exv10w4



 






Exhibit 10.4




Beverly Enterprises, Inc.



Non-Employee Directors’ Stock Option Plan



(As Amended and Restated Effective as of June 1, 2004)




 








 





BEVERLY ENTERPRISES, INC.

NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN




(As Amended and Restated Effective as of June 1, 2004)




ARTICLE I




PURPOSE




      1.1 Purpose. The purpose of the Plan is to build a proprietary interest among the Company’s
Non-Employee Directors and thereby secure for the Company’s shareholders the benefits associated
with common stock ownership by those who will oversee the Company’s future growth and success. The
Plan permits the grant of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Shares, Performance Units, Performance-Based Cash Bonuses, Bonus Stock, and any
Other Stock Unit Awards or stock-based forms of awards as the Board may determine in its sole and
complete discretion at the time of grant.



ARTICLE II




DEFINITIONS AND CONSTRUCTION




      2.1 Definitions. Whenever used as a capitalized term in the Plan, the following terms shall
have the respective meanings set forth below, unless otherwise expressly provided:



            (a) “Affiliate” means an “affiliate” as defined in Rule 12b-2 under the Exchange Act.



            (b) “Agreement” means a written instrument implementing the grant of each Award. An Agreement
may be in the form of an agreement to be executed by both the Participant and the Company (or an
authorized representative of the Company) or certificates, letters or similar instruments, which
need not be executed by the Participant, but acceptance of which will evidence agreement to the
terms of the grant.



            (c) “Award” means, individually or collectively, a grant under this Plan of any one of the
following: Options; Stock Appreciation Rights; Restricted Stock; Restricted Stock Units;
Performance Shares; Performance Units; Performance-Based Cash Bonuses; Bonus Stock; or Other Stock
Unit Awards.



            (d) “Award Date” or “Grant Date” means the date on which an Award is made by the Board under
this Plan.



            (e) “Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 under the
Exchange Act.



 








 





            (f) “Board” or “Board of Directors” means the Board of Directors of the Company.



            (g) “Bonus Stock” means an Award granted pursuant to Section 9 of the Plan expressed as a
Share that may or may not be subject to restrictions.



            (h) “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:




            (i) Any Person, corporation or other entity or group becomes the Beneficial Owner of
shares of the Company having 30 percent or more of the total number of votes that may be
cast for the election of members of the Board; or




            (ii) As the result of, or in connection with, any tender or exchange offer, merger or
other business combination, sale of assets or contested election, or any combination of the
foregoing (a “Transaction”), the persons who were members of the Board before the
Transaction shall cease to constitute a majority of the Board of Directors of the Company or
any successor to the Company or its assets; or




            (iii) If at any time (A) the Company shall consolidate with, or merge with, any other
Person and the Company shall not be the continuing or surviving corporation, (B) any Person
shall consolidate with, or merge with, the Company, and the Company shall be the continuing
or surviving corporation and in connection therewith, all or part of the outstanding Common
Stock shall be changed into or exchanged for stock or other securities of any other Person
or cash or any other property, (C) the Company shall be a party to a statutory share
exchange with any other Person after which the Company is a Subsidiary of any other Person,
or (D) the Company shall sell or otherwise transfer 50 percent or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any Person or
Persons; provided, however, that notwithstanding anything to the contrary set forth in such
plan a Change in Control shall not include either (a) the Distribution or Merger, or (b) any
transfer to a consolidated subsidiary, reorganization, spin-off, split-up, distribution, or
other similar or related transaction(s) or any combination of the foregoing in which the
core business and assets of the Company and its subsidiaries (taken as a whole) are
transferred to another entity (“Controlled Entity”) with respect to which (1) the majority
of the Board of Directors of the Company (as constituted immediately prior to such
transaction(s)) also serve as directors of Controlled Entity and immediately after such
transaction(s) constitute a majority of Controlled Entity’s board of directors, and (2) more
than 70% of the shareholders of the Company (immediately prior to such transaction(s))
become shareholders or other owners of Controlled Entity and immediately after the
transaction(s) control more than 70% of the ownership and voting rights of Controlled
Entity.



            (i) “Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued
thereunder, as the same may be amended from time to time.



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            (j) “Common Stock” or “Stock” means the common stock of the Company, par value $.10 per share.



            (k) “Company” means Beverly Enterprises, Inc., f/k/a New Beverly Holdings, Inc., or any
successor thereto.



            (l) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or
any successor statute thereto, together with any rules, regulations, and interpretations
promulgated thereunder or with respect thereto.



            (m) “Fair Market Value” means, on any given date, the closing price of Common Stock as
reported on the New York Stock Exchange composite tape on such day or, if no shares of Common Stock
were traded on such Exchange, all as reported by such source as the Board may select. As to Awards
granted to Participants in connection with the assumption of Awards previously granted by Beverly
Enterprises, Inc. (BEI) pursuant to the Employee Benefit Matters Agreement dated April 15, 1997
among BEI, the NBHI and Capstone, Fair Market Value shall have the definition contained therein.



            (n) “Non-Employee Director” means an individual who is a member of the Board and who is not an
employee of the Company or any Subsidiary or Affiliate thereof.



            (o) “Option” means an option granted under this Plan to purchase a share or shares of Common
Stock.



            (p) “Other Stock Unit Award” means awards, granted pursuant to Section 10, 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.



            (q) “Participant” means a Non-Employee Director to whom an Award has been granted under this
Plan.



            (r) “Performance Award” means a performance-based Award, which may be in the form of
Performance Shares, Performance Units, or Performance-Based Cash Bonuses.



            (s) “Performance-Based Cash Bonus” means a cash bonus Award, designated as a Performance-Based
Cash Bonus, granted to a Participant pursuant to Section 8 herein, the value of which is
determined, in whole or in part, by the attainment of pre-established Performance Goals as deemed
appropriate by the Board.



            (t) “Performance Criteria” or “Performance Goals” or “Performance Measures” means the
objectives established by the Board for a Performance Period for the purpose of determining when an
Award subject to such objectives is earned.



            (u) “Performance Period” means the time period designated by the Board during which
Performance Goals must be met.



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            (v) “Performance Share” means an Award, designated as a Performance Share, granted to a
Participant pursuant to Section 8 herein, the value of which is determined, in whole or in part, by
the value of Common Stock in a manner deemed appropriate by the Board.



            (w) “Performance Unit” means an Award, designated as Performance Unit, granted to a
Participant pursuant to Section 8 herein, the value of which is determined, in whole or in part, by
the attainment of pre-established Performance Goals as determined by the Board.



            (x) “Person” means a “person” as deemed in Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d)(3) of the
Exchange Act.



            (y) “Plan” means the “Beverly Enterprises, Inc. Non-Employee Directors’ Stock Option Plan” as
set forth in this document, and as the same may be amended from time to time.



            (z) “Restricted Stock” means an Award of Stock granted to a Participant pursuant to Section 7
herein.



            (aa) “Restricted Stock Unit” means a fixed or variable right to acquire Stock, which may or
may not be subject to restrictions, contingently awarded under Section 7 of the Plan.



            (bb) “Shares” means shares of the Common Stock of the Company.



            (cc) “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.



            (dd) “Subsidiary” means a corporation at least 50 percent of the combined voting power of all
classes of stock of which is owned by the Company, either directly or through one or more of its
Subsidiaries.



            (ee) “Vesting Date” means the date determined by the Board at which an Award will no longer be
subject to a risk of forfeiture.



      2.2 Gender and Number; Headings. Except when otherwise indicated by the context, any
masculine terminology when used in this Plan shall also include the feminine gender, and the
definition of any term in the singular shall also include the plural, Headings of Articles and
Sections herein are included solely for convenience, and if there is any conflict between such
headings and the text of the Plan, the text shall control.



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ARTICLE III




ELIGIBILITY AND PARTICIPATION




      Each Non-Employee Director shall be eligible to participate under this Plan and to receive
Awards granted in accordance with the provisions of this Plan.



ARTICLE IV




COMMON STOCK AVAILABLE




      4.1 In General. Subject to adjustment as provided below, an aggregate of 900,000 shares of
Common Stock shall be available for grant and issuance pursuant to the provisions of this Plan,
which may be granted in any combination of Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Shares, Performance Units, Bonus Stock, or Other Stock Unit
Awards. Such shares may be authorized and unissued shares or may be shares issued and thereafter
acquired by the Company.



      4.2 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 Board deems appropriate, based on the
occurrence of a number of specified and non-specified events. Such specified events are discussed
in this Section 4.2, but such discussion is not intended to provide an exhaustive list of such
events which may necessitate such adjustments. In addition, the Board may treat different
Participants and different Awards differently, and may condition any adjustment on the execution of
an appropriate waiver and release agreement.



            (a) If the outstanding Shares are increased, decreased or exchanged through merger,
consolidation, sale of all or substantially all of the property of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split or other distribution in respect to
such Shares, for a different number of Shares or type of securities, or if additional Shares or new
or different Shares or other securities are distributed with respect to such Shares, an appropriate
and proportionate adjustment, as determined by the Board, shall be made in:




            (i) the maximum number of Shares available for the Plan as provided in Section 4.1
herein;




            (ii) the type of shares or other securities available for the Plan;




            (iii) the number of shares of Stock subject to any then outstanding Awards under the
Plan; and




            (iv) the price (including exercise price) for each Share (or other kind of shares or
securities) subject to then outstanding Awards, but without change in the aggregate purchase
price as to which such Awards remain exercisable or Restricted Stock releasable.



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            (b) In the event other events not specified above in this Section 4.2, 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 Board in its discretion may make adjustments to any or all of:




            (i) the number and type of shares which thereafter may be optioned and sold or awarded
or made subject to Stock Appreciation Rights under the Plan;




            (ii) the exercise price of any Award made under the Plan thereafter; and




            (iii) the number and Exercise Price of each Share (or other kind of shares or
securities) subject to the then outstanding Awards, but without change in the aggregate
purchase price as to which such Awards remain exercisable or Restricted Stock releasable.



            (c) Any adjustment made by the Board pursuant to the provisions of this Section 4.2 shall be
final, binding and conclusive. A notice of such adjustment, including identification of the event
causing such an adjustment, the calculation method of such adjustment, and the change in price and
the number of shares of Stock, or securities, cash or property purchasable subject to each Award
shall be sent to each Participant. No fractional interests shall be issued under the Plan based on
such adjustments.



      4.3 Lapsed Awards of Forfeited Shares. In the event that (a) any Option or other Award
granted under the Plan terminates, expires, or lapses for any reason other than exercise of the
Award, or is settled in cash in lieu of Common Stock, or (b) if Shares issued pursuant to the
Awards are canceled or forfeited for any reason, such Shares subject to such Award shall thereafter
be again available for grant of an Award under the Plan; provided further that if, after grant, the
exercise price of an Option (or the base price of a Stock Appreciation Right) is reduced, the
transaction shall be treated as a cancellation of the Option (or the Stock Appreciation Right) and
a grant of a new Option (or Stock Appreciation Right).



      4.4 Delivery of Shares as Payment. In the event a Participant pays for any Option or other
Award granted under the Plan through the delivery of previously acquired Shares, the number of
Shares available for Awards under the Plan shall be increased by the number of shares surrendered
by the Participant.



ARTICLE V




STOCK OPTIONS




      5.1 Grant of Stock Options. Subject to the terms and provisions of the Plan and applicable
law, the Board, at any time and from time to time, may grant Options to Non-Employee Directors as
it shall determine. The Board shall have sole and complete discretion in



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determining the exercise price, the duration of the Option, the number of Shares to which the
Option pertains, any conditions imposed upon the exercisability of the Options, the conditions
under which the Option may be terminated and such other provisions as may be warranted to comply
with the law or rules of any securities trading system or stock exchange. Each Option grant shall
be evidenced by a written Agreement prescribed by the Board, and shall have such specified terms
and conditions detailed in such Agreement.




      5.2 Exercise of Stock Options.



            (a) Option Exercisability. Each Option granted under the Plan shall be exercisable on
or after the Vesting Date applicable to such Option, subject to the provisions of Section 5.2(b)
and (c).



            (b) Immediate Vesting for Death, Disability, and Change of Control. Notwithstanding
the provisions of Section 5.2(a), an Option granted to any Participant shall become immediately
exercisable in full upon the first to occur of:




            (i) The death of the Participant, in which case the Option may be exercised by the
Participant’s executor or administrator, or if not so exercised, by the legatees or
distributees of his or her estate or by such other person or persons to whom the
Participant’s rights under the Option shall pass by will or by the applicable laws of
descent and distribution;




            (ii) Such time as the Participant ceases to be a member of the Board by reason of his
or her disability; and




            (iii) Change in Control.



            (c) Termination Other than Death or Disability. In the event the Participant ceases
to be a Non-Employee Director of the Company for any reason other than death or disability when no
Change of Control has occurred, and such termination occurs prior to the time an Option granted to
such Participant has become exercisable, unless determined otherwise by the Board such Option shall
terminate with respect to the shares as to which the Option is not then exercisable and all rights
of the Participant to such shares shall terminate without further obligation on the part of the
Company. As regards any Option that is exercisable by the Participant at such time, such
Participant must exercise such Option within three (3) years following the date the Participant so
ceased to be a Non-Employee Director, and, any such Option remaining unexercised as of the close of
such period shall expire.



      5.3 Exercise Price. The exercise price of an Option for a share of Common Stock shall be 100
percent of the Fair Market Value of such Common Stock on the Grant Date relating to such Option.
However, Options granted on the assumption of, or in substitution for, options of another company
with which the Company participates in an acquisition, separation or similar corporate transaction
may be issued at an exercise price less than 100% of Fair Market Value.



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      5.4 Expiration of Options.



            (a) In General. An Option shall expire ten (10) years from the date such Option was
granted, unless terminated earlier in accordance with the Plan.



            (b) Death or Disability of Participant. In the event a Participant ceases to be a
Non-Employee Director of the Company by reason of death or disability, including without limitation
in the event that a Participant dies after ceasing to be a member of the Board by reason of
disability, any Option granted to such Participant hereunder that has not been fully exercised at
the time of the Participant’s death may be exercised at any time within the greater of:




            (i) one year after the date of death or disability; or




            (ii) in the event any Option is exercised by the executors, administrators, legatees,
or distributees of the estate of a deceased Participant, the Company shall be under no
obligation to issue Common Stock thereunder unless and until the Company is satisfied that
the person or persons exercising the Option are the duly appointed legal representatives of
the deceased optionee’s estate or the proper legatees or distributees thereof.



      5.5 Exercise and Payment of Exercise Price.



            (a) Number of Shares. Subject to the terms and conditions of the Plan, an Option
shall, to the extent then exercisable, be exercisable in whole or in part by giving written notice
to the Company stating the number of shares with respect to which the Option is being exercised,
accompanied by payment in full for such shares; provided, however, that there shall be no such
exercise at any one time as to fewer than 100 shares or all or the remaining shares then
purchasable by the person or persons exercising the Option, if fewer than 100 shares.



            (b) Payment Methods. An Option may be paid for by:




            (i) delivery of cash or a check payable to the order of the Company in an amount equal
to the exercise price of such Option;




            (ii) by delivery to the Company of shares of Common Stock of the Company already owned
by the Participant for more than six months and having a Fair Market Value equal in amount
to the exercise price of the Option being exercised, provided that such method is consistent
with applicable tax and securities laws and is not contrary to any restriction on the
Company’s purchase of its own shares, or




            (iii) by any combination of such methods of payment.



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ARTICLE VI




STOCK APPRECIATION RIGHTS




      6.1 Grant of Stock Appreciation Rights. Subject to the terms and provisions of the Plan and
applicable law, the Board, at any time and from time to time, may grant freestanding Stock
Appreciation Rights, Stock Appreciation Rights in tandem with an Option, or Stock Appreciation
Rights in addition to an Option. Stock Appreciation Rights granted in tandem with an Option or in
addition to an Option may be granted at the time the Option is granted or at a later time. No
Stock Appreciation Rights granted under the Plan may be exercisable after the expiration of ten
(10) years from the Grant Date. The terms and conditions of each Stock Appreciation Right will be
set forth in an Agreement prescribed by the Board.



      6.2 Exercise Price. The exercise price of each Stock Appreciation Right shall be determined
on the Grant Date by the Board, subject to the limitation that the exercise price shall not be less
than 100% of Fair Market Value on the Grant Date. However, Stock Appreciation Rights issued upon
the assumption of, or in substitution for, stock appreciation rights of a company with which the
Company participates in an acquisition, separation or similar corporate transaction may be issued
at an exercise price less than 100% of the Fair Market Value.



      6.3 Exercise. The Participant is entitled to receive an amount equal to the excess of the
Fair Market Value over the exercise price thereof on the date of exercise of the Stock Appreciation
Right.



      6.4 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
Board. If any payment in the form of Shares results in a fractional share, the payment for the
fractional share shall be made in cash.



ARTICLE VII




RESTRICTED STOCK AND RESTRICTED STOCK UNITS




      7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan and applicable
law, the Board, at any time and from time to time, may grant Shares of Restricted Stock and
Restricted Stock Units under the Plan, and in such amounts and for such duration of the Period of
Restriction and/or conditions of removal of such 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).



      7.2 Restricted Stock Agreement. Each Restricted Stock and Restricted Stock Unit grant shall
be evidenced by an Agreement prescribed by the Board that shall specify the Period of Restriction;
the conditions that must be satisfied prior to removal of the restriction; the number of Shares of
Restricted Stock granted; and such other provisions as the Board shall determine. The Board 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



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business or financial goals 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 of 1933, any securities trading system or stock exchange upon which such Shares are listed.




      7.3 Nontransferability. Except as provided in this Section 7 and subject to applicable law,
the Shares of Restricted Stock or Restricted Stock Units granted under the Plan may not be sold,
transferred, pledged, assigned, exchanged, encumbered or otherwise alienated or hypothecated until
the termination of the applicable Period of Restriction or upon earlier satisfaction of other
conditions as specified by the Board in its sole discretion and set forth in the Agreement. All
rights with respect to the Restricted Stock and Restricted Stock Units granted to a Participant
under the Plan shall be exercisable only by such Participant or his or her guardian or legal
representative.



      7.4 Removal of Restrictions. Except as otherwise noted in this Section 7, 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 Board. The Board may, in its sole
discretion, reduce or remove the restrictions or reduce or remove the Period of Restriction with
respect to Restricted Stock or Restricted Stock Units at any time for any reason.



      7.5 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.



      7.6 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, unless determined otherwise by the Board. 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.



ARTICLE VIII




PERFORMANCE AWARDS




      8.1 Grant of Performance Awards. Subject to the terms and provisions of the Plan and
applicable law, the Board, at any time and from time to time, may grant Performance Awards in the
form of either Performance Units, Performance Shares or Performance-Based Cash Bonuses to
Participants subject to such Performance Goals and Performance Period as it shall determine. The
Board shall have complete discretion in determining the number and value of Performance Awards
granted to each Participant. Participants receiving Performance Awards are not required to pay the
Company therefor (except for applicable tax withholding).



      8.2 Value of Performance Awards. The Board shall determine the number and value of
Performance Units, Performance Shares or Performance-Based Cash Bonuses granted to each Participant
as a Performance Award. The Board 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 Award to the Participant. Such



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Performance Goals may be particular to a Participant, may relate to the performance of a
Subsidiary or a division, 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 Board. 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 prescribed by the Board. The Board may, in its sole discretion,
reduce or remove any Performance Goals or Performance Periods at any time for any reason.




      8.3 Settlement of Performance Awards. After a Performance Period has ended, the holder of a
Performance Award shall be entitled to receive the value thereof based on the degree to which the
Performance Goals established by the Board and set forth in the Agreement have been satisfied.



      8.4 Form of Payment. Payment of the amount to which a Participant shall be entitled upon the
settlement of a Performance Unit or Performance Share shall be made in cash, Stock, or a
combination thereof as determined by the Board. Payment of the amount to which a Participant shall
be entitled upon the settlement of a Performance-Based Cash Bonus shall be made in cash. Payment
may be made as prescribed by the Board.



ARTICLE IX




BONUS STOCK




      Subject to the terms and provisions of the Plan and applicable law, the Board, at any time and
from time to time, may award Shares of Bonus Stock to Participants without cash consideration. The
Board shall determine and indicate in the relevant Agreement restrictions that shall apply to such
Bonus Stock, which shall provide for vesting periods and/or periods of restriction that shall be
not less stringent than those as contained in Article VII with respect to awards of Restricted
Stock and Restricted Stock Units. In addition, such Shares shall be subject to at least the
following restrictions:




      (a) No Shares of Bonus Stock may be sold, transferred, pledged, assigned, exchanged,
encumbered or otherwise alienated or hypothecated if such Shares are subject to restrictions
which have not lapsed or have not been vested.




      (b) If any condition of vesting of the Shares of Bonus Stock is not met, all such
Shares subject to such vesting shall be delivered to the Company and canceled (in a manner
determined by the Board) within 60 days of the failure to meet such condition without any
payment from the Company.



      The Board may, in its sole discretion, reduce or remove any restrictions or limitations on
Bonus Stock at any time for any reason.



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ARTICLE X




OTHER STOCK UNIT AWARDS




      10.1 Grant of Other Stock Unit Awards. Subject to the terms and provisions of the Plan and
applicable law, the Board, 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 that 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 Board, in
its sole and complete discretion, may determine that an Award, either in the form of an Other Stock
Unit Award under this Section 10 or as an Award granted pursuant to Sections 5 through 9, may
provide to the Participant (a) dividends or dividend equivalents (payable on a current or deferred
basis) and (b) cash payments in lieu of or in addition to an Award. Subject to the provisions of
the Plan, the Board in its sole and complete discretion shall determine the 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 Board. However, each Other Stock Unit Award need not be subject to
identical Rules.



      10.2 Rules. The Board, in its sole and complete discretion, may grant an Other Stock Unit
Award subject to the following Rules:




      (a) Common Stock or other securities issued pursuant to Other Stock Unit Awards may not
be sold, transferred, pledged, assigned, exchanged, encumbered or otherwise alienated or
hypothecated by a Participant until the expiration of at least six months from the Award
Date, except that such limitation shall not apply in the case of death or disability of the
Participant or a Change in Control of the Company. All rights with respect to such Other
Stock Unit Awards granted to a Participant shall be exercisable during his or her lifetime
only by such Participant or his or her guardian or legal representative.




      (b) Other Stock Unit Awards may require the payment of cash consideration by the
Participant upon receipt of the Award or provide that the Award, and any Common Stock or
other securities issued in conjunction with the Award be delivered without the payment of
cash consideration.




      (c) The Board, in its sole and complete discretion, may establish certain Performance
Criteria that may relate in whole or in part to receipt of the Other Stock Unit Awards.




      (d) Other Stock Unit Awards may be subject to a deferred payment schedule. Furthermore,
all Other Stock Unit Awards granted under the Plan shall be subject to vesting periods
and/or periods of restriction that are not less stringent than those as specified in Article
VII with respect to awards of Restricted Stock and Restricted Stock Units.



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      (e) The Board, in its sole and complete discretion, as a result of certain
circumstances, including, without limitation, the assumption of, or substitution of stock
unit awards of a company with which the Company participates in an acquisition, separation,
or similar corporate transaction, may waive or otherwise remove, in whole or in part, any
restriction or condition imposed on an Other Stock Unit Award at the time of grant.




      (f) The Board may, in its sole discretion, reduce or remove any Performance Criteria,
vesting schedule, or other restriction or condition imposed on Other Stock Unit Awards at
any time for any reason.



ARTICLE XI




REGULATORY COMPLIANCE




      11.1 Issuance or Delivery of Shares. The issuance or delivery of any Shares of Common Stock
subject to Awards may be postponed by the Board for such period as may be required to comply with
any applicable requirements under the Federal or applicable state securities laws, any applicable
listing requirements of any national securities exchange, or any requirements under any law or
regulation applicable to the issuance or delivery of such Shares. The Company shall not be
obligated to issue or deliver any such Shares if, in the opinion of Company’s counsel, the issuance
or delivery thereof would constitute a violation of any provision of any law or of any regulation
of any governmental authority or any national securities exchange.



ARTICLE XII




ADMINISTRATION




      12.1 Plan Administration. The Plan shall be administered by the Board. The Board shall have
all the powers vested in it by the terms of the Plan, such powers to include authority within the
limitations described herein to prescribe the form of the agreement embodying grants of Options.
The Board shall have the power to construe the Plan, to determine all questions arising thereunder,
and to adopt and amend such rules and regulations for the administration of the Plan as it may deem
desirable. Any decisions of the Board in the administration of the Plan, as described herein,
shall be final and conclusive. The Board may from time to time delegate certain of its
administrative responsibilities under the Plan to Company personnel or to a committee. The Board
may act only by a majority of its members in office, except that the members thereof may authorize
any one or more of their number or any officer of the Company to execute and deliver documents on
behalf of the Board. No member of the Board shall be liable for anything done or omitted to be
done other than by such member’s own willful misconduct or as expressly provided by statute.



      12.2 Indemnification and Exculpation. The members of the Board, its agents, and officers and
employees of the Company shall be indemnified, defended and held harmless by the Company against
and from any and all loss, cost, liability, or expense that may be imposed upon



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or reasonably incurred by them in connection with or resulting from any claim, action, suit,
or proceeding to which they may be a party or in which they may be involved by reason of any action
taken or failure to act under this Plan and against and from any and all amounts paid by them in
settlement (with the Company’s written approval) or paid by them in satisfaction of a judgment in
any such action, suit, or proceeding. The foregoing provision shall not be applicable to any
person if the loss, cost, liability, or expense is due to such person’s gross negligence or willful
misconduct.




ARTICLE XIII.




AMENDMENT AND TERMINATION




      13.1 Amendment. The Board shall have the right to amend or modify the Plan in full or in part
at any time and from time to time; provided, however, that unless required by law, no such
amendment or modification shall:



            (a) affect any right or obligation with respect to any Award grant theretofore made; or



            (b) unless previously approved by the shareholders of the Company, where such approval is
necessary to satisfy then applicable requirements of Federal securities laws, the Code, or rules of
any stock exchange on which the Company’s Common Stock is listed:




            (i) in any manner materially affect the eligibility requirements set forth in Article
III;




            (ii) materially increase the number of shares of Common Stock available for or subject
to Award, except as provided in Section 4.2; or




            (iii) materially increase the benefits to Participants under the Plan.



      13.2 Termination.



            (a) In General. The Board shall have the right to terminate the Plan at any time;
provided, however, that Awards that are granted on or before the termination date shall remain
exercisable in accordance with their respective terms after the termination of the Plan.



            (b) Termination Date. Unless terminated earlier by the Board, the Plan shall
terminate on December 31, 2010; provided, however, that Awards that are granted on or before such
date shall remain exercisable in accordance with their respective terms after the termination of
the Plan.



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ARTICLE XIV




MISCELLANEOUS




      14.1 Regulatory Approval. The Company’s obligation to issue and deliver shares of Common
Stock under the Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance, or delivery of Common Stock.



      14.2 No Right to Reelection. Nothing in the Plan shall be deemed to create any obligation on
the part of the Board to nominate any Non-Employee Director for reelection by the Company’s
shareholders, nor confer upon any Non-Employee Director the right to remain a member of the Board
for any period of time, or at any particular rate of compensation.



      14.3 Severability. In the event any provision of this Plan shall be held invalid or illegal
for any reason, any illegality or invalidity shall not affect the remaining parts of this Plan, but
this Plan shall be construed and enforced as if the illegal or invalid provision had never been
inserted, and the Company shall have the privilege and opportunity to correct and remedy such
questions of illegality or invalidity by amendment as provided in this Plan.



      14.4 Status Under ERISA. This Plan is not maintained as and is not intended to be an
“employee benefit plan” under the Employee Retirement Income Security Act of 1974, as amended.



      14.5 Nontransferability of Awards. Except as specifically provided otherwise in this Plan, no
Award granted under the Plan may be sold, transferred, pledged, assigned, exchanged, encumbered or
otherwise alienated or hypothecated by the Participant to whom it is granted, either voluntarily or
by operation of law, except by will or the laws of descent and distribution or pursuant to a
“qualified domestic relations order” (“QDRO”) as defined under Section 414(p) of the Code. Any
such attempted assignment or transfer in violation of this Section 14.5 shall be null and void.
During the life of the Participant, Awards shall be exercisable only by such person or an alternate
payee under a QDRO, or, in the event of incapacity, by the person or person properly appointed to
act on his or her behalf.



      14.6 Rights as Stockholder. Subject to the Award provisions, no Participant shall be deemed a
stockholder of the Company nor have any rights as such with respect to any Shares to be provided
under the Plan until he or she has become the holder of such Shares. Notwithstanding the
aforementioned, with respect to Stock granted as Restricted Stock, Performance Shares, Bonus Stock
or Other Stock Unit Awards under this Plan, the Participant shall be deemed the owner of such
Shares provided herein. As such, unless contrary to the provisions herein or in any such related
Agreement, such stockholder shall be entitled to full voting, dividend and distribution rights as
provided any other Company stockholder for as long as the Participant continues to be deemed the
owner of such Stock.



      14.7 Valuing Awards. Solely for purposes of valuing the Awards granted under this Plan to
determine a Non-Employee Director’s annual compensation package for a given year, the following
rules shall apply unless determined otherwise by the Board in its sole discretion:



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            (a) Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Bonus
Stock and Other Stock Unit Awards shall be valued based on the Fair Market Value of the shares
subject to the Award on the Grant Date;



            (b) Performance-Based Cash Bonuses shall be valued based on the maximum cash award that can be
paid if the Performance Goals are satisfied (or deemed satisfied); and



            (c) Options and Stock Appreciation Rights shall be valued using the methodology elected by the
Company to value compensatory stock options for purposes of its annual report filed on Form 10-K.



      14.8 Applicable Law. The Plan shall be governed by, construed, and administered in accordance
with the laws of the State of Delaware, except to the extent such laws are preempted by the laws of
the United States.



      14.9 No Option Repricing. Notwithstanding anything in this Plan to the contrary, neither the
Company nor the Board will reprice any Options or Stock Appreciation Rights without the approval of
shareholders, except for adjustments under Section 4.2 as determined by the Board. For purposes of
this Plan, the term “reprice” shall mean lowering the exercise price or base price of previously
awarded Options or Stock Appreciation Rights, and shall also include any transactions deemed
“repricings” under the relevant rules of the New York Stock Exchange.



      IN WITNESS WHEREOF, Beverly Enterprises, Inc. has caused this document to be executed by its
duly authorized officer on May 20, 2004, effective as of the date set forth above.


	 	 	 	 	 
	 	BEVERLY ENTERPRISES, INC.

 	 
	 	By:  	 	 
	 	 	Larry Deans 	 
	 	 	 	 
	 	Its:  	Senior Vice President - Human Resources 	 
	 





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