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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-11(c) or 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
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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
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(1) Amount Previously Paid:
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BEVERLY ENTERPRISES, INC.
5111 ROGERS AVENUE,
SUITE 40-A
FORT SMITH, ARKANSAS 72919-0155
(501) 452-6712
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TIME................................................. 10:00 a.m., local time, on Thursday, May 27,
1999
PLACE................................................ Holiday Inn
700 Rogers Avenue
Fort Smith, Arkansas
ITEMS OF BUSINESS.................................... (1) Elect nine members of the Board of Directors
(2) Approve Ernst & Young LLP as our independent
auditors for 1999
(3) Transact any other business properly before
the Annual Meeting and adjournment
RECORD DATE.......................................... If you were a stockholder on March 31, 1999, you
are entitled to vote.
ANNUAL REPORT........................................ Our 1998 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.
April 23, 1999 ROBERT W. POMMERVILLE
Secretary
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TABLE OF CONTENTS PAGE
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NOTICE OF ANNUAL MEETING.....................................COVER
ANSWERS TO 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
NOMINEES FOR THE BOARD OF DIRECTORS......................... 6
BOARD OF DIRECTORS -- COMMITTEES DURING 1998................ 7
BOARD OF DIRECTORS -- COMPENSATION.......................... 8
How is the Board compensated?........................ 8
What are the non-employee director stock based
programs?........................................... 8
How much Beverly stock does the Board own?........... 9
SECURITY OWNERSHIP OF MANAGEMENT............................ 9
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION..... 10
Compensation Practices............................... 10
1998 Compensation.................................... 10
Base Salary.................................. 10
Annual Incentive Compensation................ 11
Long-Term Incentive Compensation............. 11
Retirement Benefits.......................... 11
Response to Tax Laws Limiting Deductions for
Compensation........................................ 12
EXECUTIVE COMPENSATION...................................... 13
Summary Compensation Table........................... 13
Option/SAR Grants in 1998............................ 15
Aggregated Option/SAR Exercises in 1998 and Fiscal
Year-End Option/SAR Values.......................... 16
PERFORMANCE GRAPH........................................... 17
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE
IN CONTROL AGREEMENTS................................. 17
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
OF 1934............................................... 19
OTHER MATTERS............................................... 19
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PROXY STATEMENT FOR
BEVERLY ENTERPRISES, INC.
1999 ANNUAL STOCKHOLDERS MEETING
ANSWERS TO 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 at the Annual Meeting. Acting as your proxy,
the Proxy Committee 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 nominees to serve on the Board of
Directors.
(2) The approval of the appointment of our independent
auditors for 1999.
3. Q: What vote is required to approve each proposal?
A: Election to the Board
- The nine 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
- The affirmative vote of a majority of the shares
present, in person or by proxy, is required to
approve the appointment of the independent auditors
for 1999.
- 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 and FOR
appointment of Ernst & Young LLP as independent auditors for
1999.
5. Q: Who is entitled to vote?
A: Stockholders as of the close of business on March 31, 1999
(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 27, 1999, and for 10 days prior to the meeting, during
normal business hours at Beverly's corporate office, 5111
Rogers Avenue, Suite 40-A.
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.
7. Q: What happens if I don't instruct my broker how to vote?
A: Under the rules of the New York Stock Exchange, your broker
can vote your shares without your instructions on each of
the proposals unless a counter-solicitation develops,
creating a contest on any proposal. After a contest
develops, the broker cannot vote your shares on that
proposal without instruction from you. Lack of authority to
vote is called a "broker non-vote". It will not be counted
as a vote "for" or "against" the proposal.
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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, 1999 (the Record Date) there were
102,493,655 shares of Beverly stock issued and outstanding.
There must be at least 51,246,828 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 David R. Banks, Boyd W. Hendrickson
and Robert W. Pommerville 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.
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.
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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 David R. Banks,
Boyd W. Hendrickson and Robert W. Pommerville 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, 1999 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, 1998 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 on those
reports, the stockholders beneficially owning 5% or more of
the outstanding shares are:
-- Franklin Mutual Advisors, Inc.
777 Mariners Island Blvd. P. O. Box 7777
San Mateo, CA 94403-7777
7,621,500 shares or 7.44% as of December 31, 1998
-- ICM Asset Management
601 W. Main Ave., Suite 600
Spokane, WA 99201
5,144,250 shares or 5.02% as of December 31, 1998
18. Q: When are the stockholder proposals for the 2000 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 21, 1999. They should be sent to Robert
W. Pommerville, Executive Vice President, General Counsel
and Secretary, BEVERLY ENTERPRISES, INC., 5111 ROGERS
AVENUE, SUITE 40-A, FORT SMITH, AR 72919-0155.
Additionally, Beverly's advance notice by-law provision
requires that any stockholder proposal to be presented from
the floor of the 2000 annual meeting be received by Robert
W. Pommerville seventy-five (75) days before the meeting. It
is currently expected that the 2000 annual meeting will be
held on May 25, 2000. If this date is set by the Board,
stockholder proposals to be presented will be due by March
13, 2000. Proposals may be presented from the floor only
after a determination has been made that it is a proper
matter for consideration.
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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 Nomination
Committee of the Board, c/o Robert W. Pommerville 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 estimated out-of-pocket expenses of $5,000. 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 9 current directors as nominees for re-election. Detailed
information on each nominee is provided on the next page. 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. APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS
The Audit Committee has approved, subject to your approval, the
appointment of Ernst & Young LLP as our independent auditors for 1999. Ernst &
Young LLP has been our auditors since 1965. They have unrestricted access to the
Audit Committee to discuss audit findings and other financial matters.
Representatives of Ernst & Young LLP will attend the Annual Meeting to answer
appropriate questions. They also may make a statement.
Audit services provided by Ernst & Young LLP during 1998 included an
audit of Beverly's consolidated financial statements, audits of the separate
financial statements of certain Beverly subsidiaries, audits of employee benefit
plan financial statements and review of certain filings with the Commission. In
addition, Ernst & Young provided some non-audit services.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF ERNST & YOUNG
LLP'S APPOINTMENT AS INDEPENDENT AUDITORS FOR 1999.
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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. 61 1993
Former U.S. Congressman and Chairman of the Democratic
Congressional Campaign Committee.
David R. Banks..................... (1) Chairman and Chief Executive Officer of Beverly 62 1979
Enterprises, Inc. since 1990.
(2) Director, Nationwide Health Properties, Inc.,
PharMerica, Inc. and Ralston Purina Company. Trustee for
Occidental College.
Carolyne K. Davis, R.N., Ph.D. .... (1) International health care consultant since 1985. 67 1997
(2) Director, Beckman Coulter, Inc., Pharmaceutical
Marketing Services, Inc., The Prudential Insurance Company
of America, Inc. and MiniMed, Inc.
James R. Greene.................... (1) Director and consultant to various U.S. and 77 1991
international businesses since 1986.
(2)Director, Bank Leumi and Buck Engineering Company.
Boyd W. Hendrickson................ (1) President and Chief Operating Officer of Beverly 54 1995
Enterprises, Inc. since 1995. Previously Executive Vice
President of Beverly Enterprises, Inc. since 1990.
(2) Director, PharMerica, Inc., a major supplier of
institutional pharmacy services to Beverly and Superior
Financial Corp.
Edith E. Holiday................... (1) Attorney. Former Assistant to the President of the 47 1995
United States and Secretary of the Cabinet. Former General
Counsel, United States Department of the Treasury.
(2) Director, Amerada Hess Corporation, Hercules
Incorporated and H.J. Heinz Company. Director or trustee of
various investment companies in the Franklin Templeton group
of funds.
Jon E.M. Jacoby.................... (1) Executive Vice President, Chief Financial Officer and 61 1987
director, Stephens Group, Inc. since 1986.
(2) Director, Delta and Pine Land Company, Inc. and
Power-One, Inc.
Risa J. Lavizzo-Mourey, M.D. ...... (1) Director, Institute of Aging. Chief, Division of 44 1995
Geriatric Medicine and Associate Executive Vice President
for Health Policy, University of Pennsylvania, Ralston-Penn
Center.
(2) Director, Managed Care Solutions, Inc. and Hanger
Orthopedic Group, Inc.
Marilyn R. Seymann, Ph.D. ......... (1) President and Chief Executive Officer, M One, Inc., an 56 1995
information systems consulting firm.
(2) Director, Community First Bankshares, Inc. and True
North Communications, Inc.
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BOARD OF DIRECTORS -- COMMITTEES DURING 1998
Quality
Name Board Audit 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
James R. Greene.................. X X* X X
Boyd W. Hendrickson.............. X X
Edith E. Holiday................. X X X X
Jon E.M. Jacoby.................. 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 1998....... 6 6 4 5 2 5
X Member
* Chairperson
+ Dr. Davis and Dr. Lavizzo-Mourey were added to the Audit Committee as
honorary members to deal only with the oversight of the OIG
investigation. In February 1999, the Board formed a separate Litigation
and Compliance Committee which now has oversight of the OIG
investigation.
- ---------------------------------------------------------------------------------------------------------------------------
AUDIT: -- recommends appointment of EXECUTIVE: -- exercise all authority of the Board
independent auditors except those delegated to other
-- reviews scope and results of audit committees or extraordinary actions
plans and accounting practices
----------------------------------------------------------
-- oversees internal audit function NOMINATING: -- identifies and recommends
-- oversees Year 2000 remediation candidates for election to Board
-- oversees response to OIG -- establishes procedures and criteria
investigation for nomination
-- all members are non-employee -- administers self-evaluation
directors
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COMPENSATION: -- reviews compensation matters QUALITY -- monitors quality of service
related to senior managers 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. 10)
- ---------------------------------------------------------------------------------------------------------------------------
Each director 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 IS THE BOARD COMPENSATED?
-- Employee directors receive no additional compensation, other than
their normal salary and expense reimbursement, for serving on the
Board or its committees.
-- Non-employee directors receive:
- 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.
- $1,000 for chairing a committee meeting attended.
- right to defer cash compensation in exchange for deferred share
units, plus a 25% Company match.
- reimbursement for out-of-pocket costs.
-- In 1998, non-employee directors, as a group, received $20,616 in cash
and $349,750 credited as deferred share units which includes Company
match.
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.
-- 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.
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HOW MUCH BEVERLY STOCK DOES THE BOARD OWN?
Stock Ownership for Non-Employee Directors as a Group
[Chart]
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 31, 1999, the amount of
Beverly stock beneficially owned by the directors, 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 PERCENTAGE
AND EXERCISABLE OTHER OF
INVESTMENT WITHIN 60 BENEFICIAL DEFERRED COMMON
POWER DAYS OWNERSHIP(2) COMPENSATION TOTAL STOCK
---------- ----------- ------------ ------------ --------- ----------
Beryl F. Anthony, Jr. ..................... 0 33,750 0 17,640(4) 51,390 *
David R. Banks............................. 123,522(1) 496,824 16,319 11,024(3) 647,689 *
Carolyne K. Davis, R.N., Ph.D.............. 0 0 0 6,898(4) 6,898 *
James R. Greene............................ 500 13,500 0 24,177(4) 38,177 *
Boyd W. Hendrickson........................ 120,777(1) 246,188 1,400 9,842(3) 378,207 *
Edith E. Holiday........................... 800 13,500 200 8,065(4) 22,565 *
Jon E.M. Jacoby............................ 0 33,750 0 20,487(4) 54,237 *
Risa J. Lavizzo-Mourey, M.D................ 11,997 13,500 0 12,094(4) 37,591 *
William A. Mathies......................... 74,550(1) 130,950 2,879 6,454(3) 214,833 *
Marilyn R. Seymann, Ph.D................... 1,000 13,500 0 12,647(4) 27,147 *
Bobby W. Stephens.......................... 255,985(1) 108,000 6,386 5,608(3) 375,979 *
Scott M. Tabakin........................... 49,378(1) 153,900 0 5,834(3) 209,112 *
All Directors and Executive Officers as a
Group (18 Persons)....................... 910,334 2,033,822 28,034 168,982 3,141,172 3.06%
- ------------
* 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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COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors consists of three
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 design
compensation programs that support Beverly's business objectives 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 to 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. Some of the
companies are included in the S&P Midcap 400 Index, for which stock price
performance information is presented in the Performance Graph on page 17 of this
Proxy Statement. We do not receive compensation information on all of those
companies since many of them do not satisfy our comparability standards in terms
of revenues, employee size or market capitalization. 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.
1998 COMPENSATION
For 1998, executive compensation at Beverly consisted of four primary
elements: base salary, an annual incentive compensation potential, long-term
incentive compensation in the form of stock options and retirement benefits. As
noted above, we set each element of compensation, as well as the overall
compensation package, so that its target value is at the 50th percentile
relative to the compensation paid by companies included in the competitive
market information data assembled by our compensation consultant.
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
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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 February 18, 1999 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 1998. Based on Mr. Banks' performance under these criteria and on the
competitive market information, we set Mr. Banks' salary at $775,000, effective
March 1, 1999. This represents a 4.4% increase over Mr. Banks' 1998 salary
level, which places his salary at approximately the 50th percentile relative to
that of other chief executive officers for the companies included in the
competitive market information.
ANNUAL INCENTIVE COMPENSATION
For 1998, we had established an annual incentive compensation program
designed to tie a component of compensation for Beverly's officers directly to
Beverly's financial performance. Under the program, amounts were payable only if
Beverly's earnings per share and return on assets met certain pre-established
target levels. These financial targets were established early in 1998, based on
each covered officer's areas of responsibility. Under the program, provided that
the pre-established financial targets were met, we also retained discretion to
adjust downward the amount payable to officers based upon their satisfaction of
strategic objectives and individual goals that had been established. The target
payout under this program ranged from 25% to 60% of base salary, with the
maximum annual incentive payment possible equaling two times that amount.
Because Beverly's 1998 earnings per share did not meet the target level,
no amounts were paid for 1998 to Mr. Banks or to the other executive officers
named in the Summary Compensation Table.
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 grant 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. Accordingly, we have typically made annual grants of stock options to
Beverly's officers and other key personnel. In determining the size and other
terms of stock option grants, we review information on competitive practices and
valuation provided by our compensation consultant. Consistent with past
practice, we made annual option grants to Beverly's executive officers for 1998.
In order to provide a significant one-time incentive to Mr. Banks, on
February 19, 1998, we granted him an option to purchase 530,791 shares of
Beverly stock at an exercise price per share of $14.25. These options vest over
the period from the date of grant until Mr. Banks reaches age 65, subject to
acceleration if Mr. Banks' employment is terminated on account of death or
disability or upon a change in control. The size of this grant was targeted to
provide long-term compensation over the period until Mr. Banks reaches
retirement age at the 50th percentile relative to that of other chief executive
officers of the companies included in the competitive market information.
Therefore, we do not expect to be making additional annual grants of options to
Mr. Banks.
RETIREMENT BENEFITS
In addition to maintaining standard broad-based employee benefit plans
that had been in effect, on February 19, 1998 we adopted a supplemental
executive retirement program. Generally, this program provides for an annual
retirement income payment equal to 50% of a covered officer's average base
salary, calculated
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using his or her salary over the last three years of his or her employment and
paid monthly for 15 years. Benefit amounts are lower if a participant does not
satisfy age and service requirements specified in the plan. While most of
Beverly's executive officers are covered by this plan, we determined that, due
to the relatively short period before Mr. Banks reaches retirement age, Mr.
Banks' supplemental retirement benefits should be tied to appreciation in the
value of Beverly's stock. Therefore, instead of providing a formula payout under
this plan, we granted Mr. Banks stock options to purchase 352,066 shares of
Beverly stock. The exercise price per share of these options is $14.25, which
equals the market price of Beverly's stock on the date of the option grant, and
the options vest when Mr. Banks reaches age 65, subject to acceleration if Mr.
Banks' employment is terminated on account of death or disability or upon a
change in control. The size of this grant was targeted to provide Mr. Banks with
a benefit comparable to that provided to other executives participating in the
supplemental executive retirement program, assuming an annual base salary
increase of 5% and a 15% stock price appreciation.
RESPONSE TO TAX LAWS LIMITING DEDUCTIONS FOR COMPENSATION
Section 162(m) of the Internal Revenue Code generally sets a $1 million
per person limit on a company's ability to deduct compensation paid to the
company's five most highly paid executive officers. Section 162(m) does provide
an exemption to this limit for compensation that qualifies under the Code as
"performance-based compensation." Your Board has determined that we should seek
to retain full tax deductibility for its incentive compensation programs.
Therefore, we have designed Beverly's annual and long-term compensation programs
so that compensation earned under those plans can meet the definition of
"performance-based compensation." As a result, we do not believe that any
compensation paid in 1998 will fail to be deductible on account of Section
162(m).
COMPENSATION COMMITTEE
Beryl F. Anthony, Jr., Chairman
James R. Greene
Risa J. Lavizzo-Mourey, M.D.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
----------------------
Awards Payouts
Annual ----------------------
Compensation Other Restricted Securities
-------------------- Annual Stock Underlying LTIP All Other
Name and Fiscal Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Principal Position Year ($) ($) ($)(2) ($)(4) (#) ($) ($)(6)
------------------ ------ -------- -------- ------------ ---------- ------------ ------- ------------
David R. Banks............ 1998 $761,492(1) None None None 882,857 None $35,379
Chairman of the Board and 1997 694,806(1) $630,000 None None 121,500 None 40,602
Chief Executive Officer 1996 597,542 324,973 None $697,500 121,500(5) None 20,230
Boyd W. Hendrickson....... 1998 543,923(1) None None None 183,700 None 31,054
President and Chief 1997 497,500(1) 375,000(1) None None 87,750 None 28,988
Operating Officer 1996 437,971 245,314 None 581,250 87,750(5) None 17,973
William A. Mathies........ 1998 386,885(1) None None None 87,400 None 18,825
Executive Vice President 1997 322,500(1) 182,672(1) None None 54,000 None 20,104
and President-Beverly 1996 275,000 185,000 $216,198(3) 465,000 54,000(5) None 8,858
Healthcare
Bobby W. Stephens......... 1998 321,415(1) None None None 87,400 None 28,934
Executive Vice President- 1997 299,550(1) 180,000(1) None None 54,000 None 28,819
Asset Management 1996 283,725 126,909 None 465,000 54,000(5) None 21,554
Scott M. Tabakin.......... 1998 341,169(1) None None None 87,400 None 25,049
Executive Vice President 1997 298,750(1) 180,000(1) None None 54,000 None 16,175
and Chief Financial 1996 220,053 119,931 None 571,250 81,000(5) None 13,433
Officer
- ----------
(1) Six percent of this amount was deferred into the Beverly Enterprises, Inc.
Executive Deferred Compensation Plan.
(2) In accordance with Commission regulations, perquisites and personal benefits
totaling less than 10% of the total of annual salary and bonus for the named
executive officers have not been reported.
(3) Relocation costs and expenses paid to Mr. Mathies in connection with his
relocation from California to Arkansas.
(4) Amounts shown as Restricted Stock Awards consist of the following (shown in
dollars) (Beverly does not currently pay dividends on its common stock).
YEAR MR. BANKS MR. HENDRICKSON MR. MATHIES MR. STEPHENS MR. TABAKIN
---- --------- --------------- ----------- ------------ -----------
Restricted Stock Grants 1998 None None None None None
1997 None None None None None
1996 None None None None $106,250(a)
Performance Shares(b) 1998 None None None None None
1997 None None None None None
1996 $697,500 $581,250 $465,000 $465,000 $465,000
Total 1998 None None None None None
1997 None None None None None
1996 $697,500 $581,250 $465,000 $465,000 $571,250
- ----------
(a)The total $106,250 restricted stock award to Mr. Tabakin in 1996 was made
on October 10, 1996, at which time the closing price of Beverly stock was
$10.625, a grant of 10,000 shares which vest twenty-five percent per year
beginning one year from the date of grant. These shares have all vested.
Unvested shares vested as a result of the reorganization on December 3,
1997.
(b)The Performance Share awards consist of, on February 9, 1996, at which
time the closing price of Beverly stock was $11.625, a grant of
performance-based restricted stock. Performance was to be measured by
appreciation in the price of Beverly stock from December 31, 1995. All of
the Performance Shares vested as a result of the reorganization on
December 3, 1997.
(5) Shares reflect anti-dilution adjustments made December 3, 1997 to preserve
the intrinsic value of the options following the reorganization.
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(6) All other compensation consists of the following:
YEAR MR. BANKS MR. HENDRICKSON MR. MATHIES MR. STEPHENS MR. TABAKIN
---- --------- --------------- ----------- ------------ -----------
Matching Contribution 1998 $ 2,430 $ 2,430 $ 2,430 $ 2,430 $ 2,430
to Employee Stock 1997 2,340 2,340 2,340 2,340 2,340
Purchase Plan 1996 2,340 2,340 2,340 2,340 2,340
Executive Medical 1998 2,922 3,902 1,385 11,808 7,992
Plan 1997 2,586 3,700 3,008 11,500 1,642
1996 3,834 6,659 1,347 12,066 5,786
Premiums Under 1998 1,122 875 120 312 872
Executive Life 1997 1,404 1,125 183 474 872
Insurance Plan (a) 1996 1,350 1,080 177 438 872
Regular Life 1998 9,581 2,727 423 1,492 567
Insurance Plan (b) 1997 8,762 2,458 341 1,396 319
1996 5,648 2,187 297 1,315 244
Matching Contribution 1998 6,112 4,457 3,045 2,492 2,491
to Executive Savings 1997 12,546 9,214 6,706 5,958 3,851
Plan 1996 3,341 1,990 980 1,678 474
Matching Contribution 1998 11,422 13,784 8,543 7,521 7,818
to Executive Deferred 1997 10,500 7,500 4,875 4,500 4,500
Compensation Plan (c) 1996 None None None None None
Benefit Allowance (d) 1998 1,790 2,879 2,879 2,879 2,879
1997 2,464 2,651 2,651 2,651 2,651
1996 3,717 3,717 3,717 3,717 3,717
Total 1998 $35,379 $31,054 $18,825 $28,934 $25,049
1997 40,602 28,988 20,104 28,819 16,175
1996 20,230 17,973 8,858 21,554 13,433
- ----------
(a) Amount shown represents the dollar value benefit of premium payments
under split dollar life insurance policies for which Beverly will be
reimbursed for premiums paid. The premiums paid for Executive Life for
Scott Tabakin were for the Executive Survivorship Income Plan.
(b) Imputed income for life insurance provided under Beverly's regular life
insurance plan for amounts in excess of $50,000.
(c) The Executive Deferred Compensation Plan, effective January 1, 1997,
provides that participants may elect, prior to the beginning of each plan
year, to defer up to 25% of base salary and up to 100% of bonus earned
for that year. Deferral amounts up to 6% of base salary and bonus will be
entitled to a 25% match. Participant deferrals and the match are credited
to a participant's account which is deemed to be invested in Beverly
stock. This plan is an unfunded plan, which is an unsecured obligation of
Beverly. Beverly, to avoid market risk, currently maintains a "rabbi
trust" which holds Beverly stock as a source out of which all or any
portion of the benefits under the plan may be satisfied.
(d) Reimbursement for premiums paid under regular medical and dental
insurance.
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OPTION/SAR GRANTS IN 1998
GRANT
INDIVIDUAL GRANTS DATE VALUE
-------------------------------------------------- -------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE
SARS EMPLOYEES OR BASE GRANT DATE
GRANTED IN FISCAL PRICE EXPIRATION PRESENT VALUE
NAME (#) YEAR ($/SH) DATE ($)
---- ---------- ---------- -------- ---------- -------------
David R. Banks........................ 882,857(1) 36.73% $14.25 02/19/08 $7,442,485(3)
Boyd W. Hendrickson................... 183,700(2) 17.65% 6.50 12/10/08 799,095(4)
William A. Mathies.................... 87,400(2) 3.71% 6.50 12/10/08 380,190(4)
Bobby W. Stephens..................... 87,400(2) 3.71% 6.50 12/10/08 380,190(4)
Scott M. Tabakin...................... 87,400(2) 3.71% 6.50 12/10/08 380,190(4)
- ------------
(1) Nonqualified stock options granted on February 19, 1998. These options
become fully exercisable according to the following schedule:
Date Shares
-------- -------
02/19/99 132,698
02/19/00 132,698
02/19/01 132,698
02/15/02 352,066
02/19/02 132,697
(2) Nonqualified stock options granted on December 10, 1998. 25% of these
options become fully exercisable one year from the grant date and 25% per
year thereafter on a cumulative basis.
(3) The Black-Scholes option pricing method was used to calculate present value
as of the date of grant, February 19, 1998. The present value as of the date
of grant, calculated using the Black-Scholes method, was based on
assumptions about future interest rates, stock price volatility and dividend
yield. The Black-Scholes model is a complicated mathematical formula widely
used to value exchange traded options. However, stock options granted to
executive officers differ from exchange traded options in two key respects:
options granted to executives and others are long-term and generally subject
to vesting restrictions while exchange traded options are short-term and can
be exercised or sold immediately in a liquid market. The Black-Scholes model
relies on several key assumptions to estimate the present value of options,
including the volatility of and dividend yield on the security underlying
the option, the risk-free rate of return on the grant date and the term of
the option. In calculating the grant date present value set forth in the
table, a factor of .393 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 4.92%, 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.
(4) The Black-Scholes option pricing method was used to calculate present value
as of the date of grant, December 10, 1998. In calculating the grant date
present values set forth in the table, a factor of .498 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 4.98%, 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.
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AGGREGATED OPTION/SAR EXERCISES IN 1998 AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning:
- the exercise, in 1998, of options to purchase Beverly stock by the
individuals named in the Summary Compensation Table.
- unexercised options to purchase Beverly stock held by such
individuals at December 31, 1998.
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS FY-END OPTIONS/SARS FY-END
12/31/98 12/31/98
ACQUIRED ON VALUE (#) ($)(2)
EXERCISE REALIZED ---------------------------- -----------------------------
(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
David R. Banks................... None None 364,126 973,982 $800,637 $ 0
Boyd W. Hendrickson.............. 52,500 $283,260 246,188 249,512 5,148 45,925
William A. Mathies............... None None 130,950 127,900 0 21,850
Bobby W. Stephens................ None None 108,000 127,900 0 21,850
Scott M. Tabakin................. None None 153,900 127,900 0 21,850
- ----------
(1) The value realized equals the aggregate amount of the excess of the fair
market value on the date of exercise (the closing price of Beverly stock on
the New York Stock Exchange Composite as reported in the Wall Street
Journal) over the relevant exercise price(s).
(2) 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, 1998, $6.75, 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]
S&P
HEALTH
CARE
S&P (LONG
Measurement Period BEVERLY MIDCAP TERM)-
(Fiscal Year Covered) ENTERPRISES 400 INDEX SUPER 1500
1993 100 100 100
1994 108 96 112
1995 80 126 126
1996 96 150 140
1997 136 199 185
1998 70 237 86
- ------------
Source: Standards & Poor's Compustat
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, 1993.
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.
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.
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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.
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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
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 1998 our executive officers and directors have
timely complied with all filing requirements applicable to them.
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.
ROBERT W. POMMERVILLE
Secretary
April 23, 1999
Fort Smith, Arkansas
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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, Carolyne K. Davis, R.N., Ph.D., James R. Greene, Boyd W. Hendrickson,
Edith E. Holiday, Jon E.M. Jacoby, Risa J. Lavizzo-Mourey, M.D., and 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 1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Change of Address and
or Comments Mark Here [ ]
NOTE: Please sign exactly as name appears on this
Proxy. 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 partnership name by authorized person.
Dated: , 1999
------------------------
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---------------------------------------------------
Signature of Stockholder(s)
Votes must be indicated
(x) in Black or Blue ink. [ ]
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 David R. Banks, Boyd W. Hendrickson and
Robert W. Pommerville, 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, 1999 at the Annual Meeting of Stockholders to be held on May 27, 1999
and any and all adjournment 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 specification is made, the
Proxy will be voted FOR the election of the directors named in the Proxy
Statement; and FOR the appointment of Ernst & Young LLP as independent auditors
for 1999.
(Continued and to be signed and dated on the reverse side.)
BEVERLY ENTERPRISES, INC.
P.O. BOX 11358
NEW YORK, N.Y. 10203-0358
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