-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FqF+CsYJv1j1xnJ+oPqcupCsyQIzf0YF1Me5U3M3IKIm4T38tZ2LYa1JNpbsRKIA yU0G8R8/NL1vNvDiRLg+fA== 0000950134-96-004292.txt : 19960816 0000950134-96-004292.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950134-96-004292 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEVERLY ENTERPRISES INC /DE/ CENTRAL INDEX KEY: 0000812305 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 954100309 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09550 FILM NUMBER: 96612550 BUSINESS ADDRESS: STREET 1: 1200 S WALDRON RD STREET 2: STE 155 CITY: FORT SMITH STATE: AR ZIP: 72903 BUSINESS PHONE: 5014526712 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1996 1 ================================================================================ ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ---------- ---------- COMMISSION FILE NUMBER 1-9550 BEVERLY ENTERPRISES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4100309 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5111 ROGERS AVENUE, SUITE 40-A FORT SMITH, ARKANSAS 72919-0155 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (501) 452-6712 INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- SHARES OF REGISTRANT'S COMMON STOCK, $.10 PAR VALUE, OUTSTANDING, EXCLUSIVE OF TREASURY SHARES, AT JULY 31, 1996 -- 99,259,178 ________________________________________________________________________________ ================================================================================ 2 BEVERLY ENTERPRISES, INC. FORM 10-Q JUNE 30, 1996 TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets . . . . . . . . . . 2 Condensed Consolidated Statements of Income . . . . . . . 3 Condensed Consolidated Statements of Cash Flows . . . . . 4 Notes to Condensed Consolidated Financial Statements. . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 7 PART II -- OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 11 Item 4. Submission of Matters to a Vote of Security Holders. . . . . 11 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 12
1 3 PART I BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31, 1996 1995 ----------- ------------ (UNAUDITED) (NOTE) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,433 $ 56,303 Accounts receivable-patient, less allowance for doubtful accounts: 1996 - $25,396; 1995 - $22,860 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524,354 514,820 Accounts receivable-nonpatient, less allowance for doubtful accounts: 1996 - $623; 1995 - $497 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,671 15,995 Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,999 7,460 Operating supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,374 59,109 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,428 24,892 Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,323 38,013 ----------- ----------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707,582 716,592 Property and equipment, net of accumulated depreciation and amortization: 1996 - $613,885; 1995 - $581,025 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,211,757 1,189,985 Other assets: Notes receivable, less allowance for doubtful notes: 1996 - $5,022; 1995 - $4,953 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,233 41,915 Designated and restricted funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,227 57,082 Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387,644 380,681 Operating and leasehold rights and licenses, net . . . . . . . . . . . . . . . . . . . . 17,313 18,086 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,148 102,120 ----------- ----------- Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605,565 599,884 ----------- ----------- $ 2,524,904 $ 2,506,461 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 114,823 $ 155,385 Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 78,000 Accrued wages and related liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 147,530 134,391 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,637 10,261 Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,087 88,869 Current portion of long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . 37,710 84,639 ----------- ----------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457,787 551,545 Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,076,462 988,909 Deferred income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,578 54,687 Other liabilities and deferred items . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,860 90,987 Commitments and contingencies Stockholders' equity: Common stock, shares issued: 1996 - 104,135,592; 1995 - 102,618,241 . . . . . . . . . . 10,414 10,262 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769,520 766,549 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,348 83,657 Treasury stock, at cost: 1996 - 4,879,108; 1995 - 3,972,208 . . . . . . . . . . . . . (51,065) (40,135) ----------- ----------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 843,217 820,333 ----------- ----------- $ 2,524,904 $ 2,506,461 =========== ===========
NOTE: The balance sheet at December 31, 1995 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 2 4 BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ---------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net operating revenues . . . . . . . . . . . . . . . . . . . $ 798,333 $ 790,375 $ 1,609,380 $ 1,585,994 Interest income . . . . . . . . . . . . . . . . . . . . . . . 3,475 3,262 6,935 6,762 --------- --------- ----------- ---------- Total revenues . . . . . . . . . . . . . . . . . . . . 801,808 793,637 1,616,315 1,592,756 Costs and expenses: Operating and administrative: Wages and related . . . . . . . . . . . . . . . . . . . 444,527 424,979 894,522 842,412 Other . . . . . . . . . . . . . . . . . . . . . . . . . 280,006 297,772 573,490 606,313 Interest . . . . . . . . . . . . . . . . . . . . . . . . . 22,983 21,725 46,128 42,274 Depreciation and amortization . . . . . . . . . . . . . . 25,967 26,087 51,023 51,991 --------- --------- ----------- ---------- Total costs and expenses . . . . . . . . . . . . . . . 773,483 770,563 1,565,163 1,542,990 --------- --------- ----------- ---------- Income before provision for income taxes . . . . . . . . . . 28,325 23,074 51,152 49,766 Provision for income taxes . . . . . . . . . . . . . . . . . 11,330 8,768 20,461 18,911 --------- --------- ----------- ---------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,995 $ 14,306 $ 30,691 $ 30,855 ========= ========= =========== ========== Net income per share of common stock: Primary: Net income applicable to common shares . . . . . . . . . $ 16,995 $ 12,244 $ 30,691 $ 26,730 ========= ========= =========== ========== Net income per share of common stock . . . . . . . . . . $ .17 $ .14 $ .31 $ .31 ========= ========= =========== ========== Shares used to compute net income per share . . . . . . 100,079 87,864 100,028 87,593 ========= ========= =========== ========== Fully diluted: Net income applicable to common shares . . . . . . . . . $ 18,233 $ 12,244 $ 33,167 $ 26,730 ========= ========= =========== ========== Net income per share of common stock . . . . . . . . . . $ .16 $ .14 $ .30 $ .30 ========= ========= =========== ========== Shares used to compute net income per share . . . . . . 111,341 87,864 111,299 87,659 ========= ========= =========== ==========
For the three-month and six-month periods ended June 30, 1995, net income applicable to common shares was computed by deducting preferred stock dividends from net income. During the fourth quarter of 1995, the Company exchanged its cumulative convertible exchangeable preferred stock into 5 1/2% convertible subordinated debentures. Primary earnings per share for the three-month and six-month periods ended June 30, 1996 and 1995 and fully diluted earnings per share for the three-month and six-month periods ended June 30, 1995 were computed by dividing net income applicable to common shares by the weighted average number of shares of common stock outstanding during the period and the weighted average number of shares issuable upon exercise of stock options, calculated using the treasury stock method. Fully diluted earnings per share for the three-month and six-month periods ended June 30, 1996 were computed as above and assumed conversion of the Company's 5 1/2% convertible subordinated debentures. Conversion of the Company's 7 5/8% convertible subordinated debentures and zero coupon notes would have an anti-dilutive effect and, therefore, were not assumed. See accompanying notes. 3 5 BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) (IN THOUSANDS)
1996 1995 ---------- ---------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,691 $ 30,855 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 51,023 51,991 Provision for reserves and discounts on patient, notes and other receivables, net 11,549 8,336 Amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . . 2,726 2,193 (Gains) losses on dispositions of facilities and other assets, net . . . . . . . (2,890) 3,848 Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,271 2,398 Net decrease in insurance related accounts . . . . . . . . . . . . . . . . . . . (8,204) (3,597) Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable - patient . . . . . . . . . . . . . . . . . . . . . . . . (22,809) (42,390) Operating supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,247 944 Prepaid expenses and other receivables . . . . . . . . . . . . . . . . . . . . (1,752) (1,624) Accounts payable and other accrued expenses . . . . . . . . . . . . . . . . . (19,662) 1,481 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,199 1,645 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,169) (598) ----------- ---------- Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,529 24,627 ----------- ---------- Net cash provided by operating activities . . . . . . . . . . . . . . . . . 56,220 55,482 Cash flows from investing activities: Payments for acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . (25,721) (18,159) Proceeds from dispositions of facilities and other assets . . . . . . . . . . . . . 12,579 14,068 Collections on notes receivable and REMIC investment . . . . . . . . . . . . . . . . 6,815 10,445 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (79,806) (63,257) Construction and development in progress, net . . . . . . . . . . . . . . . . . . . 18,414 (17,527) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,820) (5,433) ----------- ---------- Net cash used for investing activities . . . . . . . . . . . . . . . . . . (72,539) (79,863) Cash flows from financing activities: Revolver borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601,000 391,000 Repayments of Revolver borrowings . . . . . . . . . . . . . . . . . . . . . . . . . (624,000) (382,000) Proceeds from issuance of long-term obligations . . . . . . . . . . . . . . . . . . 180,000 25,000 Repayments of long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . (136,834) (24,896) Purchase of common stock into treasury . . . . . . . . . . . . . . . . . . . . . . . (6,238) --- Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . 2,426 683 Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,893) (1,329) Dividends paid on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . (688) (4,125) Proceeds from designated funds, net . . . . . . . . . . . . . . . . . . . . . . . . 1,676 554 ----------- ---------- Net cash provided by financing activities . . . . . . . . . . . . . . . . . 11,449 4,887 ----------- ---------- Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . (4,870) (19,494) Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . 56,303 67,964 ----------- ---------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . $ 51,433 $ 48,470 =========== ========== Supplemental schedule of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) . . . . . . . . . . . . . . . . . . . . . . . . $ 37,026 $ 39,345 Income taxes (net of refunds) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,991 14,868
See accompanying notes. 4 6 BEVERLY ENTERPRISES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (i) The condensed consolidated financial statements included herein have been prepared by the Company, without audit, and include all adjustments of a normal recurring nature which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three-month and six-month periods ended June 30, 1996 and 1995 pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures in these condensed consolidated financial statements are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto included in the Company's 1995 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the three-month and six-month periods ended June 30, 1996 are not necessarily indicative of the results for a full year. Unless the context indicates otherwise, the Company means Beverly Enterprises, Inc. and its consolidated subsidiaries. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform with the 1996 presentation. (ii) The provisions for income taxes for the three-month and six-month periods ended June 30, 1996 and 1995 were based on estimated annual effective tax rates of 40% and 38%, respectively. The Company's estimated annual effective tax rates for 1996 and 1995 are different than the federal statutory rate primarily due to the impact of state income taxes and amortization of nondeductible goodwill. The Company's estimated annual effective tax rate increased to 40% in 1996 primarily as a result of amortization of nondeductible goodwill. The provisions for income taxes consist of the following for the three-month and six-month periods ended June 30 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Federal: Current . . . . . . . . . . . . . $ 4,946 $ 5,871 $ 9,499 $ 12,985 Deferred . . . . . . . . . . . . . 4,074 1,051 6,839 1,945 State: Current . . . . . . . . . . . . . 1,377 1,569 2,691 3,528 Deferred . . . . . . . . . . . . . 933 277 1,432 453 -------- -------- -------- -------- $ 11,330 $ 8,768 $ 20,461 $ 18,911 ======== ======== ======== ========
(iii) During the six months ended June 30, 1996, the Company purchased five previously leased nursing facilities (500 beds) and certain other assets, including among other things hospice and outpatient therapy businesses, for approximately $26,400,000 cash. Also during such period, the Company sold or terminated the leases on 67 nursing facilities (3,540 beds) for cash proceeds of approximately $12,400,000. The Company recognized net pre-tax gains of approximately $2,900,000 as a result of these dispositions. The operations of these facilities were immaterial to the Company's financial position and results of operations. (iv) In February 1996, the Company completed the sale of $180,000,000 of 9% Senior Notes due February 15, 2006 (the "Senior Notes") through a public offering (the "Senior Notes offering") for net cash proceeds of approximately $174,850,000. The Company used approximately $87,500,000 of such net proceeds to prepay certain scheduled maturities under its 1994 Term Loan, approximately $28,000,000 to prepay certain scheduled maturities under its 1992 Term Loan, approximately $8,750,000 to prepay certain scheduled maturities under its Nippon Term Loan, and the 5 7 BEVERLY ENTERPRISES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 (UNAUDITED) remaining net proceeds to repay Revolver borrowings and for general corporate purposes. The Senior Notes are unsecured obligations, guaranteed by substantially all of the Company's present and future subsidiaries, and impose on the Company certain restrictive covenants. In addition, the Company amended certain of its other credit agreements during the second quarter of 1996 to change various restrictive covenants. In May 1996, the Company filed a Registration Statement covering $200,000,000 of debt securities, shares of preferred stock, shares of Common Stock and warrants to purchase Common Stock which may be offered, separately or together, in separate series in amounts, at prices and on terms to be determined at the time of sale. The net proceeds from the offerings are anticipated to be used for general corporate purposes, which may include, but are not limited to, working capital, capital expenditures, repayments of indebtedness and acquisitions. As of June 30, 1996, no securities have been issued under such registration. On June 13, 1996, the Company announced that its Board of Directors had, on that date, authorized a stock repurchase program whereby the Company may repurchase, from time to time on the open market, up to a total of 10,000,000 shares of its outstanding Common Stock. During June 1996, the Company repurchased approximately 900,000 shares of its Common Stock at a cost of approximately $10,900,000. The repurchases were financed primarily through proceeds from dispositions and borrowings under the Company's revolving credit facility. (v) There are various lawsuits and regulatory actions pending against the Company arising in the normal course of business, some of which seek punitive damages. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. (vi) Effective July 31, 1987, Beverly Enterprises, a California corporation ("Beverly California"), became a wholly-owned subsidiary of Beverly Enterprises, Inc., a Delaware corporation ("Beverly Delaware"). Effective January 1, 1995, Beverly California changed its name to Beverly Health and Rehabilitation Services, Inc. ("BHRS") and distributed certain of its wholly-owned subsidiaries to Beverly Delaware in an effort to better focus management's attention on specific services delivered by the Company within the long-term healthcare arena. Such subsidiaries include, among others, Pharmacy Corporation of America, American Transitional Hospitals, Inc. and Beverly Indemnity, Ltd. Beverly Delaware (the parent) provides financial, administrative and legal services to these subsidiaries, including BHRS, for which it charges management fees. The following summarized unaudited financial information concerning BHRS is being reported because BHRS's 7 5/8% convertible subordinated debentures due March 2003 and its zero coupon notes (collectively, the "Debt Securities") are publicly held. Beverly Delaware is co-obligor of the Debt Securities. Summary unaudited financial information for BHRS is as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Total revenues . . . . . . . . . . . . . . . . . . . $ 664,929 $ 697,967 $1,345,202 $1,400,205 Total costs and expenses . . . . . . . . . . . . . . 635,114 676,533 1,293,854 1,358,365 Net income . . . . . . . . . . . . . . . . . . . . . 17,889 13,289 30,809 25,941 AS OF AS OF JUNE 30, 1996 DECEMBER 31, 1995 ------------- ----------------- Current assets . . . . . . . . . . . . . . . . . . . $ 417,420 $ 421,641 Long-term assets . . . . . . . . . . . . . . . . . . 1,382,670 1,365,413 Current liabilities . . . . . . . . . . . . . . . . . 274,821 367,074 Long-term liabilities . . . . . . . . . . . . . . . . 780,371 709,515
6 8 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JUNE 30, 1996 (UNAUDITED) GENERAL Healthcare system reform and concerns over rising Medicare and Medicaid costs continue to be high priorities for both federal and state governments. Although no comprehensive healthcare, Medicare or Medicaid reform legislation has yet been implemented, pressures to contain costs and the active discussion and issues raised by the Clinton Administration, Congress and various other groups have impacted the healthcare delivery system. Many states are experimenting with alternatives to traditional Medicaid delivery systems through federal waiver programs, and efforts to provide these services more efficiently will continue to be a priority in the upcoming year. In August 1996, Congress passed the Health Insurance Portability and Accountability Act of 1996 which, among other things, provides favorable changes in the tax treatment of long-term care insurance and allows inclusion of long-term care insurance in medical savings accounts. Although the Company believes this legislation will have a favorable impact on the long-term care industry, regulations detailing the implementation of such legislation have not yet been released, and as such, the full effect is not readily determinable. There can be no assurances made as to the ultimate impact of this, or future healthcare reform legislation, on the Company's financial position, results of operations or cash flows. However, future healthcare reform legislation and regulatory changes may negatively impact the Company. Congress recently approved legislation that, upon approval by the President, would increase the minimum wage. The Company does not anticipate that this legislation will require a material increase in its wage rates, since a substantial portion of the Company's associates currently earn in excess of the proposed new minimum wage levels; however, the Company believes there may be competitive pressures to increase the wage levels of associates earning above the proposed new minimum wage. Although the full impact of the proposed new minimum wage has not yet been determined, the effect on the Company's future operations is not expected to be material as the Company believes that a significant portion of such increase will be reimbursed through Medicare and Medicaid rate increases. The Company's future operating performance will continue to be affected by the issues facing the long-term healthcare industry as a whole, including the maintenance of occupancy, its ability to continue to expand higher margin businesses, the availability of nursing, therapy and other personnel, the adequacy of funding of governmental reimbursement programs, the demand for nursing home care and the nature of any healthcare reform measures that may be taken by the federal government, as discussed above, as well as by any state governments. The Company's ability to control costs, including its wages and related expenses which continue to rise and represent the largest component of the Company's operating and administrative expenses, will also significantly impact its future operating results. As a general matter, increases in the Company's operating costs result in higher patient rates under Medicaid programs in subsequent periods. However, the Company's results of operations will continue to be affected by the time lag in most states between increases in reimbursable costs and the receipt of related reimbursement rate increases. Medicaid rate increases, adjusted for inflation, are generally based upon changes in costs for a full calendar year period. The time lag before such costs are reflected in permitted rates varies from state to state, with a substantial portion of the increases taking effect up to 18 months after the related cost increases. OPERATING RESULTS SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995 Net income was $16,995,000 for the second quarter of 1996, as compared to net income of $14,306,000 for the same period in 1995. Income before provision for income taxes was $28,325,000 for the second quarter of 1996, as compared to $23,074,000 for the same period in 1995. The Company's net income for the second quarter of 1995 was adversely impacted by a $4,000,000 pre-tax loss on the early termination of leases on four Connecticut nursing facilities, and operating shortfalls in its wholly-owned subsidiary, Pharmacy Corporation of America ("PCA"). The Company's estimated annual effective tax rate increased to 40% in 1996, compared to 38% in 1995, primarily as a result of amortization of nondeductible goodwill. Net operating revenues and operating and administrative costs increased approximately $7,900,000 and $1,800,000, respectively, for the second quarter of 1996, as compared to the same period in 1995. These increases consist of the following: increases in net operating revenues and operating and administrative costs for facilities which the Company operated during each 7 9 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) JUNE 30, 1996 (UNAUDITED) of the quarters ended June 30, 1996 and 1995 ("same facility operations") of approximately $6,400,000 and $6,100,000, respectively; increases in net operating revenues and operating and administrative costs of approximately $40,700,000 and $34,200,000, respectively, related to the acquisition of Pharmacy Management Services, Inc. ("PMSI") in mid-1995 and the expanded operations of American Transitional Hospitals, Inc. ("ATH"); and decreases in net operating revenues and operating and administrative costs of approximately $39,200,000 and $38,500,000, respectively, due to the disposition of, or lease terminations on, 67 facilities in 1996 and 29 facilities in 1995. The increase in net operating revenues for same facility operations for the second quarter of 1996, as compared to the same period in 1995, was due primarily to increases in Medicare and Medicaid room and board rates of approximately $24,500,000. This increase in net operating revenues was partially offset by the following: approximately $7,600,000 due to a decrease in same facility occupancy to 87.4% for the second quarter of 1996, as compared to 88.7% for the same period in 1995; approximately $4,400,000 due to decreases in ancillary revenues primarily due to the Company's continuing efforts to bring therapists on staff as opposed to contracting for their services; and approximately $6,100,000 due to various other items. The increase in operating and administrative costs for same facility operations for the second quarter of 1996, as compared to the same period in 1995, was due to the following: approximately $25,300,000 due to increased wages and related expenses (excluding pharmacy) principally due to higher wages and greater benefits required to attract and retain qualified personnel, the hiring of therapists on staff as opposed to contracting for their services and increased staffing levels in the Company's nursing facilities to cover increased patient acuity; approximately $3,000,000 due to increases in nursing supplies and other variable costs; and approximately $3,700,000 due to various other items. These increases in operating and administrative costs were partially offset by approximately $25,900,000 due to a decrease in contracted therapy expenses as a result of hiring therapists on staff as opposed to contracting for their services. Interest expense increased approximately $1,300,000 as compared to the same period in 1995 primarily due to the exchange of Preferred Stock into 5 1/2% Convertible Subordinated Debentures in November 1995, as well as the issuance of $25,000,000 of taxable revenue bonds ("Series 1995 Bonds") during 1995, partially offset by a reduction of approximately $52,800,000 of long-term obligations in conjunction with the disposition of certain facilities. Although depreciation and amortization expense remained flat quarter over quarter, it was affected by the following: approximately $2,200,000 decrease related to the disposition of, or lease terminations on, certain facilities, offset by an increase of approximately $2,100,000 due to the acquisition of PMSI in mid-1995 and the expanded operations of ATH. SIX MONTHS 1996 COMPARED TO SIX MONTHS 1995 Net income was $30,691,000 for the six months ended June 30, 1996, as compared to net income of $30,855,000 for the same period in 1995. Income before provision for income taxes was $51,152,000 for the six months ended June 30, 1996, as compared to $49,766,000 for the same period in 1995. Net operating revenues and operating and administrative costs increased approximately $23,400,000 and $19,300,000, respectively, for the six months ended June 30, 1996, as compared to the same period in 1995. These increases consist of the following: increases in net operating revenues and operating and administrative costs for facilities which the Company operated during each of the six-month periods ended June 30, 1996 and 1995 ("same facility operations") of approximately $11,700,000 and $19,000,000, respectively; increases in net operating revenues and operating and administrative costs of approximately $79,100,000 and $66,700,000, respectively, related to the acquisition of PMSI in mid-1995 and the expanded operations of ATH; and decreases in net operating revenues and operating and administrative costs of approximately $67,400,000 and $66,400,000, respectively, due to the disposition of, or lease terminations on, 67 facilities in 1996 and 29 facilities in 1995. The increase in net operating revenues for same facility operations for the six months ended June 30, 1996, as compared to the same period in 1995, was due to the following: approximately $45,800,000 due primarily to increases in Medicare and Medicaid room and board rates; and approximately $5,600,000 due to one additional calendar day for the six months ended June 30, 1996, as compared to the same period in 1995. These increases in net operating revenues were partially offset by approximately $17,100,000 due to a decrease in same facility occupancy to 87.6% for the six months ended June 30, 1996, as 8 10 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) JUNE 30, 1996 (UNAUDITED) compared to 89.1% for the same period in 1995; approximately $10,700,000 due to decreases in ancillary revenues primarily due to the Company's continuing efforts to bring therapists on staff as opposed to contracting for their services; approximately $4,500,000 due to decreases in pharmacy-related revenues primarily related to changes in pricing and service levels at PCA; and approximately $7,400,000 due to various other items. The increase in operating and administrative costs for same facility operations for the six months ended June 30, 1996, as compared to the same period in 1995, was due to the following: approximately $56,100,000 due to increased wages and related expenses (excluding pharmacy) principally due to the hiring of therapists on staff as opposed to contracting for their services, higher wages and greater benefits required to attract and retain qualified personnel and increased staffing levels in the Company's nursing facilities to cover increased patient acuity; approximately $5,400,000 due to increases in nursing supplies and other variable costs; and approximately $10,900,000 due primarily to increases in pharmacy-related costs and various other items. These increases in operating and administrative costs were partially offset by approximately $53,400,000 due to a decrease in contracted therapy expenses as a result of hiring therapists on staff as opposed to contracting for their services. Interest expense increased approximately $3,900,000 as compared to the same period in 1995 primarily due to the exchange of Preferred Stock into 5 1/2% Convertible Subordinated Debentures in November 1995, write-off of unamortized deferred financing costs associated with certain debt that was repaid with the net cash proceeds from the issuance of Senior Notes (as discussed below), as well as the issuance and assumption of approximately $40,000,000 of long-term obligations in conjunction with certain acquisitions and the issuance of $25,000,000 Series 1995 Bonds during 1995, partially offset by a reduction of approximately $52,800,000 of long-term obligations in conjunction with the disposition of certain facilities. Although depreciation and amortization expense decreased only $1,000,000 as compared to the same period in 1995, it was affected by the following: approximately $4,900,000 decrease related to the disposition of, or lease terminations on, certain facilities, offset by an increase of approximately $3,900,000 due to the acquisition of PMSI in mid-1995 and the expanded operations of ATH. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had approximately $51,400,000 in cash and cash equivalents and net working capital of approximately $249,800,000. The Company anticipates that approximately $28,600,000 of its existing cash at June 30, 1996, while not legally restricted, will be utilized to fund certain workers' compensation and general liability claims, and the Company does not expect to use such cash for other purposes. The Company had approximately $63,700,000 of unused commitments under its Revolver/Letter of Credit Facility as of June 30, 1996. Net cash provided by operating activities for the six months ended June 30, 1996 was approximately $56,200,000. Net cash used for investing activities and net cash provided by financing activities were approximately $72,500,000 and $11,400,000, respectively, for the six months ended June 30, 1996. The Company primarily used cash generated from operations to fund capital expenditures, construction and development costs totaling approximately $61,400,000. The Company received net cash proceeds of approximately $174,850,000 from the issuance of Senior Notes (as discussed below) and approximately $12,600,000 from the dispositions of facilities and other assets which were primarily used to repay approximately $136,800,000 of long-term obligations, to fund acquisitions of approximately $25,700,000, to repurchase shares of common stock (as discussed below), and to repay Revolver borrowings. In February 1996, the Company completed the sale of $180,000,000 of 9% Senior Notes due February 15, 2006 (the "Senior Notes") through a public offering (the "Senior Notes offering") for net cash proceeds of approximately $174,850,000. The Company used approximately $87,500,000 of such net proceeds to prepay certain scheduled maturities under its 1994 Term Loan, approximately $28,000,000 to prepay certain scheduled maturities under its 1992 Term Loan, approximately $8,750,000 to prepay certain scheduled maturities under its Nippon Term Loan, and the remaining net proceeds to repay Revolver borrowings and for general corporate purposes. The Senior Notes are unsecured obligations, guaranteed by substantially all of the Company's present and future subsidiaries, and impose on the Company certain restrictive covenants. In addition, the Company amended certain of its other credit agreements during the second quarter of 1996 to change various restrictive covenants. 9 11 BEVERLY ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) JUNE 30, 1996 (UNAUDITED) In May 1996, the Company filed a Registration Statement covering $200,000,000 of debt securities, shares of preferred stock, shares of Common Stock and warrants to purchase Common Stock which may be offered, separately or together, in separate series in amounts, at prices and on terms to be determined at the time of sale. The net proceeds from the offerings are anticipated to be used for general corporate purposes, which may include, but are not limited to, working capital, capital expenditures, repayments of indebtedness and acquisitions. As of June 30, 1996, no securities have been issued under such registration. On June 13, 1996, the Company announced that its Board of Directors had, on that date, authorized a stock repurchase program whereby the Company may repurchase, from time to time on the open market, up to a total of 10,000,000 shares of its outstanding Common Stock. During June 1996, the Company repurchased approximately 900,000 shares of its Common Stock at a cost of approximately $10,900,000. The repurchases were financed primarily through proceeds from dispositions and borrowings under the Company's revolving credit facility. The Company believes that its existing cash and cash equivalents, working capital from operations, borrowings under its banking arrangements, issuance of certain debt securities and refinancings of certain existing indebtedness will be adequate to repay its debts due within one year of approximately $37,700,000, to make normal recurring capital additions and improvements for the twelve months ending June 30, 1996 of approximately $170,000,000, to make selective acquisitions, including the purchase of previously leased facilities, and to meet working capital requirements. As of June 30, 1996, the Company had total indebtedness of approximately $1,114,200,000 (excluding $55,000,000 of Revolver borrowings) and total stockholders' equity of approximately $843,200,000. The ability of the Company to satisfy its long-term obligations will be dependent upon its future performance, which will be subject to prevailing economic conditions and to financial, business and other factors beyond the Company's control, such as federal and state healthcare reform. In addition, healthcare service providers, such as the Company, operate in an industry that is currently subject to significant changes from business combinations, new strategic alliances, legislative reform, increased regulatory oversight, aggressive marketing practices by competitors and market pressures. In this environment, the Company is frequently contacted by, and otherwise engages in discussions with, other healthcare companies and financial advisors regarding possible strategic alliances, joint ventures, business combinations and other financial alternatives. The terms of substantially all of the Company's debt instruments require the Company to repay or refinance indebtedness under such debt instruments in the event of a change of control. There can be no assurance that the Company will have the financial resources to repay such indebtedness upon a change of control. See "-- General." 10 12 PART II BEVERLY ENTERPRISES, INC. OTHER INFORMATION JUNE 30, 1996 (UNAUDITED) ITEM 1. LEGAL PROCEEDINGS There are various lawsuits and regulatory actions pending against the Company arising in the normal course of business, some of which seek punitive damages. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 13, 1996, the Company held its Annual Meeting of Stockholders in Fort Smith, Arkansas, for the purposes of electing nine members of the Board of Directors, considering the Beverly Enterprises, Inc. 1996 Long-Term Incentive Plan, ratifying the appointment of Ernst & Young LLP as independent auditors for 1996 and transacting such other business as may have properly come before the meeting or any adjournment thereof. The following table sets forth the directors elected at such meeting and the number of votes cast for and withheld for each director:
DIRECTOR FOR WITHHELD ----------------------- ---------- --------- Beryl F. Anthony, Jr. . . . . . . . . . . . 78,503,862 5,682,067 David R. Banks . . . . . . . . . . . . . . 82,736,073 1,449,856 James R. Greene . . . . . . . . . . . . . . 78,500,742 5,685,187 Boyd W. Hendrickson . . . . . . . . . . . . 82,741,019 1,444,910 Edith E. Holiday . . . . . . . . . . . . . 78,506,683 5,679,246 Jon E. M. Jacoby . . . . . . . . . . . . . 78,507,647 5,678,282 Risa J. Lavizzo-Mourey, M.D. . . . . . . . 78,507,647 5,678,282 Louis W. Menk . . . . . . . . . . . . . . . 78,499,879 5,686,050 Marilyn R. Seymann . . . . . . . . . . . . 78,508,499 5,677,430
The Beverly Enterprises, Inc. 1996 Long-Term Incentive Plan was approved at the meeting. The following table sets forth the number of votes for and against, as well as abstentions as to this matter: For . . . . . . . . . . . . . . . . . . . . . 58,928,016 Against . . . . . . . . . . . . . . . . . . . 23,278,542 Abstentions . . . . . . . . . . . . . . . . . 1,979,371
The appointment of Ernst & Young LLP as independent auditors for 1996 was ratified at the meeting. The following table sets forth the number of votes for and against, as well as abstentions as to this matter: For . . . . . . . . . . . . . . . . . . . . . 83,689,570 Against . . . . . . . . . . . . . . . . . . . 273,385 Abstentions . . . . . . . . . . . . . . . . . 222,994
11 13 BEVERLY ENTERPRISES, INC. OTHER INFORMATION (CONTINUED) JUNE 30, 1996 (UNAUDITED) ITEM 6(a). EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.1* Beverly Enterprises, Inc. 1996 Long-Term Incentive Plan 10.2* Employment Contract, made as of December 8, 1995, between Beverly Enterprises, Inc. and David R. Banks 10.3* Employment Contract, made as of December 8, 1995, between Beverly Enterprises, Inc. and Boyd W. Hendrickson 10.4* Employment Contract, made as of June 3, 1996, between Beverly Enterprises, Inc. and C. Arnold Renschler 10.5* Addendum to Employment Contract between Beverly Enterprises, Inc. and C. Arnold Renschler 10.6 Sixteenth Amendment dated as of June 5, 1996 to the LTCB Credit Agreement 10.7 Seventeenth Amendment dated as of June 28, 1996 to the LTCB Credit Agreement 10.8 Tenth Amendment dated as of June 28, 1996 to the Nippon Credit Agreement 10.9 Fourth Amendment dated as of June 28, 1996 to the Morgan Credit Agreement 11.1 Computation of Net Income Per Share 27.1 Financial Data Schedule for the six months ended June 30, 1996
* Exhibits 10.1 through 10.5 are the management contracts, compensatory plans, contracts, and arrangements in which any director or named executive officer participates. ITEM 6(b). REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the quarter ended June 30, 1996. 12 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BEVERLY ENTERPRISES, INC. Registrant Dated: August 14, 1996 By: /s/ SCOTT M. TABAKIN ---------------------------------- Scott M. Tabakin Senior Vice President, Controller, Chief Accounting Officer and Acting Chief Financial Officer 13 15 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.1* Beverly Enterprises, Inc. 1996 Long-Term Incentive Plan 10.2* Employment Contract, made as of December 8, 1995, between Beverly Enterprises, Inc. and David R. Banks 10.3* Employment Contract, made as of December 8, 1995, between Beverly Enterprises, Inc. and Boyd W. Hendrickson 10.4* Employment Contract, made as of June 3, 1996, between Beverly Enterprises, Inc. and C. Arnold Renschler 10.5* Addendum to Employment Contract between Beverly Enterprises, Inc. and C. Arnold Renschler 10.6 Sixteenth Amendment dated as of June 5, 1996 to the LTCB Credit Agreement 10.7 Seventeenth Amendment dated as of June 28, 1996 to the LTCB Credit Agreement 10.8 Tenth Amendment dated as of June 28, 1996 to the Nippon Credit Agreement 10.9 Fourth Amendment dated as of June 28, 1996 to the Morgan Credit Agreement 11.1 Computation of Net Income Per Share 27.1 Financial Data Schedule for the six months ended June 30, 1996
* Exhibits 10.1 through 10.5 are the management contracts, compensatory plans, contracts, and arrangements in which any director or named executive officer participates. EX-10.1 2 1996 LONG-TERM INCENTIVE PLAN 1 EXHIBIT 10.1 BEVERLY ENTERPRISES, INC. 1996 LONG-TERM INCENTIVE PLAN SECTION 1. PURPOSE Beverly Enterprises, Inc. (hereinafter referred to as the "Company"), a Delaware corporation, hereby establishes the Beverly Enterprises, Inc. 1996 Long-Term Incentive Plan (the "Plan") to promote the interests of the Company and its stockholders through the (i) attraction and retention of executive officers and other key employees essential to the success of the Company; (ii) motivation of executive officers and other key employees using performance-related incentives linked to longer-range performance goals and the interests of Company stockholders; and (iii) enabling of such employees to share in the long-term growth and success of the Company. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options (intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended), Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Bonus Stock, and any other Stock Unit Awards or stock-based forms of awards as the Committee may determine under its sole and complete discretion at the time of grant. SECTION 2. DEFINITIONS Except as otherwise defined in the Plan, the following terms shall have the meanings set forth below: 2.1 "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 under the Exchange Act. 2.2 "Agreement" means a written agreement implementing the grant of each Award signed by an authorized officer of the Company and by the Participant. 2.3 "Award" means individually or collectively, a grant under this Plan of any one of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares, Bonus Stock or Other Stock Unit Awards. 2.4 "Award Date" or "Grant Date" means the date on which an Award is made by the Committee under this Plan. 2.5 "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 under the Exchange Act. 1 2 2.6 "Board" or "Board of Directors" means the Board of Directors of the Company. 2.7 "Bonus Stock" means an Award granted pursuant to Section 10 of the Plan expressed as a Share which may or may not be subject to restrictions. 2.8 "Cashless Exercise" means the exercise of an Option by the Participant through the use of a brokerage firm to make payment to the Company of the Exercise Price either from the proceeds of a loan to the Participant from the brokerage firm or from the proceeds of the sale of Stock issued pursuant to the exercise of the Option, and upon receipt of such payment, the Company delivers the exercised Shares to the brokerage firm. 2.9 "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) Any person, corporation or other entity or group, including any "group" as defined in Section 13 (d) (3) of the Exchange Act, becomes the beneficial owner of Shares having 30% or more of the total number of votes that may be cast for the election of directors of the Company; or (b) As the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing (a "Transaction"), the persons who were directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company or its assets; or (c) If at any time, (i) the Company shall consolidate with, or merge with, any other Person and the Company shall not be the continuing or surviving corporation, (ii) any Person shall consolidate with, or merge with, the Company, and the Company shall be the continuing or surviving corporation and in connection therewith, all or part of the outstanding Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, (iii) the Company shall be a party to a statutory share exchange with any other Person after which the Company is a Subsidiary of any other Person, or (iv) the Company shall sell or otherwise transfer 50% or more of the assets or earnings power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons. 2.10 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.11 "Committee" means the Compensation Committee of the Board which will administer the Plan pursuant to Section 3 herein, provided however, any member who is not both a "disinterested director" within the meaning of Rule 16b-3 and an "outside director" within the meaning of Section 162(m) shall not serve as a Committee member for the purpose of this Plan unless there would otherwise be less than two members of the Committee. 2 3 2.12 "Common Stock" or "Stock" means the Common Stock of the Company, with a par value of $.10 per share, or such other security or right or instrument into which such Common Stock may be changed or converted in the future. 2.13 "Company" means Beverly Enterprises, Inc., including all Affiliates and wholly owned Subsidiaries, or any successor thereto. 2.14 "Covered Participant" means a Participant who is a "covered employee" as defined in Section 162 (m) (3) of the Code, and the regulations promulgated thereunder, or who the Committee believes will be such a covered employee for a Performance Period. 2.15 "Department" means the Compensation and Benefits Department of the Company. 2.16 "Designated Beneficiary" means the beneficiary designated by the Participant, pursuant to procedures established by the Department, to receive amounts due to the Participant in the event of the Participant's death. If the Participant does not make an effective designation, then the Designated Beneficiary will be deemed to be the Participant's estate. 2.17 "Disability" means (i) the mental or physical disability, either occupational or non-occupational in origin, of the Participant defined as "Total Disability" in the Disability Plan of the Company currently in effect and as amended from time to time; or (ii) a determination by the Committee of "Total Disability" based on medical evidence that precludes the Participant from engaging in any occupation or employment for wage or profit for at least twelve months and appears to be permanent. 2.18 "Divestiture" means the sale of, out sourcing of, or closing by, the Company of the business operations in which the Participant is employed, or the elimination of the Participant's position at the Company's discretion. 2.19 "Early Retirement" means retirement of a Participant from employment with the Company after age 55, but prior to age 65, as approved by the Committee. 2.20 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.21 "Exercise Price" means the price per share determined on the Grant Date by the Committee, provided that except as set forth in Section 6.2, the Exercise Price shall not be less than 100% of Fair Market Value on the Grant Date. 2.22 "Executive Officer" means any employee designated by the Company as an officer or any employee covered by Rule 16b-3 of the Exchange Act. 2.23 "Fair Market Value" means, on any given date, the closing price of Stock as reported on the New York Stock Exchange composite tape on such day or, if no Shares were traded on the New York Stock Exchange on such day, then on the next preceding day that Stock was traded on such exchange, all as reported by such source as the Committee may select. 3 4 2.24 "Full-time Employee" means an employee designated by the Company's Department as being a "permanent, full-time employee" who is eligible for all plans and programs of the Company set forth for such employees. This designation excludes all part-time, temporary, or contract employees or consultants to the Company. 2.25 "Incentive Stock Option" or "ISO" means an option to purchase Stock, granted under Section 6 herein, which is designated as an incentive stock option and is intended to meet the requirements of Section 422 of the Code. 2.26 "Key Employee" means an officer or other key employee of the Company or its Subsidiaries, who, in the opinion of the Committee, can contribute significantly to the growth and profitability of, or perform services of major importance to, the Company and its Subsidiaries. 2.27 "Nonqualified Stock Option" or "NQSO" means an option to purchase Stock, granted under Article 6 herein, which is not intended to be an Incentive Stock Option. 2.28 "Normal Retirement" means the retirement of any Participant at age 65 or at some earlier date if approved by the Committee. 2.29 "Option" means an Incentive Stock Option or a Nonqualified Stock Option. 2.30 "Other Stock Unit Award" means awards, granted pursuant to Section 11 herein, of Stock or other securities that are valued in whole or in part by reference to, or are otherwise based on, Shares or other securities of the Company. 2.31 "Participant" means a Key Employee who has been granted an Award under the Plan. 2.32 "Performance Criteria" or "Performance Goals" or "Performance Measures" mean the objectives established by the Committee for a Performance Period, for the purpose of determining when an Award subject to such objectives are earned which shall consist of any one or more of the following business or financial goals of the Company: absolute or relative increases in total stockholder return, economic value added, return on capital employed, revenues, sales, net income, earnings per share, return on equity, cash flow, operating margin, or net worth of the Company, any of its subsidiaries, divisions or other areas of the Company. 2.33 "Performance Award" means a performance-based Award, which may be in the form of either Performance Shares or Performance Units. 2.34 "Performance Period" means the time period designated by the Committee during which performance goals must be met. 2.35 "Performance Share" means an Award, designated as a Performance Share, granted to a Participant pursuant to Section 9 herein, the value of which is determined, in whole 4 5 or in part, by the value of Stock in a manner deemed appropriate by the Committee and described in the Agreement. 2.36 "Performance Unit" means an Award, designated as a Performance Unit, granted to a Participant pursuant to Section 9 herein, the value of which is determined, in whole or in part, by the attainment of pre-established performance goals relating to Company financial or operating performance as deemed appropriate by the Committee and described in the Agreement. 2.37 "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock is restricted, pursuant to Section 8 herein. 2.38 "Person" shall have the meaning ascribed to such term in Section 3 (a) (9) of the Exchange Act and used in Sections 13 (d) and 14 (d) thereof, including a "group" as defined in Section 13 (d). 2.39 "Plan" means the Beverly Enterprises, Inc. 1996 Long-Term Incentive Plan as herein described and as hereafter from time to time amended. 2.40 "Restricted Stock" means an Award of Stock granted to a Participant pursuant to Section 8 herein. 2.41 "Restricted Stock Unit" means a fixed or variable dollar denominated right to acquire Stock, which may or may not be subject to restrictions, contingently awarded under Section 8 of the Plan. 2.42 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act as adopted in Exchange Act Release No. 34-29131 (April 26, 1991), or any successor rule as amended from time to time. 2.43 "Section 16" means Section 16 of the Exchange Act, or any successor section under the Exchange Act, and as amended from time to time and as interpreted by regulations and rules promulgated thereunder from time to time. 2.44 "Section 162(m)" means Section 162(m) of the Code, or any successor section under the Code, as amended from time to time and as interpreted by final or proposed regulations promulgated thereunder from time to time. 2.45 "Securities Act" means the Securities Act of 1933 and the rules and regulations promulgated thereunder, or any successor law, as amended from time to time. 2.46 "Shares" means shares of the Common Stock of the Company. 2.47 "Stock Appreciation Right" means the right to receive an amount equal to the excess of the Fair Market Value of a share of Stock (as determined on the date of exercise) over the Exercise Price of a related Option or the Fair Market Value of the Stock on the Date of Grant of the Stock Appreciation Right. 5 6 2.48 "Subsidiary" means a corporation in which the Company owns, either directly or through one or more of its Subsidiaries, at least 50% of the total combined voting power of all classes of stock. SECTION 3. ADMINISTRATION 3.1 The Committee. The Plan shall be administered and interpreted by the Committee which shall have full authority and all powers necessary or desirable for such administration. The express grant in this Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee. In its sole and complete discretion the Committee may adopt, alter, suspend or repeal any such administrative rules, regulations, guidelines, and practices governing the operation of the Plan as it shall from time to time deem advisable. In addition to any other powers and, subject to the provisions of the Plan, the Committee shall have the following specific powers: (i) to determine the terms and conditions upon which the Awards may be made and exercised; (ii) to determine all terms and provisions of each Agreement, which need not be identical for types of awards nor for the same type of award to different participants; (iii) to construe and interpret the Agreements and the Plan; (iv) to establish, amend, or waive rules or regulations for the Plan's administration; (v) to accelerate the exercisability of any Award, the length of a Performance Period or the termination of any Period of Restriction; and (vi) to make all other determinations and take all other actions necessary or advisable for the administration of the Plan. The Committee may take action by a meeting in person, by unanimous written consent, or by meeting with the assistance of communications equipment which allows all Committee members participating in the meeting to communicate in either oral or written form. The Committee may seek the assistance or advice of any persons it deems necessary to the proper administration of the Plan. 3.2 Selection of Participants. The Committee shall have sole and complete discretion in determining those Key Employees who shall participate in the Plan. The Committee may request recommendations for individual awards from the Chief Executive Officer of the Company and may delegate to the Chief Executive Officer of the Company the authority to make Awards to Participants who are not Executive Officers of the Company or Covered Participants, subject to a fixed maximum Award amount for such a group and a maximum Award amount for any one Participant, as determined by the Committee. Awards made to the Executive Officers or Covered Participants shall be determined by the Committee. 3.3 Committee Decisions. All determinations and decisions made by the Committee pursuant to the provisions of the Plan shall be final, conclusive, and binding upon all persons, including the Company, its stockholders, employees, Participants, and Designated Beneficiaries, except when the terms of any sale or award of shares of Stock or any grant of rights or Options under the Plan are required by law or by the Articles of Incorporation or Bylaws of the Company to be approved by the Company's Board of Directors or stockholders prior to any such sale, award or grant. 3.4 Rule 16b-3 Requirements. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on any Award, and the Board may amend the Plan in any such respects, as may be required to satisfy the requirements of Rule 16b-3 or Section 162(m). 6 7 3.5 Indemnification of Committee. In addition to such other rights of indemnification as they may have as directors or as members of the Committee, the members of the Committee shall be indemnified by the Company against reasonable expenses incurred from their administration of the Plan. Such reasonable expenses include, but are not limited to, attorneys' fees, actually and reasonably incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted or made hereunder, and against all reasonable amounts paid by them in settlement thereof or paid by them in satisfaction of a judgment in any such action, suit or proceeding, if such members acted in good faith and in a manner which they believed to be in, and not opposed to, the best interests of the Company and its Subsidiaries. SECTION 4. ELIGIBILITY The Committee in its sole and complete discretion shall determine the Key Employees, including officers, who shall be eligible for participation under the Plan, subject to the following limitations: (i) no non-Employee director of the Company shall be eligible to participate under the Plan; (ii) no member of the Committee shall be eligible to participate under the Plan; (iii) no person owning, directly or indirectly, more than 5% of the total combined voting power of all classes of stock of the Company shall be eligible to participate under the Plan; and (iv) only Full-Time Employees shall be eligible to participate under the Plan. SECTION 5. SHARES SUBJECT TO THE PLAN 5.1 Number of Shares. Subject to adjustment as provided in Section 5.4 herein and except as limited below, the maximum aggregate number of Shares that may be issued pursuant to Awards made under the Plan shall not exceed 4,000,000 Shares which may be in any combination of Options, Stock Appreciation Rights; Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Bonus Stock, or Other Stock Unit Awards. No more than 2,000,000 Shares may be issued pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Bonus Stock or Other Stock Unit Awards. Shares of Common Stock may be available from the authorized, but unissued Shares or Shares acquired by the Company, including Shares purchased in the open market. Except as provided in Sections 5.2 and 5.3 herein, the issuance of Shares in connection with the exercise of, or as other payment for, Awards under the Plan shall reduce the number of Shares available for future Awards under the Plan. 5.2 Lapsed Awards of Forfeited Shares. Except as provided below, in the event that (i) any Option or other Award granted under the Plan terminates, expires, or lapses for any reason other than exercise of the Award, or (ii) if Shares issued pursuant to the Awards are canceled or forfeited for any reason, such Shares subject to such Award shall thereafter be again available for grant of an Award under the Plan. Notwithstanding the above, with respect to Covered Participants, Options may not be granted that exceed the maximum number of Shares for which Options may be issued to the Participants hereunder and cancelled or forfeited Shares shall continue to be counted against the maximum aggregate number of Shares that may be granted pursuant to Awards. 5.3 Delivery of Shares as Payment. In the event a Participant pays for any Option or other Award granted under the Plan through the delivery of previously acquired Shares the number of Shares 7 8 available for Awards under the Plan shall be increased by the number of shares surrendered by the Participant. 5.4 Capital Adjustments. The number and class of Shares subject to each outstanding Award, the Exercise Price and the aggregate number, type and class of Shares for which Awards thereafter may be made shall be subject to adjustment, if any, as the Committee deems appropriate, based on the occurrence of a number of specified and non-specified events. Such specified events are discussed in this Section 5.4, but such discussion is not intended to provide an exhaustive list of such events which may necessitate such adjustments. (a) If the outstanding Shares are increased, decreased or exchanged through merger, consolidation, sale of all or substantially all of the property of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split or other distribution in respect to such Shares, for a different number of Shares or type of securities, or if additional Shares or new or different Shares or other securities are distributed with respect to such Shares, an appropriate and proportionate adjustment shall be made in: (i) the maximum number of shares of Stock available for the Plan as provided in Section 5.1 herein, (ii) the type of shares or other securities available for the Plan, (iii) the number of shares subject to any then outstanding Awards under the Plan, and (iv) the price (including Exercise Price) for each share (or other kind of shares or securities) subject to then outstanding Awards, but without change in the aggregate purchase price as to which such Options remain exercisable or Restricted Stock releasable. (b) In the event other events not specified above in this Section 5.4, such as any extraordinary cash dividend, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock, or other similar corporate event, affect the Common Stock such that an adjustment is necessary to maintain the benefits or potential benefits intended to be provided under this Plan, then the Committee in its discretion may make adjustments to any or all of (i) the number and type of shares which thereafter may be optioned and sold or awarded or made subject to Stock Appreciation Rights under the Plan, (ii) the Exercise Price of any Award made under the Plan thereafter, and (iii) the number and Exercise Price of each Share (or other kind of shares or securities) subject to then outstanding awards, but without change in the aggregate purchase price as to which such Options remain exercisable or Restricted Stock releasable. (c) Any adjustment made by the Committee pursuant to the provisions of this Section 5.4 subject to approval by the Board of Directors, shall be final, binding and conclusive. A notice of such adjustment, including identification of the event causing such an adjustment, the calculation method of such adjustment, and the change in price and the number of Shares or securities, cash or property purchasable subject to each Award shall be sent to each Participant. No fractional interests shall be issued under the Plan based on such adjustments. SECTION 6. STOCK OPTIONS 6.1 Grant of Stock Options. Subject to the terms and provisions of the Plan and applicable law, the Committee, at any time and from time to time, may grant Options to Key Employees as it shall determine. The Committee shall have sole and complete discretion in determining the type of 8 9 Option granted, the Exercise Price, the duration of the Option, the number of Shares to which an Option pertains, any conditions imposed upon the exercisability of the Options, the conditions under which the Option may be terminated and any such other provisions as may be warranted to comply with the law or rules of any securities trading system or stock exchange. Each Option grant shall have such specified terms and conditions detailed in an Agreement. The Agreement shall specify whether the Option is intended to be an Incentive Stock Option within the meaning of Section 422 of the Code, or a Nonqualified Stock Option not intended to be within the provisions of Section 422 of the Code. 6.2 Exercise Price. The Exercise Price per Share covered by an Option shall be determined at the time of grant by the Committee, subject to the limitation that the Exercise Price shall not be less than 100% of Fair Market Value on the Grant Date. However, Options issued upon assumption of an acquired company's options may be issued at an Exercise Price less than 100% of the Fair Market Value. 6.3 Exercisability. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall determine, which will be specified in the Agreement and need not be the same for each Participant. However, for Participants subject to Section 16, no Option granted under the Plan may be exercisable until the expiration of at least six months after the Grant Date (except that such limitations shall not apply in the case of death or Disability of the Participant, or a Change in Control of the Company), nor after the expiration of ten years from the Grant Date. 6.4 Method of Exercise. Options shall be exercised by the delivery of a written notice from the Participant to the Company in the form prescribed by the Committee setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment of the Exercise Price for the Shares. The Exercise Price shall be payable to the Company in full in cash, or its equivalent, or by delivery of Shares (not subject to any security interest or pledge) valued at Fair Market Value at the time of exercise or by a combination of the foregoing. In addition, at the request of the Participant, and subject to applicable laws and regulations, the Company may (but shall not be required to) cooperate in a Cashless Exercise of the Option. As soon as practicable, after receipt of written notice and payment, the Company shall deliver to the Participant, stock certificates in an appropriate amount based upon the number of Shares with respect to which the option is exercised, issued in the Participant's name. SECTION 7. STOCK APPRECIATION RIGHTS 7.1 Grant of Stock Appreciation Rights. Subject to the terms and provisions of the Plan and applicable law, the Committee, at any time and from time to time, may grant freestanding Stock Appreciation Rights, Stock Appreciation Rights in tandem with an Option, or Stock Appreciation Rights in addition to an Option. Stock Appreciation Rights granted in tandem with an Option or in addition to an Option may be granted at the time of the Option or at a later time. For Participants subject to Section 16, no Stock Appreciation Rights granted under the Plan may be exercisable until the expiration of at least six months after the Grant Date (except that such limitations shall not apply in the case of death or disability of the Participant, or a Change in Control of the Company), nor after the expiration of ten years from the Grant Date. 9 10 7.2 Exercise Price. The Exercise Price of each Stock Appreciation Right shall be determined on the grant date by the Committee, subject to the limitation that the Exercise Price shall not be less than 100% of Fair Market Value on the Grant Date. 7.3 Exercise. The Participant is entitled to receive an amount equal to its excess of the Fair Market Value over the Exercise Price thereof on the date of exercise of the Stock Appreciation Right. However, for administrative purposes, the Committee may determine that, with respect to any Stock Appreciation Right that is not related to an Incentive Stock Option and that can only be exercised for cash during limited periods of time in order to satisfy the conditions of Rule 16b-3, the exercise of such Stock Appreciation Right for cash during such limited period shall be deemed to occur for all purposes hereunder on the day during such limited period on which the Fair Market Value is the highest. The Committee may alter such determination at any time and such change may govern the exercise of Stock Appreciation Rights granted prior to such determination as well as Stock Appreciation Rights granted thereafter. 7.4 Payment. Payment upon exercise of the Stock Appreciation Right shall be made in the form of cash, Shares or a combination thereof, as determined in the sole and complete discretion of the Committee. However, if any payment in the form of Shares results in a fractional share, such payment for the fractional share shall be made in cash. SECTION 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS 8.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan and applicable law, the Committee, at any time and from time to time, may grant Shares of Restricted Stock and Restricted Stock Units under the Plan to such Participants, and in such amounts and for such duration of the Period of Restriction and/or conditions of removal of restrictions as it shall determine. Participants receiving Restricted Stock and Restricted Stock Units are not required to pay the Company therefor (except for applicable tax withholding). 8.2 Restricted Stock Agreement. Each Restricted Stock and Restricted Stock Unit grant shall be evidenced by an Agreement that shall specify the Period of Restriction; the conditions which must be satisfied prior to removal of the restriction; the number of Shares of Restricted Stock granted; and such other provisions as the Committee shall determine. The Committee may specify, but is not limited to, the following types of restrictions in the Agreement: (i) restrictions on acceleration or achievement of terms of vesting based on any business or financial goals of the Company, including: absolute or relative increases in total stockholder return, economic value added, return on capital employed, revenues, sales, net income, earnings per share, return on equity, cash flow, operating margin or net worth of the Company, any of its Subsidiaries, divisions or other areas of the Company; and (ii) any other further restrictions that may be advisable under the law, including requirements set forth by the Exchange Act, the Securities Act, any securities trading system or stock exchange upon which such Shares under are listed. 8.3 Nontransferability. Except as provided in this Section 8 and subject to applicable law, the Shares of Restricted Stock or Restricted Stock Units granted under the Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the termination of the applicable Period of Restriction or upon earlier satisfaction of other conditions as specified by the Committee in its sole discretion and set forth in the Agreement. All rights with respect to the 10 11 Restricted Stock and Restricted Stock Units granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or his or her guardian or legal representative. 8.4 Removal of Restrictions. Except as otherwise noted in this Section 8, Restricted Stock and Restricted Stock Units covered by each Award shall be provided to and become freely transferable by the Participant after the last day of the Period of Restriction and/or upon the satisfaction of other conditions as determined by the Committee. Except as specifically provided in this Section 8, the Committee shall have no authority to reduce or remove the restrictions or to reduce or remove the Period of Restriction without the express consent of the stockholders of the Company. Except where performance-based conditions or restrictions are placed on the grant, or except in the event of the death or disability of the Participant, or a Change in Control of the Company, the minimum Period of Restriction shall be three (3) years, which Period of Restriction would permit the removal of restrictions on no more than one-third (1/3) of the Restricted Stock or Restricted Stock Units at the end of the first year following the Grant Date, and the removal of the restrictions on an additional one-third (1/3) at the end of each subsequent year. Except in the event of the death or disability of the Participant, or a Change in Control of the Company, no restrictions may be removed from Restricted Stock or Restricted Stock Units during the first year following the Grant Date. If there are performance-based conditions placed on the grant of Restricted Stock or Restricted Stock Units the total Period of Restriction shall be no less than one (1) year from the Grant Date. 8.5 Voting Rights. During the Period of Restriction, Participants in whose name Restricted Stock is granted under the Plan may exercise full voting rights with respect to those Shares. 8.6 Dividends and Other Distributions. During the Period of Restriction, Participants in whose name Restricted Stock is granted shall be entitled to receive all dividends and other distributions paid with respect to those Shares. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions on transferability as the Restricted Stock with respect to which they were distributed. SECTION 9. PERFORMANCE AWARDS 9.1 Grant of Performance Awards. Subject to the terms and provisions of the Plan and applicable law, the Committee at any time and from time to time may grant Performance Awards in the form of either Performance Units or Performance Shares to Participants subject to the Performance Goals and Performance Period as it shall determine. The Committee shall have complete discretion in determining the number and value of Performance Units or Performance Shares granted to each Participant. Participants receiving Performance Awards are not required to pay the Company therefor (except for applicable tax withholding) other than the rendering of services. 9.2 Value of Performance Awards. The Committee shall determine the number and value of Performance Units or Performance Shares granted to each Participant as a Performance Award. The Committee shall set Performance Goals in its discretion for each Participant who is granted a Performance Award. The extent to which such Performance Goals are met will determine the value of the Performance Unit or Performance Share to the Participant. Such Performance Goals may be particular to a Participant, may relate to the performance of the Subsidiary which employs 11 12 him or her, may be based on the division which employs him or her, may be based on the performance of the Company generally, or a combination of the foregoing. The Performance Goals may be based on achievement of balance sheet or income statement objectives, or any other objectives established by the Committee. The Performance Goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The terms and conditions of each Performance Award will be set forth in an Agreement. 9.3 Settlement of Performance Awards. After a Performance Period has ended, the holder of a Performance Unit or Performance Share shall be entitled to receive the value thereof based on the degree to which the Performance Goals established by the Committee and set forth in the Agreement have been satisfied. 9.4 Form of Payment. Payment of the amount to which a Participant shall be entitled upon the settlement of a Performance Award shall be made in cash, Stock, or a combination thereof as determined by the Committee. Payment may be made as prescribed by the Committee. SECTION 10. BONUS STOCK Subject to the terms and provisions of the Plan and applicable law, the Committee, at any time and from time to time, may award Shares of Bonus Stock to Participants without cash consideration. The Committee shall determine and indicate in the related Agreement whether such Shares of Bonus Stock shall be unincumbered of any restrictions (other than those advisable to comply with law) or shall be subject to restrictions and limitations similar to those referred to in Section 9. In the event the Committee assigns any restrictions on the Shares of Bonus Stock then such Shares shall be subject to at least the following restrictions: (a) No Shares of Bonus Stock may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated if such Shares are subject to restrictions which have not lapsed or have not been vested. (b) If any condition of vesting of the Shares of Bonus Stock are not met, all such Shares subject to such vesting shall be delivered to the Company and cancelled (in a manner determined by the Committee) within 60 days of the failure to meet such conditions without any payment from the Company. SECTION 11. OTHER STOCK UNIT AWARDS 11.1 Grant of Other Stock Unit Awards. Subject to the terms and provisions of the Plan and applicable law, the Committee, at any time and from time to time, may issue to Participants, either alone or in addition to other Awards made under the Plan, Other Stock Unit Awards which may be in the form of Common Stock or other securities. The value of each such Award shall be based, in whole or in part, on the value of the underlying Common Stock or other securities. The Committee, in its sole and complete discretion, may determine that an Award, either in the form of a Other Stock Unit Award under this Section 11 or as an Award granted pursuant to Sections 6 through 10, may provide to the Participant (i) dividends or dividend equivalents (payable on a current or deferred basis) and (ii) cash payments in lieu of or in addition to an Award. Subject to the provisions of the Plan, the Committee in its sole and complete discretion, shall determine the 12 13 terms, restrictions, conditions, vesting requirements, and payment rules (all of which are sometimes hereinafter collectively referred to as "Rules") of the Award. The Agreement shall specify the Rules of each Award as determined by the Committee. However, each Other Stock Unit Award need not be subject to identical Rules. 11.2 Rules. The Committee, in its sole and complete discretion, may grant an Other Stock Unit Award subject to the following Rules: (a) Common Stock or other securities issued pursuant to Other Stock Unit Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by a Participant until the expiration of at least six months from the Award Date, except that such limitation shall not apply in the case of death or disability of the Participant or a Change in Control of the Company. For Participants subject to Section 16 and to the extent Other Stock Unit Awards are deemed to be derivative securities within the meaning of Rule 16b-3 a Participant's rights with respect to such Awards shall not: (i) vest or be exercisable until the expiration of at least six months from the Award Date, nor (ii) be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by laws of descent and distribution. All rights with respect to such Other Stock Unit Awards granted to a Participant shall be exercisable during his or her lifetime only by such Participant or his or her guardian or legal representative. (b) Other Stock Unit Awards may require the payment of cash consideration by the Participant upon receipt of the Award or provide that the Award, and any Common Stock or other securities issued in conjunction with the Award be delivered without the payment of cash consideration. (c) The Committee, in its sole and complete discretion, may establish certain Performance Criteria that may relate in whole or in part to receipt of the Other Stock Unit Awards. (d) Other Stock Unit Awards may be subject to a deferred payment schedule and/or vesting over a specified employment period. (e) The Committee, in its sole and complete discretion, as a result of certain circumstances, may waive or otherwise remove, in whole or in part, any restriction or condition imposed on an Other Stock Unit Award at the time of grant. SECTION 12. SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS Awards subject to Performance Criteria paid to Covered Participants under this Plan shall be governed by the conditions of this Section 12 in addition to the requirements of Sections 8, 9, 10 and 11 above. Should conditions set forth under this Section 12 conflict with the requirements of Sections 8, 9, 10 and 11, the conditions of this Section 12 shall prevail. (a) All Performance Measures relating to Covered Participants for a relevant Performance Period shall be established by the Committee in writing prior to the beginning of the Performance Period, or by such other later date for the Performance Period as may be permitted under Section 162(m). Performance Measures may include alternative and 13 14 multiple Performance Measures and may be based on one or more business criteria. In establishing Performance Measures, the Committee shall consider one or more of the following business or financial goals of the Company: absolute or relative increases in total stockholder return, economic value added, return on capital employed, revenues, sales, net income, earnings per share, return on equity, cash flow, operating margin or net worth of the Company, any of its Subsidiaries, divisions, or other areas of the Company. (b) The Performance Measures must be substantially uncertain of attainment at the time established, must be objective and must satisfy third party "objectivity" standards under Section 162(m). (c) The Performance Measures shall not allow for any discretion by the Committee as to an increase in any Award, but discretion to lower an Award is permissible. (d) The Award and payment of any Award under this Plan to a Covered Participant with respect to a relevant Performance Period shall be contingent upon the attainment of the Performance Measures that are applicable to such Covered Participant. The Committee shall certify in writing prior to payment of any such Award that such applicable Performance Measures relating to the Award are satisfied. Approved minutes of the Committee may be used for this purpose. (e) The maximum Award that may be paid to any Covered Participant under the Plan pursuant to Sections 8, 9, 10 and 11 for any Performance Period is the lessor of $1 Million or 100 percent of the Covered Participant's base salary as of the first day of that Performance Period. The maximum number of Shares subject to Options Stock Appreciation Rights or Restricted Stock granted to any Covered Participant for any fiscal year shall be 300,000. (f) All Awards to Covered Participants under this Plan shall be further subject to such other conditions, restrictions, and requirements as the Committee may determine to be necessary to carry out the purpose of this Section 12. SECTION 13. GENERAL PROVISIONS 13.1 Plan Term. The Plan was adopted on April 11, 1996 by the Board. Subject to stockholder approval, the Plan shall be effective on July 1, 1996; however, no Stock, rights or Options may be sold, awarded or granted under the Plan until the Company is in receipt of a Registration Statement under the Securities Act covering the Shares to be issued under the Plan. Any Stock, right, or Options granted under this Plan prior to stockholder approval of the Plan, shall be granted subject to such approval. The Plan terminates December 31, 2006; however, all Awards made prior to, and outstanding on such date, shall remain valid in accordance with their terms and conditions. 13.2 Withholding. The Company shall have the right to deduct or withhold, or require a Participant to remit to the Company, any taxes required by law to be withheld from Awards. In the event an 14 15 Award is paid in the form of Common Stock, the Committee may require the Participant to remit to the Company the amount of any taxes required to be withheld from such payment in Common Stock, or, in lieu thereof, the Company may withhold (or the Participant may be provided the opportunity to elect to tender) the number of shares of Common Stock equal in Fair Market Value to the amount required to be withheld. 13.3 Awards. Each Award shall be evidenced in a corresponding Agreement provided in writing to the Participant, which shall specify the terms, conditions and any Rules applicable to the Award, including but not limited to the effect of a Change in Control, or death, Disability, Divestiture, Early Retirement, Normal Retirement or other termination of employment of the Participant on the Award. 13.4 Nontransferability. No Award may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, except by will or the laws of descent and distribution or, except in the case of an ISO, by a qualified domestic relations order. Further, no lien, obligation, or liability of the Participant may be assigned to any right or interest of any Participant in an Award. 13.5 No Right to Employment. No granting of an Award shall be construed as a right to employment with the Company. 13.6 Rights as Stockholder. Subject to the Award provisions, no Participant or Designated Beneficiary shall be deemed a stockholder of the Company nor have any rights as such with respect to any Shares to be provided under the Plan until he or she has become the holder of such Shares. Notwithstanding the aforementioned, with respect to Stock granted as Restricted Stock, Bonus Stock or Other Stock Unit Awards under this Plan, the Participant or Designated Beneficiary of such Award shall be deemed the owner of such Shares provided herein. As such, unless contrary to the provisions herein or in any such related Agreement, such stockholder shall be entitled to full voting, dividend and distribution rights as provided any other Company stockholder for as long as the Participant continues to be deemed the owner of such stock. 13.7 Construction of the Plan. The Plan, and its rules, rights, agreements and regulations, shall be governed, construed, interpreted and administered solely in accordance with the laws of the state of Delaware. In the event any provision of the Plan shall be held invalid, illegal or unenforceable, in whole or in part, for any reason, such determination shall not affect the validity, legality or enforceability of any remaining provision, portion of provision or Plan overall, which shall remain in full force and effect as if the Plan had been absent the invalid, illegal or unenforceable provision or portion thereof. 13.8 Amendment of Plan. The Committee or Board of Directors may amend, suspend, or terminate the Plan or any portion thereof at any time, provided such amendment is made with stockholder approval if such approval is necessary to comply with any tax or regulatory requirement, including for these purposes any approval which is a requirement for exemptive relief under Section 16(b) of the Exchange Act or which is a requirement for the performance-based compensation exception under Section 162(m). The Committee in its discretion may amend the Plan so as to conform with local rules and regulations subject to any provisions to the contrary specified herein. 13.9 Amendment of Award. In its sole and complete discretion, the Committee may at any time amend any Award for the following reasons: (i) additions and/or changes to the Code, any federal 15 16 or state securities law, or other law or regulations applicable to the Award, made prior to the Date of Grant, and such additions and/or changes have some effect on the Award; or (ii) any other event not described in clause (i) occurs and the Participant gives his or her consent to such amendment, provided however, except for capital adjustments described in Section 5.4, the Committee may not reduce the Exercise Price of an Award. 13.10 Exemption from Computation of Compensation for Other Purposes. By acceptance of an applicable Award, subject to the conditions of such Award, each Participant shall be considered in agreement that all Shares sold or awarded and all Options granted under this Plan shall be considered special incentive compensation and will be exempt from inclusion as "wages" or "salary" in pension, retirement, life insurance, and other employee benefits arrangements of the Company, except as determined otherwise by the Company. In addition, each Designated Beneficiary of a deceased Participant shall be in agreement that all such Awards will be exempt from inclusion in "wages" or "salary" for purposes of calculating benefits of any life insurance coverage sponsored by the Company. 13.11 Legend. In its sole and complete discretion, the Committee may elect to legend certificates representing Shares sold or awarded under the Plan, to make appropriate references to the restrictions imposed on such shares. 13.12 Certain Participants. All Agreements for Participants subject to Section 16(b) of the Exchange Act shall be deemed to include any such additional terms, conditions, limitations and provisions as Rule 16b-3 requires, unless the Committee in its discretion determines that any such Award should not be governed by Rule 16b-3. All performance-based Awards shall be deemed to include any such additional terms, conditions, limitations and provisions as are necessary to comply with the performance-based compensation exemption of Section 162(m) unless the Committee in its discretion determines that any such Award to a Covered Participant is not intended to qualify for the exemption for performance-based compensation under Section 162(m). 13.13 Change in Control. In the event of a Change in Control, the Committee is permitted to accelerate the payment or vesting and release any restrictions on any Awards. 16 EX-10.2 3 EMPLOYMENT CONTRACT - DAVID R. BANKS 1 EXHIBIT 10.2 EMPLOYMENT CONTRACT AGREEMENT made as of December 8, 1995 between BEVERLY ENTERPRISES, INC., a Delaware corporation (the "Company"), and David R. Banks (the "Executive"). WHEREAS, the Company desires to assure itself of the management services of the Executive by directly engaging the Executive as the Chairman and Chief Executive Officer of the Company; WHEREAS, the Executive currently serves as Chairman of the Company's Board of Directors; WHEREAS, the Company recognizes that the Executive's contribution to the Company's growth and success has been and continues to be substantial; WHEREAS, the Company wishes to encourage the Executive to remain with and devote full time and attention to the business affairs of the Company and wishes to provide income protection to the Executive for a period of time in the event of a Change in Control; NOW, THEREFORE, in consideration of the mutual agreements and understandings set forth herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive hereby agrees as follows: 1. Definitions. (a) "Base Salary" shall mean the Executive's regular annual rate of base pay, as set forth in Paragraph 4(a), as of the date in question. (b) The "Benefit Multiplier" shall be equal to 1.0 except that if Executive's Termination of Employment is pursuant to Paragraphs 6(b) or 6(c) it shall be equal to 3.0. (c) The Benefit Period" shall be the period of years equal to the Benefit Multiplier which follows the Executive's Termination of Employment. (d) "Cause" shall mean the Executive's (i) conviction of a crime involving moral turpitude or theft or embezzlement of property from the Company or (ii) willful misconduct or willful failure substantially to perform the duties of his position, but only if such has continued after receipt of notice from the Company's Board of Directors and such reasonable cure period as is set forth in such notice. (e) A "Change in Control" shall be deemed to have taken place if: (i) any person, corporation, or other entity or group, including any "group" as defined in Section l3(d)(3) of the Securities Exchange Act of 1934, other than any employee benefit plan then maintained by the Company, becomes the beneficial owner of shares of the Company having 30 percent or more of the total number of votes that may be cast for the election of Directors of the Company; (ii) as the result of, or in connection with, any contested election for the Board of Directors of the Company, or any tender or exchange offer, merger or other business combination or sale of assets, or any combination of the foregoing (a "Transaction"), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company or its assets, or (iii) at any time (a) the Company shall consolidate with, or merge with, any other Person and the Company shall not be the continuing or surviving corporation, (b) any Person shall consolidate with, or merge with the Company, and the Company shall be the continuing 2 or surviving corporation and in connection therewith, all or part of the outstanding Company stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, (c) the Company shall be a party to a statutory share exchange with any other Person after which the Company is a subsidiary of any other Person, or (d) the Company shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and its subsidiaries (taken as a whole) to any Person or Persons. (f) The "Change in Control Date" shall mean the date immediately prior to the effectiveness of the Change in Control. (g) The "Committee" shall mean the Compensation Committee of the Company's Board of Directors. (h) The "Competitive Businesses" shall mean any of the health care businesses in which the Company is engaged on the execution date of this Agreement, except that ownership of nursing homes or other medical facilities (as distinguished from the operation of said facilities) shall not be deemed to be competitive businesses, and the Executive's serving on the Board of Directors or as the Chairman of such Board of Directors of Nationwide Health Properties, Inc. or of Wellpoint Health Networks, Inc. is specifically excluded from the definition of competitive businesses. (i) The Executive shall have "Good Reason" to terminate employment if: (i) the Executive is not elected, reelected, or otherwise continued in the office of the Company or any of its subsidiaries which he held immediately prior to the Change in Control Date, or he is removed as a member of the Board of Directors of the Company or any of its subsidiaries if the Executive was a director immediately prior to the Change in Control Date; (ii) the Executive's duties, responsibilities or authority as an employee are materially reduced or diminished from those in effect on the Change in Control Date without the Executive's consent; (iii) the Executive's duties, responsibilities or authority as an employee are materially reduced or diminished from those in effect on the date hereof without the Executive's consent; (iv) the Executive's compensation or benefits are reduced without the Executive's consent, unless all Executive-level officers have their salaries reduced in the same percentage amount; (v) the Company reduces the potential earnings of the Executive under any performance-based bonus or incentive plan of the Company in effect immediately prior to the Change in Control Date; (vi) the Company requires that the Executive's employment be based other than at Fort Smith, Arkansas, without his consent; (vii) any purchaser, assign, surviving corporation, or successor of the Company or its business or assets (whether by acquisition, merger, liquidation, consolidation, reorganization, sale or transfer of assets or business, or otherwise) fails or refuses to expressly assume in writing this Agreement and all of the duties and obligations of the Company hereunder pursuant to Section 16 hereof; or (viii) the Company breaches any of the provisions of this Agreement. (j) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (k) "Target Bonus" shall mean the target bonus (100% level) established for the Executive for the year in question under the Company's "Annual Incentive Plan." 2 3 (l) "Termination of Employment" shall mean the termination of the Executive's employment by the Company other than such a termination in connection with an offer of immediate reemployment by a successor or assign of the Company or purchaser of the Company or its assets under terms and conditions which would not permit the Executive to terminate his employment for Good Reason. 2. Term. The initial term of this Agreement shall be for the period commencing on December 8, 1995 (the "Effective Date") and ending on December 7, 1998. The Term shall be automatically extended by one additional day for each day beyond the Effective Date of this Agreement that the Executive remains employed by the Company until such time as the Company elects to cease such extension by giving written notice of such to the Executive. (In such event, the Agreement shall thus terminate on the third anniversary of the effective date of such notice). 3. Position and Duties. During the Term, the Executive shall serve, as an employee, as the Chairman of the Board of Directors and Chief Executive Officer of the Company and shall have such duties, functions, responsibilities and authority as are consistent with the Executive's position as the senior executive officer in charge of the general management, business and affairs of the Company. 4. Compensation and Related Matters. (a) Annual Base Salary. The Executive shall receive a Base Salary at a rate of $627,500 per annum through December 31, 1995 and thereafter at any such greater rate as is determined by the Committee. (b) Benefits. During the Term, the Executive shall be entitled to all of the following and any other benefits and prerequisites offered by the Company to executives generally: (i) Participate in the Company's present and future stock option, restricted stock, phantom stock and other similar equity-based incentive plans, pursuant to their terms; (ii) Participate in the Company's Employee Stock Purchase Plan, pursuant to its terms; (iii) Retain his interest in the Company's terminated Deferred Compensation Plan pursuant to its terms with the Executive's units 100% vested, locked in at the Company's stock price on July 17, 1991, and credited with interest (with quarterly compounding) at a rate to be determined, from time to time, by the Committee; (iv) Participate in the Company's Executive Retirement Plan, pursuant to its terms; (v) $600,000 of individual life insurance coverage under the Company's Executive Life Insurance Plan, which coverage shall be 70% vested as of the date hereof, and shall vest an additional 10% on January 1, 1995 and each of the next two annual anniversaries thereof so long as Executive is employed by the Company on any of such dates; 3 4 (vi) $628,000 (or such greater amount as the Company may make available to its senior executives generally) of group term life insurance coverage; (vii) $100,000 (or such greater amount as the Company may make available to its senior executives generally) of business travel accident insurance coverage when traveling on Company business; (viii) Participate in the Company's Medical Plan, and Dental Plan, pursuant to their terms, except that the premium cost for such shall be treated as a benefit under the Company's Executive Medical Reimbursement Plan, described below, (and therefore at the present time, there shall be no payroll deduction as a condition of coverage in the Medical Plan and Dental Plan); (ix) Participate in the Company's Executive Medical Reimbursement Plan (with a maximum benefit of $11,500 (or such greater amount as the Company may make available to its senior executives generally), a portion of which shall be deemed applied to the payment of premiums under the Company's Medical Plan and Dental Plan as described above), pursuant to its terms; (x) Participate in the Company's group Long-Term Disability Plan, at the maximum benefit level, pursuant to its terms; (xi) 4 weeks of paid vacation; (xii) Participate in or receive benefits under any other employee benefit plan or other arrangement made available by the Company to any of its employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. (c) Annual Bonus. As additional compensation for services rendered, the Executive shall be eligible to receive an annual bonus in cash pursuant to the Company's Annual Incentive Plan. (d) Expenses. The Company shall promptly reimburse the Executive for all reasonable travel and other business expenses incurred by the Executive in the performance of his duties to the Company hereunder. 5. Competition. (a) Executive shall not, at any time during the period of his employment with the Company, or, if his Termination of Employment is for Cause or without Good Reason, during the two year period following his Termination of Employment with the Company ("Non-Compete Period"), without the prior written consent of the Board, directly or indirectly engage in, or have any interest in, or manage or operate any person, firm, corporation, partnership or business (whether as director, officer, employee, agent, representative, partner, security holder, consultant or otherwise) that engages in any of the Competitive Businesses in any State of the United States or any foreign country in which the Company is then engaged in any of such businesses; provided, however, that Executive shall be permitted to acquire a stock interest in such a corporation provided such stock is publicly traded and the stock so acquired is not more than one percent of the outstanding shares of such corporation, and provided further, that Executive may engage in business that is a non-competitive supplier to the Company or that is a customer of Company products or services. 4 5 (b) The Executive covenants that a breach of subparagraph (a) above would immediately and irreparably harm the Company and that a remedy at law would be inadequate to compensate the Company for its losses by reason of such breach and therefore that the Company shall, in addition to any other rights and remedies available under this Agreement, at law or otherwise, be entitled to an injunction to be issued by any court of competent jurisdiction enjoining and restraining the Executive from committing any violation of subparagraph (a) above, and the Executive hereby consents to the issuance of such injunction. 6. Eligibility for Severance Benefits. The Executive shall be eligible for the benefits described in Paragraph 7 (the "Severance Benefits") if: (a) during the Term, the Executive has a Termination of Employment initiated (i) by the Company without Cause or (ii) by the Executive for Good Reason, and, in either case, subsection (c) does not apply, (b) during the Term there has been a Change in Control and during the 31 day period commencing on the first day of the 13th calendar month following the Change in Control Date (e.g. the period April 1, 1996 - May 1, 1996, inclusive, for a Change in Control which is effective in the month of March, 1995), the Executive has a Termination of Employment initiated by the Executive without Good Reason, or (c) during the Term there has been a Change in Control and during the two year period commencing on the Change in Control Date the Executive has a Termination of Employment which is initiated by the Company without Cause or by the Executive for Good Reason. 7. Severance Benefit. Upon satisfaction of the requirements set forth in Paragraph 6, and subject to Paragraphs 8 and 11, the Executive shall be entitled to the following Severance Benefits: (a) Cash Payment. The Executive shall be entitled to receive an amount of cash equal to the Benefit Multiplier times the greater of (i) the sum of the Executive's Base Salary as in effect upon the Termination of Employment, and the greater of (A) the Executive's Target Bonus as in effect upon the Termination of Employment or, (B) the Executive's actual bonus under the Company's "Annual Incentive Plan" for the year prior to the year of the Executive's Termination of Employment, (ii) the sum of the Executive's Base Salary as in effect on the Change in Control Date, and the greater of (A) the Executive's Target Bonus as in effect upon the Change in Control Date or, (B) the Executive's actual bonus under the Company's "Annual Incentive Plan" for the year prior to the Change in Control Date. 5 6 The payment shall be made in a single lump sum within ten days following the Executive's Termination of Employment. (b) Long-Term Incentive Award; Equity-Based Compensation. The Executive's interest under all of the Company's long-term incentive plans shall be fully vested. Any and all (i) options to purchase Company stock and (ii) restricted stock of the Company, owned by the Executive shall be fully vested. (c) Continuation of Benefits. (i) For the Benefit Period, or for two (2) years, whichever is longer, the Executive shall be treated as if he had continued to be an executive employee for all purposes under the Company's Medical Plan, Executive Medical Reimbursement Plan and Dental Plan, as described in Paragraph 4(b). Following this period, the Executive shall be entitled to receive continuation coverage under Part Six of Title I of ERISA ("COBRA Benefits") treating the end of this period as a termination of the Executive's employment other than for gross misconduct. (ii) The Company shall fully vest and maintain in force, at its own expense, for the remainder of the Executive's life, the life insurance in effect under the Company's Executive Life Insurance Plan (as described in Paragraph 4(b)) as of the Change in Control Date or as of the date of Termination of Employment, whichever is greater. (d) Relocation Benefit; Office. (i) If, within three years after the Executive's Termination of Employment with the Company, the Executive gives the Company written notice that he desires to relocate within the continental United States, the Company will reimburse the Executive for any reasonable relocation expenses (in accordance with the Company's general relocation policy for executives as then in effect, or, at the Executive's election, as in effect on the Change in Control Date) in connection with such relocation. (ii) For the lesser of the Benefit Period or the date Executive commences such employment which provides an office to Executive, the Company shall provide Executive with first-class office space of not more than 800 square feet in a city to be selected by the Executive and approved by the Company (with such approval not to be unreasonably withheld). (e) Executive Retirement Plan. For the year of the Executive's Termination of Employment, the Company will make the contribution to the Retirement Plan on behalf of the Executive that it would have made if the Executive had not had a Termination of Employment, but in no event less than the percentage contribution it made for the Executive in the immediately preceding year (and increased to take account of the additional year of service), in each case taking account of the Executive's annualized rate of "Compensation" (as defined in the Retirement Plan) and the percentage of such Compensation that the Executive is contributing to the Retirement Plan, as of the date of Termination of Employment, and the Company's matching contribution rate for such year (or, if greater, the preceding year). The portion of the Company's matching contribution which is based on the preceding year's contribution percentage shall be contributed to the Retirement Plan on behalf of the Executive immediately upon the Executive's Termination 6 7 of Employment and any additional contribution required shall be paid as soon as the amount is determined. (f) Disability. For the Benefit Period, the Company shall provide long-term disability insurance benefits coverage to Executive equivalent to the coverage that the Executive would have had had he remained employed under the Company's Long-Term Disability Plan as described in Paragraph 4(b) applicable to Executive on the date of Termination of Employment, or, at the Executive's election, the plan applicable to Executive as of the Change in Control Date. Should Executive become disabled during such period, Executive shall be entitled to receive such benefits, and for such duration, as the applicable plan provides. (g) Plan Amendments. The Company shall adopt such amendments to its employee benefit plans and insurance policies as are necessary to effectuate the provisions of this Agreement. If and to the extent any benefits under this Paragraph 7 are not paid or payable or otherwise provided to the Executive or his dependents or beneficiaries under any such plan or policy (whether due to the terms of the plan or policy, the termination thereof, applicable law, or otherwise), then the Company itself shall pay or provide for such benefits. 8. Golden Parachute Gross-Up. If, in the written opinion of a Big 6 accounting firm engaged by either the Company or the Executive for this purpose (at the Company's expense), or if so alleged by the Internal Revenue Service, the aggregate of the benefit payments under Paragraph 7 would cause the payment of one or more of such benefits to constitute an "excess parachute payment" as defined in Section 280G(b) of the Internal Revenue Code ("Code"), then the Company will pay to the Executive an additional amount in cash (the "Gross-Up Payment") equal to the amount necessary to cause the net amount retained by the Executive, after deduction of any (i) excise tax on the payments under Paragraph 7, (ii) federal, state or local income tax on the Gross-Up Payment, and (iii) excise tax on the Gross-Up Payment, to be equal to the aggregate remuneration the Executive would have received under Section 7, excluding such Gross-Up Payment (net of all federal, state and local excise and income taxes), as if Sections 280G and 4999 of the Code (and any successor provisions thereto) had not been enacted into law. The Gross-Up Payment provided for in this Paragraph shall be made within ten (10) days after the termination of Executive's employment, provided however that if the amount of the payment cannot be finally determined at the time, the Company shall pay to Executive an estimate as determined in good faith by the Company of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the date of termination. Any dispute concerning the application of this Paragraph shall be resolved pursuant to Paragraph 10, and if Paragraph 11 applies, any reference in this Paragraph to Paragraph 7 shall also be deemed to include a reference to Paragraph 11 as well. 9. Waiver of Other Severance Benefits. The benefits payable pursuant to this Agreement are in lieu of any other severance benefits which may otherwise be payable to the Executive upon termination following a Change in Control (including, without limitation, any benefits to which Executive might otherwise have been entitled under the "Agreement Concerning Benefits Upon Severance" dated as of September l, 1990 to which Executive and the Company are parties), except those benefits which are to be made available to the Executive as required by applicable law. 10. Disputes. Any dispute or controversy arising under, out of, in connection with or in relation to this Agreement shall, at the election and upon written demand of either party, be finally determined and settled by binding arbitration in the city of Fort Smith, Arkansas, using a single arbitrator, in accordance with the Labor Arbitration rules and procedures of the American 7 8 Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. The arbitrator shall have the power to order specific performance, mandamus, or other appropriate legal or equitable relief to enforce the provisions of this Agreement. The Company shall pay all costs of the arbitration and all reasonable attorney's and accountant's fees of the Executive in connection therewith. 11. Additional Payments Due to Dispute. Notwithstanding anything to the contrary herein, and without limiting the Executive's rights at law or in equity, if the Company fails or refuses to timely pay to the Executive the benefits due under Paragraphs 7 and/or 8 hereof, then the benefits under Paragraph 7(a) shall be increased and the benefits under Paragraphs 7(c), 7(d), and 7(f) shall each be continued by one additional day for each day of any such failure or refusal of the Company to pay. In addition, any Gross-Up Payment due under Paragraph 8 shall be increased to take into account any increased benefits under this Paragraph. 12. No Set-Off. There shall be no right of set-off or counterclaim in respect of any claim, debt, or obligation against any payment to or benefit for the Executive provided for in this Agreement. 13. No Mitigation Obligation. The parties hereto expressly agree that the payment of the benefits by the Company to the Executive in accordance with the terms of this Agreement will be liquidated damages, and that the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise. 14. Trust. Any payments or installments that may be required to be made to Executive under this Agreement shall be funded immediately prior to any Change of Control Date (or, if earlier, within ten (10) days after any Termination of Employment) by a contribution by the Company of the necessary amount of cash, as determined by independent actuaries acceptable to both Executive and the Company, to the irrevocable grantor trust created for such purpose by the Company, with Chemical Bank as Trustee dated July 18, 1995, a copy of which Trust Agreement may be obtained from the Company or the Trustee. 15. Letter of Credit for Legal Fees. In order to ensure the benefits intended to be provided to the Executive hereunder, immediately prior to any Change of Control Date the Company shall establish and hereby agrees to maintain throughout the remaining Term an irrevocable standby Letter of Credit in favor of the Executive and each other person who is named an Executive under similar agreements, drawn on a bank selected by the Company (the "Letter of Credit") which provides for a credit amount of $250,000 being made available to the Executive against presentation at any time and from time to time of his clean sight drafts, accompanied by statements of his counsel for fees and expenses, in an aggregate amount not to exceed $250,000, unless a larger amount is authorized by either the Chief Executive Officer, General Counsel, Chief Financial Officer, or a Senior Vice President of the Company. 16. Successors; Binding Agreement. (a) This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company or by any merger or consolidation where the Company is not the surviving corporation, or upon any transfer of all or substantially all of the Company's assets, or any other Change in Control. The Company shall require any purchaser, assign, surviving corporation or successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure 8 9 to the benefit of the Company and any purchaser, assign, surviving corporation or successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization, transfer of all or substantially all of the business or assets of the Company, or otherwise (and such purchaser, assign, surviving corporation or successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but this Agreement shall not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in this Section 16. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, or otherwise subject to anticipation, alienation, sale, encumbrance, charge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law, other than by a transfer by his will or by the laws of descent and distribution. Any attempt, voluntarily or involuntarily, to effect any action prohibited by this Paragraph shall be null, void, and of no effect. 17. Notices. Any notice, request, claim, demand, document and other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, or other similar means of communication, as follows: (a) If to the Company, addressed to its principal executive offices to the attention of its Secretary; (b) If to the Executive, to him at the address set forth below under the Executive's signature, or at any such other address as either party shall have specified by notice in writing to the other. 18. Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and by a duly authorized representative of the Board of Directors. By an instrument in writing similarly executed, either party may waive compliance by the other party with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. 19. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no 9 10 extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding involving this Agreement. 20. Severability; Enforcement. If any provision of this Agreement, or the application thereof to any person, place, or circumstance shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to other persons, places and circumstances shall remain in full force and effect. 21. Indemnification. The Company shall indemnify, defend, and hold the Executive harmless from and against any liability, damages, costs, or expenses (including attorney's fees) in connection with any claim, cause of action, investigation, litigation, or proceeding involving him by reason of his having been an officer, director, employee, or agent of the Company, unless it is judicially determined, in a final, nonappealable order that the Executive was guilty of gross negligence or willful misconduct. The Company also agrees to maintain adequate directors and officers liability insurance for the benefit of Executive for the term of this Agreement and for at least three years thereafter. 22. Governing Law. This Agreement shall be interpreted, administered and enforced in accordance with the law of the State of Arkansas, except to the extent pre-empted by Federal law. The parties have duly executed this Agreement as of the date first written above. BEVERLY ENTERPRISES, INC. EXECUTIVE By: ----------------------------------- --------------------------- Robert W. Pommerville David R. Banks Executive Vice President, 3421 Free Ferry Road General Counsel and Secretary Fort Smith, AR 72903 By:----------------------------------- Christine Murray Assistant Secretary 5111 Rogers Avenue, Suite 40A Fort Smith, AR 72919 Attention: Secretary 10 EX-10.3 4 EMPLOYMENT CONTRACT - BOYD W. HENDRICKSON 1 EXHIBIT 10.3 EMPLOYMENT CONTRACT AGREEMENT made as of December 8, 1995 between BEVERLY ENTERPRISES, INC., a Delaware corporation (the "Company"), and Boyd W. Hendrickson (the "Executive"). WHEREAS, the Company desires to assure itself of the management services of the Executive by directly engaging the Executive as the President and Chief Operating Officer of the Company; WHEREAS, the Company recognizes that the Executive's contribution to the Company's growth and success has been and continues to be substantial; WHEREAS, the Company wishes to encourage the Executive to remain with and devote full time and attention to the business affairs of the Company and wishes to provide income protection to the Executive for a period of time in the event of a Change in Control; NOW, THEREFORE, in consideration of the mutual agreements and understandings set forth herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive hereby agree as follows: 1. Definitions. (a) "Base Salary" shall mean the Executive's regular annual rate of base pay, as set forth in Paragraph 4(a), as of the date in question. (b) The "Benefit Multiplier" shall be equal to 1.0 except that if Executive's Termination of Employment is pursuant to Paragraphs 6(b) or 6(c) it shall be equal to 3.0. (c) The "Benefit Period" shall be the period of years equal to the Benefit Multiplier which follows the Executive's Termination of Employment. (d) "Cause" shall mean the Executive's (i) conviction of a crime involving moral turpitude or theft or embezzlement of property from the Company or (ii) willful misconduct or willful failure substantially to perform the duties of his position, but only if such has continued after receipt of notice from the Company's Board of Directors and such reasonable cure period as is set forth in such notice. (e) A "Change of Control" shall be deemed to have taken place if: (i) any person, corporation, or other entity or group, including any "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, other than any employee benefit plan then maintained by the Company, becomes the beneficial owner of shares of the Company having 30 percent or more of the total number of votes that may be cast for the election of Directors of the Company; (ii) as the result of, or in connection with, any contested election for the Board of Directors of the Company, or any tender or exchange offer, merger or other business combination or sale of assets, or any combination of the foregoing (a "Transaction"), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company or its assets, or (iii) at any time a the Company shall consolidate with, or merge with, any other Person and the Company shall not be the continuing or surviving 2 corporation, b any Person shall consolidate with, or merge with, the Company, and the Company shall be the continuing or surviving corporation and in connection therewith, all or part of the outstanding Company stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, c the Company shall be a party to a statutory share exchange with any other Person after which the Company is a subsidiary of any other Person, or d the Company shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and its subsidiaries (taken as a whole) to any Person or Persons. (f) The "Change in Control Date" shall mean the date immediately prior to the effectiveness of the Change in Control. (g) The "Committee" shall mean the Compensation Committee of the Company's Board of Directors. (h) The "Competitive Businesses" shall mean any of the health care businesses in which the Company is engaged on the execution date of this Agreement. (i) The Executive shall have "Good Reason" to terminate employment if: (i) the Executive is not elected, reelected or otherwise continued in the office of the Company or any of its subsidiaries which he held immediately prior to the Change in Control Date, or he is removed as a member of the Board of Directors of the Company or any of its subsidiaries if the Executive was a director immediately prior to the Change in Control Date (ii) the Executive's duties, responsibilities or authority as an employee are materially reduced or diminished from those in effect on the Change in Control Date without the Executive's consent; (iii) the Executive's duties, responsibilities or authority as an employee are materially reduced or diminished from those in effect on the date hereof without the Executive's consent; (iv) the Executive's compensation or benefits are reduced without the Executive's consent, unless all Executive-level officers have their salaries reduced in the same percentage amount; (v) the Company reduces the potential earnings of the Executive under any performance-based bonus or incentive plan of the Company in effect immediately prior to the Change in Control Date; (vi) the Company requires that the Executive's employment be based other than at Fort Smith, Arkansas, without his consent; (vii) any purchaser, assign, surviving corporation, or successor of the Company or its business or assets (whether by acquisition, merger, liquidation, consolidation, reorganization, sale or transfer of assets or business, or otherwise) fails or refuses to expressly assume in writing this Agreement and all of the duties and obligations of the Company hereunder pursuant to Section 16 hereof, or (viii) the Company breaches any of the provisions of this Agreement. (j) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (k) "Target Bonus" shall mean the target bonus (100% level) established for the Executive for the year in question under the Company's "Annual Incentive Plan." (l) "Termination of Employment" shall mean the termination of the Executive's employment by the Company other than such a termination in connection with an offer of immediate reemployment by a successor or assign of the Company or purchaser of the Company or its assets 2 3 under terms and conditions which would not permit the Executive to terminate his employment for Good Reason. 2. Term. The initial term of this Agreement shall be for the period commencing on December 8, 1995 (the "Effective Date") and ending on December 7, 1998. The Term shall be automatically extended by one additional day for each day beyond the Effective Date of this Agreement that the Executive remains employed by the Company until such time as the Company elects to cease such extension by giving written notice of such to the Executive. (In such event, the Agreement shall thus terminate on the third anniversary of the effective date of such notice). 3. Position and Duties. During the Term, the Executive shall serve as an employee, as the President and Chief Operating Officer of the Company and shall have such duties, functions, responsibilities and authority as are consistent with the Executive's position as the senior executive officer in charge of the general management, business and affairs of the Company. Executive also currently serves on the Company's Board of Directors. 4. Compensation and Related Matters. (a) Annual Base Salary. The Executive shall receive a Base Salary at a rate of $450,000 per annum through December 31, 1995 and thereafter at any such greater rate as is determined by the Committee. (b) Benefits. During the Term, the Executive shall be entitled to all of the following and any other benefits and perquisites offered by the Company to executives generally: (i) Participate in the Company's present and future stock option, restricted stock, phantom stock and other similar equity-based incentive plans, pursuant to their terms; (ii) Participate in the Company's Employee Stock Purchase Plan, pursuant to its terms; (iii) Participate in the Company's Executive Retirement Plan, pursuant to its terms; (iv) $500,000 of individual life insurance coverage under the Company's Executive Life Insurance Plan, which coverage shall be 0% vested as of the date hereof, and shall vest 10% on his fiftieth birthday and shall vest an additional 10% each year thereafter on his birthday while the Executive is employed by the Company; (v) $450,000 (or such greater amount as the Company may make available to its senior executives generally) of group term life insurance coverage; (vi) $100,000 (or such greater amount as the Company may make available to its senior executives generally) of business travel accident insurance coverage when traveling on Company business; 3 4 (vii) Participate in the Company's Medical Plan, and Dental Plan, pursuant to their terms, except that the premium cost for such shall be treated as a benefit under the Company's Executive Medical Reimbursement Plan, described below, (and therefore at the present time, there shall be no payroll deduction as a condition of coverage in the Medical Plan and Dental Plan); (viii) Participate in the Company's Executive Medical Reimbursement Plan (with a maximum annual benefit of $11,500 (or such greater amount as the Company may make available to its senior executives generally), a portion of which shall be deemed applied to the payment of premiums under the Company's Medical Plan and Dental Plan as described above), pursuant to its terms; (ix) Participate in the Company's group Long-Term Disability Plan, at the maximum benefit level, pursuant to its terms; (x) 4 weeks of paid vacation; (xi) Participate in or receive benefits under any other employee benefit plan or other arrangement made available by the Company to any of its employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. (c) Annual Bonus. As additional compensation for services rendered, the Executive shall be eligible to receive an annual bonus in cash pursuant to the Company's Annual Incentive Plan. (d) Expenses. The Company shall promptly reimburse the Executive for all reasonable travel and other business expenses incurred by the Executive in the performance of his duties to the Company hereunder. (e) Reporting. The Executive shall report directly to the Chief Executive Officer of the Company. 5. Competition. (a) Executive shall not, at any time during the period of his employment with the Company, or, if his Termination of Employment is for Cause, if initiated by the Company, or without Good Reason, if initiated by the Executive, during the one year period following his Termination of Employment with the Company ("Non-Compete Period"), without the prior written consent of the Board, directly or indirectly engage in, or have any interest in, or manage or operate any person, firm, corporation, partnership or business (whether as director, officer, employee, agent, representative, partner, security holder, consultant or otherwise) that engages in any of the Competitive Businesses in any State of the United States or any foreign country in which the Company is then engaged in any of such businesses; provided, however, that Executive shall be permitted to acquire a stock interest in such a corporation provided such stock is publicly traded and the stock so acquired is not more than one percent of the outstanding shares of such corporation, and provided further, that Executive may engage in a business that is a non-competitive supplier to the Company or that is a customer of Company products or services. 4 5 (b) The Executive covenants that a breach of subparagraph (a) above would immediately and irreparably harm the Company and that a remedy at law would be inadequate to compensate the Company for its losses by reason of such breach and therefore that the Company shall, in addition to any other rights and remedies available under this Agreement, at law or otherwise, be entitled to an injunction to be issued by any court of competent jurisdiction enjoining and restraining the Executive from committing any violation of subparagraph (a) above, and the Executive hereby consents to the issuance of such injunction. 6. Eligibility for Severance Benefits. The Executive shall be eligible for the benefits described in Paragraph 7 (the "Severance Benefits") if: (a) during the Term, the Executive has a Termination of Employment initiated (i) by the Company without Cause or (ii) by the Executive for Good Reason, and, in either case, subsection (c) does not apply, (b) during the Term there has been a Change in Control and during the 31 day period commencing on the first day of the 13th calendar month following the Change in Control Date (e.g. the period April 1, 1996 - May 1, 1996, inclusive, for a Change in Control which is effective in the month of March, 1995), the Executive has a Termination of Employment initiated by the Executive without Good Reason, or (c) during the Term there has been a Change in Control and during the two year period commencing on the Change in Control Date the Executive has a Termination of Employment which is initiated by the Company without Cause or by the Executive for Good Reason. 7. Severance Benefit. Upon satisfaction of the requirements set forth in Paragraph 6, and subject to Paragraphs 8 and 11, the Executive shall be entitled to the following Severance Benefits: (a) Cash Payment. The Executive shall be entitled to receive an amount of cash equal to the Benefit Multiplier times the greater of (i) the sum of the Executive's Base Salary as in effect upon the Termination of Employment, and the greater of (A) the Executive's Target Bonus as in effect upon the Termination of Employment or, (B) the Executive's actual bonus under the Company's "Annual Incentive Plan" for the year prior to the year of the Executive's Termination of Employment, (ii) the sum of the Executive's Base Salary as in effect on the Change in Control Date, and the greater of (A) the Executive's Target Bonus as in effect upon the Change in Control Date or, 5 6 (B) the Executive's actual bonus under the Company's "Annual Incentive Plan" for the year prior to the Change in Control Date. The payment shall be made in a single lump sum within ten days following the Executive's Termination of Employment. (b) Long-Term Incentive Award; Equity-Based Compensation. The Executive's interest under all of the Company's long-term incentive plans shall be fully vested. Any and all (i) options to purchase Company stock and (ii) restricted stock of the Company, owned by the Executive shall be fully vested. (c) Continuation of Benefits. (i) For the Benefit Period, or for two (2) years, whichever is longer, the Executive shall be treated as if he had continued to be an executive employee for all purposes under the Company's Medical Plan, Executive Medical Reimbursement Plan and Dental Plan (as described in Paragraph 4(b). Following this period the Executive shall be entitled to receive continuation coverage under Part Six of Title I of ERISA ("COBRA Benefits) treating the end of this period as a termination of the Executive's employment (other than for gross misconduct). (ii) The Company shall fully vest and maintain in force, at its own expense, for the remainder of the Executive's life, the life insurance in effect under the Company's Executive Life Insurance Plan (as described in Paragraph 4(b)) as of the Change in Control Date or as of the date of Termination of Employment, whichever is greater. (d) Relocation Benefit. If, within three years after the Executive's Termination of Employment with the Company, the Executive gives the Company written notice that he desires to relocate within the continental United States, the Company will reimburse the Executive for any reasonable relocation expenses (in accordance with the Company's general relocation policy for executives as then in effect, or, at the Executive's election, as in effect on the Change in Control Date) in connection with such relocation. (e) Executive Retirement Plan. For the year of the Executive's Termination of Employment, the Company will make the contribution to the Retirement Plan on behalf of the Executive that it would have made if the Executive had not had a Termination of Employment, but in no event less than the percentage contribution it made for the Executive in the immediately preceding year (and increased to take account of the additional year of service), in each case taking account of the Executive's annualized rate of "Compensation" (as defined in the Retirement Plan) and the percentage of such Compensation that the Executive is contributing to the Retirement Plan, as of the date of Termination of Employment, and the Company's matching contribution rate for such year (or, if greater, the preceding year). The portion of the Company's matching contribution which is based on the preceding year's contribution percentage shall be contributed to the Retirement Plan on behalf of the Executive immediately upon the Executive's Termination of Employment and any additional contribution required shall be paid as soon as the amount is determined. (f) Disability. For the Benefit Period, the Company shall provide long-term disability insurance benefits coverage to Executive equivalent to the coverage that the Executive 6 7 would have had had he remained employed under the Company's Long-Term Disability Plan as described in Paragraph 4(b) applicable to Executive on the date of Termination of Employment, or, at the Executive's election, the plan applicable to Executive as of the Change in Control Date. Should Executive become disabled during such period, Executive shall be entitled to receive such benefits, and for such duration, as the applicable plan provides. (g) Plan Amendments. The Company shall adopt such amendments to its employee benefit plans and insurance policies as are necessary to effectuate the provisions of this Agreement. If and to the extent any benefits under this Paragraph 7 are not paid or payable or otherwise provided to the Executive or his dependents or beneficiaries under any such plan or policy (whether due to the terms of the plan or policy, the termination thereof, applicable law, or otherwise), then the Company itself shall pay or provide for such benefits. 8. Golden Parachute Gross-Up. If, in the written opinion of a Big 6 accounting firm engaged by either the Company or the Executive for this purpose (at the Company's expense), or if so alleged by the Internal Revenue Service, the aggregate of the benefit payments under Paragraph 7 would cause the payment of one or more of such benefits to constitute an "excess parachute payment" as defined in Section 280G(b) of the Internal Revenue Code ("Code"), then the Company will pay to the Executive an additional amount in cash (the "Gross-Up Payment") equal to the amount necessary to cause the net amount retained by the Executive, after deduction of any (i) excise tax on the payments under Paragraph 7, (ii) federal, state or local income tax on the Gross-Up Payment, and (iii) excise tax on the Gross-Up Payment, to be equal to the aggregate remuneration the Executive would have received under Section 7, excluding such Gross-Up Payment (net of all federal, state and local excise and income taxes), as if Sections 280G and 4999 of the Code (and any successor provisions thereto) had not been enacted into law. The Gross-Up Payment provided for in this Paragraph shall be made within ten (10) days after the termination of Executive's employment, provided however that if the amount of the payment cannot be finally determined at the time, the Company shall pay to Executive an estimate as determined in good faith by the Company of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the date of termination. Any dispute concerning the application of this Paragraph shall be resolved pursuant to Paragraph 10, and if Paragraph 11 applies, any reference in this Paragraph to Paragraph 7 shall also be deemed to include a reference to Paragraph 11 as well. 9. Waiver of Other Severance Benefits. The benefits payable pursuant to this Agreement are in lieu of any other severance benefits which may otherwise be payable to the Executive upon termination following a Change in Control (including, without limitation, any benefits to which Executive might otherwise have been entitled under the "Agreement Concerning Benefits Upon Severance" dated as of September 1, 1990 to which Executive and the Company are parties), except those benefits which are to be made available to the Executive as required by applicable law. 10. Disputes. Any dispute or controversy arising under, out of, in connection with or in relation to this Agreement shall, at the election and upon written demand of either party, be finally determined and settled by binding arbitration in the city of Fort Smith, Arkansas, using a single arbitrator, in accordance with the Labor Arbitration rules and procedures of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. The arbitrator shall have the power to order specific performance, mandamus, or other appropriate legal or equitable relief to enforce the provisions of this Agreement. The Company shall pay all costs of the arbitration and all reasonable attorney's and accountant's fees of the Executive in connection therewith. 7 8 11. Additional Payments Due to Dispute. Notwithstanding anything to the contrary herein, and without limiting the Executive's rights at law or in equity, if the Company fails or refuses to timely pay to the Executive the benefits due under Paragraphs 7 and/or 8 hereof, then the benefits under Paragraph 7(a) shall be increased and the benefits under Paragraphs 7(c), 7(d), and 7(f) shall each be continued by one additional day for each day of any such failure or refusal of the Company to pay. In addition, any Gross-Up Payment due under Paragraph 8 shall be increased to take into account any increased benefits under this Paragraph. 12. No Set-Off. There shall be no right of set-off or counterclaim in respect of any claim, debt, or obligation against any payment to or benefit for the Executive provided for in this Agreement. 13. No Mitigation Obligation. The parties hereto expressly agree that the payment of the benefits by the Company to the Executive in accordance with the terms of this Agreement will be liquidated damages, and that the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise. 14. Trust. Any payments or installments that may be required to be made to Executive under this Agreement shall be funded immediately prior to any Change of Control Date (or, if earlier, within ten (10) days after any Termination of Employment) by a contribution by the Company of the necessary amount of cash, as determined by independent actuaries acceptable to both Executive and the Company, to the irrevocable grantor trust created for such purpose by the Company, with Chemical Bank as Trustee dated July 18, 1995, a copy of which Trust Agreement may be obtained from the Company or the Trustee. 15. Letter of Credit for Legal Fees. In order to ensure the benefits intended to be provided to the Executive hereunder, immediately prior to any Change of Control Date the Company shall establish and hereby agrees to maintain throughout the remaining Term an irrevocable standby Letter of Credit in favor of the Executive and each other person who is named an Executive under similar agreements, drawn on a bank selected by the Company (the "Letter of Credit") which provides for a credit amount of $250,000 being made available to the Executive against presentation at any time and from time to time of his clean sight drafts, accompanied by statements of his counsel for fees and expenses, in an aggregate amount not to exceed $250,000, unless a larger amount is authorized by either the Chief Executive Officer, General Counsel, Chief Financial Officer, or a Senior Vice President of the Company. 16. Successors; Binding Agreement. (a) This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company or by any merger or consolidation where the Company is not the surviving corporation, or upon any transfer of all or substantially all of the Company's assets, or any other Change in Control. The Company shall require any purchaser, assign, surviving corporation or successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any purchaser, assign, surviving corporation or successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization, transfer of all or substantially all of the business or assets 8 9 of the Company, or otherwise (and such purchaser, assign, surviving corporation or successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but this Agreement shall not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in this Section 16. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, or otherwise subject to anticipation, alienation, sale, encumbrance, charge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law, other than by a transfer by his will or by the laws of descent and distribution. Any attempt, voluntarily or involuntarily, to effect any action prohibited by this Paragraph shall be null, void, and of no effect. 17. Notices. Any notice, request, claim, demand, document and other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, or other similar means of communication, as follows: (a) If to the Company, addressed to its principal executive offices to the attention of its Secretary; (b) If to the Executive, to him at the address set forth below under the Executive's signature, or at any such other address as either party shall have specified by notice in writing to the other. 18. Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and by a duly authorized representative of the Board of Directors. By an instrument in writing similarly executed, either party may waive compliance by the other party with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. 19. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding involving this Agreement. 9 10 20. Severability; Enforcement. If any provision of this Agreement, or the application thereof to any person, place, or circumstance shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to other persons, places and circumstances shall remain in full force and effect. 21. Indemnification. The Company shall indemnify, defend, and hold the Executive harmless from and against any liability, damages, costs, or expenses (including attorney's fees) in connection with any claim, cause of action, investigation, litigation, or proceeding involving him by reason of his having been an officer, director, employee, or agent of the Company, unless it is judicially determined, in a final, nonappealable order that the Executive was guilty of gross negligence or willful misconduct. The Company also agrees to maintain adequate directors and officers liability insurance for the benefit of Executive for the term of this Agreement and for at least three years thereafter. 22. Governing Law. This Agreement shall be interpreted, administered and enforced in accordance with the law of the State of Arkansas, except to the extent pre-empted by Federal law. The parties have duly executed this Agreement as of the date first written above. BEVERLY ENTERPRISES, INC. EXECUTIVE By: ------------------------------------ ---------------------------- David R. Banks Boyd W. Hendrickson Chairman and Chief Executive Officer 3816 Spring Mountain Road Fort Smith, AR 72903 By: ------------------------------------ Robert W. Pommerville Executive Vice President, General Counsel and Secretary 5111 Rogers Avenue, Suite 40A Fort Smith, AR 72919 Attention: Secretary 10 EX-10.4 5 EMPLOYMENT CONTRACT - C. ARNOLD RENSCHLER 1 EXHIBIT 10.4 EMPLOYMENT CONTRACT AGREEMENT made as of June 3, 1996 between BEVERLY ENTERPRISES, INC., a Delaware corporation (the "Company"), and C. Arnold Renschler (the "Executive"). WHEREAS, the Company desires to assure itself of the management services of the Executive by directly engaging the Executive as an Executive Vice President of the Company and as the President and Chief Executive Officer of Pharmacy Corporation of America ("PCA"); WHEREAS, the Company recognizes that the Executive's contribution to the Company's growth and success will be substantial; WHEREAS, the Company wishes to encourage the Executive to remain with and devote full time and attention to the business affairs of the Company and wishes to provide income protection to the Executive for a period of time in the event of a Change in Control; NOW, THEREFORE, in consideration of the mutual agreements and understandings set forth herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive hereby agree as follows: 1. Definitions. (a) "Base Salary" shall mean the Executive's regular annual rate of base pay, as set forth in Paragraph 4(a), as of the date in question. (b) The "Benefit Multiplier" shall be equal to 1.0 except that if Executive's Termination of Employment is pursuant to Paragraphs 6(b) or 6(c) it shall be equal to 3.0. (c) The "Benefit Period" shall be the period of years equal to the Benefit Multiplier which follows the Executive's Termination of Employment. (d) "Cause" shall mean the Executive's (i) conviction of a crime involving moral turpitude or theft or embezzlement of property from the Company or (ii) willful misconduct or willful failure substantially to perform the duties of his position, but only if such has continued after receipt of notice from the Company's Board of Directors and such reasonable cure period as is set forth in such notice. (e) A "Change of Control" shall be deemed to have taken place if: (i) any person, corporation, or other entity or group, including any "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, other than any employee benefit plan then maintained by the Company, becomes the beneficial owner of shares of the Company having 30 percent or more of the total number of votes that may be cast for the election of Directors of the Company; (ii) as the result of, or in connection with, any contested election for the Board of Directors of the Company, or any tender or exchange offer, merger or other business combination or sale of assets, or any combination of the foregoing (a "Transaction"), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company or its assets, or (iii) at any time a the Company shall consolidate 2 with, or merge with, any other Person and the Company shall not be the continuing or surviving corporation, b any Person shall consolidate with, or merge with, the Company, and the Company shall be the continuing or surviving corporation and in connection therewith, all or part of the outstanding Company stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, c the Company shall be a party to a statutory share exchange with any other Person after which the Company is a subsidiary of any other Person, or d the Company shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and its subsidiaries (taken as a whole) to any Person or Persons. (f) The "Change in Control Date" shall mean the date immediately prior to the effectiveness of the Change in Control. (g) The "Committee" shall mean the Compensation Committee of the Company's Board of Directors. (h) The "Competitive Businesses" shall mean any of the health care businesses in which the Company is engaged on the execution date of this Agreement. (i) The Executive shall have "Good Reason" to terminate employment if: (i) the Executive is not elected, reelected or otherwise continued in the office of the Company or any of its subsidiaries which he held immediately prior to the Change in Control Date, (ii) the Executive's duties, responsibilities or authority as an employee are materially reduced or diminished from those in effect on the Change in Control Date without the Executive's consent; (iii) the Executive's duties, responsibilities or authority as an employee are materially reduced or diminished from those in effect on the date hereof without the Executive's consent; (iv) the Executive's compensation or benefits are reduced without the Executive's consent, unless all officers at the Executive Vice President level have their salaries reduced in the same percentage amount; (v) the Company reduces the potential earnings of the Executive under any performance-based bonus or incentive plan of the Company in effect immediately prior to the Change in Control Date; (vi) the Company requires that the Executive's employment be based other than at Tampa, Florida, without his consent; (vii) any purchaser, assign, surviving corporation, or successor of the Company or its business or assets (whether by acquisition, merger, liquidation, consolidation, reorganization, sale or transfer of assets or business, or otherwise) fails or refuses to expressly assume in writing this Agreement and all of the duties and obligations of the Company hereunder pursuant to Section 16 hereof, or (viii) the Company breaches any of the provisions of this Agreement. (j) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (k) "Target Bonus" shall mean the target bonus (100% level) established for the Executive for the year in question under the Company's "Annual Incentive Plan." (l) "Termination of Employment" shall mean the termination of the Executive's employment by the Company other than such a termination in connection with an offer of immediate reemployment by a successor or assign of the Company or purchaser of the Company or its assets under terms and conditions which would not permit the Executive to terminate his employment for Good Reason. 2 3 2. Term. The initial term of this Agreement shall be for the period commencing on June 3, 1996 (the "Effective Date") and ending on June 2, 1999. The Term shall be automatically extended by one additional day for each day beyond the Effective Date of this Agreement that the Executive remains employed by the Company until such time as the Company elects to cease such extension by giving written notice of such to the Executive. (In such event, the Agreement shall thus terminate on the third anniversary of the effective date of such notice). 3. Position and Duties. During the Term, the Executive shall serve as an employee, as an Executive Vice President of the Company and as the President and Chief Executive Officer of PCA and shall have such duties, functions, responsibilities and authority as are consistent with the Executive's position as the senior executive officer in charge of the general management, business and affairs of PCA. 4. Compensation and Related Matters. (a) Annual Base Salary. The Executive shall receive a Base Salary at a rate of $375,000 per annum through December 31, 1996 and thereafter at any such greater rate as is determined by the Committee. (b) Benefits. During the Term, the Executive shall be entitled to all of the following and any other benefits and perquisites offered by the Company to executives generally: (i) Participate in the Company's present and future stock option, restricted stock, phantom stock and other similar equity-based incentive plans, pursuant to their terms; (ii) Participate in the Company's Employee Stock Purchase Plan, pursuant to its terms; (iii) Participate in the Company's Executive Retirement Plan, pursuant to its terms; (iv) $300,000 of individual life insurance coverage under the Company's Executive Life Insurance Plan, which coverage shall be 0% vested as of the date hereof, and shall vest 10% on his fiftieth birthday and shall vest an additional 10% each year thereafter on his birthday while the Executive is employed by the Company; (v) $375,000 (or such greater amount as the Company may make available to its senior executives generally) of group term life insurance coverage; (vi) $100,000 (or such greater amount as the Company may make available to its senior executives generally) of business travel accident insurance coverage when traveling on Company business; (vii) Participate in the Company's Medical Plan, and Dental Plan, pursuant to their terms, except that the premium cost for such shall be treated as a benefit under the Company's Executive Medical Reimbursement Plan, described below, (and therefore at the present time, there shall be no payroll deduction as a condition of coverage in the Medical Plan and Dental Plan); 3 4 (viii) Participate in the Company's Executive Medical Reimbursement Plan (with a maximum annual benefit of $11,500 (or such greater amount as the Company may make available to its senior executives generally), a portion of which shall be deemed applied to the payment of premiums under the Company's Medical Plan and Dental Plan as described above), pursuant to its terms; (ix) Participate in the Company's group Long-Term Disability Plan, at the maximum benefit level, pursuant to its terms; (x) 4 weeks of paid vacation; (xi) Participate in or receive benefits under any other employee benefit plan or other arrangement made available by the Company to any of its employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. (c) Annual Bonus. As additional compensation for services rendered, the Executive shall be eligible to receive an annual bonus in cash pursuant to the Company's Annual Incentive Plan. (d) Expenses. The Company shall promptly reimburse the Executive for all reasonable travel and other business expenses incurred by the Executive in the performance of his duties to the Company hereunder. (e) Reporting. The Executive shall report directly to the President and Chief Operating Officer of the Company. 5. Competition. (a) Executive shall not, at any time during the period of his employment with the Company, or, if his Termination of Employment is for Cause, if initiated by the Company, or without Good Reason, if initiated by the Executive, during the one year period following his Termination of Employment with the Company ("Non-Compete Period"), without the prior written consent of the Board, directly or indirectly engage in, or have any interest in, or manage or operate any person, firm, corporation, partnership or business (whether as director, officer, employee, agent, representative, partner, security holder, consultant or otherwise) that engages in any of the Competitive Businesses in any State of the United States or any foreign country in which the Company is then engaged in any of such businesses; provided, however, that Executive shall be permitted to acquire a stock interest in such a corporation provided such stock is publicly traded and the stock so acquired is not more than one percent of the outstanding shares of such corporation, and provided further, that Executive may engage in a business that is a non-competitive supplier to the Company or that is a customer of Company products or services. (b) The Executive covenants that a breach of subparagraph (a) above would immediately and irreparably harm the Company and that a remedy at law would be inadequate to compensate the Company for its losses by reason of such breach and therefore that the Company shall, in addition to any other rights and remedies available under this Agreement, at law or otherwise, be entitled to an injunction to be issued by any court of competent jurisdiction enjoining 4 5 and restraining the Executive from committing any violation of subparagraph (a) above, and the Executive hereby consents to the issuance of such injunction. 6. Eligibility for Severance Benefits. The Executive shall be eligible for the benefits described in Paragraph 7 (the "Severance Benefits") if: (a) during the Term, the Executive has a Termination of Employment initiated (i) by the Company without Cause or (ii) by the Executive for Good Reason, and, in either case, subsection (c) does not apply, (b) during the Term there has been a Change in Control and during the 31 day period commencing on the first day of the 13th calendar month following the Change in Control Date (e.g. the period April 1, 1996 - May 1, 1996, inclusive, for a Change in Control which is effective in the month of March, 1995), the Executive has a Termination of Employment initiated by the Executive without Good Reason, or (c) during the Term there has been a Change in Control and during the two year period commencing on the Change in Control Date the Executive has a Termination of Employment which is initiated by the Company without Cause or by the Executive for Good Reason. 7. Severance Benefit. Upon satisfaction of the requirements set forth in Paragraph 6, and subject to Paragraphs 8 and 11, the Executive shall be entitled to the following Severance Benefits: (a) Cash Payment. The Executive shall be entitled to receive an amount of cash equal to the Benefit Multiplier times the greater of (i) the sum of the Executive's Base Salary as in effect upon the Termination of Employment, and the greater of (A) the Executive's Target Bonus as in effect upon the Termination of Employment or, (B) the Executive's actual bonus under the Company's "Annual Incentive Plan" for the year prior to the year of the Executive's Termination of Employment, (ii) the sum of the Executive's Base Salary as in effect on the Change in Control Date, and the greater of (A) the Executive's Target Bonus as in effect upon the Change in Control Date or, (B) the Executive's actual bonus under the Company's "Annual Incentive Plan" for the year prior to the Change in Control Date. The payment shall be made in a single lump sum within ten days following the Executive's Termination of Employment. 5 6 (b) Long-Term Incentive Award; Equity-Based Compensation. The Executive's interest under all of the Company's long-term incentive plans shall be fully vested. Any and all (i) options to purchase Company stock and (ii) restricted stock of the Company, owned by the Executive shall be fully vested. (c) Continuation of Benefits. (i) For the Benefit Period, or for two (2) years, whichever is longer, the Executive shall be treated as if he had continued to be an executive employee for all purposes under the Company's Medical Plan, Executive Medical Reimbursement Plan and Dental Plan (as described in Paragraph 4(b). Following this period the Executive shall be entitled to receive continuation coverage under Part Six of Title I of ERISA ("COBRA Benefits) treating the end of this period as a termination of the Executive's employment (other than for gross misconduct). (ii) The Company shall fully vest and maintain in force, at its own expense, for the remainder of the Executive's life, the life insurance in effect under the Company's Executive Life Insurance Plan (as described in Paragraph 4(b)) as of the Change in Control Date or as of the date of Termination of Employment, whichever is greater. (d) Relocation Benefit. If, within three years after the Executive's Termination of Employment with the Company, the Executive gives the Company written notice that he desires to relocate within the continental United States, the Company will reimburse the Executive for any reasonable relocation expenses (in accordance with the Company's general relocation policy for executives as then in effect, or, at the Executive's election, as in effect on the Change in Control Date) in connection with such relocation. (e) Executive Retirement Plan. For the year of the Executive's Termination of Employment, the Company will make the contribution to the Retirement Plan on behalf of the Executive that it would have made if the Executive had not had a Termination of Employment, but in no event less than the percentage contribution it made for the Executive in the immediately preceding year (and increased to take account of the additional year of service), in each case taking account of the Executive's annualized rate of "Compensation" (as defined in the Retirement Plan) and the percentage of such Compensation that the Executive is contributing to the Retirement Plan, as of the date of Termination of Employment, and the Company's matching contribution rate for such year (or, if greater, the preceding year). The portion of the Company's matching contribution which is based on the preceding year's contribution percentage shall be contributed to the Retirement Plan on behalf of the Executive immediately upon the Executive's Termination of Employment and any additional contribution required shall be paid as soon as the amount is determined. (f) Disability. For the Benefit Period, the Company shall provide long-term disability insurance benefits coverage to Executive equivalent to the coverage that the Executive would have had had he remained employed under the Company's Long-Term Disability Plan as described in Paragraph 4(b) applicable to Executive on the date of Termination of Employment, or, at the Executive's election, the plan applicable to Executive as of the Change in Control Date. Should Executive become disabled during such period, Executive shall be entitled to receive such benefits, and for such duration, as the applicable plan provides. 6 7 (g) Plan Amendments. The Company shall adopt such amendments to its employee benefit plans and insurance policies as are necessary to effectuate the provisions of this Agreement. If and to the extent any benefits under this Paragraph 7 are not paid or payable or otherwise provided to the Executive or his dependents or beneficiaries under any such plan or policy (whether due to the terms of the plan or policy, the termination thereof, applicable law, or otherwise), then the Company itself shall pay or provide for such benefits. 8. Golden Parachute Gross-Up. If, in the written opinion of a Big 6 accounting firm engaged by either the Company or the Executive for this purpose (at the Company's expense), or if so alleged by the Internal Revenue Service, the aggregate of the benefit payments under Paragraph 7 would cause the payment of one or more of such benefits to constitute an "excess parachute payment" as defined in Section 280G(b) of the Internal Revenue Code ("Code"), then the Company will pay to the Executive an additional amount in cash (the "Gross-Up Payment") equal to the amount necessary to cause the net amount retained by the Executive, after deduction of any (i) excise tax on the payments under Paragraph 7, (ii) federal, state or local income tax on the Gross-Up Payment, and (iii) excise tax on the Gross-Up Payment, to be equal to the aggregate remuneration the Executive would have received under Section 7, excluding such Gross-Up Payment (net of all federal, state and local excise and income taxes), as if Sections 280G and 4999 of the Code (and any successor provisions thereto) had not been enacted into law. The Gross-Up Payment provided for in this Paragraph shall be made within ten (10) days after the termination of Executive's employment, provided however that if the amount of the payment cannot be finally determined at the time, the Company shall pay to Executive an estimate as determined in good faith by the Company of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the date of termination. Any dispute concerning the application of this Paragraph shall be resolved pursuant to Paragraph 10, and if Paragraph 11 applies, any reference in this Paragraph to Paragraph 7 shall also be deemed to include a reference to Paragraph 11 as well. 9. Waiver of Other Severance Benefits. The benefits payable pursuant to this Agreement are in lieu of any other severance benefits which may otherwise be payable to the Executive upon termination following a Change in Control (including, without limitation, any benefits to which Executive might otherwise have been entitled under the "Agreement Concerning Benefits Upon Severance" dated as of September 1, 1990 to which Executive and the Company are parties), except those benefits which are to be made available to the Executive as required by applicable law. 10. Disputes. Any dispute or controversy arising under, out of, in connection with or in relation to this Agreement shall, at the election and upon written demand of either party, be finally determined and settled by binding arbitration in the city of Fort Smith, Arkansas, using a single arbitrator, in accordance with the Labor Arbitration rules and procedures of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. The arbitrator shall have the power to order specific performance, mandamus, or other appropriate legal or equitable relief to enforce the provisions of this Agreement. The Company shall pay all costs of the arbitration and all reasonable attorney's and accountant's fees of the Executive in connection therewith. 11. Additional Payments Due to Dispute. Notwithstanding anything to the contrary herein, and without limiting the Executive's rights at law or in equity, if the Company fails or refuses to timely pay to the Executive the benefits due under Paragraphs 7 and/or 8 hereof, then the benefits under Paragraph 7(a) shall be increased and the benefits under Paragraphs 7(c), 7(d), and 7(f) shall each be continued by one additional day for each day of any such failure or refusal of the Company to pay. In 7 8 addition, any Gross-Up Payment due under Paragraph 8 shall be increased to take into account any increased benefits under this Paragraph. 12. No Set-Off. There shall be no right of set-off or counterclaim in respect of any claim, debt, or obligation against any payment to or benefit for the Executive provided for in this Agreement. 13. No Mitigation Obligation. The parties hereto expressly agree that the payment of the benefits by the Company to the Executive in accordance with the terms of this Agreement will be liquidated damages, and that the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise. 14. Trust. Any payments or installments that may be required to be made to Executive under this Agreement shall be funded immediately prior to any Change of Control Date (or, if earlier, within ten (10) days after any Termination of Employment) by a contribution by the Company of the necessary amount of cash, as determined by independent actuaries acceptable to both Executive and the Company, to the irrevocable grantor trust created for such purpose by the Company, with Chemical Bank as Trustee dated July 18, 1995, a copy of which Trust Agreement may be obtained from the Company or the Trustee. 15. Letter of Credit for Legal Fees. In order to ensure the benefits intended to be provided to the Executive hereunder, immediately prior to any Change of Control Date the Company shall establish and hereby agrees to maintain throughout the remaining Term an irrevocable standby Letter of Credit in favor of the Executive and each other person who is named an Executive under similar agreements, drawn on a bank selected by the Company (the "Letter of Credit") which provides for a credit amount of $250,000 being made available to the Executive against presentation at any time and from time to time of his clean sight drafts, accompanied by statements of his counsel for fees and expenses, in an aggregate amount not to exceed $250,000, unless a larger amount is authorized by either the Chief Executive Officer, General Counsel, Chief Financial Officer, or a Senior Vice President of the Company. 16. Successors; Binding Agreement. (a) This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company or by any merger or consolidation where the Company is not the surviving corporation, or upon any transfer of all or substantially all of the Company's assets, or any other Change in Control. The Company shall require any purchaser, assign, surviving corporation or successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any purchaser, assign, surviving corporation or successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization, transfer of all or substantially all of the business or assets of the Company, or otherwise (and such purchaser, assign, surviving corporation or successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but this Agreement shall not otherwise be assignable, transferable or delegable by the Company. 8 9 (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in this Section 16. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, or otherwise subject to anticipation, alienation, sale, encumbrance, charge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law, other than by a transfer by his will or by the laws of descent and distribution. Any attempt, voluntarily or involuntarily, to effect any action prohibited by this Paragraph shall be null, void, and of no effect. 17. Notices. Any notice, request, claim, demand, document and other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, or other similar means of communication, as follows: (a) If to the Company, addressed to its principal executive offices to the attention of its Secretary; (b) If to the Executive, to him at the address set forth below under the Executive's signature, or at any such other address as either party shall have specified by notice in writing to the other. 18. Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and by a duly authorized representative of the Board of Directors. By an instrument in writing similarly executed, either party may waive compliance by the other party with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. 19. Entire Agreement. This Agreement and the Employment Contract Addendum (the "Addendum") executed concurrently herewith, together set forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. The parties further intend that this Agreement and the Addendum shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding involving this Agreement or the Addendum. 20. Severability; Enforcement. If any provision of this Agreement, or the application thereof to any person, place, or circumstance shall be held by a court of competent jurisdiction to be invalid, 9 10 unenforceable or void, the remainder of this Agreement and such provisions as applied to other persons, places and circumstances shall remain in full force and effect. 21. Indemnification. The Company shall indemnify, defend, and hold the Executive harmless from and against any liability, damages, costs, or expenses (including attorney's fees) in connection with any claim, cause of action, investigation, litigation, or proceeding involving him by reason of his having been an officer, director, employee, or agent of the Company, unless it is judicially determined, in a final, nonappealable order that the Executive was guilty of gross negligence or willful misconduct. The Company also agrees to maintain adequate directors and officers liability insurance for the benefit of Executive for the term of this Agreement and for at least three years thereafter. 22. Governing Law. This Agreement shall be interpreted, administered and enforced in accordance with the law of the State of Arkansas, except to the extent pre-empted by Federal law. The parties have duly executed this Agreement as of the date first written above. BEVERLY ENTERPRISES, INC. EXECUTIVE By: ------------------------------------- ---------------------------- David R. Banks C. Arnold Renschler Chairman and Chief Executive Officer 408 Barbara Lane Bryn Mawr, PA 19010 By: ------------------------------------- Boyd W. Hendrickson President and Chief Operating Officer 5111 Rogers Avenue, Suite 40A Fort Smith, AR 72919 10 EX-10.5 6 EMPLOYMENT CONTRACT ADDENDUM 1 EXHIBIT 10.5 EMPLOYMENT CONTRACT ADDENDUM This ADDENDUM to the EMPLOYMENT CONTRACT ("AGREEMENT") between BEVERLY ENTERPRISES, INC. and C. ARNOLD RENSCHLER, M.D. is a fully integrated part of the AGREEMENT and provides as follows: 1. Annual Incentive Plan. With respect to Paragraph 4(c), the Company shall pay the Executive a guaranteed bonus for 1996 performance at no less than 50% of Base Salary and up to 100% of Base Salary. 2. Contract Buyout. With respect to Paragraph 4, in addition to the provisions therein, the Company will pay to Executive the sum of $400,000, payable in four (4) quarterly installments of $100,000 each on June 3, 1996, September 1, 1996, December 1, 1996, and March 1, 1997, each payment subject to all applicable withholding. 3. Stock Options and PCA Equity. With respect to Paragraph 4(b)(i), subject to grant by the Compensation Committee, and effective upon the date of such grant or the Date of Employment, whichever last occurs, the Executive will be eligible for a minimum of 140,000 stock awards in the following form: Restricted Stock (4 year vesting) 15,000 Performance Shares (5 year vesting) 40,000 Non-Qualified Stock Options (4 year vesting) 35,000 Performance Options (based on PCA performance) 50,000
In addition, the Executive will be granted 160,000 stock options upon shareholder approval on June 13, 1996. In the event PCA goes public within two years, the Executive's Company stock options, performance shares, performance options, and restricted stock shall be converted to a PCA stock package of equivalent value consistent with the "Potential Approach to PCA Executive Compensation Package" developed by Towers Perrin, attached hereto as Exhibit "A." 4. Exercise of NovaCare Stock Options. With respect to Paragraph 4, the Company will be a co-signor on a note, in a form substantially in accord with the attached Exhibit "A," enabling the Executive to exercise 200,000 NovaCare stock options. 5. COBRA Reimbursement. With respect to Paragraph 4(b)(vii), the Company will pay the COBRA premiums, in the amount of Four Hundred Eighty-Seven Dollars and Sixty-Five Cents ($487.65) per month to maintain health benefits with NovaCare until he and his spouse become eligible participants in the Company's plans after three (3) months of full-time service (i.e. July, August and 2 September, 1996). These COBRA payments will not be treated as a benefit under the Company's Executive Medical Reimbursement Plan. 6. Executive Physicals. With respect to Paragraph 4, the Company will pay for the annual physical which is required of all executives. 7. Executive Retirement Plan. With respect to Paragraph 4(b)(iii), the Executive will be eligible to receive a Company matching contribution at the maximum level provided in the plan. For 1996, the Company match, if anything, will be up to 6%, depending upon Company performance. 8. Group Universal Life. With respect to Paragraph 4, the Executive shall be entitled to participate in the Group Universal Life program during the next enrollment by which the Executive may purchase up to a maximum of $1,000,000 in additional insurance coverage. 9. Employee Stock Purchase Plan. With respect to Paragraph 4(b)(ii), after one year of full-time employment the Executive may participate in the Employee Stock Purchase Plan. Currently, the plan allows eligible employees to purchase Company stock through payroll deductions with a 30% Company match. 10. Relocation Benefit. With respect to Paragraph 4, the Company will make a lump sum payment to the Executive of $20,000 to relocate to the Tampa, Florida area. This amount is subject to graduated repayment should the Executive voluntarily terminate his employment without Good Reason within six (6) months of the date of hire. The Executive will receive up to an additional $60,000 if needed for relocation. In the event the Executive requests payment for more than the $20,000 for relocation expenses, he must then submit receipts for both the initial lump sum and the additional amounts. 11. Home Purchase. With respect to Paragraph 4, the Company will purchase the Executive's current home at a price that is equal to the average price of three appraisal companies if the Executive is unable to sell it on his own within 60 days of listing. 12. Financial Planning. With respect to Paragraph 4, the Executive is eligible to receive $175 toward the cost of a financial planner of the Executive's choice. -2- 3 13. Continuing Education. With respect to Paragraph 4, the Company will pay the Executive's costs for continuing education to maintain appropriate licenses. Time required to attend classes will be counted as work time. BEVERLY ENTERPRISES, INC. C. ARNOLD RENSCHLER, M.D. By: /s/ DAVID R. BANKS /s/ C. ARNOLD RENSCHLER ------------------------------ ------------------------------ David R. Banks Chairman and Chief Executive Officer By: /s/ ROBERT W. POMMERVILLE ------------------------------ Robert W. Pommerville Executive Vice President General Counsel and Secretary 5111 Rogers Avenue, Suite 40A Fort Smith, AR 72919 Attention: Secretary -3- 4 EXHIBIT A BEVERLY ENTERPRISES, INC. - -------------------------------------------------------------------------------- POTENTIAL APPROACH TO PCA EXECUTIVE COMPENSATION PACKAGE APRIL 10, 1996 TOWERS PERRIN 5 April 1996 1 - -------------------------------------------------------------------------------- INTRODUCTION - - Towers Perrin has been asked to assist with the development of an executive compensation approach for the potential head of PCA. - - The estimated IPO values are for illustrative purposes only; they are not meant to reflect a formal valuation of PCA. - - The Black-Scholes values used in this report are estimates only. A formal valuation of PCA options would require a more in-depth study of industry volatility. Towers Perrin 6 April 1996 2 - -------------------------------------------------------------------------------- PROPOSED PLAN APPROACH 1. The PCA executive is granted a package of BEI stock options and restricted stock. 2. If PCA goes public in two years, the BEI stock package is converted to a PCA stock package of equivalent value. 3. If PCA does not go public, the executive retains the BEI stock package. Towers Perrin 7 April 1996 3 - -------------------------------------------------------------------------------- THE PCA EXECUTIVE IS GRANTED A PACKAGE OF BEI STOCK OPTIONS AND RESTRICTED STOCK . . .
- ------------------------------------------------------------------------------------------------------------------------------------ Estimated Fair Package Component Number of Shares Market Value (1) Comments - ------------------------------------------------------------------------------------------------------------------------------------ STOCK OPTIONS This represents the NQSOs (pending June shareholder approval) 160,000 $1,054,400 Black-Scholes value of NQSOs 35,000 230,650 stock options granted. Performance Options 50,000 329,500 ------- ---------- The executive does not 245,000 $1,614,550 realize any value unless the share price rises substantially over the exercise price. - ------------------------------------------------------------------------------------------------------------------------------------ RESTRICTED STOCK This represents the fair Restricted Stock 15,000 $168,750 market value of the BEI Performance Shares 40,000 450,000 stock today. ------ -------- 55,000 $618,750 If the stock price does not rise over today's price, the executive still realizes the full face value of these shares. - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL 300,000 $2,233,300 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Assumes share price of $11.25; Black-Scholes value of 10-year BEI option estimated as $6.59. TOWERS PERRIN 8 April 1996 4 - -------------------------------------------------------------------------------- IF PCA GOES PUBLIC IN TWO YEARS, THE BEI STOCK PACKAGE IS CONVERTED TO A PCA STOCK PACKAGE OF EQUIVALENT VALUE . . . * Assuming that PCA goes public in two years and that BEI stock has risen to $14.88 per share (15% per year), the following would represent the value of the original BEI stock package:
- ------------------------------------------------------------------------------------------------------------------------------- Estimated Fair Package Component Number of Shares Market Value in Year 2 (1) Comments - ------------------------------------------------------------------------------------------------------------------------------- STOCK OPTIONS This represents the NQSOs (pending June shareholder approval) 160,000 $1,424,000 Black-Scholes value of NQSOs 35,000 311,500 stock options granted Performance Options 50,000 445,000 REVALUED to reflect ------- ---------- the increase in BEI 245,000 $2,180,500 share price. The actual gain at the IPO for these options would be: 245,000 x (14.88 - $11.25) = $889,350 - ------------------------------------------------------------------------------------------------------------------------------- RESTRICTED STOCK This represents the fair Restricted Stock 15,000 $223,200 market value of BEI Performance Shares 40,000 595,200 stock in two years at a ------ -------- share price of $14.88. 55,000 $818,400 If the stock price does not rise over today's price, the executive still realizes the full face value of these shares. - ------------------------------------------------------------------------------------------------------------------------------- TOTAL 300,000 $2,998,900 - -------------------------------------------------------------------------------------------------------------------------------
(1) Black-Scholes value of 8-year BEI option estimated at $8.90 (assumes $14.88 stock price and $11.25 exercise price). TOWERS PERRIN 9 April 1996 5 - -------------------------------------------------------------------------------- THE $3 MILLION VALUE OF THE BEI STOCK PACKAGE WOULD BE CONVERTED TO AN EQUIVALENT VALUE PCA STOCK PACKAGE AT THE IPO . . . A. STOCK OPTIONS
- ----------------------------------------------------------------------------------------------------------------------------------- ASSUMPTION: VALUE OF BEI STOCK OPTION TO CONVERT TO PCA STOCK OPTION = $2,180,500 - ----------------------------------------------------------------------------------------------------------------------------------- Value of IPO $500.0 million $700.0 million $1.0 billion - ----------------------------------------------------------------------------------------------------------------------------------- # of Shares Outstanding 100 million 100 million 100 million - ----------------------------------------------------------------------------------------------------------------------------------- IPO Share Price $5.00 $7.00 $10.00 - ----------------------------------------------------------------------------------------------------------------------------------- Estimated Black-Scholes Value of PCA Option $3.00 $4.20 $6.00 (1) - ----------------------------------------------------------------------------------------------------------------------------------- Option Grant 726,833 options 519,167 options 363,417 options (assuming $2.180M grant value) - -----------------------------------------------------------------------------------------------------------------------------------
(1) Assumes a Black-Scholes ratio of 60% on the date of grant. B. RESTRICTED STOCK
- ----------------------------------------------------------------------------------------------------------------------------------- ASSUMPTION: VALUE OF BEI RESTRICTED STOCK TO CONVERT TO PCA RESTRICTED STOCK = $818,400 - ----------------------------------------------------------------------------------------------------------------------------------- Value of IPO $500.0 million $700.0 million $1.0 billion - ----------------------------------------------------------------------------------------------------------------------------------- # of Shares Outstanding 100 million 100 million 100 million - ----------------------------------------------------------------------------------------------------------------------------------- IPO Share Price $5.00 $7.00 $10.00 - ----------------------------------------------------------------------------------------------------------------------------------- Restricted Stock Grant 163,680 restricted 116,914 restricted 81,840 restricted (assuming $818,400 grant value) shares shares shares - -----------------------------------------------------------------------------------------------------------------------------------
TOWERS PERRIN 10 April 1996 6 - -------------------------------------------------------------------------------- AN ALTERNATIVE APPROACH . . . Convert the gain in BEI stock options ($889k) plus the value of BEI restricted shares ($818k) to PCA restricted shares at the IPO price (for a total value of $1.7M in PCA restricted shares): $1.7 million / $5.00 IPO price = 340,000 PCA restricted shares $1.7 million / $7.00 IPO price = 242,857 PCA restricted shares $1.7 million / $10.00 IPO price = 170,000 PCA restricted shares PLUS Convert the BEI stock options to an equivalent face value of PCA options: 245,000 BEI options X $11.25 = $2.75 million face value of BEI options to be converted to: $2.75 million / $5.00 IPO price = 550,000 PCA stock options $2.75 million / $7.00 IPO price = 392,857 PCA stock options $2.75 million / $10.00 IPO price = 275,000 PCA stock options TOWERS PERRIN 11 TERM / TIME NOTE PNCBANK $1,200,000.00 July 1, 1996 FOR VALUE RECEIVED, C. ARNOLD RENSCHLER, M.D. AND BEVERLY ENTERPRISES, INC., (the "Borrower"), with an address at 408 Barbara Lane, Bryn Mawr, PA 19010, jointly and severally promise to pay to the order of PNC BANK, NATIONAL ASSOCIATION (the "Bank"), in lawful money of the United States of America in immediately available funds at its offices located at 100 South Broad Street, Philadelphia, Pennsylvania 19110, or at such other location as the Bank may designate from time to time, the principal sum of One-million Two-hundred thousand and 00/100 DOLLARS ($1,200,000.00), together with interest accruing on the outstanding principal balance from the date hereof, as provided below: 1. Rate of Interest. Amounts outstanding under this Note will bear interest at a rate per annum which is at all times zero percentage points (0%) per annum in excess of the rate of interest which is the highest prime rate as published in The Wall Street Journal from time to time ("Prime Rate"), such rate to change automatically effective as of the dates of changes in the Prime Rate without prior notice to the Borrower. The Prime Rate does not necessarily reflect the lowest rate of interest actually charged by the Bank to any particular class or category of customers. In no event shall the interest rate exceed the maximum rate allowed by law. Interest will be calculated on the basis of a year of 365 days for the actual number of days elapsed. 2. Payment Terms. Principal will be due and payable on June 30, 1997. Interest shall be due and payable monthly as billed commencing on August 1, 1996, and on the same day of each month thereafter until June 30, 1997 on which date all outstanding principal and accrued interest shall be due and payable in full. In any payment under this Note shall become due on a Saturday, Sunday or public holiday under the laws of the State where the Bank's office indicated above is located, such payment shall be included in computing interest in connection with such payment. Payment received will be applied to charges, fees and expenses (including attorneys' fees), accrued interest and principal in any order the Bank may choose, in its sole discretion. 3. Default Rate. Upon maturity, whether by acceleration, demand or otherwise, and at the option of the Bank upon the occurrence of any Event of Default (as hereinafter defined) and during the continuance thereof, this Note shall bear interest at a rate per annum (based on a year of 365 days and actual days elapsed) which shall be five percentage points (5.0%) in excess of the interest rate in effect from time to time under this Note but not more than the maximum rate allowed by law (the "Default Rate"). The Default Rate shall continue to apply whether or not judgment shall be entered on this Note. 4. Prepayment. The indebtedness under this Note may be prepaid in whole or in part at any time without penalty. 5. Other Loan Documents. None 6. Events of Default. The occurrence of any of the following events will be deemed to be an "Event of Default" under this Note: (i) the nonpayment of any principal, interest or other indebtedness under this Note when due; (ii) the occurrence of any event of default or default and the lapse of any notice or cure period under any Loan Document or any other debt, liability or obligation to the Bank of any Obligor; (iii) the filing by or against any Obligor of any proceeding in bankruptcy, receivership, insolvency, reorganization, liquidation, conservatorship or similar proceeding, or any assignment by any Obligor for the benefit of creditors, or any levy, garnishment, attachment or similar proceeding is instituted against any property of any Obligor held by or deposited with the Bank; (iv) a default with respect to any other indebtedness of any Obligor for borrowed money, if the effect of such default is to cause or permit the acceleration of such debt; (v) the commencement of any foreclosure proceeding, execution or attachment against any collateral securing the obligations of any Obligor to the Bank; (vi) the entry of a final judgment against any Obligor and the failure of such Obligor to discharge the judgment within ten days of the entry thereof; (vii) in the event that this Note or any guarantee executed by any Guarantor is secured, the failure of any Obligor to provide the Bank with additional collateral if in the opinion of the Bank at any time or times, the market value of any of the collateral securing this Note or any guarantee has depreciated; (viii) any material adverse change in the business, assets, operations, financial condition or results of operations of any Obligor (ix) the revocation or attempted revocation, in whole or in part, of any guarantee by any Guarantor; (x) the death of any individual Obligor or, if any Obligor is a partnership, the death of any individual general partner; (xi) any representation or warranty made by any Obligor to the Bank in any Loan Document or any other documents now or in the future securing the obligations of any Obligor to the Bank, is false, erroneous or misleading in any material respect; or (xii) the failure of any Obligor to observe or perform any covenant or other agreement with the Bank contained in any Loan Document or any other documents now or in the future securing the obligations of any Obligor to the Bank. As used herein, the term "Obligor" means any Borrower and any Guarantor, and the term "Guarantor" means any guarantor of the obligations of the Borrower to the Bank existing on the date of this Note or arising in the future. Upon the occurrence of an Event of Default; (a) if an Event of Default specified in clause (iii) above shall occur, the outstanding principal balance and accrued interest hereunder together with any additional amounts payable hereunder shall be immediately due and payable without demand or notice of any kind; (b) if any other Event of Default shall occur, the outstanding principal balance and accrued interest hereunder together with any additional amounts payable hereunder, at the option of the Bank and without demand or notice of any kind may be accelerated and become immediately due and payable; (c) at the option of the Bank, this Note will bear interest at the Default Rate from the date of the occurrence of the Event of Default; and (d) the Bank may exercise from time to time any of the rights and remedies available to the Bank under the Loan Documents or under applicable law. 7. Right of Setoff. In addition to all liens upon and rights of setoff against the money, securities or other property of the Borrower given to the Bank by law, the Bank shall have, with respect to the Borrower's obligations to the Bank under this Note and to the extent permitted by law, a contractual possessory security interest in and a right of setoff against, and the Borrower hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the Borrower's right, title and interest in and to, all deposits, moneys, securities and other property of the Borrower now or hereafter in the possession of or on deposit with the Bank whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding, however, all IRA, Keogh and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to the Borrower. 8. Miscellaneous. No delay or omission of the Bank to exercise any right or power arising hereunder shall impair any such right or power or be considered to be a waiver of any such right or power or any acquiescence therein, nor shall the action or inaction of the Bank impair any right or power hereunder. The Borrower agrees to pay on demand, to the extent permitted by law, all costs and expenses incurred by the Bank in the enforcement of its rights in this Note and in any security therefor, including without limitation reasonable fees and expenses of the Bank's counsel. If any provision of this Note is found to be invalid by a court, all the other provisions of this Note will remain in full force and effect. The Borrower and all other makers and endorsers of this Note EXHIBIT "A" 12 hereby forever waive presentment, protest, notice of dishonor and notice of nonpayment. The Borrower also waives all defenses based on suretyship or impairment of collateral. If this Note is executed by more than one Borrower, the obligations of such persons or entities hereunder will be joint and several. This Note shall bind the Borrower and the heirs, executors, administrators, successors and assigns of the Borrower, and the benefits hereof shall inure to the benefit of Bank and its successors and assigns. This Note has been delivered to and accepted by the Bank and will be deemed to be made in the State where the Bank's office indicated above is located. THIS NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The Borrower hereby irrevocably consents to the exclusive jurisdiction of any state or federal court for the county or judicial district where the Bank's office indicated above is located, and consents that all service of process be sent by nationally recognized overnight courier service directed to the Borrower at the Borrower's address set forth herein and service so made will be deemed to be completed on the business day after deposit with such courier; provided that nothing contained in this Note will prevent the Bank from bringing any action, enforcing any award or judgment or exercising any rights against the Borrower individually, against any security or against any property of the Borrower within any other county, state or other foreign or domestic jurisdiction. The Borrower acknowledges and agrees that the venue provided above is the most convenient forum for both the Bank and the Borrower. The Borrower waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Note. 9. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS THE BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. The Borrower acknowledges that it has read and understood all the provisions of this Note, including the waiver of jury trial, and has been advised by counsel as necessary or appropriate. WITNESS/ATTEST the due execution hereof as a document under seal, as of the date first written above, with the intent to be legally bound hereby. (CORPORATE SEAL) Attest: ---------------------------------- Print Name: ------------------------------ Title: ----------------------------------- Witness: --------------------------------- Print Name: ------------------------------ Beverly Enterprises, Inc. - ----------------------------------------- (Corporation, Partnership or other Entity) By: -------------------------------------- Print Name: ------------------------------ Title: ----------------------------------- - ----------------------------------------- (Individual) Print Name: C. Arnold Renschler, M.D. ------------------------------ 2 EX-10.6 7 16TH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.6 SIXTEENTH AMENDMENT TO CREDIT AGREEMENT AMONG BEVERLY ENTERPRISES, INC., BEVERLY HEALTH AND REHABILITATION SERVICES, INC., THE SUBSIDIARY GUARANTORS LISTED HEREIN, THE LENDERS LISTED HEREIN, BANK OF MONTREAL, AS CO-AGENT, AND THE LONG-TERM CREDIT BANK OF JAPAN, LTD. LOS ANGELES AGENCY, AS AGENT DATED AS OF JUNE 5, 1996 THIS SIXTEENTH AMENDMENT, dated as of June 5, 1996 (this "AMENDMENT"), is entered into by and among BEVERLY ENTERPRISES, INC., a Delaware corporation ("BEI"), BEVERLY HEALTH AND REHABILITATION SERVICES, INC. (formerly known as Beverly California Corporation), a California corporation ("BORROWER"), the SUBSIDIARY GUARANTORS listed on the signature pages hereof (together with BEI, the "GUARANTORS"), the LENDERS listed on the signature pages hereof (such lenders, together with each Person that may or has become a party to the Credit Agreement (as defined below) pursuant to subsection 10.8 thereof, are referred to herein individually as a "LENDER" and collectively as the "LENDERS"), BANK OF MONTREAL as co-agent for the Lenders (in such capacity, the "CO-AGENT"), and THE LONG-TERM CREDIT BANK OF JAPAN, LTD., Los Angeles Agency ("LTCB"), as agent for the Lenders (in such capacity, the "AGENT"). This Amendment amends the Credit Agreement dated March 24, 1992 by and among BEI, Borrower, Co-Agent, Agent and Lenders, as amended by that First Amendment to Credit Agreement dated April 7, 1992 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Second Amendment to Credit Agreement dated as of May 11, 1992 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Third Amendment to Credit Agreement dated as of March 1, 1993 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Fourth Amendment to Credit Agreement dated as of November 1, 1993 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Fifth Amendment to Credit Agreement dated as of March 21, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Sixth Amendment to Credit Agreement dated as of April 22, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Seventh Amendment to Credit Agreement dated as of May 2, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Eighth Amendment to Credit Agreement dated as of November 1, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Ninth Amendment to Credit Agreement dated as of November 9, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Tenth Amendment to Credit Agreement dated as of December 6, 1994 by and 2 among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Eleventh Amendment to Credit Agreement dated as of March 27, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Twelfth Amendment to Credit Agreement dated as of October 23, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Thirteenth Amendment to Credit Agreement dated as of September 29, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Fourteenth Amendment to Credit Agreement dated as of December 7, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Fifteenth Amendment to Credit Agreement dated as of February 12, 1996 by and among BEI, Borrower, Co-Agent, Agent and the Lenders (said Credit Agreement, as so amended, the "CREDIT AGREEMENT"), as set forth herein. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Borrower desires to amend the Credit Agreement in certain respects; WHEREAS, Lenders, Co-Agent and Agent have agreed to approve such amendments; WHEREAS, Guarantors desire to reaffirm the effectiveness respectively of the Subsidiary Guaranty Agreement and the BEI Guaranty Agreement; NOW, THEREFORE, in consideration of the terms and conditions herein contained, BEI, Borrower, Guarantors, Co-Agent, Agent and Lenders agree as follows: AGREEMENT SECTION 1. AMENDMENT TO SUBSECTION 5.18 OF THE CREDIT AGREEMENT Subsection 5.18B of the Credit Agreement is hereby amended, effective as of December 31, 1995, by deleting it in its entirety and replacing it with the following: "B. CERTAIN APPRAISALS REQUIRED. The Borrower shall deliver to the Agent and the Collateral Agent an Appraisal with respect to Eligible Collateral that has Eligible Collateral Appraisal Value not less than 125% (or, if the percentage set forth in the second line of subsection 2.6B is hereafter amended, such amended percentage) of the aggregate outstanding principal amount of the Loans on each December 31 of 1996 and 1997 (each such Appraisal shall be dated as of a date no more than 3 45 days prior to the date of its delivery and is referred to herein as a "SCHEDULED APPRAISAL"). The Agent may require the Borrower to provide any such Scheduled Appraisal on a date that is earlier than the applicable date set forth above by giving the Borrower a written request therefor at least 75 days prior to such earlier date; provided, however, that the Agent may not so require such Scheduled Appraisal on a date that is earlier than the first anniversary date of the most recent Scheduled Appraisal or Agent Appraisal that has been delivered or obtained hereunder; provided, further that if the Borrower requests the release of any Eligible Collateral pursuant to subsection 5.18D after December 31, 1995 and prior to December 31, 1996, the Borrower shall provide the Scheduled Appraisal that is scheduled to be delivered on December 31, 1996 up to ten Business Days prior to the date of any such release. In addition to the Scheduled Appraisals, the Borrower shall, upon the occurrence and continuation of an Event of Default and if the Agent so requests, deliver to the Agent and the Collateral Agent a new Appraisal (the "DEFAULT APPRAISAL") with respect to all Collateral within 75 days of such request. In addition, the Borrower shall, concurrently with the pledge of any Additional Collateral to the Agent or the Collateral Agent, deliver to the Agent and the Collateral Agent an Additional Collateral Appraisal with respect to such Additional Collateral dated not earlier than the most recent Appraisal delivered or obtained hereunder. All Appraisals and Additional Collateral Appraisals delivered pursuant to this subsection 5.18B shall be at the expense of the Borrower." SECTION 2. REPRESENTATIONS AND WARRANTIES In order to induce Agent, Co-Agent and Lenders to enter into this Amendment, each of BEI and Borrower represents and warrants to Agent, Co-Agent and Lenders that: (a) The representations and warranties of each Loan Party contained in the Credit Agreement are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date; (b) No event has occurred and is continuing or would result from the execution of this Amendment that constitutes an Event of Default or Potential Event of Default; (c) Each Loan Party has performed in all material respects all agreements and satisfied all conditions that the 4 Credit Agreement and this Amendment provide shall be performed by it on or before the date hereof; (d) The execution, delivery and performance of this Amendment and the Credit Agreement as amended by this Amendment, by each Loan Party are within the corporate power and authority of each such Loan Party and, as of the Sixteenth Amendment Effective Date (as hereinafter defined), will be duly authorized by all necessary corporate action on the part of each Loan Party, and this Amendment, as of the Sixteenth Amendment Effective Date, is duly executed and delivered by each of such Loan Parties and will constitute a valid and binding agreement of each of such Loan Parties, enforceable against such Loan Parties in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The Credit Agreement constitutes and, as of the Sixteenth Amendment Effective Date, the Credit Agreement, as amended by this Amendment, will constitute, a valid and binding agreement of BEI and Borrower, enforceable against BEI and Borrower in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles, relating to or limiting creditors' rights generally or by equitable principles relating to enforceability; (e) The execution and delivery by each Loan Party of this Amendment and the performance by each Loan Party of the Credit Agreement as amended by this Amendment, do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party, the Certificate or Articles of Incorporation or Bylaws of any Loan Party or any order, judgment or decree of any court or other agency of government binding on any Loan Party, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any instrument that is material, individually or in the aggregate, and that is binding on such Loan Party, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party (other than any Liens created under any of the Loan Documents in favor of Agent on behalf of Lenders), or (iv) require any approval or consent of any Person under any instrument that is material, individually or in the aggregate, and that is binding on such Loan Party; and (f) The execution and delivery by each Loan Party of this Amendment and the performance by each Loan Party of the Credit Agreement as amended by this Amendment, do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 5 SECTION 3. CONDITIONS TO EFFECTIVENESS Section 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "SIXTEENTH AMENDMENT EFFECTIVE DATE"): A. On or before the Sixteenth Amendment Effective Date, BEI, Borrower and each Subsidiary Guarantor shall deliver to Lenders (or to Agent for Lenders with sufficient originally executed copies, as appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Sixteenth Amendment Effective Date: (i) Signature and incumbency certificates of its officers executing this Amendment certified by its secretary or an assistant secretary; and (ii) Executed counterparts of this Amendment. B. On or before the Sixteenth Amendment Effective Date, Requisite Lenders shall have delivered to Agent a counterpart of this Amendment originally executed by a duly authorized officer of such Lender or by telex or telephonic confirmation. SECTION 4. THE GUARANTIES Each Guarantor acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Guarantor hereby confirms that the Guaranty Agreement and the Collateral Documents to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all Obligations, Guarantied Obligations (as defined in the applicable Guaranty Agreements) and Secured Obligations (as defined in the Collateral Documents), as the case may be, including, without limitation, the payment and performance of all Obligations of Borrower now or hereafter existing under or in respect of the Credit Agreement as amended by this Amendment and the Notes defined therein. Each Guarantor acknowledges and agrees that any of the Guaranty Agreements and the Collateral Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Guarantor represents and warrants that all representations and warranties contained in the Credit Agreement as amended by this Amendment and the Guaranty Agreements and the Collateral Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the Sixteenth Amendment Effective Date to the 6 same extent as though made on and as of that date except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date. Each Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Guarantor is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment or any other Loan Document and (ii) that neither the terms of the Credit Agreement, any other Loan Document nor this Amendment shall be deemed to require the consent of any Guarantor to any future amendments to the Credit Agreement. SECTION 5. COUNTERPARTS; EFFECTIVENESS This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Amendment (other than the provisions of Section 1 hereof) shall become effective upon the execution of a counterpart hereof by Requisite Lenders and each of the Loan Parties and receipt of written or telephonic notification of such execution and authorization of delivery thereof. SECTION 6. FEES AND EXPENSES Borrower acknowledges that all costs, fees and expenses as described in subsection 10.4 of the Credit Agreement incurred by Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrower. SECTION 7. EFFECT OF AMENDMENT It is hereby agreed that, except as specifically provided herein, this Amendment does not in any way affect or impair the terms and conditions of the Credit Agreement, and all terms and conditions of the Credit Agreement are to remain in full force and effect unless otherwise specifically amended or changed pursuant to the terms and conditions of this Amendment. SECTION 8. APPLICABLE LAW This Amendment and the rights and obligations of the parties hereto and all other aspects hereof shall be deemed to be made under, shall be governed by, and shall be construed and 7 enforced in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. [Remainder of page intentionally left blank] EX-10.7 8 17TH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.7 SEVENTEENTH AMENDMENT TO CREDIT AGREEMENT AMONG BEVERLY ENTERPRISES, INC., BEVERLY HEALTH AND REHABILITATION SERVICES, INC., THE SUBSIDIARY GUARANTORS LISTED HEREIN, THE LENDERS LISTED HEREIN, BANK OF MONTREAL AS CO-AGENT, AND THE LONG-TERM CREDIT BANK OF JAPAN, LTD. LOS ANGELES AGENCY, AS AGENT DATED AS OF JUNE 28, 1996 THIS SEVENTEENTH AMENDMENT, dated as of June 28, 1996 (this "AMENDMENT"), is entered into by and among BEVERLY ENTERPRISES, INC., a Delaware corporation ("BEI"), BEVERLY HEALTH AND REHABILITATION SERVICES, INC. (formerly known as Beverly California Corporation), a California corporation ("BORROWER"), the SUBSIDIARY GUARANTORS listed on the signature pages hereof (together with BEI, the "GUARANTORS"), the LENDERS listed on the signature pages hereof (such lenders, together with each Person that may or has become a party to the Credit Agreement (as defined below) pursuant to subsection 10.8 thereof, are referred to herein individually as a "LENDER" and collectively as the "LENDERS"), BANK OF MONTREAL as co-agent for the Lenders (in such capacity, the "COAGENT"), and THE LONG-TERM CREDIT BANK OF JAPAN, LTD., Los Angeles Agency ("LTCB"), as agent for the Lenders (in such capacity, the "AGENT"). This Amendment amends the Credit Agreement dated March 24, 1992 by and among BEI, Borrower, Co-Agent, Agent and Lenders, as amended by that First Amendment to Credit Agreement dated April 7, 1992 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Second Amendment to Credit Agreement dated as of May 11, 1992 by and among BEI, Borrower, CoAgent, Agent and the Lenders, as further amended by that Third Amendment to Credit Agreement dated as of March 1, 1993 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Fourth Amendment to Credit Agreement dated as of November 1, 1993 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Fifth Amendment to Credit Agreement dated as of March 21, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Sixth Amendment to Credit Agreement dated as of April 22, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Seventh Amendment to Credit Agreement dated as of May 2, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Eighth Amendment to Credit Agreement dated as of November 1, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Ninth Amendment to Credit Agreement dated as of November 9, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Tenth Amendment to Credit Agreement dated as of 2 December 6, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Eleventh Amendment to Credit Agreement dated as of March 27, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Twelfth Amendment to Credit Agreement dated as of October 23, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Thirteenth Amendment to Credit Agreement dated as of September 29, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Fourteenth Amendment to Credit Agreement dated as of December 7, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Fifteenth Amendment to Credit Agreement dated as of February 12, 1996 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as further amended by that Sixteenth Amendment to Credit Agreement dated as of June 5, 1996 by and among BEI, Borrower, Co-Agent, Agent and the Lenders (said Credit Agreement, as so amended, the "CREDIT AGREEMENT"), as set forth herein. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Borrower desires to amend the Credit Agreement in certain respects; WHEREAS, Lenders, Co-Agent and Agent have agreed to approve such amendments; WHEREAS, Guarantors desire to reaffirm the effectiveness respectively of the Subsidiary Guaranty Agreement and the BEI Guaranty Agreement; NOW, THEREFORE, in consideration of the terms and conditions herein contained, BEI, Borrower, Guarantors, Co-Agent, Agent and Lenders agree as follows: AGREEMENT SECTION 1. AMENDMENT TO SUBSECTION 5.5 OF THE CREDIT AGREEMENT Subsection 5.5 of the Credit Agreement is hereby amended 3 by deleting the table set forth therein in its entirety and replacing it with the following table:
Period Ratio ------ ----- Effective Date through December 30, 1995 1.10 to 1 December 31, 1995 through June 29, 1996 1.15 to 1 June 30, 1996 through December 30, 1996 1.10 to 1 December 31, 1996 through December 30, 1997 1.15 to 1 December 31, 1997 and thereafter 1.20 to 1
SECTION 2. REPRESENTATIONS AND WARRANTIES In order to induce Agent, Co-Agent and Lenders to enter into this Amendment, each of BEI and Borrower represents and warrants to Agent, Co-Agent and Lenders that: (a) The representations and warranties of each Loan Party contained in the Credit Agreement are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date; (b) No event has occurred and is continuing or would result from the execution of this Amendment that constitutes an Event of Default or Potential Event of Default; (c) Each Loan Party has performed in all material respects all agreements and satisfied all conditions that the Credit Agreement and this Amendment provide shall be performed by it on or before the date hereof; (d) The execution, delivery and performance of this Amendment and the Credit Agreement as amended by this Amendment, by each Loan Party are within the corporate power and authority of each such Loan Party and, as of the Seventeenth Amendment Effective Date (as hereinafter defined), will be duly authorized by all necessary corporate action on the part of each Loan Party, and this Amendment, as of the Seventeenth Amendment Effective Date, is duly executed and delivered by each of such Loan Parties and will constitute a valid and binding agreement of each of such Loan Parties, enforceable against such Loan Parties in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The Credit Agreement constitutes and, as of the Seventeenth Amendment Effective Date, 4 the Credit Agreement, as amended by this Amendment, will constitute, a valid and binding agreement of BEI and Borrower, enforceable against BEI and Borrower in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles, relating to or limiting creditors' rights generally or by equitable principles relating to enforceability; (e) The execution and delivery by each Loan Party of this Amendment and the performance by each Loan Party of the Credit Agreement as amended by this Amendment, do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party, the Certificate or Articles of Incorporation or Bylaws of any Loan Party or any order, judgment or decree of any court or other agency of government binding on any Loan Party, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any instrument that is material, individually or in the aggregate, and that is binding on such Loan Party, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party (other than any Liens created under any of the Loan Documents in favor of Agent on behalf of Lenders), or (iv) require any approval or consent of any Person under any instrument that is material, individually or in the aggregate, and that is binding on such Loan Party; and (f) The execution and delivery by each Loan Party of this Amendment and the performance by each Loan Party of the Credit Agreement as amended by this Amendment, do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. SECTION 3. CONDITIONS TO EFFECTIVENESS Section 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "SEVENTEENTH AMENDMENT EFFECTIVE DATE"): A. On or before the Seventeenth Amendment Effective Date, BEI, Borrower and each Subsidiary Guarantor shall deliver to Lenders (or to Agent for Lenders with sufficient originally executed copies, as appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Seventeenth Amendment Effective Date: (i) Signature and incumbency certificates of its officers executing this Amendment certified by its secretary or an assistant secretary; and (ii) Executed counterparts of this Amendment. 5 B. On or before the Seventeenth Amendment Effective Date, Requisite Lenders shall have delivered to Agent a counterpart of this Amendment originally executed by a duly authorized officer of such Lender or by telex or telephonic confirmation. SECTION 4. THE GUARANTIES Each Guarantor acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Guarantor hereby confirms that: the Guaranty Agreement and the Collateral Documents to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all Obligations, Guaranteed Obligations (as defined in the applicable Guaranty Agreements) and Secured Obligations (as defined in the Collateral Documents), as the case may be, including, without limitation, the payment and performance of all Obligations of Borrower now or hereafter existing under or in respect of the Credit Agreement as amended by this Amendment and the Notes defined therein. Each Guarantor acknowledges and agrees that any of the Guaranty Agreements and the Collateral Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Guarantor represents and warrants that all representations and warranties contained in the Credit Agreement as amended by this Amendment and the Guaranty Agreements and the Collateral Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the Seventeenth Amendment Effective Date to the same extent as though made on and as of that date except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date. Each Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Guarantor is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment or any other Loan Document and (ii) that neither the terms of the Credit Agreement, any other Loan Document nor this Amendment shall be deemed to require the consent of any Guarantor to any future amendments to the Credit Agreement. SECTION 5. COUNTERPARTS; EFFECTIVENESS This Amendment may be executed in any number of counterparts, and by different parties hereto in separate 6 counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Amendment (other than the provisions of Section 1 hereof) shall become effective upon the execution of a counterpart hereof by Requisite Lenders and each of the Loan Parties and receipt of written or telephonic notification of such execution and authorization of delivery thereof. SECTION 6. FEES AND EXPENSES Borrower acknowledges that all costs, fees and expenses as described in subsection 10.4 of the Credit Agreement incurred by Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrower. SECTION 7. EFFECT OF AMENDMENT It is hereby agreed that, except as specifically provided herein, this Amendment does not in any way affect or impair the terms and conditions of the Credit Agreement, and all terms and conditions of the Credit Agreement are to remain in full force and effect unless otherwise specifically amended or changed pursuant to the terms and conditions of this Amendment. SECTION 8. APPLICABLE LAW This Amendment and the rights and obligations of the parties hereto and all other aspects hereof shall be deemed to be made under, shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. [Remainder of page intentionally left blank] 7 WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. BEI: ---- BEVERLY ENTERPRISES, INC. By: ------------------------------------- Title: ---------------------------------- Borrower: --------- BEVERLY HEALTH AND REHABILITATION SERVICES, INC. (formerly known as Beverly California Corporation) By: ------------------------------------- Title: ---------------------------------- Agent, Co-Agent and Lenders: ---------------------------- THE LONG-TERM CREDIT BANK OF JAPAN, LOS ANGELES AGENCY, as Agent and as a Lender By: ------------------------------------- Title: ---------------------------------- BANK OF MONTREAL, as Co-Agent and as a Lender By: ------------------------------------- Title: ---------------------------------- S-1 8 LENDERS: INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION By: ------------------------------------- Title: ---------------------------------- U.S. NATIONAL BANK OF OREGON By: ------------------------------------- Title: ---------------------------------- THE SUBSIDIARY GUARANTORS: -------------------------- A.B.C. Health Equipment Corp. Alliance Health Services, Inc. Alliance Home Health Care, Inc. Amco Medical Service, Inc. American Transitional Hospitals -- Texas Medical Center, Inc. ATH Clear Lake, Inc. ATH Columbus, Inc. ATH Oklahoma City, Inc. Beverly Acquisition Corporation Beverly Assisted Living, Inc. Beverly Enterprises - Alabama, Inc. Beverly Enterprises - Arkansas, Inc. Beverly Enterprises -- Delaware, Inc. S-2 9 Beverly Enterprises -- District of Columbia, Inc. Beverly Enterprises - Florida, Inc. Beverly Enterprises - Georgia, Inc. Beverly Enterprises -- Iowa, Inc. Beverly Enterprises -- Maine, Inc. Beverly Enterprises - Maryland, Inc. Beverly Enterprises -- Massachusetts, Inc. Beverly Enterprises -- Minnesota, Inc. Beverly Enterprises -- Mississippi, Inc. Beverly Enterprises -- Missouri, Inc. Beverly Enterprises -- Montana, Inc. Beverly Enterprises -- Nebraska, Inc. Beverly Enterprises -- Nevada, Inc. Beverly Enterprises -- New Hampshire, Inc. Beverly Enterprises -- New Mexico, Inc. Beverly Enterprises -- North Carolina, Inc. Beverly Enterprises -- North Dakota, Inc. Beverly Enterprises -- Oklahoma, Inc. Beverly Enterprises -- Oregon Beverlv Enterprises -- Rhode Island, Inc. Beverly Enterprises -- Vermont, Inc. Beverly Enterprises - Wisconsin, Inc. Beverly Enterprises -- Wyoming, Inc. Beverly Enterprises Medical Equipment Corporation S-3 10 Beverly Enterprises Rehabilitation Corporation Beverly Holdings I, Inc. Beverly Real Estate Holdings, Inc. Beverly Remic Depositor, Inc. Brownstone Pharmacy, Inc. Commercial Management, Inc. DD Wholesale, Inc. Dunnington Drug, Inc. Dunnington RX Services of Rhode Island, Inc. Dunnington RX Services of Massachusetts, Inc. Hallmark Convalescent Homes, Inc. Healthcare Prescription Services, Inc. Hospital Facilities Corporation Insta-Care Holdings, Inc. Insta-Care Pharmacy Services Corporation Insurance Software Packages, Inc. Medical Health Industries, Inc. Medview Services, Incorporated Moderncare of Lumberton, Inc. Nebraska City S-C-H, Inc. Omni Med B, Inc. Pharmacy Corporation of America - Massachusetts, Inc. Pharmacy Dynamics Group, Inc. Phymedsco, Inc. S-4 11 Resource Opportunities, Inc. Spectra Rehab Alliance, Inc. South Dakota - Beverly Enterprises, Inc. TMD Disposition Company Vantage Healthcare Corporation AGI-Camelot, Inc. AGI-McDonald County Health Care, Inc. Beverly Enterprises - Arizona, Inc. Beverly Enterprises - California, Inc. Beverly Enterprises - Colorado, Inc. Beverly Enterprises - Connecticut, Inc. Beverly Enterprises - Garden Terrace, Inc. Beverly Enterprises - Hawaii, Inc. Beverly Enterprises - Idaho, Inc. Beverly Enterprises - Illinois, Inc. Beverly Enterprises - Indiana, Inc. Beverly Enterprises - Kansas, Inc. Beverly Enterprises - Kentucky, Inc. Beverly Enterprises - Louisiana, Inc. Beverly Enterprises - Michigan, Inc. Beverly Enterprises - New Jersey, Inc. Beverly Enterprises - Ohio, Inc. Beverly Enterprises - Pennsylvania, Inc. Beverly Enterprises - South Carolina, Inc. Beverly Enterprises - Tennessee, Inc. Beverly Enterprises - Texas, Inc. Beverly Enterprises - Utah Inc. S-5 12 Beverly Enterprises - Virginia, Inc. Beverly Enterprises - Washington, Inc. Beverly Enterprises - West Virginia, Inc. Beverly Indemnity, Ltd. Beverly Manor Inc. of Hawaii Beverly Savana Cay Manor, Inc. Columbia-Valley Nursing Home, Inc. Computran Systems, Inc. Continental Care Centers of Council Bluffs, Inc. Forest City Building Ltd. Home Medical Systems, Inc. Kenwood View Nursing Home, Inc. Liberty Nursing Homes, Incorporated Medical Arts Health Facility of Lawrenceville, Inc. Nursing Home Operators, Inc. Petersen Health Care, Inc. Pharmacy Corporation of America Salem No.1, Inc. South Alabama Nursing Home, Inc. American Transitional Care Centers of Texas, Inc. American Transitional Care Dallas-Ft. Worth, Inc. American Transitional Health Care, Inc. American Transitional Hospitals, Inc. American Transitional Hospitals of Indiana, Inc. American Transitional Hospitals of S-6 13 Oklahoma, Inc. American Transitional Hospitals of Tennessee, Inc. ATH Del Oro, Inc. ATH Heights, Inc. ATH Tucson, Inc. Beverly Enterprises Japan Limited AdviNet, Inc. Beverly Crest Corporation Beverly Enterprises-Distribution Services, Inc. Hospice Preferred Choice, Inc. Beverly Rehabilitation Services, Inc. Synergos, Inc. Synergos-Scottsdale, Inc. Synergos-Pleasanthill, Inc. Synergos-North Hollywood, Inc. By: ------------------------------------- Title: ---------------------------------- S-7 EX-10.8 9 10TH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.8 EXECUTION COPY TENTH AMENDMENT TO CREDIT AGREEMENT AMONG BEVERLY ENTERPRISES, INC., BEVERLY HEALTH AND REHABILITATION SERVICES, INC., (FORMERLY KNOWN AS BEVERLY CALIFORNIA CORPORATION) THE SUBSIDIARY GUARANTORS LISTED HEREIN, THE LENDERS LISTED HEREIN, AND THE NIPPON CREDIT BANK, LTD. LOS ANGELES AGENCY, AS AGENT DATED AS OF JUNE 28, 1996 THIS TENTH AMENDMENT dated as of June 28, 1996 (this "AMENDMENT"), is entered into by and among BEVERLY ENTERPRISES, INC., a Delaware corporation ("BEI"), BEVERLY HEALTH AND REHABILITATION SERVICES, INC. (formerly known as Beverly California Corporation), a California corporation ("BORROWER"), the SUBSIDIARY GUARANTORS listed on the signature pages hereof (together with BEI, the "GUARANTORS"), the LENDERS listed on the signature pages hereof (such lenders, together with each Person that may or has become a party to the Credit Agreement (as hereinafter defined) pursuant to subsection 10.8 thereof, are referred to herein individually as a "LENDER" and collectively as the "LENDERS"), and THE NIPPON CREDIT BANK, LTD., Los Angeles Agency ("NIPPON"), as agent for the Lenders (in such capacity, the "AGENT"). This Amendment amends the Credit Agreement dated as of March 2, 1993 by and among BEI, Borrower, Agent and Lenders, as amended by that certain First Amendment to Credit Agreement dated as of May 6, 1994, as further amended by that certain Second Amendment to Credit Agreement dated as of May 19, 1994, as further amended by that certain Third Amendment to Credit Agreement dated as of November 1, 1994, as further amended by that certain Fourth Amendment to Credit Agreement dated as of November 9, 1994, as further amended by that certain Fifth Amendment to Credit Agreement dated as of December 30, 1994, as further amended by that certain Sixth Amendment to Credit Agreement dated as of July 25, 1995, as further amended by that certain Seventh Amendment to Credit Agreement dated as of September 29, 1995, as further amended by that certain Eighth Amendment to Credit Agreement dated as of February 14, 1996, and as further amended by that certain Ninth Amendment to Credit Agreement dated as of April 22, 1996 (as so amended, the "CREDIT AGREEMENT"), as set forth herein. 2 RECITALS WHEREAS, Borrower desires to amend the Credit Agreement in certain respects; WHEREAS, Lenders and Agent have agreed to approve such amendments; WHEREAS, Guarantors desire to reaffirm the effectiveness respectively of the Subsidiary Guaranty Agreement and the BEI Guaranty Agreement; AGREEMENT NOW, THEREFORE, in consideration of the terms and conditions herein contained, BEI, Borrower, Guarantors, Agent and Lenders agree as follows: 1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms in the Credit Agreement, as amended by this Amendment. The rules of construction set forth in Section I of the Credit Agreement shall, to the extent not inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference. 2. AMENDMENT TO CREDIT AGREEMENT. Subject to conditions set forth in paragraph 4 hereof, the Credit Agreement is hereby amended by deleting Section 5.5 in its entirety and replacing it with the following: The Fixed Charge Coverage Ratio at any date shall not be less than the ratio set forth below opposite the period in which such date falls:
Period Ratio ------ ----- Closing Date through 12/30/95 1.10 to 1.00 12/31/95 through 06/29/96 1.15 to 1.00 06/30/96 through 12/30/96 1.10 to 1.00 12/31/96 through 12/30/97 1.15 to 1.00 12/31/97 and thereafter 1.20 to 1.00
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the Lenders to enter into this Amendment, each of BEI and Borrower represents and warrants to the Agent and the Lenders that: (a) The representations and warranties of each Loan Party contained in the Credit Agreement are true, correct and complete in all material respects on and as of the date 2 3 hereof to the same extent as though made on and as of the date hereof except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date; (b) No event has occurred and is continuing or would result from the execution of this Amendment that constitutes an Event of Default or Potential Event of Default; (c) Each Loan Party has performed in all material respects all agreements and satisfied all conditions that the Credit Agreement and this Amendment provide shall be performed by it on or before the date hereof; (d) The execution, delivery and performance of this Amendment, and the Credit Agreement as amended by this Amendment, by each Loan Party which is a party thereto are within the corporate power and authority of each such Loan Party and, as of the Tenth Amendment Effective Date (as hereinafter defined), will be duly authorized by all necessary corporate action on the part of each Loan Party, and this Amendment as of the Tenth Amendment Effective Date, are duly executed and delivered by each of such Loan Parties which is a party thereto and will constitute a valid and binding agreement of each of such Loan Parties, enforceable against such Loan Parties in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The Credit Agreement constitutes and, as of the Tenth Amendment Effective Date, the Credit Agreement, as amended by this Amendment, will constitute, a valid and binding agreement of each applicable Loan Party, enforceable against each applicable Loan Party in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles, relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. (e) The execution and delivery by each applicable Loan Party of this Amendment, and the performance by each such Loan Party of the Credit Agreement as amended by this Amendment, do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party, the Certificate or Articles of Incorporation or Bylaws of any Loan Party or any order, judgment or decree of any court or other agency of government binding on any Loan Party, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any instrument that is material, individually or in the aggregate, and that is binding on such Loan Party, 3 4 (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party, or (iv) require any approval or consent of any Person under any instrument that is material, individually or in the aggregate, and that is binding on such Loan Party. (f) The execution and delivery by each applicable Loan Party of this Amendment, and the performance by each such Loan Party of the Credit Agreement as amended by this Amendment, do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 4. CONDITIONS TO EFFECTIVENESS. Section 2 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "TENTH AMENDMENT EFFECTIVE DATE"): (a) On or before the Tenth Amendment Effective Date, Borrower shall deliver to the Lenders (or to the Agent for the Lenders with sufficient originally executed copies, as appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Tenth Amendment Effective Date, duly executed and delivered by the parties thereto: (i) Signature and incumbency certificates of each of BEI, Borrower and each Subsidiary Guarantor of its respective officers executing this Amendment certified by such party's respective secretary or assistant secretary; and (ii) Executed counterparts of this Amendment. (b) On or before the Tenth Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by the Agent, acting on behalf of the Lenders, and its counsel shall be satisfactory in form and substance to the Agent and such counsel, and the Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as the Agent may reasonably request. (c) On or before the Tenth Amendment Effective Date, the Borrower shall have caused payment to the Agent of all amounts regarding the costs and expenses reasonably incurred by Agent in connection with this Amendment. 5. ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS. Each Guarantor acknowledges that it has reviewed the terms and 4 5 provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Guarantor hereby confirms that the Guaranty Agreement and the Collateral Documents to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all Obligations, Guarantied Obligations (as defined in the applicable Guaranty Agreements) and Secured Obligations (as defined in the Collateral Documents), as the case may be, including, without limitation, the payment and performance of all Obligations of Borrower now or hereafter existing under or in respect of the Credit Agreement as amended by this Amendment and the Notes defined therein. Each Guarantor acknowledges and agrees that any of the Guaranty Agreements and the Collateral Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Guarantor represents and warrants that all representations and warranties contained in the Credit Agreement as amended by this Amendment and the Guaranty Agreements and the Collateral Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the Tenth Amendment Effective Date to the same extent as though made on and as of that date except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date. Each Guarantor acknowledges and agrees that in addition to all the other waivers agreed to and made by Guarantor as set forth in the Guaranty Agreement and the Collateral Documents to which it is a party or otherwise bound, and pursuant to the provisions of California Civil Code Section 2856, "Guarantor waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the Guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the Code of Civil Procedure or otherwise." Each Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Guarantor is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment or any other Loan Document and (ii) that neither the terms of the Credit Agreement, any other Loan Document nor this Amendment shall be deemed to require the consent of any Guarantor to any future amendments to the Credit Agreement. 5 6 6. EFFECTIVENESS: COUNTERPARTS. This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Amendment (other than the provisions of Section 2) shall become effective upon the execution of a counterpart hereof by all Lenders and each of the Loan Parties and receipt of written or telephonic notification of such execution and authorization of delivery thereof. 7. FEES AND EXPENSES. The Borrower acknowledges that all costs, fees and expenses as described in subsection 10.4 of the Credit Agreement incurred by the Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of the Borrower. 8. EFFECT OF AMENDMENT. It is hereby agreed that, except as specifically provided herein, this Amendment does not in any way affect or impair the terms and conditions of the Credit Agreement, and all terms and conditions of the Credit Agreement are to remain in full force and effect unless otherwise specifically amended or changed pursuant to the terms and conditions of this Amendment. 9. APPLICABLE LAW. This Amendment and the rights and obligations of the parties hereto and all other aspects hereof shall be deemed to be made under, shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. 6 7 WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. BEI: ---- BEVERLY ENTERPRISES, INC. BY: /s/ SCHUYLER HOLLINGSWORTH, JR. ---------------------------------- Title: SR. VICE PRESIDENT & TREASURER -------------------------------- Borrower: --------- BEVERLY HEALTH AND REHABILITATION SERVICES, INC. BY: /s/ SCHUYLER HOLLINGSWORTH, JR. ---------------------------------- Title: SR. VICE PRESIDENT & TREASURER -------------------------------- Agent: ------ THE NIPPON CREDIT BANK, LTD., LOS ANGELES AGENCY, as Agent BY: /s/ BERNARDO E. CORREA-HENSCHKE ---------------------------------- Title: VICE PRESIDENT & SENIOR MANAGER -------------------------------- S-1 8 Lenders: THE NIPPON CREDIT BANK, LTD., LOS ANGELES AGENCY, as a Lender BY: /s/ BERNARDO E. CORREA-HENSCHKE ------------------------------------ Title: VICE PRESIDENT & SENIOR MANAGER -------------------------------- TORONTO-DOMINION (TEXAS), INC., as a Lender BY: /s/ DAVID G. PARKER ----------------------------------- Title: VICE PRESIDENT --------------------------------- (Signatures Continued] S-2 9 THE SUBSIDIARY GUARANTORS: American Transitional Care Centers of Texas, Inc. American Transitional Care Dallas-Ft. Worth, Inc. American Transitional Health Care, Inc. American Transitional Hospitals, Inc. American Transitional Hospitals of Indiana, Inc. American Transitional Hospitals of Oklahoma, Inc. American Transitional Hospitals of Tennessee, Inc. ATH Del Oro, Inc. ATH Heights, Inc. ATH Tucson, Inc. Beverly Enterprises - Alabama, Inc. Beverly Enterprises - Arkansas, Inc. Beverly Enterprises - Florida, Inc. Beverly Enterprises - Georgia, Inc. Beverly Enterprises Japan Limited Beverly Enterprises - Maryland, Inc. Beverly Enterprises - Massachusetts, Inc. Beverly Enterprises - Minnesota, Inc. S-3 10 Beverly Enterprises - Mississippi, Inc. Beverly Enterprises - Missouri, Inc. Beverly Enterprises - Nebraska, Inc. Beverly Enterprises - North Carolina, Inc. Beverly Enterprises - Oregon Beverly Enterprises - Wisconsin, Inc. Commercial Management, Inc. Hallmark Convalescent Homes, Inc. Hospital Facilities Corporation Moderncare of Lumberton, Inc. Nebraska City S-C-H, Inc. South Dakota - Beverly Enterprises, Inc. Vantage Healthcare Corporation AGI-Camelot, Inc. AGI-McDonald County Health Care, Inc. Beverly Enterprises - Arizona, Inc. Beverly Enterprises - California, Inc. Beverly Enterprises - Colorado, Inc. Beverly Enterprises - Connecticut, Inc. S-4 11 Beverly Enterprises - Garden Terrace, Inc. Beverly Enterprises - Hawaii, Inc. Beverly Enterprises - Idaho, Inc. Beverly Enterprises - Illinois, Inc. Beverly Enterprises - Indiana, Inc. Beverly Enterprises - Kansas, Inc. Beverly Enterprises - Kentucky, Inc. Beverly Enterprises - Louisiana, Inc. Beverly Enterprises - Michigan, Inc. Beverly Enterprises - New Jersey, Inc. Beverly Enterprises - Ohio, Inc. Beverly Enterprises - Pennsylvania, Inc. Beverly Enterprises - South Carolina, Inc. Beverly Enterprises - Tennessee, Inc. Beverly Enterprises - Texas, Inc. Beverly Enterprises - Utah, Inc. Beverly Enterprises - Virginia, Inc. Beverly Enterprises - Washington, Inc. S-5 12 Beverly Enterprises - West Virginia, Inc. Beverly Indemnity, Ltd. Beverly Manor Inc. of Hawaii Beverly Savana Cay Manor, Inc. Columbia-Valley Nursing Home, Inc. Computran Systems, Inc. Continental Care Centers of Council Bluffs, Inc. Forest City Building Ltd. Home Medical Systems, Inc. Kenwood View Nursing Home, Inc. Liberty Nursing Homes, Incorporated Medical Arts Health Facility of Lawrenceville, Inc. Nursing Home Operators, Inc. Petersen Health Care, Inc. Pharmacy Corporation of America Salem No. 1, Inc. South Alabama Nursing Home, Inc. S-6 13 Taylor County Health Facility, Incorporated Alliance Health Services, Inc. Healthcare Prescription Services, Inc. Dunnington Drugs, Inc. Insta-Care Holdings, Inc. AdviNet, Inc. Beverly Crest Corporation Beverly Enterprises- Distribution Services, Inc. Hospice Preferred Choice, Inc. Beverly Rehabilitation Services, Inc. Synergos, Inc. Synergos-Scottsdale, Inc. Synergos-Pleasanthill, Inc. Synergos-North Hollywood, Inc. By: /s/ SCHUYLER HOLLINGSWORTH, JR. -------------------------------------- Title: SR. VICE PRESIDENT & TREASURER ----------------------------------- S-7 14 CERTIFICATE OF ASSISTANT SECRETARY OF BEVERLY ENTERPRISES, INC. I, Holly A. Odom, Assistant Secretary of Beverly Enterprises, Inc., a Delaware corporation (the "Corporation"), DO HEREBY CERTIFY: 1) That the person named below is, as of the date hereof, a duly elected, qualified and acting officer of the Corporation, as indicated, and that the signature opposite his name is his true and genuine signature: NAME POSITION SIGNATURE - ---- -------- --------- Schuyler Hollingsworth, Jr. Senior Vice President and /s/ SCHUYLER HOLLINGSWORTH Treasurer ---------------------------- IN WITNESS WHEREOF, I have executed this Certificate as of this 28th day of June, 1996. (SEAL) /s/ HOLLY A. ODOM ----------------------------- Holly A. Odom Assistant Secretary 15 CERTIFICATE OF ASSISTANT SECRETARY OF BEVERLY HEALTH AND REHABILITATION SERVICES, INC. I, Holly A. Odom, Assistant Secretary of Beverly Health and Rehabilitation Services, Inc., a California corporation (the "Corporation"), DO HEREBY CERTIFY: 1. That the person named below is, as of the date hereof, a duly elected, qualified and acting officer of the Corporation, as indicated, and that the signature opposite his name is his true and genuine signature: NAME POSITION SIGNATURE - ---- -------- --------- Schuyler Hollingsworth, Jr. Senior Vice President and /s/ SCHUYLER HOLLINGSWORTH Treasurer -------------------------- IN WITNESS WHEREOF, I have executed this Certificate as of this 28th day of June, 1996. (SEAL) /s/ HOLLY A. ODOM --------------------------- Holly A. Odom Assistant Secretary EX-10.9 10 4TH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.9 [EXECUTION COPY] AMENDMENT NO. 4 TO CREDIT AGREEMENT AMENDMENT dated as of June 28, 1996 among BEVERLY HEALTH & REHABILITATION SERVICES, INC., a California corporation (the "Borrower"), BEVERLY ENTERPRISES, INC., a Delaware corporation (the "Guarantor"), the BANKS listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent and Issuing Bank. W I T N E S S E T H: WHEREAS, the parties hereto have heretofore entered into a Credit Agreement dated as of November 1, 1994 (as amended, the "Credit Agreement"); and WHEREAS, the parties hereto desire to amend the Credit Agreement as hereinafter provided; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended hereby. SECTION 2. Amendment of Section 5.06 of the Credit Agreement. Section 5.06 of the Credit Agreement is hereby amended by replacing the table set forth therein in its entirety with the following table:
Period Ratio ------ ----- Effective Date through December 30, 1995 1.10 to 1 December 31, 1995 through June 29, 1996 1.15 to 1 June 30, 1996 through December 30, 1996 1.10 to 1 December 31, 1996 through December 30, 1997 1.15 to 1 December 31, 1997 and thereafter 1.20 to 1
2 SECTION 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. Counterparts; Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof when the Agent shall have received duly executed counterparts hereof signed by the Borrower, the Guarantor and the Required Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. THE BORROWER BEVERLY HEALTH & REHABILITATION SERVICES, INC. By ------------------------------------- Title: THE GUARANTOR BEVERLY ENTERPRISES, INC. By ------------------------------------- Title: 2 3 BANKS MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ---------------------------------- Title: CHEMICAL BANK By ---------------------------------- Title: THE BANK OF NEW YORK By ---------------------------------- Title: THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY By ---------------------------------- Title: 3 4 NATIONSBANK OF TEXAS, N.A. By --------------------------------- Title: Vice President PNC BANK, NATIONAL ASSOCIATION By --------------------------------- Title: BANK OF AMERICA By --------------------------------- Title: BANK OF MONTREAL By --------------------------------- Title: THE BANK OF NOVA SCOTIA By --------------------------------- Title: 4 5 BHF-BANK AKTIENGESELLSCHAFT By --------------------------------- Title: By --------------------------------- Title: THE NIPPON CREDIT BANK, LTD. By --------------------------------- Title: BANK OF HAWAII By --------------------------------- Title: AGENT AND ISSUING BANK MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent and Issuing Bank By --------------------------------- Title: 5 EX-11.1 11 COMPUTATION OF NET INCOME 1 BEVERLY ENTERPRISES, INC. EXHIBIT 11.1 COMPUTATION OF NET INCOME PER SHARE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------- 1996 1995 1996 1995 ---------- --------- ---------- --------- PRIMARY: Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,995 $ 14,306 $ 30,691 $ 30,855 Preferred stock dividends . . . . . . . . . . . . . . . . . -- (2,062) --- (4,125) ---------- --------- ---------- --------- Net income applicable to common shares . . . . . . . . . . $ 16,995 $ 12,244 $ 30,691 $ 26,730 ========== ========= ========== ========= Applicable common shares: Weighted average outstanding shares during the period . . 98,981 86,304 98,860 85,986 Weighted average shares issuable upon exercise of common stock equivalents outstanding (principally stock options) using the "treasury stock" method . . . 1,098 1,560 1,168 1,607 ---------- --------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . 100,079 87,864 100,028 87,593 ========== ========= ========== ========== Net income per share of common stock . . . . . . . . . . . $ 0.17 $ 0.14 $ 0.31 $ 0.31 ========== ========= ========== ========== FULLY DILUTED: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 16,995 $ 14,306 $ 30,691 $ 30,855 Reduction of interest expense resulting from assumed conversion of 7 5/8% convertible subordinated debentures . --- (a) --- (a) --- (a) --- (a) Reduction of interest expense resulting from assumed conversion of 5 1/2% convertible subordinated debentures . 2,063 --- 4,126 --- Reduction of interest expense resulting from assumed conversion of zero coupon notes . . . . . . . . . . . . . --- (a) --- (a) --- (a) --- (a) Less applicable income taxes . . . . . . . . . . . . . . . . (825) --- (1,650) --- ---------- --------- ---------- ---------- Adjusted net income . . . . . . . . . . . . . . . . . . . . . 18,233 14,306 33,167 30,855 Preferred stock dividends . . . . . . . . . . . . . . . . . . --- (2,062) --- (4,125) ---------- --------- ---------- ---------- Adjusted net income applicable to common shares . . . . . . . $ 18,233 $ 12,244 $ 33,167 $ 26,730 ========== ========= ========== ========== Applicable common shares: Weighted average outstanding shares during the period . . . 98,981 86,304 98,860 85,986 Assumed conversion of cumulative convertible exchangeable preferred stock . . . . . . . . . . . . . . --- (b) --- (a) --- (b) --- (a) Weighted average shares issuable upon exercise of common stock equivalents outstanding (principally stock options) using the "treasury stock" method . . . . 1,107 1,560 1,186 1,673 Assumed conversion of 7 5/8% convertible subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . --- (a) --- (a) --- (a) --- (a) Assumed conversion of 5 1/2% convertible subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . 11,253 --- 11,253 --- Assumed conversion of zero coupon notes . . . . . . . . . . --- (a) --- (a) --- (a) --- (a) ---------- --------- ---------- --------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,341 87,864 111,299 87,659 ========== ========= ========== ========= Net income per share of common stock . . . . . . . . . . . . $ 0.16 $ 0.14 $ 0.30 $ 0.30 ========== ========= ========== =========
- ---------------- (a) Conversion would be anti-dilutive and is therefore not assumed in the computation of earnings per share of common stock. (b) The cumulative convertible exchangeable preferred stock was exchanged into 5 1/2% convertible subordinated debentures during the fourth quarter of 1995. EX-27.1 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 51,433 0 564,043 26,019 56,374 707,582 1,825,642 613,885 2,524,904 457,787 1,076,462 10,414 0 0 832,803 2,524,904 1,609,380 1,616,315 0 1,468,012 51,023 0 46,128 51,152 20,461 30,691 0 0 0 30,691 .31 .30 Excludes $45,255 of long-term notes receivable. Excludes $5,022 of allowance for long-term notes receivable. Included in Total costs and expenses line.
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