Counsel Corporation announces combination of Capstone Pharmacy Services and Pharmacy Corporation of America will create largest U.S. independent institutional pharmacy.

TORONTO--(BUSINESS WIRE)--April 16, 1997--Counsel Corporation (TSE:CXS; NASDAQ:CXSNF) announced today that Capstone Pharmacy Services, Inc. (NASDAQ:DOSE) has signed a definitive agreement to combine with Pharmacy Corporation of America ("PCA"), a unit of Beverly Enterprises (NYSE:BEV) to create the largest independent institutional pharmacy company in the United States.

The combined entity will have 1997 revenues totaling more than US$900 million, about 30 percent higher than its nearest competitor. It will serve the pharmaceutical and medical needs of nearly 500,000 customers and operate some 100 institutional pharmacies in 32 states. The transaction, involving the issuance of approximately 50 million shares of Capstone to Beverly shareholders, will be accretive to Capstone, increasing annual earnings per share by at least 10 percent.

Counsel Corporation will remain Capstone's largest shareholder with approximately 7 percent plus warrants which, when exercised, will increase its holdings to approximately 10 percent.

The transaction, which has been structured to avoid any current tax consequences for Beverly and Capstone shareholders, is expected to close by the end of the year and is subject to assurances of favorable tax consequences as well as shareholder approval and customary regulatory reviews and approvals.

Allan Silber, Chairman and CEO of Counsel and Chairman of Capstone, said: "The growth of managed care is putting pressure on the institutional pharmacy industry to become more competitive on price and service. The combination of Capstone and PCA gives us the opportunity to become a highly focused industry leader with the scope of operations, the financial resources and the management talent to effectively address these competitive pressures. Capstone and its shareholders should benefit from the much stronger base we're building in an industry where consolidation and cost-effectiveness are becoming increasingly important. As market leader, we are excited about the prospects of shaping the future of this industry. We will continue to seek out those situations that will allow us to set the standards for quality, service, efficiency and innovation."

Commenting on growth prospects, Silber, who will be continuing as Capstone's Chairman after completion of this transaction, stated: "Capstone and PCA are an excellent strategic fit, with complementary strengths that should promote continued growth and increased profitability. For example, PCA has an excellent mail service capability and a stronger presence in ancillary services, including the infusion therapy business. Capstone has taken a more aggressive approach to acquisitions, has developed a much larger share of the correctional institution business and broadens PCA's coverage in key markets. These complementary strengths in combination with sophisticated information technology, should enable us to more fully develop our current business base, and expand our scope beyond long- term care to cover a broader spectrum of the health care market."

Silber added: "Our accomplishments at Capstone reflect Counsel's strategic foundation to purchase platform companies in rapidly expanding health care service segments. We help these companies achieve their potential through our highly focused and active management role. Our addition of human and financial resources is fundamental to allowing these companies to capitalize on opportunities and realize value. The success of this approach has been demonstrated at Capstone. Since our initial investment in December 1994, at a time when its revenues were declining and it had been unprofitable for several years, Capstone has seen revenues grow from US$43.6 million for the year ended February 28, 1995 to US$144.4 million for the year ended December 31, 1996 (its year end was changed from February 28 to December 31 in 1995) and it has returned to profitability with net income of US$0.2 million for the 10 months ended December 31 1995 and US$3.1 million for the year ended December 31, 1996 compared with a loss of US$11.4 million for the year ended February 28, 1995.

"Our achievements in the institutional pharmacy segment mirror our success in home health care with American HomePatient Inc. (NASDAQ:AHOM) which we took public at the end of 1991. American HomePatient's revenues from continuing operations have grown at a compound annual rate of approximately 55 percent, from US$45.8 million in 1992 to US$268.4 million in 1996 and its income from continuing operations has grown at an even faster 65 percent, from US$2.0 million in 1992 to US$15.2 million in 1996. Counsel Corporation has similar objectives for Stadtlanders Pharmacy which it acquired in 1996, and any new platform companies it may acquire in the future."

Counsel has been active in the US health care sector since 1983. It is engaged primarily in three healthcare segments: institutional pharmacy services, home health care and specialty pharmacy services. This release involves forward looking statements with respect to future business prospects, future earnings, and other plans and expectations on the part of Counsel Corporation and Capstone. The accuracy of these statements involves a number of risks and uncertainties, including but not limited to, changing economic and market conditions that would impact such prospects or financing related thereto, changes in governmental reimbursement regulations and laws as well as other risk factors detailed in the companies' securities filings, to which recipients of this release are referred for additional information concerning the companies and their prospects.

CONTACT: Counsel Corporation

Morris Perlis, 416/866-3193

Susan Feldman, 416/ 866-3187

Stephen Weintraub, 416/ 866-3058

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