BEVERLY ENTERPRISES INC, DEF 14A, 1998-04-23

BEVERLY ENTERPRISES INC
DEF 14A, 1998-04-23
SKILLED NURSING CARE FACILITIES

Previous: FRIEDE GOLDMAN INTERNATIONAL INC, DEF 14A, 1998-04-23

Next: IOMED INC, S-1/A, 1998-04-23

<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14a INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

BEVERLY ENTERPRISES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

-----------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

-----------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

-----------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

-----------------------------------------------------------------------

(5) Total fee paid:

-----------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.

(1) Amount Previously Paid:

-----------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

-----------------------------------------------------------------------

(3) Filing Party:

-----------------------------------------------------------------------

(4) Date Filed:

-----------------------------------------------------------------------
<PAGE> 2

BEVERLY ENTERPRISES, INC.
5111 ROGERS AVENUE,
SUITE 40-A
FORT SMITH, ARKANSAS 72919-0155
(501) 452-6712

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1998

To the Stockholders:

The Annual Meeting of Stockholders of Beverly Enterprises, Inc., will be
held at the Holiday Inn, 700 Rogers Avenue, Fort Smith, Arkansas, on Thursday,
May 28, 1998, at 10:00 a.m., local time for the following purposes:

1. To elect nine members of the Board of Directors;

2. To approve the Annual Incentive Plan;

3. To ratify the appointment of Ernst & Young LLP as independent auditors
for 1998;

4. To transact such other business as may properly come before the meeting
or any adjournment thereof.

Nominees for election as directors at the Annual Meeting and any
adjournments thereof (the "Annual Meeting") are Beryl F. Anthony, Jr., David R.
Banks, Carolyne K. Davis, R.N., Ph.D., James R. Greene, Boyd W. Hendrickson,
Edith E. Holiday, Jon E. M. Jacoby, Risa J. Lavizzo-Mourey, M.D., and Marilyn R.
Seymann, Ph.D., all of whom are presently serving as directors of the Company.

The Board of Directors has fixed the close of business on March 31, 1998,
as the record date for the determination of stockholders who are entitled to
notice of and to vote at the Annual Meeting. A list of stockholders entitled to
vote at the Annual Meeting will be open to the examination of any stockholder
for any purpose germane to the Annual Meeting at the offices of Beverly
Enterprises, Inc., 5111 Rogers Avenue, Suite 155, Fort Smith, Arkansas, during
ordinary business hours for 10 days prior to the Annual Meeting.

We encourage you to attend the Annual Meeting. Whether you are able to
attend or not, we urge you to indicate your vote on the enclosed proxy card FOR
the election of directors named in the attached Proxy Statement; FOR the
approval of the Annual Incentive Plan and FOR ratification of the appointment of
Ernst & Young LLP as independent auditors for 1998. Please sign, date and return
the proxy card promptly in the enclosed envelope. If you attend the Annual
Meeting, you may vote in person even if you have previously mailed a proxy card.

By Order of the Board of Directors

ROBERT W. POMMERVILLE
Secretary

April 23, 1998
Fort Smith, Arkansas
<PAGE> 3

BEVERLY ENTERPRISES, INC.
5111 ROGERS AVENUE,
SUITE 40-A
FORT SMITH, ARKANSAS 72919-0155
(501) 452-6712

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1998

The accompanying proxy is solicited by the Board of Directors of Beverly
Enterprises, Inc. (the "Company") to be voted at the Annual Meeting of
Stockholders to be held May 28, 1998, and any adjournments of the meeting (the
"Annual Meeting"). It is anticipated that this proxy material will be mailed on
or about April 23, 1998, to stockholders of record on March 31, 1998.

A copy of the annual report of the Company for the year ended December 31,
1997, including consolidated financial statements, is enclosed herewith. THE
COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON SOLICITED HEREBY, UPON THE
WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1997, FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"). SUCH REQUESTS SHOULD BE DIRECTED TO ROBERT W.
POMMERVILLE, SECRETARY OF THE COMPANY, AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICES, 5111 ROGERS AVENUE, SUITE 40-A, FORT SMITH, ARKANSAS 72919-0155, (501)
452-6712.

A stockholder giving a proxy has the power to revoke it at any time before
it is exercised. A proxy may be revoked by filing with the Secretary of the
Company (i) a signed instrument revoking the proxy, or (ii) a duly executed
proxy bearing a later date. A proxy may also be revoked if the person executing
the proxy is present at the meeting and elects to vote in person. If the proxy
is not revoked, it will be voted by those therein named.

The Company, which was incorporated on April 15, 1997, is the successor to
the former Beverly Enterprises, Inc. which was incorporated on February 27,
1987, as the result of a tax-free reorganization completed December 3, 1997. In
connection with that reorganization, the directors and all but one of the
executive officers of the predecessor corporation became directors and executive
officers of the Company, serving in the same capacities. References in this
Proxy Statement to the Company, Board of Directors and executive officers of the
Company with respect to periods prior to December 3, 1997 shall mean, unless
otherwise stated, the predecessor corporation, its Board of Directors and
executive officers.

VOTING PROCEDURES

The close of business on March 31, 1998 has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting. As of the close of business on such date, the Company had
outstanding and entitled to vote 106,168,944 shares of Common Stock, par value
$.10 per share (the "Common Stock"). Each holder of shares of Common Stock is
entitled to one vote per share on each matter to be considered. Stockholders are
not permitted to cumulate votes for the purpose of electing directors or
otherwise.

The presence in person or by proxy of the holders of a majority of the
shares entitled to vote will constitute a quorum for the transaction of business
at the Annual Meeting.

A plurality of the shares voted in person or by proxy at the Annual Meeting
is required for the election of directors. The affirmative vote of the holders
of shares of Common Stock representing a majority of the shares voted at the
Annual Meeting is required for the approval of the Annual Incentive Plan, the
ratification of the
<PAGE> 4

appointment of Ernst & Young LLP as independent auditors for 1998 and the
approval of such other matters (other than the election of directors) as may
properly come before the Annual Meeting.

Under the Company's by-laws and Delaware law: (i) shares at the Annual
Meeting which are represented by proxies that reflect abstentions or broker
non-votes (i.e., shares held by a broker or nominee which are represented at the
meeting, but with respect to which such broker or nominee is not empowered to
vote on a particular proposal) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum; (ii)
there is no cumulative voting and the director nominees receiving the highest
number of votes, up to the number of directors to be elected, are elected and,
accordingly, abstentions, broker non-votes and withholding of authority to vote
will not affect the election of directors; and (iii) proxies that reflect
abstentions as to a particular proposal will be treated as voted for purposes of
determining whether the proposal is approved or rejected and will have the same
effect as a vote against that proposal, while proxies that reflect broker
non-votes will be treated as unvoted for purposes of determining approval of
that proposal and will not be counted as votes for or against that proposal.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information as of March 31, 1998, relating
to the beneficial ownership of Common Stock by each person known by the Company
to own beneficially more than 5% of the outstanding shares of Common Stock,
based solely upon filings made by such persons with the Securities and Exchange
Commission. Percentages in the table were calculated based on the number of
shares of Common Stock outstanding at March 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OF TOTAL
NAME COMMON STOCK COMMON STOCK
---- ------------ ------------
<S> <C> <C>
Franklin Mutual Advisors, Inc. ........................... 8,504,600(1) 8.01%
("Franklin")
777 Mariners Island Blvd.
San Mateo, CA 94404
Mellon Bank Corporation................................... 8,858,292(2) 8.34%
("Mellon")
One Mellon Bank Center
500 Grant St.
Pittsburgh, PA 15258-0001
</TABLE>

- ---------------

(1) Based on the latest schedule 13G, dated January 27, 1998, provided to the
Company by Franklin; Franklin had sole voting and dispositive power with
respect to 8,504,600 shares.

(2) Based on the latest schedule 13G, dated January 26, 1998, provided to the
Company by Mellon; Mellon had sole voting power with respect to 7,410,592
shares, shared voting power with respect to 408,500 shares, sole dispositive
power with respect to 8,295,580 shares and shared dispositive power with
respect to 452,800 shares.

2
<PAGE> 5

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth as of March 31, 1998, the amount of Common
Stock beneficially owned by each of the Company's directors, each executive
officer named in the Summary Compensation Table, and all directors and executive
officers as a group based on information obtained from such persons.

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP

<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F)
SOLE
VOTING OPTIONS PERCENTAGE
AND EXERCISABLE OTHER OF
INVESTMENT WITHIN 60 BENEFICIAL DEFERRED COMMON
POWER DAYS OWNERSHIP COMPENSATION TOTAL (5) STOCK
---------- ----------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Beryl F. Anthony, Jr.......... 0 33,750 0 9,458(4) 43,208 *
David R. Banks................ 133,210(1) 352,500 8,774(2) 4,121(3) 498,605 *
Carolyne K. Davis, R.N.,
Ph.D........................ 0 0 0 1,285(4) 1,285 *
James R. Greene............... 500 33,750 0 15,985(4) 50,235 *
Boyd W. Hendrickson........... 188,967(1) 345,793 1,400(2) 4,925(3) 541,085 *
Edith E. Holiday.............. 800 13,500 200(2) 4,291(4) 18,791 *
Jon E.M. Jacoby............... 0 33,750 0 13,188(4) 46,938 *
Risa J. Lavizzo-Mourey,
M.D......................... 1,997 13,500 0 5,357(4) 20,854 *
William A. Mathies............ 73,220(1) 141,750 2,879(2) 2,880(3) 220,729 *
C. Arnold Renschler........... 65,000 0 0 1,788(3) 66,788 *
Marilyn R. Seymann, Ph.D...... 1,000 13,500 0 6,417(4) 20,917 *
Bobby W. Stephens............. 277,655(1) 162,000 7,986(2) 2,714(3) 450,355 *
Scott M. Tabakin.............. 48,048(1) 156,600 0 2,716(3) 207,364 *
All Directors and Executive
Officers as a Group (19
Persons).................... 1,067,573 2,184,178 21,489 91,688 3,364,928 3.17%
</TABLE>

- ---------------

* Percentage of Common Stock owned does not exceed 1%.

(1) Includes shares allocated to the employee through participation in the
Company's Employee Stock Purchase Plan.

(2) Shares owned by family members.

(3) Shares credited under Executive Deferred Compensation Plan.

(4) Shares credited under Non-Employee Director Deferred Compensation Plan.

(5) While Column (E) includes all shares shown in the first four columns,
Columns (B) and (D) include shares that are not issued and outstanding.

PROPOSAL 1 -- ELECTION OF DIRECTORS

One of the purposes of the Annual Meeting is to elect nine directors to
hold office until the 1999 annual meeting and until successors are elected and
qualified. Nominees for election as directors at the Annual Meeting are Beryl F.
Anthony, Jr., David R. Banks, Carolyne K. Davis, R.N., Ph.D., James R. Greene,
Boyd W. Hendrickson, Edith E. Holiday, Jon E. M. Jacoby, Risa J. Lavizzo-Mourey,
M.D. and Marilyn R. Seymann, Ph.D., all of whom are presently serving as
directors of the Company.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends a vote FOR the nominees named above.
Unless otherwise directed on the proxy card, the proxy holders named therein
will vote FOR the election of the nominees named above. By appropriate
indication on the proxy card, stockholders may instruct the proxy holders to
vote for some but not
3
<PAGE> 6

all of the nominees named above. In the event that any nominee is unable to
serve, an event not now anticipated, the proxies will then be voted FOR any
nominee who shall be designated by the present Board of Directors to fill the
vacancy.

INFORMATION ABOUT NOMINEES FOR DIRECTOR

The following table contains certain information as of March 31, 1998, with
respect to the persons who have been nominated to serve as directors for the
term beginning May 28, 1998.

<TABLE>
<CAPTION>
POSITIONS AND OFFICES DIRECTOR
NAME AGE WITH THE COMPANY SINCE
---- --- --------------------- --------
<S> <C> <C> <C>
Beryl F. Anthony, Jr.(b)(c)(e)......... 60 Director 1993
David R. Banks(c)...................... 61 Chairman of the Board, Chief Executive 1979
Officer and Director
Carolyne K. Davis, R.N., Ph.D.(c)(d)... 66 Director 1997
James R. Greene(a)(b)(d)............... 76 Director 1991
Boyd W. Hendrickson(c)................. 53 President, Chief Operating Officer and 1995
Director
Edith E. Holiday(a)(d)(e).............. 46 Director 1995
Jon E. M. Jacoby(a)(c)................. 60 Director 1987
Risa J. Lavizzo-Mourey, M.D.(b)(d)..... 43 Director 1995
Marilyn R. Seymann, Ph.D.(a)(d)(e)..... 55 Director 1995
</TABLE>

- ---------------

(a) Member of the Audit Committee

(b) Member of the Compensation Committee

(d) Member of the Quality Management Committee

(e) Member of the Nominating Committee

The following is a summary of the business experience of the persons who
have been nominated to serve as directors of the Company.

Beryl F. Anthony, Jr. Mr. Anthony served in Congress and was Chairman of
the Democratic Congressional Campaign Committee from 1987 through 1990. In 1993,
he became a partner in the law firm of Winston & Strawn.

David R. Banks. Mr. Banks served as President from October 1979 to
September 1995 and has served as Chief Executive Officer since May 1989 and
Chairman of the Board since March 1990. Mr. Banks is a director of Nationwide
Health Properties, Inc., Ralston Purina Company, Wellpoint Health Networks, Inc.
and trustee for Occidental College. Mr. Banks also serves as a director of
PharMerica, Inc., a major supplier of institutional pharmacy services to the
Company.

Carolyne K. Davis, R.N., Ph.D. Dr. Davis was a national and international
health care advisor to Ernst & Young, certified public accountants, from 1985 to
1997, and a consultant and advisor to the Company from 1989 to 1997. She retired
from Ernst & Young in May 1997, and is now a part-time scholar in residence at
the Sloan Health Management Program at Cornell University. Dr. Davis served as
Administrator of the Health Care Financing Administration of the U.S. Department
of Health and Human Services from 1981 to 1985. She is a member of the Institute
of Medicine and the National Academy of Science. Dr. Davis is a trustee for the
University of Pennsylvania Medical Center and is a member of the Board of
Directors for Georgetown University. She is a director of Beckman Instruments,
Inc., Merck & Co., Inc., The Prudential Insurance Company of North America,
Pharmaceutical Marketing Services, Inc. and MiniMed, Inc. Dr. Davis was a
director of the Company from 1985 to 1989.

James R. Greene. Mr. Greene's principal occupation has been that of a
director and consultant to various U.S. and international businesses since 1986.
He is a director of Buck Engineering Company and Bank Leumi.

4
<PAGE> 7

Boyd W. Hendrickson. Mr. Hendrickson joined the Company in 1988 as a
Division President. He was elected Vice President-Marketing in May 1989,
Executive Vice President-Operations and Marketing in February 1990 and President
of Beverly Health and Rehabilitation Services ("BHRS") in January 1995. In
September 1995, he was elected President, Chief Operating Officer and Director.
Mr. Hendrickson is a director of PharMerica, Inc.

Edith E. Holiday. Ms. Holiday is an attorney. She served as White House
Liaison for the Cabinet and all federal agencies during the Bush administration.
Prior to that, Ms. Holiday served as General Counsel of the U. S. Treasury
Department, as well as its Assistant Secretary of Treasury for Public Affairs
and Public Liaison. She is a director of Amerada Hess Corporation, Hercules
Incorporated and H.J. Heinz Company and a director or trustee of various
investment companies in the Franklin Templeton Group of Funds.

Jon E. M. Jacoby. Mr. Jacoby is Executive Vice President, Chief Financial
Officer and a director of Stephens Group, Inc., an energy, agricultural and
investment firm. Mr. Jacoby has held the indicated positions with Stephens
Group, Inc. since 1986, and prior to that time, served as Manager of the
Corporate Finance Department and Assistant to the President of Stephens Inc. Mr.
Jacoby is a director of Power-One, Inc. and Delta and Pine Land Company.

Risa J. Lavizzo-Mourey, M.D. Dr. Lavizzo-Mourey is Director of the
Institute of Aging, Chief of the Division of Geriatric Medicine, Associate
Executive Vice President for health policy and Professor of Medicine at the
University of Pennsylvania. From 1992 to 1994, Dr. Lavizzo-Mourey was in the
Senior Executive Service in the Agency for Health Care Policy and Research, U.S.
Public Health Service of the Department of Health and Human Services. Dr.
Lavizzo-Mourey is a director of Managed Care Solutions, Inc. and Kapson Senior
Quarters Corp.

Marilyn R. Seymann, Ph.D. Dr. Seymann is President and Chief Executive
Officer of M One, Inc., a management and information systems consulting firm
specializing in the financial services industry. From 1990 to 1993, Dr. Seymann
was Director and Vice Chairman of the Federal Housing Finance Board. Prior to
that, she served as Managing Director of Andersen Asset Based Services, a unit
of Arthur Andersen LLP. From 1986 to 1990, Dr. Seymann was Executive Vice
President of Chase Bank of Arizona and served as President, Private Banking of
Chase Trust Company from 1987 to 1990. Dr. Seymann also serves as a director of
Claremont Technology Group, Inc.

COMPENSATION OF DIRECTORS AND OTHER INFORMATION
CONCERNING THE BOARD AND ITS COMMITTEES

In 1997, directors, other than Mr. Banks and Mr. Hendrickson, received an
annual retainer fee of $25,000 for serving as a director and an additional fee
of $1,000 for each Board or committee meeting attended. The Chairperson of each
committee received an additional $1,000 for each committee meeting attended and
chaired. Mr. Banks, the current Chairman of the Board and Chief Executive
Officer of the Company, and Mr. Hendrickson, the current President and Chief
Operating Officer of the Company, received no additional cash compensation for
serving on the Board or its committees.

Pursuant to the Beverly Enterprises, Inc. Non-Employee Directors' Stock
Option Plan, each non-employee director is automatically granted an option to
purchase 3,375 shares of Common Stock on June 1 of each year, at an exercise
price of 100 percent of the fair market value of such Common Stock on the
respective grant dates. The options become fully exercisable one year from the
grant date.

Directors who are not employees of the Company participate in the
Non-Employee Director Deferred Compensation Plan which provides these directors
the opportunity to receive awards equivalent to shares of Common Stock
("deferred share units"). There are three types of contributions available under
the plan. First, directors can defer all or part of retainer and meeting fees to
a pre-tax deferred compensation account with two investment options -- a cash
account which is credited with interest or a deferred share unit account, with
each unit having a value equivalent to one share of Common Stock.

5
<PAGE> 8

The second type of contribution is a Company match. The Company matches 25%
of the amount of fees deferred, to the extent the deferral is in the deferred
share unit account. Third, as a replacement for the prior benefit under the
Retirement Plan for Outside Directors, directors receive a grant of 675 deferred
share units each year. Distributions under the plan commence on retirement,
termination, death or disability. Distributions will be made in shares of Common
Stock unless the Board of Directors approves a payment in cash.

During 1997, there were eight meetings of the Board. Each director attended
75% or more in the aggregate of the meetings of the Board and committees on
which the director served.

The Executive Committee, which met five times during 1997, is delegated
authority to exercise all of the authority of the Board during the intervals
between meetings except that authority delegated to other committees or
extraordinary actions.

The Audit Committee, which met three times during 1997, reviews and acts,
or reports to the Board, with respect to various auditing and accounting
matters, including the selection of the Company's independent auditors, the
scope of audit procedures, the nature of services to be performed for the
Company by and the fees to be paid to the independent auditors, oversight of the
Company's internal audit function, the performance of the Company's independent
auditors and the accounting practices of the Company.

The Nominating Committee, which met two times during 1997, is delegated the
following responsibilities: (i) identification and recommendation for nomination
of candidates to stand for election to the Board and (ii) establishment of
procedures for the nomination process and criteria for the selection of
nominees, including stockholders' suggestions of nominees for director that are
submitted in writing in compliance with the Company's by-laws. (See
"Requirements, Including Deadlines, for Submissions of Proxy Proposals,
Nomination of Directors, and Other Business by Stockholders", on page 19.) The
Nominating Committee is also responsible for administering the Board's
self-evaluation. The Company implemented a performance management program in
early 1997 for management. As an extension of this program, the Board of
Directors has chosen to implement a Board evaluation process which will be
formalized in 1998. The Board will evaluate itself on a regular basis and
determine from the outcomes what steps can be taken to continuously improve its
overall effectiveness.

The Quality Management Committee, which met five times during 1997,
monitors the quality of service provided by the Company and reports to the Board
progress made toward reaching quality goals.

The Compensation Committee met four times during 1997. See the Compensation
Committee Report on Executive Compensation below for a discussion of the
Compensation Committee functions.

COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION

The Compensation Committee of the Company's Board of Directors (the
Committee) is currently composed of three independent, non-employee Directors.
Louis W. Menk served as Chairman of the Committee until his retirement as a
Director on May 29, 1997. The Committee's overall responsibility is to ensure
executive compensation policies are directly aligned with the strategic goals of
the Company. The Committee also approves the design of compensation programs,
evaluates their effectiveness, and authorizes the adoption of new plans and
strategies as warranted.

COMPENSATION PHILOSOPHY

Our compensation philosophy and the underlying compensation programs are
designed to directly support the Company's business objectives by:

- Allowing the Company to recruit, retain and develop highly qualified
executive talent

- Linking individual compensation with Company and individual performance

- Maintaining compensation levels that are targeted at the median (50th
percentile) of the Competitive Market discussed below

6
<PAGE> 9

- Emphasizing the variable and at-risk portion of compensation through
incentive plans which reflect and reward both short and long-term
performance

- Promoting executive stock ownership and encouraging stock retention by
executives

The Committee evaluates each element of compensation as well as total
executive compensation. The Chief Executive Officer provides input to the
Committee in this regard. In addition, the Committee receives consulting advice
and assistance from an independent executive compensation firm on an ongoing
basis.

COMPETITIVE MARKET EVALUATION

The Company and Committee evaluate competitive compensation practices and
levels in the marketplace by considering data from the compensation consulting
firm's executive database (the "Competitive Market"). This analysis includes
reference to companies of comparable revenues, employee size and market
capitalization in the healthcare services industry as well as general industry.
This data is used to establish targets for each element of compensation for
Company executives. In establishing competitive levels, the Company uses the
50th percentile as its target level for each element of compensation.

BASE SALARY

The Committee regularly reviews the base salary of corporate officers. In
addition to targeting the median of the Competitive Market, the Committee also
considers the level and scope of responsibility, experience, performance and
internal equity. No specific weighting is assigned to each of these criteria.

The base salary for Mr. Banks, Chairman of the Board and Chief Executive
Officer of the Company, and other corporate officers was reviewed at the
February 19, 1998 meeting of the Committee. The Committee reviewed the
performance criteria it had established on March 27, 1997 to evaluate Mr. Banks'
performance for 1997. Based on the results of Mr. Banks' performance in meeting
these objectives, and the comparison to the Competitive Market, his base salary
was adjusted, effective March 1, 1998, to $742,000, which represents a 6%
increase over the 1997 level and places Mr. Banks at approximately the 50th
percentile level of the Competitive Market.

ANNUAL INCENTIVES

During 1997, the Company maintained an annual incentive plan for corporate
management and its subsidiary management. The annual incentive plan is designed
to provide a direct link between Company performance and individual performance
over the annual performance period (calendar year). The incentive plan for 1997
measured financial performance by evaluating Company earnings per share and
return on assets. The financial criteria are established for each executive
based upon appropriate corporate or subsidiary areas of responsibility. Each
executive also has specific strategic objectives and individual goals. An
earnings per share target performance level must be achieved before any bonuses
are earned, regardless of other performance measures.

Each executive participating in the annual incentive plan, including all of
the executive officers listed in the Summary Compensation Table, have a target
and maximum annual incentive opportunity expressed as a percentage of base
salary. Target opportunities for officers under this plan for 1997 ranged from
25% to 60% of base salary and are targeted at the 50th percentile of the
Competitive Market. The maximum annual incentive opportunity is from 50% to
120%.

In calculating the 1997 annual incentive for the Chief Executive Officer,
the Committee first ascertained that the threshold had been achieved. The
Committee then determined that the Chief Executive Officer exceeded the specific
performance goals established by the Committee. As a result, Mr. Banks received
a bonus of $630,000, which amounted to 90% of base salary.

7
<PAGE> 10

LONG-TERM INCENTIVES

The Committee believes that annual grants of stock options provide a
long-term incentive for key personnel to remain with the Company and further
improve Company performance. In addition, stock option grants confirm the
mutuality of interests shared by the Company's management and its other
stockholders with this compensation dependent upon the appreciation of the
Company's Common Stock. The compensation consulting firm provides the Committee
with data on granting practices of general industry companies to determine if
the Company's grants are competitive in size and terms. Stock options are always
granted at 100% of fair market value on the date of grant. During 1997, a stock
option grant for 121,500 shares was provided to Mr. Banks. Option grants for the
following number of shares were granted in 1997 to the following executive
officers: Mr. Hendrickson -- 87,750; Mr. Mathies -- 54,000; Mr.
Stephens -- 54,000 and Mr. Tabakin -- 54,000. The vesting schedule for these
option grants is shown on page 12.

STOCK OWNERSHIP REQUIREMENT

The Company has a stock ownership requirement for key executives and
officers of the Company. The purpose is to align executive interests with
stockholders' interests and to encourage executives to retain Company shares
over an extended period. Participants are required to own Company securities
with a value based on a multiple of the officer's base salary. Failure to comply
with this requirement may result in reduction in or suspension from
participation in the Company's incentive plans. The Chief Executive Officer is
required to own securities with a market value of three times his base salary.
Other executives and officers are required to own Company securities with a
market value ranging from one to two and a half times base salary.

$1 MILLION LIMIT ON COMPENSATION

Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to executive officers named in the Summary
Compensation Table to $1 million, unless certain requirements are met which
allow for an exemption of certain compensation as performance-based. The Board
of Directors and the Committee desire that all incentive compensation plans for
executive officers be qualified as performance-based, thereby ensuring the
Company will retain full tax deductibility. As such, stockholders previously
approved the annual and long-term incentive plans to be performance-based under
Section 162(m) and stockholders are being asked to approve a new Annual
Incentive Plan to continue the deductibility under 162(m).

COMPENSATION COMMITTEE
Beryl F. Anthony, Jr., Chairman
James R. Greene
Risa J. Lavizzo-Mourey, M.D.
Louis W. Menk

The Compensation Committee Report on Executive Compensation shall not be
deemed incorporated by reference by any general statement incorporating by
reference this proxy statement into any filing under the Securities Act of 1933
or the Securities and Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such acts.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No Committee member had any relationship requiring disclosure under any
paragraph of Item 404 of Regulation S-K.

8
<PAGE> 11

EXECUTIVE COMPENSATION

The following table sets forth information with respect to the Chief
Executive Officer and the other five most highly compensated individuals in the
Company as to whom the total annual salary and bonus for the year ended December
31, 1997, exceeded $100,000. In addition, C. Arnold Renschler, M.D. is included
in the table pursuant to Item 402(a)(3)(iii) of Regulation S-K. All of these
individuals, except Dr. Renschler, were executive officers of the Company at
December 31, 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------
AWARDS PAYOUTS
ANNUAL ----------------------
COMPENSATION OTHER RESTRICTED SECURITIES
------------------ ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(4) ($)(7) (#)(8) ($) ($)(9)
------------------ ------ ------- ------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David R. Banks............. 1997 694,806(3) 630,000 None None 121,500 None 58,494
Chairman of the Board and 1996 597,542 324,973 None 697,500 121,500 None 20,230
Chief Executive Officer 1995 622,096 None None None None None 51,973
Boyd W. Hendrickson........ 1997 497,500(3) 375,000(3) None None 87,750 None 40,871
President and Chief 1996 437,971 245,314 None 581,250 87,750 None 17,973
Operating Officer 1995 392,862 None None 412,500 94,500 None 38,100
William A. Mathies......... 1997 322,500(3) 182,672(3) None None 54,000 None 22,625
Executive Vice President 1996 275,000 185,000 216,198(5) 465,000 54,000 None 8,858
and President-Beverly 1995 203,481 44,334 48,465(5) 206,250 47,250 None 19,526
Health & Rehabilitation
Services, Inc.
C. Arnold Renschler,
M.D...................... 1997 370,604 None None None None None 21,127
Executive Vice President 1996 200,481 187,500 46,995(6) 673,750 285,000 None 1,226
and President-Pharmacy 1995
Corporation of America(1)
Bobby W. Stephens.......... 1997 299,950(3) 180,000(3) None None 54,000 None 33,305
Executive Vice President- 1996 283,725 126,909 None 465,000 None None 21,554
Asset Management 1995 288,410 None None None None None 35,626
Scott M. Tabakin........... 1997 298,750(3) 180,000(3) None None 54,000 None 16,175
Executive Vice President 1996 220,053 119,931 None 571,250 81,000 None 12,561
and Chief Financial 1995 169,365 None None None 16,200 None 15,212
Officer(2)
</TABLE>

- ---------------

(1) Dr. Renschler assumed this position on June 3, 1996. He resigned as an
officer of the Company on December 3, 1997.

(2) Mr. Tabakin was elected to his current position on October 10, 1996. Prior
to that he was a Senior Vice President and Acting Chief Financial Officer.

(3) Six percent of this amount was deferred into the Beverly Enterprises, Inc.
Executive Deferred Compensation Plan.

(4) In accordance with Commission regulations, perquisites and personal benefits
totaling less than 10% of the total of annual salary and bonus for the named
executive officers have not been reported.

(5) Relocation costs and expenses paid to Mr. Mathies in connection with his
relocation from California to Arkansas.

(6) Relocation costs and expenses paid to Dr. Renschler in connection with his
relocation from Pennsylvania to Florida.

9
<PAGE> 12

(7) Amounts shown as Restricted Stock Awards consist of the following (shown in
dollars) (the Company does not currently pay dividends on its Common Stock).

- ---------------

(a) The total $183,750 restricted stock award to Dr. Renschler in 1996
consists of, on June 3, 1996, at which time the closing price of the
Common Stock was $12.25, a grant of 15,000 shares which vest twenty-five
percent per year beginning one year from the date of grant.

(b) The total $106,250 restricted stock award to Mr. Tabakin in 1996 consists
of, on October 10, 1996, at which time the closing price of the Common
Stock was $10.625, a grant of 10,000 shares which vest twenty-five
percent per year beginning one year from the date of grant.

(c) The total of $412,500 restricted stock awards to Mr. Hendrickson and the
total $206,250 restricted stock award to Mr. Mathies in 1995 consists of,
on October 2, 1995, at which time the closing price of the Common Stock
was $13.75, grants of 30,000 and 15,000 shares respectively, which vest
twenty-five percent per year beginning one year from the date of grant.

(d) The total $697,500, $581,250, $465,000, $465,000 and $465,000 Performance
Share awards to Mr. Banks, Mr. Hendrickson, Mr. Mathies, Mr. Stephens and
Mr. Tabakin consist of, on February 9, 1996, at which time the closing
price of the Common Stock was $11.625, a grant of performance-based
restricted stock in the following number of shares: 60,000; 50,000;
40,000; 40,000 and 40,000 respectively. Performance is measured by
appreciation in the price of Common Stock from December 31, 1995. To
satisfy the performance restriction, the Common Stock must close at or
above the performance target for at least five consecutive trading days
on the New York Stock Exchange. Achievement of the performance target for
any performance period is deemed to be achievement of the performance
target for all prior performance periods. The performance target and
percentage of shares that vest, if the performance target is met, are:
10% and $14.00; 20% and $16.125; 20% and $18.50; 25% and $21.375; 25% and
$24.50 for 1996, 1997, 1998, 1999 and 2000, respectively. The total
$490,000 Performance Share award to Dr. Renschler consists of, on June 3,
1996, at which time the closing price of the Common Stock was $12.25, a
grant of 40,000 shares with the same performance targets and vesting
schedule as set forth above. All of the Performance Shares vested as a
result of the reorganization of the Company on December 3, 1997.

(8) Shares reflect anti-dilution adjustments made December 3, 1997 to preserve
the intrinsic value of the options following the reorganization of the
Company in connection with the divestiture of the institutional pharmacy
business.

10
<PAGE> 13

(9) All other compensation consists of the following:

<TABLE>
<CAPTION>
YEAR MR. BANKS MR. HENDRICKSON MR. MATHIES DR. RENSCHLER MR. STEPHENS MR. TABAKIN
---- --------- --------------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Car Allowance(a) 1997 None None None None None None
1996 None None None None None None
1995 2,019 2,019 2,019 2,019 2,019
Matching Contribution 1997 2,340 2,340 2,340 None 2,340 2,340
to Employee Stock 1996 2,340 2,340 2,340 None 2,340 2,340
Purchase Plan(b) 1995 2,340 2,340 2,340 2,340 2,340
Executive Medical 1997 2,586 3,700 3,008 2,409 11,500 1,642
Plan 1996 3,834 6,659 1,347 62 12,066 5,786
1995 6,168 9,660 4,098 11,545 4,030
Premiums Under 1997 19,296 13,008 2,704 8,847 4,960 872
Executive Life 1996 1,350 1,080 177 None 438 872
Insurance Plan(c) 1995 4,753 2,607 420 1,297 314
Regular Life 1997 8,762 2,458 341 2,994 1,396 319
Insurance Plan(d) 1996 5,648 2,187 297 626 1,315 244
1995 3,410 1,483 167 1,113 144
Matching Contribution 1997 12,546 9,214 6,706 None 5,958 3,851
to Executive Savings 1996 3,341 1,990 980 None 1,678 474
Plan(e) 1995 30,541 17,249 7,938 14,570 3,623
Matching Contribution 1997 10,500 7,500 4,875 5,542 4,500 4,500
to Executive Deferred 1996 None None None None None None
Compensation Plan(f) 1995 None None None None None None
Benefit Allowance(g) 1997 2,464 2,651 2,651 1,335 2,651 2,651
1996 3,717 3,717 3,717 538 3,717 3,717
1995 2,742 2,742 2,544 2,742 2,742
Total 1997 58,494 40,871 22,625 21,127 33,305 16,175
1996 20,230 17,973 8,858 1,226 21,554 13,433
1995 51,973 38,100 19,526 35,626 15,212
</TABLE>

- ---------------

(a) Car allowances were discontinued in 1995. Amounts previously paid were
added to base salary.
(b) The Employee Stock Purchase Plan enables all full-time employees which
have completed one year of continuous service to purchase shares of
Common Stock through payroll deductions of up to $300 per pay period. The
Company contributes 30% of the amount of payroll deductions for the
participating employee.
(c) Effective January 1, 1996, the amount shown represents the dollar value
benefit of premium payments under split dollar life insurance policies
for which the Company will be reimbursed for premiums paid. In prior
years, the amounts shown represented premiums on individual term life
insurance policies.
(d) Imputed income for life insurance provided under the Company's regular
life insurance plan for amounts in excess of $50,000.
(e) The Beverly Enterprises, Inc. Executive Savings Plan, (the "Executive
Savings Plan") provides that, depending on the Company's profits, the
Company will match each participant's annual contribution, based on a
sliding scale relating to years of service with the Company, up to a
maximum of six percent of a participant's compensation. The Executive
Savings Plan also provides that the Company will pay each participant
additional compensation approximately equivalent to the tax liability
such participant shall accrue as a result of the Company's contribution.
During 1997, 1996 and 1995, the Company contributed 25 percent, 5 percent
and 50 percent, respectively, of the maximum match permitted under the
Executive Savings Plan for each participant. These figures include both
the employer match and the additional compensation for reimbursement of
taxes.
(f) The Beverly Enterprises, Inc. Executive Deferred Compensation Plan,
effective January 1, 1997, provides that participants may elect, prior to
the beginning of each plan year, to defer up to 25% of base salary and up
to 100% of bonus earned for that year. Deferral amounts up to 6% of base
salary and bonus will be entitled to a 25% Company match. Participant
deferrals and Company match are credited to a participant's account which
is deemed to be invested in Common Stock. This plan is an unfunded plan,
which is an unsecured obligation of the Company. The Company, to avoid
market risk, currently maintains a "rabbi trust" which holds Common Stock
as a source out of which all or any portion of the benefits under the
plan may be satisfied.
(g) Reimbursement for premiums paid under regular medical and dental
insurance.

11
<PAGE> 14

The following table sets forth certain information concerning options to
purchase Common Stock granted to the individuals named in the Summary
Compensation Table.

OPTION/SAR GRANTS IN 1997

<TABLE>
<CAPTION>
GRANT
INDIVIDUAL GRANTS DATE VALUE
-------------------------------------------------- ----------
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS GRANT
OPTIONS/ GRANTED TO EXERCISE DATE
SARS EMPLOYEES OR BASE PRESENT
GRANTED IN FISCAL PRICE EXPIRATION VALUE
NAME (#)(1) YEAR ($/SH) DATE ($)(2)
---- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
David R. Banks....................... 121,500 7.78% 12.8750 12/11/07 937,980
Boyd W. Hendrickson.................. 87,750 5.62% 12.8750 12/11/07 677,430
William A. Mathies................... 54,000 3.46% 12.8750 12/11/07 416,880
Bobby W. Stephens.................... 54,000 3.46% 12.8750 12/11/07 416,880
Scott M. Tabakin..................... 54,000 3.46% 12.8750 12/11/07 416,880
</TABLE>

- ---------------

(1) Nonqualified stock options granted on December 11, 1997. 25% of these
options become fully exercisable one year from the grant date and 25% per
year thereafter on a cumulative basis.

(2) The Black-Scholes option pricing method has been used to calculate present
value as of the date of grant, December 11, 1997. The present value as of
the date of grant, calculated using the Black-Scholes method, is based on
assumptions about future interest rates, stock price volatility and dividend
yield. The Black-Scholes model is a complicated mathematical formula widely
used to value exchange traded options. However, stock options granted by the
Company to its executive officers differ from exchange traded options in two
key respects: options granted by the Company to its executives and others
are long-term and generally subject to vesting restrictions while exchange
traded options are short-term and can be exercised or sold immediately in a
liquid market. The Black-Scholes model relies on several key assumptions to
estimate the present value of options, including the volatility of and
dividend yield on the security underlying the option, the risk-free rate of
return on the grant date and the term of the option. In calculating the
grant date present values set forth in the table, a factor of .3782 has been
assigned to the volatility of the Common Stock, based on daily stock market
quotations for the 36 months preceding the date of grant; the yield on the
Common Stock has been set at 0.00%; the risk-free rate of return has been
fixed at 5.72%, the ten year U.S. Treasury Strip Rate on the date of grant
and the exercise of the options has been assumed to occur at the end of the
actual option term of ten years. There is no assurance that these
assumptions will prove to be true in the future. Consequently, the grant
date present values set forth in the table are only theoretical values and
may not accurately determine present value. The actual value, if any, that
may be realized by each individual will depend on the market price of Common
Stock on the date of exercise.

AGGREGATED OPTION/SAR EXERCISES IN 1997 AND
FISCAL YEAR-END OPTION/SAR VALUES

The following table sets forth certain information concerning the exercise
in 1997 of options to purchase Common Stock by the individuals named in the
Summary Compensation Table and unexercised options to

12
<PAGE> 15

purchase such stock held by such individuals at December 31, 1997. Dr. Renschler
neither exercised any options during 1997 or held any options at December 31,
1997.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISABLE
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS FY-END OPTIONS/SARS FY-END
12/31/97 12/31/97
ACQUIRED ON VALUE (#) ($)(2)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David R. Banks................ 16,274 274,624 352,500 121,500 2,357,162 155,188
Boyd W. Hendrickson........... 55,428 620,485 345,793 87,750 1,510,776 10,969
William A. Mathies............ 44,260 526,813 141,750 54,000 458,500 6,750
Bobby W. Stephens............. 6,315 106,592 162,000 54,000 550,998 6,750
Scott M. Tabakin.............. 1,802 30,409 156,600 54,000 616,302 6,750
</TABLE>

- ---------------

(1) The value realized equals the aggregate amount of the excess of the fair
market value on the date of exercise (the closing price of the Common Stock
on the New York Stock Exchange Composite as reported in the Wall Street
Journal) over the relevant exercise price(s).

(2) The value is calculated based on the aggregate amount of the excess of the
closing price of the Common Stock on the New York Stock Exchange Composite
as reported in the Wall Street Journal for December 31, 1997 over the
relevant exercise prices.

PERFORMANCE GRAPH

The following graph shows a five-year comparison of cumulative total
returns for the Company, the S&P 500 Composite Index and the S & P Health Care
500. The stock price performance shown on the graph below is not necessarily
indicative of future price performance.

<TABLE>
<CAPTION>
S & P
Measurement Period Healthcare
(Fiscal Year Covered) Company S&P 500 Composite
<S> <C> <C> <C>
1992 100 100 100
1993 102 110 92
1994 111 112 104
1995 82 153 164
1996 98 189 197
1997 138 252 284
</TABLE>

- ---------------
Source: Standards & Poor's Compustat

13
<PAGE> 16

The total cumulative return on investment (change during the year in stock
price plus reinvested dividends) for each of the periods for the Company, the
S&P 500 Composite Index and the S & P Health Care 500 Composite Index based on
the stock price or the composite index on December 31, 1992.

The form of the chart above is in accordance with SEC requirements.
Stockholders are cautioned against drawing any conclusions from the data
contained therein, as past results are not necessarily indicative of future
performance. These charts do not reflect the Company's forecast of future
financial performance.

The performance graph and its description above shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or the
Securities and Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.

OTHER PLANS

Deferred Compensation Plan

As of July 18, 1991, the Company amended and restated the Deferred
Compensation Plan: to allow no future grants; to close and pay out accounts with
balances of $10,000 or less; and to fix accounts with balances in excess of
$10,000 using the closing price of the Company's Common Stock on the New York
Stock Exchange on July 18, 1991, of $11.00, which was credited to participants'
Special Ledger Accounts. Messrs. Banks, Hendrickson and Stephens maintain
accounts in the Deferred Compensation Plan which are credited with interest at a
rate of 9% per annum, which was below 120% of the applicable federal long-term
rate when it was set in July, 1991.

Employment Contracts and Termination of Employment and Change in Control
Arrangements

As of August 22, 1997, the Company entered into employment contracts with
certain of its officers (each an "Executive") including Messrs. Banks,
Hendrickson, Mathies, Stephens and Tabakin (each an "Employment Agreement" and
collectively, the "Employment Agreements"). The Employment Agreements have an
initial term of three years, with an automatic extension of one additional day
for each day beyond December 3, 1997 that the Executive remains employed by the
Company until such time as the Company elects to cease such extension by written
notice. The Employment Agreements provide the Executive with: (i) a stated
minimum base salary per annum through December 31, 1997, and thereafter at any
such greater rate as determined by the Committee (the stated minimum base salary
per annum for Messrs. Banks, Hendrickson, Mathies, Stephens and Tabakin is
$700,000, $500,000, $325,000, $300,000 and $300,000 respectively; (ii)
participation in all benefit plans; and (iii) an annual cash bonus pursuant to
the Company's Annual Incentive Plan.

The Employment Agreements provide for specified severance benefits in the
event of a change in control and (i) termination of employment of the Executive
by the Company without cause or by the Executive for good reason (which includes
material reduction in duties or authority, reduction in compensation or benefits
or a relocation of employment from Fort Smith) (a) during a period of two years
following a change in control or (b) at any time following the commencement of
any discussion with a third person that ultimately results in a change of
control; or (ii) termination of employment initiated by the Executive without
good cause during the 31 day period commencing on the first day of the 13th
month following the change in control.

For purposes of the Employment Agreements, a change in control shall be
deemed to have taken place if, after December 3, 1997: (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

14
<PAGE> 17

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 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; provided,
however, that notwithstanding anything to the contrary herein, a change in
control shall not include any transfer to a consolidated subsidiary,
reorganization, spin-off, split-up, distribution, or other similar or related
transaction(s) or any combination of the foregoing in which the core business
and assets of the Company and its subsidiaries (taken as a whole) are
transferred to another entity ("Controlled") with respect to which (1) the
majority of the Board of Directors of the Company (as constituted immediately
prior to such transactions(s)) also serve as directors of Controlled and
immediately after such transaction(s) constitute a majority of Controlled's
board of directors, and (2) more than 70% of the shareholders of the Company
(immediately prior to such transaction(s)) become shareholders or other owners
of Controlled and immediately after the transaction(s) control more than 70% of
the ownership and voting rights of Controlled.

For Messrs. Banks, Hendrickson, Mathies, Stephens and Tabakin, the
severance benefit in the event of a change in control under the Employment
Agreement includes (i) a lump sum cash payment equal to three times the sum of
(a) the Executive's base salary and (b) the Executive's target bonus under the
Company's Annual Incentive Plan, with (a) and (b) to be determined at either the
termination of employment or the change in control so as to produce the greater
payment ("salary plus bonus"); (ii) full vesting in Executive's interest under
all of the Company's long-term incentive plans, as well as all options and
restricted stock; (iii) continuation for a period of three years following
termination of employment, of participation in the Company's Medical Plan,
Executive Medical Reimbursement Plan and Dental Plan; (iv) full vesting and
maintenance in full force for the remainder of the Executive's life, the life
insurance in effect under the Company's Executive Split Dollar Life Insurance
Plan, as of the date of the change in control or the date of termination of
employment, whichever is greater; (v) relocation within the continental United
States, if commenced within three years of termination of employment, in
accordance with the Company's general relocation policy for executives; (vi) a
matching contribution to the Company's Executive Savings Plan and Executive
Deferred Compensation Plan for the plan year in which termination of employment
occurs; and (vii) for three years following termination of employment, long-term
disability insurance benefits equivalent to the benefits the Executive would
have received had employment by the Company continued. The Employment Agreement
with Mr. Banks also provides use of office space for a period of the lesser of
three years from termination of employment or the date he commences full-time
employment.

The Employment Agreements include a provision for a gross-up payment if, in
the opinion of a Big 6 accounting firm or if so alleged by the Internal Revenue
Service, the aggregate severance benefit described above would cause the payment
of any part of such benefit to constitute an "excess parachute payment" as
defined in Section 280G(b) of the Internal Revenue Code. The amount of the
gross-up payment will be equal to that amount necessary to cause the net amount
retained by the Executive, after deduction of any (a) excise tax on the
severance benefit, (b) income tax on the gross-up payment, and (c) excise tax on
the gross-up payment, to be equal to the aggregate remuneration the Executive
would have received, as if Sections 280G and 4999 of the Internal Revenue Code
had not been enacted into law.

In addition to severance benefits in the event of a change in control, the
Employment Agreements provide for severance benefits to the Executive during
their term if there is a termination of employment initiated by (i) the Company
without cause or (ii) by the Executive for good reason. In this event, the
severance benefit for Messrs. Banks, Hendrickson, Mathies, Stephens and Tabakin
includes: (a) a lump sum cash payment equal to two times salary plus bonus; (b)
full vesting under all of the Company's long-term incentive plans, as well as
all options and restricted stock; (c) continuation for a period of two years
following termination of employment, of participation in the Company's Medical
Plan, Executive Medical Reimbursement Plan and

15
<PAGE> 18

Dental Plan; (d) full vesting and maintenance in full force for the remainder of
Executive's life, the life insurance in effect under the Company's Executive
Split Dollar Life Insurance Plan; (e) relocation within the continental United
States, if commenced within three years of termination of employment; (f) a
matching contribution to the Company's Executive Savings Plan and Executive
Deferred Compensation Plan for the plan year in which termination of employment
occurs; and (g) for two years following termination of employment, long-term
disability insurance benefits equivalent to the benefits the Executive would
have received had employment by the Company continued. The Employment Agreement
with Mr. Banks also provides for use of office space for a period of the lesser
of three years from termination of employment or the date he commences full-time
employment.

A trust has been established with The Chase Manhattan Bank to fund certain
benefits payable pursuant to certain employee benefit plans, including the
Employment Agreements, in the event of termination of employment after a change
in control of the Company. Immediately prior to a change in control of the
Company, the Company is required to make a deposit to the trust in an amount
equal to the excess of the maximum amount potentially payable under the plans to
all participants over the current value of the trust assets. The trust is
revocable by the Company until a change in control. The trust assets are subject
to the claims of general creditors of the Company in the event of the Company's
insolvency.

The Board of Directors believes that the Employment Agreements will
encourage the commitment and availability of its key management employees in the
face of potentially disruptive and distracting circumstances that may arise in
the event of an attempted or actual change in control or an unsolicited takeover
of the Company. In any such event, such key management employees will be able to
analyze and evaluate proposals objectively with a view to the best interest of
the Company and its stockholders. The Employment Agreements, however, may have
the incidental effect of discouraging takeovers and protecting employees from
removal, since the agreements increase the cost that would be incurred by an
acquiror seeking to replace current management.

COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934

The Company's executive officers and directors are required to file initial
reports of ownership and reports of change in ownership with the SEC. Executive
officers and directors are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.

Based solely on information provided to the Company by individual officers
and directors, the Company believes that during 1997 its executive officers and
directors have timely complied with all filing requirements applicable to them
except that Carolyne K. Davis, R.N., Ph.D. was late in filing her Form 3 and
Risa J. Lavizzo-Mourey, M.D. was late in reporting one transaction on Form 4.

CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS

Jon E.M. Jacoby, a director, serves as Executive Vice President, Chief
Financial Officer and director of Stephens Group, Inc. For the year ended
December 31, 1997, the Company paid to Stephens Group, Inc. or its affiliates,
approximately $2,771,933, for investment banking services.

Carolyne K. Davis, R.N., Ph.D., a director, served as a consultant to the
Company prior to becoming a director. During the year ended December 31, 1997,
the Company paid Dr. Davis approximately $50,000 for consulting services.

16
<PAGE> 19

PROPOSAL 2 -- APPROVAL OF THE BEVERLY ENTERPRISES, INC.
ANNUAL INCENTIVE PLAN

On April 8, 1998, the Board of Directors of the Company unanimously
approved the adoption of the Beverly Enterprises, Inc. Annual Incentive Plan
(effective as of January 1, 1998) (the "Annual Incentive Plan"), and the Board
of Directors directed that the Plan be submitted for stockholder approval at the
Annual Meeting. The Annual Incentive Plan will become effective upon the
affirmative vote of a majority of the shares of Common Stock voting at the
Annual Meeting. No awards or payments will be made pursuant to the Annual
Incentive Plan if the Plan is not approved by the stockholders of the Company.
Under Section 162(m) of the Internal Revenue Code ("Code"), the Annual Incentive
Plan, in order to qualify for the performance-based compensation exception to
Section 162(m)'s restrictions, must obtain shareholder approval every five
years, or sooner, if the material terms of the Plan are changed.

The Annual Incentive Plan was approved in furtherance of the compensation
philosophy outlined in the Compensation Committee Report on Executive
Compensation (see page 6), which recognizes the importance of developing
executive compensation policies that are directly aligned and consistent with
the strategic goals and objectives of the Company. The major provisions of the
Annual Incentive Plan are described below.

Summary Description of the Plan

The following description of the Annual Incentive Plan is qualified in its
entirety by reference to the Annual Incentive Plan, a copy of which is attached
as Exhibit "A" to this Proxy Statement. All capitalized terms, not otherwise
defined herein, will have the meaning set forth in the Annual Incentive Plan.

Purpose. The Annual Incentive Plan is intended to provide the Participants
with performance-based incentive awards for their contributions to the Company's
success, and to do so through an ongoing program designed to reinforce the
Company's strategic plan and related financial and operating objectives.

Eligibility and Participation in the Plan. All executives and other key
employees of the Company, or of a subsidiary or affiliate of the Company, are
eligible to be selected for participation under the Annual Incentive Plan. The
Compensation Committee of the Board of Directors has the full and final
authority, in its discretion, to determine those executives and other key
employees who will be designated as Participants under the Annual Incentive
Plan. The Compensation Committee will from time to time establish participation
criteria for the selection of Participants under the Annual Incentive Plan. No
person will automatically be entitled to participate under the Annual Incentive
Plan for any Plan Year. Directors who are not employees of the Company, or of
its subsidiaries or affiliates, are not eligible for participation under the
Annual Incentive Plan.

Certain executive officers of the Company who are described in Section
162(m) of the Code, could from time to time become Participants under the Annual
Incentive Plan (collectively, the "Section 162(m) Participants"). To satisfy the
requirements of Code Section 162(m), relating to deductibility of compensation
in excess of $1 million, there are various, generally more restrictive, Plan
provisions which apply to Section 162(m) Participants, and not to other Plan
Participants (the "Non-162(m) Participants"). Section 162(m) Participants must
be designated for Annual Incentive Plan participation by the Compensation
Committee prior to the beginning of each Plan Year, or by such later date as may
be permitted under Code Section 162(m).

Administration. The Annual Incentive Plan will be administered by the
Compensation Committee of the Board of Directors. The Compensation Committee has
full power to administer and interpret the Annual Incentive Plan to carry out
its purposes, as well as to designate Participants, and determine the conditions
under which awards are granted under the Annual Incentive Plan.

The members of the Compensation Committee will be indemnified by the
Company against liabilities and expenses, including attorneys' fees, which they
may reasonably incur in the defense of any action, suit or proceeding to which
they may be a party by reason of any action taken or failure to act under the
Plan.

Annual Award Program. Within 90 days of the beginning of each Plan Year
(which is the calendar year), the Compensation Committee, in its sole
discretion, will establish the standards, goals, targets,

17
<PAGE> 20

performance measures, and evaluation criteria and guidelines (collectively the
"Performance Measures") that will be applicable in making awards under the
Annual Incentive Plan for the Plan Year. Such Performance Measures may include
individual target and maximum incentive opportunities, as well as performance
goals and measurements applicable to individuals, groups of Participants, or
Company-wide performance.

Performance Measures may also include alternate and multiple Performance
Measures, and shall be based on one or more of the following criteria: earnings
per share, stock price, return on equity, revenue growth, cash flow, income,
operating margins, economic value added, return on assets, and/or internal
budget.

All Performance Measures applicable to Section 162(m) Participants must be
established in writing by the Compensation Committee prior to the beginning of
each Plan Year, or by such other later date as may be permitted under Section
162(m) of the Code. Such Performance Measures must also be objective, must
state, in terms of an objective formula or standard, the method for computing
the amount of compensation payable if the Performance Measure is attained, and
must satisfy the third party "objectivity" standards under Section 162(m) of the
Code. Additionally, all Performance Measures applicable to Section 162(m)
Participants must not allow for any discretion to increase an award due to the
satisfaction of a performance goal, although discretion to lower such an award
is permitted, provided that any such reduction does not result in an increase in
the amount payable to another Section 162(m) Participant.

Award Determination; Eligibility for Award. The Compensation Committee will
approve individual awards to Participants each Plan Year. Such determinations
will be in accordance with the Performance Measures established by the
Compensation Committee for the Plan Year. To be eligible to receive an award for
the Plan Year, a Participant must be an employee of the Company, or of a
subsidiary or an affiliate of the Company, on the last day of the Plan Year or;
retired, died, become disabled, or terminated for another reason recognized by
the Compensation Committee. In the case of an eligible Participant's death,
award payments are made to the deceased Participant's beneficiary.

The payment of any award to an eligible Section 162(m) Participant is
contingent upon the Section 162(m) Participant's attainment of any Performance
Measures which are applicable to such Section 162(m) Participant. Prior to the
payment of any award to an eligible Section 162(m) Participant, the Compensation
Committee must certify in writing that the Performance Measures applicable to
such Participant have been satisfied.

Payment of Award. The Compensation Committee will determine the time and
form of payment of all awards under the Plan. Award payments will be made after
the close of a Plan Year, and payments will normally be in a lump sum, although
a different form could be directed by the Compensation Committee. The
Compensation Committee will also designate whether an award payment is to be
made in cash, Common Stock, or any combination thereof. To the extent any award
under the Annual Incentive Plan is paid in Common Stock, such payment will be
considered to be an award under the 1997 Long-Term Incentive Plan, and the terms
and provisions of such plan, including any transfer, vesting, or sale
restrictions, will also apply to such Common Stock award.

Other Benefits. The Compensation Committee may from time to time award a
special benefit to a Non-Section 162(m) Participant, in addition to and separate
from any other award granted in accordance with the Performance Measures for a
Plan Year. The Compensation Committee will designate the time and form of
payment for any such special award.

Plan Funding and Limitation on Benefits. All amounts paid under the Annual
Incentive Plan will be paid from the general assets of the Company and other
participating employers. The aggregate amount of awards payable under the Annual
Incentive Plan will equal the sum of all required award payments. The
Compensation Committee may from time to time establish an incentive award pool
for making awards under the Plan, provided that the sum of the individual
benefit percentages payable under the pool do not exceed 100 percent. The
maximum award that may be paid to any Section 162(m) Participant for a Plan Year
is 150 percent of such Participant's base salary for the Plan Year. In addition,
in no event may any Section 162(m) Participant receive an annual award in excess
of $1.2 Million.

18
<PAGE> 21

Amendment and Termination of the Plan. The Compensation Committee may amend
or modify the Annual Incentive Plan at any time, including amendments deemed
necessary or desirable to correct any defect or supply an omission or reconcile
any inconsistency in the Plan or in any award granted under the Plan. Any
amendment or modification of the Plan will not require stockholder approval,
except to the extent that such approval is required pursuant to the rules under
Section 16 of the Securities and Exchange Act of 1934, the Code, under rules and
regulations of the exchange or system on which the Common Stock is listed or
reported, or pursuant to other applicable laws, rules or regulations. The Board
of Directors may terminate the Annual Incentive Plan at any time, in which event
no further awards or other benefits will accrue under the Plan. No amendment,
termination, or modification of the Plan may in any manner affect awards
theretofore granted without the consent of the Participant.

Estimate of Benefits. The amounts that will be paid pursuant to the Plan
are not currently determinable. The amounts that would have been payable under
the Plan for 1997 are substantially identical to the amounts actually paid out
under the predecessor plan that was in place during 1997.

Federal Income Tax Consequences

Under the present federal income tax regulations, Participants will realize
ordinary income equal to the amount of the award received in the year of
receipt. The Company will receive a deduction for the amount constituting
ordinary income to the Participant, provided that the Plan satisfies the
requirements of Code Section 162(m), which limits the deductibility of
nonperformance-related compensation paid to certain corporate executives. It is
the Company's intention that the Plan be applied and administered in a manner
which maximizes the deductibility of compensation for the Company under Code
Section 162(m).

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors of the Company recommends a vote FOR the proposal to
approve the Beverly Enterprises, Inc. Annual Incentive Plan. Proxies received by
the Board of Directors will be so voted unless stockholders specify a contrary
choice.

PROPOSAL 3 -- RATIFICATION
OF APPOINTMENT OF INDEPENDENT AUDITORS

The Board has selected Ernst & Young LLP as independent auditors for the
Company for the year ended December 31, 1998, subject to the ratification by
stockholders. Ernst & Young LLP audited the Company's consolidated financial
statements for the year ended December 31, 1997, and together with its
predecessor, Arthur Young & Company, has been the Company's auditors since 1965.

Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will be given the opportunity to make a statement if they
desire to do so. It is also expected that they will be available to respond to
appropriate questions from stockholders at the Annual Meeting.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends a vote FOR the proposal to ratify the
appointment of Ernst & Young LLP as independent auditors for 1998. Proxies
received by the Board of Directors will be so voted unless stockholders specify
a contrary choice.

REQUIREMENTS, INCLUDING DEADLINES FOR SUBMISSIONS OF PROXY PROPOSALS,
NOMINATION OF DIRECTORS, AND OTHER BUSINESS BY STOCKHOLDERS

Under the rules of the SEC, the date by which proposals of stockholders
intended to be presented at the 1999 annual meeting must be received by the
Company for inclusion in its proxy statement and form of proxy relating to that
meeting is December 24, 1998.

Under the By-Laws, certain procedures are provided which a stockholder must
follow to nominate persons for election as directors or to introduce an item of
business at the annual meeting. These procedures

19
<PAGE> 22

provide, generally, that stockholders desiring to make nominations for
directors, and/or bring a proper subject of business before the meeting, must do
so by written notice timely received not less than seventy-five (75) days prior
to such meeting by the Secretary of the Company containing the name and address
of the stockholder, and a representation that the stockholder is a holder of
record and intends to appear in person or by proxy at the meeting. If the notice
relates to a nomination for director, it must also set forth the name and
address of any nominee(s), all arrangements or understandings between the
stockholder and each nominee, and any other person(s) naming such person(s)
pursuant to which the nomination(s) are to be made, such other information
regarding each nominee as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the SEC had each nominee been
nominated by the Board, and the consent of each nominee to serve. Notice of an
item of business shall include a brief description of the proposed business, the
reasons for conducting such business at the annual meeting, and any material
interest of the stockholder in such business.

The Chairman of the annual meeting may refuse to allow the transaction of
any business not presented, or to acknowledge the nomination of any person not
made, in compliance with the foregoing procedures.

Stockholders were advised by a press release on February 20, 1998 that the
Annual Meeting would be held on May 28, 1998. It is currently expected that the
1999 annual meeting will be held on or about May 27, 1999, in which event any
advance notice of nominations for directors and items of business (other than
the proposals intended to be included in the proxy statement and form of proxy,
which is noted above, must be received by December 24, 1998) must be given by
stockholders by March 12, 1999. The Company does, however, retain the right to
change this date as it, in its sole discretion, may determine. Notice of any
change will be furnished to stockholders prior to the expiration of the
seventy-five day advance notice period referred to above.

EXPENSES OF SOLICITATION

The total cost of this solicitation will be borne by the Company. In
addition to use of the mails, proxies may be solicited by directors, officers
and regular employees of the Company personally and by telephone or facsimile.
The Company may reimburse persons holding shares in their own names, or in the
names of the nominees, for expenses such persons incur in obtaining instructions
from beneficial owners of such shares. The Company has also engaged Georgeson &
Company Inc. to solicit proxies for a fee not to exceed $8,500, plus $6 per call
to individual stockholders or NOBO's if assigned, plus out-of-pocket expenses.

OTHER MATTERS

The Board of Directors knows of no other business to be presented at the
Annual Meeting, but if other matters do properly come before the Annual Meeting,
it is intended that the persons named in the proxy will vote on said matters in
accordance with their best judgment.

ROBERT W. POMMERVILLE
Secretary

April 23, 1998
Fort Smith, Arkansas

20
<PAGE> 23

EXHIBIT "A"

BEVERLY ENTERPRISES, INC.
ANNUAL INCENTIVE PLAN
(EFFECTIVE AS OF JANUARY 1, 1998)
<PAGE> 24

EXHIBIT "A"

BEVERLY ENTERPRISES, INC.

ANNUAL INCENTIVE PLAN
(EFFECTIVE AS OF JANUARY 1, 1998)

TABLE OF CONTENTS

ARTICLE I. ESTABLISHMENT AND PURPOSE

<TABLE>
<S> <C> <C>
1.1 Establishment of Plan....................................... A-3
1.2 Purpose..................................................... A-3
1.3 Applicability of the Plan................................... A-3
1.4 Effective Date.............................................. A-3

ARTICLE II. DEFINITIONS AND CONSTRUCTION

2.1 Definitions................................................. A-3
2.2 Gender and Number; Headings................................. A-4

ARTICLE III. PARTICIPATION

3.1 Participation............................................... A-4

ARTICLE IV. ANNUAL AIP PROGRAM;
ADMINISTRATION OF PLAN

4.1 Annual AIP Program.......................................... A-4
4.2 Compensation Committee...................................... A-5
4.3 Expenses.................................................... A-6
4.4 Indemnification and Exculpation............................. A-6

ARTICLE V. AIP AWARDS; PAYMENT OF AWARDS

5.1 AIP Awards.................................................. A-6
5.2 Eligibility for AIP Award................................... A-6
5.3 Time and Form of Payment.................................... A-7
5.4 Death of Participant........................................ A-7
5.5 Award Payments in Stock..................................... A-7

ARTICLE VI. FUNDING OF THE PLAN
6.1 Funding..................................................... A-7

ARTICLE VII. MERGER; AMENDMENT;
TERMINATION

7.1 Merger, Consolidation, or Acquisition....................... A-7
7.2 Amendment................................................... A-7
7.3 Termination................................................. A-8

ARTICLE VIII. SPECIAL PROVISIONS
APPLICABLE TO COVERED PARTICIPANTS

8.1 Provisions Applicable to Covered Participants............... A-8

ARTICLE IX. GENERAL PROVISIONS

9.1 Shareholder Approval........................................ A-9
9.2 Nonalienation............................................... A-9
9.3 Beneficiary Designation..................................... A-9
9.4 Effect on Other Benefit Plans............................... A-9
</TABLE>

A-1
<PAGE> 25
<TABLE>
<S> <C> <C>
9.5 Employer-Employee Relationship.............................. A-9
9.6 Incompetence................................................ A-9
9.7 Binding on Employer, Participants and Their Successors...... A-10
9.8 Status Under ERISA.......................................... A-10
9.9 Tax Liability............................................... A-10
9.10 Severability................................................ A-10
9.11 Applicable Law.............................................. A-10
</TABLE>

A-2
<PAGE> 26

BEVERLY ENTERPRISES, INC.

ANNUAL INCENTIVE PLAN
(EFFECTIVE AS OF JANUARY 1, 1998)

ARTICLE I.

ESTABLISHMENT AND PURPOSE

1.1 Establishment of Plan. BEVERLY ENTERPRISES, INC., a Delaware
corporation ("Company") hereby establishes this incentive award plan for
Participants, which plan as amended from time to time shall be known as the
"BEVERLY ENTERPRISES, INC. ANNUAL INCENTIVE PLAN" ("Plan").

1.2 Purpose. The purpose of the Plan is to provide its Participants with
performance-based incentive awards where they have contributed to their
Employer's success, and to do so through an ongoing program designed to
reinforce such Employer's strategic plan and related financial and operating
objectives.

1.3 Applicability of the Plan. The provisions of this Plan shall be
applicable only with respect to those Participants who are designated for
participation in this Plan from and after January 1, 1998, the effective date of
this Plan.

1.4 Effective Date. This Plan shall be effective as of January 1, 1998,
subject to the approval of this Plan by the Company's stockholders, as provided
in this Section 1.4. To become effective, this Plan must be approved by the
affirmative vote of the holders of a majority of shares of the common stock of
the Company present, or represented, and entitled to vote at a meeting of the
Company's stockholders called for such purpose. Absent such approval prior to
January 1, 1999, this Plan shall terminate and cease to be of any further force
or effect and all awards hereunder shall be null and void.

ARTICLE II.

DEFINITIONS AND CONSTRUCTION

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

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

(b) "AIP Award" means the annual incentive plan award approved by the
Compensation Committee for an eligible Participant for a particular Plan
Year, as provided in Section 5.1.

(c) "AIP Award Guidelines" means the standards, targets, performance
measurement and evaluation criteria and guidelines to be used to determine
AIP Awards for a particular Plan Year, as provided in Section 4.1.

(d) "AIP Program" means the program for determining the awarding of
AIP Awards for a particular Plan Year, consisting of the AIP Award
Guidelines for such Plan Year, as provided in Section 4.1.

(e) "Beneficiary" means the person, persons or trust designated by a
Participant as provided in Section 9.3.

(f) "Board" or "Board of Directors" means the Board of Directors of
the Company.

(g) "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.

(h) "Company" means Beverly Enterprises, Inc., or any successor
thereto.

(i) "Compensation Committee" means the Compensation Committee of the
Board of Directors, which Committee is a standing committee of such Board
and meets the definition of a committee composed solely of two or more
outside directors under 162(m) of the Code, and, to the extent

A-3
<PAGE> 27

applicable, nonemployee directors under Rule 16b promulgated under the
Securities Exchange Act of 1934. The general powers, duties and
responsibilities of the Compensation Committee as regards this Plan are
described in Section 4.2.

(j) "Covered Participant" means a Participant who is a "covered
employee" as defined in Section 162(m)(3) of the Code, or who the
Compensation Committee believes will be such a covered employee for a Plan
Year.

(k) "Employee" means an individual who is an employee of the Company
or an Affiliate.

(l) "Employer" means the Company or any Affiliate which is
participating under the Plan with the consent of the Board of Directors.

(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.

(n) "Long-Term Incentive Stock Plan" means the "Beverly Enterprises,
Inc. 1997 Long-Term Incentive Plan", as amended from time to time.

(o) "Participant" means an Employee of an Employer who has been
designated as a Participant under this Plan, as provided in Section 3.1.

(p) "Plan" means the "Beverly Enterprises, Inc. Annual Incentive Plan"
as set forth in this document, and as the same may be amended from time to
time.

(q) "Plan Year" means the 12-month period beginning each January 1 and
ending on December 31 of such year. The first Plan Year shall be the period
beginning January 1, 1998 and ending December 31, 1998.

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.

ARTICLE III.

PARTICIPATION

3.1 Participation. The Employees eligible to participate hereunder include
executives and other key employees of the Company. The Compensation Committee
shall designate the specific Employees of each participating Employer within
such eligible class who are to be the Participants under this Plan. Such
designations may be based on participation criteria established by the
Compensation Committee from time to time. The designation of Participants shall
be made for each Plan Year, and the Participants designated for a particular
Plan Year may be identified by reference to the subject Plan Year (e.g., the
Participants designated for the 1998 Plan Year may be referred to as "1998
Participants"). The Compensation Committee may establish such procedures as it
deems appropriate for notifying each Participant of his status as a Participant
under the Plan.

ARTICLE IV.

ANNUAL AIP PROGRAM; ADMINISTRATION OF PLAN

4.1 Annual AIP Program. For each Plan Year, the Compensation Committee
shall establish the AIP Program for that Plan Year. Subject to Section 8.1, such
AIP Program for the particular Plan Year shall consist of such standards,
targets, performance measurement and evaluation criteria and guidelines as the
Compensation Committee determines to be applicable in awarding AIP Awards for
the relevant Plan Year, all of which shall collectively be known as the "AIP
Award Guidelines" for that Plan Year. Subject to

A-4
<PAGE> 28

Section 8.1, the AIP Program established for a particular Plan Year may include
any of the following elements, as determined in the sole discretion of the
Compensation Committee:

(a) An incentive award pool for purposes of determining the dollar
amount which shall be available for AIP Awards and other benefits under the
Plan for the Plan Year, provided that the sum of the individual benefit
percentages payable under the pool do not exceed 100%;

(b) Financial and strategic performance goals for each participating
Employer;

(c) Performance measurement and weighting criteria and guidelines for
each Employer, including corporate-wide performance, where applicable;

(d) Individual target and maximum incentive opportunities for
Participants or groups of Participants;

(e) Performance measurement and weighting criteria and guidelines for
Participants or groups of Participants;

(f) Guidelines and requirements for the development of Participant
goals and objectives; and

(g) Such other standards, criteria, measurements, requirements and
guidelines as the Compensation Committee may from time to time determine
shall be applicable with respect to the subject Plan Year.

The AIP Program established for each Plan Year, including the AIP Award
Guidelines applicable thereto, may be identified by reference to the subject
Plan Year (e.g., the AIP Program for 1998 may be referred to as the "1998 AIP
Program"). The AIP Program so established for each Plan Year shall be
communicated to such Company and other participating Employer personnel as the
Compensation Committee deems necessary to assist in the maintenance of the AIP
Program for such Plan Year. The AIP Program for each Plan Year (including the
AIP Award Guidelines included therein) shall be maintained with the records of
the Plan for reference purposes. The Compensation Committee may change or modify
the AIP Program established for a particular Plan Year in any respect, and at
any time.

4.2 Compensation Committee. The Plan shall be administered by the
Compensation Committee. The Compensation Committee shall have the full general
power, authority and discretion to administer the Plan and construe, interpret
and apply its provisions. Without limiting the generality thereof, the
Compensation Committee shall have the following powers, duties and authorities
as regards its administration and activities with respect to the Plan:

(a) To establish an AIP Program for each Plan Year, as provided in
Section 4.1;

(b) To approve AIP Awards or other benefit payments for Participants
for each Plan Year, as provided in Section 5.1;

(c) To establish, maintain and interpret such rules, regulations and
requirements as it deems necessary or advisable as regards the
administration and maintenance of the Plan, including the amendment and
modification of such rules, regulations and requirements;

(d) To resolve all questions relating to the eligibility of
Participants;

(e) To resolve all questions relating to a Participant's right to
receive any AIP Award payment or other benefits under the Plan;

(f) To determine the time, manner and form of payment with respect to
any AIP Award payments or other benefits under the Plan;

(g) To engage any administrative, legal, consulting, clerical or other
services it deems appropriate in administering the Plan;

(h) To construe and interpret the Plan, and any administrative rules
relating thereto, as necessary and to carry out the purposes of this Plan;

A-5
<PAGE> 29

(i) To resolve all questions of fact relating to any questions or
determinations relating to the administration of the Plan;

(j) To compile and maintain all records it determines to be necessary,
appropriate and convenient in connection with the administration of the
Plan;

(k) To delegate or appoint such other parties as it determines to be
necessary to carry out a general or specific function as regards the
administration of the Plan; and

(l) To take all such other actions, and to make such determinations,
as are necessary to administer the Plan and carry out its purposes.

All actions taken or determinations made by the Compensation Committee as
regards the Plan shall be final, binding and conclusive upon all parties. The
membership of the Compensation Committee, and the rules relating to its conduct,
voting and actions, shall be governed by the rules establishing the Compensation
Committee as a standing committee of the Board of Directors. Members of the
Compensation Committee shall not participate directly in any action or
determination regarding their own interests under the Plan.

4.3 Expenses. Any expenses relating to the administration of this Plan
shall be borne by the Employers as may be determined by the Compensation
Committee.

4.4 Indemnification and Exculpation. The members of the Compensation
Committee, its agents, and officers, directors, and employees of the Company or
any other Employer shall be indemnified and held harmless by the Company against
and from any and all loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by them in connection with or resulting from any claim,
action, suit, or proceeding to which they may be a party or in which they may be
involved by reason of any action taken or failure to act under this Plan and
against and from any and all amounts paid by them in settlement (with the
Company's written approval) or paid by them in satisfaction of a judgment in any
such action, suit, or proceeding. The foregoing provision shall not be
applicable to any person if the loss, cost, liability, or expense is due to such
person's gross negligence or willful misconduct.

ARTICLE V.

AIP AWARDS; PAYMENT OF AWARDS

5.1 AIP Awards. Each Plan Year, the Compensation Committee shall approve
such individual AIP Awards for the Participants covered under the Plan for the
Plan Year as the Compensation Committee in its sole discretion shall deem
appropriate. Company personnel acting at the direction of the Compensation
Committee shall prepare such preliminary calculations and reports regarding
proposed AIP Award amounts as the Compensation Committee may request. Such
information shall be prepared in accordance with the Compensation Committee's
AIP Award Guidelines for the subject Plan Year, and in accordance with such
other performance measurement standards as the Compensation Committee may direct
from time to time. The Compensation Committee shall provide that each
Participant for a Plan Year be notified of the amount and terms of his AIP Award
for the subject Plan Year. Such notification shall be at such time and in such
manner as determined by the Compensation Committee.

5.2 Eligibility for AIP Award. To be eligible to receive any AIP Award as
may be approved for the Participant for a particular Plan Year, as provided in
Section 5.1, such Participant must satisfy one of the following eligibility
conditions:

(a) He must be employed as an Employee on the last day of the Plan
Year;

(b) He must have retired, died or incurred a disability during the
Plan Year if he is not employed as an Employee on the last day of the Plan
Year; or

(c) He must have terminated employment as an Employee before the last
day of the Plan Year for another reason as recognized by the Compensation
Committee in its sole discretion.

A-6
<PAGE> 30

Unless the Compensation Committee otherwise specifically provides, a Participant
who does not meet one of the foregoing employment eligibility conditions for a
particular Plan Year shall not be eligible to receive payment of an AIP Award
for such Plan Year.

5.3 Time and Form of Payment. All AIP Awards for a particular Plan Year
shall be paid to or with respect to the eligible Participants for such Plan Year
at such time or times as the Compensation Committee may determine, following the
close of the particular Plan Year to which such AIP Awards relate. Normally, all
AIP Award payments shall be in a lump sum; however, the Compensation Committee
may from time to time direct the payment of any AIP Award in a different payment
form. The Compensation Committee shall designate whether an AIP Award is to be
paid in cash, Company stock, other form of property or benefit, or any
combination thereof.

5.4 Death of Participant. In the event a Participant who is eligible to
receive an AIP Award dies before payment thereof is made to him, the payment of
such AIP Award shall be made to his designated Beneficiary.

5.5 Award Payments in Stock. To the extent any AIP Award (or portion
thereof) or other benefit under the Plan is paid in Company stock, as may be
directed under Section 5.3, such payment shall be considered to be an award
under Article IX of the Company's 1997 Long-Term Incentive Plan ("Stock Plan").
Any Participant receiving such award under this Plan and Article IX of such
Stock Plan shall be subject to any applicable sale, transfer, exercise, or
vesting restrictions, and to such other terms and provisions under such Stock
Plan or award agreements issued pursuant thereto, as regards such stock and the
award, exercise and payment thereof. Any such term, condition or provisions in
such Stock Plan or award agreement as regards such stock, or the Participant's
rights thereto, shall control over any provision in this Plan to the contrary.

ARTICLE VI.

FUNDING OF THE PLAN

6.1 Funding. All amounts paid under this Plan shall be paid from the
general assets of the participating Employers. AIP Award payments and other
benefit payments under this Plan shall be reflected on the accounting records of
the Employers, but neither this Plan nor the maintenance of such accounting
records shall be construed to create, or require the creation of, a trust,
custodial account, or escrow account with respect to any Participant. No
Participant shall have any right, title, or interest whatsoever in or to any
investment reserves, accounts, or funds, that the Employers may purchase,
establish, or accumulate to aid in providing the unfunded AIP Award payments or
other benefits described in the Plan. Nothing contained in this Plan, and no
action taken pursuant to its provisions, shall create, or be construed to
create, a trust or fiduciary relationship of any kind between an Employer, the
Compensation Committee and a Participant or any other person. Participants shall
not acquire any interest under the Plan greater than that of an unsecured
general creditor of an Employer.

ARTICLE VII.

MERGER; AMENDMENT; TERMINATION

7.1 Merger, Consolidation, or Acquisition. In the event of a merger,
consolidation, or acquisition where an Employer is not the surviving
organization, unless the successor or acquiring organization shall elect to
continue and carry on the Plan, this Plan shall terminate with respect to such
Employer, and no additional benefits shall accrue for the Participants of such
organization. Unpaid AIP Award payments or other benefits shall continue to be
paid as scheduled unless the successor or acquiring organization elects to
accelerate payment.

7.2 Amendment. The Compensation Committee may amend or modify this Plan at
any time, for any reason, and in any manner. Such actions by the Compensation
Committee shall be binding upon all Employers. Any such amendment or
modification of the Plan shall not require shareholder approval, except to the
extent that such approval is required pursuant to the rules under Section 16 of
the Exchange Act, by any

A-7
<PAGE> 31

national securities exchange or system on which the Company's stock is listed or
reported, or under any other applicable Federal or state law. Notice of any
amendment or modification of the Plan shall be given to Participants and other
interested parties in such manner and at such time as provided by the
Compensation Committee.

7.3 Termination. The Board of Directors may terminate this Plan at any
time, for any reason, and in any manner. In the event of the termination of the
Plan pursuant to this Section 7.3, no further AIP Award payments or other
benefits shall accrue under this Plan, and amounts which are then payable with
respect to a prior Plan Year shall continue to be an obligation of the Employer
and shall be paid as scheduled. No AIP Award payments or other payments shall be
made with respect to the Plan Year in which the Plan is terminated, unless
otherwise provided by the Board of Directors.

ARTICLE VIII.

SPECIAL PROVISIONS
APPLICABLE TO COVERED PARTICIPANTS

8.1 Provisions Applicable to Covered Participants. Notwithstanding any
other provision of this Plan to the contrary, any AIP Awards and other benefits
paid to Covered Participants under this Plan shall be subject to the following
conditions:

(a) All AIP Guidelines or other performance measures, goals,
standards, formulas, or criteria relating to Covered Participants
("Performance Measures") for a Plan Year shall be established by the
Compensation Committee in writing no later than 90 days following the
beginning of the Plan Year, provided that the outcome is substantially
uncertain at the time the Compensation Committee actually establishes the
goal, or by such other later date for such Plan Year as may be permitted
under Section 162(m) of the Code. Performance Measures may include
alternate and multiple Performance Measures, and may be based on one or
more business criteria that apply to an individual, a business unit, or the
Company as a whole. In establishing Performance Measures, the Compensation
Committee shall consider one or more of the following: internal budget,
earnings per share, stock price, return on equity, revenue growth, cash
flow, income, operating margins, economic value added, and/or return on
assets.

(b) The Performance Measures must be objective, must state, in terms
of an objective formula or standard, the method for computing the amount of
compensation payable to the Covered Participant if the Performance Measure
is attained, and must satisfy the third party "objectivity" standards under
Section 162(m) of the Code.

(c) The Performance Measures shall not allow for any discretion by the
Compensation Committee as to an increase in any AIP Award or other benefit,
but discretion to lower an AIP Award or other benefit is permissible, as
long as such reduction does not result in an increase in the amount payable
to another Covered Participant.

(d) The award and payment of any AIP Award or other benefit under this
Plan to a Covered Participant with respect to a Plan Year shall be
contingent upon the attainment of the Performance Measures that are
applicable to such Covered Participant. The Compensation Committee shall
certify in writing prior to the payment of any such AIP Award or other
benefit that such applicable Performance Measures relating to the AIP Award
or other benefit were satisfied. Approved minutes of a meeting of the
Compensation Committee in which the certification is made may be used for
this purpose.

(e) As provided in Sections 1.4 and 9.1, this Plan is subject to
shareholder approval, and all AIP Awards or other benefits to Covered
Participants under this Plan are expressly contingent on and subject to
such shareholder approval.

(f) The maximum AIP Award or other benefit that may be paid to any
Covered Participant under the Plan for any Plan Year is 150 percent of the
Covered Participant's base salary for the Plan Year. If a Covered
Participant's base salary is not fixed at the time the Performance Measures
are established, then the Compensation Committee shall fix the maximum
dollar amount that may be paid to any Covered

A-8
<PAGE> 32

Participant on or before the time it establishes such Performance Measures.
In addition, in no event shall an AIP award or benefit to Participant for
any Plan Year, exceed $1.2 Million.

(g) All AIP Awards or other benefits to Covered Participants under
this Plan shall be further subject to such other conditions, restrictions,
and requirements as the Compensation Committee may determine to be
necessary to carry out the purposes of this Article VIII.

ARTICLE IX.

GENERAL PROVISIONS

9.1 Shareholder Approval. The effectiveness of the Plan and the grant of
AIP awards or other benefits under this Plan are subject to shareholder approval
of the Plan as provided in Section 1.4.

9.2 Nonalienation. No AIP Award or other benefit payable at any time under
the Plan shall be subject in any manner to alienation, sale, transfer,
assignment, pledge, attachment, garnishment, or encumbrance of any kind, and
shall not be subject to or reached by any legal or equitable process (including
execution, garnishment, attachment, pledge, or bankruptcy) in satisfaction of
any debt, liability, or obligation, prior to receipt. Any attempt to alienate,
sell, transfer, assign, pledge, or otherwise encumber any such benefit, whether
presently or thereafter payable, shall be void. Notwithstanding the foregoing
provisions of this Section 9.2, no AIP Award or other benefit amount payable
under the Plan shall be payable until and unless any and all amounts
representing debts or other obligations owed to the Company or other Employer by
the Participant with respect to whom such amount would otherwise be payable
shall have been fully paid.

9.3 Beneficiary Designation. A Participant may designate a Beneficiary who
upon his death is to receive an AIP Award payment that otherwise would have been
paid to him under the Plan. All Beneficiary designations shall be in writing and
on a form approved by the Compensation Committee for such purpose, and any such
designation shall only be effective if and when delivered to the Compensation
Committee or its representative during the lifetime of the Participant. Absent
any specific Beneficiary designation with respect to this Plan, a Participant's
designated Beneficiary for purposes of this Plan shall be the same person or
persons as designated as his beneficiary to receive life insurance proceeds
under the Employer's group term life insurance coverage for such Participant. In
the event there is not a Beneficiary designation on file for the Participant,
such Participant's Beneficiary shall be deemed to be the Participant's surviving
spouse, or if there is no such spouse, the Participant's estate.

9.4 Effect on Other Benefit Plans. AIP Award or other benefit amounts paid
under this Plan shall only be considered as compensation under the employee
benefit plans of the Employers as determined and provided under the provisions
of such plans.

9.5 Employer-Employee Relationship. The establishment of this Plan shall
not be construed as conferring any legal or other rights upon any Employee or
any person for a continuation of employment, nor shall it interfere with the
rights of an Employer to discharge any Employee or otherwise act with relation
to the Employee. An Employer may take any action (including discharge) with
respect to any Employee or other person and may treat such person without regard
to the effect which such action or treatment might have upon such person as a
Participant under this Plan.

9.6 Incompetence. Every person receiving or claiming AIP Award or other
benefit payments under the Plan shall be conclusively presumed to be mentally
competent until the date on which the Compensation Committee receives a written
notice, in a form and manner acceptable to the Compensation Committee, that such
person is incompetent, and that a guardian, conservator, or other person legally
vested with the care of such person's person or estate has been appointed;
provided, however, that if the Compensation Committee shall find that any person
to whom an AIP Award or other benefit payment is payable under the Plan is
unable to care for such person's affairs because of incompetency, any payment
due (unless a prior claim therefor shall have been made by a duly appointed
legal representative) may be paid in a manner as approved by the Compensation
Committee. Any such payment so made shall be a complete discharge of any
liability therefor under the Plan.

A-9
<PAGE> 33

9.7 Binding on Employer, Participants and Their Successors. This Plan
shall be binding upon and inure to the benefit of the Employers, their
successors and assigns and the Participants, their heirs, executors,
administrators and legal representatives. The provisions of this Plan shall be
applicable with respect to each Employer separately, and AIP Award or other
benefit amounts payable hereunder shall be paid by the Employer of the
particular Participant.

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

9.9 Tax Liability. An Employer may withhold from any payment hereunder any
taxes required to be withheld and such sum as the Employer may reasonably
estimate to be necessary to cover any taxes for which the Employer may be liable
and which may be assessed with regard to such payment.

9.10 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.

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

A-10
<PAGE> 34
BEVERLY ENTERPRISES, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints David R. Banks, Boyd W. Hendrickson and
Robert W. Pommerville, each of them, as proxies, each with the power to appoint
his substitute, to represent and to vote as designated below, all the shares of
common stock of Beverly Enterprises, Inc. held of record by the undersigned on
March 31, 1998 at the Annual Meeting of Stockholders to be held on May 28, 1998
and any and all adjournment or postponements thereof.

In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any and all adjournments
or postponements thereof. This Proxy when properly executed will be voted in
the manner directed herein by the undersigned. If no specification is made, the
Proxy will be voted FOR the election of the directors named in the Proxy
Statement; FOR the approval of the Annual Incentive Plan and FOR the
appointment of Ernst & Young LLP as independent auditors for 1998.

(Continued and to be signed and dated on the reverse side.)

<PAGE> 35
/ / Your Board of Directors recommends a vote FOR approval of all proposals.

1. ELECTION OF DIRECTORS: Beryl F. Anthony, Jr., David R. Banks, Carolyne K.
Davis, R.N., Ph.D., James R. Greene, Boyd W. Hendrickson, Edith E. Holiday,
Jon E.M. Jacoby, Risa J. Lavizzo-Mourey, M.D., and Marilyn R. Seymann, Ph.D.

FOR EACH NOMINEE WITHHOLD AUTHORITY
LISTED ABOVE TO VOTE FOR EACH NOMINEE ABOVE

(INSTRUCTION: To withhold authority to vote for any individual nominee or
nominees, write that name or names on the space provided below.)

- --------------------------------------------------------------------------------
If any nominee named above declines or is unable to serve as a director, the
persons named as proxies, and each of them shall have full discretion to vote
for any other person who may be nominated.

APPROVAL DISAPPROVAL ABSTENTION
OF OF WITH RESPECT TO

2. Annual Incentive Plan

APPROVAL DISAPPROVAL ABSTENTION
OF OF WITH RESPECT TO

3. Appointment of Ernst &
Young LLP as Independent
Auditors for 1998.

NOTE: Please sign exactly as name appears on
this Proxy. When shares are held by joint
tenants, both should sign. When signing as
attorney, as executor, administrator, trustee
or guardian, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized person.

Dated: , 1998
----------------------------------

----------------------------------------------

----------------------------------------------
Signature of Stockholder(s)

Please sign, date and return today in the
enclosed envelope. This Proxy will not be
used if you attend the meeting in person and
so request.

Votes must be indicated (X) in Black or Blue
Ink.

Please date, sign and return promptly in the accompanying envelope.
================================================================================