UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(AMENDMENT NO. 2)
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
BEVERLY ENTERPRISES, INC.
(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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(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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[ ] 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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PRELIMINARY COPY
SUBJECT TO COMPLETION
(BEVERLY ENTERPRISES, INC. LETTERHEAD)
March , 2005
Dear Fellow BEI Stockholder:
It is our pleasure to invite you to attend the 2005 Annual Meeting of
stockholders of Beverly Enterprises, Inc., to be held at our corporate
headquarters at One Thousand Beverly Way, Fort Smith, Arkansas at 10:00 a.m.
local time on April 21, 2005.
We urge you to participate in this Annual Meeting by completing and
returning the enclosed WHITE proxy card as promptly as possible. This Annual
Meeting is of particular importance to all BEI stockholders because:
- A group including Arnold Whitman, the Chief Executive Officer of
Formation Capital, LLC and Appaloosa Management L.P., a New Jersey based
hedge fund, among others, is attempting to take control of your company's
Board at the meeting as part of its efforts to acquire BEI.
- As described in the accompanying Proxy Statement, your Board's unanimous
view is that the transactions proposed by this group are not in the best
interests of BEI stockholders and significantly undervalue BEI.
For the reasons more fully described in the accompanying Proxy Statement,
your Board strongly recommends that you protect your investment in BEI by
voting:
- "FOR" the BEI nominees for director; and
- "AGAINST" the Whitman/Appaloosa group proposals under Items 3-5 on the
enclosed WHITE proxy card.
Please, sign, date and return the WHITE proxy card in the accompanying
postage paid envelope. Whether or not you plan to attend the Annual Meeting, we
hope that you will vote as promptly as possible.
Your Board urges you NOT to sign or return any blue proxy card sent to you
by the Whitman/Appaloosa group for any reason, even as a protest against their
activities. If you have previously returned a blue proxy card, you may change
any vote you may have cast in favor of the Whitman/Appaloosa group proposals and
vote in favor of the election of the BEI nominees, by signing and returning the
enclosed WHITE proxy card in the accompanying envelope. Any signed blue proxy
card you return - even if it reflects votes "AGAINST" the Whitman/Appaloosa
group proposals - will cancel any votes reflected on any WHITE proxy card you
may have previously returned. The properly executed proxy card you submit with
the latest date will be the one honored. We urge you to disregard any blue proxy
card sent to you.
On behalf of everyone at BEI, we thank you for your continued support. We
remain committed to acting in your best interests. If you have any questions or
need any assistance in voting your shares, please feel free to call one of our
proxy solicitors, Innisfree M&A Incorporated or Georgeson Shareholder
Communications Inc., at one of the telephone numbers set forth below.
Sincerely,
William R. Floyd
Chairman, President and
Chief Executive Officer
If your shares are registered in the name of a broker, only your broker can
execute a proxy and vote your shares and only after receiving your specific
instructions. Please sign, date and promptly mail the WHITE voting instruction
card in the envelope provided by your broker. Remember, your shares cannot be
voted unless you return a signed and executed voting instruction card to your
broker. If you have any questions or need further assistance in voting, please
contact one of the firms assisting us in the solicitation of proxies:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
Stockholders call (877) 278-4793 (toll-free in the United States and Canada)
Banks and Brokers call (212) 440-9800 (collect)
INNISFREE M&A INCORPORATED
Stockholders call (877) 825-8730 (toll-free in the United States and Canada)
Banks and Brokers call (212) 750-5833 (collect)
The Proxy Statement is dated March , 2005 and is first being mailed to
stockholders
on or about March , 2005.
BEVERLY ENTERPRISES, INC.
ONE THOUSAND BEVERLY WAY
FORT SMITH, ARKANSAS 72919
(479) 201-2000
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NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS
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TIME AND DATE....................... 10:00 a.m., CDT, on Thursday, April 21,
2005
PLACE............................... Beverly Enterprises, Inc.
One Thousand Beverly Way
Fort Smith, Arkansas 72919
ITEMS OF BUSINESS................... (1) Election of eight directors. YOUR
BOARD UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" ELECTION OF THE
EIGHT BEI DIRECTOR NOMINEES (Item 1
on the enclosed WHITE proxy card).
(2) Ratification of the appointment of
Ernst & Young LLP as our
independent registered public
accounting firm for 2005. YOUR
BOARD UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THIS PROPOSAL (Item
2 on the enclosed WHITE proxy
card); and
(3) Transaction of any other business
properly brought before the Annual
Meeting, including at any
adjournment or postponement of the
Annual Meeting.
RECORD DATE......................... If you were a stockholder as of the
close of business on March 7, 2005 (the
"Record Date"), you are entitled to
vote and attend the Annual Meeting.
ANNUAL REPORT....................... WE WILL FURNISH A COPY OF OUR ANNUAL
REPORT CONTAINING OUR AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED DECEMBER 31, 2004 TO BEI
STOCKHOLDERS AS PROMPTLY AS PRACTICABLE
ON OR AFTER MARCH 15, 2005 AND IN NO
EVENT LATER THAN APRIL 1, 2005, A DATE
20 CALENDAR DAYS BEFORE THE DATE OF THE
2005 ANNUAL MEETING.
PROXY VOTING........................ It is important that your shares of
stock be represented and voted at the
meeting. Please SIGN, DATE AND PROMPTLY
RETURN the enclosed WHITE proxy card in
the postage-paid envelope.
Any proxy may be revoked at any time
prior to its exercise at the meeting by
following the instructions in the Proxy
Statement.
March __, 2005 DOUGLAS J. BABB
Secretary
TABLE OF CONTENTS
PAGE
----
ANSWERS TO FREQUENTLY ASKED QUESTIONS....................... 1
BACKGROUND.................................................. 10
PROPOSALS ON WHICH YOU MAY VOTE............................. 15
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS................... 15
PROPOSAL NO. 2 -- RATIFICATION OF THE APPOINTMENT OF ERNST
& YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR 2005............................... 15
BEI NOMINEES FOR THE BOARD OF DIRECTORS..................... 17
BOARD OF DIRECTORS -- COMMITTEES DURING 2004................ 19
BOARD OF DIRECTORS -- COMPENSATION.......................... 22
EXECUTIVE OFFICERS.......................................... 23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 25
AUDIT AND COMPLIANCE COMMITTEE REPORT....................... 27
NOMINATING AND COMPENSATION COMMITTEE REPORT ON 2004
EXECUTIVE COMPENSATION.................................... 29
EXECUTIVE COMPENSATION...................................... 34
SUMMARY COMPENSATION TABLE................................ 34
AGGREGATED OPTION EXERCISES IN 2004 AND FISCAL YEAR-END
OPTION VALUES.......................................... 38
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR... 38
DEFINED BENEFIT PLAN...................................... 39
STOCK PERFORMANCE GRAPH..................................... 40
EQUITY COMPENSATION PLAN INFORMATION........................ 41
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE
IN CONTROL AGREEMENTS..................................... 41
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 42
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS............. 42
OTHER MATTERS............................................... 42
SOLICITATION OF PROXIES..................................... 44
SCHEDULE I: INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE
OFFICERS AND CERTAIN OTHER OFFICERS OF BEI WHO MAY BE
DEEMED PARTICIPANTS IN BEI'S SOLICITATION OF PROXIES...... I-1
SCHEDULE II: INFORMATION CONCERNING LEHMAN BROTHERS AND
JPMORGAN AND CERTAIN OF THEIR EMPLOYEES WHO MAY BE DEEMED
PARTICIPANTS IN BEI'S SOLICITATION OF PROXIES............. II-1
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PROXY STATEMENT FOR
BEVERLY ENTERPRISES, INC. ("BEI")
2005 ANNUAL STOCKHOLDERS MEETING
ANSWERS TO FREQUENTLY ASKED QUESTIONS
1. Q. WHY AM I RECEIVING THESE PROXY MATERIALS?
A. BEI's Board of Directors is asking for the right to vote your shares as
your proxy or agent at the Annual Meeting. Acting as your proxy, a member
of the Proxy Committee, appointed by the Board, will vote your shares as
you instruct on your proxy card. This Proxy Statement discusses 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. ON WHICH PROPOSALS MAY I VOTE?
A. You will be voting on:
(1) Election of eight directors;
(2) Ratification of the appointment of Ernst & Young LLP as our
independent registered public accounting firm for 2005; and
(3) Approval or disapproval of any other business properly presented for
a vote at the Annual Meeting. Please see Question and Answer 5 and
Question and Answer 6 below.
3. Q. WHO IS BEING NOMINATED FOR ELECTION AS A DIRECTOR?
A. Your Board has nominated William R. Floyd, Melanie Creagan Dreher, Ph.D.,
John D. Fowler, Jr., John P. Howe, III, M.D., James W. McLane, Ivan R.
Sabel, Donald L. Seeley and Marilyn R. Seymann, Ph.D., for election as
directors at the Annual Meeting. Additional information about each of the
BEI nominees is included under the heading "BEI Nominees for the Board of
Directors" below.
As you may know, a group including Arnold Whitman, the Chief Executive
Officer of Formation Capital, LLC and Appaloosa Management L.P., a New
Jersey based hedge fund, among others, has acquired over eight percent of
our outstanding stock and has sent us two letters proposing an
acquisition of BEI. This group, through Mr. Whitman, has nominated six
individuals for election as directors of BEI at the Annual Meeting in
order to take control of the Board and further their attempt to acquire
BEI.
Your Board has unanimously determined that the transactions proposed by
the Whitman/Appaloosa group significantly undervalue BEI and are not in
the best interests of BEI or its stockholders.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ELECTION
OF THE EIGHT BEI DIRECTOR NOMINEES (ITEM 1 ON THE ENCLOSED WHITE PROXY
CARD).
We urge you NOT to sign or return any blue proxy card sent to you by the
Whitman/Appaloosa group for any reason, which would void any
earlier-dated proxy. The best way to support your Board is by voting:
- "FOR" BEI's nominees for director; and
- "AGAINST" Items 3-5 on the enclosed WHITE proxy card (the
Whitman/Appaloosa group proposals).
4. Q. WHAT VOTE IS REQUIRED TO ELECT DIRECTORS?
A. With respect to the election of directors, you may:
- Vote for the election of any or all of the eight BEI director nominees;
or
- Withhold authority to vote for any or all of the eight BEI director
nominees.
You may take any of these actions by marking the appropriate spaces on
the enclosed WHITE proxy card. If you submit your signed WHITE proxy card
without indicating how you wish to vote, your shares will be voted "FOR"
the election of the BEI director nominees.
If you receive a proxy statement from the Whitman/Appaloosa group or
attend the Annual Meeting, you may also be able to vote on their nominees
for election as directors at the Annual Meeting.
BEI's By-Laws provide that directors will be elected by a plurality of
votes cast, in person or by proxy, and entitled to vote at the Annual
Meeting at which a quorum is present. Stockholders do not have the right
to cumulate votes in the election of directors. Accordingly, the eight
nominees receiving the highest vote totals will be elected as directors
of BEI. Votes that are withheld in the election of directors and broker
non-votes will not be taken into account for purposes of determining the
outcome of the election.
The only way to vote by proxy "FOR" the BEI nominees is to sign, date and
return the enclosed WHITE proxy card. Do NOT sign or return any blue
proxy card sent to you by the Whitman/Appaloosa group for any reason,
even as a protest against their activities. The best way to support your
Board is by voting:
- "FOR" BEI's nominees for director; and
- "AGAINST" Items 3-5 on the enclosed WHITE proxy card (the
Whitman/Appaloosa group proposals).
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ELECTION
OF THE EIGHT BEI DIRECTOR NOMINEES (ITEM 1 ON THE ENCLOSED WHITE PROXY
CARD).
5. Q. WHAT BUSINESS OTHER THAN THE ELECTION OF DIRECTORS WILL BE CONDUCTED AT
THE ANNUAL MEETING?
A. BEI has set forth Proposal No. 2, which asks the stockholders to ratify
the appointment of Ernst & Young LLP as BEI's independent registered
public accounting firm for 2005.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL (ITEM 2 ON THE ENCLOSED WHITE PROXY CARD).
We also have received notice from Arnold M. Whitman, the Chief Executive
Officer of Formation Capital, that he intends to bring the following
proposals before the Annual Meeting for consideration by BEI's
stockholders:
- A proposal to amend our By-Laws to fix the number of directors
constituting the entire Board at eight (Item 3 on the enclosed WHITE
proxy card);
- A proposal to repeal any amendment to our By-Laws adopted after May 29,
1997, other than the proposed amendment described above (Item 4 on the
enclosed WHITE proxy card); and
- A proposal to require that the foregoing proposals be presented prior
to the election of directors and before any other business is conducted
at the Annual Meeting (Item 5 on the enclosed WHITE proxy card).
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST" EACH
OF THESE PROPOSALS SUBMITTED BY THE WHITMAN/APPALOOSA GROUP (ITEMS 3-5 ON
THE ENCLOSED WHITE PROXY CARD). More information regarding these
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proposals, and the reasons for your Board's recommendation, may be found
under the heading "Other Matters" below.
6. Q. WHAT VOTE IS REQUIRED FOR THE OTHER PROPOSALS THAT MAY BE CONSIDERED AT
THE ANNUAL MEETING?
A. The affirmative vote of the holders of a majority of the shares present,
in person or by proxy, and entitled to vote on this proposal at the
Annual Meeting at which a quorum is present is required for stockholder
ratification of the appointment of Ernst & Young LLP as our independent
registered public accounting firm for 2005.
You may vote for or against this proposal or abstain from voting.
Abstentions will have the same effect as if you voted "against" this
proposal. If this proposal is contested, broker non-votes will not affect
the outcome of the vote on this matter.
If you submit your signed WHITE proxy card and either vote for this
proposal or do not indicate a vote, you will be voting for the proposal.
If you submit your signed WHITE proxy card and either vote against this
proposal or "abstain" from voting, then you will be voting against the
proposal.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO
RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP (ITEM 2 ON THE ENCLOSED WHITE
PROXY CARD).
Under BEI's By-Laws, the affirmative vote of the holders of a majority of
the outstanding shares of BEI common stock is required to amend or repeal
the By-Laws. As a result, the affirmative vote of the holders of a
majority of the outstanding shares of BEI common stock is required to
amend our By-Laws to fix the number of directors constituting the entire
Board at eight or to repeal any amendment to our By-Laws adopted after
May 29, 1997. In addition, the affirmative vote of the holders of a
majority of the shares present, in person or by proxy, and entitled to
vote on the matter at the Annual Meeting at which a quorum is present is
required to approve the proposal to conduct business in the order
proposed by the Whitman/Appaloosa group.
You may vote for or against each of these matters or abstain from voting
with respect to each of these matters. Abstentions with respect to any of
these proposals will have the same effect as a vote against such
proposals. Broker non-votes will have the same effect as a vote against
the proposals to amend our By-Laws. Broker non-votes will not affect the
outcome of the vote with respect to the proposal to conduct business in
the order proposed by the Whitman/Appaloosa group.
If you submit your signed WHITE proxy card and vote for any of the
Whitman/Appaloosa group proposals, you will be voting for such proposal.
If you submit your signed WHITE proxy card and either vote against any of
the Whitman/Appaloosa group proposals, "abstain" from voting or do not
indicate a vote, then you will be voting against such proposals.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST" EACH
OF ITEMS 3-5 ON THE ENCLOSED WHITE PROXY CARD.
7. Q. HOW DOES OUR BOARD RECOMMEND I VOTE ON THE ENCLOSED WHITE PROXY CARD?
A. Your Board unanimously recommends you vote:
- "FOR" each BEI director nominee (Item 1 on the enclosed WHITE proxy
card); and
- "FOR" ratification of the appointment of Ernst & Young LLP as BEI's
independent registered public accounting firm for 2005 (Item 2 on the
enclosed WHITE proxy card).
We have not made any changes to our By-Laws since May 19, 1997. Your
Board unanimously recommends you vote "AGAINST" the proposals to amend
our By-Laws to fix the number of directors constituting the entire Board
at eight, to repeal any amendment to our By-Laws adopted after May 29,
1997 and to conduct business in the order proposed by the
Whitman/Appaloosa group (Items 3-5 on the enclosed WHITE proxy card).
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8. Q. WHO IS ENTITLED TO VOTE?
A. Stockholders as of the close of business on March 7, 2005 (the "Record
Date") are entitled to vote at the Annual Meeting. As required by
Delaware law, a list of stockholders entitled to vote at the Annual
Meeting will be available at the Annual Meeting on April 21, 2005 and for
10 days prior to the meeting, during normal business hours, at BEI's
corporate office located at One Thousand Beverly Way, Fort Smith,
Arkansas 72919.
9. Q. DOES HOLDING MY STOCK IN A BROKERAGE ACCOUNT AFFECT MY ENTITLEMENT TO
VOTE?
A. If your shares are held in the name of a broker, only your broker can
execute a proxy and vote your shares. Please sign, date and promptly mail
the WHITE voting instruction card in the envelope provided by your
broker. Remember, your shares cannot be voted (except with respect to the
ratification of the appointment of Ernst & Young LLP as our independent
registered public accounting firm, so long as such proposal is not
contested at the time of the Annual Meeting) unless you return a signed
and dated voting instruction card to your broker or attend the Annual
Meeting to vote your shares in person. If your shares are held in the
name of a broker, and you intend to attend the Annual Meeting and vote
your shares in person, you must obtain a legal proxy, executed in your
favor, from your broker to be able to vote at the Annual Meeting.
However, you should still sign, date and promptly mail the WHITE voting
instruction card in the envelope provided by your broker to preserve your
right to vote. If you attend the Annual Meeting and vote, your proxy will
be revoked.
10. Q. WHAT HAPPENS IF I DON'T INSTRUCT MY BROKER HOW TO VOTE?
A. If you don't return a voting instruction card, your broker will not be
able to vote on Items 1, 3, 4 and 5. Your broker will be able to vote
with respect to Item 2 only if that proposal is not contested at the time
of the Annual Meeting. Therefore, if you do not return a voting
instruction card:
- your vote will not be taken into account for purposes of determining
the outcome of the election of directors;
- your broker will have discretion to vote with respect to the
ratification of the appointment of Ernst & Young LLP, assuming the
ratification is uncontested;
- your vote will not be taken into account with respect to the proposals
to amend our By-Laws, which will have the same effect as a vote against
the proposals; and
- your vote will not be taken into account for purposes of determining
the outcome of the proposal to conduct business in the order proposed
by the Whitman/Appaloosa group.
11. Q. WHAT HAPPENS IF I DO NOT VOTE THE SHARES REGISTERED IN MY NAME?
A. If your shares are held 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 unless you submit a proxy
card or vote at the Annual Meeting.
12. Q. WHAT IS A "QUORUM"?
A. A "quorum" is a majority of BEI's issued and outstanding shares of common
stock and is required to hold the Annual Meeting. As of the Record Date,
there were 108,787,095 shares of BEI common stock issued and outstanding,
all of one class and each having one vote. There must be at least
54,393,548 shares present or represented by proxy at the Annual Meeting
for business to be transacted. If you send the enclosed WHITE proxy card
to BEI, your shares will be considered part of the "quorum," regardless
of how you vote.
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13. Q. HOW DO I VOTE?
A. YOUR VOTE IS IMPORTANT. You may vote by mail or by attending the Annual
Meeting and voting by ballot, all as described below.
VOTE BY MAIL
If you choose to vote by mail, simply date and sign your WHITE proxy card
or voting instruction card and return it in the postage-paid envelope
provided. If the envelope is missing, please mail your completed WHITE
proxy card to Innisfree M&A Incorporated, P.O. Box 5154, FDR Station, New
York, NY 10150-5154, or your completed voting instruction card to your
broker, bank or nominee.
If you return your signed WHITE proxy card, but do not mark the boxes
showing how you wish to vote, your shares will be voted by a member of
BEI's Proxy Committee in accordance with your Board's recommendations
described in this Proxy Statement. The members of the Proxy Committee are
Douglas J. Babb, William R. Floyd and Jeffrey P. Freimark.
VOTING AT THE ANNUAL MEETING
The method or timing of your vote will not limit your right to vote at
the Annual Meeting if you attend the meeting and vote in person. However,
if your shares are held in the name of a broker, you must obtain a legal
proxy, executed in your favor, from your broker to be able to vote at the
Annual Meeting. You should allow yourself enough time prior to the Annual
Meeting to obtain this proxy from the holder of record.
The shares represented by the proxy cards received, properly marked,
dated, signed and not revoked will be voted at the Annual Meeting.
14. Q. CAN I REVOKE OR CHANGE MY VOTE AFTER I RETURN A PROXY CARD?
A. You can revoke any proxy you give at any time before your shares are
voted. You can revoke a proxy in any one of three ways:
- submit a valid, later-dated proxy card;
- notify BEI's Corporate Secretary in writing at One Thousand Beverly
Way, Fort Smith, Arkansas 72919, before the Annual Meeting that you
have revoked your proxy; or
- vote in person at the Annual Meeting.
Attendance at the meeting in itself will not constitute revocation of a
proxy.
If you have returned a blue proxy card to the Whitman/Appaloosa group, we
urge you to revoke your proxy by signing, dating and returning the
enclosed WHITE proxy card to BEI.
15. Q. WHAT DOES IT MEAN IF I GET MORE THAN ONE WHITE PROXY CARD?
A. If your shares are registered differently and are in more than one
account, you will receive more than one WHITE proxy card. PLEASE SIGN AND
RETURN ALL WHITE PROXY CARDS TO ENSURE THAT ALL OF YOUR SHARES ARE VOTED.
16. Q. WHO WILL COUNT THE VOTES?
A. Representatives of IVS Associates, Inc., an independent tabulator
appointed by the Board of Directors, will count the votes and act as
inspectors of election. The inspectors of election shall have the
authority to receive, inspect, electronically tally and determine the
validity of proxies received.
17. Q. HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A. Other than those items described in this Proxy Statement, we do not know
of any business to be conducted at the Annual Meeting. However, if any
other business is properly presented, your signed WHITE proxy card gives
authority to each member of the Proxy Committee to vote or refrain from
voting on such matters at his discretion.
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18. Q. HOW DO I VOTE IF I PARTICIPATE IN THE EMPLOYEE STOCK PURCHASE PLAN OR THE
BEVERLY ENTERPRISES, INC. 401(K) SAVINGSPLUS PLAN?
A. Computershare, as administrator of the Employee Stock Purchase Plan, is
the record holder of the shares held in BEI's Employee Stock Purchase
Plan. If you are a participant in the Employee Stock Purchase Plan, your
shares are held in a nominee position with Computershare's broker dealer,
Merrill Lynch. Computershare will seek instructions from you on how to
vote and convey those instructions to Merrill Lynch, who in turn will
vote your shares.
Similarly, Diversified Investment Advisors, as recordkeeper of the
Beverly Enterprises, Inc. 401(k) SavingsPlus Plan, is the record holder
of the shares held in the plan. If you are a participant in the Beverly
Enterprises, Inc. 401(k) SavingsPlus Plan, your shares are held in a
nominee position with Investors Bank and Trust, the 401(k) Plan trustee.
Diversified Investment Advisors will seek instructions from you on how to
vote and convey those instructions to Investors Bank and Trust, who in
turn will vote your shares.
19. Q. WHO CAN ATTEND THE ANNUAL MEETING?
A. Admission to the Annual Meeting is limited to stockholders of BEI,
persons holding validly executed proxies from stockholders who held BEI
common stock at the close of business on March 7, 2005, and invited
guests of BEI.
If you are a stockholder of BEI, you must bring certain documents with
you in order to be admitted to the Annual Meeting. The purpose of this
requirement is to help us verify that you are actually a stockholder of
BEI. Please read the following rules carefully, because they specify the
documents that you must bring with you to the Annual Meeting in order to
be admitted. The items that you must bring with you differ depending upon
whether you are a record holder or hold your stock in "street name".
Proof of ownership of BEI common stock must be shown at the door. Failure
to provide adequate proof that you were a stockholder on the record date
may prevent you from being admitted to the Annual Meeting.
IF YOU WERE A RECORD HOLDER OF BEI COMMON STOCK ON MARCH 7, 2005, THEN
YOU MUST BRING A VALID GOVERNMENT-ISSUED PERSONAL IDENTIFICATION (SUCH AS
A DRIVER'S LICENSE OR PASSPORT).
IF A BROKER WAS THE RECORD HOLDER OF YOUR SHARES OF BEI COMMON STOCK ON
MARCH 7, 2005, THEN YOU MUST BRING:
- Valid government-issued personal identification (such as a driver's
license or passport); and
- Proof that you beneficially owned shares of BEI common stock at the
close of business on March 7, 2005.
Examples of proof of beneficial ownership include the following (1) a
letter from your bank or broker stating that you owned BEI common stock
on March 7, 2005; (2) a brokerage statement indicating that you owned BEI
common stock on March 7, 2005; or (3) a copy of the voting instruction
card provided by your broker indicating that you owned BEI common stock
on March 7, 2005.
IF YOU ARE A PROXY HOLDER FOR A STOCKHOLDER OF BEI, THEN YOU MUST BRING:
- The validly executed proxy naming you as the proxy holder, signed by a
stockholder of BEI who owned shares of BEI common stock on March 7,
2005;
- Valid government-issued personal identification (such as a driver's
license or passport); and
- If the stockholder whose proxy you hold was not a record holder of BEI
common stock on March 7, 2005, proof of the stockholder's beneficial
ownership of shares of BEI common stock on March 7, 2005, in the form
of a letter or statement from a broker or the voting instruction card
provided by the broker, in each case indicating that the stockholder
owned BEI common stock on March 7, 2005.
6
You may not use cameras, recording equipment or other electronic devices
during the Annual Meeting.
20. Q. WHEN ARE THE STOCKHOLDER PROPOSALS FOR THE 2006 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 November ,
2005. They should be sent to the CORPORATE SECRETARY, BEVERLY
ENTERPRISES, INC., ONE THOUSAND BEVERLY WAY, FORT SMITH, AR 72919.
Additionally, BEI's advance notice by-law provision requires that any
stockholder proposal to be presented from the floor of the 2006 Annual
Meeting be received by the Corporate Secretary at least seventy-five (75)
days before the meeting. It is currently expected that the 2006 Annual
Meeting will be held on April 20, 2006. If this is the date set by the
Board, stockholder proposals to be presented from the floor will be due
by February 4, 2006. Proposals may be presented from the floor only after
a determination has been made that it is a proper matter for
consideration.
21. Q. CAN A STOCKHOLDER RECOMMEND SOMEONE TO BE A NOMINEE FOR ELECTION AS A
DIRECTOR AT THE 2006 ANNUAL MEETING?
A. As a stockholder, you may recommend any person to be a nominee for
director by writing to the Chairman of the Nominating and Compensation
Committee of the Board, c/o the Corporate Secretary at BEI's address
above. The recommendations must be received by BEI no later than the date
by which stockholder proposals must be received to be considered for
inclusion in the proxy statement, which is the first date set forth in
Question and Answer 20 above. Each recommendation must be accompanied in
writing by the following information:
- name and address of the stockholder recommending the nomination;
- a representation that the stockholder recommending the nomination is a
record holder;
- a representation that the stockholder recommending the nomination
intends to appear in person or by proxy at the Annual Meeting to
nominate the person or persons specified;
- information regarding each recommended potential director nominee that
would be required to be included in a proxy statement;
- a description of any arrangements or understandings between the
stockholder recommending the nomination and the recommended potential
director nominee; and
- the consent of each recommended potential director nominee to serve as
a director, if elected.
22. Q. ARE THERE ANY SPECIFIC, MINIMUM QUALIFICATIONS FOR DIRECTOR NOMINEES?
A. The Nominating and Compensation Committee of the Board has established
certain criteria it considers as a guideline in considering nominations
to BEI's Board of Directors. The criteria include: character, knowledge,
experience, education, business judgment, diligence, stock ownership,
independence, loyalty, reputation and ability to contribute to board
balance and diversity. These criteria are not exhaustive, and the
Nominating and Compensation Committee and the Board of Directors may
consider other qualifications and attributes which they believe are
appropriate in evaluating the ability of an individual to serve as a
member of the Board of Directors.
23. Q. WHAT IS THE NOMINATING AND COMPENSATION COMMITTEE'S PROCESS OF
IDENTIFYING AND EVALUATING NOMINEES?
A. Prior to each Annual Meeting of stockholders at which directors are to be
elected, and whenever there is otherwise a vacancy on the Board of
Directors, the Nominating and Compensation Committee will consider
incumbent Board members and other well-qualified individuals as potential
director nominees. The Nominating and Compensation Committee will
determine whether to retain an executive search firm to identify Board
candidates. If an executive search firm is retained, the Nominating and
Compensation Committee will select the search firm, approve the search
firm's fees
7
and other retention terms and specify for the search firm the criteria to
use in identifying potential candidates consistent with the director
qualification criteria described above. The Nominating and Compensation
Committee will review each potential candidate. Management may assist the
Nominating and Compensation Committee in the review process at the
Committee's direction. The Nominating and Compensation Committee will
select the candidate or candidates it believes are the most qualified to
recommend to the Board for selection as a director nominee. Candidates
recommended by a security holder will be evaluated in the same manner as
candidates identified by the Nominating and Compensation Committee.
With the exception of Melanie Creagan Dreher, Ph.D., each of the nominees
for election as a director at the 2005 Annual Meeting was elected at the
Annual Meeting of stockholders held in 2004. Dr. Dreher was initially
identified as a potential candidate by a professional search firm. The
qualifications of Dr. Dreher were then reviewed by the members of the
Nominating and Compensation Committee. All of the BEI nominees are
recommended by the Nominating and Compensation Committee to stand for
election by the stockholders.
24. Q. WHO IS SOLICITING MY PROXY?
A. Under applicable regulations of the SEC, each of our directors, certain
officers of BEI and certain other persons may be deemed to be
"participants" in BEI's solicitations of proxies in connection with the
Annual Meeting. For information with respect to each participant in BEI's
solicitation of proxies in connection with the Annual Meeting, please
refer to (i) the table of security ownership of directors and executive
officers under the heading "Security Ownership of Certain Beneficial
Owners and Management", (ii) the discussion under the headings "Executive
Compensation" and "Employment Contracts, Termination of Employment and
Change in Control Agreements", and (iii) Schedules I and II to this Proxy
Statement.
For additional information regarding BEI's solicitation of proxies,
please see "Solicitation of Proxies" below.
25. Q. HOW CAN I OBTAIN COPIES OF BEI'S PERIODIC AND CURRENT REPORTS FILED WITH
THE SEC?
A. Our periodic and current reports are available, free of charge, on BEI's
website at http://www.beverlycorp.com(1) as soon as reasonably
practicable after such material is electronically filed with, or
furnished to, the SEC.
26. Q. HOW CAN I OBTAIN COPIES OF BEI'S CORPORATE GOVERNANCE GUIDELINES, AUDIT
AND COMPLIANCE COMMITTEE CHARTER AND NOMINATING AND COMPENSATION
COMMITTEE CHARTER?
A. Our Corporate Governance Guidelines, Audit and Compliance Committee
Charter and Nominating and Compensation Committee Charter are available,
free of charge, on BEI's website at http://www.beverlycorp.com. We will
also provide copies of these documents in printed form at the request of
any stockholder.
27. Q. HAS BEI ADOPTED A CODE OF BUSINESS CONDUCT AND ETHICS, AND IF SO, HOW CAN
I OBTAIN A COPY?
A. In early 2004, we adopted an amended and restated Code of Business
Conduct and Ethics that applies to all of our employees, officers and
directors, and a Code of Ethics for Senior Financial Officers that
applies to our principal executive officer, principal financial officer,
controller and other persons serving similar functions. Each of these
codes is available, free of charge, on BEI's website at
http://www.beverlycorp.com. We will also provide a copy in printed form
at the request of any stockholder.
---------------
(1) The references to BEI's website address in this Proxy Statement are not
intended to function as a hyperlink, and the information contained on BEI's
website is not a part of this Proxy Statement.
8
28. Q. DOES BEI'S BOARD OF DIRECTORS PROVIDE A PROCESS FOR STOCKHOLDERS TO SEND
COMMUNICATIONS TO THE BOARD?
A. Stockholders may send correspondence to the Board of Directors c/o the
Corporate Secretary at One Thousand Beverly Way, Fort Smith, Arkansas
72919. The Corporate Secretary will review all correspondence addressed
to the Board or to any individual Board member. The Corporate Secretary
will determine whether correspondence should be forwarded to the Board or
would be more appropriately answered by management. The Corporate
Secretary will summarize all correspondence not forwarded to the Board
and make the summaries of the correspondence periodically available to
the Board for its review. At the Board's request, the Corporate Secretary
will provide the Board with the actual correspondence underlying the
summaries.
29. Q. DO I HAVE DISSENTERS' RIGHTS?
A. No dissenters' rights apply to any matter to be acted upon at this
meeting.
9
BACKGROUND
On December 16, 2004, Arnold M. Whitman, the Chief Executive Officer of
Formation Capital, called William R. Floyd, our Chairman, President and Chief
Executive Officer, and expressed an interest in a possible transaction involving
BEI.
On December 27, 2004, Mr. Floyd received a letter, dated December 22, 2004,
from Formation Capital expressing an interest by Formation Capital, Appaloosa
Management L.P. and Franklin Mutual Advisers, LLC in acquiring BEI for $11.50
per share. The letter also suggested that this group would be prepared to
discuss a transaction involving the purchase of our real estate assets and
nursing facilities operations, leaving BEI with its ancillary service
businesses. In its letter, Formation Capital indicated that this group owned
approximately 4.5% of our outstanding common stock. The letter also indicated
that the proposal was being provided to BEI on a confidential basis and that
Formation Capital expected that BEI would not disclose the proposal to anyone
other than BEI's Board and advisors.
Mr. Floyd promptly forwarded this letter to the entire Board and convened a
Board meeting on December 30, 2004 to discuss the letter. Following that
meeting, we retained Latham & Watkins LLP and Lehman Brothers Inc. as our legal
and financial advisors, respectively, to assist the Board in fully evaluating
the December 22 letter. Subsequently, we also retained J.P. Morgan Securities
Inc. as a financial advisor.
On January 5, 2005, and in subsequent telephone conversations, Mr. Floyd
advised Mr. Whitman that -- consistent with its fiduciary obligations and acting
in good faith -- the BEI Board would meet to carefully consider the
Whitman/Appaloosa group's expression of interest in an acquisition of BEI at a
special meeting in late January.
Mr. Whitman called Mr. Floyd during the week of January 10, 2005. During
this conversation, Mr. Floyd informed Mr. Whitman that the BEI Board would be
meeting the following week and Mr. Whitman told Mr. Floyd that he might like to
provide further information for the BEI Board to consider with respect to the
transactions described in Formation Capital's December 22 letter. Mr. Floyd
urged Mr. Whitman to provide that information quickly so the Board would have
sufficient time to carefully review the information in connection with its
evaluation of the December 22 letter.
Our Board met again on January 21, 2005 to consider the Whitman/Appaloosa
group's December 22 letter. Mr. Floyd did not receive any additional information
from the Whitman/Appaloosa group prior to his departure for the meeting.
At the January 21 Board meeting, the Board adopted a policy to hold BEI's
Annual Meeting of Stockholders as early as practicable in each calendar year
and, in particular, to hold our 2005 Annual Meeting on April 21, 2005. In our
announcement, we stated that the meeting had been moved closer to the
announcement of 2004 annual results and the anticipated filing of our Form 10-K
with the SEC, which is expected to be on March 15. This policy was adopted
prospectively because the BEI Board believes that holding the annual meeting
closer to the recently accelerated deadline for filing of our annual report with
the SEC represents an important expression of good corporate governance practice
in that, among other things, it is consistent with the SEC's acceleration of
year-end filing of Form 10-K. In adopting this policy, the BEI Board intended
that BEI hold its annual meeting as early as practicable every year, including
in 2005, without regard to whether there is or would be a proxy contest in any
given year. Additionally, one of the important factors that the Board took into
account in adopting this policy was that holding our annual meeting in April
would shorten the amount of time the members of the Whitman/Appaloosa group
would have to notify us of director nominations or stockholder proposals to be
presented from the floor of the meeting. Accordingly, we disclosed the new
deadline in our press release announcing the date of the annual meeting. The
Board did not believe that this change would preclude stockholders, including
members of the Whitman/Appaloosa group, from nominating directors or notifying
us of proposals to be presented from the floor of the meeting, and it did not,
in fact, prevent Mr. Whitman from taking either of these actions.
When Mr. Floyd returned from the Board meeting on the afternoon of January
21, 2005, he received a second letter from Mr. Whitman dated January 19, 2005.
This second letter reiterated Formation Capital's
10
interest in acquiring BEI for $11.50 per share, subject to the terms and
conditions contained in Mr. Whitman's earlier letter (which included, among
other things, completion of business, regulatory, legal and accounting due
diligence). Mr. Whitman also indicated that, as stated in his prior letter,
Formation Capital would be prepared to discuss a transaction in which the
Whitman/Appaloosa group would acquire our real estate assets and nursing
facilities operations, leaving BEI with its ancillary service businesses.
Specifically, Mr. Whitman indicated that, subject to completion of business,
regulatory, legal and accounting due diligence, the Whitman/Appaloosa group was
prepared to pay $9.00 per share in cash for our nursing operations and assume
all liabilities not related to our ancillary service businesses. The January 19
letter also suggested that Formation Capital believed the company comprised of
the ancillary service businesses would trade at approximately a valuation of
$4.00 per share and that the Whitman/Appaloosa group would enter into
contractual agreements whereby BEI would continue to provide ancillary services
to the acquired nursing facilities. Mr. Whitman's January 19 letter again
indicated that the proposal was being provided to BEI on a confidential basis
and that he expected that BEI would not disclose the proposal to anyone other
than BEI's Board and advisors.
This second letter necessitated an entirely new round of review by our
Board and its outside legal and financial advisors to evaluate the additional
information contained in the January 19 letter regarding the alternative
acquisition structure described in the letter. On January 24, 2004, Mr. Floyd
sent Mr. Whitman a letter informing him that the Board would meet again to
consider this second letter and that he expected to respond during the first
week of February.
Both of Mr. Whitman's letters professed a desire for a friendly transaction
and specifically requested that we treat their indications of interest
confidentially, a request that BEI honored. However, on January 24, 2005, Mr.
Whitman, Appaloosa, Formation Capital, Franklin and Northbrook NBV, LLC, among
others, filed a Schedule 13D with the SEC explaining that they had acquired over
8% of our common stock and disclosing their December 22 and January 19 letters
and their intent to gain control of BEI.
Importantly, their Schedule 13D filing was triggered by the
Whitman/Appaloosa group's accumulation of more than 5% of our shares in the open
market. In fact, based upon the buying history described in their Schedule 13D,
they knew on January 14 that they would be forced to make public disclosure of
their proposals no later than January 24. Mr. Whitman's January 19 letter,
nonetheless continued to express a desire to keep the Whitman/Appaloosa group's
indications of interest confidential.
On January 25, 2005, in light of the rapid accumulation of our shares by
the Whitman/Appaloosa group, our Board adopted a Share Purchase Rights Plan to
protect our stockholders from the obvious threat of additional stock
accumulations.
On January 27, 2005, we received a letter from a lawyer for the
Whitman/Appaloosa group indicating that they might propose a slate of directors
for election at the Annual Meeting.
Our Board met again on the evening of February 2, 2005 to consider the
transactions described in Mr. Whitman's January 19 letter. On February 3, 2005,
Mr. Floyd faxed Mr. Whitman a letter informing him that the BEI Board
had -- after consultation with its independent financial and legal
advisors -- unanimously concluded that the transactions described in his
December 22 and January 19 letters are not in the best interests of BEI or our
stockholders.
In reaching these conclusions, the Board took into account its confidence
in BEI's strategic plan and business segment growth initiatives, including
continued growth of the ancillary service businesses as part of a single company
with our skilled nursing business, and its belief that management will continue
to deliver on its commitments to stockholders. The Board also took into account
the operating and financial progress BEI has achieved in recent years,
including, among other things:
- Between December 31, 2000 and September 30, 2004, we increased cash and
cash equivalents, on a consolidated basis, from approximately $26 million
to approximately $207 million. The September 30, 2004 amount includes
cash of approximately $56 million related to our subsidiaries that are
not guarantors of our 7 7/8% Senior Subordinated Notes;
11
- From December 31, 2000 to September 30, 2004, we reduced our long-term
debt (including current portion) from approximately $1 billion to
approximately $570 million. These amounts include off-balance sheet
obligations, if any, and obligations of our direct and indirect wholly
owned subsidiaries, but do not include other current or long-term
liabilities on our balance sheet; and
- From December 31, 2000 to September 30, 2004, through greater management
focus on improving collections, including implementation of new systems
and centralization of Medicare collections, we reduced our skilled
nursing patient receivables from approximately $495 million to
approximately $181 million. On a same facility basis (facilities
operating at both December 31, 2000 and September 30, 2004), our skilled
nursing receivables declined approximately 41% from $296.8 million at
December 31, 2000.
The BEI Board also took into account that, under the current management
team:
- the price of BEI's common stock has more than quadrupled between January
2003 (the beginning of the first quarter following our announcement of a
two-year divestiture program that was intended to, and did, result in a
significant reduction in projected patient care liability costs) and
January 21, 2005 (the last trading day prior to the public disclosure of
the Formation Capital letters);
- EBITDA(2) from continuing operations (on a comparable basis) has more
than tripled in the past four years; and
- BEI has developed innovative clinical services, including for Alzheimer's
patients, and focused on delivering quality care for the elderly, which
the BEI Board believes will result in competitive advantages for BEI as
it continues to implement its strategic plan.
As BEI has stated on many occasions, it believes that the value of our
ancillary service businesses is enhanced by being part of a single organization
with our skilled nursing business and that this combination
---------------
(2) We define EBITDA as earnings from continuing operations before interest
expense (including costs related to early extinguishments of debt), interest
income, income taxes, depreciation and amortization. The BEI Board looks to
EBITDA in considering management's performance because EBITDA is commonly used
by our lenders and investors to assess our leverage capacity, debt service
ability and liquidity, and we use EBITDA to evaluate financial performance and
to design incentive compensation for management. EBITDA is not considered a
measure of financial performance under U.S. generally accepted accounting
principles ("GAAP"), and the items excluded from EBITDA are significant
components in understanding and assessing our financial performance. EBITDA
should not be considered as an alternative to net income, cash flows provided by
or used in operating, investing or financing activities or other financial
statement data presented in our consolidated financial statements as an
indicator of financial performance or liquidity. Since EBITDA is not a measure
determined in accordance with GAAP and is thus susceptible to varying
calculations, EBITDA, as presented, may not be comparable to other similarly
titled measures of other companies.
EBITDA has limitations as an analytical tool, and you should not consider
it in isolation or as a substitute for analysis of our results as reported under
GAAP. Some of these limitations are:
- EBITDA does not reflect our cash expenditures, or future requirements,
for capital expenditures or contractual commitments;
- EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
- EBITDA does not reflect interest expense, or the cash requirements
necessary to service interest or principal payments, on our debt; and
- although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the
future, and EBITDA does not reflect any cash requirements for such
replacements.
Because of these limitations, EBITDA should not be considered as a
measure of discretionary cash available to us to invest in the growth of our
business. We compensate for these limitations by relying primarily on our GAAP
results and using EBITDA only supplementally.
12
reflects a core element of our strategic plan. Accordingly, the Board took into
account its belief that separating those businesses would create significant
risks for the standalone services company, including its reliance on the
separated skilled nursing business for a substantial portion of its revenue
stream, as well as requiring the ancillary service businesses to incur costs
related to operation as a standalone public company.
Additionally, the Board took into account its serious concerns regarding
the highly contingent nature of the proposals, including that:
- the Whitman/Appaloosa group did not have a commitment letter with respect
to the debt financing that would be required to complete an acquisition
of BEI;
- even if the Whitman/Appaloosa group were to receive a commitment letter
with respect to debt financing, it would almost certainly be subject to
numerous qualifications and conditions, which would likely include both
customary financing conditions and conditions specifically related to the
complex multi-property real estate financing the BEI Board believes would
be required to finance the Whitman/ Appaloosa group's proposal for an
acquisition of BEI. For example, as disclosed in Mariner Health Care,
Inc. public filings, even after the acquirer of Mariner, another operator
of skilled nursing facilities, conducted almost two months of due
diligence (as compared with the 30 days of due diligence the
Whitman/Appaloosa group indicated it required in its December 22 letter),
the debt commitment letter provided to the acquirers of Mariner was
conditioned upon, among other things, real estate, healthcare and legal
and financial due diligence acceptable to the lender;
- exploration of even the feasibility of the financing required to complete
either of the transactions would require protracted and undefined due
diligence that would disrupt our operations;
- rising interest rates and attendant changes in the capital markets
(including the availability and cost of leveraged financing, based on
either cash flows or real estate assets) create additional uncertainty
with respect to the ability to obtain the required debt financing;
- the proposed prices suggested in the two letters are subject to, among
other things, the Whitman/ Appaloosa group's completion of business,
regulatory, legal and accounting due diligence;
- while the letters suggest that the Whitman/Appaloosa group might raise
the proposed purchase price, the terms of their letters are not binding
and the group may attempt to lower their proposed purchase price; and
- the indications of interest by the Whitman/Appaloosa group were also
subject to negotiation of definitive documentation as described in the
December 22 letter.
The BEI Board also took into account its belief that neither of the
alternative transaction structures, as presented, could be successfully financed
within the terms of the indications of interest. In particular, the Board took
into account Formation Capital's statement that the Whitman/Appaloosa group had
only $375 million in committed equity financing.
Additionally, the Board took into account its concerns about the
willingness of the Whitman/Appaloosa group to deal with BEI in a forthright
manner after we had received two letters requesting that BEI maintain the
confidentiality of the group's proposals -- particularly in light of the fact
that when the group sent its second letter on January 19 they knew they would
publicly disclose their proposals no later than January 24.
Finally, the Board believes that this group's two preliminary and highly
conditional indications of interest significantly undervalue BEI. The Board has
consulted with its financial advisors who have provided guidance and assistance
to the Board in analyzing BEI's historical financial statements, its stock
market prices over the past several years and other financial measures of
performance, including, but not limited to, cash flows and comparisons with
comparable companies. The Board has also considered BEI's own strategic plan and
prospects for future growth on a standalone basis.
Mr. Whitman's nomination of an opposition slate of directors, as well as
his proposal of a number of additional matters for approval by the BEI
stockholders at the Annual Meeting, is designed solely to further the
Whitman/Appaloosa group's attempt to take over BEI.
13
Your Board has unanimously concluded that the transactions proposed by the
Whitman/Appaloosa group are not in the best interests of BEI or our
stockholders. Accordingly, your Board unanimously recommends you vote:
- "FOR" the BEI director nominees; and
- "AGAINST" items 3-5 on the enclosed WHITE proxy card.
14
PROPOSALS ON WHICH YOU MAY VOTE
1. ELECTION OF DIRECTORS
All of the eight current directors of BEI have been nominated for
re-election. Detailed information on each BEI nominee is provided beginning on
page . Each director is elected annually and serves a one-year term until the
next Annual Meeting or until his or her successor is elected and qualified.
Except as otherwise specified on your WHITE proxy card, proxies will be voted
for the election of all BEI nominees.
If for any reason any of the BEI director nominees should become
unavailable for election (an event that the Board does not anticipate), the
proxy will be voted for the election of such substitute nominee as may be
designated by the Board.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH BEI
NOMINEE AS A DIRECTOR.
2. RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2005
The Audit and Compliance Committee has appointed, and the Board has
ratified the appointment of, Ernst & Young LLP as our independent registered
public accounting firm for 2005. Ernst & Young LLP has 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 and
will be available to answer appropriate questions. They may also make a
statement if they desire to do so.
AUDIT FEES
Ernst & Young LLP fees for the 2004 annual audit and the 2003 annual audit
were $1,684,000 and $1,292,000, respectively, including fees associated with
Sarbanes-Oxley 404 attestation procedures, reviews of BEI's quarterly reports on
Form 10-Q and consents on registration statements filed with the SEC in 2003 and
2004.
AUDIT-RELATED FEES
Ernst & Young LLP fees for audit-related services in 2004 and 2003 were
$1,158,000 and $668,000, respectively. Audit-related services generally include
employee benefit plan audits, statutory and affiliate audits, agreed-upon
compliance attestation procedures under BEI's Corporate Integrity Agreement with
the Office of Inspector General, due diligence procedures performed in
connection with acquisitions or potential acquisitions, and consultations on
accounting and financial reporting matters.
TAX FEES
Ernst & Young LLP fees for tax services in 2004 and 2003 were $290,000 and
$30,000, respectively. Tax services rendered to BEI primarily include tax return
compilation reviews, state tax planning assistance and consultations on tax
matters.
ALL OTHER FEES
There were no other Ernst & Young LLP fees incurred in 2004 and 2003.
The Audit and Compliance Committee has determined that the provision of
these services is compatible with maintaining Ernst & Young LLP's independence.
PRE-APPROVAL POLICY FOR AUDIT AND NON-AUDIT SERVICES PERFORMED BY INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit and Compliance Committee's policy is to pre-approve all audit and
permissible non-audit services provided by the independent registered public
accounting firm. These services may include audit services, audit-related
services, tax services and other services. The Audit and Compliance Committee is
provided sufficient detail regarding each service to be pre-approved to enable
it to determine whether providing such service might impair the independence of
the independent registered public accounting firm.
15
Pre-approval is provided periodically as determined necessary and any
pre-approval is detailed as to the particular service or category of services
and generally subject to a budget or fee range, but only for purposes of
authorizing payment. Interpretations as to whether a particular service to be
provided falls within the definition of a service that has already been
pre-approved shall be made by the Audit and Compliance Committee or its
delegate. Management and the independent registered public accounting firm are
required to report periodically to the Audit and Compliance Committee regarding
the extent of services provided by the independent registered public accounting
firm in accordance with this pre-approval. The Audit and Compliance Committee
may also pre-approve particular services on a case-by-case basis. The Audit and
Compliance Committee has delegated pre-approval authority to the Chairperson of
the Committee, and the Chairperson must report, for informational purposes only,
any pre-approval decisions to the Audit and Compliance Committee at its next
scheduled meeting.
The Audit and Compliance Committee has the sole responsibility for
selecting BEI's independent registered public accounting firm, and stockholder
ratification is not required. However, the selection is being submitted for
ratification by the stockholders solely for the purpose of soliciting the
stockholders' opinion of the Audit and Compliance Committee's selection of the
independent registered public accounting firm. While it is the Audit and
Compliance Committee's present intention to take the opinion of the stockholders
into consideration in its future deliberations with respect to the selection of
an independent registered public accounting firm, it may decide not to do so. In
any event, the Audit and Compliance Committee may engage or terminate the
engagement of Ernst & Young LLP or any other accounting firm as BEI's
independent registered public accounting firm as it determines is necessary or
appropriate in its sole discretion, regardless of the outcome of the
stockholders' vote on Item 2 or any other vote of the stockholders taken at any
time or in any other manner.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF ERNST &
YOUNG LLP'S APPOINTMENT AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
2005.
16
BEI NOMINEES FOR THE BOARD OF DIRECTORS
The following table sets forth, as of the Record Date, certain information
regarding the BEI directors, each of whom has been nominated for re-election by
the Nominating and Compensation Committee:
NAME OF DIRECTOR/NOMINEE POSITION AGE DIRECTOR SINCE
------------------------ -------- --- --------------
William R. Floyd.......................... Chairman of the Board, President, 60 July 2000
Chief Executive Officer and
Director
Melanie Creagan Dreher, Ph.D. ............ Director 61 August 2004
John D. Fowler, Jr. ...................... Director 47 February 2002
John P. Howe, III, M.D. .................. Director 61 July 2001
James W. McLane........................... Director 66 October 2000
Ivan R. Sabel............................. Director 59 March 2004
Donald L. Seeley.......................... Director 60 April 2002
Marilyn R. Seymann, Ph.D. ................ Director 62 March 1995
Mr. Floyd joined us in April 2000 as President and Chief Operating Officer.
Mr. Floyd was appointed Chief Executive Officer in February 2001 and Chairman of
the Board in December 2001. From 1996 to 1998, Mr. Floyd was Chief Executive
Officer of Choice Hotels International, Inc., and from 1995 to 1996, he was
Chief Operating Officer of Taco Bell Corporation.
Dr. Dreher has been the Kelting Dean and a professor at The University of
Iowa College of Nursing since 1997. Dr. Dreher also serves as Academic Director
for Clinical Practice in the Department of Nursing and Patient Services at The
University of Iowa Hospital and Clinics and is a member of the board of Wellmark
Health Plan of Iowa. From 2000 to 2001, Dr. Dreher was an advisory board member
for the Pfizer Fellowship Program in Nursing Research.
Mr. Fowler has been the Vice Chairman of Deutsche Bank Securities, Inc.
since November 2004 and a Visiting Professor at the University of South Dakota
School of Business since January 2004. During 2004, Mr. Fowler was Managing
Director of Baycrest Capital, LLC, a private equity investment and advisory
firm, and Managing Director of Bio-Strategic Directors, LLC. From 2001 to 2003,
Mr. Fowler was President and a director of Large Scale Biology Corporation. From
1998 to 2001, Mr. Fowler was a Managing Director in JPMorgan & Co.'s Healthcare
Group and from 1992 to 1998, he was Managing Director and Head of Salomon
Brothers Inc.'s Healthcare Group. Mr. Fowler is also a director of Project Reach
Youth.
Dr. Howe, III has been the President and Chief Executive Officer of Project
Hope since 2001. From 1985 to 2001, Dr. Howe, III was President of The
University of Texas Health Center at San Antonio. Dr. Howe, III is also a
director of Southwest Foundation for Biomedical Research and BB&T Corporation.
Mr. McLane has been a Director of Healthaxis Inc. since August 2000, its
Chief Executive Officer since February 2001, and its Chairman since August 2001.
From 1997 until early 2000, Mr. McLane was President, Chief Operating Officer
and Director of NovaCare, Inc. Mr. McLane previously served as Executive Vice
President of Aetna, Inc. and as Chief Executive Officer of Aetna Health Plans.
Mr. McLane is also a director of Outward Bound USA and the Philadelphia Outward
Bound Center.
Mr. Sabel has been the Chairman of the Board and Chief Executive Officer of
Hanger Orthopedic Group, Inc. since August 1995. Mr. Sabel has held various
positions with Hanger Orthopedic Group, Inc. since 1987, including President,
Chief Operating Officer and Vice President, Corporate Development. Mr. Sabel has
previously served as a director of American Orthotic and Prosthetic Association,
Nursefinders, Inc. and Mid Atlantic Medical Services, Inc.
Mr. Seeley has been a Director of the Applied Investment Management Program
at the University of Arizona Department of Finance since June 2000. From 1997 to
2000, Mr. Seeley was Vice Chairman and Chief Financial Officer of True North
Communications. Mr. Seeley currently serves on the Board of Trustees of William
Blair Funds.
17
Dr. Seymann has been the President and Chief Executive Officer of M One,
Inc., a management, risk and governance consulting firm for financial
institutions, since January 1991. Dr. Seymann has been a director of Provide
Commerce, Inc., Maximus, Inc. and Eos International, Inc. Dr. Seymann is also
the founder and a director of The Arizona Foundation for Women, Inc., a
not-for-profit corporation.
INDEPENDENT DIRECTORS
The Board of Directors is composed of a majority of independent directors
who satisfy the independence standards set forth in the current listing
standards of The New York Stock Exchange, Inc. (the "NYSE"). Each of Messrs.
Fowler, McLane, Sabel and Seeley, as well as Drs. Howe, Dreher and Seymann,
satisfy these independence standards.
18
BOARD OF DIRECTORS -- COMMITTEES DURING 2004
The Board of Directors has the following standing committees: Audit and
Compliance Committee, Nominating and Compensation Committee, Quality Committee
and Finance Committee. Each of these committees is composed entirely of
independent directors in accordance with current NYSE listing standards.
Furthermore, each member of our Audit and Compliance Committee satisfies the
requirements of Section 10A-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the financial literacy and sophistication requirements
of the NYSE for membership on the Audit and Compliance Committee. At least one
member of the Audit and Compliance Committee is an audit committee financial
expert (as defined by the SEC). The membership of each of these standing
committees during 2004 was as follows:
AUDIT AND NOMINATING AND
NAME BOARD COMPLIANCE COMPENSATION QUALITY FINANCE
---- ----- ---------- -------------- ------- -------
William R. Floyd.......................... X*
Melanie Creagan Dreher, Ph.D. ............ X X
John D. Fowler, Jr. ...................... X X X* X
John P. Howe, III, M.D. .................. X X(a) X*
James W. McLane........................... X X X X*
Ivan R. Sabel............................. X X X X
Donald L. Seeley.......................... X X, E* X X
Marilyn R. Seymann, Ph.D. ................ X X(a) X
Number of Meetings in 2004.............. 12(b) 9(c) 11(d) 4(e) 1(f)
---------------
X Member
* Chairperson
E Audit committee financial expert
(a) Served on committee until May 20, 2004.
(b) During 2004, the Board of Directors held six meetings in person and six
telephonically.
(c) During 2004, the Audit and Compliance Committee held six meetings in person
and three telephonically.
(d) During 2004, the Nominating and Compensation Committee held six meetings in
person and five telephonically.
(e) During 2004, the Quality Committee held four meetings in person.
(f) During 2004, the Finance Committee held one meeting telephonically.
19
COMMITTEE FUNCTIONS
----------------------------------------------------------------------------------------------------------------------------
AUDIT AND - oversees financial reporting process
COMPLIANCE: - appoints, retains and oversees the work of independent registered public accounting firm
- reviews scope and results of audit plans and accounting practices
- oversees internal audit function
- oversees compliance function and reporting under the Corporate Integrity Agreement
- issues Audit and Compliance Committee Report (see p. )
----------------------------------------------------------------------------------------------------------------------------
NOMINATING AND - reviews and approves corporate goals and objectives relevant to the CEO compensation; evaluates CEO
COMPENSATION: performance and determines and approves CEO compensation
- reviews and makes recommendations to the Board with respect to compensation matters related to other
senior officers
- oversees compensation and benefits programs, plans, policies and practices
- approves goals for incentive and equity-based plans and evaluates performance
- issues Nominating and Compensation Committee Report (see p. )
- identifies and recommends candidates for election to Board
- establishes procedures and criteria for nomination
- develops and oversees corporate governance guidelines
- makes recommendations to the Board regarding governance matters
- makes recommendations to the Board regarding changes to BEI's certificate of incorporation, by-laws and
the charters of BEI's committees
- develops and recommends to the Board policies and procedures related to corporate governance
- oversees the evaluation of the Board and management
----------------------------------------------------------------------------------------------------------------------------
QUALITY: - oversees the development and monitoring of regulatory and compliance programs
- reviews the scope and results of various BEI quality reports
- reports progress to the Board
----------------------------------------------------------------------------------------------------------------------------
FINANCE: - reviews issues related to BEI financial matters
- reports and makes recommendations to the Board
----------------------------------------------------------------------------------------------------------------------------
BOARD OF DIRECTORS MEETINGS AND ATTENDANCE AT BOARD AND COMMITTEE MEETINGS AND
ANNUAL MEETINGS OF STOCKHOLDERS
Each director attended at least 75% of all meetings of the Board and any
committees on which the director served. Directors are encouraged to attend the
Annual Meeting of stockholders of BEI. All of the nine then-sitting directors
attended the 2004 Annual Meeting except Dr. Seymann.
Each of the Audit and Compliance Committee and the Nominating and
Compensation Committee meet at regularly scheduled executive sessions without
management. The Chairperson of each of these committees presides over these
sessions. In addition, the non-management directors meet at regularly scheduled
executive sessions. The presiding director at those executive sessions is
selected by a majority of the non-management directors and alternates from
meeting to meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2004, John D. Fowler, Jr., James W. McLane, Ivan R. Sabel and
Marilyn R. Seymann, Ph.D. served as members of the Nominating and Compensation
Committee of the Board of Directors. John P. Howe, III, M.D., also served on the
Compensation Committee until May 20, 2004. None of these persons is or has been
an officer or employee of BEI or any of its subsidiaries. In addition, during
2004, none of BEI's
20
executive officers served on the board of directors or compensation committee
(or committee performing similar functions) of any other company that had one or
more executives serving on BEI's Board of Directors or Nominating and
Compensation Committee.
21
BOARD OF DIRECTORS -- COMPENSATION
HOW WAS THE BOARD COMPENSATED IN 2004?
- William R. Floyd, BEI's sole employee director, received no compensation
for serving on the Board, other than expense reimbursement. Mr. Floyd
also receives a salary in connection with his position as BEI's Chairman
of the Board, President and Chief Executive Officer.
- In 2004, non-employee directors, as a group, received $366,605 in cash,
$256,100 credited as deferred share units, which, until May 20, 2004,
included a 25% BEI match, and $18,562 credited as deferred cash units.
This compensation was paid based on the following:
CATEGORY PARTICIPATION FEES(D)
-------- ---------------------
Annual retainer fee......................................... $ 35,000
Additional annual retainer fee for Chairperson of Audit and
Compliance Committee and Nominating and Compensation
Committee (June-December)(a)................................ $ 15,000
Additional annual retainer fee for Chairperson of Finance
Committee and Quality Committee (June-December)(a).......... $ 10,000
Attendance at Board or Committee meetings (January-May)..... $1,000/500(e)
Attendance at Board meeting (June-December)................. $1,500/750(e)
Attendance at Committee meeting (June-December)............. $1,250/625(e)
Attendance at Committee meeting -- Chairperson
(January-May)(b).......................................... $1,000/500(e)
Expense reimbursement....................................... Out of pocket costs
RESTRICTED SHARES(C) VALUE AT TIME OF GRANT
-------------------- ----------------------
15,385 shares............................................... $120,000
---------------
(a) The respective Chairpersons were paid a prorated amount of the annual
retainer fee in 2004.
(b) The Committee Chairperson received this amount in addition to the amount
received for attendance at Committee meetings generally. This per meeting
fee was replaced in June 2004 by the annual retainer fee referred to in
footnote (a).
(c) In accordance with the Non-Employee Directors' Stock Option Plan,
non-employee directors receive annual restricted shares grant equal to
$120,000, as determined based on the closing share price on the date of the
Board meeting held in conjunction with the Annual Meeting. Dr. Dreher
received 11,688 shares, pro rated from August when she joined the Board.
Directors may choose to defer the grant of all or a portion of these
shares. Deferred restricted shares are designated as phantom stock units.
Each phantom stock unit has an initial value equivalent to one share of BEI
common stock and directly tracks the increase or decrease in value of BEI's
common stock. Distributions will be made in shares of BEI common stock, and
will start upon retirement, termination, death or disability and can be
made, at the director's option, in a lump sum or over a period of two to 10
years.
(d) In accordance with the Non-Employee Director Deferred Compensation Plan,
non-employee directors are permitted to defer all or a portion of their
cash compensation. Deferred compensation is designated as phantom stock
units, cash units or a combination of both. Each phantom stock unit has an
initial value equivalent to one share of BEI common stock and directly
tracks the increase or decrease in value of BEI's common stock. Cash units
accrue interest at the prime rate, as determined by a major New York bank,
on the first business day of the year. All of the deferred cash in 2004
constituted interest earned on cash deferred in previous years.
Distributions will be made in shares of BEI common stock, and will start
upon retirement, termination, death or disability and can be made, at the
director's option, in a lump sum or over a period of two to 10 years.
(e) If two amounts are shown, the first amount represents the participation fee
if the non-employee director attended the applicable meeting in the manner
in which attendance was requested, while the second amount represents
attendance in any other manner.
22
EXECUTIVE OFFICERS
The following table sets forth certain information regarding BEI's
executive officers as of the Record Date:
NAME POSITION AGE
---- -------- ---
William R. Floyd.......................... Chairman of the Board, President, Chief 60
Executive Officer and Director
Douglas J. Babb........................... Executive Vice President and Chief 52
Administrative and Legal Officer
David R. Devereaux........................ Executive Vice President and Chief 42
Operating Officer -- Nursing Facilities
Jeffrey P. Freimark....................... Executive Vice President, Chief Financial 49
and Information Officer
Cindy H. Susienka......................... Executive Vice President and Chief 45
Operating Officer -- Aegis and AseraCare
Patrice K. Acosta......................... Senior Vice President -- Quality of Life 48
Programs
Pamela H. Daniels......................... Senior Vice President, Controller and Chief 41
Accounting Officer
Lawrence Deans............................ Senior Vice President -- Human Resources 53
James M. Griffith......................... Senior Vice President -- Investor Relations 62
and Corporate Communications
Patricia C. Kolling....................... Senior Vice President -- Compliance 58
Andrea J. Ludington....................... Senior Vice President -- Professional 59
Services
Barbara R. Paul, M.D. .................... Senior Vice President and Chief Medical 51
Officer
Harold A. Price, Ph.D. ................... Senior Vice President -- Sales and Business 55
Development
Chris W. Roussos.......................... President -- AseraCare 40
Martha J. Schram.......................... President -- Aegis Therapies 53
Richard D. Skelly, Jr. ................... Senior Vice President and Treasurer 45
Jane A. Washburn.......................... Senior Vice President and Chief Marketing 50
Officer
The executive officers named above were appointed by the Board of Directors
to serve in such capacities until their respective successors have been duly
appointed and qualified, or until their earlier death, resignation or removal
from office. Biographical information for Mr. Floyd is set forth under "BEI
Nominees for the Board of Directors."
Mr. Babb joined BEI in April 2000 as Executive Vice President, General
Counsel and Secretary. Mr. Babb was appointed head of Government Relations in
January 2001 and Chief Administrative and Legal Officer in October 2002. Mr.
Babb was Senior Vice President -- Merchandise Business Unit for Burlington
Northern Santa Fe Corporation from 1997 to 1999.
Mr. Devereaux joined BEI in August 1998 as Senior Vice
President -- Operations for the Specialty Services Division of the Nursing
Facilities segment. Mr. Devereaux was appointed President of the companies
within the Nursing Facilities segment in January 2001 and Executive Vice
President and Chief Operating Officer in July 2001.
Mr. Freimark joined BEI in January 2002 as Executive Vice President and
Chief Financial Officer. Mr. Freimark was appointed head of Information
Technology in October 2002. From May 2001 to January 4, 2002, Mr. Freimark was
Senior Executive Vice President and Chief Financial Officer of OfficeMax, Inc.
From March 1997 to May 2001, Mr. Freimark was with The Grand Union Company where
he held positions as Executive Vice President, Chief Financial Officer and
President and Chief Executive Officer.
23
Ms. Susienka joined BEI in June 1998 as President -- Aegis Therapies and
was appointed President -- Home Care Services in March 2002. Ms. Susienka was
appointed Executive Vice President in December 2003, Group President for
Therapy, Homecare and Hospice Services in August 2004 and Chief Operating
Officer -- Aegis and AseraCare in December 2004. Ms. Susienka serves on the
board of directors for the National Association for the Support of Long Term
Care.
Ms. Acosta joined BEI in October 1996 as Vice President -- Risk Management.
Ms. Acosta was appointed Senior Vice President -- Professional Services in
January 2001 and Senior Vice President -- Quality of Life Programs in October
2003. Ms. Acosta also serves as on the board of directors of the
Arkansas/Oklahoma Alzheimer's Association and as a member of the Arkansas
Medical School Community Advisory Board.
Ms. Daniels joined BEI in May 1988 as Audit Coordinator. Ms. Daniels was
appointed Vice President, Controller and Chief Accounting Officer in October
1996 and Senior Vice President in December 1999.
Mr. Deans joined BEI in November 2003 as Senior Vice President -- Human
Resources. From September 1999 to November 2003, Mr. Deans was Chief Human
Resources Officer at Jones Lang LaSalle. From February 1998 to June 1999, Mr.
Deans was Vice President -- Human Resources of Alliant Foodservice, Inc.
Mr. Griffith joined BEI in November 1995 as Senior Vice
President -- Investor Relations and Corporate Communications.
Ms. Kolling joined BEI in February 1989 as a rehabilitation consultant. Ms.
Kolling was appointed Vice President -- Rehabilitation in 1994, Vice
President -- PPS in 1998 and Vice President -- Medicare Programs in 2000. Ms.
Kolling was appointed Senior Vice President -- Compliance in October 2002.
Ms. Ludington joined BEI in 1999 as Regional Director of Professional
Services. Ms. Ludington was appointed Senior Vice President -- Professional
Services in May 2004.
Dr. Paul joined BEI in March 2004 as Senior Vice President and Chief
Medical Officer. From 1999 to 2004, Dr. Paul served as director of the Quality
Measurement and Health Assessment Group for the Centers for Medicaid & Medicare
Services at the Department of Health and Human Services.
Dr. Price joined BEI in August 2002 as Senior Vice President -- Sales and
Business Development. Prior to that, Dr. Price worked with BEI on a consulting
basis for 18 months. Before becoming a consultant, from 1999 to 2000, Dr. Price
was Vice President -- Strategic Relations and Business Development for SelfCare,
Inc.
Mr. Roussos joined BEI in August 2001 as a management designee of our
former Matrix segment. Mr. Roussos was appointed President of Matrix in February
2002, President of Ceres Purchasing Solutions in October 2002 and President of
AseraCare in July 2004. From 2000 to 2001, Mr. Roussos was Division General
Manager of American Homestar Corporation, and from 1996 to 2000, Mr. Roussos was
General Manager of Fleetwood Enterprises, Inc.
Ms. Schram joined BEI in December 1998 as Group Vice President. Ms. Schram
was appointed Vice President -- Northeast Division of AEGIS Therapies in March
2001 and President of Aegis Therapies in July 2004. From 1993 to 1998, Ms.
Schram was an Area Vice President for NovaCare and from 1988 to 1993, Ms. Schram
was Executive Director of Rehabilitation Services for Divine Savior Hospital in
Portage, WI.
Mr. Skelly joined BEI in April 2002 as Senior Vice President and Treasurer.
From September 2001 to March 2002, Mr. Skelly was Senior Vice President and
Treasurer of OfficeMax, Inc. From June 1997 to August 2001, Mr. Skelly held
various positions with The Grand Union Company, including Acting Chief Financial
Officer and Treasurer.
Ms. Washburn joined BEI in her position as Senior Vice President and Chief
Marketing Officer in January 2005. From 2001 until January 2005, Ms. Washburn
served as President of Brand-Built International, a consulting firm specializing
in business development and brand positioning. From 1997 until 2001, Ms.
Washburn was Managing Director and Chief Marketing Officer of Broadview
International, a global investment bank and venture capital firm. She also has
held senior-level marketing positions at Price Waterhouse and Citibank, N.A.
24
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the Record Date, the amount of BEI
common stock beneficially owned by each stockholder known by BEI to beneficially
own more than five percent of the common stock of BEI.
SHARES BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED COMMON STOCK
------------------------------------ ------------------- ------------
Appaloosa Investment Limited Partnership I, et
al.(1)(2)............................................ 8,737,000 8.10%
c/o Appaloosa Partners, Inc.
26 Main Street, 1st Floor
Chatham, NJ 07928
Strong Capital Management, Inc.(3)..................... 6,253,247 5.80%
100 Heritage Reserve
Menomonee Falls, WI 53051
Barclays Global Investors(4)........................... 5,402,927 5.03%
45 Fremont Street
San Francisco, CA 94105
---------------
(1) Group consisting of Appaloosa Investment Limited Partnership I, Palomino
Fund Ltd., Appaloosa Management L.P., Appaloosa Partners Inc., David A.
Tepper, Franklin Mutual Advisers, LLC, Northbrook NBV, LLC, David Hokin, Rob
Rubin, Robert Hartman, 1995 David Reis Family Trust, 1995 Donna Reis Family
Trust, Aaron Reis Spray Trust, Anna Reis Spray Trust, Alexander Reis Spray
Trust, David Reis Family Trust, David Reis, Baylor Enterprises LLC and
Arnold M. Whitman.
(2) Based on information contained in a Schedule 13D/A filed by the
Whitman/Appaloosa group with the SEC on February 22, 2005.
(3) Based on a Schedule 13G/A filed by Strong Capital Management, Inc. with the
SEC on February 11, 2005.
(4) Based on a Schedule 13G filed by Barclays Global Investors, N.A. with the
SEC on February 17, 2004.
25
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of the Record Date, the amount of BEI
common stock beneficially owned by each director, each executive officer named
in the Summary Compensation Table on page (each, a "named executive officer")
and all directors and executive officers as a group.
TOTAL
SOLE VOTING OPTIONS NUMBER OF PERCENTAGE
AND EXERCISABLE OTHER SHARES OF
INVESTMENT WITHIN BENEFICIAL DEFERRED BENEFICIALLY COMMON
NAME AND ADDRESS(1) POWER(2) 60 DAYS(3) OWNERSHIP(4) COMPENSATION(5) OWNED STOCK
------------------- ----------- ----------- ------------ --------------- ------------ ----------
William R. Floyd............... 660,880 1,350,000 -- -- 2,010,880 1.85%
David R. Devereaux(6).......... 119,722(7) 242,830 -- -- 362,552 *
Douglas J. Babb................ 182,901 359,900 -- -- 542,801 *
Jeffrey P. Freimark............ 166,106 262,500 6,450 -- 435,056 *
Cindy H. Susienka.............. 118,777(7) 212,925 -- -- 331,702 *
John D. Fowler, Jr. ........... 5,000 25,667 -- 67,010 97,677 *
Marilyn R. Seymann, Ph.D. ..... 16,385 56,625 -- 21,933 94,943 *
John P. Howe, III, M.D. ....... -- 32,083 -- 43,269 75,352 *
James W. McLane................ 15,385 34,968 -- 21,597 71,950 *
Donald L. Seeley............... 38,385 23,833 -- -- 62,218 *
Ivan R. Sabel.................. -- 2,750 -- 23,925 26,675 *
Melanie Creagan Dreher,
Ph.D. ....................... -- -- -- 12,662 12,662 *
All directors and executive
officers as a group (24
persons)..................... 2,038,349(7) 3,195,381 6,700 190,396 5,430,825 4.99%
---------------
* Percentage of BEI common stock owned does not exceed 1%.
(1) The address of each person is One Thousand Beverly Way, Fort Smith, Arkansas
72919.
(2) Includes shares of restricted stock in the following amounts: William R.
Floyd (467,322); David R. Devereaux (69,189); Douglas J. Babb (135,171);
Jeffrey P. Freimark (138,376); Cindy H. Susienka (89,358); Marilyn R.
Seymann, Ph.D. (15,385); James W. McLane (15,385); Donald L. Seeley (15,385)
and all directors and executive officers as a group 1,354,734. Does not
include phantom stock units issued under the Non-Employee Director Deferred
Compensation Plan, all of which will be distributed as shares of BEI common
stock upon the applicable distribution dates (converted on a one-for-one
basis), in the following amounts: Melanie Creagan Dreher, Ph.D. 12,662; John
D. Fowler, Jr. (67,010); John P. Howe, III, M.D. 43,269; James W. McLane
(21,597); Ivan R. Sabel 23,925; and Marilyn R. Seymann, Ph.D. (21,933). Also
does not include cash units issued under the Non-Employee Director Deferred
Compensation Plan, all of which will be distributed as shares of BEI common
stock on the applicable distribution dates.
(3) Total options held (including options exercisable within 60 days) are as
follows: William R. Floyd (1,500,000); David R. Devereaux (278,456); Douglas
J. Babb (422,400); Jeffrey P. Freimark (300,000); Cindy H. Susienka
(238,700); John D. Fowler, Jr. (25,667); Marilyn R. Seymann, Ph.D. (56,625);
John P. Howe, III, M.D. (32,083); James W. McLane (34,968); Donald L. Seeley
(23,833); Ivan R. Sabel (2,750) and all directors and executive officers as
a group (3,645,157).
(4) Represents shares owned by family members.
(5) Represents total shares of BEI common stock reserved for distribution under
the Non-Employee Director Deferred Compensation Plan.
(6) This table does not include 119,722 shares, and options exercisable for an
additional 131,419 shares, transferred by Mr. Devereaux in early February
2005 pursuant to a domestic relations order.
(7) Includes shares purchased under the Employee Stock Purchase Plan in the
following amounts: David R. Devereaux (823); Cindy H. Susienka (685) and all
directors and officers as a group 12,569.
26
AUDIT AND COMPLIANCE COMMITTEE REPORT
This Audit and Compliance Committee Report is a preliminary draft of the
report to be set forth in the definitive proxy statement of BEI. In addition,
this Audit and Compliance Committee Report is not deemed to be "soliciting
material" or "filed" with the SEC, is not subject to the liabilities of Section
18 of the Exchange Act, and shall not be deemed incorporated by reference into
any of the filings previously made or made in the future by BEI under the
Exchange Act or the Securities Act of 1933, as amended (the "Securities Act")
(except to the extent BEI specifically incorporates this information into a
document that is filed).
The Audit and Compliance Committee was established in accordance with
Section 3(a)(58) of the Exchange Act. The Audit and Compliance Committee
currently consists of four independent non-employee directors who satisfy the
requirements of Section 10A-3 of the Exchange Act and the current listing
standards of the NYSE. On February 11, 2004, the Board adopted a restated
written charter for the Audit and Compliance Committee, a copy of which can be
found on BEI's website at http://www.beverlycorp.com.
The Audit and Compliance Committee oversees BEI's financial reporting
process on behalf of the Board. In fulfilling its oversight responsibilities,
the Audit and Compliance Committee selects, appoints, retains and oversees BEI's
independent registered public accounting firm and reviews and discusses the
audited financial statements included in BEI's Annual Report on Form 10-K with
management, including the reasonableness of significant judgments and the
clarity of disclosures in the financial statements. Management has primary
responsibility for the financial statements and reporting process, including
internal control over financial reporting.
BEI's independent registered public accounting firm is responsible for
performing an audit of BEI's financial statements and expressing an opinion on
the conformity of the audited financial statements with generally accepted
accounting principles. The Audit and Compliance Committee's responsibility is to
monitor and review the processes. It is not the Audit and Compliance Committee's
duty nor its responsibility to conduct auditing or accounting reviews or
procedures. In this context, the Audit and Compliance Committee has reviewed and
discussed the audited financial statements for the year ended December 31, 2004
with management and the independent registered public accounting firm. The Audit
and Compliance Committee has discussed with the independent registered public
accounting firm their judgments as to BEI's accounting principles, including the
acceptability and quality of those principles, and such other matters as are
required to be discussed under generally accepted accounting standards Statement
on Auditing Standards No. 61 (Communication with Audit Committees), as amended
by Statement on Auditing Standards No. 90 (Audit Committee Communications) and
Statement on Auditing Standards No. 89 (Audit Adjustments), each as currently in
effect. In addition, it has received the written disclosures and the letter from
the independent registered public accounting firm required by Independence
Standards Board No. 1 (Independence Discussions with Audit Committees), as
currently in effect, and discussed their independence from BEI and its
management and considered whether the independent registered public accounting
firm' provision of non-audit services to BEI is compatible with the registered
public accounting firm' independence.
The Audit and Compliance Committee discussed with the independent
registered public accounting firm the overall scope of their respective audits.
The Audit and Compliance Committee meets with the independent registered public
accounting firm, without management present, to discuss the results of their
examinations, their evaluations of BEI's internal control over financial
reporting and the overall quality of BEI's financial reporting. In the
performance of their oversight function, the members of the Audit and Compliance
Committee necessarily relied upon the information, opinions, reports and
statements presented to them by management and by the independent registered
public accounting firm. The Audit and Compliance Committee held nine meetings
during 2004.
In reliance on the reviews and discussions referred to above, the Audit and
Compliance Committee recommended to the Board, and the Board has approved, that
the audited financial statements as of and for the year ended December 31, 2004
be included in BEI's Annual Report on Form 10-K for the year ended December 31,
2004, filed with the SEC.
27
The Audit and Compliance Committee also oversees BEI's compliance and
reporting to the Office of Inspector General of the Department of Health and
Human Services ("OIG") under the Corporate Integrity Agreement entered into by
BEI and the OIG in February 2000.
AUDIT AND COMPLIANCE COMMITTEE
Donald L. Seeley, Chairperson
James W. McLane
John D. Fowler, Jr.
Marilyn R. Seymann, Ph.D.
28
NOMINATING AND COMPENSATION
COMMITTEE REPORT
ON 2004 EXECUTIVE COMPENSATION
This Nominating and Compensation Committee Report is not deemed to be
"soliciting material" or "filed" with the SEC, is not subject to the liabilities
of Section 18 of the Exchange Act, and shall not be deemed incorporated by
reference into any of the filings previously made or made in the future by BEI
under the Exchange Act or the Securities Act (except to the extent BEI
specifically incorporates this information into a document that is filed).
The Nominating and Compensation Committee of the Board currently consists
of four independent non-employee directors who satisfy the current independence
standards of the NYSE. Our objective is to develop executive compensation
policies that are directly aligned with BEI's strategic goals and tie pay to
performance and to stockholder value creation. We are responsible for reviewing,
recommending and approving corporate goals and objectives relevant to the Chief
Executive Officer's and other senior executive officers' compensation, and
determining and approving the CEO's compensation. We also approve the design of
BEI's broad-based compensation programs, evaluate their effectiveness and
authorize new plans and strategies, as appropriate.
COMPENSATION PRACTICES
To accomplish these objectives, on October 10, 2001, we adopted the
following compensation philosophy, which we believe continues to be appropriate:
- quality of care will always be a key criteria in the formulation of
incentive compensation;
- competitive market for executive talent is national and multi-industry in
scope;
- pay should position salary around competitive market median and target
incentive pay around the 75(th) percentile, with opportunity to exceed
this level with strong performance;
- pay should consist of cash and stock-based vehicles;
- pay is tied to performance;
- pay should reflect significant upside for exceeding goals; and
- individual contributions should be recognized.
We rely on information from a number of sources to assist us in
implementing this philosophy. We work with an executive compensation consulting
firm selected by us 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 and the healthcare services industry with comparable
revenues, number of employees and market capitalization. Finally, we receive
input from BEI's CEO regarding the elements of compensation and the overall
compensation he recommends for other executive officers.
Executive compensation at BEI consists of four primary elements: base
salary, annual incentive compensation potential, long-term compensation in the
form of stock-based vehicles and retirement benefits. The type and amounts of
compensation, the scope and terms of the compensation plans and the retirement
benefits are the result of a substantial evaluation and analysis by the
Committee. The consulting firm retained by the Committee provided an analysis of
BEI's compensation structure in comparison to that of competitive companies. The
Committee utilized that analysis in conjunction with its compensation philosophy
to develop BEI's current compensation structure.
29
BASE SALARY
We regularly review the base salary of BEI's corporate officers. In
addition to considering the median salaries for comparable positions at the
other companies reflected in 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 BEI officers. However, we do
not assign a specific weight to each of these factors.
ANNUAL INCENTIVE COMPENSATION
On February 2, 2005, we evaluated performance-based compensation available
under the Beverly Enterprises, Inc. Annual Incentive Plan, dated effective
January 1, 1998, for corporate and subsidiary management. The financial
performance measurement used was earnings before interest, taxes, depreciation
and amortization ("EBITDA"), excluding the effect of certain actions taken
during 2004.
Each executive officer participating in the Annual Incentive Plan,
including those listed in the Summary Compensation Table, has a target and
maximum annual incentive opportunity expressed as a percentage of annual base
salary. Target opportunities for executive officers for 2004 ranged from 45% to
125% of annual base salary, which amount is weighted based upon the performance
of BEI in excess of the target opportunity thresholds. Except for the executive
officers listed below in the Summary Compensation Table, the target
opportunities for participants may be increased or decreased by the Committee
based upon the business and financial performance of BEI. Subsidiary management
incentive plan distributions were reviewed and adjusted if applicable due to
revisions to final business unit scorecard results.
LONG-TERM INCENTIVE COMPENSATION
We strongly believe that stock-based compensation creates a direct link
between the long-term financial interests of BEI's executives and BEI's
stockholders. Prior to last year, we granted stock options to eligible
employees. We have changed our view on this approach in favor of grants of
restricted stock to eligible employees. Last year we evaluated BEI's ability to
provide performance-based compensation under the 1997 Plan. We decided to
implement a 2004 long-term incentive program under the 1997 Plan, pursuant to
which BEI grants restricted stock to employees selected by the Committee that
vest at the end of three years from the date of grant. In addition, BEI grants
performance units and/or performance-based cash bonuses to employees selected by
the Committee that vest at the end of three years to the extent certain EBITDA,
EBITDA margin and share appreciation goals are obtained.
In determining the size and other terms of stock grants, we review
information on competitive practices and valuations provided by our compensation
consultants. Generally, performance-based stock awards are made during the first
half of a year.
In 2004, BEI granted 558,602 shares of restricted stock to the executive
officers as a group, and 396,368 shares of restricted stock to BEI's other
employees as a group. Further details about restricted stock awards granted to
the named executive officers during 2004 are shown on the Executive Summary
Compensation Table below.
RESPONSE TO TAX LAWS LIMITING DEDUCTIONS FOR COMPENSATION
Section 162(m) of the Internal Revenue Code generally sets a $1,000,000 per
person limit on a company's ability to deduct compensation paid to its five most
highly paid executive officers. Section 162(m) provides an exemption to this
limit for compensation that qualifies under the Code as "performance-based
compensation." The Nominating and Compensation Committee has determined that it
generally should seek to retain full tax deductibility for our incentive
compensation programs. Therefore, we have designed BEI's annual and long-term
compensation programs so that compensation earned under those plans can meet the
definition of "performance-based compensation." However, in order to maintain
flexibility in motivating and compensating BEI's executive officers, in some
circumstances it may provide for or pay compensation that may not satisfy 162(m)
and, therefore, may not be deductible, in whole or in part, by BEI.
30
RETIREMENT BENEFITS
SERP. In addition to maintaining standard broad-based employee retirement
benefit plans, we adopted a supplemental executive retirement plan (the "SERP")
on February 19, 1998. Participants were selected based on management's
recommendations. The SERP was amended and restated, effective as of April 1,
2000. Generally, this program provides for an annual retirement income benefit
equal to the product of (a) 3.33%, multiplied by (b) the participant's final
average base compensation and (c) the participant's years (including partial
years) of credited service. The benefit is payable for a maximum of fifteen
years upon retirement at age 65 with 15 years of service after age 50. For
purposes of calculating participants' retirement benefits, only their base
annual salary up to $1,000,000 per year is taken into account; incentive
compensation, bonuses and base annual salary in excess of $1,000,000 are
disregarded. Benefits are reduced for retirement before age 65 or for less than
15 years of service. Participants may elect to receive their benefits in the
form of a single lump sum payment.
The SERP was modified in December 2001 with respect to Mr. Floyd to provide
him an enhanced retirement benefit equal to 50% of his final average
compensation regardless of his years of service. For purposes of calculating Mr.
Floyd's final average compensation, only his base annual salary up to $1,000,000
per year is taken into account; incentive compensation, bonuses and base annual
salary in excess of $1,000,000 are disregarded. Mr. Floyd's benefit is now fully
vested. In addition, the 5% discount per year for retirement prior to age 65 was
waived for Mr. Floyd, and his benefits could be paid over 15 years regardless of
how many years of service he has at retirement. (See "Executive
Compensation -- Defined Benefit Plan").
As discussed further under "Retirement Benefits -- Executive Deferred
Compensation Plan" below, the SERP was frozen for participants under age 56 and
closed to new participants effective as of January 1, 2003.
Enhanced Supplemental Executive Retirement Plan. Effective as of January
1, 2004, we adopted the Enhanced Supplemental Executive Retirement Plan
("Enhanced SERP") for a designated group of BEI's senior executive employees.
The Nominating and Compensation Committee is responsible for selecting the
participants for the Enhanced SERP. The Enhanced SERP is a nonqualified,
unsecured deferred compensation plan, informally funded through a so-called
"rabbi trust." Each year BEI, in its discretion, may make a contribution on each
participant's behalf equal to a percentage of his or her salary and incentive
compensation for the year. Prior to any change in control, we will set the
contribution percentage each year for each participant in our sole discretion.
Following any change in control, contributions will equal at least the amount
made on each participant's behalf immediately prior to the change in control. If
a participant dies, becomes disabled or is terminated without cause within two
years following a change in control, contributions will continue to be made on
the participant's behalf based on the participant's compensation and the
Enhanced SERP contributions that were made immediately prior to the
participant's death, disability or termination. Such contributions will continue
until the earlier of the time the participant attains (or would have attained)
age 60 or would have completed ten years of plan participation. If a participant
is involuntarily terminated without cause prior to a change in control and prior
to the time the participant attains age 60 or completes 10 years of plan
participation, BEI, in its sole discretion, may continue making contributions on
the terminated participant's behalf up to the amount and for the period of time
that contributions would have been made had the participant died or become
disabled.
BEI's contributions will be credited with deemed investment earnings or
losses based on a participant's investment elections from the investment funds
offered under the Enhanced SERP. In addition, if BEI does not credit
contributions to a participant's account by December 31 of the year for which
the contributions are to be made, interest will accrue at the rate of 6.5% per
annum on the delinquent contributions until they are made to the plan. A
deferred credit contribution must be made by December 31 of the following year.
Participants will vest in their Enhanced SERP benefits upon the earlier of
attaining age 60, completing 10 years of plan participation, death, total and
permanent disability, a change in control or involuntary termination of
employment without cause. Distributions of participants' benefits will be made
once they attain age 60 or complete ten years of plan participation (whichever
is earlier), and terminate employment. Distributions will be made in cash in
either a single lump sum or annual installment payments over a five, ten or
fifteen year period as elected by the participant. However, distributions due to
death, disability or
31
termination of employment without cause within two years of a change in control
will be made only in a lump sum and only after the participant would have
attained age 60 or completed ten years of plan participation but for such death,
disability or termination following a change in control.
Executive Deferred Compensation Plan. Effective as of December 31, 2002,
the Board adopted an Executive Deferred Compensation Plan (the "EDC Plan") for a
designated group of management or highly compensated employees. Certain
employees with base annual salary of at least $90,000 and total annual
compensation (salary plus target bonus) of at least $100,000 are eligible for
selection by the Nominating and Compensation Committee for participation in the
EDC Plan. The EDC Plan is a nonqualified, unsecured deferred compensation plan,
informally funded through a so-called "rabbi trust." Eligible employees can
elect to defer up to 75% of their base salary and 100% of their bonus or
incentive compensation each year. In addition, BEI may make matching
contributions to make up for matching contributions to the tax-qualified
SavingsPlus Plan that participants were ineligible for due to various legal
limits and/or their participation in the EDC Plan. Additional discretionary
contributions are also possible. In addition, due to the freezing of the SERP
for participants under age 56 (as well as for any new participants), in January
2003 BEI made an initial contribution to the EDC Plan for two affected
participants with vested SERP benefits, and will make ongoing, future
age-weighted EDC Plan contributions for other former SERP participants, in
exchange for such participants waiving their rights under the SERP. Earnings and
losses on all participant and BEI contributions will be credited with deemed
investment earnings based on participant investment elections from among 20
variable investment fund options currently offered under the EDC Plan.
Participants are always vested in their own compensation deferrals. BEI
contributions generally vest after five years of combined EDC Plan and SERP
participation. Vesting is accelerated upon a change in control of BEI.
Participants can elect in-service withdrawals at a specified future date, in
either a single lump-sum or, for withdrawals of $25,000 or more, in annual
installments over two to five years. Non-scheduled withdrawals can also be made,
but the participant will forfeit 10% of the requested withdrawal and be
suspended from the EDC Plan for the remainder of the then current year and the
next following year. These penalties will not apply if the withdrawal is on
account of a severe financial hardship. Upon termination of employment,
participants can elect to receive either a lump sum payout or, if they have a
least five years of combined EDC Plan and SERP service and a distribution of at
least $25,000, annual installments for up to 15 years. All distributions will be
in cash.
Retention Enhancement Program. In March 2004, BEI established the
Retention Enhancement Program ("REP"), as part of the EDC Plan, to provide
enhanced retirement, death and disability benefits to Mr. Floyd to supplement
his SERP benefits, which are described above, and to provide an additional
incentive for him to remain with BEI until he attains age 65. Pursuant to the
REP, BEI will make contributions each year to an account established for Mr.
Floyd under the EDC Plan. The Nominating and Compensation Committee will
determine the amount of those contributions each year, but it is currently
intended that when the total contributions and earnings on the contributions are
added to Mr. Floyd's SERP benefits, this will provide him with a combined
retirement benefit equal to 40% of his total final compensation (which includes
base salary and bonuses and is not capped at $1,000,000 like his SERP benefits).
Like the EDC Plan, earnings and losses will be credited to the REP contributions
made on Mr. Floyd's behalf based on his investment elections from the funds
offered under the EDC Plan. Mr. Floyd will vest in his REP benefits when the
first of the following events occurs: (i) he attains age 65, provided that he is
still employed by BEI; (ii) he dies or becomes disabled; or (iii) BEI undergoes
a change in control. If Mr. Floyd is terminated without cause prior to the date
he otherwise fully vests in his REP benefits, he will vest in the balance of his
REP account at that time, and the Nominating and Compensation Committee, in its
discretion, may continue making contributions to Mr. Floyd's REP account until
he attains age 65. Mr. Floyd will have the option of taking his REP benefits in
either a single lump sum payment or in annual installment payments over a period
of two to fifteen years.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The Committee applied the policies mentioned above in determining the
compensation for Mr. Floyd, BEI's Chief Executive Officer, for 2004. At December
31, 2004, Mr. Floyd's annual base salary was $900,000, which reflects an
increase over the prior year of $62,187. This increase was recommended by the
independent
32
compensation consultant, and made his salary more aligned with the market. Prior
to the increase, Mr. Floyd had not received a salary increase since December
2001 when he became Chairman of BEI.
For 2004, Mr. Floyd received a bonus of $1,344,375 under the 2004 Annual
Incentive Plan ("AIP"). The 2004 AIP established annual incentive compensation
opportunities for Mr. Floyd and other participants based on performance against
targeted goals for EBITDA and improvement in quality of care. Thus, Mr. Floyd's
bonus for 2004 was determined based on three factors. The first was the amount
by which actual EBITDA exceeded the planned EBITDA for BEI as approved by the
Board. The second factor was an evaluation by the Nominating and Compensation
Committee of BEI's performance in relation to its quality of care improvement
goals for 2004. The last factor was a set of strategic priorities in revenue
growth, EBITDA margin, balance sheet measures and measures around succession
planning which were evaluated by the Nominating and Compensation Committee. The
first factor was weighted at 60%, and the second and third factors were each
weighted at 20%.
As part of a long-term incentive program instituted under the 1997 Plan in
2004, the Nominating and Compensation Committee awarded Mr. Floyd 214,822 shares
of restricted BEI common stock as well as performance units and performance cash
equal to an amount ranging from a minimum of $1,675,634 to maximum of
$7,037,659, depending on BEI's performance in achieving targets with respect to
EBITDA, EBITDA margin improvements and improvements in the market price for
BEI's common stock. If none of the targets are met, neither the performance
units nor the performance cash will vest under the award. If the targets are
met, the long-term incentive award will vest, subject to Board approval, three
years from the date of grant.
NOMINATING AND COMPENSATION COMMITTEE
John D. Fowler, Jr., Chairperson
James W. McLane
Ivan R. Sabel
Marilyn R. Seymann, Ph.D.
33
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth summary information concerning certain
compensation awarded, paid to, or earned by BEI's President and Chief Executive
Officer and each of its other four most highly compensated executive officers
for all services rendered in all capacities to BEI for the years ended December
31, 2004, 2003 and 2002:
LONG-TERM
COMPENSATION
AWARDS PAYOUTS
--------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------- OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($) ($)(11) (#) ($) ($)
--------------------------- ------ ------- --------- ------------ ---------- ---------- ------- ------------
William R. Floyd.......... 2004 882,301 1,344,375(2) -- 1,675,612 -- 208,417 1,846,668(12)
Chairman of the Board- 2003 834,591 1,337,414(2) -- 654,431 -- -- 139,904(13)
President and Chief 2002 835,000 -- -- 1,426,250 600,000 -- 36,126(14)
Executive Officer
Douglas J. Babb........... 2004 425,771 386,284 -- 404,336 -- 81,392 546,790(15)
Executive Vice President- 2003 402,786 420,949 -- 261,250 -- -- 72,003(16)
Chief Administrative and 2002 377,692 -- -- -- 250,000 -- 10,976(17)
Legal Officer
David R. Devereaux(3)..... 2004 444,557 409,586 -- 429,343 -- 91,813 866,616(18)
Chief Operating Officer- 2003 427,699 446,986 -- 261,250 -- -- 61,608(19)
Nursing Facilities 2002 413,846 -- -- -- 190,000 -- 78,720(20)
Jeffrey P. Freimark....... 2004 451,575 409,586(4) 431,967(7) 429,335 -- 91,809 600,250(21)
Executive Vice President, 2003 427,690 446,976(4) 70,758(8) 261,250 -- -- 72,669(22)
Chief Financial and 2002 415,192 150,000(5) 94,482(9) -- 150,000 -- 67,108(23)
Information Officer
Cindy H. Susienka......... 2004 385,000 345,056(6) -- 384,992 -- 68,333 361,477(24)
Executive Vice President- 2003 330,439 302,837(6) -- 125,400 -- -- 35,002(25)
and Chief Operating 2002 319,231 -- 7,313(10) -- 80,000 -- 4,772(26)
Officer Aegis and
AseraCare
---------------
(1) Bonus amounts, if any, are listed for the year in which they were earned;
such amounts were paid in the following year.
(2) $627,188 and $668,707 was deferred in 2004 and 2003, respectively, under
the Executive Deferred Compensation Plan.
(3) In early February, 2005, Mr. Devereaux transferred one-half of his common
stock (119,722 shares) together with 40% of all vested and 25% of all
unvested options (exercisable for 72,209 and 54,210 shares of common stock,
respectively) pursuant to a domestic relations order.
(4) $81,987 and $89,395 was deferred in 2004 and 2003, respectively, under the
Executive Deferred Compensation Plan.
(5) Mr. Freimark received a guaranteed bonus of $150,000 pursuant to his
employment agreement.
(6) $86,264 and $75,709 was deferred in 2004 and 2003, respectively, under the
Executive Deferred Compensation Plan.
(7) Includes: (i) relocation costs and expenses paid to or on behalf of Mr.
Freimark in connection with his relocation from New Jersey to Arkansas of
$395,468; and (ii) gross-up for taxes related to forgiveness of debt of
$36,499.
(8) Includes: (i) relocation costs and expenses paid to or on behalf of Mr.
Freimark in connection with his relocation from New Jersey to Arkansas of
$33,988; and (ii) gross-up for taxes related to the forgiveness of debt of
$36,770.
(9) Includes: (i) relocation costs and expenses paid to or on behalf of Mr.
Freimark in connection with his relocation from New Jersey to Arkansas; and
(ii) gross-up for taxes related to the forgiveness of debt $44,781.
(10) Relocation costs and expenses paid to or on behalf of Ms. Susienka in
connection with her relocation from Arkansas to Wisconsin.
(11) See "Restricted Stock" table following this Summary Compensation Table.
(12) Includes: (i) Regular Life Insurance Plan -- $6,241 (see footnote 27); (ii)
BEI contribution to the Retention Enhancement Plan -- $604,102; (iii)
vesting of restricted stock -- $1,187,138; (iv) personal use of BEI
plane -- $13,128; and (v) BEI contribution to the Executive Allowance
Plan -- $36,059.
(13) Includes: (i) Executive Medical Plan -- $213; (ii) Regular Life Insurance
Plan -- $4,064 (see footnote 27); (iii) personal use of BEI
plane -- $6,127; and (iv) vesting of restricted stock -- $129,500.
(14) Includes: (i) Executive Medical Plan -- $2,804; (ii) premiums under
Executive Life Insurance Plan -- $3,396 (see footnote 28); (iii) Regular
Life Insurance Plan -- $4,051 (see footnote 27); (iv) benefit
allowance -- $2,813 (see footnote 29); (v) personal use of BEI
plane -- $14,201; and (vi) Executive Disability Policy -- $8,861.
(15) Includes: (i) Regular Life Insurance Plan -- $980 (see footnote 27); (ii)
BEI contribution to the Executive Deferred Compensation Plan -- $30,326;
(iii) BEI contribution to the Enhanced Supplemental Executive Retirement
Plan -- $178,909; (iv) vesting of restricted stock -- $319,169; and (v) BEI
contribution to the Executive Allowance Plan -- $17,406.
34
(16) Includes: (i) Executive Medical Plan -- $27; (ii) Regular Life Insurance
Plan -- $978 (see footnote 27); and (iii) BEI contribution to the Executive
Deferred Compensation Plan -- $70,998.
(17) Includes: (i) Executive Medical Plan -- $5,045; (ii) premiums under
Executive Life Insurance Plan -- $690 (see footnote 28); (iii) Regular Life
Insurance Plan -- $900 (see footnote 27); and (iv) benefit
allowance -- $4,341 (see footnote 29).
(18) Includes: (i) Regular Life Insurance Plan -- $456 (see footnote 27); (ii)
BEI contribution to the Executive Deferred Compensation Plan -- $21,468;
(iii) BEI contribution to the Enhanced Supplemental Executive Retirement
Plan -- $184,031; (iv) vesting of restricted stock -- $660,267; and (v)
personal use of BEI plane -- $394.
(19) Includes: (i) Executive Medical Plan -- $1,326; (ii) Regular Life Insurance
Plan -- $455 (see footnote 27); (iii) vesting of restricted
stock -- $15,859; (iv) BEI contribution to the Executive Deferred
Compensation Plan -- $21,250; and (v) distribution from the previous
Executive Deferred Compensation Plan -- $22,718.
(20) Includes: (i) matching contribution to Employee Stock Purchase
Plan -- $255; (ii) Executive Medical Plan -- $4,656; (iii) Regular Life
Insurance Plan -- $436 (see footnote 27); (iv) benefit allowance -- $4,346
(see footnote 29); and (v) vesting of restricted stock -- $69,027.
(21) Includes: (i) Regular Life Insurance Plan -- $684 (see footnote 27); (ii)
BEI contribution to the Executive Deferred Compensation Plan -- $21,467;
(iii) BE contribution to the Enhanced Supplemental Executive Retirement
Plan -- $189,835; (iv) vesting of restricted stock -- $319,169; (v)
forgiveness of debt -- $50,445; (vi) personal use of BEI plane -- $194; and
(vii) BEI contribution to the Executive Allowance Plan -- $18,456.
(22) Includes: (i) Regular Life Insurance Plan -- $683 (see footnote 27); (ii)
forgiveness of debt -- $50,736; and (iii) BEI contribution to the Executive
Deferred Compensation Plan -- $21,250.
(23) Includes: (i) Executive Medical Plan -- $5,603; (ii) Regular Life Insurance
Plan -- $506 (see footnote 27); (iii) benefit allowance -- $2,799 (see
footnote 29); (iv) personal use of BEI plane -- $2,053; (v) forgiveness of
debt -- $53,919; and (vi) COBRA reimbursement -- $2,228.
(24) Includes: (i) Regular Life Insurance Plan -- $504 (see footnote 27); (ii)
BEI contribution to the Executive Deferred Compensation Plan -- $19,250;
(iii) BEI contribution to the Enhanced Supplemental Executive Retirement
Plan -- $144,446; (iv) vesting of restricted stock -- $181,629; (v)
non-cash compensable item granted to several employees, including Ms.
Susienka, in connection with the completion of an enterprise-wide
project -- $100; and (vi) BEI contribution to the Executive Allowance
Plan -- $15,548.
(25) Includes: (i) Executive Medical Plan -- $1,914; (ii) Regular Life Insurance
Plan -- $335 (see footnote 27); (iii) personal use of BEI plane -- $1,011;
(iv) BEI contribution to the Executive Deferred Compensation
Plan -- $16,250; and (v) distribution from the previous Executive Deferred
Compensation Plan -- $15,492.
(26) Includes: (i) benefit allowance -- $2,813 (see footnote 29); (ii) Executive
Medical Plan -- $1,256; (iii) matching contribution to Employee Stock
Purchase Plan -- $383; and (iv) premiums under Executive Life Insurance
Plan -- $320 (see footnote 28).
(27) Imputed income for life insurance provided under BEI's regular life
insurance plan for amounts in excess of $50,000.
(28) Amount shown represents the taxable benefit under split-dollar life
insurance policies. Messrs. Devereaux and Freimark did not participate in
this plan.
(29) Reimbursement for premiums paid under regular medical and dental insurance.
35
RESTRICTED STOCK
The following table sets forth the restricted BEI common stock holdings of
the named executive officers at December 31, 2004, including the shares awarded
during 2004, based on the closing price of BEI common stock on the NYSE on that
date:
NUMBER OF
NUMBER OF RESTRICTED
RESTRICTED SHARES VALUE OF RESTRICTED SHARES GRANTED
HELD AS OF SHARES HELD AS OF IN THE THREE
NAME 12/31/04(1) 12/31/04(2) PRIOR YEARS
---- ----------------- ------------------- --------------
William R. Floyd........ 511,072 $4,676,309 214,822
313,125
175,000
Douglas J. Babb......... 135,171 $1,236,815 51,838
125,000
David R. Devereaux(3)... 138,377 $1,266,150 55,044
125,000
Jeffrey P. Freimark..... 138,376 $1,266,140 55,043
125,000
NAME VESTING SCHEDULE
---- ----------------
William R. Floyd........ This award was granted on May 20, 2004. 100% of this
award becomes fully vested three years from the date
of grant.
This award was granted on April 1, 2003. 104,375, or
33.33%, of the restricted shares vested on May 10,
2004. The remaining 208,760 shares of restricted
stock will become fully vested in the amount of
104,375 shares per anniversary thereafter.
This award was granted on January 2, 2002. 43,750 of
the restricted shares vested on the first and second
anniversaries of the grant date, respectively. The
remaining 87,500 shares of restricted stock will
become fully vested in the amount of 43,750 shares
per anniversary thereafter.
Douglas J. Babb......... This award was granted on May 20, 2004. 100% of this
award becomes fully vested three years from the date
of grant.
This award was granted on April 1, 2003. 41,667, or
33.33%, of the restricted shares vested on May 10,
2004. The remaining 83,333 shares of restricted
stock will become fully vested in the amount of
41,667 shares and 41,666 shares, respectively, on
the next two anniversaries of the date of grant.
David R. Devereaux(3)... This award was granted on May 20, 2004. 100% of this
award becomes fully vested three years from the date
of grant.
This award was granted on April 1, 2003. 41,667, or
33.33%, of the restricted shares vested on May 10,
2004. The remaining 83,333 shares of restricted
stock will become fully vested in the amount of
41,667 shares and 41,666 shares, respectively, on
the next two anniversaries of the date of grant.
Jeffrey P. Freimark..... This award was granted on May 20, 2004. 100% of this
award becomes fully vested three years from the date
of grant.
This award was granted on April 1, 2003. 41,667, or
33.33%, of the restricted shares vested on May 10,
2004. The remaining 83,333 shares of restricted
stock will become fully vested in the amount of
41,667 shares and 41,666 shares, respectively, on
the next two anniversaries of the date of grant.
36
NUMBER OF
NUMBER OF RESTRICTED
RESTRICTED SHARES VALUE OF RESTRICTED SHARES GRANTED
HELD AS OF SHARES HELD AS OF IN THE THREE
NAME 12/31/04(1) 12/31/04(2) PRIOR YEARS
---- ----------------- ------------------- --------------
Cindy H. Susienka....... 89,358 $ 817,626 49,358
60,000
NAME VESTING SCHEDULE
---- ----------------
Cindy H. Susienka....... This award was granted on May 20, 2004. 100% of this
award becomes fully vested three years from the date
of grant.
This award was granted on April 1, 2003. 20,000, or
33.33%, of the restricted shares vested on May 10,
2004. The remaining 40,000 shares of restricted
stock will become fully vested in the amount of
20,000 shares per anniversary thereafter.
---------------
(1) Recipients are entitled to receive dividends on, and to vote, the restricted
stock.
(2) Calculated based on the closing price of BEI common stock on the NYSE on
December 31, 2004, which was $9.15.
(3) In early February, 2005, Mr. Devereaux transferred one-half of his common
stock (119,722 shares) pursuant to a domestic relations order.
37
AGGREGATED OPTION EXERCISES IN 2004 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the value of
unexercised options to purchase BEI common stock held by the named executive
officers at December 31, 2004. There were no options exercised by the named
executive officers during 2004.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS FY-END (12/31/04) OPTIONS FY-END (12/31/04)(1)
--------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
William R. Floyd............................ 1,050,000 450,000 $2,904,000 $603,000
Douglas J. Babb............................. 275,550 146,850 982,303 439,330
David R. Devereaux.......................... 193,025 216,850 613,593 410,330
Jeffrey P. Freimark......................... 112,500 187,500 61,875 283,125
Cindy H. Susienka........................... 187,875 50,825 327,980 137,090
---------------
(1) Calculated based on the aggregate amount of the excess of the closing price
of BEI common stock on the NYSE at December 31, 2004, which was $9.15, over
the exercise price for each option.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES, PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER OTHER PERIOD UNTIL -------------------------------------
NAME RIGHTS MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ----------------- -------------------- --------- ---------- ----------
William R. Floyd
Restricted Stock(1) 214,822 1/1/2004-12/31/2006
Performance Units(2) 1/1/2004-12/31/2006 $837,817 $1,675,633 $3,351,266
Performance Cash(3) 1/1/2004-12/31/2006 $837,817 $1,675,633 $3,686,393
Douglas J. Babb
Restricted Stock(1) 51,838 1/1/2004-12/31/2006
Performance Units(2) 1/1/2004-12/31/2006 $202,172 $ 404,343 $ 808,686
Performance Cash(3) 1/1/2004-12/31/2006 $202,172 $ 404,343 $ 889,555
David R. Devereaux
Restricted Stock(1) 55,044 1/1/2004-12/31/2006
Performance Units(2) 1/1/2004-12/31/2006 $214,677 $ 429,353 $ 858,706
Performance Cash(3) 1/1/2004-12/31/2006 $214,677 $ 429,353 $ 944,577
Jeffrey P. Freimark
Restricted Stock(1) 55,043 1/1/2004-12/31/2006
Performance Units(2) 1/1/2004-12/31/2006 $214,672 $ 429,344 $ 858,688
Performance Cash(3) 1/1/2004-12/31/2006 $214,672 $ 429,344 $ 944,557
Cindy H. Susienka
Restricted Stock(1) 49,358 1/1/2004-12/31/2006
Performance Units(2) 1/1/2004-12/31/2006 $192,496 $ 384,992 $ 769,984
Performance Cash(3) 1/1/2004-12/31/2006 $192,496 $ 384,992 $ 846,982
---------------
(1) See the Restricted Stock section of the "Executive Compensation -- Summary
Compensation Table" for a description of restricted shares held by named
executive officers generally, as well as the vesting schedule for the shares
listed in this table.
(2) The Performance Based Restricted Units program has a target of one-third the
total award for the year under the Long-Term Incentive Program. Cumulative
EBITDA improvement and EBITDA margin improvement are measured equally in
measuring performance over the duration of the cycle. The range of payments
for this component are from 50% to 200% of the target amount based on the
performance against the set measures. If the minimum amount under the
performance measures is not met, then the award would be zero. Upon
evaluation and approval of the cycle performance, the participants are paid
an amount of BEI common stock equal to the award value, based on the closing
price of the stock on the date of the evaluation.
(3) The Performance Based Cash program has a target of one-third the total award
for the year under the Long-Term Incentive Program. Cumulative EBITDA
improvement and EBITDA margin improvement are measured equally in measuring
performance over the duration of the cycle. The range of payments for this
component are from 50% to 200% of the target amount based on the performance
against the set measures. This amount is further subject to a multiple as
determined on the gain in stock price during the
38
cycle ranging from 10% to 110%. If the minimum amount under the performance
measures of the cycle or the appreciation in stock price is not met, then
the award would be zero.
DEFINED BENEFIT PLAN
Mr. Floyd receives an additional defined benefit type retirement benefit
pursuant to the SERP. Under the SERP, Mr. Floyd is eligible for an annual
retirement benefit upon his retirement, death or disability equal to 50% of his
final average annual compensation over the last three full years before his
retirement, death or disability. This benefit is not dependent on his years of
service, and is not reduced for Social Security or any other amount. For
purposes of determining Mr. Floyd's final average annual compensation, only
amounts that are part of his annual base salary listed in the Summary
Compensation Table and that do not exceed $1,000,000 will be taken into account.
Mr. Floyd's bonuses, incentive payments, employee benefits, tax gross-up
payments and other special payments and fees are not taken into account. Mr.
Floyd became 100% vested in his SERP benefits on October 16, 2004. Mr. Floyd's
annual SERP retirement benefits are payable for 15 years following his
retirement, death, or disability. Mr. Floyd also has the option of taking his
SERP benefits in a single discounted lump sum payment when he retires. The
discount rate used to determine the lump sum payment will equal the average
Moody's Aa corporate bond return for the month of November immediately before
the lump sum payment of Mr. Floyd's SERP benefits. Mr. Floyd's current estimated
annual retirement benefit under the SERP if he retires on or after October 16,
2005 is $442,599.93.
39
STOCK PERFORMANCE GRAPH
This Stock Performance Graph is not deemed to be "soliciting material" or
"filed" with the SEC, is not subject to the liabilities of Section 18 of the
Exchange Act, and shall not be deemed incorporated by reference into any of the
filings previously made or made in the future by BEI under the Exchange Act or
the Securities Act (except to the extent BEI specifically incorporates this
information into a document that is filed).
The following graph shows a five-year comparison of cumulative total
returns for BEI, the S&P Midcap 400 Index and the S & P Health Care Facilities
Index. The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG BEVERLY ENTERPRISES, INC., THE S & P 500 INDEX
AND THE S & P HEALTH CARE FACILITIES INDEX
(FIVE-YEAR COMPARISON GRAPH)
--------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
--------------------------------------------------------------------------------
BEVERLY
ENTERPRISES, INC $100.00 $187.15 $196.57 $65.14 $196.34 $209.14
S & P MIDCAP 400
INDEX 100.00 90.89 80.09 62.39 80.29 89.02
S & P HEALTH CARE
FACILITIES INDEX 100.00 166.04 169.69 122.52 129.10 116.06
40
EQUITY COMPENSATION PLAN INFORMATION
(AS OF DECEMBER 31, 2004)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING OPTIONS, (EXCLUDING SECURITIES REFLECTED
WARRANTS AND RIGHTS WARRANTS AND RIGHTS IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- -------------------------- ----------------------------- -------------------------------
Equity compensation
plans approved by
security holders...... 6,562,710 $6.5612 7,572,030
Equity compensation
plans not approved by
security holders...... -- -- --
--------- ------- ---------
Total................. 6,562,710 $6.5612 7,572,030
---------------
(1) There are 7,068,986 shares remaining available for issuance under the 1997
Long-Term Incentive Plan, all of which can be issued as restricted stock,
restricted stock units, performance shares, performance units, bonus stock
or other stock-based awards.
EMPLOYMENT CONTRACTS, TERMINATION OF
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
BEI has current employment agreements with each of Messrs. Babb, Floyd and
Freimark and Ms. Susienka. The term of each agreement continues until such time
as BEI gives notice to the executive, at which time the termination date of the
employment agreement becomes three years from the date of such notice.
Each of the agreements provides for an initial base rate of salary that may
be increased by the Nominating and Compensation Committee. Mr. Floyd's agreement
provides that in no event shall his base salary and benefits be reduced unless
the salaries and benefits of all executive-level officers are reduced
proportionately. The agreements for each of Messrs. Floyd, Babb and Freimark, as
amended effective December 1, 2004, provide that BEI shall maintain life
insurance coverage for the remainder of the executive's life, in the amount of
the executive's initial base salary, under the Executive Split Dollar Life
Insurance Plan. The Executive Split Dollar Life Insurance Plan was amended in
May 2004 to meet the requirements of the Sarbanes-Oxley Act of 2002.
The employment agreements generally provide for participation in all
benefit plans, participation in the Annual Incentive Plan and severance benefits
upon termination of employment in connection with a change in control, as
defined therein, or under certain other circumstances. Generally, a "Change in
Control" will be deemed to have occurred in any of the following circumstances:
(i) the acquisition of 30% or more of the outstanding voting stock of
BEI by any person or entity;
(ii) the persons serving as directors of BEI before any contested
election for the Board of BEI, or any tender or exchange offer, merger or
other business combination or sale of assets, or any combination of the
foregoing (a "Transaction"), cease to make up more than 50% of the Board of
BEI or any successor to BEI or its assets;
(iii) the consolidation or merger with any other person or entity
where BEI is not the continuing or surviving corporation;
(iv) any other person or entity consolidates with, or merges with BEI,
and BEI is the continuing or surviving corporation and all or part of the
outstanding BEI common stock is changed into or exchanged for stock or
other securities of any other person or cash or any other property;
41
(v) BEI is party to a statutory share exchange with any other person
after which BEI is a subsidiary of any other person; or
(vi) BEI sells or otherwise transfers 50% or more of the assets or
earning power of BEI and its subsidiaries (taken as a whole) to any other
person or entity.
Generally, the employment agreements provide a severance benefit on
termination after a Change in Control of BEI equal to up to three years of base
salary and target bonus, vesting of all stock-based compensation, continuation
of medical, dental and disability coverage for three years and a relocation
reimbursement. Absent a Change in Control, if a termination of employment is
initiated by BEI without cause or by the executive for good reason, the
severance benefits consist of up to two years of base salary and target bonus, a
continuation of medical, dental and disability coverage for two years and the
same relocation reimbursement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and regulations of the SEC require that
the executive officers, directors and persons who beneficially own more than 10%
of the common stock of BEI file initial reports of ownership and reports of
changes in ownership with the SEC and furnish BEI with copies of all Section
16(a) forms they file. BEI offers assistance with the preparation and filing of
these reports.
Based solely on a review of the copies of the reports and written
representations received from certain executive officers and directors, we
believe that during 2004 our executive officers and directors complied with all
applicable filing requirements with the exception that each of the following
directors and executive officers had one late transaction reported on one
delinquent Form 4 as a result of BEI's delay in communicating BEI's restricted
stock grants: all current executive officers (except Ms. Washburn), all current
directors, former executive officer Blaise J. Mercadante and former directors
James Greene and Edith Holiday. Moreover, Patrice K. Acosta, David R. Devereaux,
James M. Griffith and Cindy H. Susienka each had one additional late transaction
reported on a delinquent Form 4 due to BEI's over-funding of their respective
employee stock purchase plans in August of 2002, which was recently discovered.
The over-funding resulted in shares being sold by BEI in 2002 in order to return
the over-funded amounts to BEI, which was not timely communicated to such
persons.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Mr. Freimark, the Chief Financial and Information Officer, was indebted to
his former employer. As part of his employment agreement with BEI, BEI loaned
Mr. Freimark $194,092.47 on December 31, 2001 (prior to the enactment of the
Sarbanes-Oxley Act of 2002) which was used to pay off the loan from his former
employer. Such amount is the maximum principal amount of the loan. The interest
rate varies based upon the federal short-term rate as published by the IRS. The
outstanding balance of the note plus accrued interest as of March 7, 2005 was
approximately $48,765.28.
OTHER MATTERS
In a letter dated February 4, 2005, Arnold M. Whitman, the Chief Executive
Officer of Formation Capital notified us that he intends to nominate six
individuals for election as directors at the Annual Meeting and to bring the
following proposals before the Annual Meeting for consideration by BEI's
stockholders:
Proposal 3 To amend our By-Laws to fix the number of directors
constituting the entire Board at eight;
Proposal 4 To repeal any amendment to our By-Laws adopted after May 29,
1997, other than the proposed amendment described above; and
Proposal 5 To require that the foregoing proposals be presented prior
to the election of directors and before any other business
is conducted at the Annual Meeting.
42
The Whitman/Appaloosa group has included Mr. Whitman's February 4, 2005
letter to us in a filing with the SEC made on that day under cover of a Schedule
13D. His letter contains information regarding the proposed Whitman/Appaloosa
group nominees. BEI is not responsible for the accuracy or completeness of any
information provided by Mr. Whitman or the Whitman/Appaloosa group in any
letters to us or our Board of Directors or in any oral or written
communications, solicitations or proxy materials made or disseminated by Mr.
Whitman or the Whitman/Appaloosa group or filed by them with the SEC. The
nomination by Formation Capital of six individuals for election as directors at
the Annual Meeting and each of the proposals listed above are intended solely to
help the Whitman/Appaloosa group take control of our Board as part of their
efforts to acquire BEI.
Article III, Section 2 of our By-Laws authorizes our Board of Directors to
fix the specific number of directors constituting the full Board. Our Board of
Directors has already set the size of our Board at eight directors. However,
approval of Formation Capital's proposal to amend our By-Laws to fix the number
of directors constituting the entire Board at eight would prevent us from
increasing the size of our Board in the event one or more of the
Whitman/Appaloosa group's nominees are elected at the Annual Meeting. It would
also preclude us from decreasing the size of the Board when the Board believes
it appropriate to do so. Accordingly, your Board recommends that you vote
"AGAINST" Proposal 3.
With respect to Proposal 4, we note that BEI has not amended its By-Laws
since May 29, 1997. Our By-Laws, as currently in effect, were filed with the SEC
as an exhibit to a Registration Statement on Form S-1 we filed with the SEC on
June 4, 1997. The proposal would, therefore, not result in any change to the
provisions of our By-Laws currently in effect. However, your Board believes
that, as a matter of sound corporate governance, it should have the ability to
amend the By-Laws prior to the Annual Meeting should circumstances arise that in
the good faith judgment of the Board make it in the best interests of BEI to do
so. In addition, your Board believes that its authority to amend the By-Laws
cannot be restricted in this manner. Accordingly, your Board recommends that you
vote "AGAINST" Proposal 4.
Article II, Section 7 of our By-Laws provides that the Chairman of the
Board (or in the absence of the Chairman, certain other officers of BEI) shall
preside over the Annual Meeting. The Chairman of the meeting has the
responsibility to ensure an orderly Annual Meeting. As in prior years, the
Chairman will determine the sequence in which proposals properly brought before
the Annual Meeting will be considered and voted on by stockholders ensuring that
the Annual Meeting proceeds in an orderly fashion. In that regard, the order in
which proposals properly presented at the Annual Meeting will be submitted for a
vote by stockholders has not yet been determined. We do not believe that this
authority of the Chairman can be restricted by a proposal presented at our
Annual Meeting. Further, the Board does not think it appropriate or desirable
that the order of our Annual Meeting be irrevocably fixed regardless of
intervening events that might make it desirable in the Chairman's judgment to
alter the order of the meeting. Accordingly, your Board recommends that you vote
"AGAINST" Proposal 5.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST" ITEMS 3-5 ON THE
ENCLOSED WHITE PROXY CARD.
We urge you NOT to sign or return any blue proxy card sent to you by the
Whitman/Appaloosa group for any reason, even as a protest against their
activities. The best way to support your Board is by voting:
- "FOR" BEI's nominees for director; and
- "AGAINST" the Whitman/Appaloosa group proposals (Items 3-5 on the
enclosed WHITE proxy card).
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.
43
SOLICITATION OF PROXIES
Proxies may be solicited by mail, advertisement, telephone or other methods
and in person. Solicitations may be made by directors, officers, investor
relations personnel and other employees of BEI, none of whom will receive
additional compensation for such solicitations.
BEI has retained Innisfree M&A Incorporated and Georgeson Shareholder
Communications Inc. to provide solicitation and advisory services in connection
with the proxy solicitation, for which Innisfree and Georgeson are each to
receive a fee not to exceed $350,000, together with reimbursement for reasonable
out-of-pocket expenses and for payments made to brokers and other nominees for
their expenses in forwarding soliciting material. Innisfree and Georgeson will
distribute proxy materials to beneficial owners and solicit proxies by personal
interview, mail, telephone and telegram, and will request brokerage houses and
other custodians, nominees and fiduciaries to forward soliciting material to the
beneficial owners of BEI common stock. BEI has also agreed to indemnify
Innisfree and Georgeson against certain liabilities and expenses. It is
anticipated that Innisfree and Georgeson will collectively employ approximately
105 persons to solicit stockholders for the Annual Meeting.
BEI retained Lehman Brothers Inc., referred to as Lehman Brothers, and J.P.
Morgan Securities Inc., referred to as JPMorgan, as its financial advisors to
provide certain financial advisory and investment banking services, including
those in connection with the proposals received from the Whitman/Appaloosa
group, and related matters. Neither Lehman Brothers nor JPMorgan was retained by
BEI to solicit proxies for the Annual Meeting. Neither Lehman Brothers nor
JPMorgan admits that it and any of its respective directors, officers,
employees, affiliates or controlling persons is a "participant," as defined in
Schedule 14A promulgated under the Exchange Act, in the solicitation of proxies
for the Annual Meeting, or that Schedule 14A requires the disclosure of certain
information concerning them. However, Lehman Brothers, JPMorgan and certain of
their respective directors, officers, employees, affiliates or controlling
persons may assist BEI in its solicitation as part of its broader engagement,
although none of Lehman Brothers, JPMorgan and their respective directors,
officers, employees, affiliates or controlling persons will receive any fee for,
or in connection with, any solicitation activities apart from the fees Lehman
Brothers and JPMorgan are otherwise entitled to receive under their respective
engagements. Pursuant to the terms of their engagement letters, BEI has agreed
to pay Lehman and JPMorgan the following fees for their services: (a) a retainer
fee of $250,000 for each of Lehman and JPMorgan, (b) an opinion fee of
$1,500,000 for each of Lehman and JPMorgan upon the delivery of an initial
opinion and a fee of $500,000 for each of Lehman and JPMorgan for each
additional opinion they provide, provided that the maximum fee payable under
this clause (b) to each of Lehman and JPMorgan is $3,000,000, (c) if during the
term of Lehman's or JPMorgan's engagement (or for 18 months after the
termination thereof) a publicly disclosed unsolicited proposal to acquire BEI or
an interest in BEI or any of its assets or businesses is terminated or withdrawn
and within six months after such termination or withdrawal no person or group
has acquired 50% or more of the outstanding common stock of BEI and there has
not been a change in the majority of members of the Board, a fee of $11,000,000
for Lehman and $5,500,000 for JPMorgan, and (d) if during the term of Lehman's
or JPMorgan's engagement (or for 18 months after the termination thereof)
control of BEI or a material interest in BEI or any of its businesses, or a
material amount of any of their respective assets, is transferred to a third
party or a restructuring of BEI occurs, or an agreement to effect such a
transaction or restructuring is entered into that subsequently results in such a
transaction or restructuring, a fee equal to (i) if the consideration per share
is equal to or less than $11.50 per share, 0.56% of the aggregate consideration
for Lehman and 0.28% of the aggregate consideration for JPMorgan or (ii) if the
consideration per share is greater than $11.50 per share, (A) 0.56% of the
aggregate consideration for Lehman and 0.28% of the aggregate consideration for
JPMorgan with respect to the first $11.50 per share and (B) 1.00% for each of
Lehman and JPMorgan of the aggregate consideration in excess of $11.50 per
share. The fees payable pursuant to clauses (a) and (b) are creditable against
the fees paid under clauses (c) and (d) and the fee payable pursuant to clause
(c) is creditable against the fee paid pursuant to clause (d). BEI has also
agreed to reimburse Lehman and JPMorgan for their reasonable out-of-pocket
expenses, including the fees and expenses of counsel, and to indemnify Lehman
and JPMorgan and certain related persons against certain liabilities in
connection with their engagements. Lehman and JPMorgan have each in the past
been retained by BEI to render investment banking and advisory services, and
each has received customary compensation for such services.
44
Costs incidental to these solicitations of proxies will be borne by BEI and
include expenditures for printing, postage, legal, accounting, financial
advisers, public relations, soliciting, advertising and related expenses and,
although no precise estimate can be made at this time, are expected to be
approximately $1,950,000 in addition to the fees of Innisfree, Georgeson, Lehman
Brothers and JPMorgan described above (excluding the amount normally expended by
BEI for the solicitation of proxies at its Annual Meetings and costs represented
by salaries and wages of regular employees and officers). The aggregate amount
to be spent will vary depending on, among other things, any developments in the
proxy contest described in this proxy statement. Total costs incurred to date
for, in furtherance of, or in connection with these solicitations of proxies are
approximately $475,000.
Certain information about the directors and executive officers of BEI and
certain employees and other representatives of BEI who may also solicit proxies
is set forth in Schedule I to this Proxy Statement. Schedule I also sets forth
certain information relating to shares of BEI common stock owned by such parties
and certain transactions between any of them and BEI. Schedule II sets forth
certain information with respect to Lehman Brothers and JPMorgan.
All expenses of solicitation of proxies will be borne by BEI.
DOUGLAS J. BABB
Secretary
March , 2005
Fort Smith, Arkansas
45
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN
OTHER OFFICERS OF BEI WHO MAY BE DEEMED PARTICIPANTS IN BEI'S
SOLICITATION OF PROXIES
NAME, PRINCIPAL BUSINESS ADDRESS AND OFFICE OR OTHER EMPLOYMENT OF PARTICIPANTS
Set forth below is the name, business address and the present principal
occupation or employment, and the name, principal business and address of any
corporation or other organization in which their employment is carried on, of
the (i) directors/nominees, (ii) named executive officers and (iii) certain
other employees of BEI (collectively, the "BEI Participants") who may assist in
soliciting proxies from BEI's stockholders.
DIRECTORS/NOMINEES
The present principal occupation or employment of BEI's directors is set
forth under "BEI Nominees for the Board of Directors" in the Proxy Statement.
The names and principal business addresses of the directors are set forth below.
NAME PRINCIPAL BUSINESS ADDRESS
---- --------------------------
William R. Floyd.............................. One Thousand Beverly Way,
Fort Smith, Arkansas 72919
Melanie Creagan Dreher, Ph.D. ................ University of Iowa
College of Nursing
101F Nursing Building
Iowa City, IA 52242-1121
John D. Fowler, Jr. .......................... Deutsche Bank Securities, Inc.
60 Wall St.
New York, NY 10005
John P. Howe, III, M.D. ...................... Project Hope
255 Carter Hall Lane
Millwood, VA 22646
James W. McLane............................... HealthAxis, Inc.
Towers at Williams Square
5215 North O'Connor Blvd.
Suite 800
Irving, TX 75039
Ivan R. Sabel................................. Hanger Orthopedic Group, Inc.
Two Bethesda Metro Center, Suite 1200
Bethesda, MD 20814
Donald L. Seeley.............................. University of Arizona
1130 East Helen Street
Tucson, AZ 85721
Marilyn R. Seymann, Ph.D. .................... M One, Inc.
7651 S. College Ave.
Tempe, AZ 85284
NAMED EXECUTIVE OFFICERS
The names and principal occupations of BEI's named executive officers are
set forth under "Executive Officers" in this Proxy Statement. The principal
business address of each such person is BEI, One Thousand Beverly Way, Fort
Smith, Arkansas 72919.
I-1
OTHER EMPLOYEES
The name and principal occupations of BEI's other employees who may be
deemed participants are set forth below. The principal business address of each
such person is BEI, One Thousand Beverly Way, Fort Smith, Arkansas 72919.
NAME AND PRINCIPAL BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
----------------------------------- ------------------------------------------
James M. Griffith........................ Senior Vice President -- Investor
Relations and Corporate Communications
Richard D. Skelly, Jr. .................. Senior Vice President and Treasurer
INFORMATION REGARDING OWNERSHIP OF BEI'S SECURITIES BY PARTICIPANTS
The number of shares of BEI common stock and other BEI securities held,
directly or indirectly, by directors and named executive officers of BEI is set
forth on pages and of this Proxy Statement. The number of shares of BEI
common stock and other BEI securities held, directly or indirectly, by the
remaining BEI Participants as of the Record Date is set forth below. No BEI
Participant is the record holder of shares that such person does not
beneficially own.
SHARES OF BEI OPTIONS TO ACQUIRE BEI
NAME OF BENEFICIAL OWNER COMMON STOCK(A) COMMON STOCK(B)
------------------------ --------------- ----------------------
James M. Griffith................................ 193,576 139,100
Richard D. Skelly, Jr. .......................... 70,353 40,000
---------------
(a) Includes 54,670 and 53,043 shares of restricted stock for James M. Griffith
and Richard D. Skelly, Jr., respectively, which will vest upon a change of
control.
(b) The stock options will vest upon a change of control.
GENERAL COMPENSATION
See "Executive Compensation" and "Employment Contracts, Termination of
Employment and Change in Control Agreements" for information regarding the
general compensation and benefits provided to BEI's named executive officers.
James M. Griffith has a severance agreement with BEI, dated as of August
26, 1997. The severance agreement provides benefits on a termination after a
Change in Control of BEI that include three years of base salary as well as
three years of target bonus or annual bonus in the year before the Change of
Control (whichever is higher), vesting of all stock-based compensation,
continuation of medical, dental and disability coverage for three years and a
relocation reimbursement. Absent a Change in Control, if a termination of
employment is initiated by BEI without cause or by Mr. Griffith for good reason
(as defined in the severance agreement), the severance benefits consist of one
year of base salary and one year of target or annual bonus (whichever is
higher), a continuation of medical, dental and disability coverage for one year
and the same relocation reimbursement. See "Employment Contracts, Termination of
Employment and Change in Control Agreements" for the definition of a "Change in
Control."
Richard D. Skelly, Jr. does not have an employment or severance agreement
with BEI, but the terms of his offer letter of employment provide for two years
base salary and target bonus upon a Change of Control and one year of base
salary and target bonus if a termination of employment is initiated by BEI
without cause or by Mr. Skelly for good reason.
I-2
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
For a discussion of awards in the last fiscal year to the named executive
officers under BEI's Long-Term Incentive Plan, see "Executive
Compensation -- Long-Term Incentive Plans -- Awards in Last Fiscal Year." The
following table presents awards in the last fiscal year to other BEI
participants under BEI's Long-Term Incentive Plan.
LONG-TERM INCENTIVE PLANS
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NUMBER OF SHARES, PERFORMANCE OR OTHER ----------------------------------
UNITS OR OTHER PERIOD UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS OR PAYOUT $ $ $
---- ----------------- ----------------------- ----------- -------- ---------
JAMES M. GRIFFITH
Restricted Stock 14,670 1/1/2004 - 12/31/2006
Performance Units(1) 1/1/2004 - 12/31/2006 $57,213 $114,425 $228,850
Performance Cash(2) 1/1/2004 - 12/31/2006 $57,213 $114,425 $251,735
RICHARD D. SKELLY, JR.
Restricted Stock 13,043 1/1/2004 - 12/31/2006
Performance Units(1) 1/1/2004 - 12/31/2006 $50,868 $101,735 $203,470
Performance Cash(2) 1/1/2004 - 12/31/2006 $50,868 $101,735 $223,817
---------------
(1) The Performance Based Restricted Units program has a target of one third the
total value delivered for the year under the Long-Term Incentive Program.
The performance is measured equally in both cumulative EBITDA and EBITDA
margin improvement over the duration of the cycle. The range of payments for
this component are from 50% to 200% of the target amount based on the
performance against the set measures. However, if the minimum amount under
the performance measures is not met, then the award would be zero. Upon
evaluation and approval of the cycle, the participants are paid in stock for
the equivalent amount approved under the plan and any residual between the
approved award and the amount delivered in shares is paid in cash to the
participant.
(2) The Performance Based Cash program has a target of one third the total value
delivered for the year under the Long-Term Incentive Program. The
performance is measured equally in both cumulative EBITDA and EBITDA margin
improvement over the duration of the cycle. The range of payments for this
component are from 50% to 200% of the target amount based on the performance
against the set measures. This amount is further subject to a multiple as
determined on the gain in stock price during the cycle ranging from 10% to
110%. However, if the minimum amount under the performance measures of the
cycle or the appreciation in stock price is not met, then the award would be
zero.
The following table sets forth certain amounts of cash and common stock
that BEI is required to pay the BEI participants in connection with BEI's
Long-Term Incentive Plan for the three-year period ended December 31, 2003.
LONG-TERM INCENTIVE PLANS -- TOTAL CASH PAY-OUTS IN 2005 AND 2006
UNDER NON-STOCK PRICE BASED PLANS
NAME JANUARY 2005 JANUARY 2006
---- ------------ ------------
WILLIAM R. FLOYD........................................... $208,416.67 $208,416.66
DOUGLAS J. BABB............................................ $ 81,392.00 $ 81,392.00
DAVID R. DEVEREAUX......................................... $ 91,812.67 $ 91,812.66
JEFFREY P. FREIMARK........................................ $ 91,808.67 $ 91,808.67
CINDY H. SUSIENKA.......................................... $ 68,333.33 $ 68,333.33
JAMES M. GRIFFITH.......................................... $ 55,000.00 $ 55,000.00
RICHARD D. SKELLY, JR. .................................... $ 43,333.33 $ 43,333.33
I-3
PURCHASES AND SALES OF BEI SECURITIES
The following table sets forth all purchases and sales of BEI's securities
by BEI Participants during the past two years. Unless otherwise indicated, all
transactions were in the public market and none of the purchase price or market
value of those shares is represented by funds borrowed or otherwise obtained for
the purpose of acquiring and holding such securities. To the extent that any
part of the purchase price or market value of those shares is represented by
funds borrowed or otherwise obtained for the purpose of acquiring and holding
such securities, the amount of the indebtedness as of the latest practicable
date is set forth below. If those funds were borrowed or obtained otherwise than
pursuant to a margin account or bank loan in the ordinary course of business of
a bank, broker or dealer, a brief description of the transaction and the names
of the parties are set forth below.
DATE OF TRANSACTION TYPE NUMBER OF NATURE OF
NAME TRANSACTION (PURCHASE/SALE) SHARES TRANSACTION
---- ----------- ---------------- --------- -----------
Douglas J. Babb............................. 4/1/2003 Purchase 125,000 (1)
5/20/2004 Purchase 51,838 (1)
5/10/2004 Sale 13,937 (2)
David R. Devereaux.......................... 2/27/2003 Purchase 11,473 (7)
4/1/2003 Purchase 125,000 (1)
5/20/2004 Purchase 55,044 (1)
2/27/2003 Sale 1,192 (4)
2/27/2003 Sale 11,473 (7)
4/30/2003 Sale 2,943 (2)
5/10/2004 Sale 13,833 (2)
8/18/2004 Sale 15,200 (2)
Melanie Creghan Dreher, Ph.D. .............. 9/1/2004 Purchase 153 (5)
10/1/2004 Purchase 97 (5)
11/1/2004 Purchase 163 (5)
12/1/2004 Purchase 80 (5)
1/3/2005 Purchase 197 (5)
2/1/2005 Purchase 105 (5)
3/1/2005 Purchase 180 (5)
William R. Floyd............................ 4/1/2003 Purchase 313,125 (1)
5/20/2004 Purchase 214,822 (1)
1/2/2004 Sale 15,249 (2)
5/10/2004 Sale 34,913 (2)
1/2/2005 Sale 14,996 (2)
John D. Fowler, Jr. ........................ 3/3/2003 Purchase 4,503 (5)
4/1/2003 Purchase 3,539 (5)
5/1/2003 Purchase 1,851 (5)
6/2/2003 Purchase 11,000 (6)
6/2/2003 Purchase 2,375 (5)
7/1/2003 Purchase 1,224 (5)
8/1/2003 Purchase 1,321 (5)
9/2/2003 Purchase 701 (5)
10/2/2003 Purchase 811 (5)
11/3/2003 Purchase 1,165 (5)
12/1/2003 Purchase 934 (5)
1/2/2004 Purchase 976 (5)
2/2/2004 Purchase 675 (5)
2/2/2004 Purchase 612 (5)
3/1/2004 Purchase 1,121 (5)
4/1/2004 Purchase 1,694 (5)
5/3/2004 Purchase 1,165 (5)
5/20/2004 Purchase 15,385 (5)
6/1/2004 Purchase 1,140 (5)
I-4
DATE OF TRANSACTION TYPE NUMBER OF NATURE OF
NAME TRANSACTION (PURCHASE/SALE) SHARES TRANSACTION
---- ----------- ---------------- --------- -----------
7/1/2004 Purchase 794 (5)
8/2/2004 Purchase 538 (5)
9/1/2004 Purchase 1,145 (5)
10/1/2004 Purchase 553 (5)
11/1/2004 Purchase 940 (5)
12/1/2004 Purchase 592 (5)
1/3/2005 Purchase 1,006 (5)
Jeffrey P. Freimark......................... 4/1/2003 Purchase 125,000 (1)
5/20/2004 Purchase 55,043 (1)
5/10/2004 Sale 13,937 (2)
James M. Griffith........................... 2/27/2003 Purchase 30 (3)
2/27/2003 Purchase 7,000 (8)
2/27/2003 Purchase 3,000 (8)
2/27/2003 Purchase 14,236 (7)
4/1/2003 Purchase 60,000 (1)
5/20/2004 Purchase 14,670 (1)
2/27/2003 Sale 14,236 (7)
5/10/2004 Sale 6,690 (2)
8/18/2004 Sale 18,612 (2)
John P. Howe, III, M.D. .................... 3/3/2003 Purchase 2,903 (5)
4/1/2003 Purchase 1,022 (5)
5/1/2003 Purchase 925 (5)
6/2/2003 Purchase 11,000 (6)
6/2/2003 Purchase 844 (5)
7/1/2003 Purchase 612 (5)
8/1/2003 Purchase 437 (5)
9/2/2003 Purchase 261 (5)
10/2/2003 Purchase 405 (5)
11/3/2003 Purchase 484 (5)
12/1/2003 Purchase 309 (5)
1/2/2004 Purchase 417 (5)
2/2/2004 Purchase 675 (5)
2/2/2004 Purchase 228 (5)
3/1/2004 Purchase 480 (5)
4/1/2004 Purchase 515 (5)
5/3/2004 Purchase 582 (5)
5/20/2004 Purchase 15,385 (5)
6/1/2004 Purchase 426 (5)
7/1/2004 Purchase 223 (5)
8/2/2004 Purchase 242 (5)
9/1/2004 Purchase 553 (5)
10/1/2004 Purchase 249 (5)
11/1/2004 Purchase 374 (5)
12/1/2004 Purchase 205 (5)
1/3/2005 Purchase 439 (5)
2/1/2005 Purchase 275 (5)
3/1/2005 Purchase 395 (5)
James. W. McLane............................ 3/3/2003 Purchase 963 (5)
4/1/2003 Purchase 1,333 (5)
5/1/2003 Purchase 463 (5)
6/2/2003 Purchase 11,000 (6)
6/2/2003 Purchase 594 (5)
7/1/2003 Purchase 306 (5)
8/1/2003 Purchase 274 (5)
I-5
DATE OF TRANSACTION TYPE NUMBER OF NATURE OF
NAME TRANSACTION (PURCHASE/SALE) SHARES TRANSACTION
---- ----------- ---------------- --------- -----------
9/2/2003 Purchase 131 (5)
10/2/2003 Purchase 203 (5)
11/3/2003 Purchase 291 (5)
12/1/2003 Purchase 194 (5)
1/2/2004 Purchase 209 (5)
2/2/2004 Purchase 675 (5)
2/2/2004 Purchase 306 (5)
3/1/2004 Purchase 480 (5)
4/1/2004 Purchase 657 (5)
5/3/2004 Purchase 386 (5)
5/20/2004 Purchase 15,385 (1)
6/1/2004 Purchase 498 (5)
7/1/2004 Purchase 372 (5)
8/2/2004 Purchase 242 (5)
9/1/2004 Purchase 622 (5)
10/1/2004 Purchase 249 (5)
11/1/2004 Purchase 446 (5)
12/1/2004 Purchase 273 (5)
1/3/2005 Purchase 508 (5)
Ivan R. Sabel............................... 3/11/2004 Purchase 2,750 (6)
4/1/2004 Purchase 934 (5)
5/3/2004 Purchase 771 (5)
5/20/2004 Purchase 15,385 (5)
6/1/2004 Purchase 708 (5)
7/1/2004 Purchase 645 (5)
8/2/2004 Purchase 376 (5)
9/1/2004 Purchase 1,335 (5)
10/1/2004 Purchase 387 (5)
11/1/2004 Purchase 796 (5)
12/1/2004 Purchase 319 (5)
1/3/2005 Purchase 924 (5)
2/1/2005 Purchase 685 (5)
3/1/2005 Purchase 659 (5)
Donald L. Seeley............................ 6/2/2003 Purchase 11,000 (6)
5/20/2004 Purchase 15,385 (1)
Marilyn R. Seymann, Ph.D. .................. 6/2/2003 Purchase 11,000 (6)
2/2/2004 Purchase 675 (5)
5/20/2004 Purchase 15,385 (1)
Richard D. Skelly, Jr. ..................... 3/5/2003 Purchase 750 (8)
4/1/2003 Purchase 60,000 (1)
5/20/2004 Purchase 13,043 (1)
5/10/2004 Sale 6,690 (2)
Cindy H. Susienka........................... 2/27/2003 Purchase 7,824 (7)
3/3/2003 Purchase 3,000 (8)
3/3/2003 Purchase 2,000 (8)
4/1/2003 Purchase 60,000 (1)
5/20/2004 Purchase 49,358 (1)
2/27/2003 Sale 9,781 (7)
5/10/2004 Sale 6,640 (2)
8/18/2004 Sale 1,266 (2)
---------------
(1) Restricted stock award.
(2) Shares surrendered in payment of taxes associated with scheduled vesting of
restricted shares.
I-6
(3) Issuance of phantom stock units pursuant to the Executive Deferred
Compensation Plan.
(4) Cancellation of unvested shares due to termination of the Executive Deferred
Compensation Plan.
(5) Issuance of phantom stock units pursuant to the Non-Employee Director
Deferred Compensation Plan.
(6) Non-qualified stock option grant.
(7) Distribution of vested shares of BEI common stock in connection with
termination of Executive Deferred Compensation Plan.
(8) Open market purchase.
I-7
MISCELLANEOUS INFORMATION CONCERNING BEI PARTICIPANTS
Douglas J. Babb, William R. Floyd and Jeffrey P. Freimark have agreed to
serve as proxies with respect to BEI's WHITE proxy card.
Other than as disclosed in this Schedule or in the Proxy Statement, to the
knowledge of BEI:
(i) no BEI Participant is, or has been within the past year, a party
to any contract, arrangement or understanding with any person with respect
to any securities of BEI, including, but not limited to, joint ventures,
loan or option arrangements, puts or calls, guarantees against loss or
guarantees of profit, division of losses or profits, or the giving or
withholding of proxies.
(ii) no BEI Participant beneficially owns, directly or indirectly, any
securities of any subsidiary of BEI.
(iii) no associates of any BEI Participant beneficially own, directly
or indirectly, any securities of BEI.
(iv) none of the BEI Participants or any of their respective
associates, has had or will have a direct or indirect material interest in
any transaction or series of similar transactions since the beginning of
January 1, 2004, or any currently proposed transactions or series of
similar transactions, to which BEI or any of its subsidiaries was or is to
be a party in which the amount involved exceeds $60,000.
(v) none of the BEI Participants nor any of their respective
associates has any arrangements or understandings with any person with
respect to (i) any future employment by BEI or its affiliates or (ii) any
future transactions to which BEI or any of its affiliates will or may be a
party.
(vi) no BEI Participant has any substantial interest, direct or
indirect, by security holdings or otherwise, in any matter to be acted upon
at the Annual Meeting.
I-8
SCHEDULE II
INFORMATION CONCERNING LEHMAN BROTHERS AND JPMORGAN AND CERTAIN OF THEIR
EMPLOYEES WHO MAY BE DEEMED PARTICIPANTS IN BEI'S SOLICITATION OF PROXIES
BEI retained Lehman Brothers and JPMorgan as its financial advisors to
provide certain financial advisory and investment banking services, including
those in connection with the proposals received from the Whitman/Appaloosa group
and related matters. BEI has agreed to pay Lehman Brothers and JPMorgan
customary fees for such services and to reimburse Lehman Brothers and JPMorgan
for reasonable out-of-pocket expenses and to indemnify Lehman Brothers, JPMorgan
and certain related persons against certain liabilities relating to or arising
out of the engagements. Although neither Lehman Brothers nor JPMorgan admits
that it or any of its directors, officers, employees, affiliates or controlling
persons is a "participant," as defined in Schedule 14A promulgated under the
Exchange Act, in the solicitation of proxies for the Annual Meeting, or that
Schedule 14A requires the disclosure of certain information concerning them, the
following employees of Lehman Brothers and JPMorgan may assist BEI in its
solicitation of proxies. However, none of Lehman Brothers, JPMorgan or any of
the persons named below will receive any fee for, or in connection with, any
solicitation activities apart from the fees Lehman Brothers and JPMorgan are
otherwise entitled to receive under their respective engagements.
The business address of the employees of Lehman Brothers is 745 Seventh
Avenue, New York, NY 10019. The business address of the employees of JPMorgan is
277 Park Avenue, New York, NY 10172.
NAME AND PRINCIPAL BUSINESS ADDRESS PRINCIPAL OCCUPATION
----------------------------------- --------------------
Mark Shafir.................................... Managing Director, Lehman Brothers
Brian McCarthy................................. Managing Director, Lehman Brothers
Barry Blake.................................... Senior Vice President, Lehman Brothers
David Sturek................................... Vice President, Lehman Brothers
Robert Snead................................... Associate, Lehman Brothers
Doug Braunstein................................ Managing Director, JPMorgan
Brian Gottlieb................................. Managing Director, JPMorgan
Cory Rapkin.................................... Vice President, JPMorgan
David McCollough............................... Vice President, JPMorgan
Patrick Cook................................... Vice President, JPMorgan
Aaron Rubin.................................... Associate, JPMorgan
Lehman Brothers is an internationally recognized, full service securities
firm offering a range of investment banking, securities trading, market-making
and brokerage services for institutional and individual clients. JPMorgan and
its affiliates comprise an internationally recognized full service securities
firm and a commercial bank engaged in securities trading and brokerage
activities, as well as providing investment banking, asset management,
financing, and financial advisory services and other commercial and investment
banking products and services to a wide range of corporations and individuals.
Lehman Brothers, JPMorgan and their respective affiliates may trade the
securities of BEI for their own accounts and the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities,
or option contracts or other derivatives in or relating to such securities. As
of the Record Date, each of Lehman Brothers and JPMorgan, for its account,
beneficially owned less than 1% of BEI common stock. Lehman Brothers, JPMorgan
and their respective affiliates may have voting and/or dispositive power with
respect to securities of BEI held in management, brokerage and other accounts.
Lehman Brothers, JPMorgan and their respective affiliates disclaim beneficial
ownership of securities of BEI not held for their own respective accounts. None
of the individuals listed above (the "Other BEI Participants") has purchased or
sold any BEI securities during the past two years. However, the Other BEI
Participants may hold investments in certain investment funds which from time to
time may hold positions in BEI securities. The Other BEI Participants do not
exercise any investment control or discretion with respect to the securities
purchased or sold by such
II-1
investment funds and disclaim beneficial ownership of any BEI securities that
may from time to time be held by such funds.
MISCELLANEOUS INFORMATION CONCERNING OTHER BEI PARTICIPANTS
Other than as disclosed in this Schedule or in the Proxy Statement, to the
knowledge of BEI:
(i) no Other BEI Participant is, or has been within the past year, a
party to any contract, arrangement or understanding with any person with
respect to any securities of BEI, including, but not limited to, joint
ventures, loan or option arrangements, puts or calls, guarantees against
loss or guarantees of profit, division of losses or profits, or the giving
or withholding of proxies.
(ii) no Other BEI Participant beneficially owns, directly or
indirectly, any securities of any subsidiary of BEI.
(iii) no associates of any Other BEI Participant beneficially own,
directly or indirectly, any securities of BEI.
(iv) none of the Other BEI Participants or any of their respective
associates, has had or will have a direct or indirect material interest in
any transaction or series of similar transactions since the beginning of
January 1, 2004, or any currently proposed transactions or series of
similar transactions, to which BEI or any of its subsidiaries was or is to
be a party in which the amount involved exceeds $60,000.
(v) none of the Other BEI Participants nor any of their respective
associates has any arrangements or understandings with any person with
respect to (i) any future employment by BEI or its affiliates or (ii) any
future transactions to which BEI or any of its affiliates will or may be a
party.
(vi) no Other BEI Participant has any substantial interest, direct or
indirect, by security holdings or otherwise, in any matter to be acted upon
at the Annual Meeting.
II-2
PROXY
BEVERLY ENTERPRISES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas J. Babb, William R. Floyd and
Jeffrey P. Freimark, and 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 7, 2005 at the Annual Meeting of Stockholders to be held on
April 21, 2005 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 SPECIFICATION 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
2005; AND AGAINST THE SHAREHOLDER PROPOSALS LISTED AS ITEMS 3-5 ON THE REVERSE
SIDE OF THIS PROXY CARD.
The undersigned hereby revokes all proxies previously given by the
undersigned to vote at the Annual Meeting of Stockholders or any adjournment or
postponement thereof.
IMPORTANT -- THIS PROXY CARD MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
----------------
SEE REVERSE SIDE
----------------
[X] PLEASE MARK YOUR
VOTES AS IN
THIS EXAMPLE
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
OF PROPOSALS 1 & 2 PROPOSALS 3, 4 AND 5.
WITHHOLD
AUTHORITY
FOR TO VOTE FOR
ALL NOMINEES ALL NOMINEES
LISTED TO LEFT LISTED TO LEFT *EXCEPTIONS FOR AGAINST ABSTAIN
1. Election Of Directors 3. Amend the By-Laws to fix the [ ] [ ] [ ]
Nominees: William R. Floyd, [ ] [ ] [ ] number of Directors constituting
Melanie Creagan the entire Board at Eight
Dreher, Ph.D.,
John D. Fowler, Jr., 4. Repeal any Amendment to the [ ] [ ] [ ]
John P. Howe, III, M.D., By-Laws adopted after May 29,
James W. McLane, 1997, other than the Amendment
Ivan R. Sabel, described in Proposal 3
Donald L. Seeley and
Marilyn R. Seymann, Ph.D. 5. Require that Proposals 3 and 4 [ ] [ ] [ ]
be presented prior to the
Election of Directors and
before any other business is
conducted at the Annual
Meeting
(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 To change your address, please mark this box. [ ]
----------------------------------------------------------------
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.
FOR AGAINST ABSTAIN
2. Appointment of Ernst & Young LLP as Independent [ ] [ ] [ ]
Auditors for 2005
Date ___________________________________________ , 2005
--------------------------------------------------------
Signature
--------------------------------------------------------
Signature/Title
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 partnership name by authorized person.
PLEASE SIGN, DATE AND RETURN TODAY IN THE ENCLOSED ENVELOPE. THIS PROXY WILL NOT BE USED IF YOU ATTEND THE ANNUAL MEETING IN
PERSON AND SO REQUEST.