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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
BEVERLY ENTERPRISES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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BEVERLY ENTERPRISES, INC.
ONE THOUSAND BEVERLY WAY
FORT SMITH, ARKANSAS 72919
(501) 201-2000
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TIME....................... 10:00 a.m., local time, on Thursday, May 24, 2001
PLACE...................... Holiday Inn
700 Rogers Avenue
Fort Smith, Arkansas
ITEMS OF BUSINESS.......... (1) Elect eight members of the Board of Directors
(2) Approve Ernst & Young LLP as our independent
auditors for 2001
(3) Amend the 1997 Long-Term Incentive Plan
(4) Amend the Non-Employee Directors Stock Option
Plan
(5) Transact any other business properly before the
Annual Meeting and adjournment
RECORD DATE................ If you were a stockholder on March 31, 2001, you
are entitled to vote.
ANNUAL REPORT.............. Our 2000 Annual Report, which is not part of the
proxy soliciting material, is enclosed.
PROXY VOTING............... It is important that your shares of stock be
represented and voted at the meeting. Please MARK,
SIGN, DATE AND PROMPTLY RETURN the enclosed proxy
card in the postage-paid envelope.
Any proxy may be revoked at any time prior to its
exercise at the meeting.
DOUGLAS J. BABB
April 10, 2001 Secretary
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TABLE OF CONTENTS PAGE
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NOTICE OF ANNUAL MEETING.................................... COVER
ANSWERS TO TWENTY FREQUENTLY ASKED QUESTIONS................ 1
PROPOSALS YOU MAY VOTE ON................................... 5
ITEM 1 -- ELECTION OF DIRECTORS........................ 5
ITEM 2 -- APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG
LLP AS INDEPENDENT AUDITORS.................. 5
ITEM 3 -- AMEND THE 1997 LONG-TERM INCENTIVE PLAN...... 5
ITEM 4 -- AMEND THE NON-EMPLOYEE DIRECTORS STOCK OPTION
PLAN......................................... 9
NOMINEES FOR THE BOARD OF DIRECTORS......................... 11
BOARD OF DIRECTORS -- COMMITTEES DURING 2000................ 12
BOARD OF DIRECTORS -- COMPENSATION.......................... 13
How was the Board compensated in 2000?................. 13
What are the non-employee director stock-based
programs?............................................. 13
Changes in Board compensation.......................... 13
How much Beverly stock does the Board own?............. 14
SECURITY OWNERSHIP OF MANAGEMENT............................ 14
AUDIT AND COMPLIANCE COMMITTEE REPORT....................... 15
COMPENSATION COMMITTEE REPORT ON 2000 EXECUTIVE
COMPENSATION.............................................. 16
Compensation Practices................................. 16
Base Salary............................................ 16
Annual Incentive Compensation.......................... 16
Long-Term Incentive Compensation....................... 17
Replacement of Certain Stock Option Grants with
Restricted Stock...................................... 17
Retirement Benefits.................................... 17
Response to Tax Laws Limiting Deductions for
Compensation.......................................... 18
EXECUTIVE COMPENSATION...................................... 19
Summary Compensation Table............................. 19
Options/SAR Grants in 2000............................. 21
2000 Fiscal Year-End Option/SAR Values................. 21
PERFORMANCE GRAPH........................................... 22
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE
IN CONTROL AGREEMENTS..................................... 23
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
OF 1934................................................... 24
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS............. 24
OTHER MATTERS............................................... 24
AUDIT AND COMPLIANCE COMMITTEE CHARTER...................... A-1
AMENDED AND RESTATED 1997 LONG-TERM INCENTIVE PLAN.......... B-1
AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS STOCK OPTION
PLAN...................................................... C-1
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PROXY STATEMENT FOR
BEVERLY ENTERPRISES, INC.
2001 ANNUAL STOCKHOLDERS MEETING
ANSWERS TO TWENTY FREQUENTLY ASKED QUESTIONS
1. Q. WHY AM I RECEIVING THESE PROXY MATERIALS?
A. Beverly's Board is asking for the right to vote your shares
as your proxy or agent at the Annual Meeting. Acting as your
proxy, the Proxy Committee, appointed by the Board, will
vote your shares as you instruct on your proxy card. This
proxy statement includes a discussion about the issues to be
voted on. Each share you own is entitled to one vote on each
matter considered at the Annual Meeting.
2. Q. WHAT MAY I VOTE ON?
A. (1) The election of directors.
(2) The appointment of our independent auditors for 2001.
(3) The amendment to the 1997 Long-Term Incentive Plan.
(4) The amendment to the Non-Employee Directors Stock Option
Plan.
3. Q. WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
A. Election of Directors
- The eight nominees who receive the most votes will be
elected.
- If you don't vote or indicate "withhold authority" for a
particular nominee on your proxy card, your shares will not
count either "for" or "against" the nominee.
Appointment of independent auditors
Amendment to the 1997 Long-Term Incentive Plan
Amendment to the Non-Employee Directors Stock Option Plan
- The affirmative vote of a majority of the shares present,
in person or by proxy, and entitled to vote at the Annual
Meeting is required to approve the appointment of the
independent auditors for 2001 and approve the amendments
to the 1997 Long-Term Incentive Plan and the Non-Employee
Directors Stock Option Plan.
- If you "abstain" from voting, it has the same effect as if
you voted "against" this proposal.
4. Q. HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A. The Board recommends a vote FOR each of the nominees, FOR
appointment of Ernst & Young LLP as independent auditors for
2001, FOR the amendment to the 1997 Long-Term Incentive
Plan, and FOR the amendment to the Non-Employee Directors
Stock Option Plan.
5. Q. WHO IS ENTITLED TO VOTE?
A. Stockholders as of the close of business on March 31, 2001
(the Record Date) are entitled to vote. As required by
Delaware law, a list of stockholders entitled to vote at the
Annual Meeting will be available at the Annual Meeting on
May 24, 2001, and for 10 days prior to the meeting, during
normal business hours at Beverly's corporate office, One
Thousand Beverly Way, Fort Smith, Arkansas.
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6. Q. DOES HOLDING MY STOCK IN A BROKERAGE ACCOUNT AFFECT MY ENTITLEMENT TO VOTE?
A. If your shares are held in a brokerage account, your broker or a custodian is shown on our books as
the stockholder and the person entitled to vote the shares. Under the rules of the New York Stock
Exchange, your broker is required to seek instructions from you on how to vote the shares of your
stock. You received this proxy statement and the Company's annual report along with the request for
instructions on how to vote from your broker, who we supplied and paid to distribute this
information.
7. Q. WHAT HAPPENS IF I DON'T INSTRUCT MY BROKER HOW TO VOTE?
A. Under the current rules of the New York Stock Exchange, your broker can vote your shares without
your instructions on each of the proposals.
8. Q. WHAT HAPPENS IF I DO NOT VOTE THE SHARES REGISTERED IN MY NAME?
A. If your shares are held by you in a registered account maintained by the transfer agent, The Bank of
New York, your shares will not be voted or considered in the determination of a quorum.
There is a risk to your account if you do not vote your shares. The risk relates to the abandoned
property law. This is a law that has been adopted by all states. It provides for the state to take
possession of property abandoned by its owner. This law presumes that, where there is a lack of
communication between you and the transfer agent for a specified period of time, you have abandoned
the account. Once this presumption arises, the transfer agent is required to attempt to contact you
but if the attempt is unsuccessful, it must transfer the stock in your account to the state of your
last known address, as shown on the records of the transfer agent. If the shares in your account are
transferred to the state, the certificate you are holding is canceled and you are no longer a
stockholder. The only way to have your stock ownership reinstated is to contact the state holding
your stock.
To avoid these consequences, make sure you contact the transfer agent with any change of address so
that you will be assured of receiving communication from us and the transfer agent. Signing and
returning the enclosed proxy card is a way to make sure communication is established.
9. Q. WHAT IS A "QUORUM"?
A. A "quorum" is a majority of the issued and outstanding shares. As of March 31, 2001 (the Record
Date) there were 103,697,688 shares of Beverly stock issued and outstanding. There must be at least
51,848,845 shares present or represented by proxy at the Annual Meeting for it to be held. If you
vote by proxy card, your shares will be considered part of the quorum.
10. Q. HOW DO I VOTE?
A. Sign and date each proxy card you receive and return it in the prepaid envelope. If you return your
signed proxy card but do not mark the boxes showing how you wish to vote, your shares will be voted
by the Proxy Committee, consisting of Douglas J. Babb, and William R. Floyd, FOR all proposals.
11. Q. MAY I REVOKE MY PROXY?
A. If you give a proxy, you can revoke it at any time before your shares are voted. You can revoke in
any one of three ways:
- submit a valid, later-dated proxy card,
- notify Beverly's secretary, in writing, before the Annual Meeting that you have revoked your
proxy, or
- vote in person at the Annual Meeting.
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12. Q. WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A. If your shares are registered differently and are in more
than one account, you will receive more than one proxy card.
Sign and return all proxy cards to ensure that all of your
shares are voted. We encourage you to have all accounts
registered in the same name and address (whenever possible).
You can accomplish this by contacting our transfer agent,
The Bank of New York, 101 Barclay Street, New York, NY
10286.
Consolidating accounts is also helpful in avoiding the
abandoned property problem discussed in Question and Answer
8.
13. Q. WHO WILL COUNT THE VOTES?
A. Representatives of The Bank of New York, acting as
independent tabulator, will count the votes. John W.
MacKenzie, an officer of the Company, will act as the
inspector of elections.
14. Q. HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A. Although we do not know of any business to be conducted at
the Annual Meeting other than the proposals described in
this proxy statement, if any other business is presented,
your signed proxy card gives authority to the Proxy
Committee to vote on such matters at their discretion.
15. Q. HOW DO I VOTE IF I PARTICIPATE IN THE EMPLOYEE STOCK
PURCHASE PLAN?
A. Merrill Lynch, as administrator of the plan, is the record
holder of the shares. Merrill Lynch will seek instructions
from you on how to vote.
16. Q. WHO CAN ATTEND THE ANNUAL MEETING?
A. All stockholders of record on March 31, 2001 can attend. If
your stock is held through a broker and you would like to
attend, please bring a copy of your brokerage account
statement or an omnibus proxy (which you can get from your
broker) to the Annual Meeting.
17. Q. WHO ARE THE LARGEST PRINCIPAL STOCKHOLDERS?
A. Beneficial owners of Beverly stock in excess of 5% of the
outstanding shares as of December 31, 2000 are required to
file reports showing the number of shares owned on December
31 with the Securities and Exchange Commission (the
"Commission") and send a copy to the Company. Based solely
on those reports, the stockholders beneficially owning 5% or
more of the outstanding shares are:
- ICM Asset Management
601 W. Main Ave., Suite 600
Spokane, WA 99201
7,462,553 shares or 7.19% as of December 31, 2000
- Heartland Advisors, Inc.
789 North Water Street
Milwaukee, WI 53202
7,441,800 shares or 7.17% as of December 31, 2000
- Merrill Lynch & Co., Inc.
(on behalf of Merrill Lynch Investment Managers)
250 Vesey Street
New York, NY 10381
7,202,739 shares or 6.94% as of December 31, 2000
- Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
7,034,845 shares or 6.78% as of December 31, 2000
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- Wellington Management Company, LLP
75 State Street
Boston, MA 02109
6,630,000 shares or 6.39% as of December 31, 2000
18. Q. WHEN ARE THE STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL
MEETING DUE?
A. All stockholder proposals to be considered for inclusion in
next year's proxy statement must be submitted in writing for
receipt by December 11, 2001. They should be sent to the
CORPORATE SECRETARY, BEVERLY ENTERPRISES, INC., ONE THOUSAND
BEVERLY WAY, FORT SMITH, AR 72919.
Additionally, Beverly's advance notice by-law provision
requires that any stockholder proposal to be presented from
the floor of the 2002 annual meeting be received by the
Corporate Secretary seventy-five (75) days before the
meeting. It is currently expected that the 2002 annual
meeting will be held on May 23, 2002. If this date is set by
the Board, stockholder proposals to be presented will be due
by March 9, 2002. Proposals may be presented from the floor
only after a determination has been made that it is a proper
matter for consideration.
19. Q. CAN A STOCKHOLDER NOMINATE SOMEONE TO BE A DIRECTOR?
A. As a stockholder, you may recommend any person as a nominee
for director by writing to the Chairman of the Nominating
Committee of the Board, c/o the Corporate Secretary at the
address above. The recommendations must be accompanied by
the following information:
- name and address of the nominating stockholder
- a representation that the nominating stockholder is a
record holder
- a representation that the nominating stockholder intends
to appear in person or by proxy at the annual meeting to
nominate the person or persons specified
- information regarding each nominee which would be required
to be included in a proxy statement
- a description of any arrangements or understandings
between the nominating stockholder and the nominee
- the consent of each nominee to serve as a director, if
elected
20. Q. HOW MUCH DID THIS PROXY SOLICITATION COST?
A. Georgeson & Company was hired to assist in the distribution
of proxy materials and solicitation of votes for $8,500 plus
out-of-pocket expenses. We also reimburse brokerage houses
for out-of-pocket costs. A few Company officers and
employees may also participate in the solicitation, without
additional compensation.
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PROPOSALS YOU MAY VOTE ON
1. ELECTION OF DIRECTORS
There are eight current directors as nominees for re-election. Detailed
information on each nominee is provided on page 11. All directors are elected
annually and serve a one-year term until the next annual meeting and until their
successor is elected and qualified. Except as otherwise specified on your proxy
card, proxies will be voted for election of all nominees.
If a nominee becomes unable to stand for re-election, the Board may reduce
the number of directors or designate a substitute which it believes will carry
on our present policies. If a substitute is designated, proxies voted for the
original nominee will be cast for the substitute.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THESE DIRECTORS.
2. APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
The Audit and Compliance Committee and the Board have approved, subject to
your approval, the appointment of Ernst & Young LLP as our independent auditors
for 2001. Ernst & Young LLP has been our auditors since 1965. They have
unrestricted access to the Audit and Compliance Committee to discuss audit
findings and other financial matters. Representatives of Ernst & Young LLP will
attend the Annual Meeting to answer appropriate questions. They may also make a
statement.
Fees billed by Ernst & Young LLP for 2000 were: annual audit -- $881,010,
and all other non-audit services -- $1,635,329 which included fees for audit
related services of -- $936,226.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF ERNST & YOUNG
LLP'S APPOINTMENT AS INDEPENDENT AUDITORS FOR 2001.
3. AMEND THE 1997 LONG-TERM INCENTIVE PLAN
The Board of Directors recommends that stockholders approve an amendment to
Beverly's Amended and Restated 1997 Long-Term Incentive Plan to provide for an
increase in the number of shares of Beverly common stock reserved for issuance
under the Plan by 5,000,000, to increase the number of shares that may be issued
as restricted stock, restricted stock units, performance shares, performance
units, bonus stock or other stock unit awards by 2,500,000 shares, and increase
the number of shares that can be issued with respect to the exercise of
incentive stock options by 2,500,000 shares. A copy of the Plan, as proposed to
be amended, is included herein as Appendix B, starting at page B-1.
The 1997 Plan plays an important role in Beverly's efforts to attract and
retain key employees, and to align the interests of employees with those of
stockholders through increased employee ownership of Beverly. The shares of
Beverly common stock originally reserved for issuance under the Plan in 1997 are
expected to be fully utilized by early 2002. In order to continue to provide the
appropriate equity incentives to employees in the future, the Compensation
Committee and the Board of Directors have approved, subject to stockholder
approval, an increase in the number of reserved shares, including a proportional
increase in the number of shares that may be issued as restricted stock,
restricted stock units, performance shares, performance units, bonus stock or
other stock unit awards (the "grant shares"), and shares subject to incentive
stock options.
The amendment to the Plan to increase the number of shares reserved
(including the increase for grant shares and shares in connection with incentive
stock options) must be approved by the affirmative vote of a majority of shares
present, in person or by proxy, and entitled to vote at the Annual Meeting. In
the event stockholder approval is not obtained, Beverly will not increase the
number of shares reserved for issuance under the Plan, but awards may continue
to be made under the terms of the Plan as currently in effect.
The purposes of the Plan are to: attract and retain executive officers and
other key employees essential to Beverly's success; motivate these employees
using performance-related incentives linked to longer-range performance goals
and the interest of our stockholders; and enabling such employees to share in
Beverly's long-term growth and success. As discussed below, certain grants under
the Plan are intended to satisfy
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specific performance-based compensation under Section 162(m) of the Internal
Revenue Code. The following is a summary of the principal features of the Plan.
DESCRIPTION OF THE PLAN
Administration of the Plan. The Plan is administered by the Compensation
Committee of the Board of Directors (the "Committee"). The Committee has been
constituted to comply with the "non-employee director" requirements of Rule
16b-3 under the Securities Act of 1934 and the "outside director" requirements
of the Internal Revenue Code.
Subject to the restrictions set forth in the Plan, the Committee has the
authority to determine the individuals to whom awards will be granted; the type,
size and terms of the awards; and the terms and provisions of each agreement
under the Plan. It has the ability to amend awards previously granted and
determine the objectives and conditions for earning the awards. The Committee
may establish, amend or waive rules and regulations for administration of the
Plan.
Eligible Participants. The Committee, in its sole discretion, will
determine which key employees will participate in the Plan.
Types of Awards. The Plan allows the Committee to grant awards of stock
options, stock appreciation rights, restricted stock, restricted stock units,
performance awards, bonus stock and other stock unit awards. Stock options
granted under the Plan may be either incentive stock options qualifying under
Section 422 of the Internal Revenue Code or nonqualified stock options.
Awards under the Plan are not transferable, except by will or the laws of
descent and distribution, by a qualified domestic relations order, and certain
transfers to a participant's family members, trusts, corporations or
partnerships consisting of such family members or other persons or entities
approved by the Committee, subject to certain limitations.
Share Limitations. The aggregate number of shares that may be delivered or
purchased or used for the purposes under the Plan for all participants and all
types of awards will be, upon the effectiveness of the proposed amendment,
15,000,000 shares of Beverly stock. This number includes shares previously
issued or subject to prior awards under the Plan. Shares of Beverly stock issued
under the Plan may be from either authorized but unissued shares or shares held
as treasury stock. Any shares subject to award that for any reason expires, or
is terminated unexercised or is settled in cash, will again be available for
issuance under the Plan. The maximum number of shares that may be issued in
connection with the exercise of an incentive stock option is 7,500,000 shares.
The maximum number of shares that may be issued as grant shares is 7,500,000. A
participant may be granted multiple awards under the Plan, but no more than
1,100,000 shares of Beverly stock may be subject to awards under the Plan in any
one calendar year to any one individual. Additional limitations apply to the
aggregate dollar value of shares granted under incentive stock options in order
to comply with Section 422 of the Internal Revenue Code. In addition, the
maximum award that may be granted to a participant subject to Section 162(m) of
the Internal Revenue Code, as performance shares, bonus stock or other stock
unit awards is the lesser of 100% of the participant's base salary as of the
first day of the performance period or $1,000,000.
In the event of any change in the outstanding shares of Beverly stock by
reason of a stock split or stock dividend, recapitalization, merger,
consolidation, reorganization, reclassification, any other distribution in
respect to such shares or other similar corporate change, the Committee may make
certain adjustments under the Plan, including adjustments in the number, kind
and character of shares subject to existing and future awards, in the exercise,
purchase or base price of an outstanding award, and in the maximum number of
shares that can be awarded to all participants and any one participant.
STOCK OPTIONS
Exercise Price. The Committee determines the exercise price of a stock
option at the time the option is awarded. The exercise price may not be less
than 100% of fair market value of Beverly stock on the date of grant. Upon
exercise, the exercise price must be paid in cash or by the surrender, at fair
market value on the
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date of exercise, of shares of Beverly stock, or by any combination of cash and
shares. The Plan provides that Beverly may cooperate in broker-assisted
exercises and if requested by the participant, withhold from the shares to be
otherwise issued that number of shares needed to pay the exercise price.
Term and Vesting of Options. Subject to earlier termination, as described
below, an option granted under the Plan expires on the earlier of the date
provided in the agreement with the participant or ten years after the date of
grant. The Committee specifies at the time each option is granted, the time or
times at which, and in what proportions, an option becomes vested and
exercisable.
STOCK APPRECIATION RIGHTS
Granting and Terms of Stock Appreciation Rights (SARs). SARs may be
granted under the Plan on a free-standing basis, without regard to the grant of
a stock option, or on a tandem basis, related to the grant of an underlying
stock option. SARs will be granted on terms and conditions determined by the
Committee at the date of grant, subject to the limitation that the exercise
price can not be less than 100% of fair market value on the grant date. SARs
entitle the participant to receive, at the time of exercise, a payment equal to
the excess, if any, of the fair market value, on the date of exercise, over the
exercise price. Payment may be made in cash, shares, or a combination thereof.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
Grant of Restricted Stock Units. The Committee may issue shares of Beverly
stock or rights to acquire shares of Beverly stock to a participant, which are
subject to restrictions and forfeiture prior to becoming freely transferable by
the participant. The Committee may specify restrictions based on: (i)
achievement of one or more of the business or financial performance goals of
Beverly; absolute or relative increases in total stockholder return, revenues,
sales, net income, earnings per share, return on equity, cash flow, operating
margin or net worth of Beverly, any of its subsidiaries, divisions or areas;
(ii) service with Beverly; or (iii) any other further restrictions.
Removal of Restrictions. Except where performance-based conditions or
restrictions are placed on the grant, the minimum period of restriction is three
years, which would permit the removal of restrictions on no more than one-third
of the restricted stock or restricted stock units at the end of the first year
following the grant date, and the removal of the restrictions on an additional
one-third at the end of each subsequent year. If there are performance-based
conditions or restrictions placed on the grant of restricted stock or restricted
stock units, the period of restriction shall be no less than one year. Except in
the event of death or disability of the participant or a change in control of
Beverly, no restrictions may be removed during the first year following the
grant date.
OTHER AWARDS
In addition to stock options, SARs, restricted stock and restricted stock
units, the Plan allows the Committee to grant performance units, performance
stock, bonus stock and other stock unit awards. All of these other awards are
subject to the minimum period of restriction and removal of restrictions
limitations discussed above with regard to restricted stock and restricted stock
units.
CHANGE IN CONTROL
The Plan provides that the Committee is permitted to accelerate the payment
or vesting and release any restrictions on any awards in the event of a change
in control, as defined in the Plan.
AMENDMENT AND TERMINATION
The Plan will expire on December 31, 2006, but all awards made prior to,
and outstanding on such date, shall remain valid in accordance with their terms.
The Committee or the Board of Directors may amend, suspend or terminate the Plan
or any portion thereof at any time, provided such amendment is made with
stockholder approval if such approval is necessary to comply with any tax or
regulatory requirement, such as
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Section 16 of the Exchange Act or Section 162(m) of the Internal Revenue Code,
or with any provisions of the Plan. Otherwise, the Plan and the rules adopted
under the Plan may be amended by the Committee without further stockholder
approval.
PLAN BENEFITS
During 2000, options to purchase Beverly shares were granted to the named
executive officers, as set forth in the table captioned "Option/SAR Grants in
2000" on page 21. Options were granted during 2000 to all executive officers as
a group to purchase 1,117,000 shares of Beverly stock at an average weighted
exercise price of $3.36 per share. In addition, options to purchase Beverly
stock were granted to all other Beverly employees as a group to purchase
1,426,732 shares of Beverly stock at an average weighted exercise price of $3.29
per share.
Also during 2000, shares of restricted stock were issued, in exchange for
the cancellation of previously granted options. Shares of restricted stock were
issued to the named executive officers as set forth in the section of the
Compensation Committee Report captioned "Replacement of Certain Stock Option
Grants With Restricted Stock," on page 17. Shares of restricted stock were
issued during 2000 to all executive officers as a group in the amount of
1,144,340 shares of Beverly stock, in exchange for the cancellation of options
to purchase 2,306,691 shares of Beverly stock. In addition, shares of restricted
stock were issued to all other Beverly employees as a group in an amount of
1,309,492 shares of Beverly stock in exchange for cancellation of options to
purchase 2,489,558 shares of Beverly stock.
On March 30, 2001, the closing price on the New York Stock Exchange of
Beverly stock was $8.00 per share.
FEDERAL INCOME TAX CONSEQUENCES
The discussion which follows is a summary, based on current law, of some of
the significant federal income tax considerations relating to awards under the
Plan. These rules are highly technical and subject to change. The following
discussion is limited to federal income and certain employment tax rules
relevant to Beverly and participants who are citizens or residents of the United
States. The discussion does not address state, local or foreign income tax rules
or United States tax provisions such as estate and gift taxes. Participants are
urged to consult their personal tax advisors.
Stock Options. An optionee will not generally recognize taxable income
upon the grant of an incentive stock option to purchase shares of Beverly stock
and will not generally recognize income upon exercise of the option, provided
the optionee is an employee of Beverly or one of its subsidiaries at all times
from the grant date until three months prior to exercise. However, the amount by
which the fair market value of the shares on the exercise date exceeds the
exercise price will be includable for purposes of determining any alternative
minimum taxable income of an optionee. If an optionee, who has exercised an
incentive stock option, sells the shares acquired upon exercise more than two
years after the grant date and more than one year after exercise, capital gain
or loss will be recognized equal to the difference between the sales price and
the exercise price. An optionee who sells the shares within two years after the
grant date or within one year after exercise will recognize ordinary
compensation income in an amount equal to the lesser of the difference between
(a) the exercise price and the fair market value of the shares on the exercise
date or (b) the exercise price and the sales proceeds. Any remaining gain or
loss will be treated as a capital gain or loss. Beverly will be entitled to a
federal income tax deduction equal to the amount of ordinary compensation income
recognized by the optionee. The deduction will be allowed at the same time the
optionee recognizes the income.
An optionee will not generally recognize taxable income upon the grant of a
nonqualified stock option to purchase Beverly shares. Upon exercise of the
option, the optionee will generally recognize ordinary income for federal income
tax purposes equal to the excess of the fair market value of the shares over the
exercise price. The tax basis of the shares in the hands of the optionee will
equal the exercise price paid for the shares plus the amount of ordinary
compensation income the optionee recognizes upon exercise of the option, and the
holding period for the shares for capital gains purposes will commence on the
day the option is exercised. An optionee who sells any of the shares will
recognize capital gain or loss measured by the difference between the
8
12
tax basis of the shares and the amount realized on the sale. Beverly will be
entitled to a federal income tax deduction equal to the amount of ordinary
compensation income recognized by the optionee. The deduction will be allowed at
the same time the optionee recognizes the income.
Other Awards. The current federal income tax consequences of other awards
authorized under the Plan are generally in accordance with the following:
- SARs are subject to ordinary compensation income tax at the time of
exercise;
- restricted stock and restricted stock units subject to a substantial risk
of forfeiture results in ordinary compensation income recognition by the
participant of the excess of the fair market value of the shares or units
covered by the award over the purchase price, if any, paid only at the
time the restrictions lapse, unless the recipient elects to accelerate
recognition as of the grant date; and
- performance shares, bonus stock and other stock unit awards are generally
subject to ordinary income tax at the time of payment.
In each of the foregoing cases, Beverly will generally be entitled to a
corresponding federal income tax deduction at the same time the participant
recognizes ordinary income.
Section 162(m). Compensation of persons who are named executive officers
is subject to the tax deduction limits of Section 162(m) of the Internal Revenue
Code. Beverly believes that the Plan and the grant of stock options, SARs and
certain performance-based stock incentives granted thereunder will satisfy the
applicable requirements of the performance-based exemption of Section 162(m) and
therefore payments under the Plan attributable to the exercise of stock options
and SARs will be exempt from the $1,000,000 deduction limit.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE 1997 LONG-TERM INCENTIVE PLAN. If the stockholders do not
approve the amendment of the 1997 Long-Term Incentive Plan, the amendment will
not go into effect and the Board of Directors will consider whether to adopt
some alternative arrangement based on its assessment of Beverly's needs.
4. AMEND THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Board of Directors recommends that stockholders approve an amendment to
Beverly's Amended and Restated Non-Employee Directors Stock Option Plan to
provide for an increase in the number of shares of Beverly common stock reserved
for issuance under the Plan by 150,000 shares and to increase the number of
shares for which an option is automatically granted to each eligible
non-employee director on June 1 of each year to 11,000. A copy of the Plan, as
proposed to be amended, is included herein as Appendix C.
The purpose of the Plan is to build a proprietary interest among members of
the Board of Directors, thereby securing for stockholders the benefits
associated with stock ownership by those who oversee Beverly's future growth and
success.
DESCRIPTION OF THE PLAN
Eligible Participants. Each non-employee member of the Board of Directors
is eligible to receive the automatic grants under the Plan. Eligibility as to
future grants cease when the individual ceases to be a director or becomes an
employee of Beverly or its subsidiaries.
Administration of the Plan. The Board of Directors of Beverly administer
the Plan and has full power to administer and interpret the Plan.
Option Grants. Upon the effectiveness of the proposed amendment, each
non-employee director will automatically be granted an option to purchase 11,000
shares of Beverly common stock on June 1 of each year beginning on June 1, 2001.
All options under the Plan are granted at 100 percent of fair market value on
the grant date. After effectiveness of the proposed amendment, if an individual
first becomes a non-employee director after a grant date, he or she will be
granted an option to purchase a pro rata number of shares equal to 11,000
multiplied by a fraction, the numerator of which shall be the number of full
calendar months remaining
9
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from the date the individual first becomes a director until the next grant date,
and the denominator of which is twelve (12).
Vesting/Exercise of Options. Each option granted under the Plan becomes
exercisable on the June 1 following its grant date. An option granted under the
Plan becomes immediately exercisable upon the death or disability of the
director or a change in control of Beverly. When eligibility of a director to
participate ceases for reason other than death, disability or a change in
control, unvested options are forfeited. Exercisable options must be exercised
within ninety days from the date the individual ceases to be eligible under the
Plan.
Term. Unless terminated earlier by the Board of Directors, the Plan will
terminate on December 31, 2007.
FEDERAL INCOME TAX CONSEQUENCES
A non-employee director who is granted a stock option under the Plan will
not recognize taxable income at the time of the grant, but will generally
recognize income upon the exercise of the stock option. The amount of income
recognized upon the exercise of the stock option will be measured by the excess,
if any, of the fair market value of the shares of Beverly stock on the exercise
date over the exercise price. Beverly will generally be entitled to a
corresponding deduction for the amount of income recognized by the non-employee
director.
The foregoing does not purport to be a complete summary of the federal
income tax considerations that are relevant to stock options granted under the
Plan. Additionally, the tax consequences under applicable state and local tax
laws may not be the same as under the federal income tax laws.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT OF
THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. If the stockholders do not
approve the amendment of the Non-Employee Directors Stock Option Plan, the
amendment will not go into effect and the Board of Directors will consider
whether to adopt some alternative arrangement based on its assessment of
Beverly's needs.
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NOMINEES FOR THE BOARD OF DIRECTORS
(1) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NAME (2) OTHER BUSINESS AFFILIATIONS AGE SINCE
---- -------------------------------------- --- --------
Beryl F. Anthony, Jr. ................. (1) Partner in law firm of Winston & Strawn since 1993. 63 1993
Former U.S. Congressman and Chairman of the Democratic
Congressional Campaign Committee.
David R. Banks......................... (1) Chairman of the Board of Beverly Enterprises, Inc. 64 1979
since 1990. Chief Executive Officer from 1990 to
February, 2001.
(2) Director, Agribrands International, Inc., Nationwide
Health Properties, Inc., and Ralston Purina Company.
Harris Diamond......................... (1) President and Chief Executive Officer of BSMG 48 2001
Worldwide, a subsidiary of True North Communications.
(2) Director of Caremark RX
William R. Floyd....................... (1) President since April, 2000 and Chief Executive 56 2000
Officer since February, 2001 of Beverly Enterprises, Inc.
Former Chief Executive Officer of Choice Hotels
International from 1996 to 1998. Former Senior Vice
President, Operations of Taco Bell Corporation from 1995
to 1996.
James R. Greene........................ (1) Director and consultant to various U.S. and 79 1991
international businesses since 1986.
(2) Director, Bank Leumi and Buck Engineering Company.
Edith E. Holiday....................... (1) Attorney. Former Assistant to the President of the 49 1995
United States and Secretary of the Cabinet. Former
General Counsel, United States Department of the
Treasury.
(2) Director, Amerada Hess Corporation, Hercules
Incorporated, H.J. Heinz Company and RTI International
Metals, Inc. Director or trustee of various investment
companies in the Franklin Templeton group of funds.
James W. McLane........................ (1) President and Chief Executive Officer of Healthaxis 62 2000
Inc. since January, 2001. Former President and Chief
Operating Officer of NovaCare, Inc. from 1997 to 2000.
Former Executive Vice President of Aetna, Inc. from 1991
to 1996.
(2) Director, Healthaxis Inc. and UltraTouch, Inc.
Marilyn R. Seymann, Ph.D............... (1) President and Chief Executive Officer, M One, Inc., 58 1995
an information systems consulting firm.
(2) Director, Community First Bankshares, Inc.,
NorthWestern Corporation, and True North Communications,
Inc.
Carolyn K. Davis, Jon E. M. Jacoby and Risa J. Lavizzo-Mourey will not stand for
reelection and will retire effective May 24, 2001.
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BOARD OF DIRECTORS -- COMMITTEES DURING 2000
AUDIT & QUALITY
NAME BOARD COMPLIANCE COMPENSATION EXECUTIVE NOMINATING MANAGEMENT
- ---- ----- ---------- ------------ --------- ---------- ----------
Beryl F. Anthony, Jr. ................... X X* X X
David R. Banks........................... X* X
Carolyne K. Davis, R.N., Ph.D............ X X X
William R. Floyd......................... X
James R. Greene.......................... X X* X X
Edith E. Holiday......................... X X X X
Jon E. M. Jacoby......................... X X X*
James W. McLane.......................... X X X
Risa J. Lavizzo-Mourey, M.D.............. X X X*
Marilyn R. Seymann, Ph.D................. X X X* X
Number of Meetings in 2000............... 7 3 4 2 2 4
- ---------------
X Member
* Chairperson
- --------------------------------------------------------------------------------------------------------------------
AUDIT & - oversees the financial EXECUTIVE: - exercises all authority of the
COMPLIANCE: reporting process Board except those delegated to other
- recommends appointment of committees or extraordinary actions
independent auditors NOMINATING: - identifies and recommends
- reviews scope and results of candidates for election to Board
audit plans and accounting - establishes procedures and criteria
practices for nomination
- oversees internal audit - administers self-evaluation
function
- oversees compliance function
- issues Audit and Compliance
Committee Report (see p. 15)
- --------------------------------------------------------------------------------------------------------------------
COMPENSATION: - reviews compensation matters QUALITY - monitors quality of service
related to senior officers MANAGEMENT: - reports progress to the Board
- oversees compensation programs,
policies and practices
- approves goals for incentive
plans and evaluates performance
- issues Compensation Committee
Report (see p. 16)
- --------------------------------------------------------------------------------------------------------------------
Each director, except Jon E.M. Jacoby, attended at least 75% of all meetings of
the Board and any committees to which the director was assigned.
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BOARD OF DIRECTORS -- COMPENSATION
HOW WAS THE BOARD COMPENSATED IN 2000?
-- Employee directors received no additional compensation, other than
their normal salary and expense reimbursement, for serving on the
Board or its committees.
-- Non-employee directors received:
- annual stock option grant of 3,375 shares.
- annual grant of 675 deferred share units.
- $25,000 annual fee.
- $1,000 for each Board or committee meeting attended in person or $500
by telephone.
- $1,000 for chairing a committee meeting attended.
- right to defer cash compensation in exchange for deferred share units,
plus a 25% Company match or deferred cash units.
- reimbursement for out-of-pocket costs.
-- In 2000, non-employee directors, as a group, received $52,512 in cash,
$223,795 credited as deferred share units which includes Company match
and $42,508 credited as deferred cash units.
WHAT ARE THE NON-EMPLOYEE DIRECTOR STOCK-BASED PROGRAMS?
-- Non-Employee Directors Stock Option Plan.
- The annual grant of an option to purchase 3,375 shares of Beverly
stock which vests one year from the grant date. Grants are made at
fair market value.
- This Plan is being amended, subject to stockholder approval, to
increase the annual grant to 11,000 shares.
-- Non-Employee Director Deferred Compensation Plan.
- Permits non-employee directors to defer all or a portion of their cash
compensation. Deferred compensation is designated as share units, cash
units or a combination of both. If the compensation is deferred as
share units, 25% of the amount deferred is matched. Each share unit
has a value equivalent to one share of Beverly stock. Cash units
accrue interest.
- Distributions will be made in shares of Beverly stock unless the Board
approves a payment in cash. Distributions start upon retirement,
termination, death or disability.
- Also receive an annual grant of 675 deferred share units.
CHANGES IN BOARD COMPENSATION.
-- At its March 29, 2001 meeting, the Board approved the following
compensation for non-employee directors, effective June 1, 2001:
- annual stock option grant of 11,000 shares.
- annual grant of 675 deferred share units.
- $35,000 annual fee.
- $1,000 for each Board or committee meeting attended in person or $500
by telephone.
- $1,000 for chairing a committee meeting attended.
- right to defer cash compensation in exchange for deferred share units,
plus a 25% Company match or deferred cash units.
- reimbursement for out-of-pocket costs.
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HOW MUCH BEVERLY STOCK DOES THE BOARD OWN?
STOCK OWNERSHIP FOR NON-EMPLOYEE DIRECTORS AS A GROUP
[CHART]
Record Shares 14,497
Option Shares 194,343
Deferred Share Units 218,586
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 31, 2001, the amount of Beverly
stock beneficially owned by each director, each executive officer named in the
Summary Compensation Table, and all directors and executive officers as a group.
This table is based on information we obtained from these people.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
SOLE
VOTING OPTIONS OTHER PERCENTAGE
AND EXERCISABLE BENEFICIAL OF
INVESTMENT WITHIN 60 OWNERSHIP DEFERRED COMMON
POWER DAYS (2) COMPENSATION TOTAL STOCK
---------- ----------- ---------- ------------ --------- ----------
Beryl F. Anthony, Jr. ................... 0 43,875 0 43,632(4) 87,507 *
David R. Banks........................... 374,861(1) 135,000 16,319 29,528(3) 555,708 *
Carolyne K. Davis, R.N., Ph.D............ 0 10,125 0 7,748(4) 17,873 *
Harris Diamond........................... 0 0 0 0 0 *
William R. Floyd......................... 20,378 75,000 0 0 95,378 *
James R. Greene.......................... 500 23,625 0 50,744(4) 74,869 *
Edith E. Holiday......................... 800 23,625 200 20,727(4) 45,352 *
Jon E. M. Jacoby......................... 0 43,875 0 40,883(4) 84,758 *
Risa J. Lavizzo-Mourey, M.D.............. 11,997 23,625 0 35,618(4) 71,240 *
James W. McLane.......................... 0 1,968 0 0 1,968 *
William A. Mathies....................... 165,630(1) 21,850 2,879 11,409(3) 201,769 *
T. Jerald Moore.......................... 152,857(1) 21,850 600 0 175,307 *
Marilyn R. Seymann, Ph.D................. 1,000 23,625 0 19,233(4) 43,858 *
Scott M. Tabakin......................... 191,210(1) 21,850 0 14,341(3) 227,401 *
All Directors and Executive Officers as a
Group (24 persons)..................... 1,660,223 691,879 36,634 346,341 2,735,077 2.64%
- ---------------
* Percentage of Beverly stock owned does not exceed 1%.
(1) Includes shares allocated through participation in the Employee Stock
Purchase Plan.
(2) Shares owned by family members.
(3) Shares credited under Executive Deferred Compensation Plan.
(4) Shares credited under Non-Employee Director Deferred Compensation Plan.
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AUDIT AND COMPLIANCE COMMITTEE REPORT
The Audit and Compliance Committee currently consists of five independent
(as independence is defined by the New York Stock Exchange listing standards),
non-employee directors.
The Board of Directors has adopted a written charter for the Audit and
Compliance Committee. A copy of the written charter is included as APPENDIX A.
The Audit and Compliance Committee oversees the Company's financial reporting
process on behalf of the Board of Directors. Management has the primary
responsibility for the financial statements and the reporting process, including
systems of internal control. The Company's independent auditors are responsible
for expressing an opinion on the conformity of our audited financial statements
with generally accepted accounting principles.
In this context, the Audit and Compliance Committee has reviewed and
discussed with management and the independent auditors the audited financial
statements. The Audit and Compliance Committee has discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). In addition,
the Audit and Compliance Committee has received from the independent auditors
the written disclosures required by Independence Standards Board No. 1
(Independence Discussions with Audit Committees) and discussed their
independence from the Company and its management and considered whether the
independent auditors provision of non-audit services to the Company is
compatible with the auditor's independence.
In reliance on the reviews and discussions referred to above, the Audit and
Compliance Committee recommended to the Board of Directors, and the Board of
Directors has approved, that the audited financial statements be included in the
Company's Annual Report on Securities and Exchange Commission ("SEC") Form 10-K
for the year ended December 31, 2000.
James R. Greene, Chairperson
Edith E. Holiday
Jon E.M. Jacoby
James W. McLane
Marilyn R. Seymann, Ph.D.
15
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BEVERLY ENTERPRISES
COMPENSATION COMMITTEE REPORT
ON 2000 EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors currently consists of
four independent, non-employee directors. Our objective is to develop executive
compensation policies that are directly aligned with Beverly's strategic goals.
We also approve the design of Beverly's broad-based compensation programs,
evaluate their effectiveness and authorize new plans and strategies, as
appropriate.
COMPENSATION PRACTICES
As members of the Compensation Committee, our goal is to provide
compensation programs that support Beverly's strategic goals by:
- using compensation programs that are competitive in the marketplace and
that adequately recognize and reward individual contribution, in order to
allow Beverly to recruit, retain and develop highly qualified executive
talent;
- aligning executives' pay and incentives with the interests of Beverly's
stockholders by emphasizing the variable and at-risk portion of
compensation under incentive plans which reward both short- and long-
term corporate and individual performance;
- targeting all elements of compensation levels at the median (50th
percentile) relative to the companies that the Compensation Committee
looks at when establishing policies; and
- promoting executive stock ownership and stock retention.
We rely on information from a number of sources to assist us in
implementing these policies. We work with an executive compensation consulting
firm that provides guidance on industry practices and assists in valuing various
forms of compensation. We evaluate competitive compensation practices and
amounts by considering data assembled by the compensation consultant. The
information provided to us for this purpose looks at companies in the service
industry with comparable revenues, employee size and market capitalization. Also
included are companies in the healthcare services industry. Finally, we also
receive input from Beverly's Chief Executive Officer regarding the elements of
compensation and the overall compensation packages that he recommends for other
executive officers.
Executive compensation at Beverly consists of four primary elements: base
salary, an annual incentive compensation potential, long-term compensation in
the form of stock options and retirement benefits.
BASE SALARY
We review the base salary of Beverly's corporate officers on an annual
basis. In addition to considering the median salaries for comparable positions
at the other companies reflected in the competitive market information, we also
consider the level and scope of responsibility, experience and performance of
individual officers, as well as relative salary levels among Beverly officers.
However, we do not assign a specific weight to each of these factors.
Consistent with these practices, at our March 29, 2000 meeting, we reviewed
salary levels for Mr. Banks, Beverly's Chairman and Chief Executive Officer. As
part of that review, we evaluated Mr. Banks' performance under various criteria
that we had established and communicated to Mr. Banks in February 1999. We
determined to leave Mr. Banks' salary at its 1999 level of $775,000 for 2000.
ANNUAL INCENTIVE COMPENSATION
2000 was a year of transition. We moved away from measuring performance by
economic value added (EVA), a measure we had used with only partial success in
the past, and moved toward individual goals with an earnings per share trigger.
Target payouts remained in the range of 30% to 65%. For 2000 performance, an
incentive compensation pool was established at 31% of target, based on the
Company's earnings per share for
16
20
the year. We approved individual payouts at our February 14, 2001 meeting. We
used our discretion to adjust the payout up or down from 31% of target, based on
the individual's accomplishment of certain strategic goals in 2000. We used our
discretion in adjusting awards for 2000 in order to make the transition to the
three year strategic plan and individual goal setting. We are aware that this
policy may cause a loss in the corporate tax deduction under Section 162(m) of
the Internal Revenue Code. While we believe that achieving preset goals is
fundamental to our incentive compensation policy, we found it appropriate for
2000 to exercise our discretion in determining the amount of incentive pay.
At our February 14, 2001 meeting, we approved the following amounts of
incentive compensation for Messrs. Banks, Floyd, Mathies, Moore and Tabakin:
$160,000; $125,000; $35,000; $55,826 and $35,000, respectively.
LONG-TERM INCENTIVE COMPENSATION
We strongly believe that stock-based compensation in the form of employee
stock options creates a direct link between the long-term financial interests of
Beverly's executives and Beverly's stockholders. As a matter of policy, except
where we issue options in exchange for other options in a corporate transaction,
we have always granted options with an exercise price equal to the market price
of Beverly's stock on the date of the option grant. In that way, the options
only have value if Beverly's stock price appreciates. We also recognize that
stock options form an important part of competitive pay practices. In
determining the size and other terms of stock options grants, we review
information on competitive practices and valuation provided by our compensation
consultants. An option to purchase 87,400 shares of Beverly stock was granted to
Messrs. Mathies, Moore and Tabakin on February 19, 2001, at an exercise price of
$7.35 (fair market value). These options vest 25% per year after one year and
25% per year thereafter, on a cumulative basis.
Mr. Floyd was granted options to purchase 300,000 shares of Beverly stock
upon his election as President on April 10, 2000, at an exercise price of $3.50
(fair market value). The options consisted of an incentive stock option to
purchase 100,000 shares and a nonqualified stock option to purchase 200,000
shares. These options vest 25% per year after one year and 25% per year
thereafter, on a cumulative basis.
REPLACEMENT OF CERTAIN STOCK OPTION GRANTS WITH RESTRICTED STOCK
To provide enhanced motivation to certain executive officers and other
active employees, and to reduce the number of stock options outstanding,
effective as of August 18, 2000 (at which time the price of Beverly stock was
$4.875 per share), we authorized the exchange of stock options granted prior to
January 1, 2000, for an economically equivalent grant of restricted stock. The
exchange rate for each option was determined using a modified Black-Scholes
calculation. The number of shares of restricted stock issued in exchange (and
the number of options surrendered) for Messrs. Banks, Mathies, Moore and Tabakin
were: 330,376 (713,041); 111,473 (242,650); 150,619 (300,700) and 127,330
(254,800), respectively. Mr. Floyd held no stock options that qualified for the
exchange. Shares of restricted stock resulting from the exchange vest 100%, four
years from August 18, 2000.
RETIREMENT BENEFITS
In addition to maintaining standard broad-based employee benefit plans, we
adopted a supplemental executive retirement plan on February 19, 1998. It was
amended and restated on February 14, 2001, to be effective April 1, 2000.
Generally, this program provides for an annual retirement income payment upon
retirement at age 65 with 15 years of eligibility after age 50, equal to 50% of
a covered officer's average base salary, calculated using his or her salary over
the last three years of his or her employment. A lump sum option is available at
85% of the discounted present value of the payments.
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RESPONSE TO TAX LAWS LIMITING DEDUCTIONS FOR COMPENSATION
Section 162(m) of the Internal Revenue Code generally sets a $1 million per
person limit on a company's ability to deduct compensation paid to its five most
highly paid executive officers. Section 162(m) does provide an exemption to this
limit for compensation that qualifies under the Code as "performance-based
compensation." Your Board has determined that we should seek to retain full tax
deductibility for our incentive compensation programs. Therefore, we have
designed Beverly's annual and long-term compensation programs so that
compensation earned under those plans can meet the definition of
"performance-based compensation." We call your attention to the discussion of
the use of discretion in making individual payout decisions in 2001, for 2000
performance, under Annual Incentive Compensation. We do not believe that any
compensation paid in 2000 will fail to be deductible because of Section 162(m).
COMPENSATION COMMITTEE
Beryl F. Anthony, Jr., Chairperson
James R. Greene
James W. McLane
Risa J. Lavizzo-Mourey, M.D.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
----------------------
AWARDS PAYOUTS
----------------------
ANNUAL COMPENSATION SECURITIES
--------------------- OTHER ANNUAL UNDERLYING LTIP
NAME AND FISCAL SALARY BONUS COMPENSATION RESTRICTED STOCK OPTIONS/SARS PAYOUTS
PRINCIPAL POSITION YEAR ($) ($) ($) AWARDS ($)(6) (#) ($)
------------------ ------ -------- -------- ------------ ---------------- ------------ -------
David R. Banks(1)............... 2000 $775,000(2) $160,000(4) None $1,610,583 None None
Chairman of the Board 1999 769,161(3) None None None None None
1998 761,492(3) None None None 882,857 None
William R. Floyd(1)............. 2000 353,846 125,000(4) $39,173(5) None 300,000 None
President and Chief
Executive Officer
William A. Mathies.............. 2000 400,000 35,000(4) None 543,431 87,400 None
Executive Vice President 1999 397,346(3) None None None None None
1998 386,885(3) None None None 87,400 None
T. Jerald Moore................. 2000 327,023 55,826(4) None 734,268 87,400 None
Executive Vice President 1999 318,359 None None None None None
1998 317,699 None None None 87,400 None
Scott M. Tabakin................ 2000 360,196(2) 35,000(4) None 620,734 87,400 None
Executive Vice President 1999 349,992(3) None None None None None
and Chief Financial Officer 1998 341,169(3) None None None 87,400 None
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($) (7)
------------------ ------------
David R. Banks(1)............... $36,699
Chairman of the Board 55,535
50,659
William R. Floyd(1)............. 2,106
President and Chief
Executive Officer
William A. Mathies.............. 21,839
Executive Vice President 29,067
29,938
T. Jerald Moore................. 6,958
Executive Vice President 9,440
7,693
Scott M. Tabakin................ 20,417
Executive Vice President 40,166
and Chief Financial Officer 31,276
- ---------------
(1) Mr. Floyd became President on April 10, 2000 and Chief Executive Officer on
February 1, 2001. Mr. Banks was Chief Executive Officer through January 31,
2001.
(2) Approximately three percent of this amount was deferred into the Beverly
Enterprises, Inc. Executive Deferred Compensation Plan.
(3) Six percent of this amount was deferred into the Beverly Enterprises, Inc.
Executive Deferred Compensation Plan.
(4) Bonus amounts were paid in 2001 for performance in 2000.
(5) Relocation costs and expenses paid to or on behalf of Mr. Floyd in
connection with his relocation from Pennsylvania to Arkansas.
(6) On August 18, 2000, Beverly exchanged shares of restricted stock for stock
options that had been granted prior to 2000. The exchange rate was
determined using a modified Black-Scholes valuation of the options
exchanged. The closing price of Beverly stock on August 18 was $4.875. The
period of restriction will lapse four years from August 18, 2000. Beverly
does not currently pay dividends on its stock.
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(7) All other compensation consists of the following:
YEAR MR. BANKS MR. FLOYD MR. MATHIES MR. MOORE MR. TABAKIN
---- --------- --------- ----------- --------- -----------
Matching Contribution 2000 $ 2,340 None $ 2,340 None $ 2,340
to Employee Stock 1999 2,340 2,340 None 2,340
Purchase Plan 1998 2,430 2,430 None 2,430
Executive Medical 2000 1,627 $ 369 7,002 $2,245 3,839
Plan 1999 1,589 1,751 2,285 9,618
1998 2,922 1,385 3,436 7,992
Premiums Under 2000 1,314 None 126 525 872
Executive Life 1999 1,206 120 480 872
Insurance Plan (a) 1998 1,122 120 405 872
Regular Life 2000 5,742 970 421 2,194 372
Insurance Plan (b) 1999 7,845 561 1,779 483
1998 9,581 423 2,079 567
Matching Contribution 2000 16,152 None 8,344 None 7,350
to Executive Savings 1999 29,221 11,731 None 10,718
Plan (c) 1998 21,392 10,658 None 8,718
Matching Contribution 2000 5,813 None None None 2,688
to Executive Deferred 1999 11,538 5,960 None 5,250
Compensation Plan (d) 1998 11,422 8,543 None 7,818
Benefit Allowance (e) 2000 1,841 767 2,956 1,994 2,956
1999 1,796 2,885 1,945 2,885
1998 1,790 2,879 1,773 2,879
Financial Planning 2000 1,870 None 650 None None
1999 None 3,719 2,951 8,000
1998 None 3,500 None None
Total 2000 $36,699 $2,106 $21,839 $6,958 $20,417
1999 55,535 29,067 9,440 40,166
1998 50,659 29,938 7,693 31,276
- ---------------
(a) Amount shown represents the taxable benefit under split dollar life
insurance policies. The amount reported for Mr. Tabakin is actual premiums
paid for Key Employee Policy under the Executive Survivorship Income Plan.
(b) Imputed income for life insurance provided under Beverly's regular life
insurance plan for amounts in excess of $50,000.
(c) Amount shown includes a tax gross-up.
(d) The Executive Deferred Compensation Plan, effective January 1, 1997,
provides that participants may elect, prior to the beginning of each plan
year, to defer up to 25% of base salary and up to 100% of bonus earned for
that year. Deferral amounts up to 6% of base salary and bonus were entitled
to a 25% match until the mandatory match was eliminated effective July 1,
2000. Participant deferrals and the match are credited to a participant's
account which is deemed to be invested in Beverly stock. This plan is an
unfunded plan, which is an unsecured obligation of Beverly. Beverly, to
avoid market risk, currently maintains a "rabbi trust" which holds Beverly
stock as a source out of which all or any portion of the benefits under the
plan may be satisfied.
(e) Reimbursement for premiums paid under regular medical and dental insurance.
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OPTION/SAR GRANTS IN 2000
INDIVIDUAL GRANTS
---------------------------------------------------
% OF
TOTAL
NUMBER OF OPTIONS/ GRANT DATE
SECURITIES SARS VALUE
UNDERLYING GRANTED TO EXERCISE ----------
OPTIONS/ EMPLOYEES OR BASE GRANT DATE
SARS IN FISCAL PRICE EXPIRATION PRESENT
NAME GRANTED (#) YEAR ($/SH) DATE VALUE ($)
- ---- ----------- ---------- -------- ---------- ----------
David R. Banks...................... None
William R. Floyd.................... 200,000(1) 100.00% 3.50 4/10/10 520,000(4)
100,000(2) 4.43% 3.50 4/10/10 260,000(4)
William A. Mathies.................. 87,400(3) 3.87% 3.25 2/16/10 204,516(5)
T. Jerald Moore..................... 87,400(3) 3.87% 3.25 2/16/10 204,516(5)
Scott M. Tabakin.................... 87,400(3) 3.87% 3.25 2/16/10 204,516(5)
- ---------------
(1) Nonqualified stock option granted on April 10, 2000. 25% of this option
becomes fully exercisable one year from the grant date and 25% per year
thereafter, on a cumulative basis.
(2) Incentive stock option granted on April 10, 2000. 25% of this option becomes
fully exercisable one year from the grant date and 25% per year thereafter,
on a cumulative basis.
(3) Incentive stock options granted on February 16, 2000. 25% of these options
become fully exercisable one year from the grant date and 25% per year
thereafter, on a cumulative basis.
(4) The Black-Scholes option pricing method was used to calculate present value
as of the date of grant, April 10, 2000. In calculating the grant date
present value set forth in the table, a factor of .641 was assigned to the
volatility of Beverly stock, based on daily stock quotations for the 36
months preceding the date of grant. The yield on Beverly stock was set at
0.00%. The risk-free rate of return was fixed at 5.27%, the 10 year U.S.
Treasury Strip Rate on the date of grant. The exercise of the options was
assumed to occur at the end of the actual option term of 10 years. There is
no assurance that these assumptions will prove to be true in the future.
Consequently, the grant date present values set forth in the table are only
theoretical values and may not accurately determine present value. The
actual value, if any, that may be realized by each individual will depend on
the market price of Beverly stock on the date of exercise.
(5) The Black-Scholes option pricing method was used to calculate present value
as of the date of grant, February 16, 2000. In calculating the grant date
present values set forth in the table, a factor of .605 was assigned to the
volatility of Beverly stock based on daily stock market quotations for the
36 months preceding the date of grant. The yield on Beverly stock was set at
0.00%. The risk-free rate of return was fixed at 5.27%, the 10 year U.S.
Treasury Strip Rate on the date of grant. The exercise of the options was
assumed to occur at the end of the actual option term of 10 years.
2000 FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning the value of
unexercised options to purchase Beverly stock held by individuals named in the
Summary Compensation Table at December 31, 2000.
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS FY-END OPTIONS/SARS
12/31/00 (#) FY-END 12/31/00 ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
David R. Banks................................ 135,000 352,066 661,568 0
William R. Floyd.............................. 0 300,000 0 1,406,250
William A. Mathies............................ 0 87,400 0 431,538
T. Jerald Moore............................... 0 87,400 0 431,538
Scott M. Tabakin.............................. 0 87,400 0 431,538
- ---------------
(1) The value is calculated based on the aggregate amount of the excess of the
closing price of Beverly stock on the New York Stock Exchange Composite for
December 31, 2000, $8.1875 over the relevant exercise prices.
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PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
returns for Beverly, the S&P Midcap 400 Index and the S&P Health Care (Long
Term)-Super 1500. The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
[PERFORMANCE GRAPH]
- ----------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
- ----------------------------------------------------------------------------------------------------------------
Beverly Enterprises 100 120 122 64 41 77
S&P Midcap 400 Index 100 119 158 188 215 253
S&P Health Care (Long Term)-
Super 1500 100 123 173 126 69 88
- ---------------
Source: Research Data Group
The total cumulative return on investment (change during the year in stock
price plus reinvested dividends) for each of the periods for Beverly, the S&P
Midcap 400 Index and the S&P Health Care (Long Term)-Super 1500 are based on the
stock price or the composite index on December 31, 1995.
The form of the chart above is in accordance with Commission requirements.
Stockholders are cautioned against drawing any conclusions from the data
contained therein, as past results are not necessarily indicative of future
performance. These charts do not reflect Beverly's forecast of future financial
performance.
The performance graph and its description above shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or the
Securities and Exchange Act of 1934, except to the extent that Beverly
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.
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EMPLOYMENT CONTRACTS, TERMINATION OF
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
Beverly has entered into employment agreements with each of the executive
officers named in the Summary Compensation Table. These employment agreements
extend for as long as the executive officer is employed unless Beverly elects to
terminate the agreement with three years advance notice.
The employment agreements provide for:
- a stated minimum base salary
- participation in all benefit plans
- participation in the Annual Incentive Plan
- severance benefits in the event of a change in control
- severance benefits upon termination of employment under certain other
circumstances
In the event of a change in control of Beverly, specified severance
benefits are provided under the employment agreements if any one of the
following types of employment termination occur:
- by Beverly, without cause
- by the executive officer for good reason
- by the executive officer without good cause during a 31 day period
commencing on the first day of the 13th month following the change in
control
For purposes of the employment agreements, a "change in control" means the
occurrence of any one of the following events or transactions:
- those directors that were members of the Board before any of the
transactions listed below cease to be a majority of the Board:
- contested election of directors; or
- any tender or exchange offer, merger or other business combination or
sale of assets;
- any entity, person or group, including any "group" defined in Section
13(d)(3) of the Securities Exchange Act, but excluding any Beverly
employee benefit plan, becomes the beneficial owner of thirty percent
(30%) or more of the outstanding Beverly shares; or
- any one of the following transactions occur:
- - Beverly consolidates or merges with another entity and does not survive;
- another entity consolidates or merges with Beverly, Beverly is the
survivor and all or part of the outstanding Beverly stock is
exchanged;
- Beverly becomes a subsidiary of another entity through a statutory
share exchange; or
- Beverly sells or transfers fifty percent (50%) or more of its assets
or earning power.
"Change in control" does not occur in any transaction where the core
business and assets are transferred to another entity and:
- the majority of Beverly's Board constitutes a majority of the board of
the other entity after the transfer; and
- more than seventy percent (70%) of Beverly's stockholders become
stockholders of the other entity and control more than seventy percent
(70%) of the voting stock of the other entity.
The employment agreements also provide for severance benefits without a
"change in control" if employment is terminated by:
- Beverly without cause; or
- by the executive for good reason.
The severance benefits for the named executive officers consist of:
- where there has been a "change in control":
- three years of base pay plus target bonus
- vesting in all stock-based compensation
- three year continuation of medical, dental and disability coverage
- lifetime coverage on life insurance
- relocation within the United States
- where there is termination, as outlined above, without a "change in
control":
- base pay, plus target bonus is reduced to two years
- continuation of medical, dental and disability coverage is reduced to
two years
- all other benefits are the same as in a change in control
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COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Beverly's executive officers and directors are required to file initial
reports of ownership and reports of change in ownership with the Commission and
furnish Beverly with copies of all Section 16(a) forms they file.
Based solely on information provided to us by individual officers and
directors, we believe that during 2000 our executive officers and directors have
timely complied with all filing requirements applicable to them except that
David G. Merrell, an executive officer, was late in filing one Form 3 and T.
Jerald Moore, an executive officer, was late in filing one Form 4.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
William A. Mathies' spouse, Lisa T. Mathies, is employed part-time as
Contracts Counsel in the Company's legal department.
OTHER MATTERS
The Board knows of no other business to be presented at the Annual Meeting,
but if other matters do properly come before the Annual Meeting, it is intended
that the persons named in the proxy will vote on said matters in accordance with
their best judgment.
DOUGLAS J. BABB
Secretary
April 10, 2001
Fort Smith, Arkansas
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APPENDIX A
BEVERLY ENTERPRISES, INC.
AUDIT AND COMPLIANCE COMMITTEE CHARTER
ORGANIZATION
The Audit and Compliance Committee shall be composed of at least four (4)
Directors, all of whom are "independent" and "financially literate" or will
become financially literate in a reasonable period of time, as those
qualifications are interpreted by the Board of Directors in its business
judgment. One or more members shall possess accounting or related financial
management expertise, as such qualification is interpreted by the Board of
Directors in its business judgement.
STATEMENT OF RESPONSIBILITIES
The Audit and Compliance Committee shall provide assistance to the Board of
Directors in fulfilling its responsibility to the shareholders, potential
shareholders, and investment community in overseeing: (1) the quality and
integrity of the financial reports of the Company; (2) the compliance by the
Company with legal and regulatory requirements; and (3) the independence and
performance of the Company's internal and independent auditors. In so doing, it
is the responsibility of the Audit and Compliance Committee to maintain
independent, free and open means of communication between the Directors, the
independent auditor, the internal auditor, and the financial management of the
Company.
The Audit and Compliance Committee will have the authority to retain
special legal, accounting or other consultants to advise the Audit and
Compliance Committee. The Audit and Compliance Committee may request any officer
or employee of the Company or the Company's outside counsel or independent
auditor to attend a meeting of the Audit and Compliance Committee or to meet
with any members of, or consultants to, the Audit and Compliance Committee. The
Audit and Compliance Committee shall make regular reports to the Board of
Directors.
PROCESSES
In carrying out its oversight responsibilities, the Audit and Compliance
Committee will utilize the following processes:
- Annually, the Audit and Compliance Committee will recommend to the Board
of Directors the appointment, subject to stockholder approval, of the
Company's independent auditor, which shall be ultimately accountable to
the Audit and Compliance Committee and the Board of Directors. In
addition, the Audit and Compliance Committee will evaluate and, where
appropriate, recommend to the Board of Directors that the independent
auditor be replaced. As part of this evaluation, the Audit and Compliance
Committee will: (1) ensure that the independent auditor annually provides
to the Audit and Compliance Committee a formal written statement
delineating all relationships between the independent auditor and the
Company; (2) actively engage in a dialogue with respect to any disclosed
relationships or services that may impact the objectivity or independence
of the independent auditor; and (3) recommend that the Board take
appropriate action in response to the independent auditors report to
satisfy itself of the independent auditor's independence.
- The Audit and Compliance Committee will discuss with the internal auditor
and the independent auditor the overall scope and plans for their
respective audits including the adequacy of staffing and compensation. In
addition, the Audit and Compliance Committee will discuss with
management, including the Company's Compliance Officer, the internal
auditor and the independent auditor, the adequacy and effectiveness of
the Company's accounting and financial controls, including the system to
monitor and manage business risk, as well as matters related to the
Company's Compliance Program, the Company's Corporate Integrity Agreement
and compliance with requirements of Federal healthcare programs. The
Audit and Compliance Committee will hold separate meetings with the
internal
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auditor, the independent auditor and the Compliance Officer, with and
without management present, to discuss the results of their examinations.
- Prior to the filing of the Company's Report on Form 10-Q containing the
interim financial statements, the Audit and Compliance Committee or its
chair will review such statements with management and the independent
auditor and discuss the results of the quarterly review and other matters
required to be communicated by the independent auditor under generally
accepted auditing standards.
- The Audit and Compliance Committee will review with management and the
independent auditor the financial statements to be included in the
Company's Annual Report on Form 10-K (or the annual report to
stockholders if distributed prior to the filing of Form 10-K), including
its judgment about the quality, not just acceptability, of accounting
principles, the reasonableness of significant judgments, and the clarity
of the disclosures in the financial statements. Also the Audit and
Compliance Committee will discuss the results of the annual audit and any
other matters required to be communicated to the Audit and Compliance
Committee by the independent auditor under generally accepted auditing
standards. Based on these discussions and review, the Audit and
Compliance Committee will advise the Board of Directors whether it
recommends that the audited financial statements be included in the
Annual Report on Form 10-K (or the Annual Report to Stockholders).
- The adequacy of this Charter will be reviewed by the Audit and Compliance
Committee on an annual basis. The Audit and Compliance Committee will
recommend to the Board of Directors any modifications to this Charter, as
deemed appropriate by the Audit and Compliance Committee, for approval by
the Board of Directors.
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APPENDIX B
BEVERLY ENTERPRISES, INC.
1997 LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF JUNE 1, 2001)
SECTION 1. PURPOSE
Beverly Enterprises, Inc. (hereinafter referred to as the "Company"), a
Delaware corporation, hereby establishes the 1997 Long-Term Incentive Plan (the
"Plan") to promote the interests of the Company and its stockholders through the
(i) attraction and retention of executive officers and other key employees
essential to the success of the Company; (ii) motivation of executive officers
and other key employees using performance-related incentives linked to
longer-range performance goals and the interests of Company stockholders; and
(iii) enabling of such employees to share in the long-term growth and success of
the Company. The Plan permits the grant of Nonqualified Stock Options, Incentive
Stock Options (intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended), Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Shares, Performance Units, Bonus Stock, and
any other Stock Unit Awards or stock-based forms of awards as the Committee may
determine in its sole and complete discretion at the time of grant.
SECTION 2. DEFINITIONS
Except as otherwise defined in the Plan, the following terms shall have the
meanings set forth below:
2.1 "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
under the Exchange Act.
2.2 "Agreement" means a written agreement implementing the grant of each
Award signed by an authorized officer of the Company and by the Participant.
2.3 "Award" means, individually or collectively, a grant under this Plan
of any one of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Shares, Performance Units, Bonus Stock or Other Stock Unit Awards.
2.4 "Award Date" or "Grant Date" means the date on which an Award is made
by the Committee under this Plan.
2.5 "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act.
2.6 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.7 "Bonus Stock" means an Award granted pursuant to Section 10 of the
Plan expressed as a Share which may or may not be subject to restrictions.
2.8 "Cashless Exercise" means the exercise of an Option by the Participant
through the use of a brokerage firm to make payment to the Company of the
Exercise Price, either from the proceeds of a loan to the Participant from the
brokerage firm or from the proceeds of the sale of Stock issued pursuant to the
exercise of the Option, following which, upon receipt of such payment, the
Company delivers the exercised Shares to the brokerage firm.
2.9 "Change in Control" shall be deemed to have occurred if the conditions
set forth in any one of the following paragraphs shall have been satisfied:
(a) Any person, corporation or other entity or group, including any
"group" as defined in Section 13(d)(3) of the Exchange Act, becomes the
beneficial owner of Shares having 30% or more of the total number of votes
that may be cast for the election of directors of the Company; or
(b) As the result of, or in connection with, any tender or exchange
offer, merger or other business combination, sale of assets or contested
election, or any combination of the foregoing (a "Transaction"),
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the persons who were directors of the Company before the Transaction shall
cease to constitute a majority of the Board of Directors of the Company or
any successor to the Company or its assets; or
(c) If at any time (i) the Company shall consolidate with, or merge
with, any other Person and the Company shall not be the continuing or
surviving corporation, (ii) any Person shall consolidate with, or merge
with, the Company, and the Company shall be the continuing or surviving
corporation and in connection therewith, all or part of the outstanding
stock shall be changed into or exchanged for stock or other securities of
any other Person or cash or any other property, (iii) the Company shall be
a party to a statutory share exchange with any other Person after which the
Company is a Subsidiary of any other Person, or (iv) the Company shall sell
or otherwise transfer 50% or more of the assets or earnings power of the
Company and its Subsidiaries (taken as a whole) to any Person or Persons;
provided, however, that notwithstanding anything to the contrary set forth
in such plan, a Change in Control shall not include either (a) the
Distribution or Merger, or (b) any transfer to a consolidated subsidiary,
reorganization, spin-off, split-up, distribution, or other similar or
related transaction(s) or any combination of the foregoing in which the
core business and assets of the Company and its subsidiaries (taken as a
whole) are transferred to another entity ("Controlled") with respect to
which (1) the majority of the Board of Directors of the Company (as
constituted immediately prior to such transaction(s)) also serve as
directors of Controlled and immediately after such transaction(s)
constitute a majority of Controlled's board of directors, and (2) more than
70% of the shareholders of the Company (immediately prior to such
transaction(s)) become shareholders or other owners of Controlled and
immediately after the transaction(s) control more than 70% of the ownership
and voting rights of Controlled.
2.10 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.11 "Committee" means the Compensation Committee of the Board which will
administer the Plan pursuant to Section 3 herein, provided however, any member
who is not both a "Non-Employee director" within the meaning of Rule 16b-3 and
an "outside director" within the meaning of Section 162(m) shall not serve as a
Committee member for the purpose of this Plan unless there would otherwise be
less than two members of the Committee.
2.12 "Common Stock" or "Stock" means the Common Stock of the Company, with
a par value of $.10 per share, or such other security or right or instrument
into which such Common Stock may be changed or converted in the future.
2.13 "Company" means Beverly Enterprises, Inc., including all Affiliates
and wholly owned Subsidiaries, or any successor thereto.
2.14 "Covered Participant" means a Participant who is a "covered employee"
as identified in Section 162(m)(3) of the Code, and the regulations promulgated
thereunder, or who the Committee believes will be such a covered employee for a
Performance Period.
2.15 "Department" means the Compensation and Benefits Department of the
Company.
2.16 "Designated Beneficiary" means the beneficiary designated by the
Participant, pursuant to procedures established by the Department, to receive
amounts due to the Participant in the event of the Participant's death. If the
Participant does not make an effective designation, then the Designated
Beneficiary will be deemed to be the Participant's estate.
2.17 "Disability" means (i) the mental or physical disability, either
occupational or non-occupational in origin, of the Participant defined as "Total
Disability" in the Disability Plan of the Company currently in effect and as
amended from time to time; or (ii) a determination by the Committee of "Total
Disability" based on medical evidence that precludes the Participant from
engaging in any occupation or employment for wage or profit for at least twelve
months and appears to be permanent.
2.18 "Divestiture" means the sale of, outsourcing of, or closing by, the
Company of the business operations in which the Participant is employed, or the
elimination of the Participant's position at the Company's discretion.
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2.19 "Early Retirement" means retirement of a Participant from employment
with the Company after age 55, but prior to age 65, as approved by the
Committee.
2.20 "Exchange Act" means the Securities Exchange Act of 1934, as in
effect and amended from time to time, or any successor statute thereto, together
with any rules, regulations, and interpretations promulgated thereunder or with
respect thereto.
2.21 "Executive Officer" means any employee designated by the Company as
an officer or any employee covered by Rule 16b-3 of the Exchange Act.
2.22 "Exercise Price" means the price per share determined on the Grant
Date by the Committee, provided that the Exercise Price shall not be less than
100% of Fair Market Value on the Grant Date; except that the Committee in its
sole discretion may waive the preceding limitation with respect to Awards
granted upon the assumption of, or in substitution for, similar awards of
another company with which the Company participates in an acquisition,
separation or similar corporate transaction.
2.23 "Fair Market Value" means, on a given date, the closing price of
Stock as reported on the New York Stock Exchange composite tape on such day or,
if no Shares were traded on the New York Stock Exchange on such day, then on the
next preceding day that Stock was traded on such exchange, all as reported by
such source as the Committee may select.
2.24 "Full-time Employee" means an employee designated by the Company's
Department as being a "permanent, full-time employee" who is eligible for all
plans and programs of the Company provided for such employees. This designation
excludes all part-time, temporary, or contract employees or consultants to the
Company.
2.25 "Incentive Stock Option" or "ISO" means an option to purchase Stock,
granted under Section 6 herein, which is designated as an incentive stock option
and is intended to meet the requirements of Section 422 of the Code.
2.26 "Key Employee" means an officer or other key employee of the Company
or its Subsidiaries, who, in the opinion of the Committee, can contribute
significantly to the growth and profitability of, or perform services of major
importance to, the Company and its Subsidiaries.
2.27 "Nonqualified Stock Option" or "NQSO" means an option to purchase
Stock, granted under Section 6 herein, which is not intended to be an Incentive
Stock Option.
2.28 "Normal Retirement" means the retirement of any Participant at age 65
or at some earlier date if approved by the Committee.
2.29 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.30 "Other Stock Unit Award" means awards, granted pursuant to Section
11, of Stock or other securities that are valued in whole or in part by
reference to, or are otherwise based on, Shares or other securities of the
Company.
2.31 "Participant" means a Key Employee or consultant, or service provider
to the Company who has been granted an Award under the Plan, or as the context
requires, a Permitted Transferee.
2.32 "Performance Award" means a performance-based Award, which may be in
the form of either Performance Shares or Performance Units.
2.33 "Performance Criteria" or "Performance Goals" or "Performance
Measures" means the objectives established by the Committee for a Performance
Period, for the purpose of determining when an Award subject to such objectives
is earned, which shall consist of any one or more of the following business or
financial goals of the Company: absolute or relative increases in total
stockholder return, economic value added, return on capital employed, revenues,
sales, net income, earnings per share, return on equity, cash flow, operating
margin, or net worth of the Company, any of its Subsidiaries, divisions or other
areas of the Company.
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2.34 "Performance Period" means the time period designated by the
Committee during which performance goals must be met.
2.35 "Performance Share" means an Award, designated as a Performance
Share, granted to a Participant pursuant to Section 9 herein, the value of which
is determined, in whole or in part, by the value of Company Stock in a manner
deemed appropriate by the Committee and described in the Agreement.
2.36 "Performance Unit" means an Award, designated as Performance Unit,
granted to a Participant pursuant to Section 9 herein, the value of which is
determined, in whole or in part, by the attainment of pre-established goals
relating to the Company's financial or operating performance as deemed
appropriate by the Committee and described in the Agreement.
2.37 "Permitted Transferee" means any transferee of a Nonqualified Stock
Option pursuant to a transfer that is approved by the Committee in accordance
with Section 14.4 and the Plan.
2.38 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is restricted, pursuant to Section 8 herein.
2.39 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
2.40 "Plan" means the Beverly Enterprises, Inc. 1997 Long-Term Incentive
Plan as herein described and as hereafter from time to time amended.
2.41 "Restricted Stock" means an Award of Stock granted to a Participant
pursuant to Section 8 herein.
2.42 "Restricted Stock Unit" means a fixed or variable right to acquire
Stock, which may or may not be subject to restrictions, contingently awarded
under Section 8 of the Plan.
2.43 "Rule 16b-3" means Rule 16b-3 of the General Rules and Regulations
under the Exchange Act, as amended from time to time, or any successor thereto.
2.44 "Section 16" means Section 16 of the Exchange Act, or any successor
section under the Exchange Act, as amended from time to time and as interpreted
by regulations and rules promulgated thereunder from time to time.
2.45 "Section 162(m)" means Section 162(m) of the Code, or any successor
section under the Code, as amended from time to time and as interpreted by final
or proposed regulations promulgated thereunder from time to time.
2.46 "Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as amended from time
to time.
2.47 "Shares" means shares of the Common Stock of the Company.
2.48 "Stock Appreciation Right" means the right to receive an amount equal
to the excess of the Fair Market Value of a share of Stock (as determined on the
date of exercise) over the Exercise Price of a related Option or the Fair Market
Value of the Stock on the Date of Grant of the Stock Appreciation Right.
2.49 "Subsidiary" means a corporation in which the Company owns, either
directly or through one or more of its Subsidiaries, at least 50% of the total
combined voting power of all classes of stock.
SECTION 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered and interpreted by the
Committee which shall have full authority and all powers necessary or desirable
for such administration. The express grant in this Plan of any specific power to
the Committee shall not be construed as limiting any power or authority of the
Committee. In its sole and complete discretion the Committee may adopt, alter,
suspend and repeal such administrative rules, regulations, guidelines, and
practices governing the operation of the Plan as it shall from time to time deem
advisable. In addition to any other powers and subject to the provisions of the
Plan, the
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Committee shall have the following specific powers: (i) to determine the terms
and conditions upon which the Awards may be made and exercised; (ii) to
determine all terms and provisions of each Agreement, which need not be
identical for all types of Awards nor for the same type of Award to different
participants; (iii) to construe and interpret the Agreements and the Plan; (iv)
to establish, amend, or waive rules or regulations for the Plan's
administration; (v) to accelerate the exercisability of any Award, the length of
a Performance Period or the termination of any Period of Restriction; (vi) to
provide for the grant of Awards upon the assumption of, or in substitution for,
similar awards granted by an acquired or other company with which the Company
participates in an acquisition, separation, or similar corporate transaction;
and (vii) to make all other determinations and take all other actions necessary
or advisable for the administration of the Plan. The Committee may take action
by a meeting in person, by unanimous written consent, or by meeting with the
assistance of communications equipment which allows all Committee members
participating in the meeting to communicate in either oral or written form. The
Committee may seek the assistance or advice of any persons it deems necessary to
the proper administration of the Plan.
3.2 Selection of Participants. The Committee shall have sole and complete
discretion in determining those Key Employees or other persons who shall
participate in the Plan. The Committee may request recommendations for
individual Awards from the Chief Executive Officer of the Company and may
delegate to the Chief Executive Officer of the Company the authority to make
Awards to Participants who are not Executive Officers of the Company or Covered
Participants, subject to a fixed maximum Award amount for such a group and a
maximum Award amount for any one Participant, as determined by the Committee.
Awards made to the Executive Officers or Covered Participants shall be
determined by the Committee.
3.3 Committee Decisions. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive, and
binding upon all persons, including the Company, its stockholders, employees,
Participants, and Designated Beneficiaries, except when the terms of any sale or
award of shares of Stock or any grant of rights or Options under the Plan are
required by law or by the Articles of Incorporation or Bylaws of the Company to
be approved by the Company's Board of Directors or stockholders prior to any
such sale, award or grant.
3.4 Rule 16b-3 Requirements. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on any Award, and the Board may
amend the Plan in any such respects, as may be required to satisfy the
requirements of Rule 16b-3 or Section 162(m).
3.5 Indemnification of Committee. In addition to such other rights of
indemnification as they may have as directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against
reasonable expenses incurred from their administration of the Plan. Such
reasonable expenses include, but are not limited to, attorneys' fees actually
and reasonably incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted or made hereunder, and against all
reasonable amounts paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, if such
members acted in good faith and in a manner which they believed to be in, and
not opposed to, the best interests of the Company and its Subsidiaries.
SECTION 4. ELIGIBILITY
The Committee in its sole and complete discretion shall determine the Key
Employees, including officers, or other persons who shall be eligible for
participation under the Plan, subject to the following limitations:
(i) no Non-Employee director of the Company shall be eligible to
participate under the Plan; (ii) no member of the Committee shall be
eligible to participate under the Plan; (iii) no person owning, directly
or indirectly, more than 5% of the total combined voting power of all
classes of stock of the Company shall be eligible to participate under
the Plan; and (iv) only Full-Time Employees shall be eligible to receive
Incentive Stock Options under the Plan; provided, however, that
Incentive Stock Options may be granted for ISOs assumed pursuant to the
Employee Benefits Agreement, without regard to whether the grantee is a
Full-Time Employee.
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SECTION 5. SHARES SUBJECT TO THE PLAN
5.1 Number of Shares. The maximum aggregate number of Shares that may be
issued pursuant to Awards made under the Plan shall not exceed fifteen million
(15,000,000) Shares, which may be in any combination of Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Shares, Performance Units, Bonus Stock, or Other Stock Unit Awards. No more than
seven million, five hundred thousand (7,500,000) Shares may be issued pursuant
to Awards of Restricted Stock, Restricted Stock Units, Performance Shares,
Performance Units, Bonus Stock or Other Stock Unit Awards. Shares of Common
Stock may be available from the authorized but unissued Shares or Shares
acquired by the Company, including Shares purchased in the open market. Except
as provided in this Section 5, the issuance of Shares in connection with the
exercise of, or as other payment for, Awards under the Plan shall reduce the
number of Shares available for future Awards under the Plan.
5.2 Additional Limitations. Notwithstanding the foregoing provisions of
this Section 5, (a) the maximum number of shares of Common Stock in respect of
which Incentive Stock Options may be granted shall be seven million, five
hundred thousand (7,500,000) Shares, and (b) no individual Participant may
receive in any calendar year Stock Options and Stock Appreciation Rights
relating, in the aggregate, to more than 1.1 million shares of Common Stock plus
any Unused Carryover (as defined below). In the event of a change in the shares
of Common Stock of the Company that is limited to a change in the designation
thereof to "Capital Stock" or other similar designation, or to a change in the
par value thereof, or from par value to no value, without increase or decrease
in the number of issued shares, the shares resulting from any such change shall
be deemed to be shares of Common Stock for purposes of the Plan. No fractional
shares of Common Stock shall be issued under the Plan unless the Committee
determines otherwise.
5.3 Lapsed Awards of Forfeited Shares. Except as provided below, in the
event that (i) any Option or other Award granted under the Plan terminates,
expires, or lapses for any reason other than exercise of the Award, or is
settled in cash in lieu of Common Stock, or (ii) if Shares issued pursuant to
the Awards are canceled or forfeited for any reason, such Shares subject to such
Award shall thereafter be again available for grant of an Award under the Plan;
provided further that if, after grant, the Exercise Price of an Option (or the
base price of a Stock Appreciation Right) is reduced, the transaction shall be
treated as a cancellation of the Option (or the Stock Appreciation Right) and a
grant of a new Option (or Stock Appreciation Right) for purposes of Section 5.2.
Notwithstanding the above, with respect to Covered Participants, Options may not
be granted that exceed the maximum number of Shares for which Options may be
issued to the Participants hereunder, and canceled Shares shall continue to be
counted against the maximum aggregate number of Shares that may be granted
pursuant to Awards.
5.4 Unused Carryover. For purposes of this Plan, "Unused Carryover"
means, for any calendar year, the maximum number of shares of Common Stock with
respect to which Options and/or Stock Appreciation Rights could have been
granted to the Participant under the Plan in the previous calendar year in
accordance with this Section 5 (taking into account any Unused Carryover
available in such previous calendar year), reduced by the number of shares of
Common Stock with respect to which Options and/or Stock Appreciation Rights
actually were granted to the Participant in such previous calendar year. If the
Participant is not eligible for an Award in a calendar year in accordance with
the terms and conditions of the Plan, that calendar year shall be disregarded
for purposes of this Section 5.4, and an Unused Carryover shall not be created
or increased in that calendar year.
5.5 Delivery of Shares as Payment. In the event a Participant pays for
any Option or other Award granted under the Plan through the delivery of
previously acquired Shares, the number of Shares available for Awards under the
Plan shall be increased by the number of shares surrendered by the Participant.
5.6 Capital Adjustments. The number and class of Shares subject to each
outstanding Award, the Exercise Price and the aggregate number, type and class
of Shares for which Awards thereafter may be made shall be subject to
adjustment, if any, as the Committee deems appropriate, based on the occurrence
of a number of specified and non-specified events. Such specified events are
discussed in this Section 5.6, but such discussion is not intended to provide an
exhaustive list of such events which may necessitate such adjustments.
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In addition, the Committee may treat different Participants and different Awards
differently, and may condition any adjustment on the execution of an appropriate
waiver and release agreement.
(a) If the outstanding Shares are increased, decreased or exchanged
through merger, consolidation, sale of all or substantially all of the
property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split or other distribution in
respect to such Shares, for a different number of Shares or type of
securities, or if additional Shares or new or different Shares or other
securities are distributed with respect to such Shares, an appropriate and
proportionate adjustment shall be made in: (i) the maximum number of Shares
available for the Plan as provided in Section 5.1 herein, (ii) the type of
shares or other securities available for the Plan, (iii) the number of
shares of Stock subject to any then outstanding Awards under the Plan, and
(iv) the price (including Exercise Price) for each Share (or other kind of
shares or securities) subject to then outstanding Awards, but without
change in the aggregate purchase price as to which such Options remain
exercisable or Restricted Stock releasable.
(b) In the event other events not specified above in this Section 5.6,
such as any extraordinary cash dividend, split-up, spin-off, combination,
exchange of shares, warrants or rights offering to purchase Common Stock,
or other similar corporate event, affect the Common Stock such that an
adjustment is necessary to maintain the benefits or potential benefits
intended to be provided under this Plan, then the Committee in its
discretion may make adjustments to any or all of (i) the number and type of
shares which thereafter may be optioned and sold or awarded or made subject
to Stock Appreciation Rights under the Plan, (ii) the Exercise Price of any
Award made under the Plan thereafter, and (iii) the number and Exercise
Price of each Share (or other kind of shares or securities) subject to the
then outstanding awards, but without change in the aggregate purchase price
as to which such Options remain exercisable or Restricted Stock releasable.
(c) Any adjustment made by the Committee pursuant to the provisions of
this Section 5.6, subject to approval by the Board of Directors, shall be
final, binding and conclusive. A notice of such adjustment, including
identification of the event causing such an adjustment, the calculation
method of such adjustment, and the change in price and the number of shares
of Stock, or securities, cash or property purchasable subject to each Award
shall be sent to each Participant. No fractional interests shall be issued
under the Plan based on such adjustments.
SECTION 6. STOCK OPTIONS
6.1 Grant of Stock Options. Subject to the terms and provisions of the
Plan and applicable law, the Committee, at any time and from time to time, may
grant Options to such Key Employees and other persons as it shall determine. The
Committee shall have sole and complete discretion in determining the type of
Option granted, the Exercise Price, the duration of the Option, the number of
Shares to which the Option pertains, any conditions imposed upon the
exercisability of the Options, the conditions under which the Option may be
terminated and such other provisions as may be warranted to comply with the law
or rules of any securities trading system or stock exchange. Each Option grant
shall have such specified terms and conditions detailed in an Agreement. The
Agreement shall specify whether the Option is intended to be an Incentive Stock
Option within the meaning of Section 422 of the Code, or a Nonqualified Stock
Option not intended to be within the provisions of Section 422 of the Code.
6.2 Exercise Price. The Exercise Price per Share covered by an Option
shall be determined at the time of grant by the Committee, subject to the
limitation that the Exercise Price shall not be less than 100% of Fair Market
Value on the Grant Date. However, Options granted upon the assumption of, or in
substitution for, options of another company with which the Company participates
in an acquisition, separation or similar corporate transaction may be issued at
an Exercise Price less than 100% of the Fair Market Value.
6.3 Exercisability. Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall determine, which will be specified in the Agreement and need not
be the same for each Participant. However, no Option granted under the Plan may
be exercisable after the expiration of ten years from the Grant Date.
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6.4 Method of Exercise. Options shall be exercised by the delivery of a
written notice from the Participant to the Company in the form prescribed by the
Committee setting forth the number of Shares with respect to which the Option is
to be exercised, accompanied by full payment of the Exercise Price for the
Shares. The Exercise Price shall be payable to the Company in full in cash, or
its equivalent, or, to the extent permitted by applicable law and not in
violation of any instrument or agreement to which the Company is a party, by
delivery of Shares (not subject to any security interest or pledge) valued at
Fair Market Value at the time of exercise, or by a combination of the foregoing,
or in any other form of payment acceptable to the Committee. The Committee
reserves the right to require any Shares delivered by the Participant in full or
partial payment of the Exercise Price to be limited to those Shares already
owned by the Participant for at least six (6) months. In addition, at the
request of the Participant, and subject to applicable laws and regulations, the
Company may (but shall not be required to) cooperate in a Cashless Exercise of
the Option. In addition, the Committee may, in its sole discretion, also permit
other forms of "cashless exercise," including withholding from the Shares to be
otherwise issued that number of Shares needed to pay the Exercise Price. As soon
as practicable, after receipt of written notice and payment, the Company shall
deliver to the Participant stock certificates in an appropriate amount based
upon the number of Shares with respect to which the Option is exercised, issued
in the Participant's name.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights. Subject to the terms and
provisions of the Plan and applicable law, the Committee, at any time and from
time to time, may grant freestanding Stock Appreciation Rights, Stock
Appreciation Rights in tandem with an Option, or Stock Appreciation Rights in
addition to an Option. Stock Appreciation Rights granted in tandem with an
Option or in addition to an Option may be granted at the time the Option is
granted or at a later time. No Stock Appreciation Rights granted under the Plan
may be exercisable after the expiration of ten years from the Grant Date.
7.2 Exercise Price. The Exercise Price of each Stock Appreciation Right
shall be determined on the Grant Date by the Committee, subject to the
limitation that the Exercise Price shall not be less than 100% of Fair Market
Value on the Grant Date. However, Stock Appreciation Rights issued upon
assumption of, or in substitution for, stock appreciation rights of a company
with which the Company participates in an acquisition, separation or similar
corporate transaction may be issued at an Exercise Price less than 100% of the
Fair Market Value.
7.3 Exercise. The Participant is entitled to receive an amount equal to
the excess of the Fair Market Value over the Exercise Price thereof on the date
of exercise of the Stock Appreciation Right.
7.4 Payment. Payment upon exercise of the Stock Appreciation Right shall
be made in the form of cash, Shares, or a combination thereof, as determined in
the sole and complete discretion of the Committee. However, if any payment in
the form of Shares results in a fractional share, the payment for the fractional
share shall be made in cash.
SECTION 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan and applicable law, the Committee, at any time and from time to time, may
grant Shares of Restricted Stock and Restricted Stock Units under the Plan to
such Participants, and in such amounts and for such duration of the Period of
Restriction and/or conditions of removal of restrictions as it shall determine.
Participants receiving Restricted Stock and Restricted Stock Units are not
required to pay the Company therefor (except for applicable tax withholding).
8.2 Restricted Stock Agreement. Each Restricted Stock and Restricted
Stock Unit grant shall be evidenced by an Agreement that shall specify the
Period of Restriction; the conditions which must be satisfied prior to removal
of the restriction; the number of Shares of Restricted Stock granted; and such
other provisions as the Committee shall determine. The Committee may specify,
but is not limited to, the following types of restrictions in the Agreement: (i)
restrictions on acceleration or achievement of terms of vesting based on any
business or financial goals of the Company, including, but not limited to,
absolute or relative
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increases in total stockholder return, revenues, sales, net income, earnings per
share, return on equity, cash flow, operating margin or net worth of the
Company, any of its Subsidiaries, divisions or other areas of the Company; and
(ii) any other further restrictions that may be advisable under the law,
including requirements set forth by the Exchange Act, the Securities Act, any
securities trading system or stock exchange upon which such Shares are listed.
8.3 Nontransferability. Except as provided in this Section 8 and subject
to applicable law, the Shares of Restricted Stock or Restricted Stock Units
granted under the Plan may not be sold, transferred, pledged, assigned,
exchanged, encumbered or otherwise alienated or hypothecated until the
termination of the applicable Period of Restriction or upon earlier satisfaction
of other conditions as specified by the Committee in its sole discretion and set
forth in the Agreement. All rights with respect to the Restricted Stock and
Restricted Stock Units granted to a Participant under the Plan shall be
exercisable only by such Participant or his or her guardian or legal
representative.
8.4 Removal of Restrictions. Except as otherwise noted in this Section 8,
Restricted Stock and Restricted Stock Units covered by each Award shall be
provided to and become freely transferable by the Participant after the last day
of the Period of Restriction and/or upon the satisfaction of other conditions as
determined by the Committee. Except as specifically provided in this Section 8,
the Committee shall have no authority to reduce or remove the restrictions or to
reduce or remove the Period of Restriction without the express consent of the
stockholders of the Company. Except where performance-based conditions or
restrictions are placed on the grant, or except in the event of the death or
disability of the Participant, or a Change in Control of the Company, the
minimum Period of Restriction shall be three (3) years, which Period of
Restriction would permit the removal of restrictions on no more than one-third
( 1/3) of the Restricted Stock or Restricted Stock Units at the end of the first
year following the Grant Date, and the removal of the restrictions on an
additional one-third ( 1/3) at the end of each subsequent year. Except in the
event of the death or disability of the Participant, or a Change in Control of
the Company, no restrictions may be removed from Restricted Stock or Restricted
Stock Units during the first year following the Grant Date. If there are
performance-based conditions placed on the grant of Restricted Stock or
Restricted Stock Units, the total Period of Restriction shall be no less than
one (1) year from the Grant Date. The foregoing limitations notwithstanding, the
Committee in its sole discretion may reduce or remove the restrictions or reduce
or remove the Period of Restriction with respect to Restricted Stock or
Restricted Stock Units upon assumption of, or in substitution for, restricted
stock or restricted stock units of a company with which the Company participates
in an acquisition, separation, or similar corporate transaction.
8.5 Voting Rights. During the Period of Restriction, Participants in
whose name Restricted Stock is granted under the Plan may exercise full voting
rights with respect to those Shares.
8.6 Dividends and Other Distributions. During the Period of Restriction,
Participants in whose name Restricted Stock is granted shall be entitled to
receive all dividends and other distributions paid with respect to those Shares.
If any such dividends or distributions are paid in Shares, the Shares shall be
subject to the same restrictions on transferability as the Restricted Stock with
respect to which they were distributed.
SECTION 9. PERFORMANCE AWARDS
9.1 Grant of Performance Awards. Subject to the terms and provisions of
the Plan and applicable law, the Committee, at any time and from time to time,
may grant Performance Awards in the form of either Performance Units or
Performance Shares to Participants subject to such Performance Goals and
Performance Period as it shall determine. The Committee shall have complete
discretion in determining the number and value of Performance Units or
Performance Shares granted to each Participant. Participants receiving
Performance Awards are not required to pay the Company therefor (except for
applicable tax withholding) other than the rendering of services.
9.2 Value of Performance Awards. The Committee shall determine the number
and value of Performance Units or Performance Shares granted to each Participant
as a Performance Award. The Committee shall set Performance Goals in its
discretion for each Participant who is granted a Performance Award. The extent
to which such Performance Goals are met will determine the value of the
Performance
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Unit or Performance Share to the Participant. Such Performance Goals may be
particular to a Participant, may relate to the performance of the Subsidiary
which employs him or her, may be based on the division which employs him or her,
may be based on the performance of the Company generally, or a combination of
the foregoing. The Performance Goals may be based on achievement of balance
sheet or income statement objectives, or any other objectives established by the
Committee. The Performance Goals may be absolute in their terms or measured
against or in relationship to other companies comparably, similarly or otherwise
situated. The terms and conditions of each Performance Award will be set forth
in an Agreement. Except as specifically provided herein, including, without
limitation, Section 14.13, the Committee shall have no authority to reduce or
remove the Performance Goals or Performance Period without the express consent
of the stockholders of the Company. Furthermore, except in the case of the
Participant's death or disability, or a Change of Control of the Company, no
Performance Unit or Performance Award shall become vested or payable less than
one (1) year after its grant.
9.3 Settlement of Performance Awards. After a Performance Period has
ended, the holder of a Performance Unit or Performance Share shall be entitled
to receive the value thereof based on the degree to which the Performance Goals
established by the Committee and set forth in the Agreement have been satisfied.
9.4 Form of Payment. Payment of the amount to which a Participant shall
be entitled upon the settlement of a Performance Award shall be made in cash,
Stock, or a combination thereof as determined by the Committee. Payment may be
made as prescribed by the Committee.
SECTION 10. BONUS STOCK
Subject to the terms and provisions of the Plan and applicable law, the
Committee, at any time and from time to time, may award Shares of Bonus Stock to
Participants without cash consideration. The Committee shall determine and
indicate in the relevant Agreement restrictions which shall apply to such Bonus
Stock, which shall provide for vesting periods and/or periods of restriction
which shall be not less stringent than those as contained in Section 8.4 with
respect to awards of Restricted Stock and Restricted Stock Units. In addition,
such Shares shall be subject to at least the following restrictions:
(a) No Shares of Bonus Stock may be sold, transferred, pledged,
assigned, exchanged, encumbered or otherwise alienated or hypothecated if
such Shares are subject to restrictions which have not lapsed or have not
been vested.
(b) If any condition of vesting of the Shares of Bonus Stock are not
met, all such Shares subject to such vesting shall be delivered to the
Company and canceled (in a manner determined by the Committee) within 60
days of the failure to meet such condition without any payment from the
Company.
Except as specifically provided herein, including, without limitation,
Section 14.13, the Committee shall have no authority to reduce or remove any
restrictions or limitations on Bonus Stock without the express consent of the
stockholders of the Company.
SECTION 11. OTHER STOCK UNIT AWARDS
11.1 Grant of Other Stock Unit Awards. Subject to the terms and
provisions of the Plan and applicable law, the Committee, at any time and from
time to time, may issue to Participants, either alone or in addition to other
Awards made under the Plan, Other Stock Unit Awards which may be in the form of
Common Stock or other securities. The value of each such Award shall be based,
in whole or in part, on the value of the underlying Common Stock or other
securities. The Committee, in its sole and complete discretion, may determine
that an Award, either in the form of an Other Stock Unit Award under this
Section 11 or as an Award granted pursuant to Sections 6 through 10, may provide
to the Participant (i) dividends or dividend equivalents (payable on a current
or deferred basis) and (ii) cash payments in lieu of or in addition to an Award.
Subject to the provisions of the Plan, the Committee in its sole and complete
discretion shall determine the terms, restrictions, conditions, vesting
requirements, and payment rules (all of
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which are sometimes hereinafter collectively referred to as "Rules") of the
Award. The Agreement shall specify the Rules of each Award as determined by the
Committee. However, each Other Stock Unit Award need not be subject to identical
Rules.
11.2 Rules. The Committee, in its sole and complete discretion, may grant
an Other Stock Unit Award subject to the following Rules:
(a) Common Stock or other securities issued pursuant to Other Stock
Unit Awards may not be sold, transferred, pledged, assigned, exchanged,
encumbered or otherwise alienated or hypothecated by a Participant until
the expiration of at least six months from the Award Date, except that such
limitation shall not apply in the case of death or disability of the
Participant or a Change in Control of the Company. All rights with respect
to such Other Stock Unit Awards granted to a Participant shall be
exercisable during his or her lifetime only by such Participant or his or
her guardian or legal representative.
(b) Other Stock Unit Awards may require the payment of cash
consideration by the Participant upon receipt of the Award or provide that
the Award, and any Common Stock or other securities issued in conjunction
with the Award be delivered without the payment of cash consideration.
(c) The Committee, in its sole and complete discretion, may establish
certain Performance Criteria that may relate in whole or in part to receipt
of the Other Stock Unit Awards.
(d) Other Stock Unit Awards may be subject to a deferred payment
schedule. Furthermore, all Other Stock Unit Awards granted under the Plan
shall be subject to vesting periods and/or periods of restriction which are
not less stringent than those as specified in Section 8.4 with respect to
awards of Restricted Stock and Restricted Stock Units.
(e) The Committee, in its sole and complete discretion, as a result of
certain circumstances, including, without limitation, the assumption of, or
substitution of stock unit awards of a company with which the Company
participates in an acquisition, separation, or similar corporate
transaction, may waive or otherwise remove, in whole or in part, any
restriction or condition imposed on an Other Stock Unit Award at the time
of grant.
(f) Except as specifically provided herein, including, without
limitation, Sections 11(e) and 14.13, the Committee shall have no authority
to reduce or remove any Performance Criteria, vesting schedule, or other
restriction or condition imposed on or Other Stock Unit Award without the
express consent of the stockholders of the Company.
SECTION 12. SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS
Awards subject to Performance Criteria paid to Covered Participants under
this Plan shall be governed by the conditions of this Section 12 in addition to
the requirements of Sections 8, 9, 10 and 11 above. Should conditions set forth
under this Section 12 conflict with the requirements of Sections 8, 9, 10 and
11, the conditions of this Section 12 shall prevail.
(a) All Performance Measures relating to Covered Participants for a
relevant Performance Period shall be established by the Committee in
writing prior to the beginning of the Performance Period, or by such other
later date for the Performance Period as may be permitted under Section
162(m). Performance Measures may include alternative and multiple
Performance Measures and may be based on one or more business criteria. In
establishing Performance Measures, the Committee shall consider one or more
of the following business or financial goals of the Company: absolute or
relative increases in total stockholder return, economic value added,
return on capital employed, revenues, sales, net income, return on equity,
cash flow, operating margin or net worth of the Company, any of its
Subsidiaries, divisions or other areas of the Company.
(b) The Performance Measures must be substantially uncertain of
attainment at the time established, must be objective and must satisfy
third party "objectivity" standards under Section 162(m).
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(c) The Performance Measures shall not allow for any discretion by the
Committee as to an increase in any Award, but discretion to lower an Award
is permissible.
(d) The Award and payment of any Award under this Plan to a Covered
Participant with respect to a relevant Performance Period shall be
contingent upon the attainment of the Performance Measures that are
applicable to such Covered Participant. The Committee shall certify in
writing prior to payment of any such Award that such applicable Performance
Measures relating to the Award are satisfied. Approved minutes of the
Committee may be used for this purpose.
(e) The maximum Award that may be paid to any Covered Participant
under the Plan pursuant to Sections 9, 10 and 11 for any Performance Period
is the lesser of $1 Million or 100 percent of the Covered Participant's
annual base salary as of the first day of that Performance Period. The
maximum number of Shares subject to Options, Stock Appreciation Rights or
Restricted Stock granted to any Covered Participant for any fiscal year
shall be the number of shares determined pursuant to Section 5.2(b).
(f) All Awards to Covered Participants under this Plan shall be
further subject to such other conditions, restrictions, and requirements as
the Committee may determine to be necessary to carry out the purpose of
this Section 12.
SECTION 13. DEFERRED ELECTIONS/TAX REIMBURSEMENTS
The Committee may permit a Participant to elect to defer receipt of any
payment of cash or any delivery of shares of Common Stock that would otherwise
be due to such Participant by virtue of the exercise, earn-out, or settlement of
any Award made under the Plan. If such election is permitted, the Committee
shall establish rules and procedures for such deferrals, including, without
limitation, the payment or crediting of dividend equivalents in respect of
deferrals credited in units of Common Stock. The Committee may also provide in
the relevant Agreement for a tax reimbursement cash payment to be made by the
Company in favor of any Participant in connection with the tax consequences
resulting from the grant, exercise, settlement or earn-out of any Award made
under the Plan.
SECTION 14. GENERAL PROVISIONS
14.1 Plan Term.
The Plan terminates December 31, 2006; however, all Awards made prior to,
and outstanding on such date, shall remain valid in accordance with their terms
and conditions.
14.2 Withholding. The Company shall have the right to deduct or withhold,
or require a Participant or Permitted Transferee to remit to the Company, any
taxes required by law to be withheld from Awards. In the event an Award is paid
in the form of Common Stock, the Committee may require the Participant or
Permitted Transferee to remit to the Company the amount of any taxes required to
be withheld from such payment in Common Stock, or, in lieu thereof, the Company
may withhold from the number of Shares otherwise to be issued (or the
Participant or Permitted Transferee, with respect to Stock already owned by such
Participant or Permitted Transferee (which the Committee may require to have
been held for at least six (6) months), may be provided the opportunity to elect
to tender) the number of shares of Common Stock equal in Fair Market Value to
the amount required to be withheld.
14.3 Awards. Each Award shall be evidenced in a corresponding Agreement
provided in writing to the Participant, which shall specify the terms,
conditions and any Rules applicable to the Award, including but not limited to
the effect of a Change in Control, or death, Disability, Divestiture, Early
Retirement, Normal Retirement or other termination of employment of the
Participant on the Award. Each Permitted Transferee, along with the transferor,
of a Non-Qualified Stock Option transferred in accordance with the provisions of
Section 14.4 shall enter into a Stock Option Transfer Agreement with the Company
in a form specified by the Committee.
14.4 Nontransferability. No Award and no rights or interests therein may
be sold, transferred, pledged, assigned, exchanged, encumbered or otherwise
alienated or hypothecated, except (i) by testamentary
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disposition by the Participant or the laws of descent and distribution or,
except in the case of an ISO, by a qualified domestic relations order; and (ii)
in the case of Nonqualified Stock Options, transfers made with the prior
approval of the Committee and on such terms and conditions as the Committee in
its sole discretion shall approve, to (a) the spouse, child, step-child,
grandchild or step-grandchild of the Participant (an "Immediate Family Member"),
(b) a trust the beneficiaries of which do not include persons other than the
Participant and Immediate Family Members; (c) a partnership (either general or
limited) the partners of which do not include persons other than the Participant
and Immediate Family Members (or a corporation the shareholders of which do not
include persons other than the Participant and Immediate Family Members); (d) a
corporation the shareholders of which do not include persons other than the
Participant and Immediate Family Members; or (e) any other transferee that is
approved by the Committee in its sole discretion (each a Permitted Transferee);
provided, however, that, without the prior approval of the Committee, no
Permitted Transferee shall further transfer a Nonqualified Stock Option, other
than by testamentary disposition or the laws of descent and distribution, either
directly or indirectly, including, without limitation, by reason of the
dissolution of, or a change in the beneficiaries of, a Permitted Transferee that
is a trust, the sale, merger, consolidation, dissolution, or liquidation of a
Permitted Transferee that is a partnership (or the sale of all or any portion of
the partnership interests therein), or the sale, merger, consolidation,
dissolution or liquidation of a Permitted Transferee that is a corporation (or
the sale of all or any portion of the stock thereof). Further, no right or
interest of any Participant in an Award may be assigned in satisfaction of any
lien, obligation, or liability of the Participant.
14.5 No Right to Employment. No granting of an Award shall be constituted
as a right to employment with the Company.
14.6 Rights as Stockholder. Subject to the Award provisions, no
Participant or Designated Beneficiary shall be deemed a stockholder of the
Company nor have any rights as such with respect to any Shares to be provided
under the Plan until he or she has become the holder of such Shares.
Notwithstanding the aforementioned, with respect to Stock granted as Restricted
Stock, Performance Shares, Bonus Stock or Other Stock Unit Awards under this
Plan, the Participant or Designated Beneficiary of such Award shall be deemed
the owner of such Shares provided herein. As such, unless contrary to the
provisions herein or in any such related Agreement, such stockholder shall be
entitled to full voting, dividend and distribution rights as provided any other
Company stockholder for as long as the Participant continues to be deemed the
owner of such stock.
14.7 Construction of the Plan. The Plan, and its rules, rights,
agreements and regulations, shall be governed, construed, interpreted and
administered solely in accordance with the laws of the state of Delaware. In the
event any provision of the Plan shall be held invalid, illegal or unenforceable,
in whole or in part, for any reason, such determination shall not affect the
validity, legality or enforceability of any remaining provision, portion of
provision or the Plan overall, which shall remain in full force and effect as if
the Plan had been absent the invalid, illegal or unenforceable provision or
portion thereof.
14.8 Amendment of the Plan. The Committee or Board of Directors may
amend, suspend, or terminate the Plan or any portion thereof at any time,
provided such amendment is made with stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for these
purposes any approval which is a requirement for exemptive relief under Section
16(b) of the Exchange Act or which is a requirement for the performance-based
compensation exception under Section 162(m). The Committee in its sole
discretion may amend the Plan so as to conform with local rules and regulations
subject to any provisions to the contrary specified herein.
14.9 Amendment of Award. In its sole and complete discretion, the
Committee may at any time amend any Award for the following reasons: (i)
additions and/or changes to the Code, any federal or state securities law, or
other law or regulations applicable to the Award, are made, and such additions
and/or changes have some effect on the Award; or (ii) any other event not
described in clause (i) occurs and the Participant gives his or her consent to
such amendment, provided however, except for capital adjustments described in
Section 5.8, the Committee may not reduce the Exercise Price of an Award.
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14.10 Exemption from Computation of Compensation for Other Purposes. By
acceptance of an applicable Award, subject to the conditions of such Award, each
Participant shall be considered in agreement that all Shares sold or awarded and
all Options granted under this Plan shall be considered special incentive
compensation and will be exempt from inclusion as "wages" or "salary" in
pension, retirement, life insurance, and other employee benefits arrangements of
the Company, except as determined otherwise by the Company. In addition, each
Designated Beneficiary of a deceased Participant shall be in agreement that all
such Awards will be exempt from inclusion in "wages" or "salary" for purposes of
calculating benefits of any life insurance coverage sponsored by the Company.
14.11 Legend. In its sole and complete discretion, the Committee may
elect to legend certificates representing Shares sold or awarded under the Plan,
to make appropriate references to the restrictions imposed on such shares.
14.12 Certain Participants. All Agreements for Participants subject to
Section 16(b) of the Exchange Act shall be deemed to include any such additional
terms, conditions, limitations and provisions as Rule 16b-3 requires, unless the
Committee in its discretion determines that any such Award should not be
governed by Rule 16b-3. All performance-based Awards shall be deemed to include
any such additional terms, conditions, limitations and provisions as are
necessary to comply with the performance-based compensation exemption of Section
162(m) unless the Committee in its discretion determines that any such Award to
a Covered Participant is not intended to qualify for the exemption for
performance-based compensation under Section 162(m).
14.13 Change in Control. In the event of a Change in Control, the
Committee is permitted to accelerate the payment or vesting and release any
restrictions on any Awards.
14.14 Listing, Registration and Other Legal Compliance. No Awards or
shares of the Common Stock shall be required to be issued or granted under the
Plan unless legal counsel to the Company shall be satisfied that such issuance
or grant will be in compliance with all applicable federal and state securities
laws and regulations and any other applicable laws or regulations. The Committee
may require, as a condition of any payment or share issuance, that certain
agreements, undertakings, representations, certificates, and/or information, as
the Committee may deem necessary or advisable, be executed or provided to the
Company to assure compliance with all such applicable laws or regulations. Any
certificates for shares of the Restricted Stock and/or Common Stock delivered
under the Plan may be subject to such stock-transfer orders and such other
restrictions as the Committee may deem advisable under the rules, regulations,
or other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Common Stock is then listed, and any applicable federal
or state securities law. In addition, if, at any time specified herein (or in
any Agreement or otherwise) for (a) the making of any Award, or the making of
any determination, (b) the issuance or other distribution of Restricted Stock
and/or other Common Stock, or (c) the payment of amounts to or through a
Participant with respect to any Award, any law, rule, regulation, or other
requirement of any governmental authority or agency shall require the Company,
any Affiliate, or any Participant (or any estate, designated beneficiary, or
other legal representative thereof) to take any action in connection with any
such determination, any such shares to be issued or distributed, any such
payment, or the making of any such determination, as the case may be, shall be
deferred until such required action is taken. With respect to persons subject to
Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3. To the extent any provision
of the Plan or any action by the administrators of the Plan fails to so comply
with such rule, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
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APPENDIX C
BEVERLY ENTERPRISES, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF JUNE 1, 2001)
ARTICLE I.
PURPOSE
1.1 Purpose. The purpose of the Plan is to build a proprietary interest
among the Company's Non-Employee Directors and thereby secure for the Company's
shareholders the benefits associated with common stock ownership by those who
will oversee the Company's future growth and success.
ARTICLE II.
DEFINITIONS AND CONSTRUCTION
2.1 Definitions. Whenever used as a capitalized term in the Plan, the
following terms shall have the respective meanings set forth below, unless
otherwise expressly provided:
(a) "Affiliate" means "affiliate" as defined in Rule 12b-2 under the
Exchange Act.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act.
(c) "Board" or "Board of Directors" means the Board of Directors of
the Company.
(d) "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
(1) Any Person, corporation or other entity or group becomes the
Beneficial Owner of shares of the Company having 30 percent or more of
the total number of votes that may be cast for the election of members
of the Board; or
(2) As the result of, or in connection with, any tender or exchange
offer, merger or other business combination, sale of assets or contested
election, or any combination of the foregoing (a "Transaction"), the
persons who were members of the Board before the Transaction shall cease
to constitute a majority of the Board of Directors of the Company or any
successor to the Company or its assets; or
(3) If at any time (A) the Company shall consolidate with, or merge
with, any other Person and the Company shall not be the continuing or
surviving corporation, (B) any Person shall consolidate with, or merge
with, the Company, and the Company shall be the continuing or surviving
corporation and in connection therewith, all or part of the outstanding
Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, (C) the
Company shall be a party to a statutory share exchange with any other
Person after which the Company is a Subsidiary of any other Person, or
(D) the Company shall sell or otherwise transfer 50 percent or more of
the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to any Person or Persons; provided, however, that
notwithstanding anything to the contrary set forth in such plan a Change
in Control shall not include either (a) the Distribution or Merger, or
(b) any transfer to a consolidated subsidiary, reorganization, spin-off,
split-up, distribution, or other similar or related transaction(s) or
any combination of the foregoing in which the core business and assets
of the Company and its subsidiaries (taken as a whole) are transferred
to another entity ("Controlled") with respect to which (1) the majority
of the Board of Directors of the Company (as constituted immediately
prior to such transaction(s)) also serve as directors of Controlled and
immediately after such transaction(s) constitute a majority of Con-
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trolled's board of directors, and (2) more than 70% of the shareholders
of the Company (immediately prior to such transaction(s)) become
shareholders or other owners of Controlled and immediately after the
transaction(s) control more than 70% of the ownership and voting rights
of Controlled.
(e) "Code" means the Internal Revenue Code of 1986, as amended, and
the regulations issued thereunder, as the same may be amended from time to
time.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Beverly Enterprises, Inc., f/k/a New Beverly
Holdings, Inc., or any successor thereto.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(i) "Fair Market Value" means, on any given date, the closing price of
Common Stock as reported on the New York Stock Exchange composite tape on
such day or, if no shares of Common Stock were traded on such Exchange, all
as reported by such source as the Board may select. As to Options granted
to Participants in connection with the assumption of Options previously
granted by Beverly Enterprises, Inc. (BEI) pursuant to the Employee Benefit
Matters Agreement dated April 15, 1997 among BEI, the NBHI and Capstone,
Fair Market Value shall have the definition contained therein.
(j) "Grant Date" means June 1 of each calendar year during the period
this Plan remains in effect. The first "Grant Date" under the Plan was June
1, 1998.
(k) "Non-Employee Director" means an individual who is a member of the
Board and who is not an employee of the Company or any Subsidiary or
Affiliate thereof.
(l) "Option" means an option granted under this Plan to purchase a
share or shares of Common Stock.
(m) "Participant" means a Non-Employee Director to whom an Option has
been granted under this Plan.
(n) "Person" means "person" as deemed in Section 3(a)(9) of the
Exchange Act and as used in 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d)(3) of the Exchange Act.
(o) "Plan" means the "Beverly Enterprises, Inc. Non-Employee
Directors' Stock Option Plan" as set forth in this document, and as the
same may be amended from time to time.
(p) "Subsidiary" means a corporation at least 50 percent of the
combined voting power of all classes of stock of which is owned by the
Company, either directly or through one or more of its Subsidiaries.
(q) "Vesting Date" means, with respect to any Options granted under
the Plan, the next June 1 following the date of such grant. The first
Vesting Date under the Plan was June 1, 1999.
2.2 Gender and Number; Headings. Except when otherwise indicated by the
context, any masculine terminology when used in this Plan shall also include the
feminine gender, and the definition of any term in the singular shall also
include the plural, Headings of Articles and Sections herein are included solely
for convenience, and if there is any conflict between such headings and the text
of the Plan, the text shall control.
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ARTICLE III.
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility; Participation. Each Non-Employee Director shall be
eligible to participate under this Plan and to receive a grant of an Option in
accordance with the provisions of this Plan.
3.2 Grant of Stock Options. On and after June 1, 2001, each Non-Employee
Director shall automatically be granted an Option to Purchase 11,000 shares of
Common Stock as of the initial Grant Date applicable to such Non-Employee
Director, and shall automatically be granted an Option to purchase an additional
11,000 shares of Common Stock as of each Grant Date subsequent to the initial
Grant Date applicable to such Non-Employee Director and during the term of this
Plan, with each such subsequent grant being effective as of the applicable Grant
Date. To be eligible to receive such an Option grant with respect to any such
Grant Date, the Non-Employee Director must be a Non-Employee Director on such
Grant Date. All Options granted under this Section 3.2 shall be subject to the
Common Stock availability provisions of Section 4.1.
3.3 Initial Grant for Participants Newly Elected Outside of a Grant
Date. On and after June 1, 2001, if an individual first becomes a Non-Employee
Director on other than a Grant Date, he shall receive an initial grant of an
Option to purchase a number of whole shares of Common Stock equal to 11,000
multiplied by a fraction, the numerator of which shall be the number of full
calendar months remaining until the next succeeding Grant Date, and the
denominator of which is twelve (12). Such options shall vest on such next
succeeding Grant Date.
ARTICLE IV.
COMMON STOCK AVAILABLE
4.1 In General. Subject to adjustment as provided in Section 4.2, an
aggregate of 450,000 shares of Common Stock shall be available for grant and
issuance pursuant to the provisions of this Plan. Such shares may be authorized
and unissued shares or may be shares issued and thereafter acquired by the
Company. If an Option shall expire or terminate for any reason without having
been exercised in whole or in part, the unpurchased shares of Common Stock
subject to such Option shall again be available for subsequent Option grants
under the Plan.
4.2 Adjustment in Event of Changes in Capitalization. In the event of a
stock dividend, stock split, or combination of shares, recapitalization or other
change in the Company's capitalization, or other distribution with respect to
holders of the Company's Common Stock other than normal cash dividends, an
automatic adjustment shall be made in the number and kind of shares as to which
outstanding Options or portions thereof then unexercised shall be exercisable
and in the available shares set forth in Section 4.1, to the end that the
proportionate interest of the Participant or eligible Non-Employee Director
shall be maintained as before the occurrence of such event. Such adjustment in
outstanding Options shall be made without change in the total price applicable
to the unexercised portion of such Options and with a corresponding adjustment
in the Option price per share. Automatic adjustment shall also be made in the
number and kind of shares subject to Options subsequently granted under Article
III of the Plan.
ARTICLE V.
TERMS AND CONDITIONS OF STOCK OPTIONS
5.1 Exercise of Stock Options.
(a) Option Exercisability. Each Option granted under the Plan shall
be exercisable on or after the Vesting Date applicable to such Option,
subject to the provisions of Section 5.1(b) and (c).
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(b) Immediate Vesting for Death, Disability, and Change of
Control. Notwithstanding the provisions of Section 5.1(a), an Option
granted to any Participant shall become immediately exercisable in full
upon the first to occur of --
(1) The death of the Participant, in which case the Option may be
exercised by the Participant's executor or administrator, or if not so
exercised, by the legatees or distributees of his or her estate or by
such other person or persons to whom the Participant's rights under the
Option shall pass by will or by the applicable laws of descent and
distribution;
(2) Such time as the Participant ceases to be a member of the Board
by reason of his or her disability; and
(3) Change in Control.
(c) Termination Other than Death or Disability. In the event the
Participant ceases to be a Non-Employee Director of the Company for any
reason other than death or disability when no Change of Control has
occurred, and such termination occurs prior to the time an Option granted
to such Participant has become exercisable, such Option shall terminate
with respect to the shares as to which the Option is not then exercisable
and all rights of the Participant to such shares shall terminate without
further obligation on the part of the Company. As regards any Option which
is exercisable by the Participant at such time, such Participant must
exercise such Option within 90 days following the date the Participant so
ceased to be a Non-Employee Director, and, any such Option remaining
unexercised as of the close of such period shall expire.
5.2 Exercise Price. The exercise price of an Option for a share of Common
Stock shall be 100 percent of the Fair Market Value of such Common Stock on the
Grant Date relating to such Option. However, Options granted on the assumption
of, or in substitution for, options of another company with which the Company
participates in an acquisition, separation or similar corporate transaction may
be issued at an exercise price less than 100% of Fair Market Value.
5.3 Expiration of Options.
(a) In General. An Option shall expire ten years from the date such
Option was granted, unless terminated earlier in accordance with the Plan.
(b) Death or Disability of Participant. In the event a Participant
ceases to be a Non-Employee Director of the Company by reason of death or
disability, including without limitation in the event that a Participant
dies after ceasing to be a member of the Board by reason of disability, any
Option granted to such Participant hereunder that has not been fully
exercised at the time of the Participant's death may be exercised at any
time within the greater of
(1) one year after the date of death or disability, or --
(2) in the event any Option is exercised by the executors,
administrators, legatees, or distributees of the estate of a deceased
Participant, the Company shall be under no obligation to issue Common
Stock thereunder unless and until the Company is satisfied that the
person or persons exercising the Option are the duly appointed legal
representatives of the deceased optionee's estate or the proper legatees
or distributees thereof.
5.4 Exercise and Payment of Exercise Price.
(a) Number of Shares. Subject to the terms and conditions of the
Plan, an Option shall, to the extent then exercisable, be exercisable in
whole or in part by giving written notice to the Company stating the number
of shares with respect to which the Option is being exercised, accompanied
by payment in full for such shares; provided, however, that there shall be
no such exercise at any one time as to fewer than 100 shares or all or the
remaining shares then purchasable by the person or persons exercising the
Option, if fewer than 100 shares.
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(b) Payment Methods. An Option may be paid for by --
(1) delivery of cash or a check payable to the order of the Company
in an amount equal to the exercise price of such Option, or
(2) by delivery to the Company of shares of Common Stock of the
Company already owned by the Participant for more than six months and
having a Fair Market Value equal in amount to the exercise price of the
Option being exercised, provided that such method is consistent with
applicable tax and securities laws and is not contrary to any
restriction on the Company's purchase of its own shares, or
(3) by any combination of such methods of payment.
5.5 Rights as a Shareholder. Except as specifically provided by the Plan,
the grant of an Option shall not give a Participant rights as a shareholder; and
the Participant will obtain such rights only upon actual receipt of Common
Stock.
5.6 Documentation of Option Grants. Option grants shall be evidenced by
written instruments prescribed by the Board from time to time. The instruments
may be in the form of agreements to be executed by both the Participant and the
Company or certificates, letters or similar instruments, which need not be
executed by the Participant, but acceptance of which will evidence agreement to
the terms of the grant.
5.7 Nontransferability of Options. No Option granted under the Plan shall
be assignable or transferable by the Participant to whom it is granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution or pursuant to a "qualified domestic relations order" ("QDRO") as
defined under Section 414(p) of the Code. Any such attempted assignment or
transfer in violation of this Section 5.7 shall be null and void. During the
life of the Participant, the Option shall be exercisable only by such person or
an alternate payee under a QDRO, or, in the event of incapacity, by the person
or person properly appointed to act on his or her behalf.
ARTICLE VI.
REGULATORY COMPLIANCE
6.1 Issuance or Delivery of Shares. The issuance or delivery of any
shares of Common Stock subject to exercisable Options may be postponed by the
Board for such period as may be required to comply with any applicable
requirements under the Federal or applicable state securities laws, any
applicable listing requirements of any national securities exchange, or any
requirements under any law or regulation applicable to the issuance or delivery
of such shares. The Company shall not be obligated to issue or deliver any such
shares if, in the opinion of Company's counsel, the issuance or delivery thereof
would constitute a violation of any provision of any law or of any regulation of
any governmental authority or any national securities exchange.
ARTICLE VII.
ADMINISTRATION
7.1 Plan Administration. The Plan shall be administered by the Board. The
Board shall have all the powers vested in it by the terms of the Plan, such
powers to include authority within the limitations described herein to prescribe
the form of the agreement embodying grants of Options. The Board shall have the
power to construe the Plan, to determine all questions arising thereunder, and
to adopt and amend such rules and regulations for the administration of the Plan
as it may deem desirable. Any decisions of the Board in the administration of
the Plan, as described herein, shall be final and conclusive. The Board may from
time to time delegate certain of its administrative responsibilities under the
Plan to Company personnel or to a committee. The Board may act only by a
majority of its members in office, except that the members thereof may authorize
any one or more of their number or any officer of the Company to execute and
deliver documents on behalf of the Board. No member of the Board shall be liable
for anything done or omitted to be done other than by such member's own willful
misconduct or as expressly provided by statute.
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7.2 Indemnification and Exculpation. The members of the Board, its
agents, and officers and employees of the Company shall be indemnified and held
harmless by the Company against and from any and all loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by them in connection
with or resulting from any claim, action, suit, or proceeding to which they may
be a party or in which they may be involved by reason of any action taken or
failure to act under this Plan and against and from any and all amounts paid by
them in settlement (with the Company's written approval) or paid by them in
satisfaction of a judgment in any such action, suit, or proceeding. The
foregoing provision shall not be applicable to any person if the loss, cost,
liability, or expense is due to such person's gross negligence or willful
misconduct.
ARTICLE VIII.
AMENDMENT AND TERMINATION
8.1 Amendment. The Board shall have the right to amend or modify the Plan
in full or in part at any time and from time to time; provided, however, that
unless required by law, no such amendment or modification shall --
(a) affect any right or obligation with respect to any Option grant
theretofore made, or
(b) unless previously approved by the shareholders of the Company,
where such approval is necessary to satisfy then applicable requirements of
Federal securities laws, the Code, or rules of any stock exchange on which
the Company's Common Stock is listed --
(1) in any manner materially affect the eligibility requirements
set forth in Sections 3.1 and 3.2,
(2) materially increase the number of shares of Common Stock
available for or subject to Options, or
(3) materially increase the benefits to Participants under the
Plan.
8.2 Termination.
(a) In General. The Board shall have the right to terminate the Plan
at any time; provided, however, that Options which are granted on or before
the termination date shall remain exercisable in accordance with their
respective terms after the termination of the Plan.
(b) Termination Date. Unless terminated earlier by the Board, the
Plan shall terminate on December 31, 2007; provided, however, that Options
which are granted on or before such date shall remain exercisable in
accordance with their respective terms after the termination of the Plan.
ARTICLE IX.
MISCELLANEOUS
9.1 Regulatory Approval. The Company's obligation to issue and deliver
shares of Common Stock under the Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance,
or delivery of Common Stock.
9.2 No Right to Reelection. Nothing in the Plan shall be deemed to create
any obligation on the part of the Board to nominate any Non-Employee Director
for reelection by the Company's shareholders, nor confer upon any Non-Employee
Director the right to remain a member of the Board for any period of time, or at
any particular rate of compensation.
9.3 Severability. In the event any provision of this Plan shall be held
invalid or illegal for any reason, any illegality or invalidity shall not affect
the remaining parts of this Plan, but this Plan shall be construed and enforced
as if the illegal or invalid provision had never been inserted, and the Company
shall have the privilege and opportunity to correct and remedy such questions of
illegality or invalidity by amendment as provided in this Plan.
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9.4 Status Under ERISA. This Plan is not maintained as and is not
intended to be an "employee benefit plan" under the Employee Retirement Income
Security Act of 1974, as amended.
9.5 Applicable Law. The Plan shall be governed by, construed, and
administered in accordance with the laws of the State of Delaware, except to the
extent such laws are preempted by the laws of the United States.
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YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF ALL PROPOSALS.
1. ELECTION OF DIRECTORS FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below for all nominees listed below
Nominees: Beryl F. Anthony, Jr., David R. Banks, Harris Diamond, William R.
Floyd, James R. Greene, Edith E. Holiday, James W. McLane, Marilyn R. Seymann,
Ph.D.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions
--------------------------------------------------------------------
If any nominee named above declines or is unable to serve as a director, the
persons named as proxies, and each of them shall have full discretion to vote
for any other person who may be nominated.
2. APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR 2001.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. AMEND THE 1997 LONG-TERM INCENTIVE PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. AMEND THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Change of Address and
or Comments Mark Here [ ]
NOTE: Please sign exactly as name appears on
this Proxy card. When shares are held by
joint tenants, both should sign. When
signing as attorney, as executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in part-nership
name by authorized person.
Dated: , 2001
-------------------------
--------------------------------------------
--------------------------------------------
Signature of Stockholder(s)
Please sign, date and return today in the
enclosed envelope. This Proxy will not be
used if you attend the meeting in person and
so request.
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [X]
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ACCOMPANYING ENVELOPE.
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BEVERLY ENTERPRISES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas J.Babb, and William R.Floyd, each
of them, as proxies,each with the power to appoint his substitute,to represent
and to vote as designated below,all the shares of common stock of Beverly
Enterprises,Inc.held of record by the undersigned on March 31,2001 at the Annual
Meeting of Stockholders to be held on May 24,2001 and any and all adjournments
or postponements thereof.
In their discretion,the proxies are authorized to vote upon such other
business as may properly come before the meeting and any and all adjournments or
postponements thereof.This Proxy when properly executed will be voted in the
manner directed herein by the undersigned.If no specifica- tion is made,the
Proxy will be voted FOR the election of the directors named in the Proxy
Statement; FOR the appointment of Ernst &Young LLP as independent auditors for
2001;FOR the amend- ment to the 1997 Long-Term Incentive Plan;and FOR the
amendment to the Non-Employee Directors Stock Option Plan.
(Continued and to be signed and dated on the reverse side.)
BEVERLY ENTERPRISES, INC.
P.O. BOX 11358
NEW YORK, N.Y. 10203-0358