed as a duty, and the Trustee shall not be answerable for other than its own negligence or willful misconduct. (8) The Trustee shall not be required to take notice or be deemed to have notice or knowledge of any default (except an Event of Nonpayment) or Event of Default unless a Responsible Officer of the Trustee shall have received written notice thereof. In the absence of receipt of such notice, the Trustee may conclusively assume that there is no default or Event of Default. (9) Subject to the other provisions of this Indenture and without limiting the generality of this Section 6.1, the Trustee shall have no duty (A) to see to any recording, filing, or depositing of this Indenture or any agreement referred to herein or any financing statement or continuation statement evidencing a security interest, or to see to the maintenance of any such recording or filing or depositing or to any rerecording, refiling or redepositing of any thereof, (B) to see to any insurance, (C) to see to the payment or discharge of any tax, assessment, or other governmental charge or any lien or encumbrance of any kind owing with respect to, assessed or levied against, any part of the Trust Estate other than from funds available in the Distribution Account, (D) to confirm or verify the contents of any reports or certificates of the Servicer delivered to the Trustee pursuant to this Indenture or the Sale and Servicing Agreement believed by the Trustee to be genuine and to have been signed or presented by the proper party or parties. 48 54 SECTION 6.2. Notice of Defaults and Amortization Events. Within 10 days after having actual knowledge of the occurrence of any Default or any Amortization Event, the Trustee shall transmit by mail to all Holders of Health Care Notes and the Rating Agency, notice of such Default or such Amortization Event hereunder known to the Trustee. SECTION 6.3. Certain Rights of the Trustee. Except as otherwise provided in Section 6.1 hereof in connection with the administration of this Indenture or with any Related Document: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Issuer mentioned herein or in any Related Document shall be sufficiently evidenced by an Issuer Request or Issuer Order; (c) whenever in the administration of this Indenture or acting under any Related Document the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may request from the Issuer and, in the absence of bad faith on its part, rely and be protected in so relying upon an Officer's Certificate; (d) the Trustee may consult with counsel, and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or any Related Document or to institute, conduct or defend any litigation hereunder or in relation hereto at the request or direction of any of the Health Care Noteholders pursuant to this Indenture or any Related Document, unless such Health Care Noteholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in complying with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, on reasonable prior notice to the Issuer, to examine the books, records and premises of the Issuer, personally or by agent or attorney, during the Issuer's normal business hours; 49 55 (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action it takes or omits to take in good faith which action or omission it believes to be authorized or within its rights or powers; and (i) for all purposes of this Indenture and any Related Document, the Trustee shall be deemed to have knowledge or awareness of facts and circumstances only when a Responsible Officer has actual knowledge of such facts and circumstances or has received written notice of such facts and circumstances. (j) the Trustee shall not be required to give any bond or surety in respect of the execution of the Trust Estate created hereby or the powers granted hereunder. SECTION 6.4. Not Responsible for Recitals or Issuance of Health Care Notes. (1) The recitals contained herein and in the Health Care Notes, except the certificates of authentication on the Health Care Notes, shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations with respect to any Receivable or the Trust Estate or as to the validity or sufficiency of this Indenture, any Related Document or of the Health Care Notes. The Trustee shall not be accountable for the use or application by the Issuer of Health Care Notes or the proceeds thereof or any money paid to the Issuer or upon Issuer Order pursuant to the provisions hereof. (2) Except as otherwise expressly provided herein and without limiting the generality of the foregoing, the Trustee shall have no responsibility or liability for or with respect to the existence or validity of any Receivable, the perfection of any security interest (whether as of the date hereof or at any future time), the validity of the assignment of any portion of the Trust Estate to the Trustee or of any intervening assignment, the receipt by it or the Servicers or the Master Servicer of any Receivable, the performance or enforcement of any Receivable, the compliance by the Issuer or the Servicers or the Master Servicer with any covenant or the breach by the Issuer or the Servicers or the Master Servicer of any warranty or representation made hereunder or in any related document or the accuracy of any such warranty or representation, any investment of money in the Collection Account or any loss resulting therefrom, the acts or omissions of the Issuer or the Servicers or the Master Servicer, any action of the Servicers or the Master Servicer taken in the name of the Trustee or the validity of the Sale and Servicing Agreement. (3) The Trustee shall: (i) review each certificate delivered to it pursuant to clause (B) of Section 4.2(b) of the Sale and Servicing Agreement and determine whether such certificate appears on its face to comply with the terms of the Sale and Servicing Agreement, (ii) review each Officer's Certificate delivered to it pursuant to Section 5.6 of the Sale and Servicing Agreement to determine 50 56 whether such Officer's Certificate appears on its face to comply with the terms of the Sale and Servicing Agreement; (iii) review each public accountant's statement delivered to it pursuant to Section 5.7 of the Sale and Servicing Agreement to determine whether such statement appears on its face to comply with the terms of the Sale and Servicing Agreement; (iv) review each Monthly Trustee Report delivered to it to (A) determine whether it appears on its face to be regular and to comply with the terms of the Sale and Servicing Agreement and (B) examine the Loss Ratio and Delinquency Ratio for positive indications by the Master Servicer of an Amortization Event; and (v) review each Daily Trustee Report delivered to it to (A) determine whether it appears on its face to be regular and to comply with the terms of the Sale and Servicing Agreement, (B) verify the daily balances set forth on page 2 thereof to the amounts on deposit in the applicable Issuer Accounts based upon the accounting records of the Trustee and (C) examine the Net Purchased Receivables and the Minimum Required Receivables Balance for positive indications by the Master Servicer of an Amortization Event. The Trustee shall advise the Person delivering such certificate, statement or report of any defect noted by the Trustee in connection with such review and, if in connection therewith, the Trustee notes the occurrence of an Amortization Event or an Event of Default, the Trustee shall give notice thereof to Noteholders in accordance with Section 6.2 of this Indenture and otherwise comply with the applicable requirements hereof and of the Sale and Servicing Agreement. This Section 6.4(c) shall be subject in all respects to Section 6.1 of this Indenture. (4) The Trustee shall not have any obligation or liability under any Receivable by reason of or arising out of this Indenture or the receipt by the Trustee of any payment relating to any Receivable pursuant hereto, nor shall the Trustee be required or obligated in any manner to perform or fulfill any of the obligations of the Issuer under or pursuant to any Receivable, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it, or the sufficiency of any performance by any party, under any Receivable. (5) Until the complete satisfaction and discharge of this Indenture, the Trustee shall retain all reports, statements and other documents delivered to it in accordance with provisions of the Sale and Servicing Agreement. SECTION 6.5. May Hold Health Care Notes. Subject to the terms of this Indenture, the Trustee, any Paying Agent, any Health Care Note Registrar or any other agent of the Issuer in its individual or any other capacity, may become the owner or pledgee of Health Care Notes and may otherwise deal with the Issuer with the same rights it would have if it were not Trustee, Paying Agent, Health Care Note Registrar, or such other agent. SECTION 6.6. Interest on Money Held in Trust. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Issuer and except to the extent of income or other gain on investments that are deposits in or certificates of deposits or other obligations of the Trustee in its commercial capacity and income or other gain actually received by the Trustee on Eligible Investments. 51 57 SECTION 6.7. Compensation and Reimbursement. (1) The Issuer agrees: (1) to pay the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation, expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee and its agents for, and to hold them harmless against, any loss, liability or expense incurred without negligence or bad faith on their part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder or under any Related Document. (2) [intentionally omitted] (3) The Trustee shall have, and the Issuer hereby grants to the Trustee, as security for the performance of the Issuer under this Section 6.7, a lien prior to the lien of the Health Care Notes of any Series on the Collateral (to the extent of the allocations of Collections set forth in Section 6.3 of the Sale and Servicing Agreement); provided, however, that such lien shall in no event extend to funds or Eligible Investments held in trust for the payment of principal of, interest on, or any other amounts in respect of, the Health Care Notes of any Series. SECTION 6.8. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any State authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by the United States of America. If such Trustee publishes reports of conditions at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section 6.8, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VI. 52 58 SECTION 6.9. Resignation and Removal; Appointment of Successor. (1) No resignation or removal of the Trustee and no appointment of a successor trustee pursuant to this Article VI shall become effective until the acceptance of appointment by the successor trustee under Section 6.10 hereof. (2) The Trustee, or any trustee or trustees hereafter appointed, may resign at any time by giving written notice of resignation to the Issuer and by mailing notice of resignation by first-class mail, postage prepaid, to holders of the Health Care Notes at their addresses appearing on the Health Care Note Register. Upon receiving notice of resignation, the Issuer shall promptly appoint a successor trustee or trustees by written instrument, in duplicate, executed by an Authorized Officer, one copy of which instrument shall be delivered to the Trustee so resigning and one copy to the successor trustee or trustees. If no successor trustee shall have been appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning trustee may petition any court of competent jurisdiction for the appointment of a successor trustee or any Health Care Noteholder may, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (3) If at any time: (1) the Trustee shall fail to comply with Section 6.8 hereof; or (2) (i) the Trustee shall become incapable of acting, (ii) there shall have been entered a decree or order for relief by a court having jurisdiction in the premises in respect of the Trustee in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or appointing a receiver, conservator, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Trustee or for any substantial part of its property, or ordering the winding up or liquidation of its affairs and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days or (iii) the Trustee commences a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or consents to the appointment of or taking possession by a receiver, conservator, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Trustee or of any substantial part of its property, or the making by it of any assignment for the benefit of creditors or the Trustee fails generally to pay its debts as such debts become due or takes any corporate action in furtherance of any of the foregoing; then, in any such case the Issuer by an Issuer Order may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed on behalf of the Issuer by an Authorized Officer, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, any Health Care Noteholder may, on behalf of such Holder and all others 53 59 similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (4) The Holders of at least 50% of the Aggregate Outstanding Amount of the Health Care Notes of any Series, or the Issuer with the consent of at least 50% of the Aggregate Outstanding Amount of Health Care Notes of any Series, may at any time remove the Trustee, with respect to such Series, and appoint a successor trustee by delivering to the Trustee to be removed, to the successor trustee so appointed and to the Issuer, copies of the record of the Act taken by the Holders of the Health Care Notes, as provided for in Section 10.3 hereof. (5) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the Trustee for any cause, the Issuer, by an Issuer Order, shall promptly appoint a successor trustee. If within one year after such resignation, removal, or incapability or the occurrence of such vacancy, a successor trustee shall be appointed by Act of the Holders of at least 50% of the Aggregate Outstanding Amount of the Health Care Notes of each Series delivered to the Issuer and the retiring trustee, the successor trustee so appointed shall forthwith upon its acceptance of such appointment become the successor trustee and supersede the successor trustee appointed by the Issuer. If no successor trustee shall have been so appointed by the Issuer or the Health Care Noteholders and shall have accepted appointment in the manner hereinafter provided, any Health Care Noteholder may, on behalf of such Holder and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (6) The Issuer shall give notice of each removal of the Trustee by mailing notice of such event by first-class mail, postage prepaid, to the Holders of Health Care Notes as their names and addresses appear in the Health Care Note Register. Each notice shall include the name of the successor trustee and the address of its Corporate Trust Office. SECTION 6.10. Acceptance of Appointment by Successor Trustee. Every successor trustee appointed hereunder shall execute, acknowledge and deliver to the Issuer and its predecessor trustee an instrument accepting such appointment hereunder and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, duties and obligations of its predecessor hereunder; but, on request of the Issuer or the successor trustee, such predecessor trustee shall, upon payment of its charges then unpaid, execute and deliver an instrument transferring to such successor trustee all the rights, powers, and trusts of the Trustee so ceasing to act; and shall duly assign, transfer and deliver to such successor trustee all property and money held by such Trustee so ceasing to act hereunder subject nevertheless to its lien, if any, provided for in Section 6.7 54 60 hereof. Upon request of any such successor trustee, the Issuer shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and trusts. Upon acceptance of appointment by a successor trustee as provided in this Section 6.10, the Issuer shall mail notice thereof by first-class mail, postage prepaid, to the Holders of the Health Care Notes at their last addresses appearing upon the Health Care Note Register. If the Issuer fails to mail such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Issuer. No successor trustee shall accept its appointment unless at the time of such acceptance such successor shall be qualified and eligible under this Article VI. SECTION 6.11. Merger, Conversion, Consolidation or Succession to Business of Trustee. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder provided such corporation shall be otherwise qualified and eligible under this Article VI, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Health Care Notes have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating trustee may adopt such authentication and deliver the Health Care Notes so authenticated with the same effect as if such successor trustee had itself authenticated such Health Care Notes. SECTION 6.12. Co-Trustee and Separate Trustee. At any time or times, for the purpose of meeting the legal requirements of any jurisdiction in which any part of the Trust Estate may at the time be located, the Issuer and the Trustee shall have power to appoint, and upon the written request of the Trustee or of the Holders of Health Care Notes representing at least 50% of the then Aggregate Outstanding Amount of the Health Care Notes of any Series, the Issuer shall for such purpose join with the Trustee in the execution, delivery, and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Trustee either to act as co-trustee, jointly with the Trustee, of all or any part of such Trust Estate, or to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Issuer does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case an Event of Default has occurred and is continuing, the Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section 6.12 shall satisfy the requirements of Section 6.8 hereof. 55 61 Should any written instrument from the Issuer be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right or power, any and all such instruments shall, on request be executed, acknowledged and delivered by the Issuer. Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (1) The Health Care Notes shall be authenticated and delivered and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustee hereunder, shall be exercised solely by the Trustee. (2) The rights, powers, duties and obligations hereby conferred or imposed upon the Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Trustee or by the Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Trustee shall be incompetent or unqualified to perform such Act, in which event such rights, powers, duties, and obligations shall be exercised and performed by such co-trustee or separate trustee. (3) The Trustee at any time by an instrument in writing executed by it, with the concurrence of the Issuer evidenced by an Officer's Certificate, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case an Event of Default has occurred and is continuing, the Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Issuer. Upon the written request of the Trustee, the Issuer shall join with the Trustee in the execution, delivery, and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section. (4) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Trustee, or any other such trustee hereunder. (5) The Trustee shall not be liable by reason of any act of a co-trustee or separate trustee, and the appointment of any such co-trustee shall not constitute any such co-trustee the agent of the Trustee. (6) Any Act of Health Care Noteholders delivered to the Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. 56 62 The provisions of Sections 6.1, 6.2, 6.8 and 6.10 hereof shall apply to each co-trustee and separate trustee hereunder with the same force and effect as they apply to the Trustee. SECTION 6.13. Reports to Holders of Health Care Notes. The Trustee shall deliver to each Noteholder, to the extent set forth in the applicable Series Supplement, the information, documents, notices and reports it receives which are required to be delivered to it by or on behalf of the Master Servicer pursuant to the Sale and Servicing Agreement or by or on behalf of the Issuer pursuant to this Indenture. ARTICLE VII ACCOUNTS, DISBURSEMENTS AND RELEASES SECTION 7.1. Collection of Money. Except as otherwise expressly provided herein, the Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other property payable to or receivable by the Trustee pursuant to this Indenture. The Trustee shall apply all such money received by it as provided in this Indenture. SECTION 7.2. Trust Accounts. (1) The Issuer has established account No. 507-888502 (the "Collection Account") with the Trustee. Funds in the Collection Account shall not be commingled with any other moneys. All moneys deposited from time to time in the Collection Account, all deposits therein pursuant to this Indenture or any Related Document, and all investments made in Eligible Investments with such moneys, including all income or other gain from such investments, shall be held by, and in the name of, the Trustee in the Collection Account as part of the Trust Estate as herein provided. (2) The Issuer has established account No. 507-888812 (the "Distribution Account") with the Trustee. With respect to each Series of Health Care Notes issued hereunder, the Issuer will establish four subaccounts of the Distribution Account into which all deposits with respect to such Series pursuant to Section 6.3 of the Sale and Servicing Agreement shall be made, one for principal, interest and premium (a "Payment Subaccount"), one for Accumulation Amounts (an "Accumulation Subaccount"), one for a reserve for Servicing Fees, the Trustee Fee and interest (a "Reserve Subaccount"), and another for the payment of other amounts owing the Health Care Noteholders of such Series (including, without limitation, any Series Special Obligations) (an "Expense Subaccount"). Funds in the subaccounts to the Distribution Account shall not be commingled with any other moneys. All moneys deposited from time to time in the Distribution Account, all deposits therein pursuant to this Indenture or any Related Document, and all investments made in Eligible Investments with such moneys, including all income or other gain from such investments, shall be held by and in the name of the Trustee in the Distribution Account as part of the Trust Estate as herein provided. All payments to be made from time to time by the Trustee out of funds in the Distribution 57 63 Account pursuant to this Indenture shall, unless a Series Supplement provides for a different Paying Agent for such Series, be made by, and in the name of, the Trustee as the Paying Agent of the Issuer. (3) The Issuer has established Account No. 507-888510 (the "Expense Account," and together with the Collection Account and the Distribution Account (and all subaccounts created thereunder), the "Issuer Accounts"). All moneys deposited from time to time in the Expense Account, all deposits therein pursuant to this Indenture or any Related Document, and all investments made in Eligible Investments with such moneys, including all income or other gain from such investments, shall be held by, and in the name of, the Trustee in the Expense Account as part of the Trust Estate as provided herein; provided, however, that all amounts on deposit in the Expense Account shall be applied pursuant to Section 7.2(h) of this Indenture and shall not be available for payment to the Health Care Noteholders or for any other purpose. (4) So long as no Default or Event of Default shall have occurred and be continuing, all or a portion of the amounts in an Issuer Account may be invested and reinvested by the Trustee upon Issuer Order which shall state that the investments are Eligible Investments (or otherwise according to Section 7.3(d)), which Eligible Investments shall bear interest or be sold at discount; provided, however, that such Eligible Investments shall not mature later than the following Business Day (with respect to the Collection Account) or the Business Day prior to the next Distribution Date (with respect to the Distribution Account and the Expense Account) or, if a notice of redemption in full has been sent to Health Care Noteholders of any Series, an amount in the applicable subaccounts of the Distribution Account equal to the Redemption Price shall mature not later than the second Business Day prior to the Redemption Date. All income or other gain from investments of moneys deposited in the Issuer Accounts shall be deposited by the Trustee in the Collection Account, and any loss resulting from such investments shall be charged to the Collection Account. (5) Amounts shall be deposited in, and withdrawn from, the Collection Account by the Trustee as provided in Section 6.3 of the Sale and Servicing Agreement and Section 9.1 of this Indenture. (6) Amounts shall be deposited in the subaccounts to the Distribution Account by the Trustee as provided in Section 6.3 of the Sale and Servicing Agreement and withdrawn by the Trustee in the priority specified in Sections 7.2(g) and 7.2(i) of this Indenture or withdrawn pursuant to Section 9.1 of this Indenture. For each Series, on the third Business Day prior to the Liquidation Period for such Series or the first day of the Amortization Period, amounts on deposit in the Accumulation Subaccount for such Series will be transferred to the related Payment Subaccount. (7) On each Payment Date, the Trustee shall pay to Holders of Health Care Notes of the related Series all amounts on deposit in the related Payment Subaccount (or, if applicable, the related Reserve Subaccount) in respect of the Health Care Notes of such Series to the extent of amounts due and unpaid on the Health Care Notes of such Series for principal and interest in the following order of priority: 58 64 (i) to accrued and unpaid interest on the Health Care Notes of such Series (based on amounts on deposit in the Payment Subaccount on the Business Day immediately prior to such Payment Date and to the extent such amounts are insufficient, from the Reserve Subaccount after giving effect to any distributions from the Reserve Subaccount on such Payment Date in accordance with Section 7.2(h)); (ii) during the Amortization Period or during the Liquidation Period for such Series, to principal of the Health Care Notes of such Series until the principal balance of such Health Care Notes is paid in full (based on amounts on deposit in the related Payment Subaccount on the third Business Day preceding such Payment Date); and (iii) if amounts remain on deposit in such Payment Subaccount representing an Optional Partial Redemption, to the principal of the Health Care Notes of such Series until the principal balance of such Health Care Notes is paid in full; provided, that the principal balance of such Health Care Notes shall be reduced by the principal component of the related Redemption Price. (8) On each Distribution Date, the Trustee shall make the following payments from the amounts on deposit in the Expense Account (or, if applicable, the Reserve Subaccounts of each Series), in the following manner (based on amounts on deposit on the previous Business Day): (i) to the Master Servicer, an amount equal to the accrued and unpaid Servicing Fees as of such date (first, to the extent of deposits into the Expense Account pursuant to Sections 6.3(a)(i) and 6.3(b)(i) of the Sale and Servicing Agreement and, second, from the Reserve Subaccount of each Series pro rata based on the amount, if any, set aside with respect to the Servicing Fees in each such Reserve Subaccount); (ii) to the Trustee, an amount equal to the accrued and unpaid Trustee Fee and other amounts requested as of such date (first, to the extent of deposits into the Expense Account pursuant to Sections 6.3(a)(ii) and 6.3(b)(ii) of the Sale and Servicing Agreement and, second, from the Reserve Subaccount of each Series pro rata based on the amount, if any, set aside with respect to the Trustee Fee in each such Reserve Subaccount); and (iii) first, to the Trustee, for any remaining due and unpaid Daily Costs due to it, and then to the appropriate Persons pro rata for the payment of all due and unpaid Daily Costs (as set forth in an Officer's Certificate of the Master Servicer delivered to the Trustee before 11:00 a.m. New York City time on such Distribution Date) (to the extent of deposits into the Expense Account pursuant to Section 6.3(a)(vii) and (b)(vi) of the Sale and Servicing Agreement). (9) On each Distribution Date, the Trustee shall pay to the Holders of Health Care Notes of the related Series all amounts on deposit in the related Expense Subaccount as follows (based on amounts on deposit on the previous Business Day): 59 65 (i) to the payment in full of all Series Special Obligations (to the extent of deposits into the Expense Subaccount pursuant to Sections 6.3(a)(v) and 6.3(b)(v) of the Sale and Servicing Agreement); and (ii) to the payment in full of all Daily Costs due and owing to such Holders (to the extent of deposits into the Expense Subaccount pursuant to Section 6.3(a)(vii) and 6.3(b)(vi) of the Sale and Servicing Agreement). (10) On each Optional Partial Redemption Date, the Trustee shall pay to the Holders of the related Series all amounts on deposit in the related Payment Subaccount and Expense Subaccount in respect of the Health Care Notes being redeemed (based on amounts on deposit on the third Business Day preceding such Optional Partial Redemption Date, after giving effect to all distributions to be made on such Optional Partial Redemption Date pursuant to Section 7.2(g) if such Optional Partial Redemption Date is also a Payment Date) to fund the Redemption Price with respect to such Optional Partial Redemption (reducing the principal balance of such Series by the principal component of the related Redemption Price). (11) On the Business Day following the Payment Date, the Trustee shall release to the Issuer the excess, if any, of the amount on deposit in the Reserve Subaccount of the related Series over the Required Reserve for such Series. SECTION 7.3. General Provisions Regarding Accounts. (1) The Issuer shall not direct the Trustee to make any investment of any funds or to sell any investment held in an Issuer Account unless the security interest granted to the Trustee and perfected in such Issuer Account will continue to be perfected in such investment or the proceeds of such sale, in either case without any further action by the Issuer or the Trustee. (2) If any amounts are needed for disbursement from an Issuer Account, and sufficient uninvested funds are not available to make such disbursement, in the absence of an Issuer Order for the liquidation of investments in an amount sufficient to provide the required funds, the Trustee shall cause to be sold or otherwise converted to cash a sufficient amount of the investments in such Issuer Account. The Trustee may cause any such sale to be transacted through any lawful medium, including the Trustee's own facilities, and the Trustee may pay the expenses of such sale out of the proceeds thereof. (3) Subject to Section 6.1(c) hereof, the Trustee shall not in any way be held liable by reason of any insufficiency in any Issuer Account resulting from any loss on any Eligible Investment included therein except for losses attributable to the Trustee's failure to make payments on such Eligible Investments issued by the Trustee, in its commercial capacity as principal obligor and not as trustee, in accordance with their terms. 60 66 (4) If (1) the Issuer shall have failed to give investment directions for either Issuer Account to the Trustee by 11:15 a.m. Eastern Time (or such other time as may be agreed by the Issuer and Trustee) on any Business Day; (2) a Default or Event of Default shall have occurred and be continuing with respect to the Health Care Notes of any Series but such Health Care Notes shall not have been accelerated pursuant to Section 5.2 hereof, or if such Health Care Notes shall have been accelerated following an Event of Default, and amounts collected or receivable from the related Trust Estate are being applied in accordance with Section 5.17 as if there had not been such an acceleration, or (3) an Event of Default with respect to the Health Care Notes of such Series shall have occurred and be continuing, the Health Care Notes of all Series shall have been accelerated pursuant to Section 5.2, and amounts collected or receivable from the Trust Estate are being applied in accordance with Section 5.17; then the Trustee shall, to the fullest extent practicable, invest and reinvest funds in such Issuer Account in money market accounts that invest in the Eligible Investments described in clause (i) of such definition. (1) (5) Notwithstanding anything herein to the contrary, with respect to all deposits to the Distribution Account, all such amounts shall be deposited directly into the Payment Subaccount or Expense Subaccount, as applicable. All payments to the Health Care Noteholders of a Series shall be made from the Payment Subaccount, other than amounts in respect of Series Special Obligations or Daily Costs payable to such Health Care Noteholders, which shall be made from the Expense Subaccount. SECTION 7.4. Release of Trust Estate. (1) Subject to the payment of its fees and expenses pursuant to Section 6.7 hereof, the Trustee may, and when required by the provisions of this Indenture shall, execute instruments to release property from the lien of this Indenture, or convey the Trustee's interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture. No party relying upon an instrument executed by the Trustee as provided in this Article VII shall be bound to ascertain the Trustee's authority, inquire into the satisfaction of any conditions precedent, or see to the application of any moneys. (2) The Trustee shall, at such time as there are no Health Care Notes outstanding and all sums due the Trustee pursuant to Section 6.7 hereof have been paid, release any remaining portion of the Trust Estate that secured the Health Care Notes, from the lien of this Indenture and release to the Issuer or any other Person entitled thereto any funds then on deposit in the Collection Account for such Series. The Trustee shall release property from the Lien of this Indenture pursuant to this Section 7.4(b) only upon receipt of an Issuer Request accompanied by an Officer's Certificate and an Opinion of Counsel. SECTION 7.5. Opinion of Counsel. The Trustee shall receive at least seven days' notice when requested by the Issuer to take any action pursuant to Sections 7.4(a) and 7.4(b) hereof, accompanied by copies of any instruments involved, and the Trustee shall also require, as a condition 61 67 to such action, an Opinion of Counsel at the expense of the Issuer, in form and substance satisfactory to the Trustee, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that all conditions precedent to the taking of such action have been complied with and such action will not materially and adversely impair the security for the Health Care Notes or the rights of the Health Care Noteholders in contravention of the provisions of this Indenture; provided, however, that such Opinion of Counsel shall not be required to express an opinion as to the fair value of the Trust Estate. Counsel rendering any such opinion may rely, without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Trustee in connection with any such action. ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION 8.1. Supplemental Indentures Without Consent of Health Care Noteholders. With the consent of Health Care Notes representing at least 50% of the Aggregate Outstanding Amount of Health Care Notes of each Series adversely affected thereby, if any, and upon satisfaction of the Rating Agency Condition, the Issuer and the Trustee, when authorized by an Issuer Order, at any time and from time to time, may enter into one or more indentures supplemental hereto (which if this Indenture is required to be qualified under the Trust Indenture Act, shall conform to the provisions of the Trust Indenture Act as in force at the date of the execution thereof), in form satisfactory to the Trustee, for any of the following purposes: (1) to correct or amplify the description of any property at any time subject to the lien of this Indenture, or better to assure, convey and confirm unto the Trustee any property subject or required to be subjected to the lien of this Indenture, or to subject to the lien of this Indenture additional property; (2) to add to the conditions, limitations, and restrictions on the authorized amount, terms and purposes of issuance, authentication, and delivery of Health Care Notes, as herein set forth, and additional conditions, limitations, and restrictions thereafter to be observed; (3) to evidence the succession, in compliance with the applicable provisions hereof, of another person to the Issuer, and the assumption by any such successor of the covenants of the Issuer herein and in the Health Care Notes contained; (4) to add to the covenants of the Issuer, for the benefit of the Holders of the Health Care Notes, or to surrender any right or power herein conferred upon the Issuer; (5) [intentionally omitted]; 62 68 (6) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture which may be inconsistent with any other provision herein or in any supplemental indenture or to make any other provisions with respect to matters or questions arising under this Indenture or in any supplemental indenture; (7) to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to one or more Series of the Health Care Notes and to add to or change any of the provisions of this Indenture as shall be necessary to facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Section 6.12 hereof; (8) if this Indenture is required to be qualified under the Trust Indenture Act, to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act and to add to this Indenture such other provisions as may be expressly required by the Trust Indenture Act; (9) to set forth the terms of any Series that has not theretofore been authorized by a Series Supplement and to enter into the related Series Supplement pursuant to Section 2.3; (10) to amend Section 2.11 hereof, but only with respect to a Series that has not theretofore been authorized by a Series Supplement; (11) to make any change necessary to maintain the then current rating on any Series of Health Care Notes by any Rating Agency; or (12) to make any other change which in the opinion of the Trustee (based on advice of counsel) is not adverse to any Holder of Health Care Notes. Notwithstanding anything in this Section 8.1 to the contrary, no consent of the Holders of Health Care Notes shall be required (regardless of any adverse effect) with respect to any supplemental indenture of the type set forth in clause (9) of this Section 8.1 which only sets forth the Series specific terms set forth in the following clauses of Section 2.3 hereof: (1), (2), (3) (but such Series Supplement shall not alter the Distribution Dates), (4) (so long as the Scheduled Amortization Date of the new Series is not prior to the Scheduled Amortization Date of any outstanding Series), (5), (7), (8), (9) (solely to the extent of Redemption Dates and the Redemption Prices) and (10), but solely to the extent any of such terms relate to specific terms permitted to be established above without the consent of the Noteholders of any Health Care Note or define such terms as Series Base Reserve Percentage, Series Dynamic Reserve Floor Percentage, Series Rate Increment and Series Rating Multiple. 63 69 The Trustee is hereby authorized to join in the execution of any such supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained. SECTION 8.2. Supplemental Indentures with Consent of Health Care Noteholders. With the consent of the Holders of not less than 50% of the then Aggregate Outstanding Amount of the Health Care Notes of each Series, and upon satisfaction of the Rating Agency Condition, by act of such Holders delivered to the Issuer and the Trustee, the Issuer and the Trustee, when authorized by an Issuer Order, may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture relating to such Series or of modifying in any manner the rights of the Holders of the Health Care Notes of such Series under this Indenture; provided, however, no such supplemental indenture shall, without the consent of the Holder of each Outstanding Health Care Note of each Series affected thereby: (1) change the Scheduled Amortization Date or Final Maturity Date of, or any Payment Date for the payment of any installment of principal or interest on, any Health Care Note, or reduce the principal amount thereof, the Series Note Interest Rate (or method of determination thereof) thereon or the Redemption Price with respect thereto, change the provision of this Indenture and the related Series Supplement relating to the application of collections on, or the proceeds of the sale of, the Trust Estate to payment of principal of Health Care Notes, or change any place of payment where, or in the coin or currency in which, any Health Care Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of the provisions of this Indenture requiring the application of funds available therefor, as provided in Article VII, to the payment of any such amount due on the Health Care Notes on or after the respective due dates thereof (or, in the case of redemption, on or after the Redemption Date); (2) reduce the percentage of the Aggregate Outstanding Amount of the Health Care Notes of a Series, the consent of the Holders of which is required for any such supplemental indenture, or the consent of the Holders of which is required for any action or waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture; (3) modify or alter the provisions of the proviso to the definition of the term "Outstanding"; (4) reduce the percentage of the Aggregate Outstanding Amount of the Health Care Notes required to direct the Trustee to direct the Issuer to sell or liquidate the Trust Estate pursuant to Section 5.4 or Section 5.11 hereof; (5) modify any provision of this Section 8.2 or to provide that certain additional provisions of this Indenture or the Related Documents cannot be modified or waived without the consent of the Holder of each Outstanding Health Care Note affected thereby; 64 70 (6) modify any of the provisions of this Indenture or the related Series Supplement in such manner as to affect the calculation of the amount of any payment of interest or principal due on any Health Care Note of any Series on any Payment Date (including the calculation of any of the individual components of such calculation) or to affect the rights of the Holders of Health Care Notes of any Series to the benefit of any provisions for the mandatory redemption of Health Care Notes of such Series contained herein or in the related Series Supplement; (7) provide for payments on Health Care Notes of the same or of different Series to be other than on a parity basis; or (8) permit the creation of any Lien ranking prior to or on a parity with the Lien of this Indenture with respect to any part of the Trust Estate or, except as otherwise permitted or contemplated herein, terminate the Lien of this Indenture on any property at any time subject hereto or deprive the Holder of any Health Care Note of any Series of the security provided by the Lien of this Indenture. It shall not be necessary for any Act of Health Care Noteholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Promptly after the execution by the Issuer and the Trustee of any supplemental indenture pursuant to this Section or Section 8.1, the Trustee shall mail to the Holders of the Health Care Notes to which such amendment or supplemental indenture relates a notice setting forth in general terms the substance of such supplemental indenture. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 8.3. Execution of Supplemental Indentures or Amendments to Sale and Servicing Agreement. In executing, or permitting the additional trusts created by, any supplemental indenture or any amendment to the Sale and Servicing Agreement permitted by this Article VIII or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and subject to Sections 6.1 and 6.3 hereof, shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture or such amendment to the Sale and Servicing Agreement is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture or such amendment to the Sale and Servicing Agreement that affects the Trustee's own rights, duties, liabilities, or immunities under this Indenture or such agreement or otherwise. SECTION 8.4. Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith with respect to each Series of Health Care Notes affected thereby or all Health Care Notes, and the respective rights, limitations of rights, obligations, 65 71 duties, liabilities and immunities under this Indenture of the Trustee, the Issuer and the Holders of the Health Care Notes of each Series and other secured parties hereunder affected thereby shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 8.5. Reference in Health Care Notes to Supplemental Indentures. Health Care Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article VIII may, and if required by the Trustee shall, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Issuer or the Trustee shall so determine (based upon the advice of counsel), new Health Care Notes so modified as to conform, in the opinion of the Trustee and the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Trustee in exchange for Outstanding Health Care Notes. SECTION 8.6. Amendments of Sale and Servicing Agreement Without Consent of Health Care Noteholders. With the consent of Health Care Notes representing at least 50% of the Aggregate Outstanding Amount of Health Care Notes of each Series adversely affected thereby, if any, and upon satisfaction of the Rating Agency Condition, the Trustee may consent to any amendment to the Sale and Servicing Agreement for any of the following purposes: (1) to add to the covenants of the Seller, Master Servicer, Beverly or any Servicer, for the benefit of the Holders of the Health Care Notes, or to surrender any right or power therein conferred upon the Seller, Master Servicer, Beverly or any Servicer; (2) to cure any ambiguity, to correct or supplement any provision herein or in the Sale and Servicing Agreement which may be inconsistent with any other provision herein or in the Sale and Servicing Agreement or to make any other provisions with respect to matters or questions arising under the Sale and Servicing Agreement; (3) to make any change necessary to maintain the then current rating on any Series of Health Care Notes by any Rating Agency; (4) to amend the definitions of "Facility" and/or of "Ineligible Receivable" to permit additional facilities and additional types of Receivables to comply with the requirements for purchase thereof under the Sale and Servicing Agreement; provided, that: (i) the Rating Agency Condition shall have been satisfied; and (ii) favorable legal opinions, in substantially the respective forms of those delivered on the Effective Date (but with respect to the additional facilities and Receivables permitted to be sold under the Sale and Servicing Agreement as a consequence of such amendment), are delivered in connection with such amendment and (iii) no Amortization Event shall have occurred or be continuing; and 66 72 (5) to provide for alternative calculation of the Minimum Required Receivables Balance (or any component thereof). SECTION 8.7. Amendment of Sale and Servicing Agreement With Consent of Health Care Noteholders. With the consent of at least 50% of the then Aggregate Outstanding Amount of Health Care Notes of each Series, and upon satisfaction of the Rating Agency Condition, the Trustee may consent to any amendment of the Sale and Servicing Agreement; provided, that, without the consent of all Health Care Noteholders affected thereby, no such amendment shall: (1) [intentionally omitted]; (2) provide for payments on Health Care Notes of the same or of different Series to be other than on a parity basis; (3) modify any of the payment provisions thereof which may be applicable to, or benefit, any such Health Care Noteholders; or (4) permit the creation of any Lien ranking prior to or on a parity with the Lien of the Indenture with respect to any part of the Trust Estate or, except as otherwise permitted or contemplated herein, terminate the Lien of the Indenture on any property at any time subject thereto or deprive the Holder of any Health Care Note of any Series of the security provided by the Lien of the Indenture. ARTICLE IX OPTIONAL REDEMPTION OF HEALTH CARE NOTES SECTION 9.1. Optional Redemption by Issuer. (1) The Issuer may, at its option, redeem all but not less than all of the Health Care Notes of a Series as permitted by the related Series Supplement on any Redemption Date at the times and at the Redemption Price specified in such Series Supplement, subject to the conditions set forth below. If the Issuer shall elect to redeem the Health Care Notes of a Series in full pursuant to this Section 9.1(a), it shall furnish notice of such election (which shall be irrevocable) containing the information described in Section 9.2 (together with evidence satisfactory to the Trustee of compliance with the provisions of Section 9.1(c)) to the Trustee not later than 45 days prior to the Redemption Date and shall deposit into the Collection Account (to the extent not already on deposit) on or prior to 11:00 a.m. New York City time on the third Business Day prior to the Redemption Date the Redemption Price of the Health Care Notes to be redeemed. On or prior to 11:00 a.m. New York City time on the Business Day prior to any Redemption Date, the Trustee, pursuant to an Issuer Order delivered to the Trustee, shall transfer the Redemption Price from the Collection Account into the applicable subaccounts of the Distribution Account. 67 73 (2) The Issuer may elect, by Issuer Order delivered to the Trustee on or before the sixth Business Day prior to the proposed Optional Partial Redemption Date (which shall include a duly completed form of notice meeting the requirements of Section 9.2 to be sent to the related Health Care Noteholders not later than one (1) Business Day thereafter), cause amounts on deposit in the Collection Account to be applied to the partial redemption of Health Care Notes of any Series at their Redemption Price; provided, that the Issuer, by Issuer Order delivered to the Trustee (together with evidence satisfactory to the Trustee of compliance with the provisions of Section 9.1(c)), may elect to revoke an election for an Optional Partial Redemption upon payment to the related Health Care Noteholders of any Special Series Obligations (x) due to such Health Care Noteholders because of any such notice of Optional Partial Redemption or of such revocation or (y) otherwise due or owing (on a pro rata basis) in respect of the Health Care Notes being redeemed. Partial Optional Redemption of Health Care Notes shall take place in minimum principal amounts of $5,000,000. All Optional Partial Redemption payments shall be payable to the related Health Care Noteholders pro rata in the manner set forth in Sections 2.9 and 7.2(g) and (j) of this Indenture. On or prior to 11:00 a.m. New York City time on the third Business Day prior to any Partial Optional Redemption Date, the Trustee, pursuant to an Issuer Order delivered to the Trustee, shall either (i) transfer the Redemption Price from the Collection Account into the applicable subaccounts to the Distribution Account or (ii) revoke such Optional Partial Redemption. As soon as practicable following receipt by the Trustee of notice of such revocation, the Trustee shall so notify each Health Care Noteholder of the related Series pursuant to Section 10.4 of this Indenture. (3) Notwithstanding the foregoing, the Issuer's right to redeem Health Care Notes of any Series pursuant to Sections 9.1(a) or 9.1(b) shall be conditioned on the following: (1) The Redemption Price may be paid solely from the proceeds of refinancing all or a portion of such Series of Health Care Notes, from a sale of Purchased Receivables pursuant to Section 9.4 (in the case of a redemption in full), or from the application of the proceeds of Purchased Receivables on deposit in the Collection Account pursuant to Section 6.3(a)(viii) of the Sale and Servicing Agreement. In no event shall any funds provided, directly or indirectly, by Beverly or any of its Affiliates be utilized (except pursuant to sales of Purchased Receivables pursuant to Section 9.4); and (2) The Issuer's board of directors shall adopt a resolution specifically authorizing such redemption. SECTION 9.2. Form of Optional Redemption Notice. Unless otherwise specified in the Series Supplement relating to a Series of Health Care Notes, notice of redemption under Section 9.1 hereof shall be given by the Trustee (x) by first-class mail, postage prepaid, mailed not less than thirty days nor more than 45 days prior to the applicable Redemption Date, or (y) by facsimile sent not less than five (5) Business Days prior to the applicable Partial Optional Redemption Date, in each case to each Holder of Health Care Notes to be redeemed, as of the close of business 68 74 on the Record Date preceding the applicable Redemption Date or Partial Optional Redemption Date at such Holder's address appearing in the Health Care Note Register. All notices of redemption shall state: (1) the Redemption Date or Partial Optional Redemption Date; (2) the Redemption Price; (3) the place where such Health Care Notes are to be surrendered for payment of the Redemption Price (which shall be the office or agency of the Issuer to be maintained as provided in Section 3.2 hereof) (in the case of a Redemption in full); (4) that on the Redemption Date or Partial Optional Redemption Price the Redemption Price will become due and payable and that interest on the principal portion thereof shall cease to accrue from and after said date; and (5) that any Partial Optional Redemption is subject to revocation. Notice of redemption of the Health Care Notes to be redeemed shall be given by the Trustee in the name and at the expense of the Issuer. Failure to give notice of redemption, or any defect therein, to any Holder of any Health Care Note selected for redemption shall not impair or affect the validity of the redemption of any other Health Care Note. SECTION 9.3. Health Care Notes Payable on Redemption Date or Optional Partial Optional Redemption Date. Notice of redemption having been given as provided in Section 9.2 hereof, unless such redemption has been revoked pursuant to Section 9.1(b), the Health Care Notes or portion thereof to be redeemed, shall on the applicable Redemption Date or Partial Optional Redemption Date become due and payable at the Redemption Price and, unless the Issuer shall default in the payment of the Redemption Price, no interest shall accrue on the Redemption Price for any period after the date to which accrual interest is calculated for purposes of calculating the Redemption Price. SECTION 9.4. Sale of Collateral to Effect Redemption. In order to effect the redemption of all of the Health Care Notes of all Series at the Redemption Price the Issuer may, by Issuer Order, instruct the Trustee to effect a sale of all of the Collateral, which Issuer Order shall set forth, for the Trustee's benefit, the minimum price for which the Collateral can be sold (as set forth below); provided, that no such sale shall be effected if the proceeds of such sale (x) are insufficient to pay the aggregate Redemption Prices of all Series of Health Care Notes and any other amounts due thereon, hereunder or under any Related Document or (y) are not equal to the "fair market value" of the Collateral (as set forth below). Such instruction of the Issuer to the Trustee shall specify the time and place of such proposed sale and the proposed Person to acquire the Collateral. Fair market value of the Collateral shall be the amount set forth as the fair market value of the Collateral in an 69 75 Officer's Certificate of the Master Servicer to the Trustee (upon which certificate the Trustee may conclusively rely without independent investigation). The Trustee shall deposit any proceeds of such sale immediately into the Collateral Account. The purchaser(s) at any such sale shall thereafter hold the Collateral absolutely, free from any claim or right of whatever kind, including any equity of redemption, of the Issuer, any such demand, notice, claim, right or equity being hereby expressly waived and released. The Trustee shall under no circumstances incur any liability as a result of the sale of the Collateral, or any part thereof, at any sale conducted in accordance with the foregoing. The Issuer hereby waives any claims against the Trustee and the Health Care Noteholders arising by reason of the fact that the price at which the Collateral may have been sold at any private sale was less than the price which might have been obtained at a public sale or was less than the then total unpaid Obligations. ARTICLE X MISCELLANEOUS SECTION 10.1. Compliance Certificates and Opinions, etc. Upon any application or request by the Issuer to the Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Trustee at Issuer expense (i) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, and (iii) if this Indenture and any Series Supplement are required to be qualified under the Trust Indenture Act, an Independent Certificate from a firm of certified public accountants meeting the applicable requirements of this Section 10.1 (if such certificate is required by the Trust Indenture Act), except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each signatory of such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such signatory, such signatory has made such examination or investigation as is necessary to enable such signatory to express an informed opinion as to whether or not such covenant or condition has been complied with; and 70 76 (4) a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with. SECTION 10.2. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Authorized Officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer, the Seller, the Issuer, stating that the information with respect to such factual matters is in the possession of the Servicer, the Seller, the Issuer, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Whenever in this Indenture, in connection with any application or certificate or report to the Trustee, it is provided that the Issuer shall deliver any document as a condition of the granting of such application, or as evidence of the Issuer's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the Issuer to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Trustee's right to rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI hereof. SECTION 10.3. Acts of Health Care Noteholders. (1) Any request, demand, authorization, direction, notice, consent, waiver, or other action provided by this Indenture to be given or taken by Health Care Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Health Care Noteholders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are 71 77 delivered to the Trustee, and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Health Care Noteholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1 hereof) conclusive in favor of the Trustee and the Issuer, if made in the manner provided in this Section. (2) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner that the Trustee deems sufficient. (3) The ownership of Health Care Notes shall be proved by the Health Care Note Register. (4) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Health Care Notes shall bind the Holder of every Health Care Note issued upon the registration thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Health Care Note. SECTION 10.4. Notices to Health Care Noteholders; Waiver. Where this Indenture provides for notice to Health Care Noteholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class, postage prepaid, to each Health Care Noteholder entitled to such notice, at his address as it appears on the Health Care Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Health Care Noteholders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Health Care Noteholder shall affect the sufficiency of such notice with respect to other Health Care Noteholders, and any notice that is mailed in the manner herein provided shall conclusively be presumed to have been duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Health Care Noteholders shall be filed with the Trustee but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such a waiver. In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage, or similar activity, it shall be impractical to mail notice of any event of Health Care Noteholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. 72 78 Where this Indenture provides for notice to each Rating Agency, failure to give any such notice shall not affect any other rights or obligations created hereunder, and shall not under any circumstance constitute a Default or Event of Default. SECTION 10.5. Alternative Payment and Notice Provisions. Notwithstanding any provision of this Indenture or any of the Health Care Notes to the contrary, the Issuer may enter into any agreement with any Holder of a Health Care Note providing for a method of payment, or notice by the Trustee or any Paying Agent to such Holder, that is different from the methods provided for in this Indenture for such payments or notices. The Issuer will furnish to the Trustee a copy of each such agreement and the Trustee will cause payments to be made and notices to be given in accordance with such agreements. SECTION 10.6. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 10.7 Successors and Assigns. All covenants and agreements in this Indenture by the Issuer shall bind its successors and assigns, whether so expressed or not. SECTION 10.8. Separability. In case any provision in this Indenture or in the Health Care Notes shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 10.9. Benefits of Indenture. Nothing in this Indenture or in the Health Care Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Health Care Noteholders, and any other party secured hereunder, and any other Person with an ownership interest in any part of the Trust Estate, any benefit of any legal or equitable right, remedy, or claim under this Indenture. SECTION 10.10 [Intentionally Omitted]. SECTION 10.11. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS. THE PARTIES HERETO EACH IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF, OR RELATING TO, THIS AGREEMENT, EACH HEREBY IRREVOCABLY WAIVING ANY OBJECTION TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING SO BROUGHT AS WELL AS ANY CLAIM OF INCONVENIENT FORUM. THE PARTIES HERETO EACH HEREBY CONSENTS TO PROCESS BEING SERVED IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY DOCUMENT 73 79 DELIVERED PURSUANT HERETO BY THE MAILING OF A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO ITS RESPECTIVE ADDRESS SPECIFIED AT THE TIME FOR NOTICES UNDER THIS AGREEMENT OR TO ANY OTHER ADDRESS OF WHICH IT SHALL HAVE GIVEN WRITTEN NOTICE TO THE OTHER PARTIES. THE PARTIES HERETO EACH WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL CLAIM OF ERROR BY REASON OF SUCH SERVICE, IF MADE PURSUANT TO THE TERMS HEREOF, AND AGREES THAT SERVICE IN SUCH MANNER SHALL CONSTITUTE VALID PERSONAL SERVICE UPON IT AND SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS. THE FOREGOING SHALL NOT LIMIT THE ABILITY OF ANY PARTY HERETO TO BRING SUIT IN THE COURTS OF ANY JURISDICTION. THE PARTIES HERETO EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT CAN EFFECTIVELY DO SO UNDER APPLICABLE LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE RELATED DOCUMENTS. SECTION 10.12 Counterparts. This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 10.13. Nonpetition Covenant. The Trustee or any Health Care Noteholder as such shall not, prior to the date which is 370 days after the discharge of this Indenture, acquiesce, petition or otherwise, directly or indirectly, invoke or cause the Issuer to invoke the process of any governmental authority for the purpose of commencing or sustaining a case against the Issuer under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Issuer. SECTION 10.14. Confidentiality. Notwithstanding any provision of this Indenture to the contrary, in no event shall the Trustee have access to any patient records required by any law, rule or regulation of any Governmental Authority, the JCAHO or any similar agency, or any other regulatory or professional organization to which the Issuer, the Seller or any Selling Subsidiary belongs or is subject, to be kept confidential; provided, however, that the Issuer shall use its reasonable efforts to furnish, or cause to be furnished, information reasonably requested by the Trustee relating to the Collateral without violating any such law, rule or regulation. SECTION 10.15. Effect on Existing Indenture. This Indenture amends and restates the Existing Indenture as of the Effective Date. This Indenture shall not effect a novation of the obligations of the parties to the Existing Indenture but instead shall be merely a restatement and, where applicable, an amendment of the terms governing such obligations. 74 80 IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Indenture to be duly executed by their respective officers, thereunto duly authorized, all as of the day and year first above written. BEVERLY FUNDING CORPORATION By: -------------------------------- Name: Title: THE CHASE MANHATTAN BANK By: -------------------------------- Name: Title: EX-10.3 4 SERIES SUPPLEMENT, DATED JUNE 1, 1999 1 EXHIBIT 10.3 SERIES SUPPLEMENT, dated as of June 1, 1999 (this "Supplement"), by and between BEVERLY FUNDING CORPORATION, a Delaware corporation (the "Issuer"), and THE CHASE MANHATTAN BANK (as successor to CHEMICAL BANK), a New York banking corporation, as trustee under the Indenture (together with its successors in trust thereunder as provided in the Indenture referred to below, the "Trustee"). PRELIMINARY STATEMENT Section 8.1(9) of the First Amendment and Restatement dated as of June 1, 1999 to the Indenture between the parties hereto (the "Indenture") provides, among other things, that the Issuer and the Trustee may at any time and from time to time enter into one or more indentures supplemental to the Indenture for the purposes of authorizing the issuance by the Issuer of a Series of Health Care Notes and specifying the terms thereof. The Issuer has duly authorized the creation of a Series of Health Care Notes with an initial aggregate principal amount of $50,000,000 to be known as the Issuer's $50,000,000 Floating Rate Health Care Receivables-Backed Notes, Series 1999-A (the "Health Care Notes"), and the Issuer and the Trustee are executing and delivering this Supplement in order to provide for the Health Care Notes. All terms used in this Supplement that are defined in the Indenture, either directly or by reference therein, have the meanings assigned to them therein, except to the extent such terms are defined or modified in this Supplement or the context clearly requires otherwise. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Supplement shall govern. I. SECTION Designation. The Series of Health Care Notes issued pursuant hereto shall be designated generally as the Issuer's $50,000,000 Floating Rate Health Care Receivables-Backed Notes, Series 1999-A. I. SECTION Interest. Interest on the Health Care Notes shall be determined and computed as follows: Interest on the Health Care Notes shall be payable quarterly until the commencement of the Amortization Period or the Liquidation Period, after which interest will be payable on the monthly Payment Dates at the rate specified herein. Interest on the Health Care Notes shall accrue at the Series Note Interest Rate during the initial Interest Accrual Period and during each Interest Accrual Period thereafter until the commencement of the Liquidation Period or the Amortization Period; provided, however, that if an Amortization Event occurs at any time after the Series Note Interest Rate has been determined in respect of a three-month Interest Accrual Period, the Series Note Interest Rate shall remain in effect until the Payment Date coinciding with the last day of 2 such three-month Interest Accrual Period. Thereafter, interest on the Health Care Notes will accrue at the Series Alternate Note Interest Rate. For purposes of calculating the Series Note Interest Rate or Series Alternate Note Interest Rate with respect to each Interest Accrual Period subsequent to the initial Interest Accrual Period, the Trustee shall determine LIBOR in accordance with the provisions set forth below, taking into account the duration of the applicable Interest Accrual Period (as set forth in the definition thereof): 1. On each Interest Determination Date, the Trustee shall determine the annual rate of interest published or reported by the Telerate Service (by reference to the screen page currently designated as "Page 3750" on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for Dollar deposits) at approximately 11:00 a.m. (Chicago, Illinois time) on the Interest Determination Date as being the rate of interest offered in the London interbank market for three-month or one-month U.S. Dollar deposits, as applicable, for delivery on the first day of such Interest Accrual Period. LIBOR shall be such rate of interest. If the offered rate so appearing is replaced by the corresponding rates of more than one bank, this sub-paragraph (i) shall be applied, with any necessary consequential changes, to the arithmetic mean (rounded, if necessary, up to the nearest 1/16 percent) of the rates (being at least two) which so appear, as determined by the Trustee. 1. If for any reason such offered rate does not so appear, or if the relevant page is unavailable, the Trustee will request each of the Reference Banks acting in each case through its respective principal London office to provide the Trustee with its offered quotation to leading banks for Euro-dollar deposits in London in respect of an amount equal to the aggregate principal amount of the Health Care Notes as of the first date in such Interest Accrual Period (taking into account payments of principal to be made on such date) for a period of three months or one month, as applicable, as at 11:00 a.m. (Chicago, Illinois time) on such Interest Determination Date. If at least two of the Reference Banks provide such offered quotations, LIBOR shall be the arithmetic mean (rounded, if necessary, up to the nearest 1/16 percent) of the rates so provided, as determined by the Trustee. 1. If on any Interest Determination Date LIBOR may not be determined pursuant to sub-paragraph (i) or (ii) above, LIBOR shall be whichever is the higher of: (x) LIBOR as determined for the last preceding Interest Accrual Period of the same duration as the applicable Interest Accrual Period, if any, to which one of the preceding sub-paragraphs shall have applied; and (y) the rate per annum which the Trustee determines to be either (a) the arithmetic mean (rounded, if necessary, up to the nearest 1/16 percent) of the U.S. Dollar lending rates which at least two New York City 3 banks selected by the Trustee are quoting, on the relevant Interest Determination Date in respect of an amount equal to the aggregate principal amount of Health Care Notes as of the first day in such Interest Accrual Period (taking into account payments of principal to be made on such date), for a period of three months or one month, to the Reference Banks or those of them (being at least two in number) to which such quotations are, in the opinion of the Trustee, being so made, or (b) if the Trustee can determine no such arithmetic mean, the lowest U.S. Dollar lending rate which at least two major New York City banks selected by the Trustee are quoting on such Interest Determination Date to leading European Banks in respect of an amount equal to the aggregate principal amount of Health Care Notes as of the first day in such Interest Accrual Period (taking into account payments of principal made on such date), for a period of three months or one month, as applicable; provided, however, that if the banks so selected by the Trustee are not quoting lending rates as mentioned above, the interest rates shall be the interest rates specified in (x) above. The Trustee shall, as soon as practicable on each Interest Determination Date, determine the Series Note Interest Rate and Series Alternate Note Interest Rate. The Trustee shall calculate the amount of interest due on the Health Care Notes based on a year of 360 days and actual days elapsed (rounding the resultant figures to the nearest cent (half a cent being rounded upwards)). On each Interest Determination Date, the Trustee shall promptly give notice of the Series Note Interest Rate and the Series Alternate Note Interest Rate, regardless of which interest rate is applicable, for the relevant Payment Date to the Health Care Noteholders in accordance with Section 10.4 of the Indenture and to the Issuer and the Paying Agents, if any. The Trustee shall also make such information available to the Health Care Noteholders at the offices of the Trustee and the Paying Agent. On or prior to 1:00 p.m. (New York City time) on the third Business Day prior to each Payment Date, Redemption Date and Optional Partial Redemption Date, the Issuer shall notify the Trustee, the initial Holder of the Health Care Notes and each other Health Care Noteholder requesting such information from the Issuer in writing of the specific amounts of interest, principal and other amounts to be paid to the Health Care Noteholders on such Payment Date pursuant to Section 7.2 of the Indenture. In determining LIBOR as set forth above, (i) three-month quotations shall be used so long as the Series Note Interest Rate is applicable and (ii) one-month quotations shall be used so long as the Series Alternate Note Interest Rate is applicable. The establishment of LIBOR, the Series Note Interest Rate, the Series Alternate Note Interest Rate and the interest accrued on the Health Care Notes by the Trustee shall (in the absence of manifest error) be final, conclusive and binding upon the Health Care Noteholders, the Issuer and any of their respective partners, beneficiaries, agents, officers, directors, employees or successors or assigns. 4 I. SECTION Authentication Date; Payment Dates; Stated Maturity Date; Principal Payments; Book-Entry Health Care Notes; Exchange Requirements. A. Original Issuance. The Health Care Notes shall be authenticated and delivered by the Trustee to or upon the order of the Issuer on the Closing Date, in an aggregate principal amount not to exceed $50,000,000, and shall be dated their date of authentication. The Health Care Notes shall be issued in the minimum denominations set forth herein and in the Indenture. A. Payment Dates. Prior to the Amortization Period or Liquidation Period, the Payment Dates for the Health Care Notes are March 15, June 15, September 15, and December 15 of each calendar year commencing with the September 1999 Payment Date, and during the Amortization Period or Liquidation Period, the Payment Dates for the Health Care Notes are the 15th day of each month thereafter, or if any such day is not a Business Day, the next succeeding Business Day, in any event until the repayment of the Health Care Notes in full. In the event an Amortization Event occurs during an Interest Accrual Period, such Interest Accrual Period shall be deemed shortened to end on the next following redetermined Payment Date which occurs at least two Business Days following such Amortization Event, and all subsequent Interest Accrual Periods shall be determined based on monthly Payment Dates. A. Final Maturity Date. The Final Maturity Date for the Health Care Notes, on which the unpaid principal amount, if any, of the Health Care Notes is due, is the Payment Date in March 2005. A. Scheduled Amortization Date, Scheduled Accumulation Date and Accumulation Period. The Scheduled Amortization Date for the Health Care Notes, on which the unpaid principal amount, if any, of the Health Care Notes may be paid in part on an amortizing basis pursuant to Sections 2.9(b) and 7.2(g) of the Indenture, is the Payment Date in June 2004 and the Scheduled Accumulation Date for the Health Care Notes, on which amounts will begin to be set aside for the payment of the unpaid principal amount, if any, of the Health Care Notes, is March 1, 2004. The Accumulation Period shall begin on the Scheduled Accumulation Date and continue on each day thereafter to and including May 31, 2004. A. Principal Payments. Principal will be payable in respect of the Health Care Notes as provided herein and in the Indenture. All such principal payments shall be made in accordance with the provisions of Article VII of the Indenture. A. Book-Entry Health Care Notes. The Health Care Notes will be initially issued as Book-Entry Health Care Notes, and the Issuer shall execute, and the Trustee shall authenticate and deliver, such Book-Entry Health Care Notes in accordance with Section 2.12 of the Indenture. 5 A. Exchange Requirements. 1. U.S. Note to Temporary Regulation S Note. Prior to the expiration of the "40-day distribution compliance period" (within the meaning of Regulation S), if a Health Care Noteholder of a U.S. Note deposited with the Clearing Agency wishes at any time to exchange its interest in such U.S. Note for an interest in a Temporary Regulation S Note, or to transfer its interest in such U.S. Note to a Person who wishes to take delivery thereof in the form of an interest in such Temporary Regulation S Note, such Health Care Noteholder may, subject to the rules and procedures of the Clearing Agency and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent interest in such Temporary Regulation S Note. Upon receipt by the Trustee, as transfer agent, at the Corporate Trust Office of (1) instructions given in accordance with the Clearing Agency's procedures from an agent member directing the Trustee to credit or cause to be credited such Temporary Regulation S Note in an amount equal to the interest in the U.S. Note to be exchanged or transferred, (2) a written order given in accordance with the Clearing Agency's procedures containing information regarding the Euroclear or Cedel account to be credited with such increase and the name of such account, and (3) a certificate substantially in the form of Exhibit D-1 given by the transferor (upon which the Trustee may conclusively rely and shall be protected in so relying), the Trustee, as transfer agent, shall instruct the Clearing Agency, its nominee, or the custodian for the Clearing Agency, as the case may be, to reduce or reflect on its records a reduction of such U.S. Note by the aggregate principal amount of the interest in such U.S. Note to be so exchanged or transferred and the Trustee, as transfer agent, shall instruct the Clearing Agency, its nominee, or the custodian for the Clearing Agency, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Temporary Regulation S Note by the aggregate principal amount of the interest in such U.S. Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions (who shall be the agent member of Euroclear or Cedel, or both, as the case may be) an interest in such Temporary Regulation S Note equal to the reduction in the principal amount of such U.S. Note. 1. U.S. Note to Regulation S Note. After the expiration of the "40-day distribution compliance period" (within the meaning of Regulation S), if a Health Care Noteholder of a U.S. Note deposited with the Clearing Agency wishes at any time to exchange its interest in such U.S. Note for an interest in a Regulation S Note, or to transfer its interest in such Regulation S Note to a Person who wishes to take delivery thereof in the form of an interest in such Regulation S Note, such Health Care Noteholder may, subject to the rules and procedures of the Clearing Agency and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent interest in such Regulation S Note. Upon receipt by the Trustee, as transfer agent, at the Corporate Trust Office of (1) instructions given in accordance with the Clearing Agency's procedures from an agent member directing the Trustee to credit or cause to be credited such Regulation S Note in an amount equal to the interest in the U.S. Note to be exchanged or transferred, (2) a written 6 order given in accordance with the Clearing Agency's procedures containing information regarding the participant account of the Clearing Agency and such order to contain information regarding the agent member's account with the Clearing Agency or Euroclear or Cedel to be credited with such increase and (3) a certificate substantially in the form of Exhibit D-2 given by the transferor (upon which the Trustee may conclusively rely and shall be protected in so relying), the Trustee, as transfer agent, shall instruct the Clearing Agency, its nominee, or the custodian for the Clearing Agency, as the case may be, to reduce or reflect on its records a reduction of such U.S. Note by the aggregate principal amount of the interest in such U.S. Note to be so exchanged or transferred and the Trustee, as transfer agent, shall instruct the Clearing Agency, its nominee, or the custodian for the Clearing Agency, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Regulation S Note by the aggregate principal amount of the interest in such U.S. Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions an interest in such Regulation S Note equal to the reduction in the principal amount of such U.S. Note. 1. Regulation S Note to U.S. Note. If a Health Care Noteholder of a Regulation S Note that is deposited with the Clearing Agency wishes at any time to exchange its interest for an interest in a U.S. Note, or to transfer its interest in such Regulation S Note to a Person who wishes to take delivery thereof in the form of an interest in such U.S. Note, such Health Care Noteholder may, subject to the rules and procedures of Euroclear or Cedel and the Clearing Agency, as the case may be, and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent interest in such U.S. Note. Upon receipt by the Trustee, as transfer agent, at the Corporate Trust Office of (1) instructions from Euroclear or Cedel or the Clearing Agency, as the case may be, directing the Trustee, as transfer agent, to credit or cause to be credited such U.S. Note equal to the interest in the Regulation S Note to be exchanged or transferred, such instructions to contain information regarding the agent member's account with the Clearing Agency to be credited with such increase, and (2) a certificate substantially in the form of Exhibit D-3 given by the transferor (upon which the Trustee may conclusively rely and shall be protected in so relying), the Trustee, as transfer agent, shall instruct the Clearing Agency, its nominee, or the custodian for the Clearing Agency, as the case may be, to reduce or reflect on its records a reduction of such Regulation S Note by the aggregate principal amount of the interest in such Regulation S Note to be exchanged or transferred, and the Trustee, as transfer agent, shall instruct the Clearing Agency, its nominee, or the custodian for the Clearing Agency, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such U.S. Note by the aggregate principal amount of the interest in such Regulation S Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions an interest in such U.S. Note equal to the reduction in the principal amount of such Regulation S Note. 7 1. Temporary Regulation S Note to Regulation S Note. After the expiration of the "40-day distribution compliance period" (within the meaning of Regulation S), interests in a Temporary Regulation S Note, as to which the Trustee has received from Euroclear or Cedel, as the case may be, a certificate substantially in the form of Exhibit E (upon which the Trustee may conclusively rely and shall be protected in so relying) to the effect that Euroclear or Cedel, as applicable, has received a certificate substantially in the form of Exhibit C from the Health Care Noteholder of a Temporary Regulation S Note, will be exchanged on and after such "40-day distribution compliance period" for interests in a Regulation S Note. The Trustee shall effect such exchange by delivering to the Clearing Agency or its agent for credit to the respective Health Care Noteholder accounts, a duly executed and authenticated Regulation S Note, representing the principal amount of interests in such Temporary Regulation S Note initially exchanged for interests in such Regulation S Note. The delivery to the Trustee by Euroclear or Cedel of the certificate or certificates referred to above may be relied upon by the Issuer and the Trustee as conclusive evidence that the certificate or certificates referred to therein has or have been delivered to Euroclear or Cedel pursuant to the terms of this Indenture and such Temporary Regulation S Note. Upon any exchange of interests in a Temporary Regulation S Note for interests in a Regulation S Note, the Trustee shall endorse such Temporary Regulation S Note to reflect the reduction in the principal amount represented thereby by the amount so exchanged and shall endorse such Regulation S Note to reflect the corresponding increase in the amount represented thereby. 1. Other Exchanges. In the event that a Book-Entry Note is exchanged for a Definitive Note pursuant to Section 2.14 of the Indenture, such exchange and any subsequent exchange or transfer of such Definitive Notes shall only be made in accordance with Section 2.15 of the Indenture and with such procedures as are substantially consistent with the provisions of clauses (i) through (iv) and as may be from time to time adopted by the Issuer and the Trustee. A. Initial Deposit to Reserve Subaccount. The Issuer shall pay to the Trustee on the Closing Date an amount equal to the Reserve Deficiency for deposit by the Trustee into the Reserve Subaccount. I. SECTION Optional Redemption. The Health Care Notes are subject (upon compliance with the conditions specified in the Indenture, including, without limitation, Section 9.1 of the Indenture) to redemption in whole on any Redemption Date, or in part on any Optional Partial Redemption Date, at the option of the Issuer for a redemption price (the "Redemption Price") equal to (i) the following percentages of the principal amount thereof plus accrued interest to the Redemption Date plus (ii) any Series Special Obligations owing in respect of the Health Care Notes being redeemed accrued to the Redemption Date or Optional Partial Redemption Date, as applicable, or otherwise payable in connection with such redemption. 8
Payment Date Percentage ------------ ---------- June 15, 2000 100.500% thereafter, prior to June 15, 2001 100.375% thereafter, prior to June 15, 2002 100.250% thereafter, prior to June 15, 2003 100.125% thereafter 100.000%
The Issuer's ability to pay any premium in connection with any optional redemption of Health Care Notes has not been rated by the Rating Agency, and payment to the Health Care Noteholders of such amounts are subject to the priority of payments set forth in Section 6.3 of the Sale and Servicing Agreement and Section 7.2 of the Indenture. I. SECTION Series Special Obligations. The following obligations constitute "Series Special Obligations" for purposes of this Supplement. A. Default Interest. To the extent allowable by law, any payments due hereunder which are not paid when due (whether by acceleration or otherwise, and irrespective of any grace period applicable thereto) shall bear interest at a default rate of interest equal to 2% in excess of the Series Note Interest Rate or Series Alternate Note Interest Rate then in effect, as applicable, which default rate shall remain in effect until such payments and any interest thereon have been paid in full. A. Increased Costs. If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any directive guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Holder of agreeing to make or making, funding or maintaining its investment in the Health Care Notes, then the Issuer shall, within three days following a written request (which request shall set forth in reasonable detail the basis for requesting such amounts) by such Holder to the Issuer and the Master Servicer, pay to such Holder additional amounts sufficient to compensate such Holder for such increased cost. Any such request submitted to the Issuer and the Master Servicer by such Holder shall be conclusive and binding for all purposes, absent manifest error. If any Holder determines that compliance with any law or regulation or any guidelines or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Holder or any corporation controlling such Holder and that the amount of such capital is increased by or based upon the existence of such Holder's holding of any Health Care Notes, then, upon a written request (which request shall set forth in reasonable detail the basis for requesting such amounts) by such Holder to the Issuer and the Master Servicer, the Issuer shall within three days following such request pay to such Holder, as specified from time to time by such Holder, an additional amount sufficient to compensate such Holder in light of such circumstances, to the extent 9 that such Holder reasonably determines such increase in capital to be allocable to the existence of such Holder's Health Care Notes. Any such request submitted to the Issuer and the Master Servicer by such Holder shall be conclusive and binding for all purposes, absent manifest error. A. Requirements of Law. If the existence of or compliance with (i) any law or regulation or any change therein or in the interpretation or application thereof, in each case adopted, issued or occurring after the date hereof or (ii) any request, guideline or directive from any central bank or other governmental authority (whether or not having the force of law) issued or occurring after the date of this Agreement: a) does or shall subject any Holder to any tax of any kind whatsoever with respect to this Agreement, or does or shall change the basis of taxation of payments to any Holder on account of Collections, interest or any other amounts payable hereunder (excluding taxes imposed on the overall net income or gross receipts of any Holder, and franchise taxes imposed on any Holder, by the jurisdiction under the laws of which any Holder is organized or a political subdivision thereof); a) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, purchases, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of any Holder which are not otherwise included in the determination of the Series Note Interest Rate or the Series Alternate Note Interest Rate hereunder; or a) does or shall impose on any Holder any other condition; and the result of any of the foregoing is (x) to increase the cost to any Person acting as agent for any Holder, or of any Holder agreeing to purchase or purchasing or maintaining the ownership of a Health Care Note in respect of which interest is computed by reference to the Series Note Interest Rate or the Series Alternate Note Interest Rate or (y) to reduce any amount receivable hereunder (whether directly or indirectly) funded or maintained by reference to the Series Note Interest Rate or the Series Alternate Note Interest Rate, then, in any such case, within 15 days demand by any Holder the Issuer shall pay any Holder any additional amounts sufficient and reasonably calculated to compensate any Holder for such additional cost or reduced amount receivable; provided, however, that such amount shall be reduced by the net amount of any off setting tax benefit which any Holder receives as a result of such additional cost. All such amounts shall be payable as incurred. A certificate from any Holder to the Issuer certifying, in reasonably specific detail, the basis for, calculation of, and amount of such additional costs or reduced amount receivable shall be conclusive in the absence of manifest error; provided, however, that no Holder shall be required to disclose any confidential or tax planning information in any such certificate. A. Breakage Costs. The Issuer shall compensate each Holder, within ten days upon written request therefor (which request shall set forth in reasonable detail 10 the basis for requesting such amounts) by that Holder to the Issuer and the Master Servicer for all losses, expenses and liabilities (including, without limitation, any loss or expense arising from interest or fees paid or payable by that Holder to lenders of funds borrowed by it or other funding arrangements entered into by it to make or carry its investment in the Health Care Notes and any loss sustained by that Holder in connection with the termination of such funding arrangements or the re-employment of such funds), that such Holder may sustain: (i) if any payment or prepayment (by acceleration of maturity or otherwise) of the Health Care Notes occurs on a date that is not the last day of an Interest Accrual Period, (ii) if any payment or prepayment (by acceleration of maturity or otherwise) of the Health Care Notes is not made on any date and in the amount specified in a notice given by the Issuer at least three (3) Business Days prior to any payment to such Holder, or (iii) as a consequence of any other default by the Issuer to repay principal or interest in respect of the Health Care Notes when required by the terms of this Agreement. The determination of amounts payable under this Subsection 5(d) by such Holder shall be conclusive and binding in all matters in the absence of manifest error. A. Series Special Obligations Not Rated. The Issuer's ability to pay any Series Special Obligation in connection with the Health Care Notes has not been rated by the Rating Agency, and payment to the Health Care Noteholders of such amounts are subject to the priority of payments set forth in Section 6.3 of the Sale and Servicing Agreement and Section 7.2 of the Indenture. I. SECTION Certain Defined Terms. With respect to the Health Care Notes, the following definitions shall apply: "Accumulation Amount" shall mean an amount equal to 1.66% of the Net Note Balance of the Health Care Notes and increasing by 1.66% for each Business Day thereafter during the Accumulation Period; provided, however, such amount shall not exceed the Net Note Balance of the Health Care Notes. "Authenticating Agent" shall mean the Trustee. "Cedel" shall mean Cedel S.A. "Closing Date" shall mean June 30, 1999. "Euroclear" shall mean The Euroclear System. "Health Care Noteholder" shall mean the Holder of any Health Care Note. "Interest Accrual Period" shall mean, with respect to any Payment Date, the period commencing on and including the prior Payment Date (or the Closing Date in the case of the initial Payment Date) and ending on and including the day preceding such Payment Date. 11 "Interest Determination Date" shall mean the second business day preceding the commencement of each Interest Accrual Period. The term "business day" for purposes of this definition only shall mean a day on which the Trustee and commercial banks located in the City of London are open for the transaction of commercial banking business. "LIBOR" shall mean, for each Interest Accrual Period, the London interbank offered rate for three-month or one-month U.S. Dollar deposits, as applicable, determined on the related Interest Determination Date by the Trustee pursuant to the provisions of Section 2 of this Supplement. "Minimum Denomination" shall mean $1,000,000. "Payment Date" has the meaning determined in accordance with Section 3(b) of this Supplement. "Reference Banks" shall mean, collectively, Morgan Guaranty Trust Company of New York and The Chase Manhattan Bank. "Regulation S" shall mean Regulation S promulgated under the Securities Act of 1933, as amended and any successor regulation thereto. "Regulation S Note" shall mean a note representing a Health Care Note offered and sold outside the United States in reliance on Regulation S issued in exchange for a Temporary Regulation S Note sold after the expiration of the "40-day distribution compliance period" (within the meaning of Regulation S) in substantially the form set forth in Exhibit B-2 of this Supplement. "Required Reserve" shall mean the sum of the Servicing Fees, the Trustee Fee and interest on the Health Care Notes accrued or to accrue and payable on the next quarterly Payment Date or the next three monthly Payment Dates, as applicable (or, if the senior unsecured long-term debt of Beverly Enterprises, Inc. is rated "B3" or lower by Moody's, the next two quarterly Payment Dates or the next six monthly Payment Dates, as applicable). "Reserve Deficiency" shall mean the excess, if any, of (i) the Required Reserve for the Health Care Notes over (ii) the amount on deposit in the Reserve Subaccount for the Health Care Notes. "Scheduled Accumulation Date" has the meaning determined in accordance with Section 3(d) of this Supplement. "Scheduled Amortization Date" has the meaning determined in accordance with Section 3(d) of this Supplement. "Series Alternate Note Interest Rate" shall equal 6.0675% per annum, with respect to the initial Interest Accrual Period, and with respect to any applicable Interest Accrual 12 Period thereafter, shall be a per annum rate equal to the Series Interest Rate Spread plus one-month LIBOR determined as of the related Interest Determination Date. "Series Base Reserve Percent" shall mean 2.0%. "Series Dynamic Reserve Floor Percent" shall mean 12.0%. "Series Interest Rate Spread" shall mean, with respect to any Interest Accrual Period, the percentage equal to .70%. "Series Liquidation Payment Frequency" shall mean a monthly Payment Date frequency applicable during the Liquidation Period or Amortization Period. "Series Note Interest Rate" shall equal 6.0675% per annum with respect to the initial Interest Accrual Period and, with respect to each applicable Interest Accrual Period thereafter, shall be a per annum rate equal to the Series Interest Rate Spread plus three-month LIBOR determined as of the related Interest Determination Date. "Series Rate Increment" shall equal 1.0%. "Series Rating Multiple" shall mean 3. "Series Special Obligations" shall have the meaning set forth in Section 5 of this Supplement. "Temporary Regulation S Note" shall mean a note representing a temporary Health Care Note offered and sold outside the United States in reliance on Regulation S in substantially the form set forth in Exhibit B-1 of this Supplement. "U.S. Note" shall mean a note representing a Health Care Note offered and sold within the United States in substantially the form set forth in Exhibit A of this Supplement. Further, "Maximum Rate" shall not be applicable, nor have a definition, for purposes of the Health Care Notes and this Supplement. I. SECTION Form of the Health Care Notes. The Health Care Notes shall be in the forms of Exhibits A, B-1 and B-2 hereto. I. SECTION Copies to Holders. At the written request of any Noteholder, the Trustee shall deliver to such requesting Noteholder a copy of the current Monthly Trustee Report after receipt thereof by the Trustee. I. SECTION Ratification of Agreement. As supplemented by this Supplement, the Indenture is in all respects ratified and confirmed and the Indenture, as so 13 supplemented by this Supplement, respectively, shall be read, taken, and construed as one and the same instrument. I. SECTION Counterparts. This Supplement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. I. SECTION GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS. THE PARTIES HERETO EACH IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF, OR RELATING TO, THIS AGREEMENT, EACH HEREBY IRREVOCABLY WAIVING ANY OBJECTION TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING SO BROUGHT AS WELL AS ANY CLAIM OF INCONVENIENT FORUM. THE PARTIES HERETO EACH HEREBY CONSENTS TO PROCESS BEING SERVED IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY DOCUMENT DELIVERED PURSUANT HERETO BY THE MAILING OF A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO ITS RESPECTIVE ADDRESS SPECIFIED AT THE TIME FOR NOTICES UNDER THIS AGREEMENT OR TO ANY OTHER ADDRESS OF WHICH IT SHALL HAVE GIVEN WRITTEN NOTICE TO THE OTHER PARTIES. THE PARTIES HERETO EACH WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL CLAIM OF ERROR BY REASON OF SUCH SERVICE, IF MADE PURSUANT TO THE TERMS HEREOF, AND AGREES THAT SERVICE IN SUCH MANNER SHALL CONSTITUTE VALID PERSONAL SERVICE UPON IT AND SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS. THE FOREGOING SHALL NOT LIMIT THE ABILITY OF ANY PARTY HERETO TO BRING SUIT IN THE COURTS OF ANY JURISDICTION. THE PARTIES HERETO EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT CAN EFFECTIVELY DO SO UNDER APPLICABLE LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SUPPLEMENT OR ANY OF THE RELATED DOCUMENTS. I. SECTION Rule 144A. So long as any of the Health Care Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act of 1933, the Issuer shall, unless it becomes subject to and complies with the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, 14 or rule 12g3-2(b) thereunder, provide to any Health Care Noteholder or Health Care Note Owner of such restricted securities, or to any prospective Health Care Noteholder or Health Care Note Owner of such restricted securities designated by a Health Care Noteholder or Health Care Note Owner, upon the request of such Health Care Noteholder or prospective Health Care Noteholder or Health Care Note Owner, any information required to be provided by Rule 144A(d)(4) under the Securities Act of 1933. 15 IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the date first above written. BEVERLY FUNDING CORPORATION, as Issuer By: -------------------------------------- Name: Title: THE CHASE MANHATTAN BANK, as Trustee By: -------------------------------------- Name: Title: 16 EXHIBIT A FORM OF U.S. NOTE PRINCIPAL PAYMENTS OF THIS U.S. NOTE ARE PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS U.S. NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS U.S. NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE IN THE UNITED STATES OR ANY FOREIGN SECURITIES LAWS. NO U.S. NOTE, OR INTEREST THEREIN, MAY BE OFFERED, SOLD OR TRANSFERRED (INCLUDING BY PLEDGE OR HYPOTHECATION) UNLESS (A) THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS ARE COMPLIED WITH, OR (B) SUCH OFFER, SALE OR TRANSFER IS MADE TO A PERSON (i) THAT THE TRANSFEROR REASONABLY BELIEVES AFTER DUE INQUIRY IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AN AGENT FOR OTHERS (WHICH OTHERS ARE QIBS) TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OR (ii) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT. NO EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), AND NO OTHER PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"), WITH RESPECT TO WHICH NESBITT BURNS SECURITIES INC., OR BEVERLY FUNDING CORPORATION OR THE CHASE MANHATTAN BANK IS A "PARTY IN INTEREST" (WITHIN THE MEANING OF SECTION 3(14) OF ERISA), OR A "DISQUALIFIED PERSON" (WITHIN THE MEANING OF SECTION 4975 OF THE CODE), MAY PURCHASE THIS U.S. NOTE OR ANY INTEREST HEREIN, UNLESS SUCH PURCHASE AND THE HOLDING OF THIS U.S. NOTE OR SUCH INTEREST BY SUCH PLAN (OR ANY ENTITY THE ASSETS OF WHICH CONSTITUTE "PLAN ASSETS" OF ANY SUCH PLAN) IS SUBJECT TO A STATUTORY OR ADMINISTRATIVE EXEMPTION. SECTION 2.15 OF THE INDENTURE AND SECTION 3 OF THE SUPPLEMENT (EACH AS DEFINED BELOW) CONTAIN FURTHER RESTRICTIONS ON THE 17 TRANSFER AND RELEASE OF THIS U.S. NOTE. EACH TRANSFEREE OF THIS U.S. NOTE, BY ACCEPTANCE HEREOF, IS DEEMED TO HAVE ACCEPTED THIS U.S. NOTE, SUBJECT TO THE FOREGOING RESTRICTIONS ON TRANSFERABILITY AND RESALE. BY ACCEPTANCE HEREOF, THE HOLDER OF THIS U.S. NOTE AGREES TO THE TERMS AND CONDITIONS. 18 BEVERLY FUNDING CORPORATION Floating Rate Health Care Receivables-Backed Notes, Series 1999-A NO. ___ $___________________ CUSIP 087862AA6 Beverly Funding Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of FIFTY MILLION ($50,000,000.00) DOLLARS (or such smaller amount as shall be the outstanding principal amount of this U.S. Note shown in Schedule A hereto), payable in installments on each Payment Date in accordance with the Indenture commencing on the earliest of (x) the date determined as provided on the reverse hereof (the "Scheduled Amortization Date"), (y) the date of acceleration of this U.S. Note following the occurrence of an Event of Default and (z) the commencement of the Amortization Period, and ending on or before the Payment Date in March 2005 (the "Final Maturity Date"). The Issuer also promises to pay interest on each Payment Date at the rate per annum specified in the Supplement and the Indenture. Interest on the unpaid principal amount on this U.S. Note will accrue for each Interest Accrual Period (which initial Interest Accrual Period will commence on June 30, 1999). Such principal of and interest on this U.S. Note shall be paid in the manner specified on the reverse hereof. The principal of and interest on this U.S. Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this U.S. Note shall be applied in the manner set forth in the Indenture referred to on the reverse hereof. Reference is made to the further provisions of this U.S. Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this U.S. Note. Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this U.S. Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose. 19 IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by an Authorized Officer. Dated: BEVERLY FUNDING CORPORATION ------------- By: -------------------------------------- Name: Title: This is one of the Health Care Notes referred to in the within mentioned Indenture. THE CHASE MANHATTAN BANK, as Trustee By: ------------------------------ Authorized Signatory 20 This U.S. Note is one of a duly authorized issue of Health Care Notes of the Issuer, designated as its Floating Rate Health Care Receivables-Backed Notes, Series 1999-A (herein called the "Health Care Notes"), issued and to be issued in one or more Series, and this U.S. Note is one of the Health Care Notes designated as the Issuer's Series 1999-A Health Care Notes (herein called the "Series 1999-A Health Care Notes"), all issued and to be issued under the First Amendment and Restatement dated as of June 1, 1999 to the Indenture dated as of December 1, 1994 and a Series Supplement (the "Supplement") thereto with respect to the Series 1999-A Health Care Notes dated as of June 1, 1999 (such Indenture, as supplemented by the Supplement, and as may be further supplemented or amended from time to time, is herein called the "Indenture"), both between the Issuer and The Chase Manhattan Bank, as trustee (the "Trustee", which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Issuer, the Trustee and the Holders of the Health Care Notes. All terms used in this U.S. Note that are defined in the Indenture, as supplemented or amended, shall have the meanings assigned to them in or pursuant to the Indenture, as so supplemented or amended. In the event of any conflict or inconsistency between this U.S. Note and the Indenture, the Indenture shall control. THE SERIES 1999-A HEALTH CARE NOTES AND ANY OTHER SERIES OF HEALTH CARE NOTES ISSUED BY THE ISSUER ARE AND WILL BE EQUALLY AND RATABLY SECURED BY THE COLLATERAL PLEDGED AS SECURITY THEREFOR AS PROVIDED IN THE INDENTURE, AND THE SERIES 1999-A HEALTH CARE NOTES WILL RANK PARI PASSU WITH ANY OTHER SERIES OF HEALTH CARE NOTES ISSUED UNDER THE INDENTURE BY THE ISSUER OR TO BE ISSUED THEREUNDER. The principal of this U.S. Note shall be payable no later than the Final Maturity Date. Principal may be payable in whole earlier either because (x) an Event of Default shall have occurred and be continuing and the Health Care Notes have been accelerated in accordance with Section 5.2 of the Indenture, or (y) the Issuer shall have called for the redemption in full of the Series 1999-A Health Care Notes pursuant to Section 9.1 of the Indenture. In addition, payments of principal on this U.S. Note may be made in whole or in part (x) on each Payment Date beginning with the Payment Date in June 2004 (the "Scheduled Amortization Date"), (y) on any Optional Partial Redemption Date if an Optional Partial Redemption has been elected by the Issuer to be made pursuant to Section 9.1 of the Indenture or (z) on any Payment Date following the occurrence of an Amortization Event under the Sale and Servicing Agreement, until paid in full or required to be paid in full upon the Final Maturity Date. All principal payments on the Health Care Notes shall be made pro rata to the Health Care Noteholders entitled thereto. Payments of interest on this U.S. Note are due and payable on each Payment Date, together with any installment of principal, to the extent not in full payment of this U.S. Note, required to be made on such Payment Date, and shall be made by check mailed to the Person whose name appears as the registered Holder of this U.S. Note (or one or more Predecessor Health Care Notes) on the Health Care Note Register as of the close of business on the last day of the month preceding the Payment Date (the "Record Date"), 21 except that with respect to Health Care Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.) or in the name of a Holder of at least $5,000,000 in initial principal amount of Health Care Notes of any Series, payments will be made by wire transfer in immediately available funds to the account designated by such nominee or Holder in writing in form satisfactory to the Trustee at least five (5) Business Days prior to such Payment Date. Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Health Care Note Register as of the applicable Record Date without requiring that this U.S. Note be submitted for notation of payment, and the mailing of such check shall constitute payment of the amount thereof regardless of whether such check is returned undelivered. Any reduction in the principal amount of this U.S. Note (or any one or more Predecessor Health Care Notes) effected by any payments made on any Payment Date shall be binding upon all future Holders of this U.S. Note and of any Health Care Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount and all other amounts owing in respect of this U.S. Note on a Payment Date, then the Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the registered Holder hereof as of the Record Date preceding such Payment Date by notice mailed no later than ten days prior to such Payment Date and the amount then due and payable shall be payable only upon presentation and surrender of this U.S. Note at the Trustee's principal corporate trust office or at the office of the Trustee's agent appointed for such purposes located in the City of New York. To the extent allowable by law, any payments (including interest) due hereunder which are not paid when due (whether by acceleration or otherwise, and irrespective of any grace period applicable thereto) shall bear interest at a default rate of interest equal to 2% in excess of the Series Note Interest Rate or Series Alternate Note Interest Rate, as applicable, which default rate shall remain in effect until such payments and any interest accrued thereon have been paid in full. In addition, under certain circumstances, the holders of the Health Care Notes will be entitled to payment of certain Series Special Obligations and other amounts pursuant to the Indenture and the Supplement. As provided in the Indenture, the Series 1999-A Health Care Notes may be redeemed, in whole or in part, at the option of the Issuer on any Payment Date, or in part, at the option of the Issuer, on any Optional Partial Redemption Date, as applicable, at the Redemption Price, subject to the conditions set forth in Section 9.1 of the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this U.S. Note may be registered on the Health Care Note Register of the Issuer, upon surrender of this U.S. Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or his attorney duly authorized in writing, with such signature guaranteed by a commercial bank or trust company located, or having a correspondent located, in the 22 City of New York or the city in which the Corporate Trust Office is located, or a member firm of a national securities exchange, and such other documents as the Trustee may require, and thereupon one or more new Health Care Notes of authorized denomination and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this U.S. Note, but the transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange. Prior to the due presentment for registration of transfer of this U.S. Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Person in whose name this U.S. Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the owner hereof for all purposes, whether or not this U.S. Note be overdue, and neither the Issuer, the Trustee, nor any such agent shall be affected by notice to the contrary. In connection with its acquisition of a U.S. Note, each purchaser will be deemed to represent that at least one of the following statements is an accurate representation as to the source of funds to be used by it to acquire and hold the U.S. Note: (i) if it is an insurance company, either (1) any employee benefit plans subject to Part 4, Subtitle B, Title I of Employee Retirement Security Act of 1974, as amended ("ERISA"), plans within the meaning of Section 497(e)(1) of the Code (including an individual retirement account or Keogh plan) and persons treated as using "plan assets" of such plans pursuant to the United States Department of Labor Regulation Section 2510.3-101 or other applicable law (each a "Benefit Plan") and to any participant or beneficiary of such Benefit Plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (2) the source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60, and the amount of reserves and liabilities for the contract(s) held by or on behalf of each Benefit Plan that has an interest in such prospective transferee's general account as a contract holder, together with the amount of reserves and liabilities for the general account contracts held by or on behalf of any such other Benefit Plan maintained by the same employer (or an affiliate thereof) or by the same employee organization, does not exceed and, so long as such U.S. Note is held by such insurance company general account, will not exceed (unless no portion of such excess results from an increase in the assets allocated to such insurance company general account by such a Benefit Plan, not including the reinvestment of such insurance company general account's earnings as assets allocated to such insurance company general account by such a Benefit Plan), 10% of the total reserves and liabilities of such prospective transferee's general account plus surplus as determined pursuant to the provisions of Section I(a) of PTCE 95-60; or (ii) its acquisition and holding of the U.S. Note will not give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code; or (iii) the source does not include assets of any Benefit Plan. The purchaser shall also be deemed to agree not to sell or otherwise transfer the U.S. Note to any person 23 without obtaining the same representation and warranties and the same obligations from such purchaser or other transferee. The Indenture permits, pursuant to the conditions therein set forth, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Health Care Notes of a Series under the Indenture at any time by the Issuer with the consent of the Holders of Health Care Notes specified in the Indenture. The Indenture also contains provisions permitting the Holders of Health Care Notes of a Series representing specified percentages of the Aggregate Outstanding Amount of the Health Care Notes of such Series, on behalf of the Holders of all the Health Care Notes of such Series, to take certain actions which may affect other Holders, including waiving compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such action, consent or waiver by the Holder of this U.S. Note (or any one or more Predecessor Health Care Notes) shall be conclusive and binding upon such Holder and upon all future Holders of this U.S. Note and of any Health Care Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such action, consent or waiver is made upon this U.S. Note. The Indenture also permits the Trustee to amend certain terms and conditions set forth in the Indenture without the consent of Holders of the Health Care Notes issued thereunder. The Series 1999-A Health Care Notes are issuable only in registered form in denominations as provided in the Indenture and the Supplement, subject to certain limitations therein set forth. THIS U.S. NOTE, THE INDENTURE AND THE SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK. No reference herein to the Indenture and no provision of this U.S. Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this U.S. Note at the times, place, and rate, and in the coin or currency herein prescribed. The Holder of this U.S. Note agrees that it will not, prior to the date which is 370 days after the discharge of the Indenture, acquiesce, petition or otherwise, directly or indirectly, invoke or cause the Issuer to invoke the process of any governmental authority for the purpose of commencing or sustaining a case against the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Issuer. 24 FORM OF ASSIGNMENT FOR VALUE RECEIVED, _______________________ hereby sells, assigns, and transfers unto ___________________ Please insert Social Security or other identifying number of assignee: ---------------------- the within Health Care Note of Beverly Funding Corporation (the "Issuer") standing in the name(s) of the undersigned in the Health Care Note Register of the Issuer and does hereby irrevocably constitute and appoint ______________ attorney to transfer such Health Care Note in such Health Care Note Register, with full power of substitution in the premises. Dated: --------------- [SIGNATURE] --------------------------- [SIGNATURE] --------------------------- Notice: The signature(s) to this assignment must correspond with the name(s) as written upon the face of this U.S. Note in every particular without alteration or any change whatsoever. The signature(s) must be guaranteed by a commercial bank or trust company located, or having a correspondent location, in the City of New York or the city in which the corporate trust office is located, or by a member firm of a national securities exchange. Notarized or witnessed signatures are not acceptable as guaranteed signatures. Signature Guarantee: - -------------------------------------------------------------------------------- Name of Institution - -------------------------------------------------------------------------------- Authorized Officer - -------------------------------------------------------------------------------- 25 SCHEDULE A SCHEDULE OF EXCHANGES The following exchanges of the Health Care Notes for Health Care Notes represented by this U.S. Note have been made:
- ------------------------------------------------------------------------------------------------------------------- Principal amount of Principal Amount of Change in principal this U.S. Note Notation made by or this U.S. Note as of amount of this U.S. following such on behalf of the June __, 1999 Date exchange made Note due to exchange exchange Issuer - ------------------------------------------------------------------------------------------------------------------- $0.00 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
26 EXHIBIT B-1 FORM OF TEMPORARY REGULATION S NOTE THE PRINCIPAL OF THIS TEMPORARY REGULATION S NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS TEMPORARY REGULATION S NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS TEMPORARY REGULATION S NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE IN THE UNITED STATES OR ANY FOREIGN SECURITIES LAWS. NO TEMPORARY REGULATION S NOTE, OR INTEREST THEREIN, MAY BE OFFERED, SOLD OR TRANSFERRED (INCLUDING BY PLEDGE OR HYPOTHECATION) UNLESS (A) THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS ARE COMPLIED WITH, OR (B) SUCH OFFER, SALE OR TRANSFER IS MADE TO A PERSON (i) THAT THE TRANSFEROR REASONABLY BELIEVES AFTER DUE INQUIRY IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AN AGENT FOR OTHERS (WHICH OTHERS ARE QIBS) TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OR (ii) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT. NO EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), AND NO OTHER PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"), WITH RESPECT TO WHICH NESBITT BURNS SECURITIES INC., OR BEVERLY FUNDING CORPORATION OR THE CHASE MANHATTAN BANK IS A "PARTY IN INTEREST" (WITHIN THE MEANING OF SECTION 3(14) OF ERISA), OR A "DISQUALIFIED PERSON" (WITHIN THE MEANING OF SECTION 4975 OF THE CODE), MAY PURCHASE THIS TEMPORARY REGULATION S NOTE OR ANY INTEREST HEREIN, UNLESS SUCH PURCHASE AND THE HOLDING OF THIS TEMPORARY REGULATION S NOTE OR SUCH INTEREST BY SUCH PLAN (OR ANY ENTITY THE ASSETS OF WHICH 27 CONSTITUTE "PLAN ASSETS" OF ANY SUCH PLAN) IS SUBJECT TO A STATUTORY OR ADMINISTRATIVE EXEMPTION. SECTION 2.15 OF THE INDENTURE AND SECTION 3 OF THE SUPPLEMENT (EACH AS DEFINED BELOW) CONTAIN FURTHER RESTRICTIONS ON THE TRANSFER AND RESALE OF THIS TEMPORARY REGULATION S NOTE. EACH TRANSFEREE OF THIS TEMPORARY REGULATION S NOTE, BY ACCEPTANCE HEREOF, IS DEEMED TO HAVE ACCEPTED THIS TEMPORARY REGULATION S NOTE, SUBJECT TO THE FOREGOING RESTRICTIONS ON TRANSFERABILITY AND RESALE. BY ACCEPTANCE HEREOF, THE HOLDER OF THIS TEMPORARY REGULATION S NOTE AGREES TO THE TERMS AND CONDITIONS SET FORTH IN THE INDENTURE AND THE SUPPLEMENT AND HEREIN. 28 BEVERLY FUNDING CORPORATION Floating Rate Health Care Receivables-Backed Notes, Series 1999-A NO. ____ $ ------------------ CUSIP (CINS) NO. 087862AA6 ISIN US087862AA69 Common Code -------- Beverly Funding Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to [CEDE & CO.] or registered assigns, the principal sum of FIFTY MILLION ($50,000,000) DOLLARS (or such smaller amount as shall be the outstanding principal amount of this Temporary Regulation S Note shown in Schedule A hereto), payable in installments on each Payment Date in accordance with the Indenture commencing on the earliest of (x) the date determined as provided on the reverse hereof (the "Scheduled Amortization Date"), (y) the date of acceleration of this Temporary Regulation S Notes following the occurrence of an Event of Default and (z) the commencement of the Amortization Period, and ending on or before the Payment Date in March 2005 (the "Final Maturity Date"). The Issuer also promises to pay interest on each Payment Date at the rate per annum specified in the Supplement and the Indenture. Interest on the unpaid principal amount on this Temporary Regulation S Note will accrue for each Interest Accrual Period (which initial Interest Accrual Period will commence on June 30, 1999). Such principal of and interest on this Temporary Regulation S Note shall be paid in the manner specified on the reverse hereof The principal of and interest on this Temporary Regulation S Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Temporary Regulation S Note shall be made by the Issuer with respect to this Temporary Regulation S Note shall be applied in the manner set forth in the Indenture referred to on the reverse hereof. Reference is made to the further provisions of this Temporary Regulation S Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Temporary Regulation S Note. 29 Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Temporary Reflation S Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose. 30 IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by an Authorized Officer. Dated: BEVERLY FUNDING CORPORATION ------------- By: ----------------------------------- Name: Title: This is one of the Health Care Notes referred to in the within mentioned Indenture. THE CHASE MANHATTAN BANK, as Trustee By: ---------------------------- Authorized Signatory 31 This Temporary Regulation S Note is one of a duly authorized issue of Health Care Notes of the Issuer, designated as its Floating Rate Health Care Receivables-Backed Notes, Series 1999-A (herein called the "Health Care Notes"), issued and to be issued in one or more Series, and this Temporary Regulation S Note is one of the Health Care Notes designated as the Issuer's Series 1999-A Health Care Notes (herein called the "Series 1999-A Health Care Notes"), all issued and to be issued under the First Amendment and Restatement dated as of June 1, 1999 to the Indenture dated as of December 1, 1994 and a Series Supplement (the "Supplement") thereto with respect to the Series 1999-A Health Care Notes dated as of June 1, 1999 (such Indenture, as supplemented by the Supplement and as may be further supplemented or amended from time to time, is herein called the "Indenture"), both between the Issuer and The Chase Manhattan Bank, as trustee (the "Trustee", which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Issuer, the Trustee and the Holders of the Health Care Notes. All terms used in this Temporary Regulation S Note that are defined in the Indenture, as supplemented or amended, shall have the meanings assigned to them in or pursuant to the Indenture, as so supplemented or amended. In the event of any conflict or inconsistency between this Temporary Regulation S Note and the Indenture, the Indenture shall control. THE SERIES 1999-A HEALTH CARE NOTES AND ANY OTHER SERIES OF HEALTH CARE NOTES ISSUED BY THE ISSUER ARE AND WILL BE EQUALLY AND RATABLY SECURED BY THE COLLATERAL PLEDGED AS SECURITY THEREFOR AS PROVIDED IN THE INDENTURE, AND THE SERIES 1999-A HEALTH CARE NOTES WILL RANK PARI PASSU WITH ANY OTHER SERIES OF HEALTH CARE NOTES ISSUED UNDER THE INDENTURE BY THE ISSUER OR TO BE ISSUED THEREUNDER. Prior to the expiration of the "40-day distribution compliance period" (as defined in Regulation S under the Securities Act, the "40-day distribution compliance period"), payments (if any) on this Temporary Regulation S Note will only be paid to any Health Care Noteholder with an interest therein to the extent that there is presented by Cedel or Euroclear to the Trustee a certificate, substantially in the form of Exhibit E to the Supplement, to the effect that it has received from or in respect of a Person entitled to a Temporary Regulation S Note (as shown by its records) a certificate from such Person in or substantially in the form of Exhibit C to the Supplement. After the 40-day restricted period, the holder of this Temporary Regulation S Note will not be entitled to receive any payment hereon. On or after the 40-day distribution compliance period, interests in this Temporary Regulation S Note may be exchanged for interests in the Regulation S Note upon presentation of this Temporary Regulation S Note and otherwise in accordance with Section 3 of the Supplement. The Regulation S Note shall be so issued and delivered in exchange for only that portion of this Temporary Regulation S Note in respect of which there shall have been presented to the Trustee by Euroclear or Cedel a certificate, 32 substantially in the form set out in Exhibit E to the Supplement, to the effect that it has received from or in respect of a Person entitled to a Health Care Note (as shown by its records) a certificate from such Person in or substantially in the form of Exhibit C to the Supplement. Interests in this Temporary Regulation S Note are exchangeable or transferable in whole or in part for interests in the Regulation S Note, in each case of the same class, only if such exchange or transfer complies with the Indenture and the Supplement. On an exchange of the whole of this Temporary Regulation S Note, this Temporary Regulation S Note shall be surrendered to the Trustee. Interests in this Temporary Regulation S Note will be transferred in accordance with the rules and procedures for the time being of Euroclear or Cedel. The principal of this Temporary Regulation S Note shall be payable no later than the Final Maturity Date. Principal may be payable in whole earlier either because (x) an Event of Default shall have occurred and be continuing and the Health Care Notes have been accelerated in accordance with Section 5.2 of the Indenture, or (y) the Issuer shall have called for the redemption in full of the Series 1999-A Health Care Notes pursuant to Section 9.1 of the Indenture. In addition, payments of principal on this Temporary Regulation S Note may be made in whole or in part (x) on each Payment Date beginning with the Payment Date in June 2004 (the "Scheduled Amortization Date"), (y) on any Optional Partial Redemption Date if an Optional Partial Redemption has been elected by the Issuer to be made pursuant to Section 9.1 of the Indenture or (z) on any Payment Date following the occurrence of an Amortization Event under the Sale and Servicing Agreement, until paid in full or required to be paid in full upon the Final Maturity Date. All principal payments on the Health Care Notes shall be made pro rata to the Health Care Noteholders entitled thereto. Payments of interest on this Temporary Regulation S Note are due and payable on each Payment Date, together with any installment of principal, to the extent not in full payment of this Temporary Regulation S Note, required to be made on such Payment Date, and shall be made by check mailed to the Person whose name appears as the registered Holder of this Temporary Regulation S Note (or one or more Predecessor Health Care Notes) on the Health Care Note Register as of the close of business on the last day of the month preceding the Payment Date (the "Record Date"), except that with respect to Health Care Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.) or in the name of a Holder of at least $5,000,000 in initial principal amount of Health Care Notes of any Series, payments will be made by wire transfer in immediately available funds to the account designated by such nominee or Holder in writing in form satisfactory to the Trustee at least five (5) Business Days prior to such Payment Date. Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Health Care Note Register as of the applicable Record Date without requiring that this Temporary Regulation S Note be submitted for notation of payment, and the mailing of such check 33 shall constitute payment of the amount thereof regardless of whether such check is returned undelivered. Any reduction in the principal amount of this Temporary Regulation S Note (or any one or more Predecessor Health Care Notes) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Temporary Regulation S Note and of any Health Care Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount and all other amounts owing in respect of this Temporary Regulation S Note on a Payment Date, then the Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the registered Holder hereof as of the Record Date preceding such Payment Date by notice mailed no later than ten days prior to such Payment Date and the amount then due and payable shall be payable only upon presentation and surrender of this Temporary Regulation S Note at the Trustee's principal corporate trust office or at the office of the Trustee's agent appointed for such purposes located in the City of New York. To the extent allowable by law, any payments (including interest) due hereunder which are not paid when due (whether by acceleration or otherwise, and irrespective of any grace period applicable thereto) shall bear interest at a default rate of interest equal to 2% in excess of the Series Note Interest Rate or Series Alternate Note Interest Rate, as applicable, which default rate shall remain in effect until such payments and any interest accrued thereon have been paid in full. In addition, under certain circumstances, the holders of the Health Care Notes will be entitled to payment of certain Series Special Obligations and other amounts pursuant to the Indenture and the Supplement. As provided in the Indenture, the Series 1999-A Health Care Notes may be redeemed, in whole or in part, at the option of the Issuer on any Payment Date, or in part, at the option of the Issuer, on any Optional Partial Redemption Date, as applicable, at the Redemption Price, subject to the conditions set forth in Section 9.1 of the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Temporary Regulation S Note may be registered on the Health Care Note Register of the Issuer, upon surrender of this Temporary Regulation S Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or his attorney duly authorized in writing, with such signature guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city in which the Corporate Trust Office is located, or a member firm of a national securities exchange, and such other documents as the Trustee may require, and thereupon one or more new Health Care Notes of authorized denomination and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Temporary Regulation S Note, but the transferor may be required to pay a sum sufficient to cover any 34 tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange. Prior to the due presentment for registration of transfer of this Temporary Regulation S Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Person in whose name this Temporary Regulation S Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the owner hereof for all purposes, whether or not this Temporary Regulation S Note be overdue, and neither the Issuer, the Trustee, nor any such agent shall be affected by notice to the contrary. In connection with its acquisition of a Temporary Regulation S Note, each purchaser will be deemed to represent that at least one of the following statements is an accurate representation as to the source of funds to be used by it to acquire and hold the Temporary Regulation S Note: (i) if it is an insurance company, either (1) any employee benefit plans subject to Part 4, Subtitle B, Title I of Employee Retirement Security Act of 1974, as amended ("ERISA"), plans within the meaning of Section 497(e)(1) of the Code (including an individual retirement account or Keogh plan) and persons treated as using "plan assets" of such plans pursuant to the United States Department of Labor Regulation Section 2510.3-101 or other applicable law (each a "Benefit Plan") and to any participant or beneficiary of such Benefit Plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (2) the source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60, and the amount of reserves and liabilities for the contract(s) held by or on behalf of each Benefit Plan that has an interest in such prospective transferee's general account as a contract holder, together with the amount of reserves and liabilities for the general account contracts held by or on behalf of any such other Benefit Plan maintained by the same employer (or an affiliate thereof) or by the same employee organization, does not exceed and, so long as such Temporary Regulation S Note, is held by such insurance company general account, will not exceed (unless no portion of such excess results from an increase in the assets allocated to such insurance company general account by such a Benefit Plan, not including the reinvestment of such insurance company general account's earnings as assets allocated to such insurance company general account by such a Benefit Plan), 10% of the total reserves and liabilities of such prospective transferee's general account plus surplus as determined pursuant to the provisions of Section I(a) of PTCE 95-60; or (ii) its acquisition and holding of the Temporary Regulation S Note, will not give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code; or (iii) the source does not include assets of any Benefit Plan. The purchaser shall also be deemed to agree not to sell or otherwise transfer the Temporary Regulation S Note, to any person without obtaining the same representation and warranties and the same obligations from such purchaser or other transferee. 35 The Indenture permits, pursuant to the conditions therein set forth, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Health Care Notes of a Series under the Indenture at any time by the Issuer with the consent of the Holders of Health Care Notes specified in the Indenture. The Indenture also contains provisions permitting the Holders of Health Care Notes of a Series representing specified percentages of the Aggregate Outstanding Amount of the Health Care Notes of such Series, on behalf of the Holders of all the Health Care Notes of such Series, to take certain actions which may affect other Holders, including waiving compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such action, consent or waiver by the Holder of this Temporary Regulation S Note (or any one or more Predecessor Health Care Notes) shall be conclusive and binding upon such Holder and upon all future Holders of this Temporary Regulation S Note and of any Health Care Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such action, consent or waiver is made upon this Temporary Regulation S Note. The Indenture also permits the Trustee to amend certain terms and conditions set forth in the Indenture without the consent of Holders of the Health Care Notes issued thereunder. The Series 1999-A Health Care Notes are issuable only in registered form in denominations as provided in the Indenture and the Supplement, subject to certain limitations therein set forth. THIS TEMPORARY REGULATION S NOTES, THE INDENTURE, AND THE SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK. No reference herein to the Indenture and no provision of this Temporary Regulation S Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Temporary Regulation S Note at the times, place, and rate, and in the coin or currency herein prescribed. The Holder of this Temporary Regulation S Note agrees that it will not, prior to the date which is 370 days after the discharge of the Indenture, acquiesce, petition or otherwise, directly or indirectly, invoke or cause the Issuer to invoke the process of any governmental authority for the purpose of commencing or sustaining a case against the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Issuer. The term "Issuer" as used in this Temporary Regulation S Note includes any successor to the Issuer under the Indenture. 36 FORM OF ASSIGNMENT FOR VALUE RECEIVED, _______________________ hereby sells, assigns, and transfers unto __________________ Please insert Social Security or other identifying number of assignee: ------------------- the within Health Care Note of Beverly Funding Corporation (the "Issuer") standing in the name(s) of the undersigned in the Health Care Note Register of the Issuer and does hereby irrevocably constitute and appoint ______________ attorney to transfer such Health Care Note in such Health Care Note Register, with full power of substitution in the premises. Dated: ------------------ [SIGNATURE] --------------------------- [SIGNATURE] --------------------------- Notice: The signature(s) to this assignment must correspond with the name(s) as written upon the face of this Temporary Regulation S Note in every particular without alteration or any change whatsoever. The signature(s) must be guaranteed by a commercial bank or trust company located, or having a correspondent location, in the City of New York or the city in which the corporate trust office is located, or by a member firm of a national securities exchange. Notarized or witnessed signatures are not acceptable as guaranteed signatures. Signature Guarantee: - -------------------------------------------------------------------------------- Name of Institution - -------------------------------------------------------------------------------- Authorized Officer - -------------------------------------------------------------------------------- 37 SCHEDULE A SCHEDULE OF EXCHANGES The following exchanges of the Health Care Notes for Health Care Notes represented by this Temporary Regulation S Note have been made:
- -------------------------------------------------------------------------------------------------------------------- Change in principal Principal amount of Principal Amount of amount of this this Temporary this Temporary Temporary Regulation Regulation S Note Notation made by or Regulation S Note as S Note due to following such on behalf of the of June __, 1999 Date exchange made exchange exchange Issuer - -------------------------------------------------------------------------------------------------------------------- $0.00 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
38 EXHIBIT B-2 FORM OF REGULATION S NOTE THE PRINCIPAL OF THIS REGULATION S NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS REGULATION S NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS REGULATION S NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE IN THE UNITED STATES OR ANY FOREIGN SECURITIES LAWS. NO REGULATION S NOTE, OR INTEREST THEREIN, MAY BE OFFERED, SOLD OR TRANSFERRED (INCLUDING BY PLEDGE OR HYPOTHECATION) UNLESS (A) THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS ARE COMPLIED WITH, OR (B) SUCH OFFER, SALE OR TRANSFER IS MADE TO A PERSON (i) THAT THE TRANSFEROR REASONABLY BELIEVES AFTER DUE INQUIRY IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AN AGENT FOR OTHERS (WHICH OTHERS ARE QIBS) TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OR (ii) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT. NO EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), AND NO OTHER PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"), WITH RESPECT TO WHICH NESBITT BURNS SECURITIES INC., OR BEVERLY FUNDING CORPORATION OR THE CHASE MANHATTAN BANK IS A "PARTY IN INTEREST" (WITHIN THE MEANING OF SECTION 3(14) OF ERISA), OR A "DISQUALIFIED PERSON" (WITHIN THE MEANING OF SECTION 4975 OF THE CODE), MAY PURCHASE THIS REGULATION S NOTE OR ANY INTEREST HEREIN, UNLESS SUCH PURCHASE AND THE HOLDING OF THIS REGULATION S NOTE OR SUCH INTEREST BY SUCH PLAN (OR ANY ENTITY THE ASSETS OF WHICH CONSTITUTE "PLAN ASSETS" OF ANY SUCH PLAN) IS SUBJECT TO A STATUTORY OR ADMINISTRATIVE EXEMPTION. 39 SECTION 2.15 OF THE INDENTURE AND SECTION 3 OF THE SUPPLEMENT (EACH AS DEFINED BELOW) CONTAIN FURTHER RESTRICTIONS ON THE TRANSFER AND RESALE OF THIS REGULATION S NOTE. EACH TRANSFEREE OF THIS REGULATION S NOTE, BY ACCEPTANCE HEREOF, IS DEEMED TO HAVE ACCEPTED THIS REGULATION S NOTE, SUBJECT TO THE FOREGOING RESTRICTIONS ON TRANSFERABILITY AND RESALE. BY ACCEPTANCE HEREOF, THE HOLDER OF THIS REGULATION S NOTE AGREES TO THE TERMS AND CONDITIONS SET FORTH IN THE INDENTURE AND THE SUPPLEMENT AND HEREIN. 40 BEVERLY FUNDING CORPORATION Floating Rate Health Care Receivables-Backed Notes, Inc. Series 1999-A NO. ____ $ ------------------ CUSIP (CINS) NO. 087862AA6 ISIN US087862AA69 Common Code ------- Beverly Funding Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to [CEDE & CO.] or registered assigns, the principal sum of FIFTY MILLION ($50,000,000) DOLLARS (or such smaller amount as shall be the outstanding principal amount of this Regulation S Note shown in Schedule A hereto), payable in installments on each Payment Date in accordance with the Indenture commencing on the earliest of (x) the date determined as provided on the reverse hereof (the "Scheduled Amortization Date"), (y) the date of acceleration of this Regulation S Notes following the occurrence of an Event of Default and (z) the commencement of the Amortization Period, and ending on or before the Payment Date in March 2005 (the "Final Maturity Date"). The Issuer also promises to pay interest on each Payment Date at the rate per annum specified in the Supplement and the Indenture. Interest on the unpaid principal amount on this Regulation S Note will accrue for each Interest Accrual Period (which initial Interest Accrual Period will commence on June 30, 1999). Such principal of and interest on this Regulation S Note shall be paid in the manner specified on the reverse hereof The principal of and interest on this Regulation S Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Regulation S Note shall be made by the Issuer with respect to this Regulation S Note shall be applied in the manner set forth in the Indenture referred to on the reverse hereof. Reference is made to the further provisions of this Regulation S Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Regulation S Note. 41 Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Regulation S Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose. 42 IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by an Authorized Officer. Dated: BEVERLY FUNDING CORPORATION ----------- By: ------------------------------------ Name: Title: This is one of the Health Care Notes referred to in the within mentioned Indenture. THE CHASE MANHATTAN BANK, as Trustee By: ---------------------------- Authorized Signatory 43 This Regulation S Note is one of a duly authorized issue of Health Care Notes of the Issuer, designated as its Floating Rate Health Care Receivables-Backed Notes, Series 1999-A (herein called the "Health Care Notes"), issued and to be issued in one or more Series, and this Regulation S Note is one of the Health Care Notes designated as the Issuer's Series 1999-A Health Care Notes (herein called the "Series 1999-A Health Care Notes"), all issued and to be issued under the First Amendment and Restatement dated as of June 1, 1999 to the Indenture dated as of December 1, 1994 and a Series Supplement (the "Supplement") thereto with respect to the Series 1999-A Health Care Notes dated as of June 1, 1999 (such Indenture, as supplemented by the Supplement, and as may be further supplemented or amended from time to time, is herein called the "Indenture"), both between the Issuer and The Chase Manhattan Bank, as trustee (the "Trustee", which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Issuer, the Trustee and the Holders of the Health Care Notes. All terms used in this Regulation S Note that are defined in the Indenture, as supplemented or amended, shall have the meanings assigned to them in or pursuant to the Indenture, as so supplemented or amended. In the event of any conflict or inconsistency between this Regulation S Note and the Indenture, the Indenture shall control. THE SERIES 1999-A HEALTH CARE NOTES AND ANY OTHER SERIES OF HEALTH CARE NOTES ISSUED BY THE ISSUER ARE AND WILL BE EQUALLY AND RATABLY SECURED BY THE COLLATERAL PLEDGED AS SECURITY THEREFOR AS PROVIDED IN THE INDENTURE, AND THE SERIES 1999-A HEALTH CARE NOTES WILL RANK PARI PASSU WITH ANY OTHER SERIES OF HEALTH CARE NOTES ISSUED UNDER THE INDENTURE BY THE ISSUER OR TO BE ISSUED THEREUNDER. The principal of this Regulation S Note shall be payable no later than the Final Maturity Date. Principal may be payable in whole earlier either because (x) an Event of Default shall have occurred and be continuing and the Health Care Notes have been accelerated in accordance with Section 5.2 of the Indenture, or (y) the Issuer shall have called for the redemption in full of the Series 1999-A Health Care Notes pursuant to Section 9.1 of the Indenture. In addition, payments of principal on this Regulation S Note may be made in whole or in part (x) on each Payment Date beginning with the Payment Date in June 2004 (the "Scheduled Amortization Date"), (y) on any Optional Partial Redemption Date if an Optional Partial Redemption has been elected by the Issuer to be made pursuant to Section 9.1 of the Indenture or (z) on any Payment Date following the occurrence of an Amortization Event under the Sale and Servicing Agreement, until paid in full or required to be paid in full upon the Final Maturity Date. All principal payments on the Health Care Notes shall be made pro rata to the Health Care Noteholders entitled thereto. Payments of interest on this Regulation S Note are due and payable on each Payment Date, together with any installment of principal, to the extent not in full payment of this Regulation S Note, required to be made on such Payment Date, and shall be made by check mailed to the Person whose name appears as the registered Holder of this 44 Regulation S Note (or one or more Predecessor Health Care Notes) on the Health Care Note Register as of the close of business on the last day of the month preceding the Payment Date (the "Record Date"), except that with respect to Health Care Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.) or in the name of a Holder of at least $5,000,000 in initial principal amount of Health Care Notes of any Series, payments will be made by wire transfer in immediately available funds to the account designated by such nominee or Holder in writing in form satisfactory to the Trustee at least five (5) Business Days prior to such Payment Date. Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Health Care Note Register as of the applicable Record Date without requiring that this Regulation S Note be submitted for notation of payment, and the mailing of such check shall constitute payment of the amount thereof regardless of whether such check is returned undelivered. Any reduction in the principal amount of this Regulation S Note (or any one or more Predecessor Health Care Notes) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Regulation S Note and of any Health Care Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount and all other amounts owing in respect of this Regulation S Note on a Payment Date, then the Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the registered Holder hereof as of the Record Date preceding such Payment Date by notice mailed no later than ten days prior to such Payment Date and the amount then due and payable shall be payable only upon presentation and surrender of this Regulation S Note at the Trustee's principal corporate trust office or at the office of the Trustee's agent appointed for such purposes located in the City of New York. To the extent allowable by law, any payments (including interest) due hereunder which are not paid when due (whether by acceleration or otherwise, and irrespective of any grace period applicable thereto) shall bear interest at a default rate of interest equal to 2% in excess of the Series Note Interest Rate or Series Alternate Note Interest Rate, as applicable, which default rate shall remain in effect until such payments and any interest accrued thereon have been paid in full. In addition, under certain circumstances, the holders of the Health Care Notes will be entitled to payment of certain Series Special Obligations and other amounts pursuant to the Indenture and the Supplement. As provided in the Indenture, the Series 1999-A Health Care Notes may be redeemed, in whole or in part, at the option of the Issuer on any Payment Date, or in part, at the option of the Issuer, on any Optional Partial Redemption Date, as applicable, at the Redemption Price, subject to the conditions set forth in Section 9.1 of the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Regulation S Note may be registered on the Health Care Note Register of the Issuer, upon surrender of this Regulation S Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or 45 accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or his attorney duly authorized in writing, with such signature guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city in which the Corporate Trust Office is located, or a member firm of a national securities exchange, and such other documents as the Trustee may require, and thereupon one or more new Health Care Notes of authorized denomination and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Regulation S Note, but the transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange. Prior to the due presentment for registration of transfer of this Regulation S Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Person in whose name this Regulation S Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the owner hereof for all purposes, whether or not this Regulation S Note be overdue, and neither the Issuer, the Trustee, nor any such agent shall be affected by notice to the contrary. In connection with its acquisition of a Regulation S Note, each purchaser will be deemed to represent that at least one of the following statements is an accurate representation as to the source of funds to be used by it to acquire and hold the Regulation S Note: (i) if it is an insurance company, either (1) any employee benefit plans subject to Part 4, Subtitle B, Title I of Employee Retirement Security Act of 1974, as amended ("ERISA"), plans within the meaning of Section 497(e)(1) of the Code (including an individual retirement account or Keogh plan) and persons treated as using "plan assets" of such plans pursuant to the United States Department of Labor Regulation Section 2510.3-101 or other applicable law (each a "Benefit Plan") and to any participant or beneficiary of such Benefit Plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (2) the source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60, and the amount of reserves and liabilities for the contract(s) held by or on behalf of each Benefit Plan that has an interest in such prospective transferee's general account as a contract holder, together with the amount of reserves and liabilities for the general account contracts held by or on behalf of any such other Benefit Plan maintained by the same employer (or an affiliate thereof) or by the same employee organization, does not exceed and, so long as such Regulation S Note, is held by such insurance company general account, will not exceed (unless no portion of such excess results from an increase in the assets allocated to such insurance company general account by such a Benefit Plan, not including the reinvestment of such insurance company general account's earnings as assets allocated to such insurance company general account by such a Benefit Plan), 10% of the total reserves and liabilities of such prospective transferee's general account plus surplus as determined pursuant to the provisions of Section I(a) of PTCE 95-60; or (ii) its acquisition and holding of the Regulation S Note, will not give rise to a non-exempt prohibited transaction under Section 406 of ERISA or 46 Section 4975 of the Code; or (iii) the source does not include assets of any Benefit Plan. The purchaser shall also be deemed to agree not to sell or otherwise transfer the Regulation S Note, to any person without obtaining the same representation and warranties and the same obligations from such purchaser or other transferee. The Indenture permits, pursuant to the conditions therein set forth, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Health Care Notes of a Series under the Indenture at any time by the Issuer with the consent of the Holders of Health Care Notes specified in the Indenture. The Indenture also contains provisions permitting the Holders of Health Care Notes of a Series representing specified percentages of the Aggregate Outstanding Amount of the Health Care Notes of such Series, on behalf of the Holders of all the Health Care Notes of such Series, to take certain actions which may affect other Holders, including waiving compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such action, consent or waiver by the Holder of this Regulation S Note (or any one or more Predecessor Health Care Notes) shall be conclusive and binding upon such Holder and upon all future Holders of this Regulation S Note and of any Health Care Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such action, consent or waiver is made upon this Regulation S Note. The Indenture also permits the Trustee to amend certain terms and conditions set forth in the Indenture without the consent of Holders of the Health Care Notes issued thereunder. The Series 1999-A Health Care Notes are issuable only in registered form in denominations as provided in the Indenture and the Supplement, subject to certain limitations therein set forth. THIS REGULATION S NOTE, THE INDENTURE, AND THE SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK. No reference herein to the Indenture and no provision of this Regulation S Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Regulation S Note at the times, place, and rate, and in the coin or currency herein prescribed. The Holder of this Regulation S Note agrees that it will not, prior to the date which is 370 days after the discharge of the Indenture, acquiesce, petition or otherwise, directly or indirectly, invoke or cause the Issuer to invoke the process of any governmental authority for the purpose of commencing or sustaining a case against the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Issuer. 47 The Health Care Notes represented by this Regulation S Note were originally represented by a Temporary Regulation S Note. Interests in this Regulation S Note will be transferred in accordance with the rules and procedures in effect at the time of transfer of the Depositary Trust Company, Euroclear or Cedel, as applicable. For purposes of this Regulation S Note, the securities account records of the Depositary Trust Company, Euroclear or Cedel, as applicable, shall, in the absence of manifest error, be conclusive evidence of the identity of the Noteholders and of the principal amount of the Health Care Notes represented by this Regulation S Note credited to the securities accounts of such Noteholders. Any statement issued by the Depositary Trust Company, Euroclear or Cedel, as applicable, to any Noteholder relating to a specified Health Care Note or Health Care Notes credited to the securities account of such Noteholder and stating the principal amount of such Health care Note or Health Care Notes and certified by Euroclear or Cedel to be a true record of such securities account shall, in the absence of manifest error, be conclusive evidence of the records of the Depositary Trust Company, Euroclear or Cedel, as applicable, for the purposes of the next preceding sentence (but without prejudice to any other means of producing such records in evidence). Interests in this Regulation S Note are exchangeable or transferable in whole or in part for interests in a U.S. Note, in each case of the same class, only if such exchange or transfer complies with the Indenture and the Supplement. Under certain conditions set forth in the Indenture, interests in this Regulation S Note are exchangeable in whole or in part for duly executed and issued Definitive Notes. The term "Issuer" as used in this Regulation S Note includes any successor to the Issuer under the Indenture. 48 FORM OF ASSIGNMENT FOR VALUE RECEIVED, _______________________ hereby sells, assigns, and transfers unto ____________________ Please insert Social Security or other identifying number of assignee: ----------------- the within Health Care Note of Beverly Funding Corporation (the "Issuer") standing in the name(s) of the undersigned in the Health Care Note Register of the Issuer and does hereby irrevocably constitute and appoint ______________ attorney to transfer such Health Care Note in such Health Care Note Register, with full power of substitution in the premises. Dated: --------------- [SIGNATURE] --------------------------- [SIGNATURE] --------------------------- Notice: The signature(s) to this assignment must correspond with the name(s) as written upon the face of this Regulation S Note in every particular without alteration or any change whatsoever. The signature(s) must be guaranteed by a commercial bank or trust company located, or having a correspondent location, in the City of New York or the city in which the corporate trust office is located, or by a member firm of a national securities exchange. Notarized or witnessed signatures are not acceptable as guaranteed signatures. Signature Guarantee: - -------------------------------------------------------------------------------- Name of Institution - -------------------------------------------------------------------------------- Authorized Officer - -------------------------------------------------------------------------------- 49 SCHEDULE A SCHEDULE OF EXCHANGES The following exchanges of the Health Care Notes for Health Care Notes represented by this Regulation S Note have been made:
- ---------------------------------------------------------------------------------------------------------------------- Principal Amount of Change in principal Principal amount of this Regulation S amount of this this Regulation S Notation made by or Note as of June __, Regulation S Note Note following such on behalf of the 1999 Date exchange made due to exchange exchange Issuer - ---------------------------------------------------------------------------------------------------------------------- $0.00 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
50 EXHIBIT C FORM OF CERTIFICATE OF BENEFICIAL OWNERSHIP [TRUSTEE OR TRANSFER AGENT] [ADDRESS] [EUROCLEAR][CEDEL S.A.] [ADDRESS] Re: BEVERLY FUNDING CORPORATION $[_____________] Reference is hereby made to the Series Supplement dated as of June 1, 1999] (the "Supplement") by and between BEVERLY FUNDING CORPORATION (the "Issuer") and THE CHASE MANHATTAN BANK (the "Trustee"). Capitalized terms not defined in this Certificate shall have the meanings given to them in the Supplement. This is to certify that as of the date hereof, and except as set forth below, the above-captioned Health Care Notes held by you for our account are beneficially owned by (a) non-U.S. person(s) or (b) U.S. person(s) who purchased the Health Care Notes in transactions which did not require registration under the Securities Act of 1933, as amended (the "Act"). As used in this paragraph, the term "U.S. person" has the meaning given to it by Regulation S under the Act. As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the Health Care Notes held by you for our account in accordance with your operating procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date. This certification excepts and does not relate to $__________ of such interest in the above Health Care Notes in respect of which we are not able to certify and as to which we understand exchange and delivery of a Regulation S Note (or, if relevant, exercise of any rights or collection of any interest) cannot be made until we do so certify. We understand that this certification is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal 51 proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorize you to produce this certification to any interested party in such proceedings. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to matters covered hereby. Date: , ----- -- ---- By: ------------------------------------------ As, or as agent for, the beneficial owner(s) of the Securities to which this certificate relates. 52 EXHIBIT D-1 FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM U.S. NOTE TO TEMPORARY REGULATION S NOTE [INDENTURE TRUSTEE OR TRANSFER AGENT] [ADDRESS] Re: BEVERLY FUNDING CORPORATION $[_____________] Reference is hereby made to the Series Supplement dated as of June 1, 1999 (the "Supplement") by and between BEVERLY FUNDING CORPORATION (the "Issuer") and THE CHASE MANHATTAN BANK (the "Trustee"). Capitalized terms not defined in this Certificate shall have the meanings given to them in the Supplement. This letter relates to $___________ principal amount of Health Care Notes represented by a beneficial interest in the U.S. Note (CUSIP No. [ ]) held with DTC by or on behalf of [transferor] as beneficial owner (the "Transferor"). The Transferor has requested an exchange or transfer of its beneficial interest for an interest in the Temporary Regulation S Note (CUSIP (CINS) No. [ ]) to be held with Euroclear or Cedel (ISIN Code [US ]) (Common Code [ ]) through DTC. In connection with such request and in respect of such Health Care Notes, the Transferor does hereby certify that such exchange or transfer has been effected in accordance with the transfer restrictions set forth in the Supplement and pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended, and accordingly the Transferor does hereby certify that: (1) the offer of the Health Care Notes was not made to a person in the United States; (2)(A) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any person acting on its behalf reasonably believed that the transferee was outside the United States, or (B) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on its behalf knows that the transaction was prearranged with a buyer in the United States; 53 (3) no directed selling efforts have been made in contravention of the requirements of Rule 903 or 904 of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act of 1933; and (5) upon completion of the transaction, the beneficial interest being transferred as described above was held with DTC through Euroclear or Cedel or both (Common Code [ ])(ISIN Code [ ]). You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to matters covered hereby. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and the dealers. [INSERT NAME OF TRANSFEROR] By: --------------------------------- Name: Title: Dated: , ----- -- ---- 54 EXHIBIT D-2 FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM U.S. NOTE TO REGULATION S NOTE [INDENTURE TRUSTEE OR TRANSFER AGENT] [ADDRESS] Re: BEVERLY FUNDING CORPORATION $[_____________] Reference is hereby made to the Series Supplement dated as of June 1, 1999 (the "Supplement") by and between BEVERLY FUNDING CORPORATION (the "Issuer") and THE CHASE MANHATTAN BANK (the "Trustee"). Capitalized terms not defined in this Certificate shall have the meanings given to them in the Supplement. This letter relates to $___________ principal amount of Health Care Notes represented by a beneficial interest in the U.S. Note (CUSIP No. [ ]) held with DTC by or on behalf of transferor as beneficial owner (the "Transferor"). The Transferor has requested an exchange or transfer of its interest for an interest in the Regulation S Note (CUSIP CINS No.[ ]). In connection with such request and in respect of such Health Care Notes, the Transferor does hereby certify that such exchange or transfer has been effected in accordance with the transfer restrictions set forth in the Supplement and (i) that, with respect to transfers made in reliance on Regulation S under the Securities Act of 1933, as amended: (1) the offer of the Health Care Notes was not made to a person in the United States; (2)(A) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any person acting on its behalf reasonably believed that the transferee was outside the United States, or (B) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in contravention of the requirements of Rule 903 or 904 of Regulation S, as applicable, and 55 (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act of 1933. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to matters covered hereby. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and the dealers. [INSERT NAME OF TRANSFEROR] By: ------------------------------------- Name: Title: Dated: , ----- -- ---- 56 EXHIBIT D-3 FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM REGULATION S NOTE TO U.S. NOTE [INDENTURE TRUSTEE OR TRANSFER AGENT] [ADDRESS] Re: BEVERLY FUNDING CORPORATION $[____________] Reference is hereby made to the Series Supplement dated as of June 1, 1999 (the "Supplement") by and between BEVERLY FUNDING CORPORATION (the "Issuer") and THE CHASE MANHATTAN BANK (the "Trustee"). Capitalized terms not defined in this Certificate shall have the meanings given to them in the Supplement. This letter relates to $____________ principal amount of Health Care Notes which are held in the form of the Regulation S Notes (CUSIP CINS No. [ ]) with [DTC][EUROCLEAR][CEDEL] (ISIN Code [ ]) (Common Code [ ]) through DTC by or on behalf of transferor as beneficial owner (the "Transferor"). The Transferor has requested an exchange or transfer of its interest in the Regulation S Notes for an interest in the U.S. Note (CUSIP No. [ ]). In connection with such request, and in respect of such Health Care Notes, the Transferor does hereby certify that such Health Care Notes are being transferred in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act") to a transferee that the Transferor reasonably believes is purchasing such Health Care Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. 57 You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to matters covered hereby. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and the dealers of the Health Care Notes. [INSERT NAME OF TRANSFEROR] By: ----------------------------------- Name: Title: Dated: , ----- -- ---- 58 EXHIBIT E FORM OF CLEARING SYSTEM CERTIFICATE [INDENTURE TRUSTEE OR TRANSFER AGENT] [ADDRESS] Re: BEVERLY FUNDING CORPORATION $[____________] Reference is hereby made to the Series Supplement dated as of June 1, 1999 (the "Supplement") by and between BEVERLY FUNDING CORPORATION (the "Issuer") and THE CHASE MANHATTAN BANK (the "Trustee"). Capitalized terms not defined in this Certificate shall have the meanings given to them in the Supplement. This is to certify with respect to the principal amount of Health Care Notes set forth above that, except as set forth below, we have received in writing, by tested telex or by electronic transmission, from our member organizations appearing in our records as persons being entitled to a portion of the principal amount set forth above ("Member Organizations"), certifications with respect to such portion substantially to the effect set forth in accordance with the terms of the Supplement. We further certify (i) that we are not making available herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) any portion of the Temporary Regulation S Notes excepted in such certifications and (ii) that as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as the date hereof. 59 We understand that this certification is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorize you to produce this certification to any interested party in such proceedings. Dated: , ----- -- ---- Yours faithfully, [MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS OFFICE, AS OPERATOR OF THE EUROCLEAR SYSTEM] or [CEDEL S.A.] By ------------------------------------------ EX-10.4 5 1ST AMENDMENT TO THE 1999-1 SERIES SUPPLEMENT 1 EXHIBIT 10.4 - -------------------------------------------------------------------------------- BEVERLY FUNDING CORPORATION FIRST AMENDMENT Dated as of July 14, 1999 to Series Supplement Dated as of June 1, 1999 Re: Floating Rate Health Care Receivables-Backed Notes, Series 1999-A - -------------------------------------------------------------------------------- 2 FIRST AMENDMENT TO SERIES SUPPLEMENT, dated as of July 14, 1999 (this "Amendment") by and between BEVERLY FUNDING CORPORATION, a Delaware corporation (the "Issuer"), and THE CHASE MANHATTAN BANK, as trustee under the Indenture (together with its successors in trust thereunder as provided in the Indenture referred to below, the "Trustee"). PRELIMINARY STATEMENT Pursuant to Section 8.1(9) of the First Amendment and Restatement, dated as June 1, 1999 of the Trust Indenture (the "Indenture"), dated as of December 1, 1994, between the Issuer and the Trustee, the Issuer and the Trustee entered into an indenture supplemental to the Indenture (the "Series Supplement") for the purposes of authorizing the issuance by the Issuer of the Series of Health Care Notes with an initial aggregate principal amount of $50,000,000 known as the Issuer's Floating Rate Health Care Receivables-Backed Notes, Series 1999-A (the "Health Care Notes"). Pursuant to Section 24 of the Note Purchase Agreement (Series 1999-A) (the "Note Purchase Agreement"), dated June 30, 1999, among Beverly Enterprises, Inc., a Delaware corporation ("Beverly"), the Issuer, Fairway Finance Corporation, a Delaware corporation (the "Purchaser"), and Nesbitt Burns Securities Inc., as agent for the Purchaser (the "Agent"), the Issuer desires to increase the size of the Health Care Notes by $20,000,000. In accordance with Section 8.2 of the Indenture, the Issuer and the Trustee hereby amend the Series Supplement as hereinafter set forth. All terms used in this Amendment that are defined in the Series Supplement or the other Related Documents, either directly or by reference therein, have the meanings assigned to them therein, except to the extent such terms are defined or modified in this Amendment or the context clearly requires otherwise. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Series Supplement or the other Related Documents, the terms and provisions of this Amendment shall govern. In consideration of good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Issuer and the Trustee do hereby agree as follows: SECTION 1. AMENDMENTS. 1.1 The first paragraph, second sentence of Preliminary Statement of the Series Supplement is amended in its entirety to read as follows: "The Issuer has duly authorized the creation of a Series of Health Care Notes with an initial aggregate principal amount of $70,000,000 to be know as the Issuer's $70,000,000 Floating Rate Health Care Receivables-Backed Notes, Series 1999-A (the "Health Care 3 Notes"), and the Issuer and the Trustee are executing and delivering this Supplement in order to provide for the Health Care Notes." 1.2 Section 1 of Series Supplement is amended in its entirety to read as follows: "SECTION 1. Designation. The Series of Health Care Notes issued pursuant hereto shall be designated generally as the Issuer's $70,000,000 Floating Rate Health Care Receivables-Backed Notes, Series 1999-A." 1.3 Section 3(a) of Series Supplement is amended in its entirety to read as follows: "(a) The Health Care Notes shall be authenticated and delivered by the Trustee to or upon the order of the Issuer on the Closing Date, in an aggregate principal amount not to exceed $70,000,000, and shall be dated their date of authentication. The Health Care Notes shall be issued in the minimum denominations set forth herein and in the Indenture." 1.4 The first paragraph of page A-3 of Exhibit A (FORM OF U.S. NOTE) of the Series Supplement is amended by deleting "FIFTY MILLION ($50,000,000.00) DOLLARS" and inserting in its place "SEVENTY MILLION ($70,000,000.00) DOLLARS." 1.5 The first paragraph of page B-1-3 of Exhibit B-1 (FORM OF TEMPORARY REGULATION S NOTE) the of Series Supplement is amended by deleting "FIFTY MILLION ($50,000,000.00) DOLLARS" and inserting in its place "SEVENTY MILLION ($70,000,000.00) DOLLARS." 1.6 The first paragraph of page B-2-3 of Exhibit B-2 (FORM OF REGULATION S NOTE) of the Series Supplement is amended by deleting "FIFTY MILLION ($50,000,000.00) DOLLARS" and inserting in its place "SEVENTY MILLION ($70,000,000.00) DOLLARS." 1.7 All references in the Note Purchase Agreement (other than in Section 24 thereof) and the Related Documents to the "Notes" or the "Health Care Notes" shall be deemed to include the Note delivered pursuant to this Amendment. SECTION 2. REPRESENTATIONS AND WARRANTIES. 2.1 Each of the Issuer, Beverly and the Seller hereby represents and warrants to the Trustee, the Purchaser and the Agent as follows: (a) Representations and Warranties. Its representations and warranties contained in the Indenture, the other Related Documents and the Note Purchase Agreement are true and correct as of the date hereof (unless stated to relate solely 4 to an earlier date, in which case such representations and warranties were true and correct as of such earlier date). (b) Enforceability. The execution and delivery of this Amendment, and the performance of its obligations under this Amendment, the Related Documents and the Note Purchase Agreement, as amended hereby, are within its corporate powers and have been duly authorized by all necessary corporate action on its part. This Amendment, the Related Documents and the Note Purchase Agreement, as amended hereby, are its valid and legally binding obligations, enforceable in accordance with its terms. (c) Amortization Event. No Amortization Event has occurred and is continuing. SECTION 3. EFFECTIVENESS. 3.1 This Amendment shall become effective as of the date hereof upon receipt by the Agent of the following, each duly executed and dated as of the date hereof (or such other date satisfactory to the Agent), in form and substance satisfactory to the Agent: (a) counterparts of this Amendment (whether by facsimile or otherwise) executed by each of the parties hereto; (b) a written statement from Moody's Investor Service, Inc. that this Amendment will not result in a downgrade or withdrawal of the rating of the Health Care Notes; (c) favorable opinions of counsel to the Issuer as to such matters as the Agent may request; (d) evidence of delivery of a duly executed and authenticated Health Care Note to the Trustee with an initial aggregate principal amount of $20,000,000; (e) the DTC Agreement shall have been amended, as necessary, to reflect the changes contemplated herein; and (f) such other documents and instruments (including cross-receipts) as the Agent may reasonable request. SECTION 4. MISCELLANEOUS. 4.1 This Amendment shall be construed in connection with and as part of the Related Documents and the Note Purchase Agreement, and except as modified and expressly amended by this Amendment, all terms, conditions and covenants contained in the Related Documents and the Note Purchase Agreement are hereby ratified and shall be and remain in 5 full force and effect. 4.2 The Issuer and Beverly shall pay all expenses of the Purchaser and the Agent in connection herewith, including, without limitation, all reasonable attorney's fees, charges and disbursements. 4.3 Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment may refer to the Indenture or Series Supplement without making specific reference to this Amendment but nevertheless all such references shall include this Amendment unless the context otherwise requires. 4.4 The descriptive headings of the various Sections or parts of this Amendment are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. 4.5 This Amendment shall be governed by and construed in accordance with New York law. 4.6 Upon the Issuer's execution of this Amendment, this Amendment shall constitute an Issuer Order authorizing the Trustee to enter into this Amendment and authorizing and directing the Trustee to authenticate and deliver the $70,000,000 Health Care Note to or at the direction of the Agent. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 6 4.7 This Amendment may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement. BEVERLY FUNDING CORPORATION, as Issuer By: Name: Title: 7 THE CHASE MANHATTAN BANK, as Trustee By: Name: Title: 8 Accepted and Agreed to: BEVERLY ENTERPRISES, INC. By: Name: Title: BEVERLY HEALTH AND REHABILITATION SERVICES, INC. By: Name: Title: 9 Consented to: NESBITT BURNS SECURITIES INC., as Agent By: Name: Title: By: Name: Title: FAIRWAY FINANCE CORPORATION, as Purchaser By: Name: Title: EX-10.5 6 MASTER AMENDMENT NO. 1 RESTATED PARTICIPATION AGMT 1 EXHIBIT 10.5 [EXECUTION COPY] MASTER AMENDMENT NO. 1 TO AMENDED AND RESTATED PARTICIPATION AGREEMENT AND AMENDED AND RESTATED MASTER LEASE AND OPEN-END MORTGAGE This AMENDMENT NO. 1 TO AMENDED AND RESTATED PARTICIPATION AGREEMENT AND AMENDED AND RESTATED MASTER LEASE AND OPEN-END MORTGAGE (this "Amendment"), is entered into as of September 30, 1999, among BEVERLY ENTERPRISES, INC., a Delaware corporation ("BEI"), as the Representative, Construction Agent, Parent Guarantor and a Lessee (in its capacity as Representative, the "Representative"; in its capacity as Construction Agent, the "Construction Agent"; in its capacity as Parent Guarantor, the "Parent Guarantor" and together with the Guarantors listed on the signature page to the Guaranty (each a "Guarantor") and the Structural Guarantors, the "Guarantors"; and, in its capacity as Lessee, a "Lessee"); certain subsidiaries of BEI that are signatories hereto, as Lessees; BANK OF MONTREAL GLOBAL CAPITAL SOLUTIONS, INC. (formerly known as BMO LEASING (U.S.), INC.), a Delaware corporation, as a Lessor (together with any permitted successors and assigns thereto, each a "Lessor" and collectively the "Lessors") and as Agent Lessor for the Lessors (in such capacity, the "Agent Lessor"); the various financial institutions as are or may from time to time become lenders (the "Lenders") under the Loan Agreement; BANK OF MONTREAL, a Canadian banking organization ("BMO"), as Administrative Agent (in such capacity, the "Administrative Agent") for the Lenders, as Arranger and Syndication Agent (collectively, the "Parties"). R E C I T A L S: The Parties entered into an Amended and Restated Participation Agreement (the "Participation Agreement") dated as of August 28, 1998, amending and restating the Participation Agreement dated as of March 21, 1997. The Agent Lessor, the Lessees and the Representative entered into an Amended and Restated Master Lease and Open-End Mortgage (the "Lease") dated as of August 28, 1998, amending and restating the Master Lease and Open-End Mortgage dated as of March 21, 1997. The Parties wish to amend certain provisions of the Participation Agreement and the Lease as set forth herein to reflect the changes made to the Morgan Credit Agreement and provide additional collateral to the Lenders. 2 A G R E E M E N T: NOW, THEREFORE, in consideration of the premises made hereunder, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound, hereby agree as follows: 1. Defined Terms; References. Unless otherwise expressly defined herein, all capitalized terms used herein and defined in Appendix A to the Participation Agreement shall be used herein as so defined. Unless otherwise expressly stated herein, all Section and Article references herein shall refer to Sections and Articles of the Participation Agreement. 2. Amended Defined Terms. (a) The following defined terms in Appendix A to the Participation Agreement are hereby amended in their entirety to read as follows: "Additional Lender Property" shall mean any of the Properties listed in Schedule V-1 to the Participation Agreement, in each case as previously disclosed to and approved by the Lenders. "Additional Mortgage" means, with respect to each Additional Lender Property, each Mortgage and Fixture Filing and any and all other security instruments in appropriate recordable form sufficient to grant the Agent Lessor, on behalf of the Lessors, a first priority Lien on such Additional Lender Property. "Adjusted Consolidated Debt" means at any date the sum, without duplication, of (i) all liabilities of the Representative and its Subsidiaries at such date of the types classified as "current liabilities: short-term borrowings", "current liabilities: current portion of long-term obligations," "long-term obligations" and, to the extent arising out of claims made by governmental authorities relating to reimbursement obligations or settlements thereof, "other liabilities and deferred items" on the consolidated balance sheet included in the Base Financials (including any Subordinated Notes), (ii) all guarantees at such date of obligations of other issuers (other than guarantees outstanding on the Amendment No. 1 Effective Date of obligations outstanding on the Amendment No. 1 Effective Date, in amounts not in excess of $79,375,000 and reported in the Base Financials) and (iii) an amount equal to the product of eight multiplied by the Consolidated Rental Expense for the four fiscal quarters of the Representative most recently completed on or prior to such date."; "Amendment No. 1 Effective Date" means the date upon this amendment becomes effective in accordance with its terms. "Assignment of Additional Mortgage" means, with respect to each Additional Lender Property, each assignment of mortgage from Agent Lessor, on behalf of the Lessors, to the Administrative Agent, on behalf of the Lenders, in form and substance satisfactory to the Agent Lessor. 2 3 "Attributable Debt" means, on any date, in respect of any lease of the Representative or any of its Subsidiaries entered into as part of a Sale and Leaseback Transaction, (i) if such lease is a lease that is required to be capitalized in accordance with GAAP, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (ii) if such lease is not a lease that is required to be capitalized in accordance with GAAP, the capitalized amount of the remaining lease payments under such lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were a lease that is required to be capitalized in accordance with GAAP. "Encore Facility" means the Term Loan Agreement, dated as of December 30, 1985, as amended, among Encore Nursing Center Partners. Ltd. - 85, a New York limited partnership, Beverly Health and Rehabilitation Services, Inc., the Representative and The Bank of New York. "Final Settlement" means the execution and delivery of settlement agreements among the Representative (and, in some cases, certain of its Subsidiaries), the United States Department of Health and Human Services and the United States Department of Justice finally settling the claims and allegations referred to in the first four paragraphs under "Item 1. Legal Proceedings" of the Representative's quarterly report on Form 10-Q for the quarter ended June 30, 1999, as filed with the Securities and Exchange Commission. "Lessor Margin" means, with respect to the Lessor Amounts on any day, the percentage set forth below opposite the Pricing Category in effect for such date for the applicable type of Lessor Amount:
Pricing Category LIBO Margin Base Rate Margin ---------------- ----------- ---------------- I 2.125% 1.125% II 2.375% 1.375% III 2.75% 1.75% IV 3.0% 2.0% V 3.25% 2.25%
"Loan Margin" means, with respect to the Loans on any day, the percentage set forth below opposite the Pricing Category in effect for such day for the applicable type of Loan:
Pricing Category LIBO Margin Base Rate Margin ---------------- ----------- ---------------- I 1.625% 0.625% II 1.875% 0.875% III 2.25% 1.25% IV 2.5% 1.5% V 2.75% 1.75%
3 4 "PNC Facility" means the Amended and Restated Reimbursement Agreement, dated as of June 20, 1997, as amended, by and among Beverly Health, Beverly Enterprises - Massachusetts, Inc., Beverly Enterprises - Pennsylvania, Inc. and Beverly Enterprises - Ohio, Inc. as Borrowers therein and PNC Bank, National Association as the Issuer of Letter of Credit therein. "Sale and Leaseback Transaction" has the meaning set forth in Section 10.2(m). (b) The definition of "Base Financials" shall be amended by deleting each reference to the year "1997" and substituting therefore a reference to the year "1998". (c) The definition of "Operative Documents" shall be amended by (i) deleting the word "and" at the end of clause (q) therein, (ii) deleting the period at the end of clause (r) and replacing same with a semi-colon, and (iii) adding "(s) the Assignment of Additional Mortgages; and (t) the Additional Mortgages." at the end thereof. (d) The definitions set forth in Schedule IV to the Participation Agreement are amended as follows: (i) the definition of "Pricing Ratio" shall be deleted in its entirety and replaced with the following: "Pricing Ratio" means the ratio of Adjusted Consolidated Debt to Consolidated EBITDAR; (ii) the reference to "2.50" in the definition of "Category I Pricing" shall be deleted and replaced with "3.50"; (iii) the reference to "2.25" in the definition of "Category II Pricing" shall be deleted and replaced with "4.0"; (iv) the reference to "2.00" in the definition of "Category III Pricing" shall be deleted and replaced with "4.5"; and (v) the reference to "1.75" in the definition of "Category IV Pricing" shall be deleted and replaced with "5.0". 3. Payments Regarding Additional Lender Property. Section 7.7(a) of the Participation Agreement is hereby amended by adding the following language at the end thereof prior to the period: 4 5 "; provided, however, that any payment received by the Administrative Agent with regard to the Additional Lender Property shall be distributed pro rata among the Lenders" 4. Representations and Warranties. Section 8.2 of the Participation Agreement is hereby amended as follows: (a) Section 8.2(e) is hereby amended by (i) deleting each reference therein to the year "1997" and replacing same with the year "1998" and (ii) adding the following at the end thereof: The unaudited consolidated balance sheets of the Representative and its Consolidated Subsidiaries as of June 30, 1999 and the related unaudited consolidated statements of operations, stockholders' equity and cash flows for the six months then ended, set forth in the Representative's June 30, 1999 Form 10-Q, a copy of which has been delivered to each Lender, each Lessor, the Lessor Agent and the Administrative Agent, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the Base Financials, the consolidated financial position of the Representative and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such six month period (subject to normal year-end adjustments, the absence of footnote disclosure and condensation pursuant to the rules of the Securities and Exchange Commission). (b) Section 8.2(f) is hereby amended by deleting such section in its entirety and replacing same with the following: (f) No Material Adverse Change. Except for the matters referred to in the first four paragraphs under "Item 1. Legal Proceedings" in the Representative's June 30, 1999 Form 10-Q, since December 31, 1998 there has been no material adverse change in the business, financial position, results of operations or prospects of the Representative and its Consolidated Subsidiaries, considered as a whole. 5 6 (c) Section 8.2(i) is hereby amended by (i) deleting each reference therein to the year "1997" and replacing same with the year "1998,", (ii) adding the phrase "the first four paragraphs under Item 1. Legal Proceedings in" between the words "or" and "the" on the second line thereof and (iii) replacing "June 30, 1998" with "June 30, 1999" on the third line thereof; (d) The following Section 8.2(z) shall be added after Section 8.2(y): (z) Year 2000 Compliance. The Representative has (i) initiated a review and assessment of all areas within the business and operations of the Representative and each of its Subsidiaries (including those areas affected by suppliers and vendors) that could be adversely affected by the "YEAR 2000 PROBLEM" (that is, the risk that computer applications used by it or any of its Subsidiaries (or their respective suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in accordance with such timetable. The Representative reasonably believes that all computer applications (including those of suppliers and vendors) that are material to the business or operations of the Representative or any of its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect on the business, financial position, results of operations or prospects of the Representative and its Consolidated Subsidiaries, taken as a whole." 5. Affirmative Covenants of the Representative. Section 10.1 of the Participation Agreement is hereby amended by adding the following Section 10.1(l) at the end thereof: (l) Additional Mortgages and Assignments of Additional Mortgages. On or prior to October 31, 1999: 6 7 (i) The applicable Lessee shall have delivered to the Agent Lessor all UCC financing statements as the Agent Lessor or any other Lessor may reasonably request appropriately completed and executed for filing in the applicable jurisdiction in order to protect the Agent Lessor's and Lenders' interest in the Additional Lender Property; (ii) Each of the Participants shall have received (x) evidence reasonably satisfactory to it that each of (i) Additional Mortgages and Assignment of Additional Mortgages in the forms acceptable to the Lessor Agent, has been duly executed, delivered and has been or are being recorded in the appropriate jurisdictional records with respect to each Additional Lender Property and create and perfect valid Liens as intended therein and (ii) the Additional Financing Statements have been, or are being, recorded in a manner sufficient to properly perfect each of their interests therein and (y) copies of file search reports from the Uniform Commercial Code filing officer in the jurisdiction in which is located such Additional Lender Property, setting forth the results of such Uniform Commercial Code file searches; (iii) The Representative shall have delivered to the Administrative Agent and the Agent Lessor a commitment to deliver an ALTA lenders title insurance policy covering each Additional Lender Property in favor of the Agent Lessor, the Administrative Agent and the Participants, respectively, such policy in form satisfactory to the Agent Lessor and Administrative Agent, with such customary endorsements and affirmative assurances issued by the title company as a routine matter, if requested by the Agent Lessor or the Administrative Agent; and (iv) The Agent Lessor and the Administrative Agent shall have received (i) an opinion of counsel qualified with respect to the laws of the jurisdiction in which the Additional Lender Properties are situated, addressed to the Administrative Agent, the Agent Lessor, each Lender and each Lessor, substantially in the form satisfactory to the Agent Lessor and Administrative Agent and (ii) if requested by the Agent Lessor and the Administrative Agent, opinions from such other counsel and covering such issues as they may reasonably request. 7 8 6. Negative Covenants of the Representative. Section 10.2 of the Participation Agreement is hereby amended as follows: (a) Section 10.2(a) is hereby amended by deleting such section in its entirety and replacing same with the following: (a) Minimum Consolidated Net Worth. Permit Consolidated Net Worth of the Representative to be less than 90% of Consolidated Net Worth at June 30, 1999 plus (i) 50% of the aggregate positive Consolidated Net Income (excluding any consolidated net loss) of BEI and its Consolidated Subsidiaries for each fiscal quarter ending after June 30, 1999 plus (ii) 50% of the aggregate net proceeds, including the fair market value of property other than cash (as determined in good faith by BEI's board of directors), received by BEI from the issuance and sale after June 30, 1999 of any capital stock of BEI (other than the proceeds of any issuance and sale of any capital stock (x) to a Subsidiary or (y) which is required to be redeemed, or is redeemable at the option of the holder, if certain events or conditions occur or exist or otherwise) or in connection with the conversion or exchange of any Debt of BEI into capital stock of BEI after June 30, 1999. (b) Section 10.2(b) of the Participation Agreement is hereby amended in its entirety to read as follows: (b) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio at any date during the periods specified below to be less than the ratio set forth below opposite the period in which such date falls:
Period Ratio ------ ----- Amendment No. 1 Effective Date through 1.15 to 1.0 (and including) June 29, 2003 June 30, 2003 and thereafter 1.25 to 1.0
8 9 (c) Section 10.2(c) of the Participation Agreement is hereby amended in its entirety to read as follows: (c) Adjusted Consolidated Debt Ratio. Permit the Adjusted Consolidated Debt Ratio at any date during the periods specified below to be more than the ratio set forth below opposite the period in which such date falls:
Period Ratio ------ ----- Amendment No. 1 Effective Date through (and including) 5.75 to 1.0 September 29, 2000 September 30, 2000 and thereafter through (and including) 5.50 to 1.0 June 29, 2002 June 30, 2002 through (and including) June 29, 2003 5.00 to 1.0 June 30, 2003 through (and including) and thereafter 4.50 to 1.0
(d) Section 10.2(f)(vi) is hereby amended by deleting such section in its entirety and replacing same with the following: (vi) the Representative may make any such payment or distribution if, after giving effect thereto, the aggregate amount of all such payments or distributions made after the Amendment No. 1 Effective Date (including, without limitation, any such payments or distributions permitted under subclause (ii)(A) or clause (iv) above) does not exceed (A) on any date on and after the Final Settlement on which (x) no Event of Default shall have occurred and be continuing or shall result from such payment and (y) the ratio of (x) Adjusted Consolidated Debt to (y) Consolidated EBITDAR is (I) less than 5.00 to 1.00 but not less than 4.75 to 1.00, $25,000,000, (II) less than 4.75 to 1.00 but not less than 4.50 to 1.00, $30,000,000, and (III) less than 4.50 to 1.00, $40,000,000 and (B) on any other date, $10,000,000. 9 10 (e) Section 10.2(g) is hereby amended by (i) adding, at the end of clause 1 thereof prior to the semicolon, the words ", including, without limitation, Liens created under the PNC Facility and the Encore Facility and Liens (other than Liens of the types referred to in clauses 4, 7, 9) to the extent such Liens constitute refinancing of Liens permitted under such clauses 4 and 7 or 12 existing on the Amendment No. 1 Effective Date securing Indebtedness and other obligations outstanding on the Amendment No. 1 Effective Date" and (ii) replacing the amount "$50,000,000" in clauses 13 and 15 thereof with the amount "$25,000,000". (f) Section 10.2(i) is hereby amended by deleting the word "Incur" on the first line thereof and replacing same with "With respect to the Representative's and each Lessee's Subsidiaries only, such Subsidiaries will not incur" (g) Section 10.2(i)(6) is hereby amended by deleting the reference to "$150,000,000" and replacing same with "$100,000,000". (h) Section 10.2(i)(14) is hereby amended by deleting the reference to "$75,000,000" and replacing same with "$20,000,000". (i) Section 10.2 is hereby amended by adding the following Section 10.2(l) and (m) after Section 10.2(k): (l) Consolidated Gross Capital Expenditures. Permit Consolidated Gross Capital Expenditures for any of the fiscal years set forth below, to exceed the amount indicated opposite such fiscal year:
Fiscal Year Ending Amount ------------------ ------ December 31, 1999 $120,000,000 December 31, 2000 $120,000,000 December 31, 2001 $125,000,000
To the extent that Consolidated Gross Capital Expenditures for any fiscal year set forth above are less than the applicable amount specified in the table, the difference may be carried forward to the next fiscal year (and for this purpose, Consolidated Gross Capital Expenditures in any subsequent fiscal year shall be applied, first, to any such carry-forward amount and, second, to the specified amount for such year). 10 11 (m) Sale and Leaseback Transactions. Enter into, or permit any of its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, which property has been owned by the Representative and its Subsidiaries for more than 180 days, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred (each, a "SALE AND LEASEBACK TRANSACTION"), except for Sale and Leaseback Transactions the aggregate amount of Attributable Debt in respect of which does not exceed $20,000,000 at any time outstanding. 7. Events of Default. Section 16.1 of the Lease is hereby amended by (a) deleting the word "or" at the end of Section 16.1(m), (b) deleting the period at the end of Section 16.1(n) and replacing same with a semi-colon and (c) adding the following Sections 16.1(o) and (p) at the end thereof: (o) any of the Additional Mortgages or Assignment of Additional Mortgages shall at any time after the date on which same are executed and delivered fail to create or assign Liens in favor of the parties intended thereunder and in the priorities intended thereunder; or (p) the terms of the Final Settlement shall require payments by the Representative and its Subsidiaries to the United States Federal government and agencies and instrumentalities thereof (I) in the aggregate in excess of $225,000,000, (ii) up-front in excess of $30,000,000 or (iii) with a final maturity of less than eight (8) year.;" 8. Effective Date. Subject to Section 10 below, this Amendment shall be effective and the Participation Agreement and Lease amended as of September 30, 1999, as if entered into on such date. 9. Representations and Warranties. To induce the Administrative Agent, the Agent Lessor and the Participants to execute and deliver this Amendment (which representations shall survive the execution and delivery of this Amendment), each of the Beverly Entities that is a party hereto represents and warrants to each of the Administrative Agent, the Agent Lessor and the Participants that: 11 12 (a) this Amendment has been duly authorized, executed and delivered by it and this Amendment constitutes the legal, valid and binding obligation, contract and agreement of such Beverly Entity enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Participation Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligation, contract and agreement of such Beverly Entity enforceable against it in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by such Beverly Entity of this Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (l) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, including, without limitation, the Morgan Credit Agreement, or (B) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this subsection (c); (d) as of the date hereof and after giving effect to this Amendment, no Default or Event of Default has occurred which is continuing; and (e) all the representations and warranties contained in Section 8.2 of the Participation Agreement (after giving effect to this Amendment) are true and correct in all material respects with the same force and effect as if made by such Beverly Entity on and as of the date hereof. 10. Conditions to Effectiveness of this Amendment. This Amendment shall not become effective until, and shall become effective when, each and every one of the following conditions shall have been satisfied to the satisfaction of the Agent Lessor, the Administrative Agent and each Participant (the conditions precedent are for the benefit of the Agent Lessor, the Administrative Agent and each Participant only): (i) The Agent Lessor, the Administrative Agent and the Participants shall have received executed counterparts of this Amendment, duly executed by the Beverly Entities party hereto; 12 13 (ii) The Agent Lessor, the Administrative Agent and the Participants shall have received evidence satisfactory to them that the Morgan Credit Agreement has been amended in form and substance satisfactory to the Administrative Agent, the Agent Lessor and the Participants; (iii) The representations and warranties of the Beverly Entities set forth in Section 8 hereof are true and correct on and with respect to the date hereof; and (iv) The Administrative Agent shall have received a fee for the account of the Participants in connection with the Participants' agreement to the terms of this Amendment equal to .20% multiplied by each Participant's Commitment. Upon receipt of all of the foregoing, this Amendment shall become effective. 11. Payment of Fees and Expenses. The Representative agrees to pay upon demand, the reasonable fees and expenses of Mayer, Brown & Platt, counsel to the Lessors, in connection with the negotiation, preparation, approval, execution and delivery of this Amendment and all reasonable fees and expenses attendant to any filing, registration, recording or perfection of any Lien contemplated hereby. 12. Effect of Amendment. The Parties agree that upon the effectiveness of this Amendment as provided in Section 10 except as amended hereby or hereafter, the Participation Agreement and any and all other agreements, documents, certificates and other instruments executed in connection therewith shall remain in full force and effect in accordance with their terms, and any reference to the Participation Agreement shall be deemed to be a reference to the Participation Agreement as amended by this Amendment. 13. Amendment to Schedules and Exhibits. Schedule V-1 and Exhibits I and J shall be added to the Participation Agreement in the forms attached hereto 14. Counterparts. This Amendment may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument. 15. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. 13 14 IN WITNESS WHEREOF, the Parties have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written. BEVERLY ENTERPRISES, INC., as Representative, Construction Agent, Parent Guarantor and a Lessee By -------------------------------------- Name: Title: BANK OF MONTREAL, as Arranger, Administrative Agent and as a Lender By -------------------------------------- Name: Title: BANK OF MONTREAL GLOBAL CAPITAL SOLUTIONS, INC., as Agent Lessor and as a Lessor By -------------------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender By -------------------------------------- Name: Title: TORONTO-DOMINION (TEXAS), INC., as a Lender By -------------------------------------- Name: Title: S-1 15 BANK OF AMERICA, NATIONAL ASSOCIATION, as a Lender By -------------------------------------- Name: Title: VANTAGE HEALTHCARE CORPORATION, as Lessee and Structural Guarantor By -------------------------------------- Name: Title: PETERSEN HEALTH CARE, INC., as Lessee and Structural Guarantor By -------------------------------------- Name: Title: BEVERLY SAVANA CAY MANOR, INC., as Lessee and Structural Guarantor By -------------------------------------- Name: Title: BEVERLY ENTERPRISES - GEORGIA, INC., as Lessee and Structural Guarantor By -------------------------------------- Name: Title: S-2 16 BEVERLY ENTERPRISES - CALIFORNIA, INC., as Lessee and Structural Guarantor By -------------------------------------- Name: Title: BEVERLY ENTERPRISES - ARKANSAS, INC., as Lessee and Structural Guarantor By -------------------------------------- Name: Title: BEVERLY ENTERPRISES - FLORIDA, INC., as Lessee and Structural Guarantor By -------------------------------------- Name: Title: BEVERLY HEALTH AND REHABILITATION SERVICES, INC., as Lessee and Structural Guarantor By -------------------------------------- Name: Title: BEVERLY ENTERPRISES - WASHINGTON, INC., as Lessee and Structural Guarantor By -------------------------------------- Name: Title: S-3 17 Schedule V-1 Additional Properties
FACILITY # FACILITY NAME CITY COUNTY STATE - ---------- ------------- ---- ------ ----- 2272 Lincoln Hills Health Care Tell City Perry IN 2046 Fontanbleu Nursing Center Bloomington Monroe IN 3678 Woodland Convalescent Center Newburgh Warrick IN
EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 SEP-30-1999 17,462 0 442,441 60,704 32,577 492,219 1,858,682 750,494 1,970,072 345,194 776,276 0 0 11,038 662,868 1,970,072 1,903,748 1,907,038 0 1,727,368 287,630 0 54,029 (161,989) (59,936) (102,053) 0 0 0 (102,053) (1.00) (1.00) Excludes $6,456 of long-term notes receivable. Excludes $2,462 of allowance for doubtful long-term notes receivable. Included in Total costs and expenses line.
EX-27.2 8 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 SEP-30-1998 23,538 0 485,620 14,135 29,397 599,820 1,831,725 683,014 2,198,953 335,952 818,775 0 0 11,028 857,518 2,198,953 2,107,752 2,115,710 0 1,898,799 74,318 0 48,869 93,724 32,803 60,921 0 0 (4,415) 56,506 .54 .54 Excludes $25,831 of long-term notes receivable. Excludes $2,997 of allowance for doubtful long-term notes receivable. Included in Total cost and expenses line.
-----END PRIVACY-ENHANCED MESSAGE-----