BEVERLY ENTERPRISES INC /DE/, S-3, 1995-11-09

BEVERLY ENTERPRISES INC /DE/
S-3, 1995-11-09
SKILLED NURSING CARE FACILITIES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

BEVERLY ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 95-4100309
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

5111 ROGERS AVENUE, SUITE 40-A
FORT SMITH, ARKANSAS 72919-0155
(501) 452-6712
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

SEE TABLE OF ADDITIONAL CO-REGISTRANTS INCLUDED HEREWITH

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

ROBERT W. POMMERVILLE
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
5111 ROGERS AVENUE, SUITE 40-A
FORT SMITH, ARKANSAS 72919-0155
(501) 452-6712
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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

THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:

<TABLE>
<S> <C>
GARY OLSON, ESQ. MARK C. SMITH, ESQ.
LATHAM & WATKINS SKADDEN, ARPS, SLATE, MEAGHER & FLOM
633 WEST FIFTH STREET, SUITE 4000 919 THIRD AVENUE
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10022
(213) 485-1234 (212) 735-3000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

As soon as practicable after the effective date of this Registration Statement.

------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement from the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
from the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /

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

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED PER UNIT OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior Notes $150,000,000 100% $150,000,000 $51,725
====================================================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee. The
amount of the filing fee, calculated in accordance with Rule 457(o) of the
rules and regulations under the Securities Act.

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

THE REGISTRANT AND THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION
STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT AND THE CO-REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

TABLE OF ADDITIONAL CO-REGISTRANTS

<TABLE>
<CAPTION>
(STATE OR OTHER
(EXACT NAME OF JURISDICTION OF
CO-REGISTRANT AS INCORPORATION OR (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) ORGANIZATION) IDENTIFICATION NO.)
- ------------------------------------------------ --------------------- ---------------------
<S> <C> <C>
A.B.C. Health Equipment Corp.................... New York 13-3043192
AdviNet, Inc.................................... Delaware 71-0758986
AGI-Camelot, Inc................................ Missouri 43-1253376
AGI-McDonald County Health Care, Inc............ Missouri 43-1253385
Alliance Health Services, Inc................... Delaware 22-3226432
Alliance Home Health Care, Inc.................. Connecticut 06-1341698
Amco Medical Service, Inc....................... Texas 75-1288363
American Transitional Care Centers of Texas,
Inc........................................... Texas 76-0298534
American Transitional Care Dallas -- Ft. Worth,
Inc........................................... Texas 76-0322331
American Transitional Health Care, Inc.......... Delaware 76-0292237
American Transitional Hospitals, Inc............ Delaware 76-0232151
American Transitional Hospitals of Indiana,
Inc........................................... Indiana 35-1903972
American Transitional Hospitals of Oklahoma,
Inc........................................... Oklahoma 74-2689039
American Transitional Hospitals of Tennessee,
Inc........................................... Tennessee 62-1562740
American Transitional Hospitals -- Texas Medical
Center, Inc................................... Delaware 71-0779078
ATH -- Clear Lake, Inc.......................... Delaware 71-0776296
ATH Columbus, Inc............................... Delaware 71-0776295
ATH Del Oro, Inc................................ Texas 62-1578954
ATH Heights, Inc................................ Texas 76-0442017
ATH Oklahoma City, Inc.......................... Oklahoma 73-1465199
ATH Tucson, Inc................................. Arizona 71-0765364
Beverly Acquisition Corporation................. Delaware 71-0765364
Beverly Assisted Living, Inc.................... Delaware 71-0777901
Beverly Health and Rehabilitation Services,
Inc. ......................................... California 95-2301514
Beverly Enterprises -- Alabama, Inc............. California 95-3742145
Beverly Enterprises -- Arizona, Inc............. California 95-3750871
Beverly Enterprises -- Arkansas, Inc............ California 95-3751272
Beverly Enterprises -- California, Inc.......... California 95-3750879
Beverly Enterprises -- Colorado, Inc............ California 95-3750882
Beverly Enterprises -- Connecticut, Inc......... California 95-3849642
Beverly Enterprises -- Delaware, Inc............ California 95-3849628
Beverly Enterprises -- Distribution Services,
Inc........................................... California 95-4081567
Beverly Enterprises -- District of Columbia,
Inc........................................... California 95-3750889
Beverly Enterprises -- Florida, Inc............. California 95-3742251
Beverly Enterprises -- Garden Terrace, Inc...... California 95-3849648
Beverly Enterprises -- Georgia, Inc............. California 95-3750880
Beverly Enterprises -- Hawaii, Inc.............. California 95-3750890
Beverly Enterprises -- Idaho, Inc............... California 95-3750886
Beverly Enterprises -- Illinois, Inc............ California 95-3750883
Beverly Enterprises -- Indiana, Inc............. California 95-3744258
Beverly Enterprises -- Iowa, Inc................ California 95-3751271
Beverly Enterprises -- Kansas, Inc.............. California 95-3751269
Beverly Enterprises -- Kentucky, Inc............ California 95-3750894
Beverly Enterprises -- Louisiana, Inc........... California 95-3849633
Beverly Enterprises -- Maine, Inc............... California 95-3849627
Beverly Enterprises -- Maryland, Inc............ California 95-3750892
Beverly Enterprises -- Massachusetts, Inc....... California 95-3750893
</TABLE>
<PAGE> 3

<TABLE>
<CAPTION>
(STATE OR OTHER
(EXACT NAME OF JURISDICTION OF
CO-REGISTRANT AS INCORPORATION OR (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) ORGANIZATION) IDENTIFICATION NO.)
- ------------------------------------------------ --------------------- ---------------------
<S> <C> <C>
Beverly Enterprises -- Michigan, Inc............ California 95-3898661
Beverly Enterprises -- Minnesota, Inc........... California 95-3742698
Beverly Enterprises -- Mississippi, Inc......... California 95-3742144
Beverly Enterprises -- Missouri, Inc............ California 95-3750895
Beverly Enterprises -- Montana, Inc............. California 95-3849636
Beverly Enterprises -- Nebraska, Inc............ California 95-3750873
Beverly Enterprises -- Nevada, Inc.............. California 95-3750896
Beverly Enterprises -- New Hampshire, Inc....... California 95-3849630
Beverly Enterprises -- New Jersey, Inc.......... California 95-3750884
Beverly Enterprises -- New Mexico, Inc.......... California 95-3750869
Beverly Enterprises -- North Carolina, Inc...... California 95-3742257
Beverly Enterprises -- North Dakota, Inc........ California 95-3751270
Beverly Enterprises -- Ohio, Inc................ California 95-3750867
Beverly Enterprises -- Oklahoma, Inc............ California 95-3849624
Beverly Enterprises -- Oregon, Inc.............. California 95-3750881
Beverly Enterprises -- Pennsylvania, Inc........ California 95-3750870
Beverly Enterprises -- Rhode Island, Inc........ California 95-3849621
Beverly Enterprises -- South Carolina, Inc...... California 95-3750866
Beverly Enterprises -- Tennessee, Inc........... California 95-3742261
Beverly Enterprises -- Texas, Inc............... California 95-3744256
Beverly Enterprises -- Utah, Inc................ California 95-3751089
Beverly Enterprises -- Vermont, Inc............. California 95-3750885
Beverly Enterprises -- Virginia, Inc............ California 95-3742694
Beverly Enterprises -- Washington, Inc.......... California 95-3750868
Beverly Enterprises -- West Virginia, Inc....... California 95-3750888
Beverly Enterprises -- Wisconsin, Inc........... California 95-3742696
Beverly Enterprises -- Wyoming, Inc............. California 95-3849638
Beverly Enterprises Japan Limited............... California 95-3982125
Beverly Enterprises Medical Equipment
Corporation................................... California 95-3849617
Beverly Enterprises Rehabilitation
Corporation................................... California 95-3849619
Beverly Holdings I, Inc......................... Delaware 71-0768985
Beverly Manor Inc. of Hawaii.................... California 99-0144750
Beverly Real Estate Holdings, Inc............... Delaware 71-0768984
Beverly REMIC Depositor, Inc.................... California 95-4183372
Beverly Savana Cay Manor, Inc................... California 95-4217381
Brownstone Pharmacy, Inc........................ Connecticut 06-0760884
Columbia-Valley Nursing Home, Inc............... Ohio 34-1262298
Commercial Management, Inc...................... Iowa 42-0891358
Computran Systems, Inc.......................... Oregon 93-0675109
Continental Care Centers of Council Bluffs,
Inc........................................... Iowa 41-1413442
DD Wholesale, Inc............................... Massachusetts 04-3133621
Dunnington Drug, Inc............................ Delaware 22-3122469
Dunnington Rx Services of Rhode Island, Inc..... Rhode Island 05-0460848
Dunnington Rx Services of Massachusetts, Inc.... Massachusetts 04-3128047
Forest City Building Ltd........................ Missouri 43-1102460
Hallmark Convalescent Homes, Inc................ Michigan 41-1413478
Healthcare Prescription Services, Inc........... Indiana 35-1868731
Home Medical Systems, Inc....................... Delaware 23-2271050
Hospice Preferred Choice, Inc................... Delaware 71-0761314
Hospital Facilities Corporation................. California 95-2499218
</TABLE>
<PAGE> 4

***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************

SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1995
PROSPECTUS
, 1995

[LOGO] $150,000,000

BEVERLY ENTERPRISES, INC.

% SENIOR NOTES DUE 2005

The Senior Notes (the "Senior Notes") are being offered (the "Offering") by
Beverly Enterprises, Inc. ("Beverly"). Interest on the Senior Notes will be
payable semi-annually on and of each year, commencing
, 1996. The Senior Notes will not be redeemable by Beverly until
, 2000. In addition, upon the occurrence of a Change of Control
Triggering Event (as defined herein), each holder of Senior Notes may require
Beverly to repurchase such Senior Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest to the date of repurchase.

The Senior Notes will be general unsecured obligations of Beverly ranking
senior to all subordinated indebtedness of Beverly and will rank pari passu in
right of payment to all other indebtedness of Beverly. The Senior Notes will be
fully and unconditionally guaranteed on a senior unsecured and joint and several
basis (the "Guarantees") by substantially all of Beverly's present and future
subsidiaries (collectively, the "Guarantors"). The Guarantees will rank senior
to all subordinated indebtedness of the Guarantors and will rank pari passu in
right of payment to all other indebtedness of the Guarantors. As of June 30,
1995, on a pro forma basis after giving effect to the issuance and sale of the
Senior Notes and the use of estimated net proceeds therefrom and certain other
transactions described herein, the aggregate outstanding principal amount of
senior indebtedness of Beverly and its subsidiaries would have been
approximately $969,000,000, of which approximately $ would have been
secured indebtedness. Application has been made to list the Senior Notes on the
New York Stock Exchange.

SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES
OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Note................... % % %
- ------------------------------------------------------------------------------------------------------------------------------------
Total............................. $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Plus accrued interest, if any, from the date of issuance.

(2) Beverly and the Guarantors have agreed to indemnify the Underwriters (as
defined herein) against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(3) Before deducting expenses payable by Beverly, estimated at $650,000.

The Senior Notes are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
certain prior conditions, including the right of the Underwriter to reject any
order in whole or part. It is expected that delivery of the Senior Notes will be
made in New York, New York on or about , 1995.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

MERRILL LYNCH & CO.

STEPHENS INC.

J.P. MORGAN SECURITIES INC.

CHEMICAL SECURITIES INC.
<PAGE> 6

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR THE
OVER-THE-COUNTER MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
---------------------

AVAILABLE INFORMATION

Beverly and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), for registration of
the Senior Notes offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding Beverly, the Guarantors and the Senior Notes, reference is hereby made
to the Registration Statement and such exhibits and schedules which may be
obtained from the Commission at its principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission.

Beverly is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, the exhibits and schedules forming a
part thereof and the reports, proxy statements and other information filed by
Beverly with the Commission in accordance with the Exchange Act can be inspected
and copied at the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
Beverly's Common Stock is listed on the New York and Pacific Stock Exchanges and
similar information concerning Beverly can be inspected and copied at the
offices of the New York and Pacific Stock Exchanges.

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

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The documents listed below have been filed by Beverly with the Commission
and are incorporated herein by reference:

1. Annual Report on Form 10-K for the fiscal year ended December 31,
1994, as amended May 19, 1995 on Form 10-K/A (the "1994 Beverly
10-K");

2. Quarterly Reports on Form 10-Q for the quarters ended March 31,
1995 and June 30, 1995;

3. The portions of the Proxy Statement for the Annual Meeting of
Stockholders held May 18, 1995 that have been incorporated by
reference in the 1994 Beverly 10-K;

4. Current Report on Form 8-K dated June 27, 1995;

5. Current Report on Form 8-K dated May 30, 1995;

6. Current Report on Form 8-K dated April 6, 1995; and

7. Current Report on Form 8-K dated December 14, 1994, as amended
February 10, 1995, on Form 8-K/A.

All documents filed by Beverly pursuant to Section 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
in this Prospectus and to be part hereof from the date of filing such documents.

Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request. Copies of this
Prospectus, as amended or supplemented from time to time, and any other
documents (or parts of documents) that constitute part of this Prospectus under
Section 10(a) of the Securities Act will also be provided without charge to each
such person, upon written or oral request. Requests should be directed to
Beverly Enterprises, Inc., Attention: Robert W. Pommerville, Esq., 5111 Rogers
Avenue, Suite 40-A, Fort Smith, Arkansas 72919-0155, telephone (501) 452-6712.

2
<PAGE> 7

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus or incorporated by reference. Unless the context otherwise requires,
the term "Company" refers to Beverly Enterprises, Inc., its subsidiaries and
their respective operations and the term "Beverly" refers to Beverly
Enterprises, Inc.

THE COMPANY

The Company is the largest operator of nursing facilities in the United
States, providing care to more of the nation's elderly than any other long-term
care company in the United States. At September 30, 1995, the Company operated
706 nursing facilities with 75,890 licensed beds. The facilities are located in
33 states and the District of Columbia, and range in capacity from 20 to 388
beds. At September 30, 1995, the Company also operated 54 institutional
pharmacies and pharmacy-related outlets, 34 assisted living centers (containing
1,401 units), 10 transitional hospitals (containing 443 beds), six hospices and
four home health care entities. The Company's facilities had average occupancy
of 88.2% for the nine months ended September 30, 1995 and 88.5%, 88.5% and 88.4%
during the years ended December 31, 1994, 1993 and 1992, respectively. See
"Business."

In order to serve the growing and increasingly diverse needs of the health
care patient population, the Company has broadened its range of services to
include: (i) skilled nursing and basic patient care services; (ii)
rehabilitation services including physical, occupational, speech and respiratory
therapy; (iii) institutional and mail order pharmacy services including the
delivery of drugs and related products, infusion therapy services and enteral
and urological products; (iv) subacute care services; (v) transitional care
services; (vi) assisted living services; (vii) hospice and home health care
services; and (viii) case management and other cost containment services with
respect to workers' compensation payors, claimants and their employers.

To serve its markets most effectively, the Company has developed the
following services:

Long-Term and Subacute Care. The Company's facilities provide residents
with routine long-term care services, including daily dietary, social and
recreational services and a full range of pharmacy services and medical
supplies. The Company's highly skilled staff also offers complex and intensive
medical services to patients with higher acuity disorders (i.e., "subacute
care") outside the traditional acute care hospital setting.

Pharmacy Services. Pharmacy Corporation of America ("PCA"), a wholly-owned
subsidiary of Beverly, is the nation's largest institutional pharmacy delivering
drugs and related products and services, infusion therapy and other health care
products (enteral and urological) to nursing facilities, acute care hospitals,
home care providers, psychiatric facilities, correctional facilities, assisted
living centers, retirement homes and their patients.

Other Services. The Company offers other health care related services to
payors and patients, including workers' compensation case management, assisted
living and home health care services, and information and referral systems that
link payors and employees to long-term care providers.

3
<PAGE> 8

Expand Internal Capabilities. The Company believes that expanding its
internal capabilities will enable it to control the quality of care and cost of
its services and will allow the Company a high degree of flexibility in adapting
its service programs to meet the changing needs of its markets. The Company
intends to: (i) develop and own certain ancillary service providers or enter
into strategic alliances for such services; (ii) pursue strategic acquisitions;
and (iii) strive to capture increasing market share through value added and
proprietary service offerings.

Actively Manage Portfolio of Properties. Management continually evaluates
the prospects and opportunities for each of the Company's businesses in the
various markets which it serves.

Pursue Growth and Diversification Through Strategic Acquisitions. Through
strategic acquisitions, the Company intends to own more of the components of its
specialty services delivery system, enabling the Company to maximize its cost
effectiveness and quality of care and to be more responsive to the changing
needs of its customers.

The Company's principal executive offices are located at 5111 Rogers
Avenue, Suite 40-A, Fort Smith, Arkansas 72919-0155, and its telephone number is
(501) 452-6712. Beverly is a Delaware corporation.

RECENT DEVELOPMENTS

THIRD QUARTER OPERATING RESULTS

On October 19, 1995, the Company announced its operating results for the
third quarter of 1995, a summary of which is presented below (dollars in
thousands).

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------------
1994 1995 1994 1995
<S> <C> <C> <C> <C>
Net operating revenues....................... $763,327 $834,905 $2,204,527 $2,420,899
Interest expense, net........................ 12,743 18,093 36,588 53,605
Income before provision for income taxes..... 35,069 39,965 86,034 89,731
Net income................................... 23,496 24,778 57,643 55,633
EBITDA....................................... 70,552 84,049 187,658 221,318
</TABLE>

Net operating revenues increased 9.4% and 9.8% for the three and nine
months ended September 30, 1995, respectively, as compared to comparable periods
of the prior year, primarily due to growth in ancillary services and pharmacy
revenues associated with recent acquisitions. Income before provision for income
taxes increased 14.0% and 4.3% for the three and nine months ended September 30,
1995, respectively. Control over operating expenses and improvements in patient
mix in the core nursing and rehabilitation business helped to increase the
Company's EBITDA margin to 10.1% in the third quarter of 1995 compared to 9.2%
for the same period in 1994. The strong performance of the Company's core
nursing and rehabilitation operations was somewhat offset by that of PCA, which
experienced after-tax operating shortfalls, as compared to budget, for the three
and nine months ended September 30, 1995.

ISSUANCE OF SUBORDINATED DEBENTURES IN EXCHANGE FOR PREFERRED STOCK

Effective November 1, 1995, Beverly exercised its option to exchange (the
"Exchange") all of the outstanding shares of its $2.75 Cumulative Convertible
Exchangeable Preferred Stock (liquidation preference $50 per share) (the
"Preferred Stock") for its 5 1/2% Convertible Subordinated Debentures due August
1, 2018 (the "Subordinated Debentures"). Beverly issued $50 principal amount of
Subordinated Debentures in exchange for each share of Preferred Stock. All
holders of Preferred Stock were required to participate in the Exchange. The
Subordinated Debentures contain conversion and optional redemption provisions
substantially identical to those of the Preferred Stock.

4
<PAGE> 9

PROPOSED SPIN-OFF OF PHARMACY CORPORATION OF AMERICA

In April 1995, Beverly announced that its Board of Directors had
preliminarily approved a plan to spin-off approximately 80% of PCA's common
stock to Beverly's stockholders. In addition, the Company announced that it was
also contemplating a public offering of up to 19.9% of PCA's common stock.
Beverly subsequently disclosed that certain operational difficulties at PCA were
adversely affecting PCA's operating results and that it had made changes in
PCA's management and certain of its operating and pricing policies to address
these difficulties. Beverly is evaluating the PCA spin-off in light of these
developments and is considering other strategic alternatives for PCA. The PCA
spin-off is permitted by the terms of the Indenture, subject to certain
limitations and conditions. See "Description of Senior Notes -- Repurchase at
the Option of Holders -- Asset Sales." The Board of Directors has made no
commitment to a formal plan to dispose of the stock of PCA. There can be no
assurance that the PCA spin-off or any other strategic transaction will occur.
For the year ended December 31, 1994 and the three and nine month periods ended
September 30, 1995, PCA's revenues were approximately $247,400,000, $122,100,000
and $333,200,000, respectively, and its EBITDA was approximately $36,300,000,
$10,900,000 and $35,800,000, respectively. At September 30, 1995, PCA's total
assets and liabilities were approximately $442,200,000 and $293,400,000,
respectively. The foregoing PCA financial data is unaudited and does not reflect
certain intercompany allocations, eliminations and adjustments. See "-- Third
Quarter Operating Results" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RECENT HEALTH CARE BILLS APPROVED BY CONGRESS

Health care system reform and concerns over rising Medicare and Medicaid
costs continue to be high priorities for the federal and certain state
governments. Although no comprehensive health care, Medicare or Medicaid reform
legislation has yet been implemented, pressures to contain costs and the active
discussion and issues raised by the Clinton Administration, Congress and various
other groups have impacted the health care delivery system. In October 1995,
both the U.S. House of Representatives and the U.S. Senate approved bills that
would reshape the Medicare and Medicaid programs. These complex bills as
currently passed propose significant reductions in the overall rate of Medicare
and Medicaid spending growth. There is active discussion concerning these
proposals and the form of any final legislation signed into law could differ
significantly from current proposals. The impact of currently proposed
legislation on the Company is not readily determinable. However, in their
currently proposed form, such legislation and proposals could have a material
adverse effect on the Company's future financial position, results of operations
and cash flows.

5
<PAGE> 10

THE OFFERING

ISSUER..................Beverly Enterprises, Inc. ("Beverly")

SECURITIES OFFERED......$150,000,000 principal amount of % Senior Notes due
2005 (the "Senior Notes").

MATURITY DATE........... , 2005.

INTEREST PAYMENT
DATES................... and , commencing , 1996.

GUARANTEES..............The Senior Notes will be fully and unconditionally
guaranteed on a senior unsecured and joint and several
basis (the "Guarantees") by substantially all of
Beverly's present and future subsidiaries (collectively,
the "Guarantors").

MANDATORY REDEMPTION....None.

OPTIONAL REDEMPTION.....The Senior Notes may not be redeemed prior to
, 2000. At any time on or after
, 2000, the Senior Notes may be redeemed
at the option of Beverly, in whole or in part, at the
redemption prices set forth herein, plus accrued
interest to the date of redemption, in the manner set
forth in "Description of Senior Notes -- Optional
Redemption."

CHANGE OF CONTROL.......Upon a Change of Control Triggering Event, each holder
of Senior Notes will have the right to require Beverly
to repurchase such holder's Senior Notes at 101% of the
principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. The terms of
substantially all of the Company's Debt Instruments (as
defined) require that the Company repay or refinance
indebtedness under such Debt Instruments in the event of
a change of control, as defined in such Debt
Instruments. Such change of control provisions may be
triggered under such Debt Instruments prior to the
occurrence of a Change of Control Triggering Event,
thereby requiring that the indebtedness under such Debt
Instruments be repaid or refinanced prior to Beverly
repurchasing any Senior Notes upon the occurrence of a
Change of Control Triggering Event. There can be no
assurance that Beverly will have the financial resources
to repurchase the Senior Notes in the event of a Change
of Control Triggering Event. See "Description of Certain
Indebtedness" and "Description of Senior
Notes -- Repurchase at the Option of Holders -- Change
of Control."

RANKING.................The Senior Notes will be general unsecured obligations
of Beverly ranking senior to all subordinated
indebtedness of Beverly and will rank pari passu in
right of payment with all other indebtedness of Beverly.
The Guarantees will rank senior to all subordinated
indebtedness of the Guarantors and will rank pari passu
in right of payment to all other indebtedness of the
Guarantors. As of June 30, 1995, on a pro forma basis
after giving effect to the issuance and sale of the
Senior Notes and the use of the estimated net proceeds
therefrom and certain other transactions described
herein, the aggregate outstanding principal amount of
senior indebtedness of Beverly and its subsidiaries
would have been approximately $969,000,000 of which
approximately $ would have been secured
indebtedness. See "Capitalization" and "Description of
Certain Indebtedness."

CERTAIN COVENANTS.......The Indenture governing the Senior Notes (the
"Indenture") will contain certain covenants, including,
but not limited to, covenants limiting: (i) the
incurrence by Beverly and its subsidiaries of additional
indebtedness; (ii) the payment of dividends on and the
redemption of capital stock by Beverly; (iii) the
creation of liens securing indebtedness; (iv)
restrictions on the ability of subsidiaries to pay
dividends; (v) transactions with affiliates; (vi) the
sale of assets; and (vii) Beverly's ability to
consolidate or merge with or into, or to transfer all or
substantially all of its assets to, another person. See
"Description of Senior Notes -- Certain Covenants."

USE OF PROCEEDS.........The net proceeds to Beverly from the sale of the Senior
Notes are estimated to be approximately $145,600,000
(after deducting estimated expenses and underwriting
discounts and commissions). Beverly intends to use such
net proceeds to prepay certain secured indebtedness of
Beverly and its subsidiaries and for general corporate
purposes. See "Use of Proceeds."

6
<PAGE> 11

SUMMARY FINANCIAL INFORMATION

The following summary consolidated statement of operations data and summary
consolidated balance sheet data for the periods ended and as of December 31,
1990, 1991, 1992, 1993 and 1994 are derived from consolidated financial
statements of the Company, as adjusted to give effect to a merger in September
1994 between the Company and American Transitional Hospitals, Inc. ("ATH"). The
merger was accounted for as a pooling of interests, and therefore, the Company's
consolidated financial statements have been restated to reflect ATH's financial
position, results of operations and cash flows for each period prior to the
merger. The consolidated statement of operations data for the six months ended
June 30, 1994 and 1995 and the consolidated balance sheet data as of June 30,
1995 are derived from Beverly's unaudited condensed consolidated financial
statements. All dollar amounts are presented in thousands.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net operating revenues............... $2,117,868 $2,308,307 $2,607,756 $2,884,451 $2,969,239 $1,441,200 $1,585,994
Operating income(1).................. 82,958 100,863 62,589 138,567 165,009 74,810 85,278
Depreciation and amortization........ 63,566 78,057 80,226 82,938 88,734 42,296 51,991
Interest expense, net................ 62,536 59,195 56,441 50,927 50,214 23,845 35,512
Income (loss) from continuing
operations:
Before income taxes, extraordinary
charge and cumulative effect of
accounting change................ 20,422 41,668 6,148 87,640 114,795 50,965 49,766
Before extraordinary charge and
cumulative effect of accounting
change........................... 13,143 29,238 1,945 57,956 76,913 34,147 30,855
Before cumulative effect of
accounting change................ 13,143 29,238 (6,890) 55,611 74,501 34,147 30,855
Net income (loss).................... 13,143 29,238 (12,344) 55,611 74,501 34,147 30,855
Net income (loss) applicable to
common shares...................... 12,143 29,238 (13,344) 31,173 66,251 30,022 26,730
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------------
AS
ACTUAL ADJUSTED(2)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............ $ 48,470 $ 52,123
Working capital...................... 239,894 271,047
Total assets......................... 2,573,172 2,581,225
Current portion of long-term
obligations........................ 57,090 29,590
Long-term obligations, excluding
current portion.................... 962,768 1,148,321
Stockholders' equity................. 1,006,472 856,472
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Patient days (in thousands).......... 30,139 29,334 29,341 29,041 26,766 13,403 12,757
Average occupancy percentage......... 87.3% 88.1% 88.4% 88.5% 88.5% 88.3% 88.4%
Number of nursing home beds.......... 91,414 90,228 89,298 85,001 78,058 81,259 76,440

OTHER FINANCIAL DATA:
Adjusted EBITDA(3)................... $146,524 $178,920 $199,815 $221,505 $253,743 $117,106 $137,269
Capital additions and improvements... 41,979 60,760 77,808 95,542 108,653 52,522 60,147
Rent expense......................... 143,163 141,155 140,168 135,262 127,187 63,413 63,400
Ratio of Adjusted EBITDA to interest
expense, net(3).................... 2.3x 3.0x 3.5x 4.3x 5.1x 4.9x 3.9x
Ratio of earnings to fixed
charges(4)......................... 1.1x 1.3x 1.0x 1.6x 1.9x 1.8x 1.7x
</TABLE>

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

(1) Represents earnings before net interest expense, income taxes, extraordinary
items and cumulative effect of an accounting change.
(2) As adjusted to reflect the Exchange and the Offering.
(3) Adjusted EBITDA represents earnings before net interest expense, income
taxes, depreciation and amortization, extraordinary items and cumulative
effect of an accounting change, as adjusted to exclude a $57,000
restructuring charge in 1992. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Operating Results -- 1993
Compared to 1992." Adjusted EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring a
company's ability to service its debt. Adjusted EBITDA does not represent
cash flow from operations, as defined by generally accepted accounting
principles, and should not be considered as a substitute for net earnings as
an indicator of the Company's operating performance or cash flow as a
measure of liquidity. The Company also believes that the ratio of Adjusted
EBITDA to net interest expense is an accepted measure of debt service
ability; however, such ratio should not be considered a substitute for the
ratio of earnings to fixed charges as a measure of debt service ability.
(4) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes and
extraordinary items plus fixed charges. Fixed charges include interest,
expensed or capitalized, amortization of debt discounts and issuance costs
and the estimated interest component of rent expense.

7
<PAGE> 12

RISK FACTORS

Prospective investors should consider carefully, in addition to the other
information contained or incorporated by reference in this Prospectus, the
following factors before purchasing the Senior Notes offered hereby.

SUBSTANTIAL INDEBTEDNESS

The Company has substantial indebtedness. As of September 30, 1995, the
Company had total indebtedness of approximately $897,100,000, constituting 47%
of its total capitalization, and stockholders' equity of approximately
$1,031,000,000. As of September 30, 1995, after giving effect to the Exchange,
the Offering and the application of the estimated net proceeds therefrom, such
consolidated indebtedness would have accounted for 55% of the Company's total
capitalization, and the Company would have had stockholders' equity of
approximately $881,000,000. In addition to such indebtedness, the Company has
substantial obligations under operating leases. For the nine months ended
September 30, 1995, the Company's rent expense was approximately $94,900,000.
The ability of the Company to satisfy its debt and operating lease obligations
will be dependent upon its future performance, which will be subject to
prevailing economic conditions and to financial, business and other factors,
including factors beyond the Company's control such as federal and state health
care reform. The Company's level of debt, and the covenants contained in the
debt instruments governing such obligations (the "Debt Instruments"), might
impair the Company's ability to take certain actions (including the incurrence
of additional debt and the disposition of assets).

POTENTIAL ADVERSE EFFECT OF HEALTH CARE REFORM

GOVERNMENTAL REGULATION AND REIMBURSEMENT

Approximately 77%, 80% and 80% of the Company's net operating revenues were
derived from federal and state health care programs for the nine months ended
September 30, 1995 and the years ended December 31, 1994 and 1993, respectively.
These programs are highly regulated and are subject to budgetary constraints and
other developments. The Company's operations could be adversely affected by
regulatory developments such as mandatory increases in the scope and quality of
care to be afforded nursing home residents and revisions in annual licensing
standards and criteria for certification to participate in Medicare and
Medicaid. Furthermore, governmental reimbursement programs are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
rulings and governmental funding restrictions, all of which may materially
increase or decrease the rate of program payments to the Company for its
services. There can be no assurance that payments under governmental and private
third party payor programs will remain at levels comparable to present levels or
will, in the future, be sufficient to cover the costs allocable to patients
eligible for reimbursement pursuant to such programs. In addition, there can be
no assurance that facilities owned, leased or managed by the Company, or the
provision of services and supplies by the Company, now or in the future, will
initially meet or continue to meet the requirements for participation in such
programs. The Company could be adversely affected by the continuing efforts of
governmental and private third party payors to contain the amount of
reimbursement for health care services. In an attempt to reduce federal and
state expenditures, there have been, and the Company expects that there will
continue to

8
<PAGE> 13

be, a number of proposals to limit Medicaid and Medicare reimbursement for
health care services. See "-- Potential Adverse Effect of Health Care Reform."

The Health Care Financing Administration of the Department of Health and
Human Services ("HCFA") has adopted new survey, certification and enforcement
procedures by regulations effective July 1, 1995 to implement certain Medicare
and Medicaid provisions of the Omnibus Budget Reconciliation Act of 1987 ("OBRA
1987"). The Company is currently undertaking an analysis of the procedures in
respect of its programs and facilities covered by the revised HCFA regulations
and is unable to predict at this time the degree to which its programs and
facilities will be determined to be in compliance with such regulations.
Preliminary results of HCFA surveys for a significant number of the Company's
facilities indicate that approximately 73% of such facilities surveyed have been
determined to be out of compliance with one or more of the revised HCFA
compliance criteria. HCFA has reported that of all facilities surveyed
nationally (Company and non-Company), approximately 74% were determined to be
similarly out of compliance. Although the Company could be adversely affected if
a substantial portion of its programs or facilities were eventually determined
not to be in compliance with revised HCFA regulations, the Company believes its
programs and facilities are generally consistent with industry standards.

LIMITATIONS ON REPURCHASE OF SENIOR NOTES UPON A CHANGE OF CONTROL TRIGGERING
EVENT

The terms of substantially all of the Company's Debt Instruments require
that the Company repay or refinance indebtedness under such Debt Instruments in
the event of a change of control, as defined in such Debt Instruments. Such
change of control provisions may be triggered under such Debt Instruments prior
to the occurrence of a Change of Control Triggering Event, thereby requiring
that the indebtedness under such Debt Instruments be repaid or refinanced prior
to Beverly repurchasing any Senior Notes upon the occurrence of a Change of
Control Triggering Event. As such, Beverly may not be able to satisfy its
obligations to repurchase the Senior Notes unless the Company is able to
refinance or obtain waivers with respect to such Debt Instruments. There can be
no assurance that Beverly will have the financial resources to repurchase the
Senior Notes in the event of a Change of Control Triggering Event. See
"Description of Certain Indebtedness" and "Description of Senior
Notes -- Repurchase at the Option of Holders -- Change of Control."

The change of control provisions of the Indenture may not, in all
instances, obligate Beverly to repurchase the Senior Notes at the option of the
holder thereof in the event the Company incurs additional leverage through
certain types of recapitalizations, leveraged buy-outs or similar transactions
that could increase the indebtedness of the Company or decrease the value of the
Senior Notes.

RANKING OF THE SENIOR NOTES

The Senior Notes will be general unsecured obligations of Beverly ranking
senior to all subordinated indebtedness of Beverly and will rank pari passu in
right of payment with all other indebtedness of Beverly. The Guarantees will
rank senior to all subordinated indebtedness of the Guarantors and will rank
pari passu in right of payment to all other indebtedness of the Guarantors.
However, the Senior Notes and the Guarantees will be effectively subordinated to
secured indebtedness of the Company to the extent of the value of the assets
securing such indebtedness. In the event of the dissolution, liquidation or
reorganization of, or similar

9
<PAGE> 14

proceedings relating to Beverly, secured lenders would be entitled to receive
payment at least equal to the value of their collateral, which could exceed the
amount recoverable by unsecured creditors, including the holders of the Senior
Notes. As of June 30, 1995, on a pro forma basis after giving effect to the
issuance and sale of the Senior Notes and the use of the estimated net proceeds
therefrom and certain other transactions described herein, there would have been
approximately $969,000,000 of senior indebtedness of Beverly and its
subsidiaries outstanding of which approximately $ would have been
secured indebtedness. See "Use of Proceeds," "Capitalization," "Description of
Certain Indebtedness" and "Description of Senior Notes."

ENFORCEABILITY OF GUARANTEES

The guaranty provisions of the Indenture provide that if Beverly fails to
satisfy any payment obligation under the Senior Notes, the holders of the Senior
Notes would have a direct claim against the Guarantors. However, if a court were
to invalidate any one or more of the Guarantees under fraudulent conveyance laws
or other legal or equitable principles or if, by the terms of such Guarantees,
the obligations thereunder were limited as necessary to prevent such avoidance,
the claims of other creditors of the Guarantors, including claims of trade
creditors, would, to such extent, have priority as to the assets of the
Guarantors over the claims of the holders of the Senior Notes. In addition, the
Indenture provides that upon the sale or other disposition of a Guarantor, which
transaction is otherwise in compliance with the Indenture, such Guarantor shall
be deemed released from its Guarantee. See "Description of Senior
Notes -- Certain Covenants -- Release of Guarantors."

INCREASED LABOR COSTS AND AVAILABILITY OF PERSONNEL

In recent years, the Company has experienced increases in its labor costs
primarily due to higher wages and greater benefits required to attract and
retain qualified personnel, increased staffing levels in its nursing facilities
due to greater patient acuity and the hiring of therapists on staff. Although
the Company expects labor costs to continue to increase in the future, it is
anticipated that any increase in costs will generally result in higher patient
rates in subsequent periods, subject to the time lag in most states of up to 18
months between increases in reimbursable costs and the receipt of related
reimbursement rate increases. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General."

In the past, the health care industry, including the Company's long-term
care facilities, has experienced a shortage of nurses to staff health care
operations, and, more recently, the health care industry has experienced a
shortage of therapists. The Company is not currently experiencing a nursing or
therapist shortage, but it competes with other health care providers for nursing
and therapist personnel and may compete with other service industries for
persons serving the Company in other capacities, such as nurses' aides. A
nursing, therapist or nursing aide shortage could force the Company to pay
higher salaries and make greater use of higher cost temporary personnel. A lack
of qualified personnel might also require the Company to reduce its census or
admit patients requiring a lower level of care, both of which could adversely
affect operating results.

COMPETITION

The long-term care industry is highly competitive. The Company's
competitive position varies from facility to facility, from community to
community and from state to state. Some of the significant competitive factors
for the placing of patients in a nursing facility include quality of care,
reputation, physical appearance of facilities, services offered, family
preferences, physician services and price. The Company's operations supplement
and compete with services provided by nursing facilities, acute care hospitals,
subacute facilities, transitional hospitals, rehabilitation facilities,
institutional pharmacies and home health care entities. The Company also
competes with other providers in the acquisition and development of additional
facilities. In this regard, the Company competes with a number of tax-exempt
nonprofit organizations which can finance acquisitions and capital expenditures
on a tax-exempt basis or receive charitable contributions unavailable to the
Company. There can be no assurance that the Company will not encounter increased
competition which could adversely affect its business, results of operations or
financial condition.

10
<PAGE> 15

DEPENDENCE ON KEY PERSONNEL

The Company's operations are dependent on the efforts, ability and
experience of its key executive officers. The Company's continued growth and
success depends on its ability to attract and retain skilled employees and on
the ability of its officers and key employees to manage growth successfully. The
loss of some or all of these key executive officers and skilled employees could
have a material adverse impact on the Company's future results of operations.

NO PRIOR PUBLIC MARKET

There has been no public market for the Senior Notes prior to this
Offering. Beverly has been advised by the Underwriters that, following the
completion of this Offering, the Underwriters presently intend to make a market
in the Senior Notes as permitted by applicable laws and regulations. The
Underwriters, however, are under no obligation to do so and may discontinue any
market making activities at any time at the sole discretion of the Underwriters.
No assurance can be given as to the liquidity of any trading market for the
Senior Notes, the ability of holders of the Senior Notes to sell their Senior
Notes or the prices at which holders would be able to sell their Senior Notes.
The Senior Notes could trade at prices that may be higher or lower than the
initial offering price thereof depending on many factors, including prevailing
interest rates, the Company's operating results and the markets for similar
securities. Application has been made to list the Senior Notes on the New York
Stock Exchange.

11
<PAGE> 16

USE OF PROCEEDS

The net proceeds to Beverly from the sale of the Senior Notes in this
Offering are estimated to be approximately $145,600,000 (after deducting
estimated expenses and underwriting discounts and commissions). Beverly intends
to use (i) approximately $87,500,000 of such net proceeds to prepay certain
scheduled maturities under the term loan portion of the Morgan Credit Agreement
(as defined herein); (ii) approximately $28,000,000 to prepay certain scheduled
maturities under the LTCB Credit Agreement (as defined herein); (iii)
approximately $17,750,000 to redeem all of Beverly's outstanding 14 1/4% Senior
Secured Fixed Rate Notes due 1997; (iv) approximately $8,750,000 to prepay
certain scheduled maturities under the Nippon Credit Agreement (as defined
herein); and (v) the remaining net proceeds for general corporate purposes. The
amounts outstanding under the term loan portion of the Morgan Credit Agreement
bear interest at a floating rate (6.93% at September 30, 1995) and have a final
scheduled maturity of October 31, 1999; the amounts outstanding under the LTCB
Credit Agreement bear interest at a floating rate (7.19% at September 30, 1995)
and have a final scheduled maturity of March 24, 1999; and the amounts
outstanding under the Nippon Credit Agreement bear interest at a floating rate
(6.75% at September 30, 1995) and have a final scheduled maturity of March 3,
2000. See "Description of Certain Indebtedness."

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1995, pro forma to give effect to the Exchange and pro forma as adjusted to
give effect to the sale of the Senior Notes offered hereby and the application
of the estimated net proceeds therefrom as described under "Use of Proceeds."

<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 48,470 $ 48,470 $ 52,123
========== =========== ===========
Short-term borrowings and current portion of long-term
debt................................................. $ 66,090 $ 66,090 $ 38,590
========== =========== ===========
Long-term debt, net of current portion:
Industrial development revenue bonds................. $ 260,455 $ 260,455 $ 260,455
Notes, mortgages and other bonds payable............. 324,824 324,824 324,824
Bank term loans...................................... 262,500 262,500 165,750
% Senior Notes due 2005........................... -- -- 150,000
7 5/8% Convertible subordinated debentures due
2003.............................................. 67,924 67,924 67,924
5 1/2% Convertible subordinated debentures due
2018.............................................. -- 150,000 150,000
Capital lease obligations............................ 29,368 29,368 29,368
14 1/4% Senior secured notes due 1997................ 17,697 17,697 --
---------- ----------- -----------
Total long-term debt......................... 962,768 1,112,768 1,148,321
Stockholders' equity:
Preferred stock, $50 stated value; 3,000,000 shares
issued and outstanding............................ 150,000 -- --
Common stock, $0.10 par value; 300,000,000 shares
authorized; 102,149,511 issued; 98,177,303 shares
outstanding....................................... 10,215 10,215 10,215
Additional paid-in capital........................... 761,007 761,007 761,007
Retained earnings.................................... 125,385 125,385 125,385
Treasury stock, at cost; 3,972,208 shares............ (40,135) (40,135) (40,135)
---------- ----------- -----------
Total stockholders' equity................... 1,006,472 856,472 856,472
---------- ----------- -----------
Total capitalization................................... $1,969,240 $ 1,969,240 $ 2,004,793
========== =========== ===========
</TABLE>

12
<PAGE> 17

SELECTED HISTORICAL FINANCIAL INFORMATION

The following selected consolidated statement of operations data and
selected consolidated balance sheet data for the periods ended and as of
December 31, 1990, 1991, 1992, 1993 and 1994 are derived from consolidated
financial statements of the Company, as adjusted to give effect to a merger in
September 1994 between the Company and ATH. The merger was accounted for as a
pooling of interests, and therefore, the Company's consolidated financial
statements have been restated to reflect ATH's financial position, results of
operations and cash flows for each period prior to the merger. The consolidated
statement of operations data and selected balance sheet data for the six month
periods ended and as of June 30, 1994 and 1995 are derived from Beverly's
unaudited condensed consolidated financial statements. Operating results for the
six months ended June 30, 1995 are not necessarily indicative of results that
may be expected for the full calendar year ending December 31, 1995. All dollar
amounts are presented in thousands.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------- -------------------------
1990 1991 1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net operating revenues........... $ 2,117,868 $ 2,308,307 $ 2,607,756 $ 2,884,451 $ 2,969,239 $ 1,441,200 $ 1,585,994
Interest income.................. 24,455 20,048 14,502 15,269 14,578 7,369 6,762
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues........... 2,142,323 2,328,355 2,622,258 2,899,720 2,983,817 1,448,569 1,592,756
Costs and expenses:
Wages and related.............. 1,258,758 1,358,639 1,486,191 1,593,410 1,600,580 777,674 842,412
Other operating and
administrative............... 712,586 770,748 921,750 1,069,536 1,114,916 546,420 606,313
Interest....................... 86,991 79,243 70,943 66,196 64,792 31,214 42,274
Depreciation and
amortization................. 63,566 78,057 80,226 82,938 88,734 42,296 51,991
Restructuring costs............ -- -- 57,000 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and
expenses............... 2,121,901 2,286,687 2,616,110 2,812,080 2,869,022 1,397,604 1,542,990
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes,
extraordinary charge and
cumulative effect of accounting
change......................... 20,422 41,668 6,148 87,640 114,795 50,965 49,766
Provision for income taxes....... 7,279 12,430 4,203 29,684 37,882 16,818 18,911
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before extraordinary
charge and cumulative effect of
accounting change.............. 13,143 29,238 1,945 57,956 76,913 34,147 30,855
Extraordinary charge, net of
income taxes of $5,415 in 1992,
$1,155 in 1993 and $1,188 in
1994........................... -- -- (8,835) (2,345) (2,412) -- --
Cumulative effect of accounting
change......................... -- -- (5,454) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................ $ 13,143 $ 29,238 $ (12,344) $ 55,611 $ 74,501 $ 34,147 $ 30,855
=========== =========== =========== =========== =========== =========== ===========
Net income (loss) applicable to
common shares.................. $ 12,143 $ 29,238 $ (13,344) $ 31,173 $ 66,251 $ 30,022 $ 26,730
=========== =========== =========== =========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET DATA:
Total assets..................... $ 1,625,781 $ 1,677,851 $ 1,859,361 $ 2,000,804 $ 2,322,578 $ 2,046,422 $ 2,573,172
Current portion of long-term
obligations.................... 50,918 35,846 30,466 43,125 60,199 41,922 57,090
Long-term obligations, excluding
current portion................ 694,689 629,245 712,896 706,917 918,018 713,177 962,768
Stockholders' equity............. 499,490 600,443 593,505 742,862 827,244 786,813 1,006,472
OPERATING DATA:
Patient days (in thousands)...... 30,139 29,334 29,341 29,041 26,766 13,403 12,757
Average occupancy percentage..... 87.3% 88.1% 88.4% 88.5% 88.5% 88.3% 88.4%
Number of nursing home beds...... 91,414 90,228 89,298 85,001 78,058 81,259 76,440
OTHER FINANCIAL DATA:
Adjusted EBITDA(1)............... $ 146,524 $ 178,920 $ 199,815 $ 221,505 $ 253,743 $ 117,106 $ 137,269
Capital additions and
improvements................... 41,979 60,760 77,808 95,542 108,653 52,522 60,147

Rent expense..................... 143,163 141,155 140,168 135,262 127,187 63,413 63,400
Ratio of Adjusted EBITDA to
interest expense, net(1)....... 2.3x 3.0x 3.5x 4.3x 5.1x 4.9x 3.9x
Ratio of earnings to fixed
charges(2)..................... 1.1x 1.3x 1.0x 1.6x 1.9x 1.8x 1.7x
</TABLE>

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

(1) Adjusted EBITDA represents earnings before net interest expense, income
taxes, depreciation and amortization, extraordinary items and cumulative
effect of an accounting change, as adjusted to exclude a $57,000
restructuring charge in 1992. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Operating Results -- 1993
Compared to 1992." Adjusted EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring a
company's ability to service its debt. Adjusted EBITDA does not represent
cash flow from operations, as defined by generally accepted accounting
principles, and should not be considered as a substitute for net earnings as
an indicator of the Company's operating performance or cash flow as a
measure of liquidity. The Company also believes that the ratio of Adjusted
EBITDA to net interest expense is an accepted measure of debt service
ability; however, such ratio should not be considered a substitute for the
ratio of earnings to fixed charges as a measure of debt service ability.

(2) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes and
extraordinary items plus fixed charges. Fixed charges include interest,
expensed or capitalized, amortization of debt discounts and issuance costs
and the estimated interest component of rent expense.

13
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

During the third quarter of 1994, the Company completed the merger of ATH
in exchange for 2,400,000 shares of Common Stock. The merger was accounted for
as a pooling of interests, and accordingly, the Company's consolidated financial
statements have been restated ("as restated") to reflect ATH's financial
position, results of operations and cash flows for each period prior to the
merger. The merger of ATH was not material to the Company's financial position
or results of operations.

The Company's future operating performance will continue to be affected by
the issues facing the long-term health care industry as a whole, including the
maintenance of occupancy, its ability to continue to expand higher margin
business from Medicare, managed care and private-pay payors, the availability of
nursing, therapy and other personnel, the adequacy of funding of governmental
reimbursement programs, the demand for nursing home care and the nature of any
health care reform measures that may be taken by the federal government, as
discussed below, as well as by any state governments. The Company's ability to
control costs, including its wages and related expenses which continue to rise
and represent the largest component of the Company's operating and
administrative expenses, will also significantly impact its future operating
results.

As a general matter, increases in the Company's operating costs result in
higher patient rates under Medicaid programs in subsequent periods. However, the
Company's results of operations will continue to be affected by the time lag in
most states between increases in reimbursable costs and the receipt of related
reimbursement rate increases. Medicaid rate increases, adjusted for inflation,
are generally based upon changes in costs for a full calendar year period. The
time lag before such costs are reflected in permitted rates varies from state to
state, with a substantial portion of the increases taking effect up to 18 months
after the related cost increases.

OPERATING RESULTS

SIX MONTHS 1995 COMPARED TO SIX MONTHS 1994

Net income was $30,855,000 for the six months ended June 30, 1995, as
compared to net income of $34,147,000, as restated, for the same period in 1994.
Income before provision for income taxes was $49,766,000 for the six months
ended June 30, 1995, as compared to $50,965,000, as restated, for the same
period in 1994.

Net operating revenues and operating and administrative costs increased
approximately $144,800,000 and $124,600,000, respectively, for the six months
ended June 30, 1995, as compared to the same period in 1994. These increases
consist of the following: increases in net operating revenues and operating and
administrative costs for facilities which the Company operated during each of
the six-month periods ended June 30, 1995 and 1994 ("same facility operations")
of approximately $103,200,000 and $81,400,000, respectively; increases in net
operating revenues and operating and administrative costs of approximately
$106,800,000 and $99,100,000, respectively, related to the operations of ATH and
the acquisition of Insta-Care Holdings, Inc. ("Insta-Care"), the institutional
pharmacy subsidiaries of Synetic, Inc. ("Synetic") in late 1994 and Pharmacy
Management Services, Inc. ("PMSI") in June 1995; and decreases in net operating
revenues and operating and administrative costs of approximately $65,200,000 and
$55,900,000, respectively, due to the disposition of, or lease terminations on,
16 facilities in 1995 and 77 facilities in 1994.

The increase in net operating revenues for same facility operations for the
six months ended June 30, 1995, as compared to the same period in 1994, was due
to the following: approximately $62,100,000 due primarily to increases in
Medicaid room and board rates, and to a lesser extent, private and Medicare room
and board rates; approximately $26,500,000 due to increased ancillary revenues
as a result of providing additional ancillary services to the Company's Medicare
and private-pay patients; approximately $15,200,000 due primarily to increases
in pharmacy-related revenues; and approximately $6,600,000 due to various other
items. These increases in net operating revenues were partially offset by
approximately $7,200,000 due to a

14
<PAGE> 19

decrease in same facility occupancy to 88.4% for the six months ended June 30,
1995, as compared to 89.1% for the same period in 1994.

The increase in operating and administrative costs for same facility
operations for the six months ended June 30, 1995, as compared to the same
period in 1994, was due to the following: approximately $66,200,000 due to
increased wages and related expenses (excluding pharmacy) principally due to
higher wages and greater benefits intended to attract and retain qualified
personnel and the hiring of therapists on staff as opposed to contracting for
their services; approximately $18,900,000 due to increases in nursing supplies
and other variable costs; and approximately $9,700,000 due primarily to
increases in pharmacy-related costs and various other items. These increases in
operating and administrative costs were partially offset by approximately
$13,400,000 due to a decrease in contracted therapy services as a result of
hiring therapists on staff as opposed to contracting for their services.

The Company's overall ancillary revenues for the six months ended June 30,
1995 were approximately $462,900,000 and represented 29.2% of net operating
revenues, as compared to approximately $346,200,000 of ancillary revenues for
the same period in 1994 which represented 24.0% of net operating revenues for
the six months ended June 30, 1994.

Interest expense increased approximately $11,100,000 as compared to the
same period in 1994 primarily due to additional interest related to the issuance
of approximately $306,000,000 of long-term obligations primarily in conjunction
with certain acquisitions. Depreciation and amortization expense increased
approximately $9,700,000 as compared to the same period in 1994 primarily due to
acquisitions, capital additions and improvements and the opening of newly
constructed facilities, partially offset by a decrease due to the disposition
of, or lease terminations on, certain nursing facilities.

1994 COMPARED TO 1993

Net income was $74,501,000 for the year ended December 31, 1994, as
compared to net income of $55,611,000, as restated per discussion below, for the
same period in 1993. Net income for 1994 includes a $2,412,000 extraordinary
charge, net of income taxes, related to the acceleration of unamortized deferred
financing costs related to the refinancings of the Company's Commercial Paper
Program and 1992 Credit Agreement, as well as certain bond refundings. Net
income for 1993 includes a $2,345,000 extraordinary charge, net of income taxes,
related to the acceleration of unamortized deferred financing costs associated
with certain debt that was repaid or refinanced in 1993.

The Company's annual effective tax rate was 33% for the year ended December
31, 1994, compared to 34%, as restated, for the same period in 1993. The 1994
and 1993 annual effective tax rates were lower than the statutory rate primarily
due to the utilization of certain tax credit carryforwards, partially offset by
the impact of state income taxes. At December 31, 1994, the Company had targeted
jobs tax credit carryforwards of $21,658,000 for income tax purposes which
expire in years 2004 through 2008. For financial reporting purposes, the
targeted jobs tax credit carryforwards have been utilized to offset existing net
taxable temporary differences reversing during the carryforward periods.
However, due to taxable losses in prior years, future taxable income has not
been assumed and a valuation allowance of $198,000 and $15,097,000 for the years
ended December 31, 1994 and 1993, respectively, has been recognized to offset
the deferred tax assets related to those carryforwards. The valuation allowance
decreased $14,899,000 from January 1, 1994 due to the utilization of targeted
jobs tax credits.

Net operating revenues and operating and administrative costs increased
approximately $84,800,000 and $52,600,000, respectively, for the year ended
December 31, 1994, as compared to the same period in 1993. These increases
consist of the following: increases in net operating revenues and operating and
administrative costs for facilities which the Company operated during each of
the years ended December 31, 1994 and 1993 ("same facility operations") of
approximately $215,200,000 and $176,900,000, respectively; increases in net
operating revenues and operating and administrative costs of approximately
$34,800,000 and $35,200,000, respectively, related to the operations of ATH, the
acquisition of three nursing facilities in 1993 and the acquisitions of
Insta-Care and Synetic in 1994; and decreases in net operating revenues and
operating and

15
<PAGE> 20

administrative costs of approximately $165,200,000 and $159,500,000,
respectively, due to the disposition of, or lease terminations on, 77 facilities
in 1994 and 43 facilities in 1993.

The increase in net operating revenues for same facility operations for the
year ended December 31, 1994, as compared to the same period in 1993, was due to
the following: approximately $114,100,000 due primarily to increases in Medicaid
room and board rates, and to a lesser extent, private and Medicare room and
board rates; approximately $95,800,000 due to increased ancillary revenues as a
result of providing additional ancillary services to the Company's Medicare and
private-pay patients; approximately $7,600,000 due to a shift in the Company's
patient mix to a higher Medicare census; and approximately $21,000,000 due
primarily to an increase in pharmacy-related revenues and various other items.
The Company's Medicare, private and Medicaid census for same facility operations
was 12%, 19%, and 68%, respectively, for the year ended December 31, 1994, as
compared to 11%, 19%, and 69%, respectively, for the same period in 1993. These
increases in net operating revenues were partially offset by approximately
$23,300,000 due to a decrease in same facility occupancy to 89.2% for the year
ended December 31, 1994, as compared to 90.2% for the same period in 1993.

The increase in operating and administrative costs for same facility
operations for the year ended December 31, 1994, as compared to the same period
in 1993, was due to the following: approximately $88,700,000 due to increased
wages and related expenses principally due to higher wages and greater benefits
required to attract and retain qualified personnel, the hiring of therapists on
staff as opposed to contracting for their services, and increased staffing
levels in the Company's nursing facilities to cover higher acuity patients;
approximately $62,400,000 due to additional ancillary costs (excluding wages and
related expenses) associated with the increase in ancillary services provided to
the Company's Medicare and private-pay patients; approximately $5,200,000 due
primarily to an increase in supplies purchased to meet the needs of the
Company's higher acuity patients; and approximately $20,600,000 due primarily to
increases in pharmacy-related costs and various other items.

Ancillary revenues are derived from providing services to residents beyond
room, board and custodial care. These services include occupational, physical,
speech, respiratory and IV therapy, as well as sales of pharmaceuticals and
other services. The Company's overall ancillary revenues for the year ended
December 31, 1994 were $728,408,000 and represented 24.5% of net operating
revenues, as compared to $618,804,000 of ancillary revenues for the same period
in 1993 which represented 21.5% of 1993 net operating revenues. Although the
Company is pursuing further growth of ancillary revenues through expansion of
specialty services, such as rehabilitation and sales of pharmaceuticals, there
can be no assurance that such growth will continue. Growth in ancillary
revenues, as well as increases in Medicare census, have also resulted in higher
costs for the Company due to the higher acuity services being provided to these
patients. The Company's overall ancillary costs (excluding wages and related
expenses) were $384,480,000 for the year ended December 31, 1994, compared to
$347,951,000 for the same period in 1993.

Interest expense for the year ended December 31, 1994 decreased
approximately $1,400,000 as compared to the same period in 1993 primarily due to
the following: repayment of approximately $45,000,000 of debt in 1993 with a
portion of the proceeds from issuance of the Preferred Stock and the conversion
of approximately $46,000,000 in principal amount of the Company's 9% convertible
subordinated debentures into shares of Common Stock in 1993, net of additional
interest related to the issuance or assumption of approximately $243,000,000 of
long-term obligations during 1994 in conjunction with certain acquisitions.
Depreciation and amortization expense for the year ended December 31, 1994
increased approximately $5,800,000 as compared to the same period in 1993
primarily due to acquisitions, the opening of newly constructed facilities and
over $100,000,000 of capital additions and improvements, partially offset by a
decrease due to the disposition of, or lease terminations on, certain
facilities.

1993 COMPARED TO 1992

Net income was $55,611,000, as restated, for the year ended December 31,
1993, compared to a net loss of $12,344,000, as restated, for the same period in
1992. Income before income taxes and extraordinary charge for 1993 was
$87,640,000, as restated, compared to income before income taxes, extraordinary
charge and

16
<PAGE> 21

cumulative effect of a change in accounting for income taxes in 1992 of
$6,148,000, as restated. The results for 1992 included a $57,000,000 pre-tax
restructuring charge, discussed below.

During 1993, the Company recorded a $2,345,000 extraordinary charge, net of
income taxes, related to the acceleration of unamortized deferred financing
costs associated with certain debt that was repaid with a portion of the net
proceeds from issuance of Preferred Stock, as well as certain bond refundings.
During 1992, the Company recorded $8,835,000 of extraordinary charges, net of
income taxes, related to the acceleration of unamortized deferred financing
costs associated with the repayment of certain debt. In addition, during 1992,
the Company adopted Financial Accounting Standards Statement No. 109,
"Accounting for Income Taxes," which resulted in the recording of a $5,454,000
cumulative effect adjustment.

During 1992, the Company recognized a $57,000,000 pre-tax restructuring
charge related to a program to discontinue the Company's operation of 33 nursing
facilities with historically poor financial performance, and to replace,
relocate or sell certain other assets (the "1992 restructuring program"). The
$57,000,000 pre-tax restructuring charge was comprised of the following:
$28,000,000 related to the anticipated loss on disposal of 33 nursing
facilities; $12,200,000 related to operating losses on such 33 nursing
facilities during the anticipated one-year disposal period; $6,500,000
write-down to net realizable value of four facilities expected to be replaced;
$3,000,000 write-down of corporate headquarters; and $7,300,000 related to
relocation, severance and other costs associated with the centralization of the
Company's accounting, finance and management information systems functions.

The Company's annual effective tax rate was 34% for the year ended December
31, 1993, as restated, compared to 68%, as restated, for the same period in
1992. The higher annual effective tax rate in 1992 resulted from the $57,000,000
pre-tax charge mentioned above which reduced the Company's pre-tax income to a
level where the impact of permanent tax differences and state income taxes had a
more significant impact on the effective tax rate. In addition, the 1993 annual
effective tax rate was lower than the statutory rate primarily due to the
utilization of certain tax credit carryforwards.

Net operating revenues and operating and administrative costs increased
approximately $276,700,000 and $255,000,000, respectively, for the year ended
December 31, 1993, as compared to the same period in 1992. These increases
consist of the following: increases in net operating revenues and operating and
administrative costs for facilities which the Company operated during each of
the years ended December 31, 1993 and 1992 ("same facility operations") of
approximately $265,700,000 and $261,700,000, respectively; increases in net
operating revenues and operating and administrative costs of approximately
$74,100,000 and $66,900,000, respectively, related to ATH operations and the
acquisition of 14 facilities in 1993 and 16 facilities in 1992; and decreases in
net operating revenues and operating and administrative costs of approximately
$63,100,000 and $73,600,000, respectively, due to the disposition of, or lease
terminations on, 43 facilities in 1993 and 23 facilities in 1992.

The increase in net operating revenues for same facility operations for the
year ended December 31, 1993, as compared to the same period in 1992, was due to
the following: approximately $143,200,000 due to increased ancillary revenues as
a result of providing additional ancillary services to the Company's private and
Medicare patients; approximately $103,200,000 due primarily to increases in
Medicaid room and board rates, and to a lesser extent, private and Medicare room
and board rates; approximately $12,900,000 due to an improvement in the
Company's patient mix; and approximately $11,900,000 due to increases in
pharmacy-related revenues and various other items. The Company's Medicare,
private and Medicaid census for same facility operations was 11%, 19%, and 69%,
respectively, for the year ended December 31, 1993, compared to 10%, 19%, and
70%, respectively, for the same period in 1992. These increases in net operating
revenues were partially offset by approximately $5,500,000 due to one less
calendar day during 1993, as compared to 1992.

The increase in operating and administrative costs for same facility
operations for the year ended December 31, 1993, as compared to the same period
in 1992, was due to the following: approximately $106,700,000 due to increased
wages and related expenses principally due to higher wages and greater benefits
required to attract and retain qualified personnel and the hiring of therapists
on staff as opposed to contracting for their services; approximately
$117,100,000 due to additional ancillary costs (excluding wages and related
expenses) associated with the increase in ancillary services provided to the
Company's private and Medicare

17
<PAGE> 22

patients; approximately $15,100,000 due to an increase in the provision for
reserves on patient, notes and other receivables primarily as a result of an
increase in the Company's private and Medicare revenues, as well as reductions
in the provision for doubtful notes in 1992, which did not recur in 1993;
approximately $5,300,000 due to increases in supplies and other variable costs
required to meet the needs of the Company's higher acuity patients; and
approximately $17,500,000 due primarily to increases in pharmacy-related costs
and various other items.

The Company's overall ancillary revenues for the year ended December 31,
1993, were $618,804,000, as restated, and represented 21.5% of net operating
revenues, as compared to $458,281,000, as restated, of ancillary revenues for
the same period in 1992 which represented 17.6% of 1992 net operating revenues.
The Company's overall ancillary costs, excluding wages and related expenses,
were $347,951,000, as restated, for the year ended December 31, 1993, compared
to $249,509,000, as restated, for the same period in 1992.

Although there was no significant overall fluctuation in interest income in
1993 as compared to 1992, several offsetting items influenced the amounts.
Interest income for the year ended December 31, 1993 increased approximately
$800,000 primarily due to interest earned on $100,000,000 of the net proceeds
from issuance of the Preferred Stock, which was significantly offset by lower
investment yield rates and a decrease in the Company's notes receivable.
Interest expense decreased approximately $4,700,000 primarily due to the
repayment of approximately $45,000,000 of debt with a portion of the net
proceeds from issuance of the Preferred Stock, the conversion of approximately
$46,000,000 in principal amount of the Company's 9% convertible subordinated
debentures into Common Stock and a reduction in deferred financing costs
associated with the repayment of certain debt. Depreciation and amortization
expense for the year ended December 31, 1993 increased approximately $2,700,000
as compared to the same period in 1992 primarily due to the acquisition of
facilities and over $80,000,000 of capital additions and improvements in 1993.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1995, the Company had approximately $48,500,000 in cash and
cash equivalents and net working capital of approximately $239,900,000. The
Company anticipates that approximately $26,700,000 of its existing cash at June
30, 1995, while not legally restricted, will be utilized to fund certain
workers' compensation and general liability claims, and the Company does not
expect to use such cash for other purposes. The Company had approximately
$102,000,000 of unused commitments under its Revolver/LOC Facility (as defined)
as of June 30, 1995.

Net cash provided by operating activities for the six months ended June 30,
1995 was approximately $55,500,000, an increase of approximately $6,400,000 from
the same period of the prior year. Net cash used for investing activities was
approximately $79,900,000 and net cash provided by financing activities was
approximately $4,900,000 for the six months ended June 30, 1995. The Company
primarily used cash generated from operations and borrowings under its
Revolver/LOC Facility to fund capital expenditures and construction totaling
approximately $80,800,000. The Company received cash proceeds of approximately
$14,100,000 from the dispositions of facilities and other assets and
approximately $25,000,000 from the issuance of long-term obligations. Such
proceeds were used primarily to repay approximately $24,900,000 of long-term
obligations and to fund acquisitions of approximately $18,200,000.

In June 1995, the Company completed the previously announced acquisition of
PMSI in exchange for approximately 12,361,000 shares of the Company's $0.10 par
value Common Stock plus closing and related costs. PMSI is a leading nationwide
provider of medical cost containment and managed care services to workers'
compensation payors and claimants. The acquisition was accounted for as a
purchase.

In June 1995, the Company issued $25,000,000 aggregate principal amount of
taxable revenue bonds ("Series 1995 Bonds"), which require semi-annual
interest-only payments at the rate of 6.88% per annum with respect to $7,000,000
of such bonds and interest-only payments at the rate of 7.24% per annum with
respect to $18,000,000 of such bonds. The Series 1995 Bonds require a $7,000,000
principal payment in June 2000, mature in June 2005 and are secured by a letter
of credit.

18
<PAGE> 23

In April 1995, Beverly announced that its Board of Directors had approved
preliminarily a plan to spin-off approximately 80% of PCA's common stock to
Beverly's stockholders. In addition, the Company announced that it was also
contemplating a public offering of up to 19.9% of PCA's common stock. Beverly
subsequently disclosed that certain operational difficulties at PCA were
adversely affecting PCA's operating results and that it had made changes in
PCA's management and certain of its operating and pricing policies to address
these difficulties. Beverly is evaluating the PCA spin-off in light of these
developments and is considering other strategic alternatives for PCA. The PCA
spin-off is permitted by the terms of the Indenture, subject to certain
limitations and conditions. See "Description of Senior Notes -- Repurchase at
the Option of Holders -- Asset Sales." The Board of Directors has made no
commitment to a formal plan to dispose of the stock of PCA. There can be no
assurance that the PCA spin-off or any other strategic transaction will occur.

Pursuant to the Exchange, effective November 1, 1995, Beverly exercised its
option to exchange all of the outstanding shares of its Preferred Stock for
Subordinated Debentures. Beverly issued $50 principal amount of Subordinated
Debentures in exchange for each share of Preferred Stock. All holders of
Preferred Stock were required to participate in the Exchange. The Debentures
contain conversion and optional redemption provisions substantially identical to
those of the Preferred Stock.

Beverly intends to use the net proceeds from this Offering (estimated to be
approximately $145,600,000) (i) to prepay certain scheduled maturities under the
term loan portion of the Morgan Credit Agreement (as defined herein); (ii) to
prepay certain scheduled maturities under the LTCB Credit Agreement (as defined
herein); (iii) to redeem all of Beverly's outstanding 14 1/4% Senior Secured
Fixed Rate Notes due 1997; (iv) to prepay certain scheduled maturities under the
Nippon Credit Agreement (as defined herein); and (v) for general corporate
purposes. See "Use of Proceeds."

The Company believes that its existing cash and cash equivalents, working
capital from operations, borrowings under its banking arrangements, issuance of
certain debt securities, refinancings of certain existing indebtedness and the
estimated net proceeds of this Offering will be adequate to repay its debts due
within one year of approximately $57,100,000 ($29,600,000 after giving effect to
the Offering and the application of the estimated net proceeds therefrom), to
make normal recurring capital additions and improvements for the twelve months
ending June 30, 1996 of approximately $118,000,000 (approximately $30,000,000 of
which is for ongoing maintenance), to make selective acquisitions, including the
purchase of previously leased facilities, and to meet working capital
requirements.

19
<PAGE> 24

BUSINESS

THE COMPANY

STRATEGY

The Company's strategy is to be the low cost provider of long-term,
subacute, transitional and related specialty health care services, while
maintaining superior standards of care. The Company believes that implementation
of this strategy will position it to meet the standards of care and the cost
containment objectives of government and private payors. By developing programs
to meet these objectives, the Company believes it will be positioned to serve
not only elderly patient populations, but also workers' compensation, sports
injury, post acute, home health and other patient populations. The key elements
of the Company's strategy are to:

Capitalize on National Scope and Breadth of Services. The Company intends
to capitalize on its national presence by contracting for its comprehensive
services with a variety of payors. The Company is positioning itself to provide
its full complement of services to payors on a national basis, thereby providing
such payors with the cost savings, consistency of quality and efficiency of
contracting with one provider. In addition, the Company believes it has a
significant advantage in its ability to develop, support and monitor specialized
high quality service programs at a national level, while tailoring these
programs to meet the needs of each local market.

Further Expand Product Line. The Company believes that offering a broad
range of high quality services in its network of facilities provides the Company
with a greater opportunity to serve its patients from the time those patients
enter the health care system until those patients' needs are met. Consequently,
the Company continues to expand its traditional "mix" of services to include
rehabilitative, subacute, pharmaceutical and medical services in a variety of
settings. The Company intends to continue to expand its high quality specialty
services through ongoing investment in the development and implementation of
programs in markets where such programs will give the Company a competitive
advantage. The Company believes that providing a higher level of care through
the expansion of its specialty medical services will further diversify the
Company's payor mix, expand its customer base and generate increased operating
revenues.

20
<PAGE> 25

Actively Manage Portfolio of Properties. Management continually evaluates
the prospects and opportunities for each of the Company's businesses in the
various markets that it serves. Since 1992, Beverly Health and Rehabilitation
Services, Inc. ("Beverly Health") has divested 139 nursing facilities and
acquired 61 nursing facilities which were previously leased. Beverly Health
currently owns approximately 60% of its facilities and intends to continue to
acquire leased facilities because owning facilities generally results in lower
overall operating costs. In addition, the Company recently divested nine of its
retirement living centers and all of its facilities for the mentally retarded
and developmentally disabled.

Pursue Growth and Diversification Through Strategic Acquisitions. Through
strategic acquisitions, the Company intends to own more of the components of its
specialty health care services delivery system, enabling the Company to maximize
its cost effectiveness and quality of care and to be more responsive to the
changing needs of its customers.

- The Company has made several major pharmacy acquisitions in the past
year including the purchase of Insta-Care and three subsidiaries of
Synetic, which together served approximately 110,000 patients in various
institutions. The Company will continue to pursue smaller pharmacy
acquisitions, strive to capture increased market share through value
added and proprietary service offerings and continue to invest in the
integration of the Insta-Care and Synetic pharmacy operations.

- In June 1995, the Company acquired PMSI, a leading nationwide provider of
medical cost containment and managed care services to workers'
compensation payors, claimants and their employers. Its services include
first notice of injury reporting, case management, a preferred provider
organization and pharmacy benefit management through both a national
retail pharmacy network and home delivery of prescription drugs, medical
supplies and medical equipment.

- In September 1994, the Company acquired ATH, which then operated six
transitional hospitals. At September 30, 1995, ATH operated ten
transitional hospitals with a total of 443 transitional beds. The Company
intends to continue its expansion in the transitional health care market.

INDUSTRY

As the number of people over the age of 65 continues to grow faster than
the overall population and as advances in medicine and technology continue to
increase life expectancies, national health care costs are expected to rise
faster than the availability of resources from government sponsored health care
programs. Accordingly, health care system reform proposals being considered by
the federal and certain state governments have an increasing nationwide focus on
cost containment. Moreover, payors of health care services, led by managed care
networks, are demanding high quality patient care at a low cost, regardless of
the setting. These demographic changes and cost containment pressures by
government and managed care payors are changing medical practices, resulting in
an increasing proportion of complex medical care being delivered outside the
hospital setting. The health care industry now offers a broad spectrum of
services in nursing homes, home health care and outpatient facilities, hospices
and assisted living centers. In addition, many health care providers offer an
increasing amount of intensive nursing services -- beyond the traditional
custodial care services of a nursing facility -- by providing subacute care to
higher acuity patients once those patients leave the acute care hospital
setting. Despite these demographic and care driven dynamics, most states
currently maintain either moratoriums on new capacity or Certificate of Need
restrictions limiting the growth of services.

OPERATIONS

SERVICE OFFERINGS

To serve its markets most effectively, the Company has developed the
following services:

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<PAGE> 26

Since substantially all of the Company's facilities are Medicare certified and,
as such, are required to maintain a highly skilled nursing and related staff,
the Company is able to provide a full range of subacute programs to Medicare and
other patients. As of September 30, 1995, the Company operated a total of 706
nursing facilities in 33 states and the District of Columbia with 75,890
licensed beds.

Rehabilitation Therapies. The Company has developed and expanded its
health care expertise in rehabilitation and provides skilled rehabilitation
(occupational, physical, speech and respiratory) therapies in substantially all
of its nursing facilities. Through Spectra Rehab Alliance, Inc. ("Spectra"), the
Company offers industrial rehabilitation, outpatient therapy clinics, acute
hospital therapy contracts and management/consulting rehabilitation programs
within the Company's network of facilities and to other health care providers.

Transitional Care. The Company operates transitional hospitals which
address the needs of patients requiring intense therapy regimens, but not
necessarily the breadth of services provided within traditional acute care
hospitals. In September 1994, the Company acquired ATH, which then operated six
transitional hospitals. At September 30, 1995, ATH operated ten transitional
hospitals with a total of 443 transitional beds. The typical ATH patient
requires an average of six hours of nursing care per day for 30 to 45 days.

Pharmacy Services. PCA is the nation's largest institutional pharmacy
delivering drugs and related products and services, infusion therapy and other
health care products (enteral and urological) to nursing facilities, acute care
hospitals, home care providers, psychiatric facilities, correctional facilities,
assisted living centers, retirement homes and their patients. PCA also provides
consultant pharmacist services, which include evaluations of patient drug
therapy, and drug handling, distribution and administration within a nursing
facility as well as assistance with state and federal regulatory compliance.
PCA's mail order pharmacy services workers' compensation payors, claimants and
employers. As of September 30, 1995, the Company operated 54 licensed pharmacies
in 24 states, and provided products or services to an estimated 190,000 beds.

Other Services. The Company offers other health care related services to
payors and patients. These services are provided by MedView Services,
Incorporated, a preferred provider organization of approximately 120,000
providers serving workers' compensation claimants nationally; Resource
Opportunities, Inc., a workers' compensation injury case management company
utilizing approximately 250 vocational nurses; First Notice, a workers'
compensation incident reporting system; Beverly Assisted Living, Inc., a
provider of health care services to residents generally requiring a lower level
of care than the Company's traditional nursing home patients; Hospice Preferred
Choice, Inc., a provider of palliative care and nursing services to terminally
ill patients, primarily in patients' homes and nursing facilities; and AdviNet,
an information and referral system that links payors and employees to long-term
care providers.

ORGANIZATIONAL OVERVIEW

The Company is organized into four operating units: (i) Beverly Health and
its subsidiaries operate nursing facilities, assisted living centers and
hospices; (ii) Spectra and its subsidiaries manage the Company's rehabilitation
services and cost containment businesses; (iii) ATH and its subsidiaries operate
the Company's transitional hospitals; and (iv) PCA and its subsidiaries operate
the Company's institutional and mail order pharmacy businesses. Each operating
unit is headed by a President who is also a senior officer of Beverly and
reports directly to the President of Beverly. Each of the four operating units
also has a separate Board of Directors consisting of four senior Beverly
executives and the President of the unit.

Beverly Health's long-term care operations are grouped into seven regions,
each headed by a regional Vice President of Operations, reporting to the
President of Beverly Health. Each Vice President of Operations supervises from
seven to fifteen directors of operations within a region. Each director of
operations is, in turn, responsible for five to seventeen facilities. In
addition, three physicians, located throughout the country, act as Corporate
Medical Directors and provide consulting services to all Beverly Health
facilities. Beverly Health's seven regional offices provide operational,
financial and human resources oversight to their respective regions, in addition
to dietary, nursing and social services through an internal regional consulting
staff. Senior management oversight and centralized accounting and reimbursement
services for Beverly Health's entire network are provided by personnel located
in Fort Smith, Arkansas.

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<PAGE> 27

Each of Beverly Health's nursing facilities is operated under the immediate
supervision of a licensed administrator, a registered nurse serving as the
Director of Nursing, a Business Office Manager and the part-time assistance of a
consulting physician acting as the Medical Director or advisory physician. The
facility administrators report directly to the directors of operations.

The Company's transitional hospitals are managed by ATH, headquartered in
Franklin, Tennessee. The Franklin based staff provides accounting,
reimbursement, human resources, hospital development and clinical services to
the hospitals. Management oversight of the operation of the transitional
hospitals is provided by two Group Vice Presidents. Each transitional hospital
is operated under the immediate supervision of an administrator, a registered
nurse serving as the Director of Patient Services and a contracted physician
acting as the Medical Director.

PCA and its subsidiaries operate the Company's pharmacy business from
headquarters in Longmont, Colorado and Tampa, Florida. The Longmont office
provides operations management of institutional pharmacies headed by an
Executive Vice President of Operations, who reports directly to the President of
PCA. The Longmont office also provides human resources, purchasing, development
and billing and collection support. Two Senior Vice Presidents of Operations,
reporting to the Executive Vice President, provide management oversight to the
53 licensed institutional pharmacies. Financial and MIS services as well as
operations management of PCA's mail order pharmacy business are provided at its
Tampa headquarters. A Vice President of Operations, reporting directly to the
President of PCA, provides the management oversight of the mail order pharmacy
business.

MARKETING

The Company believes that the selection of a long-term care facility is
strongly influenced by referrals from physicians, hospital discharge planners,
community leaders, residents and families. As a result, marketing has
traditionally been facility based. The Company's marketing efforts have been
directed locally, on a service-by-service basis, toward strengthening
relationships between each local facility and those referral sources. These
efforts have been supplemented by the corporate marketing department through
strategy development and support materials. Recently, in recognition of the
development of the Company's expanded service offerings and the significant
opportunities for cross-selling its capabilities within its existing patient and
payor populations, the Company has begun to augment its facility based efforts
with dedicated corporate and regional marketing representatives who will be
trained in each of the Company's product areas. As a result, each marketing
representative and regional marketing director will focus upon capturing a
greater share of all health care expenditures in each market. In addition, the
regional marketing representatives', directors' and facility administrators'
compensation plans will be structured to maximize overall business development
through cross-selling of services. The Company is in the process of hiring a
marketing manager in charge of developing relationships nationally with leading
managed care payors.

PCA directs its marketing activities toward nursing facility owners,
operators, administrators and directors of nursing, managed care companies and
state and federal agencies and associations. PCA markets a fully integrated
package of services tailored to the individual nursing facility's needs. In
addition to adding new accounts, it is PCA's strategy to further penetrate each
account by expanding and cross-selling its other services to the facility and
its residents. PCA's marketing activities include sales efforts that are usually
conducted by designated salespersons and pharmacy managers. PCA's consultant
pharmacists and nurse consultants, because of their direct and ongoing personal
contact with client facility staff, are also instrumental in developing and
gaining additional business. PCA also participates in industry trade shows and
provides seminars on specialized topics offered to the nursing home community in
its regional service. PCA believes that these seminars enhance its professional
image and credibility among the owners, administrators and staff of nursing
facilities and accordingly, serve as an indirect source of additional business.

FINANCIAL AND MANAGERIAL CONTROLS

Financial control is maintained through financial and accounting policies
that are established at the corporate level for use at and with respect to each
facility. Managerial control is maintained through standard operating procedures
which establish and promote consistency of operations. Onsite computer systems
are

23
<PAGE> 28

utilized by administrators in planning, implementing and monitoring resident
care as well as enhancing facility operating performance. New computer software
systems are being developed to provide an interface between the clinical and
financial reporting functions and to allow administrators, regional managers and
corporate financial executives to evaluate financial performance on a timely
basis by providing certain key financial data such as payor mix, admissions and
discharges, cash collections, net patient care revenues and staffing levels.

The Company's overall reimbursement controls are coordinated by the Vice
President of Reimbursement who reports to the President of Beverly Health. He is
supported by finance and reimbursement professionals in each region who are
operationally aligned to support the nursing facilities. The responsibilities of
these finance/reimbursement teams include coordination of all Medicare, Medicaid
and managed care billing and payment activities for the facilities in each state
within the respective region. ATH has a separate reimbursement staff of three
professionals, located in Franklin, Tennessee, whose responsibilities relate
primarily to its transitional hospitals. Similarly, PCA maintains a separate
staff of reimbursement professionals responsible for coordinating the
regulatory, billing/payment and coverage issues particular to PCA's operations.

The Company recently developed Beverly Enterprises Automated Clearing House
("BEACH"), an on-line nursing and general health care product supply system,
which has allowed the Company to significantly reduce the number of vendors it
depends upon, ensure compliance with corporate procurement guidelines and
realize cost savings through maximizing vendor discounts.

QUALITY MANAGEMENT AND TRAINING

The Company has a Quality Management ("QM") program to help ensure that
high quality care is provided in each of its nursing, subacute, transitional and
outpatient facilities. The Company's QM program has been a key factor in helping
the Company to exceed the industry's nationwide average compliance statistics,
as determined by HCFA. The Company's nationwide QM network of health care
professionals includes physician Medical Directors, registered nurses,
dieticians, social workers and other specialists who work in conjunction with
regional and facility based QM professionals. Facility based QM is structured
through the Company's Quality Assessment and Assurance committee. With a
philosophy of continuous quality improvement, Company-wide clinical indicators
are utilized as a database to set goals and monitor thresholds in critical areas
directly related to the delivery of health care related services. These
continuous internal evaluations, in conjunction with random audits of facility
procedures by an audit team headed by the Senior Vice President of QM, are used
to identify and correct possible problems. The Senior Vice President of QM
reports directly to the President of the Company and the QM Committee of
Beverly's Board of Directors.

The Company provides continuing education programs to its staff, including
self-directed learning modules for its licensed (registered and practical)
nurses, which are approved for continuing education credits by the National
League of Nursing. In addition, the Company provides tuition reimbursement to
all levels of staff to encourage continuing education in each employee's area of
expertise. The Company believes that these education and training programs,
combined with the Company's Magical Moments(TM) philosophy, an initiative
designed to recognize and reinforce the importance of customer service,
individual care and personal attention, collectively position the Company and
its employees to provide superior health care.

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<PAGE> 29

REVENUE SOURCES

The Company receives payments for services rendered to patients from: (a)
each of the states in which its nursing facilities are located under the
Medicaid program; (b) the federal government under the Medicare program; and (c)
private payors, including commercial insurers and managed care payors. The
following table sets forth: (i) patient days derived from the indicated sources
of payment as a percentage of total patient days, (ii) room and board revenues
derived from the indicated sources of payment as a percentage of net operating
revenues, and (iii) ancillary and other revenues derived from all sources of
payment as a percentage of net operating revenues, for the periods indicated:

<TABLE>
<CAPTION>
MEDICAID MEDICARE PRIVATE
------------------ ------------------ ------------------
ROOM AND ROOM AND ROOM AND ANCILLARY
PATIENT BOARD PATIENT BOARD PATIENT BOARD AND OTHER
DAYS REVENUES DAYS REVENUES DAYS REVENUES REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
YEARS ENDED:
December 31, 1993................ 69% 50% 11% 11% 20% 16% 23%
December 31, 1994................ 68 47 12 11 20 16 26
NINE MONTHS ENDED:
September 30, 1995............... 68 43 12 11 20 15 31
</TABLE>

Consistent with the long-term care industry in general, changes in the mix
of the Company's patient population among the Medicaid, Medicare and private
categories can significantly affect the revenue and profitability of the
Company's operations. Although the level of cost reimbursement for Medicare
patients typically generates the highest revenue per patient day, profitability
is not proportionally increased due to the additional costs associated with the
required higher level of nursing care and other services for such patients. In
most states, private patients generally constitute the most profitable category
and Medicaid patients constitute the least profitable category.

The Company has experienced significant growth in ancillary revenues over
the past several years. Ancillary revenues are derived from providing services
to residents beyond room, board and custodial care and include occupational,
physical, speech, respiratory and IV therapy, as well as sales of
pharmaceuticals and other services. Such services are currently provided
primarily to Medicare and private pay patients, consistent with the trend in
health care of providing a broader range of services in a lower cost setting,
such as the Company's nursing facilities. Although the Company is pursuing
further growth of ancillary revenues, through acquisitions as well as internal
expansion of specialty services such as rehabilitation and sales of
pharmaceuticals, there can be no assurance that such growth will continue.

Medicaid programs are currently in existence in all of the states in which
the Company operates nursing facilities. While these programs differ in certain
respects from state to state, they are all subject to federally-imposed
requirements, and at least 50% of the funds available under these programs is
provided by the federal government under a matching program.

Medicare and most state Medicaid programs utilize a cost-based
reimbursement system for nursing facilities, which reimburses facilities for the
reasonable direct and indirect allowable costs incurred in providing routine
patient care services (as defined by the programs) plus, in certain states,
efficiency incentives or a return on equity, subject to certain cost ceilings.
These costs normally include allowances for administrative and general costs as
well as the costs of property and equipment (e.g., depreciation and interest,
fair rental allowance or rental expense). In some states, cost-based
reimbursement is subject to retrospective adjustment through cost report
settlement. In other states, payments made to a facility on an interim basis
that are subsequently determined to be less than or in excess of allowable costs
may be adjusted through future payments to the affected facility and to other
facilities owned by the same owner. State Medicaid reimbursement programs vary
as to methodology used to determine the level of allowable costs which are
reimbursed to operators.

Arkansas, California, Louisiana and Texas provide for reimbursement at a
flat daily rate, as determined by the responsible state agency. In all other
states with a Medicaid program in which the Company operates in

25
<PAGE> 30

1995, payments are based upon facility-specific cost reimbursement formulas
established by the applicable state. The Medicaid and Medicare programs each
contain specific requirements which must be adhered to by health care facilities
in order to qualify under the programs.

PROPERTIES

At September 30, 1995, the Company operated 706 nursing facilities, 34
assisted living centers, 10 transitional hospitals, 54 pharmacies and six
hospices in 37 states and the District of Columbia. Most of the Company's 291
leased nursing facilities are subject to "net" leases which require the Company
to pay all taxes, insurance and maintenance costs. Most of the Company's leases
have original terms from ten to fifteen years and contain at least one renewal
option, which could extend the original term of the leases by five to fifteen
years. Many of the Company's leases also contain purchase options. The Company
considers its physical properties to be in good operating condition and suitable
for the purposes for which they are being used. Certain of the nursing
facilities and assisted living centers owned by the Company are included in the
collateral securing the obligations under its various banking arrangements.

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<PAGE> 31

The following is a summary of the Company's nationwide network of nursing
home facilities, assisted living centers, transitional hospitals, pharmacies and
hospices at September 30, 1995:

<TABLE>
<CAPTION>
NURSING HOME ASSISTED TRANSITIONAL
FACILITIES LIVING CENTERS HOSPITALS PHARMACIES HOSPICES
----------------- ---------------- ------------- ---------- --------
TOTAL TOTAL
LICENSED TOTAL LICENSED
LOCATION NUMBER BEDS NUMBER UNITS NUMBER BEDS NUMBER NUMBER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama....................... 21 2,623 1 24 -- -- 2 --
Arizona....................... 3 480 1 77 2 101 -- --
Arkansas...................... 38 4,550 3 49 -- -- 1 1
California.................... 73 7,615 1 121 -- -- 6 --
Colorado...................... -- -- -- -- -- -- 1 --
Connecticut................... 3 427 -- -- -- -- 2 --
District of Columbia.......... 1 355 -- -- -- -- -- --
Florida....................... 66 7,909 5 482 -- -- 8 --
Georgia....................... 23 2,656 2 48 -- -- 4 --
Hawaii........................ 2 396 -- -- -- -- -- --
Idaho......................... 4 329 -- -- -- -- -- --
Illinois...................... 7 597 -- -- -- -- -- --
Indiana....................... 71 5,696 1 16 1 40 1 1
Kansas........................ 27 1,825 3 39 -- -- 2 --
Kentucky...................... 8 1,047 -- -- -- -- 1 --
Louisiana..................... 1 200 -- -- -- -- -- --
Maryland...................... 4 585 1 16 -- -- 1 --
Massachusetts................. 25 2,420 -- -- -- -- 2 --
Michigan...................... 2 206 -- -- -- -- -- --
Minnesota..................... 37 3,280 2 28 -- -- 1 1
Mississippi................... 22 2,504 -- -- -- -- 1 --
Missouri...................... 33 3,337 3 101 -- -- 1 --
Nebraska...................... 24 2,210 1 16 -- -- -- --
New Jersey.................... 1 150 -- -- -- -- -- --
North Carolina................ 12 1,514 1 16 -- -- 2 --
Ohio.......................... 13 1,525 2 225 1 44 1 --
Oklahoma...................... -- -- -- -- 2 64 -- --
Oregon........................ -- -- -- -- -- -- 1 --
Pennsylvania.................. 42 4,907 3 55 -- -- 2 --
Rhode Island.................. -- -- -- -- -- -- 1 --
South Carolina................ 3 302 -- -- -- -- -- --
South Dakota.................. 17 1,236 -- -- -- -- -- --
Tennessee..................... 8 1,066 2 56 -- -- 2 --
Texas......................... 49 6,196 -- -- 4 194 7 2
Virginia...................... 17 2,353 2 32 -- -- -- --
Washington.................... 13 1,121 -- -- -- -- 2 --
West Virginia................. 3 318 -- -- -- -- -- --
Wisconsin..................... 33 3,955 -- -- -- -- 2 1
--- ------ -- ----- -- --- -- --
706 75,890 34 1,401 10 443 54 6
=== ====== == ===== == === == ==
CLASSIFICATION
Owned......................... 411 45,428 27 691 1 69 -- --
Leased........................ 291 30,059 3 200 9 374 54 6
Managed....................... 4 403 4 510 -- -- -- --
--- ------ -- ----- -- --- -- --
706 75,890 34 1,401 10 443 54 6
=== ====== == ===== == === == ==
</TABLE>

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<PAGE> 32

GOVERNMENTAL REGULATIONS

The Company's nursing facilities are subject to compliance with various
federal, state and local health care statutes and regulations. Compliance with
state licensing requirements imposed upon all health care facilities is a
prerequisite for the operation of the facilities and for participation in
government-sponsored health care funding programs, such as Medicaid and
Medicare. Medicaid is a medical assistance program for the indigent, operated by
individual states with the financial participation of the federal government.
Medicare is a health insurance program for the aged and certain other
chronically disabled individuals, operated by the federal government. Changes in
the reimbursement policies of such funding programs as a result of budget cuts
by federal and state governments or other legislative and regulatory actions
could adversely affect the revenues of the Company.

Governmental funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all of which
may materially increase or decrease program reimbursement to health care
facilities. Health care system reform and concerns over rising Medicare and
Medicaid costs continue to be high priorities for the federal and certain state
governments. Although no comprehensive health care, Medicare or Medicaid reform
legislation has yet been implemented, pressures to contain costs and the active
discussion and issues raised by the Clinton Administration, Congress and various
other groups have impacted the health care delivery system. In October 1995,
both the U.S. House of Representatives and the U.S. Senate have approved bills
that would reshape the Medicare and Medicaid programs. These complex bills as
currently passed propose significant reductions in the overall rate of Medicare
and Medicaid spending growth. There is active discussion concerning these
proposals and the form of any final legislation signed into law could differ
significantly from current proposals. The impact of currently proposed
legislation on the Company is not readily determinable. However, in their
currently proposed form, such legislation and proposals could have a material
adverse effect on the Company's future financial position, results of operations
and cash flows.

In addition to the requirements to be met by the Company's facilities for
annual licensure renewal, the Company's health care facilities are also subject
to annual surveys and inspections in order to certify their participation in the
Medicare and Medicaid programs. In order to maintain their operator's licenses
and their certification of participation in Medicare and Medicaid, the nursing
facilities must meet certain statutory and administrative requirements. These
requirements relate to the condition of the facilities and the adequacy and
condition of the equipment used therein, the quality and adequacy of personnel,
and the quality of medical care. Such requirements are subject to change. There
can be no assurance that, in the future, the Company will be able to maintain
such licenses and certifications for its facilities or that the Company will not
be required to expend significant sums in order to do so.

HCFA has adopted new survey, certification and enforcement procedures by
regulations effective July 1, 1995 to implement the Medicare and Medicaid
provisions of OBRA 1987 governing survey, certification and enforcement of the
requirements for contract participation by skilled nursing facilities under
Medicare and nursing facilities under Medicaid. Among the provisions that HCFA
has adopted are requirements (i) that surveys focus on residents' outcomes; (ii)
that all deviations from the participation requirements will be considered
deficiencies, but that all deficiencies will not constitute noncompliance, and;
(iii) that certain types of deficiencies must result in the imposition of a
sanction. The regulations also identify alternative remedies and specify the
categories of deficiencies for which they will be applied. These remedies
include: temporary management; denial of payment for new admissions; denial of
payment for all residents; civil money penalties of $50 to $10,000 per day of
violation; closure of facility and/or transfer of residents in emergencies;
directed plans of correction; and directed inservice training. The regulations
also specify under what circumstances alternative enforcement remedies or
termination, or both, will be imposed on facilities which are not in compliance
with the participation requirements. The Company is currently undertaking an
analysis of the procedures in respect of its programs and facilities covered by
the revised HCFA regulations and is unable to predict at this time the degree to
which its programs and facilities will be determined to be in compliance with
regulations. Preliminary results of HCF surveys for a significant number of the
Company's facilities indicate that approximately 73% of such facilities surveyed
have been determined to be out of compliance with one or more of the revised
HCFA compliance criteria. HCFA has reported that of all facilities surveyed
nationally (Company and non-Company), approximately 74% were determined to be
similarly out of compliance.

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<PAGE> 33

Although the Company could be adversely affected if a substantial portion of its
programs or facilities were eventually determined not to be in compliance with
revised HCFA regulations, the Company believes its programs and facilities are
generally consistent with industry standards.

The Company believes that its facilities are in substantial compliance with
the various Medicaid and Medicare regulatory requirements currently applicable
to them. In the ordinary course of its business, however, the Company receives
notices of deficiencies for failure to comply with various regulatory
requirements. The Company reviews such notices and takes appropriate corrective
action. In most cases, the Company and the reviewing agency will agree upon the
steps to be taken to bring the facility into compliance with regulatory
requirements. In some cases or upon repeat violations, the reviewing agency may
take a number of adverse actions against a facility. These adverse actions can
include the imposition of fines, temporary suspension of admission of new
patients to the facility, decertification from participation in the Medicaid or
Medicare programs and, in extreme circumstances, revocation of a facility's
license.

The Medicaid and Medicare programs provide criminal penalties for entities
that knowingly and willfully offer, pay, solicit or receive remuneration in
order to induce business that is reimbursed under these programs. The illegal
remuneration provisions of the Social Security Act, also known as the
"anti-kickback" statute, prohibit the payment or receipt of remuneration
intended to induce the purchasing, leasing, ordering or arranging for any good,
facility, service or item paid by Medicaid or Medicare programs. The violation
of the illegal remuneration provisions is a felony and can result in the
imposition of fines of up to $25,000 per occurrence. In addition, certain states
in which the Company's facilities are located have enacted statutes which
prohibit the payment of kickbacks, bribes and rebates for the referral of
patients. The Medicare program has published certain "Safe Harbor" regulations
which describe various criteria and guidelines for transactions which are deemed
to be in compliance with the anti-remuneration provisions. Although the Company
has contractual arrangements with some health care providers, management
believes it is in compliance with the anti-kickback statute and other provisions
of the Social Security Act and with the state statutes. However, there can be no
assurance that government officials responsible for enforcing these statutes
will not assert that the Company or certain transactions in which it is involved
are in violation of these statutes. The Social Security Act also imposes
criminal and civil penalties for making false claims to the Medicaid and
Medicare programs for services not rendered or for misrepresenting actual
services rendered in order to obtain higher reimbursement.

The Medicare and Medicaid programs also provide for the mandatory and/or
permissive exclusion of providers of services who are convicted of certain
offenses or who have been found to have violated certain laws or regulations. In
certain circumstances, conviction of abusive or fraudulent behavior with respect
to one facility may subject other facilities under common control or ownership
to disqualification from participation in Medicaid and Medicare programs. In
addition, some federal and state regulations provide that all facilities under
common control or ownership licensed to do business within a state are subject
to delicensure if any one or more of such facilities is delicensed.

While federal regulations do not provide states with grounds to curtail
funding of their Medicaid cost reimbursement programs due to state budget
deficiencies, states have nevertheless curtailed funding in such circumstances
in the past. No assurance can be given that states will not do so in the future
or that the future funding of Medicaid programs will remain at levels comparable
to the present levels. The United States Supreme Court ruled in 1990 that health
care providers may bring suit in federal court to enforce the Medicaid Act
requirement that the states reimburse nursing facilities at rates which are
reasonable and adequate. Nursing facility operators, such as the Company, have
utilized and should continue to be able to utilize the federal courts to require
states to comply with their legal obligation to adequately fund Medicaid
programs. Certain of the legislative proposals discussed above contain
provisions which would repeal the provisions of the Medicaid Act which require
states to pay reasonable and adequate rates and which would also eliminate the
right to judicial review of certain aspects of the reimbursement systems of
state Medicaid programs.

COMPETITION

The long term care industry is highly competitive. The Company's
competitive position varies from facility to facility, from community to
community and from state to state. Some of the significant competitive

29
<PAGE> 34

factors for the placing of patients in a nursing facility include quality of
care, reputation, physical appearance of facilities, services offered, family
preferences, physician services and price. The Company's operations supplement
and compete with services provided by nursing facilities, acute care hospitals,
subacute facilities, transitional hospitals, rehabilitation facilities,
institutional pharmacies and home health care entities. In this regard, the
Company competes with a number of tax-exempt nonprofit organizations which can
finance acquisitions and capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to the Company. There can be no assurance
that the Company will not encounter increased competition which could adversely
affect its business, results of operations or financial condition.

EMPLOYEES

At September 30, 1995, the Company had more than 80,000 employees. The
Company is subject to both federal minimum wage and applicable federal and state
wage and hour laws and maintains various employee benefit plans.

In recent years, the Company has experienced increases in its labor costs
primarily due to higher wages and greater benefits intended to attract and
retain qualified personnel, increased staffing levels in its nursing facilities
due to greater patient acuity and the hiring of therapists on staff. Although
the Company expects labor costs to increase in the future, it is anticipated
that any increase in costs will generally result in higher patient rates in
subsequent periods, subject to the time lag in most states, of up to 18 months,
between increases in reimbursable costs and the receipt of related reimbursement
rate increases.

In the past, the health care industry, including the Company's long-term
care facilities, has experienced a shortage of nurses to staff health care
operations, and, more recently, the health care industry has experienced a
shortage of therapists. The Company is not currently experiencing a nursing or
therapist shortage, but it competes with other health care providers for nursing
and therapist personnel and may compete with other service industries for
persons serving the Company in other capacities, such as nurses aides. A
nursing, therapist or nursing aide shortage could force the Company to pay
higher salaries and make greater use of higher cost temporary personnel. A lack
of qualified personnel might also require the Company to reduce its census or
admit patients requiring a lower level of care, both of which could adversely
affect operating results.

Approximately 10% of the Company's employees are represented by various
labor unions. Certain labor unions have publicly stated that they are
concentrating their organizing efforts within the long-term health care
industry. The Company, being one of the largest employers within the long-term
health care industry, has been the target of a "corporate campaign" by two
AFL-CIO affiliated unions attempting to organize certain of the Company's
facilities. Although the Company has never experienced any material work
stoppages and believes that its relations with its employees (and the existing
unions that represent certain of them) are generally good, the Company cannot
predict the effect continued union representation or organizational activities
will have on the Company's future activities, but the Company does not believe
it will have a material adverse effect on the Company's operations.

On January 29, 1993, the National Labor Relations Board ("NLRB") found that
the Company had violated the National Labor Relations Act (the "Act") at 32 of
its facilities prior to 1989 and issued a corporate-wide order requiring that
the Company cease and desist from such violations and that it take certain
remedial actions. The Company viewed the NLRB's order as incorrect and overly
broad and appealed to the U.S. Court of Appeals. On February 28, 1994, the U.S.
Court of Appeals for the Second Circuit upheld the Company's appeal and reversed
several of the NLRB's findings, holding that the violations were minimal in
nature and number and that the corporate-wide and other extraordinary remedies
sought by the NLRB and the unions were inappropriate.

The NLRB instituted two subsequent consolidated administrative proceedings
against the Company alleging the commission of additional unfair labor practices
under the Act at 31 of the Company's facilities. Such proceedings are in various
stages of litigation, and the NLRB's General Counsel is seeking the same kind of
corporate-wide order denied by the Second Circuit in the earlier case. The
Company is vigorously defending the proceedings and believes that the request
for a corporate-wide remedy is wholly without merit.

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<PAGE> 35

MANAGEMENT

The table below sets forth, as to each executive officer and director of
Beverly, his name, positions with Beverly and age. Each executive officer and
director of Beverly holds office until a successor is elected, or until the
earliest of death, resignation or removal. Each executive officer is elected or
appointed by the Board of Directors. The information below is given as of
November 6, 1995.

<TABLE>
<CAPTION>
NAME POSITION AGE
<S> <C> <C>
David R. Banks(1).................... Chairman of the Board, Chief Executive 58
Officer and Director
Boyd W. Hendrickson.................. President, Chief Operating Officer and 51
Director
William A. Mathies................... Executive Vice President and President of 36
Beverly Health
T. Jerald Moore...................... Executive Vice President 54
Robert W. Pommerville................ Executive Vice President, General Counsel 55
and Secretary
Bobby W. Stephens.................... Executive Vice President 50
Robert D. Woltil..................... Executive Vice President and President of 41
PCA
Eugene B. Clarke..................... Senior Vice President -- Quality 55
Management
Robert C. Crosby..................... Senior Vice President and President of ATH 56
Schuyler Hollingsworth, Jr........... Senior Vice President and Treasurer 49
Scott M. Tabakin..................... Senior Vice President, Controller, Chief 37
Accounting Officer and Acting Chief
Financial Officer
Mark D. Wortley...................... Senior Vice President and President of 40
Spectra
Beryl F. Anthony, Jr.(2)(3)(5)....... Director 57
James R. Greene(2)(4)................ Director 74
Edith E. Holiday(3)(4)(5)............ Director 43
Jon E. M. Jacoby(1)(2)............... Director 57
Risa J. Lavizzo-Mourey, M.D.(2)(4)... Director 41
Louis W. Menk(3)(4)(5)............... Director 77
Marilyn R. Seymann(1)(3)(4)(5)....... Director 52
</TABLE>

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

(1) Member of the Executive Committee.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

(4) Member of the Quality Management Committee.

(5) Member of the Nominating Committee.

Mr. Banks has been a director of Beverly since 1979 and has served as Chief
Executive Officer since May 1989 and Chairman of the Board since March 1990. Mr.
Banks was President of Beverly from 1979 to September 1995. Mr. Banks is a
director of Nationwide Health Properties, Inc., Ralston Purina Company,
Wellpoint Health Networks, Inc., and trustee for the University of the Ozarks
and Occidental College.

Mr. Hendrickson joined Beverly in 1988 as a Division President. He was
elected Vice President of Marketing in May 1989, Executive Vice President of
Operations and Marketing in February 1990, President of Beverly Health in
January 1995 and President, Chief Operating Officer and a director of Beverly in
September 1995.

Mr. Mathies joined Beverly in 1981 as an Administrator in training. He was
an Administrator until 1986 at which time he became a Regional Manager. In 1988,
Mr. Mathies was elected Vice President of Operations for the California region
and was elected Executive Vice President of Beverly and President of Beverly
Health in September 1995.

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<PAGE> 36

Mr. Moore joined Beverly as Executive Vice President in December 1992. Mr.
Moore was employed at Aetna Life and Casualty from 1963 to 1992 and was elected
Senior Vice President in 1990.

Mr. Pommerville first joined Beverly in 1970 and left in 1976. Mr.
Pommerville rejoined Beverly as Vice President and General Counsel in 1984 and
was elected Secretary in February 1990, Senior Vice President in March 1990 and
Executive Vice President in February 1995.

Mr. Stephens joined Beverly as a staff accountant in 1969. He was elected
Assistant Vice President in 1978, Vice President of Beverly and President of
Beverly's Central Division in 1980, and Executive Vice President in February
1990. Mr. Stephens is a director of City National Bank in Fort Smith, Arkansas,
Beverly Japan Corporation, Western Arkansas Counseling and Guidance Center, Inc.
and Harbortown Properties, Inc.

Mr. Woltil joined Beverly in 1982 as Technical Accounting Manager. From
1984 to 1990 he served in various financial positions. He was elected Vice
President -- Financial Planning and Control in January 1990, Senior Vice
President and Chief Financial Officer in March 1992, Executive Vice President,
Finance in January 1993, and President of PCA in May 1995.

Mr. Clarke joined Beverly in 1987 as a Director of Government Program
Compliance. He was elected Vice President in 1989 and Senior Vice
President -- Quality Management in December 1991. Mr. Clarke is a director of
St. Edward Mercy Medical Center.

Mr. Crosby joined Beverly in 1994 with the acquisition of ATH. He was
elected Senior Vice President of Beverly and President of ATH in September 1994.
Mr. Crosby was Chairman of the Board, President and Chief Executive Officer of
ATH from 1992 to 1994 and President and Chief Executive Officer of StatCorp,
Inc. from 1989 to 1991.

Mr. Hollingsworth joined Beverly in June 1985 as Assistant Treasurer. He
was elected Treasurer in 1988, Vice President in 1990 and Senior Vice President
in March 1992. Mr. Hollingsworth is a director of Sparks Regional Medical
Center.

Mr. Tabakin joined Beverly in October 1992 as Vice President, Controller
and Chief Accounting Officer. He was elected Senior Vice President in May 1995
and acting Chief Financial Officer in September 1995. From 1980 to 1992, Mr.
Tabakin was with Ernst & Young LLP, in Norfolk, Virginia.

Mr. Wortley joined Beverly as Senior Vice President and President of
Spectra in September 1994. From 1988 to 1994, Mr. Wortley was an officer of
Therapy Management Innovations, which provides rehabilitation consulting
services to Beverly under contract.

Mr. Anthony served as a member of the United States Congress and was
Chairman of the Democratic Congressional Campaign Committee from 1987 through
1990. In 1993, he became a partner in the Winston & Strawn law firm. He has been
a director of Beverly since January 1993.

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 a number of mutual funds of Alliance Capital Management Corporation,
Buck Engineering Company and Bank Leumi. He has been a director of Beverly since
January 1991.

Ms. Holiday is an attorney. She served as White House Liaison for the
Cabinet to 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, Bessemer Trust Company, N.A.,
Bessemer Trust Company of New Jersey, Hercules Incorporated and H.J. Heinz
Company. She has been a director of Beverly since March 1995.

Mr. Jacoby is Executive Vice President, Chief Financial Officer and a
director of Stephens Group, Inc. 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 the American Classic Voyages Company, Delta and
Pine Land Company, Inc.,

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<PAGE> 37

Medicus Systems, Inc. and Southwestern Life Corporation. He has been a director
of Beverly since February 1987.

Dr. Lavizzo-Mourey is Director of the Institute of Aging, Chief of the
Division of Geriatric Medicine and Associate Executive Vice President for health
policy at the University of Pennsylvania, Ralston-Penn Center. 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. She is a director of Medicus Systems, Inc., and has
been a director of Beverly since March 1995.

Mr. Menk is Chairman of Black Mountain Gas Company. He retired in 1982 as
Chairman and Chief Executive Officer of International Harvester Company, the
predecessor to Navistar International Corporation. He has been a director of
Beverly since July 1989.

Ms. 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, Ms. 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, Ms. Seymann was Executive Vice President of Chase Bank of Arizona
and served as President, Private Banking of Chase Trust Company from 1987 to
1990. She has been a director of Beverly since March 1995.

33
<PAGE> 38

DESCRIPTION OF SENIOR NOTES

The Senior Notes will be issued pursuant to an Indenture (the "Indenture")
among Beverly, the Guarantors and Chemical Bank, as Trustee (the "Trustee"). The
terms of the Senior Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Senior Notes are subject to all such
terms, and Holders of Senior Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. A copy of the proposed form of Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The definitions of certain terms used in the following summary are set
forth below under "-- Certain Definitions."

GENERAL

The Senior Notes will be unsecured senior obligations of Beverly limited
in aggregate principal amount to $150.0 million and will mature on , 2005.
The Senior Notes will be general unsecured obligations of Beverly ranking
senior to all existing and future subordinated Indebtedness of Beverly, and
pari passu in right of payment with all other existing and future Indebtedness
of Beverly. The Senior Notes will be guaranteed on a senior unsecured basis by
substantially all of the present and future Subsidiaries of Beverly.

Interest on the Senior Notes will accrue at the rate per annum set forth on
the cover page of this Prospectus and will be payable semi annually in arrears
on and of each year, commencing on , 1996, to Holders
of record on the immediately preceding and , respectively.
Interest on the Senior Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest on the Senior Notes will be computed on the basis
of a 360-day year comprised of twelve 30-day months. Principal, premium, if any,
and interest on the Senior Notes will be payable at the office or agency of
Beverly maintained for such purpose within the City and State of New York or, at
the option of Beverly, payment of interest may be made by check mailed to the
Holders of the Senior Notes at their respective addresses set forth in the
register of Holders of Senior Notes; provided that all payments with respect to
Senior Notes, the Holders of which have given wire transfer instructions to the
paying agent on or prior to the relevant record date will be required to be made
by wire transfer of immediately available funds to the accounts specified by
such Holders. Until otherwise designated by Beverly, Beverly's office or agency
in New York will be the office of the Trustee maintained for such purpose. The
Senior Notes will be issued in denominations of $1,000 and integral multiples
thereof.

OPTIONAL REDEMPTION

Beverly will not have the right to redeem any Senior Notes prior to
, 2000. The Senior Notes will be redeemable at the option of
Beverly, in whole or in part, at any time on or after , 2000 upon
not less than 30 days nor more than 60 days notice to each Holder of Senior
Notes, at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period commencing of
the years indicated below, in each case (subject to the right of Holders of
record on a Record Date to receive interest due on an Interest Payment Date that
is on or prior to such Redemption Date) together with accrued and unpaid
interest thereon to the Redemption Date:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2000...................................................................... %
2001......................................................................
2002......................................................................
2003 and thereafter....................................................... 100%
</TABLE>

In the case of a partial redemption, the Trustee shall select the Senior
Notes or portions thereof for redemption on a pro rata basis, by lot or in such
other manner it deems appropriate and fair. The Senior Notes may be redeemed in
part in multiples of $1,000 only.

34
<PAGE> 39

Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the Redemption Date to the Holder of
each Senior Note to be redeemed to such Holder's last address as then shown upon
the registry books of the Registrar. Any notice which relates to a Senior Note
to be redeemed in part only must state the portion of the principal amount equal
to the unredeemed portion thereof and must state that upon surrender of such
Senior Note, a new Senior Note or Senior Notes in a principal amount equal to
the unredeemed portion thereof will be issued. On and after the Redemption Date,
interest will cease to accrue on the Senior Notes or portions thereof called for
redemption.

MANDATORY REDEMPTION

Except as set forth below under "-- Repurchase at the Option of Holders,"
Beverly will not be required to make any mandatory redemption or sinking fund
payments with respect to the Senior Notes.

REPURCHASE AT THE OPTION OF HOLDERS

Change of Control

Upon the occurrence of a Change of Control Triggering Event, each Holder of
Senior Notes will have the right to require Beverly to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Senior
Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon to the date of purchase (the "Change of
Control Payment") on a date that is not more than 90 days after the occurrence
of such Change of Control Triggering Event (the "Change of Control Payment
Date"). Within 30 days following any Change of Control Triggering Event, Beverly
will mail, or at Beverly's request the Trustee will mail, a notice to each
Holder offering to repurchase the Senior Notes held by such Holder pursuant to
the procedures specified in such notice. Beverly will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Notes as a result of
a Change of Control Triggering Event.

On the Change of Control Payment Date, Beverly will, to the extent lawful,
(1) accept for payment all Senior Notes or portions thereof properly tendered
and not withdrawn pursuant to the Change of Control Offer, (2) deposit with the
paying agent an amount equal to the Change of Control Payment in respect of all
Senior Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by Beverly. The paying agent will promptly mail to each
Holder of Senior Notes so tendered the Change of Control Payment for such Senior
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Senior Note equal in principal
amount to any unpurchased portion of the Senior Notes surrendered, if any;
provided that each such new Senior Note will be in a principal amount of $1,000
or an integral multiple thereof. Beverly will publicly announce the results of
the Change of Control offer on or as soon as practicable after the Change of
Control Payment Date.

A failure by Beverly to comply with the provisions of the two preceding
paragraphs will constitute an Event of Default. Except as described above with
respect to a Change of Control, the Indenture will not contain provisions that
permit the Holders of the Senior Notes to require that Beverly repurchase or
redeem the Senior Notes in the event of a takeover, recapitalization or similar
transaction. See "-- Certain Covenants -- Events of Defaults and Remedies."

35
<PAGE> 40

Debt Instruments. There can be no assurance that Beverly will have the financial
resources to repurchase the Senior Notes in the event of a Change of Control
Triggering Event. See "Description of Certain Indebtedness."

Asset Sales

The Indenture will provide that Beverly will not, and will not permit any
of its Subsidiaries to, consummate an Asset Sale unless (i) Beverly (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (as conclusively determined by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by Beverly or such Subsidiary is in the form of cash or Cash
Equivalents, provided that for purposes of this provision, (x) the amount of (A)
any liabilities (as shown on the most recent balance sheet of Beverly or such
Subsidiary or in the notes thereto), of Beverly or such Subsidiary (other than
liabilities that are by their terms subordinated to the Senior Notes or the
Guarantees) that are assumed by the transferee of any such assets and (B) any
securities or other obligations received by Beverly or any such Subsidiary from
such transferee that are immediately converted by Beverly or such Subsidiary
into cash (or as to which Beverly or such Subsidiary has received at or prior to
the consummation of the Asset Sale a commitment (which may be subject to
customary conditions) from a nationally recognized investment, merchant or
commercial bank to convert into cash or Cash Equivalents within 90 days of the
consummation of such Asset Sale and which are thereafter actually converted into
cash or Cash Equivalents within such 90-day period) will be deemed to be cash
(but shall not be deemed to be Net Proceeds for purposes of the following
provisions until reduced to cash) and (y) the fair market value of any Non-Cash
Consideration received by Beverly or a Subsidiary in any Non-Qualified Asset
Sale shall be deemed to be cash to the extent that the aggregate fair market
value (as conclusively determined by resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) of all Non-Cash
Consideration (measured at the time received and without giving effect to any
subsequent changes in value) received by Beverly or any of its Subsidiaries
since the date of the Indenture in all Non-Qualified Asset Sales does not exceed
6% of Beverly's Stockholders' Equity as of the date of such consummation.
Notwithstanding the foregoing, to the extent Beverly or any of its Subsidiaries
receives Non-Cash Consideration as proceeds of an Asset Sale, such Non-Cash
Consideration shall be deemed to be Net Proceeds for purposes of (and shall be
applied in accordance with) the following provisions when Beverly or such
Subsidiary receives cash or Cash Equivalents from a sale, repayment, exchange,
redemption or retirement of or extraordinary dividend or return of capital on
such Non-Cash Consideration.

The provisions of clauses (i) and (ii) of the immediately preceding
paragraph shall not apply to the Spinoff Transaction if, after giving pro forma
effect to such transaction, including the application by Beverly of the net
proceeds, if any, of any such transaction, as if it had occurred at the
beginning of the Reference Period immediately preceding the date on which such
transaction occurs, (i) Beverly would have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant in the Indenture described
below under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock", (ii) Beverly's Fixed Charge Coverage Ratio would
not be reduced by % or more from Beverly's actual Fixed Charge Coverage Ratio
for such Reference Period, (iii) Beverly's Debt to Consolidated Cash Flow Ratio
as of the date such transaction occurs would not be increased by % or more
from Beverly's actual Debt to Consolidated Cash Flow Ratio as of such date and
(iv) no Default or Event of Default would exist. If the Spinoff Transaction
(including Beverly's proposed application of the net proceeds thereof, if any)
satisfies the requirements of the immediately preceding sentence, Beverly shall
be entitled to (i) distribute all or a portion of the capital stock of PCA to
the stockholders of Beverly and (ii) use up to $ million of the Net Proceeds
of such transaction to make Restricted Payments or for any other purpose not
prohibited by the Indenture; provided that (x) any Net Proceeds in excess of
$ million shall be applied in accordance with the following provisions and (y)
all Non-Cash Consideration received by Beverly or any Subsidiary of Beverly as a
result of or in connection with the Spinoff Transaction will be deemed to be Net
Proceeds for purposes of (and shall be applied in accordance with) the following
provisions when Beverly or such Subsidiary receives cash or Cash Equivalents
from a sale,

36
<PAGE> 41

repayment, exchange, redemption or retirement of or extraordinary dividend or
return of capital on such Non-Cash Consideration.

Pursuant to the Indenture, within 365 days after the receipt of any Net
Proceeds from an Asset Sale, Beverly or such Subsidiary may apply such Net
Proceeds (w) to purchase one or more Nursing Facilities or Related Businesses
and/or a controlling interest in the Capital Stock of a Person owning one or
more Nursing Facilities and/or one or more Related Businesses, (x) to make a
capital expenditure or to acquire other tangible assets, in each case, that are
used or useful in any business in which Beverly is permitted to be engaged
pursuant to the covenant described below under the caption "-- Certain
Covenants -- Line of Business," (y) to permanently reduce Indebtedness (other
than Subordinated Indebtedness) of Beverly or its Subsidiaries or (z) to
permanently reduce Senior Revolving Debt (and to correspondingly reduce
commitments with respect thereto, except that up to an aggregate of $20 million
of Net Proceeds from Asset Sales may be applied after the date of the Indenture
to reduce Senior Revolving Debt without a corresponding reduction in commitments
with respect thereto). Pending the final application of any such Net Proceeds,
Beverly may temporarily reduce Senior Revolving Debt or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $25 million, Beverly will
be required to make an offer to all Holders of Senior Notes and holders of any
other indebtedness of Beverly ranking on a parity with the Senior Notes from
time to time outstanding with similar provisions requiring Beverly to make an
offer to purchase or to redeem such Indebtedness with the proceeds from any
asset sales, pro rata in proportion to the respective principal amounts of
Senior Notes and such other Indebtedness then outstanding (a "Senior Asset Sale
Offer") to purchase the maximum principal amount of the Senior Notes and such
other Indebtedness that may be purchased out of the Excess Proceeds, at an offer
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Senior Notes and such other Indebtedness tendered pursuant to a Senior Asset
Sale Offer is less than the Excess Proceeds, Beverly may use any remaining
Excess Proceeds for general corporate purposes not prohibited at the time under
the Indenture. If the aggregate principal amount of Senior Notes and such other
Indebtedness surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Senior Notes and such other Indebtedness will be purchased on a
pro rata basis. Upon completion of a Senior Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.

CERTAIN COVENANTS

Restricted Payments

The Indenture will provide that Beverly will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any distribution on account of the Equity Interests of Beverly or any of
its Subsidiaries (other than (x) dividends or distributions payable in Qualified
Equity Interests of Beverly, (y) dividends or distributions payable to Beverly
or any Subsidiary of Beverly, and (z) dividends or distributions by any
Subsidiary of Beverly payable to all holders of a class of Equity Interests of
such Subsidiary on a pro rata basis); (ii) purchase, redeem or otherwise acquire
or retire for value any Equity Interests of Beverly or any of its Subsidiaries;
(iii) make any principal payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Subordinated Indebtedness, except at the
original final maturity date thereof; or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment (the amount of any such
Restricted Payment, if other than cash or Cash Equivalents, shall be the fair
market value (as conclusively evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee within
60 days prior to the date of such Restricted Payment) of the asset(s) proposed
to be transferred by Beverly or such Subsidiary, as the case may be, pursuant to
such Restricted Payment):

(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and

37
<PAGE> 42

(b) Beverly would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the Reference Period immediately preceding the date of
such Restricted Payment, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant in the Indenture described
below under the caption "-- Incurrence of Indebtedness"; and

(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by Beverly and its Subsidiaries after , 1995
(excluding Restricted Payments permitted by clauses (v), (w), (x)
and (z) of the next succeeding paragraph), is less than the sum (without
duplication) of (i) 50% of the Consolidated Net Income of Beverly for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after , 1995 to the end of Beverly's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale (other than to a Subsidiary of Beverly)
since , 1995 of Qualified Equity Interests of Beverly or of
debt securities of Beverly or any of its Subsidiaries that have been
converted into or exchanged for such Qualified Equity Interests of Beverly,
plus (iii) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with respect
to such Restricted Investment (net of taxes and the cost of disposition, if
any) or (B) the initial amount of such Restricted Investment, plus (iv) $20
million.

The foregoing provisions will not prohibit the following Restricted
Payments: (u) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
otherwise complied with the provisions of the Indenture; (v) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company or any Subsidiary in exchange for, or out of the net cash proceeds of,
the substantially concurrent sale (other than to a Subsidiary of Beverly) of
Qualified Equity Interests of Beverly; provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (w) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or in exchange for or out of the net cash proceeds from
the substantially concurrent sale (other than to a Subsidiary of Beverly) of
Qualified Equity Interests of Beverly; provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (x) any purchase or defeasance of Subordinated Indebtedness to the
extent required upon a change of control or asset sale (as defined therein) by
the indenture or other agreement or instrument pursuant to which such
Subordinated Indebtedness was issued, but only if Beverly (i) in the case of a
Change of Control, has complied with its obligations under the provisions
described under the covenant entitled "Repurchase at the Option of the
Holders -- Change of Control" or (ii) in the case of an Asset Sale, has applied
the Net Proceeds from such Asset Sale in accordance with the provisions under
the covenant entitled "Repurchase at the Option of the Holders -- Asset Sales",
(y) any Restricted Payment permitted in accordance with the provisions of the
second paragraph of the covenant entitled "Repurchase at the Option of the
Holders -- Asset Sales" and (z) a pro rata dividend or other distribution by
Beverly to its stockholders of all or a portion of the common stock of PCA in
connection with the Spinoff Transaction; provided, however, in the case of each
of clauses (v), (w), (x), (y) and (z) of this paragraph no Default or Event of
Default shall have occurred or be continuing at the time of such Restricted
Payment or would occur as a consequence thereof.

Not later than the date of making any Restricted Payment, Beverly shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed.

Incurrence of Indebtedness and Issuance of Preferred Stock

The Indenture will provide that Beverly will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contin-

38
<PAGE> 43

gently or otherwise, with respect to (collectively, "incur") after the date of
the Indenture any Indebtedness (including Acquired Debt) and Beverly will not
permit any of its Subsidiaries to issue any shares of preferred stock; provided,
however, that Beverly and its Subsidiaries may incur Indebtedness (including
Acquired Debt) if the Fixed Charge Coverage Ratio for the Reference Period
immediately preceding the date on which such additional Indebtedness is incurred
would have been at least 2.5 to 1, in each case determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, at the beginning of such Reference
Period. Indebtedness consisting of reimbursement obligations in respect of a
letter of credit will be deemed to be incurred when the letter of credit is
first issued.

The foregoing provisions will not apply to:

(i) the incurrence by Beverly or the Subsidiaries of Senior Revolving
Debt pursuant to the Credit Agreement in an aggregate principal amount at
any time outstanding (with letters of credit being deemed to have a
principal amount equal to the maximum potential reimbursement obligation of
Beverly or any Subsidiary with respect thereto) not to exceed an amount
equal to $150.0 million less the aggregate amount of all Net Proceeds of
Asset Sales applied to permanently reduce the commitments with respect to
such Indebtedness pursuant to the covenant described above under the
caption "Repurchase at the Option of the Holders -- Asset Sales" after
, 1995;

(ii) the incurrence by Beverly and the Guarantors of Indebtedness
represented by the Senior Notes;

(iii) the incurrence by Beverly or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred (including,
without limitation, Existing Indebtedness);

(iv) the incurrence by Beverly or any of its Subsidiaries of
intercompany Indebtedness between or among Beverly and any of its
Subsidiaries: provided that in the case of such Indebtedness of Beverly,
such obligations shall be unsecured;

(v) the incurrence by Beverly or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the Indenture to be outstanding or any
receivable or liability the payment of which is determined by reference to
a foreign currency; provided that the notional principal amount of any such
Hedging Obligation does not exceed the principal amount of the Indebtedness
or the amount of such receivable or liability to which such Hedging
Obligation relates;

(vi) the incurrence by Beverly or any of its Subsidiaries of
Indebtedness represented by performance bonds, warranty or contractual
service obligations, standby letters of credit or appeal bonds, in each
case to the extent incurred in the ordinary course of business of Beverly
or such Subsidiary; and

(vii) the incurrence by Beverly or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount at any time outstanding
not to exceed $100 million.

For purposes of determining any particular amount of Indebtedness under this
covenant, guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included. For purposes of determining compliance
with this covenant, (i) in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness permitted by the first
paragraph above of this covenant, Beverly shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the categories of permitted Indebtedness described above
and (ii) the outstanding principal amount on any date of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness on such date.

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Liens

The Indenture will provide that Beverly will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien (except Permitted Liens) on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom unless all payments due under the Indenture and the
Senior Notes are secured on an equal and ratable basis with the Obligations so
secured until such time as such Obligations are no longer secured by a Lien.

Dividend and Other Payment Restrictions Affecting Subsidiaries

The Indenture will provide that Beverly will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to Beverly or any of its Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to Beverly or any of its Subsidiaries,
(ii) make loans or advances to Beverly or any of its Subsidiaries or (iii)
transfer any of its properties or assets to Beverly or any of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of the Indenture, (b) the
Indenture, (c) applicable law, (d) any instrument governing Indebtedness or
Capital Stock of a Person acquired by Beverly or any of its Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition or in
violation of the covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that the Consolidated Cash Flow of such Person is not taken into
account in determining whether such acquisition was permitted by the terms of
the Indenture except to the extent that such Consolidated Cash Flow would be
permitted to be dividends to Beverly without the prior consent or approval of
any third party, (e) customary non-assignment provisions in leases entered into
in the ordinary course of business, (f) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (g)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, or (h) the Credit Agreement and related documentation as the
same is in effect on the date of the Indenture and as amended or replaced from
time to time, provided that no such amendment or replacement is more restrictive
as to the matters enumerated above than the Credit Agreement and related
documentation as in effect on the date of the Indenture. Nothing contained in
this "Dividend and Other Payment Restrictions Affecting Subsidiaries" covenant
shall prevent Beverly or any Subsidiary of Beverly from creating, incurring,
assuming or suffering to exist any Permitted Liens.

Line of Business

The Indenture will provide that Beverly will not, and will not permit any
of its Subsidiaries to, engage to any material extent in any business other than
the ownership, operation and management of Nursing Facilities and Related
Businesses.

Merger, Consolidation or Sale of Assets

The Indenture will provide that Beverly may not consolidate or merge with
or into (whether or not Beverly is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) Beverly is the surviving corporation or
the entity or the Person formed by or surviving any such consolidation or merger
(if other than Beverly) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than Beverly) or the entity or Person to which
such sale,

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assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of Beverly under the Senior Notes and the
Indenture pursuant to a supplemental Indenture in form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) Beverly or the entity or Person formed by or surviving
any such consolidation or merger (if other than Beverly), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of Beverly immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the Reference Period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant in the Indenture described above
under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock"

Transactions with Affiliates

The Indenture will provide that neither Beverly nor any of its Subsidiaries
will sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make any
contract, agreement, understanding, loan, advance or Guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
Beverly or the relevant Subsidiary than those that could have been obtained in a
comparable transaction by Beverly or such Guarantor or Subsidiary with an
unrelated Person and (ii) Beverly delivers to the Trustee (a) with respect to an
Affiliate Transaction involving aggregate consideration in excess of $5 million,
a resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to an
Affiliate Transaction involving all aggregate consideration in excess of $10
million, an opinion as to the fairness to Beverly or such Subsidiary of such
Affiliate Transaction from a financial point of view issued by an investment
banking firm of national standing; provided that (x) transactions or payments
pursuant to any employment arrangements, director or officer indemnification
agreements or employee or director benefit plans entered into by Beverly or any
of its Subsidiaries in the ordinary course of business of Beverly or such
Subsidiary, (y) transactions between or among Beverly and/or its Subsidiaries
and (z) Restricted Payments permitted by the provisions of the Indenture
described above under the caption "-- Restricted Payments," in each case, shall
not be deemed to be Affiliate Transactions.

Release of Guarantors

Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Guarantor (or all of its assets), to an entity which is not a
Subsidiary of Beverly, which transaction is otherwise in compliance with the
Indenture, such Guarantor shall be deemed released from its obligations under
its Guarantee of the Senior Notes; provided, however, that any such termination
shall occur only to the extent that all obligations of such Guarantor under all
of its guarantees of, and under all of its pledges of assets or other security
interests which secure any Indebtedness of Beverly shall also terminate upon
such release, sale or transfer. Notwithstanding the foregoing, if upon
consummation of the Spinoff Transaction PCA ceases to satisfy the conditions
necessary to be a Subsidiary of Beverly under the definition of "Subsidiary",
PCA shall be deemed released from its Guarantee of the Senior Notes.

REPORTS

The Indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding,
Beverly will furnish to the Holders of Senior Notes all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if Beverly were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by Beverly's certified independent accountants. In addition,
whether or not required by the rules and regulations of the Commission, Beverly
will file a copy of all such information and reports with the

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Commission for public availability and make such information available to
securities analysts and prospective investors upon request.

EVENTS OF DEFAULT AND REMEDIES

The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment, when due, of interest on the
Senior Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Senior Notes; (iii) failure by Beverly or any Guarantor to comply
with the provisions described under the captions "-- Repurchase at the Option of
Holders -- Change of Control" or "-- Repurchase at the Option of
Holders -- Asset Sales,"; (iv) failure by Beverly or any Guarantor for 30 days
after notice to comply with the provisions described under the captions
"-- Certain Covenants -- Restricted Payments" or "-- Certain
Covenants -- Incurrence of Indebtedness"; (v) failure by Beverly or any
Guarantor for 60 days after notice to comply with any of its other agreements in
the Indenture or the Senior Notes; (vi) any default occurs under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by Beverly or any of
its Significant Subsidiaries (or the payment of which is guaranteed by Beverly
or any of its Significant Subsidiaries), whether such Indebtedness or guarantee
exists on the date of the Indenture or is thereafter created, which default (a)
constitutes a Payment Default or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or that has been so
accelerated, aggregates $20 million or more; (vii) failure by Beverly or any of
its Significant Subsidiaries to pay final judgments aggregating in excess of $20
million, which judgments are not paid, discharged or stayed for a period of 60
days; (viii) any Guarantee shall cease for any reason not permitted by the
Indenture to be in full force and effect or any Guarantor, or any person acting
on behalf of any Guarantor, shall deny or disaffirm its obligations under its
Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to
Beverly or any of its Significant Subsidiaries.

If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Senior Notes may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to Beverly, all
outstanding Senior Notes will become due and payable without further action or
notice. Holders of the Senior Notes may not enforce the Indenture or the Senior
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the then outstanding
Senior Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Senior Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.

The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee on behalf of the Holders of all of the
Senior Notes, may waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of the principal of premium, if any, or interest on the Senior
Notes.

Beverly is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and Beverly is required upon becoming
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

No director, officer, employee, incorporator or stockholder of Beverly, as
such, shall have any liability for any obligations of Beverly under the Senior
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Senior Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Senior Notes. Such waiver may not be
effective to waive liabilities under the Federal securities laws and it is the
view of the Commission that such a waiver is against public policy.

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LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Senior Notes ("Legal Defeasance") except for (i) the rights of
Holders of outstanding Senior Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Senior Notes when such
payments are due from the trust referred to below, (ii) Beverly's obligations
with respect to the Senior Notes concerning issuing temporary Senior Notes,
registration of Senior Notes, mutilated, destroyed, lost or stolen Senior Notes
and the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee, and Beverly's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, Beverly may, at its
option and at any time, elect to have its obligations and the obligations of the
Guarantors released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Senior Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Senior Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Beverly must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior Notes, cash in U.S. dollars, U.S. Government
Obligations, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such outstanding
Senior Notes on the Maturity Date; (ii) in the case of Legal Defeasance, Beverly
shall have delivered to the Trustee an opinion of counsel in the United States
confirming that (A) Beverly has received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date of the Indenture,
there has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders of such outstanding Senior Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such Legal
Defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, Beverly
shall have delivered to the Trustee an opinion of counsel in the United States
confirming that the Holders of such outstanding Senior Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
Covenant Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which Beverly or any of
its Subsidiaries is a party or by which Beverly or any of its Subsidiaries is
bound (other than a breach, violation or default resulting from the borrowing of
funds to be applied to such deposit); (vi) Beverly must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) Beverly must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by Beverly with the intent of
preferring the Holders of such Senior Notes over the other creditors of Beverly
with the intent of defeating, hindering, delaying or defrauding creditors of
Beverly or others; and (viii) Beverly must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with.

TRANSFER AND EXCHANGE

A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer

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documents and Beverly may require a Holder to pay any taxes and fees required by
law or permitted by the Indenture.

The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.

AMENDMENT, SUPPLEMENT AND WAIVER

Except as provided in the next two succeeding paragraphs, the Indenture or
the Senior Notes may be amended or supplemented with the consent of the Holders
of at least a majority in principal amount of the Senior Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for such Senior Notes), and any existing default or compliance with any
provision of the Indenture or the Senior Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Senior
Notes (including consents obtained in connection with a tender offer or exchange
offer for such Senior Notes).

Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Senior Note, (iii) reduce the rate of or change the time for payment of
interest on any Senior Note, (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the Senior Notes
(except a rescission of acceleration of the Senior Notes by the Holders of at
least a majority in aggregate principal amount thereof and a waiver of the
payment default that resulted from such acceleration), (v) make any Senior Note
payable in money other than that stated in the Senior Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Senior Notes to receive payments of principal of or
premium, if any, or interest on the Senior Notes, (vii) make any change in the
foregoing amendment and waiver provisions or (viii) except for the termination
or release of any Guarantee pursuant to the terms of the Indenture, the release
of any Guarantor from its obligation under its Guarantee, or any change in a
Guarantee that would adversely affect the Holders.

Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, Beverly and the Trustee may amend or supplement the Indenture or the
Senior Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for additional Guarantors of the Senior Notes or the release,
in accordance with the Indenture, of any Guarantor to provide for the assumption
of the obligations of Beverly or any Guarantor to Holders of Senior Notes in the
case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Senior Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act, to evidence and
provide for the acceptance of the appointment of a successor Trustee with
respect to the Securities, or in any other case, pursuant to the provisions of
the Indenture, where a supplemental indenture is required or permitted to be
entered into without the consent of any Holder of Senior Notes.

CONCERNING THE TRUSTEE

The Indenture will contain certain limitations on the rights of the
Trustee, should the Trustee become a creditor of Beverly, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue or resign.

The Holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will not be
under any obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.

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The Trustee also serves as trustee under the indenture governing Beverly's
Subordinated Debentures and is an affiliate of Chemical Securities Inc., an
underwriter in this Offering.

CERTAIN DEFINITIONS

Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.

"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.

"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback or by
merger or consolidation) other than in the ordinary course of business (provided
that the sale, lease, conveyance or other disposition of all or substantially
all of the assets of Beverly and its Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
"-- Change of Control" and/or the provisions described above under the caption
"-- Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant), and (ii) the issuance or sale by Beverly or any of its
Subsidiaries of Equity Interests of any of Beverly's Subsidiaries, in the case
of either clause (i) or (ii), whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of $10 million
or (b) for net proceeds in excess of $10 million. Notwithstanding the foregoing:
(a) a transfer of assets by Beverly to a Subsidiary or by a Subsidiary to
Beverly or to another Subsidiary, (b) an issuance of Equity Interests by a
Subsidiary to Beverly or to another Subsidiary, (c) a Restricted Payment that is
permitted by the covenant described above under the caption "-- Restricted
Payments" and (d) a Nursing Facility Swap will not be deemed to be an Asset
Sale.

"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.

"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.

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of not more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution meeting
the qualifications specified in clause (iii) above, (v) commercial paper having
the highest rating obtainable from Moody's or S&P and in each case maturing
within one year after the date of acquisition, and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in the foregoing clauses (i) through (v).

"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of Beverly and
its Subsidiaries taken as a whole to any Person or group (as such term is used
in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than to a Person or
group who, prior to such transaction, held a majority of the voting power of the
voting stock of Beverly, (ii) the acquisition by any Person or group (as defined
above) of a direct or indirect interest in more than 50% of the voting power of
the voting stock of Beverly, by way of merger or consolidation or otherwise, or
(iii) the first day on which a majority of the members of the Board of Directors
of Beverly are not Continuing Directors.

The phrase "all or substantially all" of the assets of Beverly will likely
be interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of the
assets of the Company has occurred, in which case a Holder's ability to obtain
the benefit of a Change of Control Offer may be impaired. In addition, no
assurances can be given that Beverly will be able to acquire Senior Notes
tendered upon the occurrence of a Change of Control Triggering Event.

"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.

"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) provision
for taxes based on income or profits of such Person and its Subsidiaries for
such period, to the extent such provision for taxes was included in computing
such Consolidated Net Income, plus (ii) the Fixed Charges of such Person and its
Subsidiaries for such period, to the extent that such Fixed Charges were
deducted in computing such Consolidated Net Income, plus (iii) depreciation and
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person and its Subsidiaries for such period to the extent that
such depreciation and amortization were deducted in computing such Consolidated
Net Income, plus (iv) the other non-cash expenses of such Person and its
Subsidiaries for such period to the extent such non-cash expenses were deducted
in computing such Consolidated Net Income, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, the depreciation and
amortization of, and the other non-cash expenses of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to Beverly by such Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Subsidiary or its
stockholders.

"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis; provided that, (i) the Net Income of any Person
that is not a Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Subsidiary
thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period

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prior to the date of such acquisition shall be excluded and (iv) the cumulative
effect of a change in accounting principles shall be excluded.

"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Redeemable Stock), less all write-ups
(other than write-ups resulting from foreign currency translations and write-ups
of tangible assets of a going concern business made in accordance with GAAP as a
result of the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a consolidated
Subsidiary of such Person, and excluding the cumulative effect of a change in
accounting principles, all as determined in accordance with GAAP.

"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Beverly who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.

"Credit Agreement" means that certain Credit Agreement, dated as of
November 1, 1994, by and among Beverly California Corporation, now known as
Beverly Health, Beverly and Morgan Guaranty Trust Company of New York and the
other banks that are parties thereto, providing for $225 million in aggregate
principal amount of Senior Term Debt and up to $150 million in aggregate
principal amount of Senior Revolving Debt, including any related notes,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, extended, renewed, refunded,
replaced or refinanced, in whole or in part, from time to time.

"Debt to Consolidated Cash Flow Ratio" means with respect to any Person as
of any date of determination (the "Debt Ratio Calculation Date"), the ratio of
(i) the aggregate amount of Indebtedness of such Person and its Subsidiaries, on
a consolidated basis, outstanding as of the Debt Ratio Calculation Date to (ii)
the Consolidated Cash Flow of such Person for the Reference Period immediately
preceding such Debt Ratio Calculation Date. For purposes of making the
computation referred to above, (i) acquisitions that have been made by such
Person or any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the Reference Period or
subsequent to such Reference Period and on or prior to the Debt Ratio
Calculation Date shall be deemed to have occurred on the first day of the
Reference Period, and (ii) the Consolidated Cash Flow and Fixed Charges
attributable to operations or businesses disposed of prior to the Debt Ration
Calculation Date shall be excluded.

"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.

"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

"Existing Collateral" means property or assets of Beverly or its
Subsidiaries that are subject to one or more Permitted Liens.

"Existing Indebtedness" means Indebtedness of Beverly and its Subsidiaries
in existence on the date of the Indenture until such amounts are repaid.

"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that Beverly
or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable Reference Period. In addition, for purposes of
making the

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<PAGE> 52

computation referred to above, (i) acquisitions that have been made by Beverly
or any of its Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the Reference Period or
subsequent to such Reference Period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the Reference Period, and
(ii) the Consolidated Cash Flow and Fixed Charges attributable to operations or
businesses disposed of prior to the Calculation Date shall be excluded.

"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letters of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, and (iii) interest
actually paid by such Person or any of its Subsidiaries under any guarantee of
Indebtedness or other obligation of any other Person and (iv) the product of (a)
all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Subsidiary) on any series of preferred stock of such Person,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, as in effect from time to time.

"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.

"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts
or currency swap agreements and (iii) other agreements or arrangements designed
to protect such Person against fluctuations in interest rates or currency
values.

"Indebtedness" means, with respect to any Person, (i) any Redeemable Stock
of such Person, (ii) any indebtedness of such Person, whether or not contingent,
in respect of borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, (iii) all indebtedness of other secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person) and, (iv) to
the extent not otherwise included, the guarantee by such Person of any
indebtedness of any other Person.

"Investment Grade" means a rating of BBB- or higher by S&P or Baa3 or
higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the
event that Beverly shall select any other Rating Agency, the equivalent of such
ratings by such Rating Agency shall be used.

"Investment" by any Person in any other Person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such Person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
Person or any agreement to make any such acquisition; (b) the making by such
Person of any deposit with, or advance, loan or other extension

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<PAGE> 53

of credit to, such other Person (including the purchase of property from another
Person subject to an understanding or agreement, contingent or otherwise, to
resell such property to such other Person) or any commitment to make any such
advance, loan or extension (but excluding accounts receivable or deposits
arising in the ordinary course of business); (c) other than guarantees of
Indebtedness of Beverly or any Subsidiary to the extent permitted by the
covenant "Incurrence of Indebtedness," the entering into by such Person of any
guarantee of, or other credit support or contingent obligation with respect to,
Indebtedness or other liability of such other Person; provided, however,
Investments shall not be deemed to include extensions of trade credit by such
Person or any of its Subsidiaries on commercially reasonable terms in accordance
with normal trade practices of such Person or such Subsidiary, as the case may
be.

"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
given to secure Indebtedness, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction with respect to any such lien, pledge, charge or
security interest).

"Moody's" means Moody's Investors Services, Inc. and its successors.

"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, however, together with any
related provision for taxes on such extraordinary gain or loss.

"Net Proceeds" means the aggregate cash or Cash Equivalent proceeds
received by Beverly or any of its Subsidiaries in respect of any Asset Sale, net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
other expenses incurred or to be incurred by Beverly or a Subsidiary as a direct
result of the sale of such assets (including, without limitation, severance,
relocation, lease termination and other similar expenses), taxes actually paid
or payable as a result thereof, amounts required to be applied to the repayment
of Indebtedness (other than Subordinated Indebtedness or Senior Revolving Debt)
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.

"Non-Cash Consideration" means any non-cash consideration received by
Beverly or a Subsidiary of Beverly in connection with an Asset Sale and any
non-cash consideration received by Beverly or any of its Subsidiaries upon
disposition thereof.

"Non-Qualified Asset Sale" means an Asset Sale in which the Non-Cash
Consideration received by Beverly or its Subsidiaries exceeds 25% of the total
consideration received in connection with such Asset Sale. The Spinoff
Transaction shall be deemed not to constitute a Non-Qualified Asset Sale.

"Nursing Facility" means a nursing facility, hospital, outpatient clinic,
assisted living center, hospice, long-term care facility or other facility that
is used or useful in the provision of healthcare services.

"Nursing Facility Swap" means an exchange of assets by Beverly or one or
more Subsidiaries of Beverly for one or more Nursing Facilities and/or one or
more Related Businesses or for the Capital Stock of any Person owning one or
more Nursing Facilities and/or one or more Related Businesses.

"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

"PCA" means Pharmacy Corporation of America, a California corporation.

"Payment Default" means any failure to pay any scheduled installment of
interest or principal on any Indebtedness within the grace period provided for
such payment in the documentation governing such Indebtedness.

"Permitted Liens" means (i) Liens in favor of Beverly; (ii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with Beverly or any Subsidiary of Beverly or becomes a Subsidiary
of Beverly; provided that such Liens were in existence prior to the
contemplation of such merger, consolidation or acquisition and do not extend to
any assets other than those of the Person merged into or consolidated with
Beverly or that becomes a Subsidiary of Beverly; (iii) Liens on property
existing at the time

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<PAGE> 54

of acquisition thereof by Beverly or any Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition; (iv) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (v) Liens existing on the date of
the Indenture; (vi) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (vii) other Liens on assets
of Beverly or any Subsidiary of the Company securing Indebtedness that is
permitted by the terms of the Indenture to be outstanding having an aggregate
principal amount at any one time outstanding not to exceed $ million; (viii)
Liens to secure Permitted Refinancing Indebtedness incurred to refinance
Indebtedness that was secured by a Lien permitted under the Indenture and that
was incurred in accordance with the provisions of the Indenture [(it being
understood that if any property or assets of Beverly or such Subsidiary that is
subject to a Lien securing the Indebtedness being so refinanced is not subject
to a Lien securing such Permitted Refinancing Indebtedness ("Prior Collateral"),
then any Lien securing such Permitted Refinancing Indebtedness may extend to or
cover any property or assets of Beverly or any of its Subsidiaries that were not
secured by the Indebtedness so refinanced (the "Replacement Collateral") so long
as the fair market value of such Replacement Collateral (determined in good
faith by the Board of Directors of Beverly or such Subsidiary) does not exceed
the fair market value of the Prior Collateral (determined in good faith by the
Board of Directors of Beverly or such Subsidiary)]; (ix) Purchase Money Liens;
(x) Liens on Medicare, Medicaid or other patient accounts receivable of Beverly
or its Subsidiaries and any other Liens granted by a Receivables Subsidiary, in
each case in connection with a Receivables Financing; provided, that the
aggregate principal or redemption amount of Receivables Financing outstanding
shall not exceed 50% of the net amount of the uncollected Medicare, Medicaid or
other patient accounts receivable then owing to the Company or its Subsidiaries;
(xi) Liens to secure Indebtedness permitted under the Indenture, the net
proceeds of which are used to permanently reduce an equivalent principal amount
of other secured Indebtedness of Beverly or its Subsidiaries less any premiums
and reasonable expenses incurred in connection therewith; (xii) [in the event
any Permitted Lien is removed from Existing Collateral, Liens to secure property
or assets of Beverly or its Subsidiaries, so long as the fair market value of
such property or assets (determined in good faith by the Board of Directors of
Beverly or such Subsidiary) does not exceed the fair market value of such
Existing Collateral (determined in good faith by the Board of Directors of
Beverly or such Subsidiary)]; (xiii) Liens of carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business; (xiv) easements, rights-of-way, zoning
restrictions, reservations, encroachments and other similar encumbrances in
respect of real property; (xv) any interest or title of a lessor under any
Capitalized Lease Obligation; (xvi) Liens upon specific items of inventory or
equipment and proceeds of the Company or any subsidiary securing its obligations
in respect of bankers' acceptances issued or created for its account (whether or
not under the Credit) to facilitate the purchase, shipment, or storage of such
inventory and equipment; (xvii) Liens securing reimbursement obligations with
respect to letters of credit (whether or not issued under the Credit Agreement)
otherwise permitted under the Indenture and issued in connection with the
purchase of inventory or equipment by the Company or any Subsidiary in the
ordinary course of business; (xviii) Liens to secure (or encumbering deposits
securing) obligations arising from warranty or contractual service obligations
of the Company or any Subsidiary, including rights of offset and set-of; (xix)
Liens securing Acquired Debt or acquisition Indebtedness otherwise permitted by
the Indenture; provided that (A) the Indebtedness secured shall not exceed the
fair market value of the assets so acquired (such fair market value to be
determined in good faith by the Board of Directors of the Company at the time of
such acquisition) and (B) such Indebtedness shall be incurred, and the Lien
securing such Indebtedness shall be created, within 12 months after such
acquisition; (xx) Liens securing Hedging Obligations Agreements relating to
Indebtedness otherwise permitted under the Indenture; and (xxi) Liens securing
stay and appeal bonds or judgment Liens in connection with any judgment not
giving rise to a Default under the Indenture.

"Permitted Refinancing Indebtedness" means any Indebtedness of Beverly or
any of its Subsidiaries issued in exchange for, or the net proceeds of which are
used solely to extend, refinance, renew, replace, defease or refund, other
Indebtedness of Beverly or any of its Subsidiaries; provided that: (i) the
principal

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amount of such Permitted Refinancing Indebtedness does not exceed the principal
amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased
or refunded (plus the amount of any premiums paid and reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is Subordinated
Indebtedness, such Permitted Refinancing Indebtedness has a final maturity date
of, and is subordinated in right of payment to, the Senior Notes on terms at
least as favorable to the Holders of the Senior Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and [(iv) such Indebtedness is incurred either
by Beverly or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.]

"Purchase Money Indebtedness" means any Indebtedness of a Person to any
seller or other Person incurred to finance the acquisition or construction
(including in the case of a Capital Lease Obligation, the lease) of any real or
personal tangible property which is incurred within 180 days of such acquisition
or completion of construction and is secured only by the assets so financed.

"Purchase Money Lien" means a Lien granted on an asset or property to
secure Purchase Money Indebtedness permitted to be incurred under the Indenture
and incurred solely to finance the acquisition or construction of such asset or
property; provided, however, that such Lien encumbers only such asset or
property and is granted within 180 days of such acquisition or completion of
construction.

"Qualified Equity Interests" shall mean all Equity Interests of Beverly
other than Redeemable Stock of Beverly.

"Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's
or both shall not make a rating of the Senior Notes publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by Beverly, which shall be substituted for S&P or Moody's or both, as
the case may be.

"Rating Category" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining whether
the rating of the Senior Notes has decreased by one or more gradations,
gradations within Rating Categories (+ and - for S&P, 1, 2 and 3 for Moody's; or
the equivalent gradations for another Rating Agency) shall be taken into account
(e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as
from BB- to B+, will constitute a decrease of one gradation).

"Rating Date" means the date which is 90 days prior to the earlier of (i) a
Change of Control and (ii) the first public notice of the occurrence of a Change
of Control or of the intention by Beverly to effect a Change of Control.

"Rating Decline" means the occurrence on or within 90 days after the date
of the first public notice of the occurrence of a Change of Control or of the
intention by Beverly to effect a Change of Control (which period shall be
extended so long as the rating of the Senior Notes is under publicly announced
consideration for possible downgrade by any of the Rating Agencies) of: (a) in
the event the Senior Notes are rated by either Moody's or S&P on the Rating Date
as Investment Grade, a decrease in the rating of the Senior Notes by both Rating
Agencies to a rating that is below Investment Grade, or (b) in the event the
Senior Notes are rated below Investment Grade by both Rating Agencies on the
Rating Date, a decrease in the rating of the Senior Notes by either Rating
Agency by one or more gradations (including gradations within Rating Categories
as well as between Rating Categories).

"Receivables Financing" means the sale or other disposition of Medicare,
Medicaid or other patient accounts receivable of Beverly or any of its
Subsidiaries to a Receivables Subsidiary followed by a financing transaction in
connection with such sale or disposition of such accounts receivable.

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"Receivables Subsidiary" means a Subsidiary of Beverly exclusively engaged
in Receivables Financing and activities reasonably related thereto.

"Redeemable Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
on which the Senior Notes mature.

"Reference Period" with regard to any Person means the four full fiscal
quarters (or such lesser period during which such Person has been in existence)
for which internal financial statements are available ended immediately
preceding any date upon which any determination is to be made pursuant to the
terms of the Senior Notes or the Indenture.

"Related Business" means the business conducted by Beverly and its
Subsidiaries as of the date of the Indenture and any and all healthcare service
businesses that in the good faith judgment of the Board of Directors of Beverly
are materially related businesses. Without limiting the generality of the
foregoing, Related Business shall include the operation of long-term and
specialty healthcare services, skilled nursing care, subacute care,
rehabilitation programs, pharmaceutical services, geriatric care and home
healthcare.

"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than (i) Investments in Cash Equivalents, (ii) Investments
in a Subsidiary, (iii) Investments in any Person that as a consequence of such
Investment becomes a Subsidiary, (iv) Investments existing on the date of the
Indenture, (v) accounts receivable, advances, loans, extensions of credit
created or acquired in the ordinary course of business, (vi) Investments made as
a result of the receipt of Non-Cash Consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "Repurchase at the Option of the Holders -- Asset Sales" and (vii)
Investments made as the result of the guarantee by Beverly or any of its
Subsidiaries of Indebtedness secured by Liens on assets sold or otherwise
disposed of by Beverly or such Subsidiary; provided, that such Indebtedness was
in existence prior to the contemplation of such sale or other disposition and
that the terms of such guarantee permit the Company or such Subsidiary to
foreclose on the pledged or mortgaged assets if Beverly or such Subsidiary are
required to perform under such guarantee; provided, however, that a merger of
another person with or into Beverly or a Guarantor shall not be deemed to be a
Restricted Investment so long as the surviving entity is Beverly or a direct
wholly owned Guarantor.

"Senior Revolving Debt" means revolving credit loans and letters of credit
outstanding from time to time under the Credit Agreement.

"Significant Subsidiary" mans any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 or Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indenture.

"S&P" means Standard & Poor's Corporation and its successors.

"Spinoff Transaction" means a pro rata distribution by Beverly to its
shareholders of all or a portion of the shares of PCA or a sale to an
unaffiliated Person or Persons of shares of PCA or all or substantially all of
the assets of PCA.

"Stockholders' Equity" means, with respect to any Person as of any date,
the stockholders' equity of such Person determined in accordance with GAAP as of
the date of the most recent available internal financial statements of such
Person, and calculated on a pro forma basis to give effect to any acquisition or
disposition by such person consummated or to be consummated since the date of
such financial statements and on or prior to the date of such calculation.

"Subordinated Indebtedness" means (i) Indebtedness of Beverly or a
Guarantor that is subordinated in right of payment to the Senior Notes or such
Subsidiary's Guarantee of the Senior Notes, as applicable, or (ii) Indebtedness
of Beverly or a Guarantor (other than secured Indebtedness) that has a stated
maturity on or after the stated maturity of the Senior Notes.

"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time

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owned or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of the Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such Person
(or any combination thereof).

"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity, or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.

"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.

DESCRIPTION OF CERTAIN INDEBTEDNESS

The following is a summary of the terms of various of the Company's
financing arrangements. This summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the provisions
of each particular agreement, including the definitions therein of certain terms
used below.

MORGAN CREDIT AGREEMENT

In November 1994, Beverly Health entered into a $375,000,000 secured bank
credit agreement with Morgan Guaranty Trust Company of New York ("Morgan
Guaranty"), and certain other lenders party thereto (the "Morgan Credit
Agreement") which provides for a five year $225,000,000 term loan (the "1994
Term Loan") and a $150,000,000 revolver/letter of credit facility (the
"Revolver/LOC Facility"). The proceeds from the 1994 Term Loan were used to
consummate the acquisition by PCA of certain companies. The Revolver/LOC
Facility replaced Beverly Health's revolving credit facility and letter of
credit facility originally entered into in 1993. Currently, the 1994 Term Loan
and any Revolver/LOC borrowings bear interest at adjusted LIBOR plus 1%, the
Prime Rate, as defined, or the adjusted CD rate, as defined, plus 1.125%, at
Beverly Health's option. Such interest rates may be adjusted quarterly based on
certain financial ratio calculations. At September 30, 1995, the amount
outstanding under the Revolver/LOC Facility was approximately $51,400,000.
Beverly Health pays certain commitment fees and commissions with respect to the
Revolver/LOC Facility and had approximately $98,600,000 of unused commitments
under such facility as of September 30, 1995. The Morgan Credit Agreement is
secured by a security interest in the stock of PCA and certain of its
subsidiaries, is guaranteed by Beverly and its subsidiaries and imposes on the
Company certain financial tests and restrictive covenants.

NIPPON CREDIT AGREEMENT

In March 1993, Beverly Health entered into a secured bank credit agreement
with The Nippon Credit Bank, Ltd., and certain other lenders party thereto (the
"Nippon Credit Agreement") which provides for a seven year $20,000,000 term
loan. Currently, the loan under the Nippon Credit Agreement bears interest at
adjusted LIBOR plus 0.875% or the Prime Rate, as defined, at Beverly Health's
option. Such interest rates may be adjusted quarterly based on certain financial
ratio calculations. The Nippon Credit Agreement is secured by a mortgage
interest in certain nursing facilities. At September 30, 1995, the amount
outstanding under the Nippon Credit Agreement was approximately $20,000,000. The
Nippon Credit Agreement is guaranteed by Beverly and its subsidiaries and
imposes on the Company certain financial tests and restrictive covenants.

53
<PAGE> 58

LTCB CREDIT AGREEMENT

In March 1992, Beverly Health entered into a $100,000,000 secured bank
credit agreement with the Long Term Credit Bank of Japan, Ltd., and certain
other lenders party thereto (the "LTCB Credit Agreement") which provides for a
seven year term loan (the "Term Loan"). Currently, the loan under the LTCB
Credit Agreement bears interest at adjusted LIBOR plus 0.875% or the Prime Rate.
Such interest rates may be adjusted quarterly based on certain financial ratio
calculations. The LTCB Credit Agreement is secured by a mortgage interest in
certain nursing facilities and assisted living centers. At September 30, 1995,
the amount outstanding under the LTCB Credit Agreement was approximately
$55,000,000. The LTCB Credit Agreement is guaranteed by Beverly and its
subsidiaries and imposes on the Company certain financial tests and restrictive
covenants.

OTHER INDEBTEDNESS

In November 1995, Beverly issued $150,000,000 aggregate principal amount of
Subordinated Debentures in exchange for all outstanding shares of Preferred
Stock. The Subordinated Debentures bear interest at the rate of 5 1/2% per
annum, mature in August 2018 and contain conversion and optional redemption
provisions substantially identical to those of the Preferred Stock.

In June 1995, Beverly issued $25,000,000 aggregate principal amount of
Series 1995 Bonds, which require semi-annual interest-only payments at the rate
of 6.88% per annum with respect to $7,000,000 of such bonds and interest-only
payments at the rate of 7.24% per annum with respect to $18,000,000 of such
bonds. The Series 1995 Bonds require a $7,000,000 principal payment in June
2000, mature in June 2005 and are secured by a letter of credit.

In December 1994, Beverly, through a special purpose wholly owned
subsidiary Beverly Funding Corporation ("Beverly Funding"), issued $50,000,000
of medium term notes (the "Medium Term Notes") that bear interest at LIBOR, as
defined, plus 0.35%. Pursuant to the Medium Term Notes documents, eligible
receivables of selected nursing facilities are sold to Beverly Funding. At
September 30, 1995, Beverly Funding had total assets of approximately
$71,500,000 which cannot be used to satisfy claims of Beverly or any of its
other subsidiaries.

In May 1994, certain subsidiaries of Beverly Health entered into a
$25,000,000 promissory note (the "7.75% Note"), the proceeds from which were
used to repay higher interest rate debt. The 7.75% Note is secured by a mortgage
interest in 11 nursing facilities, one retirement center and certain personal
property.

In 1993, Beverly registered with the Securities and Exchange Commission
$100,000,000 aggregate principal amount of certain debt securities ("Debt
Securities"), which are to be offered from time to time as separate series in
amounts, at prices and on terms to be determined at the time of sale. During
1993, Beverly issued $20,000,000 of 8.75% First Mortgage Bonds, $30,000,000 of
8.625% First Mortgage Bonds and $25,000,000 of 8.75% Notes under such
registration. As of September 30, 1995, $25,000,000 of aggregate principal
amount of Debt Securities under such registration remained unissued.

Beverly has tax exempt industrial development revenue bonds outstanding
which were originally issued prior to 1985 primarily for the construction or
acquisition of nursing facilities. As of September 30, 1995, approximately
$216,700,000 aggregate principal amount of such bonds were outstanding.

54
<PAGE> 59

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between Beverly and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Stephens Inc. ("Stephens"), J.P. Morgan
Securities Inc. ("J.P. Morgan") and Chemical Securities Inc. ("Chemical
Securities" and, together with DLJ, Merrill Lynch, Stephens and J.P. Morgan, the
"Underwriters"), each of the Underwriters has severally agreed to purchase from
Beverly, and Beverly has agreed to sell to each of the Underwriters, the
respective principal amounts of Senior Notes set forth opposite its name below,
at the public offering price set forth on the cover page of this Prospectus,
less the underwriting discount:

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS SENIOR NOTES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............ $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Stephens Inc. .................................................
J.P. Morgan Securities Inc. ...................................
Chemical Securities Inc. ......................................
------------
$150,000,000
============
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to certain conditions precedent, including the approval
of certain legal matters by counsel. Beverly and the Guarantors have agreed to
indemnify the Underwriters against certain liabilities and expenses, including
liabilities under the Securities Act or to contribute to payments that the
Underwriters may be required to make in respect thereof. The nature of the
Underwriters' obligations is such that the Underwriters are committed to
purchase all of the Senior Notes if any of the Senior Notes are purchased by
them.

The Underwriters have advised Beverly that they propose to offer the Senior
Notes directly to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such offering price
less a concession not to exceed % of the principal amount of the Senior Notes.
The Underwriters may reallow, discounts not in excess of % of the principal
amount of the Senior Notes to certain other dealers. After the initial public
offering of the Senior Notes, the offering price and other selling terms may be
changed by the Underwriters.

The Senior Notes are a new issue of securities, have no established trading
market and may not be widely distributed. Beverly has been advised by the
Underwriters that, following the completion of this Offering, the Underwriters
presently intend to make a market in the Senior Notes as permitted by applicable
laws and regulations. The Underwriters, however, are under no obligation to do
so and may discontinue any market making activities at any time at the sole
discretion of the Underwriters. No assurance can be given as to the liquidity of
any trading market for the Senior Notes.

From time to time, each of the Underwriters (or in certain circumstances an
affiliate thereof) performs investment banking, commercial banking and/or other
financial services for the Company in return for customary fees. Additionally,
Jon E. M. Jacoby, Executive Vice President, Chief Financial Officer and a
director of Stephens Group, Inc., an affiliate of Stephens, serves as a director
of Beverly.

In addition, Morgan Guaranty, an affiliate of J.P. Morgan, is an arranging
agent and lender under the Morgan Credit Agreement and Chemical Bank, an
affiliate of Chemical Securities, is a lender under the Morgan Credit Agreement,
for which each received usual and customary fees. Chemical Bank is also acting
as Trustee under the Indenture relating to the Senior Notes.

Under the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. (the "NASD"), when more than 10% of the net proceeds of a public
offering of debt securities are to be paid to a member of the NASD or an
affiliate of a member the yield at which the debt securities are distributed to
the public must

55
<PAGE> 60

be no lower than that recommended by a "qualified independent underwriter"
meeting certain standards. Morgan Guaranty, an affiliate of J.P. Morgan and
Chemical Bank, an affiliate of Chemical Securities, will in the aggregate
receive more than 10% of the net proceeds from the Offering as a result of the
use of proceeds by Beverly to prepay the term loan portion of the Morgan Credit
Agreement. See "Use of Proceeds." As a result, this Offering is being made
subject to paragraph (8) of Section 44(c) of The Corporate Financing Rules of
the NASD which relates to offerings where proceeds are directed to a member of
the NASD. DLJ will act as a qualified independent underwriter in connection with
this offering and assume the usual responsibilities of acting as a qualified
independent underwriter in pricing and conducting due diligence for this
Offering. The yield at which the Notes will be distributed to the public will be
no less than that recommended by such qualified independent underwriter.

LEGAL MATTERS

Certain legal matters as to the validity of the Senior Notes and the
Guaranty will be passed upon for the Company by Latham & Watkins, Los Angeles,
California and certain other legal matters in connection with this Offering will
be passed upon for Beverly by John W. MacKenzie, Deputy General Counsel of
Beverly. Certain legal matters in connection with this Offering will be passed
upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New
York.

EXPERTS

The consolidated financial statements of Beverly Enterprises, Inc. at
December 31, 1994 and for each of the three years in the period ended December
31, 1994, appearing in Beverly Enterprises, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1994, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

56
<PAGE> 61
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SENIOR NOTES OFFERED HEREBY, NOR DO
THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SENIOR
NOTES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 12
Capitalization........................ 13
Selected Historical Financial
Information......................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 21
Management............................ 32
Description of Senior Notes........... 35
Description of Certain Indebtedness... 54
Underwriting.......................... 56
Legal Matters......................... 57
Experts............................... 57
</TABLE>

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

$150,000,000

BEVERLY ENTERPRISES, INC.

% SENIOR NOTES DUE 2005

--------------------
PROSPECTUS
--------------------

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

MERRILL LYNCH & CO.

STEPHENS INC.

J.P. MORGAN SECURITIES INC.

CHEMICAL SECURITIES INC.

, 1995

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

<PAGE> 62

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discount, are as
follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 51,725
National Association of Securities Dealers, Inc. filing fee............... 15,500
Rating Agency fees........................................................ 30,000
Printing and engraving expenses........................................... 200,000
Legal fees and expenses................................................... 200,000
Accounting fees and expenses.............................................. 75,000
Blue Sky fees and expenses................................................ 20,000
Trustees' fees and expenses............................................... 25,000
Miscellaneous............................................................. 32,775
--------
Total........................................................... $650,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law provides that a
director, officer, employee or agent of a corporation (i) must be indemnified by
the corporation for all expenses actually and reasonably incurred in connection
with any action, suit or proceeding when such individual is successful on the
merits or otherwise in such litigation or proceedings, (ii) may be indemnified
by the corporation for the expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in any action, suit or proceeding
(other than any action by or in the right of the corporation, which hereinafter
will be referred to as a "derivative action") even if such individual is not
successful, if he acted in good faith and in a manner such individual reasonably
believed to be in or not opposed to the best interests of the corporation (and,
in the case of a criminal proceeding, had no reasonable cause to believe his
conduct was unlawful), and (iii) may be indemnified by the corporation for
expenses actually and reasonably incurred in a derivative action, even if such
individual is not successful, if he or she acted in good faith and in a manner
such individual reasonably believed to be in or not opposed to the best
interests of the corporation, provided that indemnification may not be made in
the case of derivative actions if the director or officer is adjudged liable to
the corporation, unless and only to the extent the court determines that,
despite such adjudication but in view of all of the circumstances, such
individual is duly and reasonably entitled to indemnification of such expenses.
The indemnification described in (ii) and (iii) above may be made only upon a
determination by (i) a majority of a quorum of directors who are not parties to
such action, suit or proceeding, (ii) under certain circumstances, independent
legal counsel, or (iii) the stockholders, that indemnification is proper because
the applicable standard of conduct is met. Expenses incurred by a director or
officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be advanced by the corporation prior to the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such expenses if it is
ultimately determined that the individual is not entitled to be indemnified in
connection with the proceeding to which the expenses relate. Under Section 145,
except in the case in which a director or officer is successful on the merits or
otherwise, indemnification is discretionary.

The Restated Certificate of Incorporation and the Amended By-Laws of
Beverly and the indemnification agreements between Beverly and its officers and
directors (the "Indemnification Agreements") contain provisions regarding the
indemnification of officers and directors.

II-1
<PAGE> 63

The Restated Certificate of Incorporation of Beverly states:

ARTICLE XIII

The Corporation shall indemnify to the full extent permitted by law (such
as it presently exists or may hereafter be amended) any person made, or
threatened to be made, a defendant or witness to any action, suit or proceeding
(whether civil, criminal, administrative or investigative), by reason of the
fact that such person is or was a director or officer of the Corporation or by
reason of the fact that such director or officer, at the request of the
Corporation, is or was serving any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, in any capacity.

Any amendment, repeal, or modification of the foregoing paragraph shall not
adversely affect any right or protection of such person existing hereunder with
respect to any act or omission occurring prior to such amendment, repeal, or
modification.

The Amended By-Laws of Beverly state:

ARTICLE VI

INDEMNIFICATION

Section 1. Right to Indemnification. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he or she, or a person for whom he or
she is the legal representative, is or was a Director or Officer of the
Corporation (or a Director or Officer of Beverly Enterprises, a California
corporation ("Beverly California"), prior to the merger of Beverly Merger, Inc.,
a subsidiary of the Corporation organized under California law, into Beverly
California) or is or was serving at the request of the Corporation as a
Director, Officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust, enterprise, or nonprofit entity, including
service with respect to employee benefit plans, against all liability and loss
suffered and expenses reasonably incurred by such person. The Corporation shall
indemnify a person in connection with a proceeding initiated by such person only
if the proceeding was authorized by the Board of Directors of the Corporation.

Section 2. Prepayment of Expenses. The Corporation shall pay the expenses
incurred in defending any proceeding in advance of its final disposition,
provided, however, that the payment of expenses incurred by a Director or
Officer in his or her capacity as a Director or Officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Director or Officer to repay all amounts advanced if it should be
ultimately determined that the Director or Officer is not entitled to be
indemnified under this Article or otherwise.

Section 3. Claims. If a claim for indemnification or payment of expenses
under this Article VI is not paid in full within ninety (90) days after a
written claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.

Section 4. Nonexclusivity of Rights. The rights conferred on any person by
this Article VI shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the Restated
Certificate of Incorporation of the Corporation, these By-Laws, agreement, vote
of stockholders or disinterested directors or otherwise.

Section 5. Contracts and Arrangements. The Corporation may enter into
contracts providing indemnification to the full extent authorized or permitted
by the General Corporation Law of the State of Delaware and may create a trust
fund, grant a security interest and/or use other means (including, without
limitation, letters

II-2
<PAGE> 64

of credit, surety bonds and other similar arrangements) to ensure the payment of
such amounts as may become necessary to effect indemnification pursuant to such
contracts or otherwise.

Section 6. Amendment or Repeal. Any repeal or modification of the foregoing
provisions of this Article VI shall not adversely affect any right or protection
of any person in respect of any act or omission occurring prior to the time of
such repeal or modification.

The Indemnification Agreements provide (a) for indemnification to the
fullest extent permitted by law against any and all expenses (including
attorneys' fees and all other costs and obligations of any nature whatever),
judgments, fines, penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection therewith)
of any claim, unless a person or body appointed by the Board of Directors of
Beverly, (or, under certain circumstances discussed below, Independent Legal
Counsel) determines that such indemnification is not permitted under applicable
law; (b) for the prompt advancement of expenses to the director or officer,
including attorneys' fees and all other costs, fees, expenses and obligations
paid or incurred in connection with investigating, defending, being a witness or
participating in, or preparing to defend, be a witness in or participate in any
threatened, pending or completed action, suit or proceeding, alternate dispute
resolution mechanism or any inquiry, hearing or investigation related to the
fact that such director or officer is or was a director, officer, employee,
agent or fiduciary of Beverly or is or was serving at the request of Beverly as
a director, officer, employee, trustee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, and for repayment to Beverly if it is found that such director or
officer is not entitled to such indemnification under applicable law; (c) a
mechanism through which the director or officer may seek court relief in the
event the Board of Directors of Beverly (or other person or body appointed by
such Board) determines that the director or officer would not be permitted to be
indemnified under applicable law (and therefore is not entitled to
indemnification under the Indemnification Agreement); (d) indemnification
against expenses (including attorneys' fees) incurred in seeking to collect from
Beverly an indemnity claim or advancement of expenses to the extent successful;
(e) that after a change in control of Beverly all determinations by Beverly
regarding a right to indemnity and the right to advancement of expenses shall be
made by Independent Legal Counsel (as defined in the Indemnification Agreements)
to be selected by the director or officer and approved by the Board (which
approval cannot be unreasonably withheld); and (f) Beverly may create a trust
fund, grant a security interest and/or use other means (including, without
limitation, letters of credit, surety bonds and other similar agreements) to
ensure payment of indemnifiable amounts.

Among other things, the Indemnification Agreements provide the indemnified
directors and officers with a specific contractual assurance that the rights to
indemnification currently provided to them will remain available, regardless of,
among other things, any amendment to or revocation of the indemnification
provisions in the Restated Certificate of Incorporation or the Amended By-Laws
or any change in composition or philosophy of the Board of Directors of Beverly
such as might occur following an acquisition or change in control of Beverly.
The Indemnification Agreements ensure, in the event of a change of control, that
a determination of whether a director or officer is entitled to indemnification
and advancement of expenses will not be made by a possibly hostile board. If
court assistance to obtain such indemnity is required, the director or officer
can receive indemnity against costs incurred in pursuing his or her rights to
indemnification. In addition, the Indemnification Agreements guarantee to
directors and officers that they will realize the benefit of any subsequent
changes in Delaware law relating to indemnification.

The Indemnification Agreements impose upon Beverly if a change in control
has occurred, the burden of proving that the director or officer is not entitled
to indemnification in any particular case, and the Indemnification Agreements
negate certain presumptions which might otherwise be drawn against a director or
officer in connection with the termination of actions in certain circumstances.
The Indemnification Agreements also provide that a director's or officer's
rights thereunder are not exclusive of any other rights he or she may have under
Delaware law, directors' and officers' insurance, the Restated Certificate of
Incorporation, the Amended By-Laws or otherwise; however, the Indemnification
Agreements do prevent double payment. Notwithstanding the above discussion, all
terms and rights under the Indemnification Agreements exist only to the extent
permitted by applicable law.

II-3
<PAGE> 65

Beverly has in force directors' and officers' liability and company
reimbursement insurance covering liability for error, misstatement, misleading
statement, act or omission, and neglect or breach of duty claimed against them
solely by reason of their being directors or officers of Beverly.

ITEM 16. EXHIBITS

(a) Exhibits

<TABLE>
<S> <C>
*1.1 -- Form of Underwriting Agreement
4.1 -- Form of Indenture
4.2 -- Form of specimen Senior Note (included in Exhibit 4.1)
5.1 -- Opinion of Latham & Watkins as to validity of Senior Notes
12.1 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Latham & Watkins (included in its opinion filed as Exhibit
5.1)
24.1 -- Power of Attorney of Beverly's Directors and Officers (incorporated
in the signature page on page II-5 in this Registration Statement)
25.1 -- Statement of Eligibility of Trustee on Form T-1
</TABLE>

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

* To be filed by amendment.

ITEM 17. UNDERTAKINGS

(a) Each of undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of such
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of any
Registrant pursuant to the foregoing provisions, or otherwise, each Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 66

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Smith, State of Arkansas on November 9, 1995.

For the Registrants set forth in the
facing page and on the table of
additional Co-Registrants

By: /s/ DAVID R. BANKS
----------------------------
David R. Banks
Chairman of the Board
and Chief Executive Officer
of Beverly Enterprises, Inc.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David R. Banks, Robert W. Pommerville, Scott M.
Tabakin, John W. MacKenzie and Pamela M. Daniels, and each or any of them, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<S> <C> <C>
/s/ DAVID R. BANKS Chairman of the Board, November 9, 1995
-------------------------- Chief Executive Officer and
David R. Banks Director

/s/ SCOTT M. TABAKIN Senior Vice President, November 9, 1995
-------------------------- Acting Chief Financial
Scott M. Tabakin Officer, Controller and
Chief Accounting Officer

-------------------------- Director November 9, 1995
Beryl F. Anthony, Jr.

/s/ JAMES R. GREENE Director November 9, 1995
--------------------------
James R. Greene

/s/ EDITH E. HOLIDAY Director November 9, 1995
--------------------------
Edith E. Holiday

-------------------------- Director November 9, 1995
Jon E. M. Jacoby

-------------------------- Director November 9, 1995
Risa J. Lavizzo-Mourey

/s/ LOUIS W. MENK Director November 9, 1995
--------------------------
Louis W. Menk

/s/ MARILYN R. SEYMANN Director November 9, 1995
--------------------------
Marilyn R. Seymann

/s/ BOYD W. HENDRICKSON Director November 9, 1995
--------------------------
Boyd W. Hendrickson
</TABLE>

II-5
<PAGE> 67

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------------- ------------------------------------------------------- ---------------------
<S> <C> <C>
*1.1 Form of Underwriting Agreement.................................
4.1 Form of Indenture..............................................
4.2 Form of Specimen Senior Note (included in Exhibit 4.1).........
5.1 Opinion of Latham & Watkins as to validity of Senior Notes.....
12.1 Computation of Ratio of Earnings to Fixed Charges..............
23.1 Consent of Ernst & Young LLP...................................
23.2 Consent of Latham & Watkins (included in its opinion filed as
Exhibit 5.1)...................................................
24.1 Power of Attorney of Beverly's Directors and Officers
(incorporated in
the signature page on page II-5 in this Registration
Statement).....................................................
25.1 Statement of Eligibility of Trustee on Form T-1................
</TABLE>

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

* To be filed by amendment.

<PAGE> 1

DRAFT
================================================================================

BEVERLY ENTERPRISES, INC.

__________________________

$150,000,000

% SENIOR NOTES DUE 2005

__________________________

INDENTURE

DATED AS OF ________, 1995

__________________________

CHEMICAL BANK

__________________________

AS TRUSTEE

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<PAGE> 2
CROSS-REFERENCE TABLE*

<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- --------------- -------
<S> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 10.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3; 10.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(iii)(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 10.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(i)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(iii)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13; 9.4
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
</TABLE>

N.A. means not applicable.

___________________________
*THIS CROSS-REFERENCE TABLE IS NOT PART OF THE INDENTURE.

i
<PAGE> 3
TABLE OF CONTENTS

ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE

SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 1.3. Incorporation By Reference of TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 1.4. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

ARTICLE 2
THE SECURITIES;
OFFER TO PURCHASE PROCEDURES

SECTION 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.4. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.5. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.13. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.14. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.15. Offer to Purchase by Application of Excess Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 29

ARTICLE 3
REDEMPTION

SECTION 3.1. Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.2. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.3. Selection of Securities to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.4. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.5. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.6. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.7. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>

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ARTICLE 4
COVENANTS

SECTION 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.3. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.4. Compliance Certificate; Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 4.6. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 4.7. Limitations on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 4.8. Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . 45
SECTION 4.9. Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock . . . . . . . . . . . . . . 46
SECTION 4.10. Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 4.11. Limitations on Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 4.12. Limitations on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.13. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.14. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 4.15. Line of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

ARTICLE 5
SUCCESSORS

SECTION 5.1. Limitations on Mergers, Consolidations or Sales of Assets . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

ARTICLE 6
DEFAULTS AND REMEDIES

SECTION 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 6.7. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

ARTICLE 7
TRUSTEE

SECTION 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>

ii
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<TABLE>
<CAPTION>
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----
<S> <C>
SECTION 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 7.6. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 7.9. Successor Trustee or Agent by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . . . 74

ARTICLE 8
DISCHARGE OF INDENTURE

SECTION 8.1. Defeasance and Discharge of This Indenture and the Securities . . . . . . . . . . . . . . . . . . . . 75
SECTION 8.2. Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 8.5. Deposited Cash and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. . 80
SECTION 8.6. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER

SECTION 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 9.3. Compliance With TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 9.5. Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.6. Trustee to Sign Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

ARTICLE 10
GUARANTEE

SECTION 10.1. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 10.2. Execution and Delivery of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.3. Future Subsidiary Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.4. Guarantor May Consolidate, etc., on Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.5. Release of Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.6. Certain Bankruptcy Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

ARTICLE 11
MISCELLANEOUS

SECTION 11.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 11.3. Communication by Holders With Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
</TABLE>

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SECTION 11.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 11.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 11.6. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 11.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 11.8. No Personal Liability of Directors, Officers, Employees and Shareholders . . . . . . . . . . . . . . 97
SECTION 11.9. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 11.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 11.11. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 11.12. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 11.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 11.14. Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 11.15. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
</TABLE>

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<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
EXHIBITS

Exhibit A FORM OF SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A
Exhibit B FORM OF SUPPLEMENTAL INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B
</TABLE>

v
<PAGE> 8
INDENTURE dated as of ________ __, 1995, among Beverly
Enterprises, Inc., a Delaware corporation (the "Company"), the corporations
listed on the signature page hereto (the "Guarantors") and Chemical Bank, a New
York corporation, as trustee (the "Trustee").

Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the __%
Senior Notes due 2005 (the "Securities"):

ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE

SECTION 1.1. Definitions.

"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.

"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.

"Agent" means any Registrar, Paying Agent or co-registrar.
<PAGE> 9
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback or by merger or consolidation) other than in the ordinary course of
business (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole will be governed by Section 4.13 and/or Section 5.1 hereof and not by
Section 4.10 hereof), and (ii) the issuance or sale by the Company or any of
its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in
the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$10.0 million or (b) for net proceeds in excess of $10.0 million.
Notwithstanding the foregoing: (a) a transfer of assets by the Company to a
Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (b) an
issuance of Equity Interests by a Subsidiary to the Company or to another
Subsidiary, (c) a Restricted Payment that is permitted by Section 4.7 hereof
and (d) a Nursing Facility Swap shall not be deemed to be an Asset Sale.

"Board of Directors" means the Board of Directors of the
Company or any authorized committee thereof.

"Business Day" means any day other than a Legal Holiday.

"Capital Lease" means, at the time any determination thereof
is to be made, any lease of property, real or personal, in respect of which the
present value of the minimum rental commitment would be capitalized on a
balance sheet of the lessee in accordance with GAAP.

"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a Capital Lease that would at such time be required to be capitalized on a
balance sheet in accordance with GAAP.

2
<PAGE> 10
case of a partnership, partnership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.

"cash" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.

"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than one year from the date of acquisition, (iii) certificates of
deposit with maturities of one year or less from the date of acquisition,
bankers' acceptances (or, with respect to foreign banks, similar instruments)
with maturities not exceeding one year and overnight bank deposits, in each
case with any domestic commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia, or any
United States branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $100.0 million, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Moody's or S&P and in each case maturing within one year after the date of
acquisition, and (vi) investments in money market funds which invest
substantially all their assets in securities of the types described in the
foregoing clauses (i) through (v).

3
<PAGE> 11
Company, (ii) the acquisition by any Person or group, as defined above, of a
direct or indirect interest in more than 50% of the voting power of the voting
stock of the Company, by way of merger, consolidation or otherwise, or (iii)
the first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors.

"Change of Control Triggering Event" means the occurrence of
both a Change of Control and a Rating Decline.

"Commission" means the Securities and Exchange Commission.

"Company" means Beverly Enterprises, Inc., as obligor under
the Securities, unless and until a successor replaces Beverly Enterprises,
Inc., in accordance with Article 5 hereof and thereafter includes such
successor.

"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period, plus
(i) provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent such provision for taxes was
included in computing such Consolidated Net Income, plus (ii) the Fixed Charges
of such Person and its Subsidiaries for such period, to the extent that such
Fixed Charges were deducted in computing such Consolidated Net Income, plus
(iii) depreciation and amortization (including amortization of goodwill and
other intangibles, but excluding amortization of prepaid cash expenses that
were paid in a prior period) of such Person and its Subsidiaries for such
period to the extent that such depreciation and amortization were deducted in
computing such Consolidated Net Income, plus (iv) the other non-cash expenses
of such Person and its subsidiaries for such period to the extent such non-cash
expenses were deducted in computing such Consolidated Net Income, in each case,
on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, the depreciation and amortization of, and the other non-cash expenses of, a
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in same proportion)

4
<PAGE> 12
that the Net Income of such Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to
that Subsidiary or its stockholders.

"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis; provided that (i) the
Net Income of any Person that is not a Subsidiary or that is accounted for by
the equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to the referent Person or a
Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.

"Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the common stockholders
of such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Redeemable Stock), less
all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
in accordance with GAAP as a result of the acquisition of such business)
subsequent to the date hereof in the book value of any asset owned by such
Person or a consolidated Subsidiary of such

5
<PAGE> 13
Person, and excluding the cumulative effect of a change in accounting
principles, all as determined in accordance with GAAP.

"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of
such Board of Directors on the date hereof or (ii) was nominated for election
or elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.

"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 10.2 hereof or such other address
as to which the Trustee may give notice to the Company.

"Credit Agreement" means that certain Credit Agreement, dated
as of November 1, 1994, by and among Beverly California Corporation, a
California corporation, the Company and Morgan Guaranty Trust Company of New
York and the other banks that are party thereto, providing for $225,000,000 in
aggregate principal amount of Senior Term Debt and up to $150,000,000 in
aggregate principal amount of Senior Revolving Debt, including any related
notes, collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, extended, renewed, refunded,
replaced or refinanced, in whole or in part, from time to time.

"Debt to Consolidated Cash Flow Ratio" means with respect to
any Person as of any date of determination (the "Debt Ratio Calculation Date"),
the ratio of (i) the aggregate amount of Indebtedness of such Person and its
Subsidiaries, on a consolidated basis, outstanding as of the Debt Ratio
Calculation Date to (ii) the Consolidated Cash Flow of such Person for the
Reference Period immediately preceding such Debt Ratio Calculation Date. For
purposes of making the computation referred to above, (i) acquisitions that
have been made by such Person or any of its Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the Reference Period or subsequent to such Reference Period and on or
prior to the Debt Ratio Calculation Date shall be deemed to have occurred on
the first day of the Reference Period, and

6
<PAGE> 14
(ii) the Consolidated Cash Flow and Fixed Charges attributable to operations or
businesses disposed of prior to the Debt Ratio Calculation Date shall be
excluded.

"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.

"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).

"Exchange Act" means the Securities Exchange Act of 1934, as
amended.

"Excluded Guarantee Subsidiary" shall have the meaning
specified in Section 10.3.

"Existing Indebtedness" means Indebtedness of the Company and
its Subsidiaries in existence on the date hereof, until such amounts are
repaid.

"Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the Company or any of its Subsidiaries incurs, assumes, guarantees or redeems
any Indebtedness (other than revolving credit borrowings) or issues preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable Reference Period. In
addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the Reference Period or subsequent to such Reference
Period and on or prior to the Calculation Date shall be deemed to have occurred
on the first day of the Refer-

7
<PAGE> 15
ence Period, and (ii) the Consolidated Cash Flow and Fixed Charges attributable
to operations or businesses disposed of prior to the Calculation Date, shall be
excluded.

"Fixed Charges" means, with respect to any Person for any
period, the sum of (i) the consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letters of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations) and (ii) the consolidated interest expense of
such Person and its Subsidiaries that was capitalized during such period, and
(iii) interest actually paid by such Person or any of its Subsidiaries under
any guarantee of Indebtedness or other obligation of any other Person and (iv)
the product of (a) all cash dividend payments (and non-cash dividend payments
in the case of a Person that is a Subsidiary) on any series of preferred stock
of such Person, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.

"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, as in effect from time to time.

"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.

8
<PAGE> 16
"Guarantors" means (i) the Subsidiaries designated as such on
the signature pages hereof, and its successors and assigns and (ii) Future
Subsidiary Guarantors that became Guarantors pursuant to the terms of this
Indenture, but excluding Beverly Funding Corporation and Beverly Indemnity,
Ltd., any Persons whose guarantees have been released pursuant to the terms of
this Indenture, and any Excluded Guarantee Subsidiary.

"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) foreign exchange
contracts or currency swap agreements and (iii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency values.

"Holder" means a Person in whose name a Security is registered.

"Indebtedness" means with respect to any Person, (i) any
Redeemable Stock of such Person, (ii) any indebtedness of such Person, whether
or not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (iii) all indebtedness of others secured by a
Lien on any asset of such Person (whether or not such indebtedness is assumed
by such Person) and, (iv) to the extent not otherwise included, the guarantee
by such Person of any indebtedness of any other Person.

"Indenture" means this Indenture, as amended or supplemented
from time to time.

"Interest Payment Date" means the stated due date of an
installment of interest on the Securities.

9
<PAGE> 17
"Investment" by any Person in any other Person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such Person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities, including any options or warrants, of
such other Person or any agreement to make any such acquisition; (b) the making
by such Person of any deposit with, or advance, loan or other extension of
credit to, such other Person (including the purchase of property from another
Person subject to an understanding or agreement, contingent or otherwise, to
resell such property to such other Person) or any commitment to make any such
advance, loan or extension (but excluding accounts receivable or deposits
arising in the ordinary course of business); (c) other than guarantees of
Indebtedness of the Company or any Subsidiary to the extent permitted by the
covenant "Incurrence of Indebtedness," the entering into by such Person of any
guarantee of, or other credit support or contingent obligation with respect to,
Indebtedness or other liability of such other Person; provided, however,
Investments shall not be deemed to include extensions of trade credit by such
Person or any of its Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of such Person or such Subsidiary, as
the case may be.

"Investment Grade" means a rating of BBB- or higher by S&P or
Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's.
In the event that the Company shall select any other Rating Agency, the
equivalent of such ratings by such Rating Agency shall be used.

"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset given to secure Indebtedness, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction with respect to any such lien, pledge,
charge or security interest).

10
<PAGE> 18
"Maturity Date" means, when used with respect to any Security,
the date specified on such Security as the fixed date on which the final
installment of principal of such Security is due and payable (in the absence of
any acceleration thereof pursuant to the provisions of the Indenture regarding
acceleration of Indebtedness or any Change of Control Offer or Senior Asset
Sale Offer).

"Moody's" means Moody's Investors Services, Inc. and its
successors.

"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP, excluding, however,
all extraordinary gains or losses, together with any related provision for
taxes on such extraordinary gain or loss.

"Net Proceeds" means the aggregate cash or Cash Equivalent
proceeds received by the Company or any of its Subsidiaries in respect of any
Asset Sale, net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and sales
commissions) and any other expenses incurred or to be incurred by the Company
or a Subsidiary as a direct result of the sale of such assets (including,
without limitation, severance, relocation, lease termination and other similar
expenses), taxes actually paid or payable as a result thereof, amounts required
to be applied to the repayment of Indebtedness (other than Subordinated
Indebtedness or Senior Revolving Debt) secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.

"Non-Cash Consideration" means any non-cash consideration
received by the Company or a Subsidiary of the Company in connection with an
Asset Sale and any non-cash consideration received by the Company or any of its
Subsidiaries upon disposition thereof.

"Non-Qualified Asset Sale" means an Asset Sale in which the
Non-Cash Consideration received by the Company or its Subsidiaries exceeds 25%
of the total consideration received in connection with such Asset

11
<PAGE> 19
Sale. The Spinoff Transaction shall be deemed not to constitute a
Non-Qualified Asset Sale.

"Nursing Facility" means a nursing facility, hospital,
outpatient clinic, assisted living center, hospice, long-term care facility or
other facility that is used or useful in the provision of healthcare services.

"Nursing Facility Swap" means an exchange of assets by the
Company or one or more Subsidiaries of the Company for one or more Nursing
Facilities and/or one or more Related Businesses or for the Capital Stock of
any Person owning one or more Nursing Facilities and/or one or more Related
Businesses.

"Obligations" means any principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.

"Officers" means the Chairman of the Board, the Chief
Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary and any Vice President of the Company or any Subsidiary, as the case
may be.

"Officers' Certificate" means a certificate signed by two
Officers, one of whom must be the principal executive officer, principal
financial officer or principal accounting officer of the Company.

"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company, any Subsidiary or the Trustee.

"Payment Default" means any failure to pay any scheduled
installment of interest or principal on any Indebtedness within the grace
period provided for such payment in the documentation governing such
Indebtedness.

"PCA" means Pharmacy Corporation of America, a California
corporation.

12
<PAGE> 20
"Permitted Liens" means (i) Liens in favor of the Company;
(ii) Liens on property of a Person existing at the time such Person is merged
into or consolidated with the Company or any Subsidiary of the Company or
becomes a Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger, consolidation or acquisition and do
not extend to any assets other than those of the Person merged into or
consolidated with the Company or that becomes a Subsidiary of the Company;
(iii) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (iv) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (v) Liens existing on the date hereof; (vi) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (vii) other Liens on assets of the Company or any
Subsidiary of the Company securing Indebtedness that is permitted by the terms
hereof to be outstanding having an aggregate principal amount at any one time
outstanding not to exceed $5.0 million; (viii) Liens to secure Permitted
Refinancing Indebtedness incurred to refinance Indebtedness that was secured by
a Lien permitted hereunder and that was incurred in accordance with the
provisions hereof; pro-vided that such Liens do not extend to or cover any
property or assets of the Company or any Subsidiary other than assets or
property securing the Indebtedness so refinanced; (ix) Purchase Money Liens;
(x) Liens on Medicare, Medicaid or other patient accounts receivable of the
Company or its Subsidiaries and any other Liens granted by a Receivables
Subsidiary, in each case in connection with a Receivables Financing; provided
that the aggregate principal or redemption amount of Receivables Financing
outstanding shall not exceed 50% of the net amount of the uncollected Medicare,
Medicaid or other patient accounts receivable then owing to the Company or its
Subsidiaries; (xi) Liens to secure Indebtedness permitted under the Indenture,
the net proceeds of which are used to permanently reduce an equivalent
principal

13
<PAGE> 21
amount of other secured Indebtedness of the Company or its Subsidiaries less
any premiums and reasonable expenses incurred in connection therewith; (xii)
[collateral substitution provision to be proposed by Beverly]; (xiii) Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business; (xiv)
easements, rights-of-way, zoning restrictions, reservations, encroachments and
other similar encumbrances in respect of real property; (xv) any interest or
title of a lessor under any Capitalized Lease Obligation; (xvi) Liens upon
specific items of inventory or equipment and proceeds of the Company or any
Subsidiary securing its obligations in respect of bankers' acceptances issued
or created for its account (whether or not under the Credit Agreement) to
facilitate the purchase, shipment, or storage of such inventory and equipment;
(xvii) Liens securing reimbursement obligations with respect to letters of
credit (whether or not issued under the Credit Agreement) otherwise permitted
under the Indenture and issued in connection with the purchase of inventory or
equipment by the Company or any Subsidiary in the ordinary course of business;
(xviii) Liens to secure (or encumbering deposits securing) obligations arising
from warranty or contractual service obligations of the Company or any
Subsidiary, including rights of offset and setoff; (ix) Liens securing Acquired
Debt or acquisition Indebtedness otherwise permitted by the Indenture; provided
that (A) the Indebtedness secured shall not exceed the fair market value of the
assets so acquired (such fair market value to be determined in good faith by
the Board of Directors of the Company at the time of such acquisition) and (B)
such Indebtedness shall be incurred, and the Lien securing such Indebtedness
shall be created, within 12 months after such acquisition; (xx) Liens securing
Hedging Obligations Agreements relating to Indebtedness otherwise permitted
under the Indenture; and (xxi) Liens securing stay and appeal bonds or judgment
Liens in connection with any judgment not giving rise to a Default under the
Indenture.

"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Subsidiaries issued in exchange for, or the net
proceeds of which are used solely to extend, refinance, renew, replace, defease
or refund, other Indebtedness of the Company or any of its Subsidiaries;
provided that: (i) the principal amount

14
<PAGE> 22
of such Permitted Refinancing Indebtedness does not exceed the principal amount
of the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of any premiums paid and reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is Subordinated Indebtedness, such
Permitted Refinancing Indebtedness has a final maturity date of, and is
subordinated in right of payment to, the Securities on terms at least as
favorable to the Holders of Securities as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and [(iv) such Indebtedness is incurred either by the
Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.]

"Person" means an individual, corporation, partnership, joint
venture, association, joint-stock company, trust or unincorporated organization
(including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).

"Purchase Money Indebtedness" means any Indebtedness of a
Person to any seller or other Person incurred to finance the acquisition or
construction (including in the case of a Capital Lease Obligation, the lease)
of any real or personal tangible property which is incurred within 180 days of
such acquisition or completion of construction and is secured only by the
assets so financed.

"Purchase Money Lien" means a Lien granted on an asset or
property to secure Purchase Money Indebtedness permitted to be incurred under
the Indenture and incurred solely to finance the acquisition or construction of
such asset or property; provided, however, that such Lien encumbers only such
asset or property and is

15
<PAGE> 23
granted within 180 days of such acquisition or completion of construction.

"Qualified Equity Interests" shall mean all Equity Interests
of the Company other than Redeemable Stock of the Company.

"Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if
S&P or Moody's or both shall not make a rating of the Securities publicly
available, a nationally recognized securities rating agency or agencies, as the
case may be, selected by the Company, shall be substituted for S&P or Moody's
or both, as the case may be.

"Rating Category" means (i) with respect to S&P, any of the
following categories: BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the following categories:
Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the
equivalent of any such category of S&P or Moody's used by another Rating
Agency. In determining whether the rating of the Securities has decreased by
one or more gradations, gradations within Rating Categories (+ and - for S&P,
1, 2 and 3 for Moody's; or the equivalent gradations for another Rating Agency)
shall be taken into account (e.g., with respect to S&P, a decline in a rating
from BB+ to BB, as well as from BB- to B+, shall constitute a decrease of one
gradation).

"Rating Date" means the date which is 90 days prior to the
earlier of (i) a Change of Control and (ii) the first public notice of the
occurrence of a Change of Control or of the intention by the Company to effect
a Change of Control.

"Rating Decline" means the occurrence on or within 90 days
after the date of the first public notice of the occurrence of a Change of
Control or of the intention by the Company to effect a Change of Control (which
period shall be extended so long as the rating of the Securities is under
publicly announced consideration for possible downgrade by any of the Rating
Agencies) of: (a) in the event the Securities are rated by either Moody's or
S&P on the Rating Date as Invest-

16
<PAGE> 24
ment Grade, a decrease in the rating of the Securities by both Rating Agencies
to a rating that is below Investment Grade, or (b) in the event the Securities
are rated below Investment Grade by both Rating Agencies on the Rating Date, a
decrease in the rating of the Securities by either Rating Agency by one or more
gradations (including gradations within Rating Categories as well as between
Rating Categories).

"Receivables Financing" means the sale or other disposition of
Medicare, Medicaid or other patient accounts receivable of the Company or any
of its Subsidiaries to a Receivables Subsidiary followed by a financing
transaction in connection with such sale or disposition of such accounts
receivable.

"Receivables Subsidiary" means a Subsidiary of the Company
exclusively engaged in Receivables Financing and activities reasonably related
thereto.

"Record Date" means a Record Date specified in the Securities
whether or not such Record Date is a Business Day.

"Redeemable Stock" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date on which the Senior Notes mature.

"Redemption Date," when used with respect to any Security to
be redeemed, means the date fixed for such redemption pursuant to Article 3 of
this Indenture and Paragraph 5 in the form of Security.

"Redemption Price," when used with respect to any Security to
be redeemed, means the redemption price for such redemption pursuant to
Paragraph 5 in the form of Security, which shall include, without duplication,
in each case, accrued and unpaid interest to the Redemption Date (subject to
the provisions of Section 3.5).

"Reference Period" with regard to any Person means the four
full fiscal quarters (or such lesser period during which such Person has been
in existence) for which internal financial statements are available ended
immediately preceding any date upon which any

17
<PAGE> 25
determination is to be made pursuant to the terms of the Senior Notes or the
Indenture.

"Related Business" means the business conducted by the Company
and its Subsidiaries as of the date of the Indenture and any and all healthcare
service businesses that in the good faith judgment of the Board of Directors of
the Company are materially related businesses. Without limiting the generality
of the foregoing, Related Business shall include the operation of long-term and
specialty healthcare services, skilled nursing care, subacute care,
rehabilitation programs, pharmaceutical services, geriatric care and home
healthcare.

"Responsible Officer" when used with respect to the Trustee,
means any officer within the corporate trust department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.

"Restricted Investment" means, in one or a series of related
transactions, any Investment, other than (i) Investments in Cash Equivalents,
(ii) Investments in a Subsidiary, (iii) Investments in any Person that as a
consequence of such Investment becomes a Subsidiary, (iv) Investments existing
on the date of the Indenture, (v) accounts receivable, advances, loans,
extensions of credit created or acquired in the ordinary course of business,
(vi) Investments made as a result of the receipt of Non-Cash Consideration from
an Asset Sale that was made pursuant to and in compliance with Section 4.10
hereof, and (vii) Investments made as the result of the guarantee by the
Company or any of its Subsidiaries of Indebtedness secured by Liens on assets
sold or otherwise disposed of by the Company or such Subsidiary; provided that
such Indebtedness was in existence prior to the contemplation of such sale or
other disposition and that the terms of such guarantee permit the Company or
such Subsidiary to foreclose on the pledged or mortgaged assets if the Company
or such Subsidiary are required to perform under such guarantee; provided,
however, that a merger of another Person with or into the Company or a
Guarantor shall not be deemed to be a Restricted Invest-

18
<PAGE> 26
ment so long as the surviving entity is the Company or a direct wholly owned
Guarantor.

"Securities" means the securities described above, issued
under this Indenture.

"Securities Act" means the Securities Act of 1933, as amended.

"Senior Revolving Debt" means revolving credit loans and
letters of credit outstanding from time to time under the Credit Agreement.

"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

"S&P" means Standard & Poor's Corporation and its successors.

"Spinoff Transaction" means a pro rata distribution by the
Company to its shareholders of all or a portion of the shares of PCA or a sale
to an unaffiliated Person or Persons of shares of PCA or all or substantially
all of the assets of PCA.

"Stockholders' Equity" means, with respect to any Person as of
any date, the stockholders' equity of such Person determined in accordance with
GAAP as of the date of the most recent available internal financial statements
of such Person, and calculated on a pro forma basis to give effect to any
acquisition or disposition by such Person consummated or to be consummated
since the date of such financial statements and on or prior to the date of such
calculation.

"Subordinated Indebtedness" means (i) Indebtedness of the
Company or a Guarantor that is subordinated in right of payment to the
Securities or such Subsidiary's guarantee of the Securities, as applicable, or
(ii) Indebtedness of the Company or a Guarantor (other than secured
Indebtedness) that has a stated maturity on or after the stated maturity of the
Securities.

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<PAGE> 27
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).

"TIA" means the Trust Indenture Act of 1939, as amended (15
U.S.C. Section 77aaa-77bbbb) as in effect on the date on which this Indenture
is qualified under the TIA, except as provided in Section 9.3 hereof.

"Transfer Restriction" means, with respect to the Company's
Subsidiaries, any encumbrance or restriction on the ability of any Subsidiary
to (i)(a) pay dividends or make any other distributions to the Company or any
of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or
advances to the Company or any of its Subsidiaries, or (iii) transfer any of
its properties or assets to the Company or any of its Subsidiaries.

"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.

"U.S. Government Obligations" means direct noncallable
obligations of, or noncallable obligations guaranteed by, the United States of
America for the payment of which obligation or guarantee the full faith and
credit of the United States of America is pledged.

20
<PAGE> 28
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.

"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned
by such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.

SECTION 1.2. Other Definitions.

<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . 4.11
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . 6.1
"Change of Control Offer" . . . . . . . . . . . . . . 4.13
"Change of Control Payment" . . . . . . . . . . . . . 4.13
"Change of Control Payment Date" . . . . . . . . . . . 4.13
"Commencement Date" . . . . . . . . . . . . . . . . . 2.15
"Covenant Defeasance" . . . . . . . . . . . . . . . . 8.3
"Custodian" . . . . . . . . . . . . . . . . . . . . . 6.1
"Event of Default" . . . . . . . . . . . . . . . . . . 6.1
"Excess Proceeds" . . . . . . . . . . . . . . . . . . 4.10
"Guarantee" . . . . . . . . . . . . . . . . . . . . . 10.1
"incur" . . . . . . . . . . . . . . . . . . . . . . . 4.9
"Legal Defeasance" . . . . . . . . . . . . . . . . . . 8.2
"Legal Holiday" . . . . . . . . . . . . . . . . . . . 10.7
"Notice of Default" . . . . . . . . . . . . . . . . . 6.1
"Offer Amount" . . . . . . . . . . . . . . . . . . . . 2.15
"Offer Period" . . . . . . . . . . . . . . . . . . . . 2.15
"Paying Agent" . . . . . . . . . . . . . . . . . . . . 2.3
"Purchase Date" . . . . . . . . . . . . . . . . . . . 2.15
"Purchase Price" . . . . . . . . . . . . . . . . . . . 4.10
"Registrar" . . . . . . . . . . . . . . . . . . . . . 2.3
"Restricted Payments" . . . . . . . . . . . . . . . . 4.7
"Senior Asset Sale Offer" . . . . . . . . . . . . . . 4.10
</TABLE>

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<PAGE> 29
SECTION 1.3. Incorporation By Reference of TIA.

Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.

The following TIA terms used in this Indenture have the
following meanings:

"Indenture Securities" means the Securities;

"Indenture Security Holder" means a Holder;

"Indenture to be Qualified" means this Inden ture;

"Indenture Trustee" or "Institutional Trustee" means the
Trustee;

"Obligor" on the Securities means the Company and any
successor obligor upon the Securities.

All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by the Commission
rule under the TIA have the meanings so assigned to them.

SECTION 1.4. Rules of Construction.

Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;

(3) "or" is not exclusive;

(4) words in the singular include the plural, and in the
plural include the singular; and

(5) provisions apply to successive events and
transactions.

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<PAGE> 30
ARTICLE 2
THE SECURITIES; OFFER TO PURCHASE PROCEDURES

SECTION 2.1. Form and Dating.

The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Securities may have
notations, legends or endorsements approved as to form by the Company and
required by law, stock exchange rule, agreements to which the Company is
subject or usage. Each Security shall be dated the date of its authentication.
The Securities shall be issuable only in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.

SECTION 2.2. Execution and Authentication.

An Officer of the Company shall sign the Securities for the
Company by manual or facsimile signature. The Company's seal shall be
reproduced on the Securities and may be in facsimile form.

If an Officer whose signature is on a Security no longer holds
that office at the time the Security is authenticated, the Security shall
nevertheless be valid.

A Security shall not be valid until authenticated by the
manual signature of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Security has been authenticated under this
Indenture. The form of Trustee's certificate of authentication to be borne by
the Securities shall be substantially as set forth in Exhibit A hereto.

The Trustee shall, upon a written order of the Company signed
by two Officers of the Company, authenticate Securities for original issue up
to the aggregate principal amount stated in paragraph 4 of the Securities. The
aggregate principal amount of Securities outstanding at any time shall not
exceed the amount set forth herein except as provided in Section 2.7 hereof.

The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities. Unless limited by the terms of such
appointment, an au-

23
<PAGE> 31
thenticating agent may authenticate Securities whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.

SECTION 2.3. Registrar and Paying Agent.

The Company shall maintain (i) an office or agency where
Securities may be presented for registration of transfer or for exchange
(including any co-registrar, the "Registrar") and (ii) an office or agency
where Securities may be presented for payment (the "Paying Agent"). The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent, Registrar or co-
registrar without prior notice to any Holder. The Company shall notify the
Trustee and the Trustee shall notify the Holders of the name and address of any
Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee shall act as
such. The Company or any of its Subsidiaries may act as Paying Agent,
Registrar or co-registrar. The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, which shall incorporate
the provisions of the TIA. The agreement shall implement the provisions of
this Indenture that relate to such Agent. The Company shall notify the Trustee
of the name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.7 hereof.

The Company initially appoints the Trustee as Registrar,
Paying Agent and agent for service of notices and demands in connection with
the securities.

SECTION 2.4. Paying Agent to Hold Money in Trust.

On or prior to the due date of principal of, premium, if any,
and interest on any Securities, the

24
<PAGE> 32
Company shall deposit with the Trustee or the Paying Agent money sufficient to
pay such principal, premium, if any, and interest becoming due. The Company
shall require each Paying Agent other than the Trustee to agree in writing that
the Paying Agent shall hold in trust for the benefit of the Holders or the
Trustee all money held by the Paying Agent for the payment of principal of,
premium, if any, and interest on the Securities, and shall notify the Trustee
of any Default by the Company in making any such payment. While any such
Default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company) shall have no further liability for
the money delivered to the Trustee. If the Company acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the
Holders all money held by it as Paying Agent.

SECTION 2.5. Holder Lists.

The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Holders, including the aggregate principal amount of the Securities held by
each thereof, and the Company shall otherwise comply with TIA Section 312(a).

SECTION 2.6. Transfer and Exchange.

When Securities are presented to the Registrar with a request
to register the transfer or to exchange them for an equal principal amount of
Securities of other denominations, the Registrar shall register the transfer or
make the exchange if its requirements for such transactions are met; provided,
however, that any Security presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to

25
<PAGE> 33
the Registrar and the Trustee duly executed by the Holder thereof or by his
attorney duly authorized in writing. To permit registrations of transfer and
exchanges, the Company shall issue and the Trustee shall authenticate
Securities at the Registrar's request, subject to such rules as the Trustee may
reasonably require.

Neither the Company nor the Registrar shall be required to
register the transfer or exchange of a Security between the record date and the
next succeeding Interest Payment Date.

No service charge shall be made to any Holder for any
registration of transfer or exchange (except as otherwise expressly permitted
herein), but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than such transfer tax or similar governmental charge payable upon
exchanges pursuant to Sections 2.10 or 9.5 hereof, which shall be paid by the
Company).

Prior to due presentment for registration of transfer of any
Security, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Security is registered as the absolute owner of such Security
for the purpose of receiving payment of principal of, premium, if any, and
interest on such Security and for all other purposes whatsoever, whether or not
such Security is overdue, and neither the Trustee, any Agent nor the Company
shall be affected by notice to the contrary.

SECTION 2.7. Replacement Securities.

If any mutilated Security is surrendered to the Trustee or the
Company, or the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon the written order of the Company signed by two Officers of the
Company, shall authenticate a replacement Security if the Trustee's
requirements for replacements of Securities are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that
is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss
which any of

26
<PAGE> 34
them may suffer if a Security is replaced. Each of the Company and the Trustee
may charge for its expenses in replacing a Security.

Every replacement Security is an additional obligation of the
Company.

SECTION 2.8. Outstanding Securities.

The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.

If a Security is replaced pursuant to Section 2.7 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Security is held by a bona fide purchaser.

If the principal amount of any Security is considered paid
under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases
to accrue.

Subject to Section 2.9 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.

SECTION 2.9. Treasury Securities.

In determining whether the Holders of the required principal
amount of Securities then outstanding have concurred in any demand, direction,
waiver or consent, Securities owned by the Company or any Affiliate of the
Company shall be considered as though not outstanding, except that for purposes
of determining whether the Trustee shall be protected in relying on any such
demand, direction, waiver or consent, only Securities that a Responsible
Officer actually knows to be so owned shall be so considered. Notwithstanding
the foregoing, Securities that are to be acquired by the Company or an
Affiliate of the Company pursuant to an exchange offer, tender offer or other
agreement shall not be deemed to be owned by the Company or an Affiliate of the
Company until legal title to such Securities passes to the Company or such
Affiliate, as the case may be.

27
<PAGE> 35
SECTION 2.10. Temporary Securities.

Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee, upon receipt of the written order of the
Company signed by two Officers of the Company, shall authenticate temporary
Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company and the Trustee
consider appropriate for temporary Securities. Without unreasonable delay, the
Company shall prepare and the Trustee, upon receipt of the written order of the
Company signed by two Officers of the Company, shall authenticate definitive
securities in exchange for temporary Securities. Until such exchange,
temporary Securities shall be entitled to the same rights, benefits and
privileges as definitive Securities.

SECTION 2.11. Cancellation.

The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Securities surrendered to them or registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall return
such cancelled Securities to the Company. The Company may not issue new
Securities to replace Securities that it has paid or that have been delivered
to the Trustee for cancellation.

SECTION 2.12. Defaulted Interest.

If the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted interest in any lawful manner plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Holders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior
to the related payment date, in each case at the rate provided in the
Securities and in Section 4.1 hereof. The Company shall, with the consent of
the Trustee, fix or cause to be fixed each such special record date and payment
date. At least 15 days before the special record date, the Company (or the
Trustee, in the name of and at the ex-

28
<PAGE> 36
pense of the Company) shall mail to Holders a notice that states the special
record date, the related payment date and the amount of such interest to be
paid.

SECTION 2.13. Record Date.

The record date for purposes of determining the identity of
Holders entitled to vote or consent to any action by vote or consent authorized
or permitted under this Indenture shall be determined as provided for in TIA
Section 316(c).

SECTION 2.14. CUSIP Number.

The Company in issuing the Securities may use a "CUSIP"
number, and if it does so, the Trustee shall use the CUSIP number in notices to
Holders; provided that any such notice may state that no representation is made
as to the correctness or accuracy of the CUSIP number printed in the notice or
on the Securities and that reliance may be placed only on the other
identification numbers printed on the Securities. The Company shall promptly
notify the Trustee of any change in the CUSIP number.

SECTION 2.15. Offer to Purchase by Application of Excess
Proceeds.

In the event that the Company shall commence a Senior Asset
Sale Offer pursuant to Section 4.10 hereof, it shall follow the procedures
specified below.

No later than the date on which the aggregate amount of Excess
Proceeds exceeds $25.0 million, the Company shall notify the Trustee of such
Senior Asset Sale Offer and provide the Trustee with an Officers' Certificate
setting forth, in addition to the information to be included therein pursuant
to Section 4.10 hereof, the calculations used in determining the amount of Net
Proceeds to be applied to the purchase of Securities. The Company shall
commence or cause to be commenced the Senior Asset Sale Offer on a date no
later than 10 Business Days after such notice (the "Commencement Date").

The Senior Asset Sale Offer shall remain open for at least 20
Business Days after the Commencement Date relating to such Senior Asset Sale
Offer and shall remain open for no more than such 20 Business Days, except to

29
<PAGE> 37
the extent required by applicable law (as so extended, the "Offer Period"). No
later than one Business Day after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount (the "Offer
Amount") of Securities required to be purchased in such Senior Asset Sale Offer
pursuant to Section 4.10 hereof or, if less than the Offer Amount has been
tendered, all Securities tendered in response to the Senior Asset Sale Offer,
in each case for an amount in cash equal to the Purchase Price.

If the Purchase Date is on or after an interest payment record
date and on or before the related interest payment date, any accrued interest
shall be paid to the Person in whose name a Security is registered at the close
of business on such record date, and no additional interest shall be payable to
Holders who tender Securities pursuant to the Senior Asset Sale Offer.

On the Commencement Date of any Senior Asset Sale Offer, the
Company shall send, or at the Company's request the Trustee shall send, by
first class mail, a notice to each of the Holders at their last registered
address, with a copy to the Trustee and the Paying Agent, offering to
repurchase the Securities held by such Holder pursuant to the procedure
specified in such notice. Such notice, which shall govern the terms of the
Senior Asset Sale Offer, shall contain all instructions and materials necessary
to enable the Holders to tender Securities pursuant to the Senior Asset Sale
Offer and shall state:

(1) that the Senior Asset Sale Offer is being made
pursuant to this Section 2.15 and Section 4.10 hereof
and the length of time the Senior Asset Sale Offer
shall remain open;

(2) the Offer Amount, the Purchase Price and the Purchase
Date;

(3) that any Security not tendered or accepted for
payment shall continue to accrue interest;

(4) that, unless the Company defaults in the payment of
the Purchase Price, any Security accepted for payment
pursuant to the

30
<PAGE> 38
Senior Asset Sale Offer shall cease to accrue
interest after the Purchase Date;

(5) that Holders electing to have a Security purchased
pursuant to any Senior Asset Sale Offer shall be
required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the
reverse of the Security completed, to the Company, a
depositary, if appointed by the Company, or a Paying
Agent at the address specified in the notice prior to
the close of business on the Business Day next
preceding the Purchase Date;

(6) that Holders shall be entitled to withdraw their
election if the Company, depositary or Paying Agent,
as the case may be, receives, not later than the
close of business on the Business Day next preceding
the termination of the Offer Period, a facsimile
transmission or letter setting forth the name of the
Holder, the principal amount of the Security the
Holder delivered for purchase and a statement that
such Holder is withdrawing his election to have such
Security purchased;

(7) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the Offer Amount, the
Trustee shall select the Securities to be purchased
on a pro rata basis (with such adjustments as may be
deemed appropriate by the Trustee so that only
Securities in denominations of $1,000, or integral
multiples thereof, shall be purchased);

(8) that Holders whose Securities were purchased only in
part shall be issued new Securities equal in
principal amount to the unpurchased portion of the
Securities surrendered; and

(9) the circumstances and relevant facts regarding such
Asset Sale and any other information that would be
material to a de-

31
<PAGE> 39
cision as to whether to tender a Security pursuant
to the Senior Asset Sale Offer.

On the Purchase Date, the Company shall, to the extent lawful,
(i) accept for payment, on a pro rata basis to the extent necessary, an
aggregate principal amount equal to the Offer Amount of Securities and other
Indebtedness ranking on a parity with the Securities whose provisions require
the Company to make an offer to purchase or redeem such Indebtedness with
proceeds from any asset sales tendered pursuant to the Senior Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Securities and other
Indebtedness or portions thereof so tendered, (ii) deposit with the Paying
Agent an amount equal to the Purchase Price in respect of all Securities and
other Indebtedness or portions thereof so tendered and (iii) deliver or cause
to be delivered to the Trustee the Securities and other Indebtedness so
accepted together with an Officers' Certificate stating the aggregate principal
amount of Securities and other Indebtedness or portions thereof being purchased
by the Company. The Paying Agent shall promptly mail to each Holder of
Securities so tendered payment in an amount equal to the Purchase Price for
such Securities and the Trustee shall promptly authenticate and mail (or cause
to be transferred by book entry) a new Security to such Holder equal in
principal amount to any unpurchased portion of the Securities surrendered, if
any; provided that each such new Security shall be in a principal amount of
$1,000 or an integral multiple thereof. The Company shall publicly announce
the results of the Senior Asset Sale Offer on or as soon as practicable after
the Purchase Date.

The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
purchase of Securities and other Indebtedness as a result of the Senior Asset
Sale Offer.

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<PAGE> 40
ARTICLE 3
REDEMPTION

SECTION 3.1. Right of Redemption.

Redemption of Securities, as permitted by any provision of
this Indenture, shall be made in accordance with such provision and this
Article 3. The Company will not have the right to redeem any Securities prior
to _______ __, 2000. On or after __________, 2000, the Company will have the
right to redeem all or any part of the Securities at the Redemption Prices
specified in the form of Security attached as Exhibit A set forth therein under
the caption "Optional Redemption," in each case (subject to the right of
Holders of record on a Record Date to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date, and subject to the
provisions set forth in Section 3.5) including accrued and unpaid interest to
the Redemption Date.

SECTION 3.2. Notices to Trustee.

If the Company elects to redeem Securities pursuant to
Paragraph 5 of the Securities, it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Securities to be redeemed and
whether it wants the Trustee to give notice of redemption to the Holders.

If the Company elects to reduce the principal amount of
Securities to be redeemed pursuant to Paragraph 5 of the Securities by
crediting against any such redemption Securities it has not previously
delivered to the Trustee for cancellation, it shall so notify the Trustee of
the amount of the reduction and deliver such Securities with such notice.

The Company shall give each notice to the Trustee provided for
in this Section 3.2 at least 45 days before the Redemption Date (unless a
shorter notice shall be satisfactory to the Trustee). Any such notice may be
cancelled at any time prior to notice of such redemption being mailed to any
Holder and shall thereby be void and of no effect.

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<PAGE> 41
SECTION 3.3. Selection of Securities to be Redeemed.

If less than all of the Securities are to be redeemed pursuant
to Paragraph 5 thereof, the Trustee shall select the Securities to be redeemed
on a pro rata basis, by lot or by such other method as the Trustee shall
determine to be fair and appropriate.

The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption and shall promptly notify
the Company in writing of the Securities selected for redemption and, in the
case of any Security selected for partial redemption, the principal amount
thereof to be redeemed. Securities in denominations of $1,000 may be redeemed
only in whole. The Trustee may select for redemption portions (equal to $1,000
or any integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called
for redemption.

SECTION 3.4. Notice of Redemption.

At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first class mail,
postage prepaid, to the Trustee and each Holder whose Securities are to be
redeemed to such Holder's last address as then shown on the registry books of
the Registrar. At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. Each notice for
redemption shall identify the Securities to be redeemed and shall state:

(1) the Redemption Date;

(2) the Redemption Price, including the
amount of accrued and unpaid interest to be paid upon such redemption;

(3) the name, address and telephone number
of the Paying Agent;

(4) that Securities called for redemption
must be surrendered to the Paying Agent at

34
<PAGE> 42
the address specified in such notice to collect the Redemption Price;

(5) that, unless the Company defaults in its
obligation to deposit cash or U.S. Government Obligations which
through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than
one day before the due date of any payment, cash in an amount to fund
the Redemption Price with the Paying Agent in accordance with Section
3.6 hereof or such redemption payment is otherwise prohibited,
interest on Securities called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price,
including accrued and unpaid interest to the Redemption Date, upon
surrender to the Paying Agent of the Securities called for redemption
and to be redeemed;

(6) if any Security is being redeemed in
part, the portion of the principal amount equal to the unredeemed
portion thereof, of such Security to be redeemed and that, on or after
the Redemption Date, and upon surrender of such Security, a new
Security or Securities in aggregate principal amount equal to the
unredeemed portion thereof will be issued;

(7) if less than all the Securities are to
be redeemed, the identification of the particular Securities (or
portion thereof) to be redeemed, as well as the aggregate principal
amount of such Securities to be redeemed and the aggregate principal
amount of Securities to be outstanding after such partial redemption;

(8) the CUSIP number of the Securities to be
redeemed; and

(9) that the notice is being sent pursuant
to this Section 3.4 and pursuant to the optional redemption provisions
of Paragraph 5 of the Securities.

35
<PAGE> 43
SECTION 3.5. Effect of Notice of Redemption.

Once notice of redemption is mailed in accordance with Section
3.4, Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price, including accrued and unpaid interest to the
Redemption Date. Upon surrender to the Trustee or Paying Agent, such
Securities called for redemption shall be paid at the Redemption Price,
including interest, if any, accrued and unpaid to the Redemption Date; provided
that if the Redemption Date is after a regular Record Date and on or prior to
the Interest Payment Date to which such Record Date relates, the accrued
interest shall be payable to the Holder of the redeemed Securities registered
on the relevant Record Date; and provided further that if a Redemption Date is
a non-Business Day, payment shall be made on the next succeeding Business Day
and no interest shall accrue for the period from such Redemption Date to such
succeeding Business Day.

SECTION 3.6. Deposit of Redemption Price.

On or prior to the Redemption Date, the Company shall deposit
with the Paying Agent (other than the Company or an Affiliate of the Company)
cash or U.S. Government Obligations sufficient to pay the Redemption Price of,
including accrued and unpaid interest on, all Securities to be redeemed on such
Redemption Date (other than Securities or portions thereof called for
redemption on that date that have been delivered by the Company to the Trustee
for cancellation). The Paying Agent shall promptly return to the Company any
cash or U.S. Government Obligations so deposited which is not required for that
purpose upon the written request of the Company.

If the Company complies with the preceding paragraph and the
other provisions of this Article 3 and payment of the Securities called for
redemption is not otherwise prohibited, interest on the Securities to be
redeemed will cease to accrue on the applicable Redemption Date, whether or not
such Securities are presented for payment. Notwithstanding anything herein to
the contrary, if any Security surrendered for redemption in the manner provided
in the Securities shall not be so paid upon surrender for redemption because of
the failure of the Company to comply with the preceding paragraph, interest
shall continue to accrue and be paid from the

36
<PAGE> 44
Redemption Date until such payment is made on the unpaid principal, and, to the
extent lawful, on any interest not paid on such unpaid principal, in each case
at the rate and in the manner provided in Section 4.1 hereof and the Security.

SECTION 3.7. Securities Redeemed in Part.

Upon surrender of a Security that is to be redeemed in part,
the Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities
equal in principal amount to the unredeemed portion of the Security
surrendered.

ARTICLE 4
COVENANTS

SECTION 4.1. Payment of Securities.

The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Securities on the dates and in the manner
provided in this Indenture and the Securities. Principal, premium, if any, and
interest shall be considered paid on the date due if the Paying Agent, if other
than the Company or a Subsidiary of the Company, holds as of 10:00 a.m. Eastern
Time on the due date money deposited by the Company in immediately available
funds and designated for and sufficient to pay all principal, premium, if any,
and interest then due. Such Paying Agent shall return to the Company, no later
than five days following the date of payment, any money (including accrued
interest) that exceeds such amount of principal, premium, if any, and interest
to be paid on the Securities.

The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at
the rate equal to 1% per annum in excess of the interest rate then applicable
to the Securities to the extent lawful. In addition, it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest (without regard to any applicable grace
period) at the same rate to the extent lawful.

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<PAGE> 45
SECTION 4.2. Maintenance of Office or Agency.

The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.

The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, the City of New York for such purposes.
The Company shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.

The Company hereby designates Chemical Bank, Corporate Trust
Department, 450 West 33rd Street, New York, New York 10001 as one such office
or agency of the Company in accordance with Section 2.3 hereof.

SECTION 4.3. Reports.

(a) Whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
deliver to the Trustee, within 15 days after it files or would have been
required to file such with the Commission, annual and quarterly financial
statements substantially equivalent to financial statements that would have
been included in a report filed with the Commission on Forms 10-Q and 10-K, if
the Company were subject to the requirements of Section 13 or

38
<PAGE> 46
15(d) of the Exchange Act, including, with respect to annual information only,
a report thereon by the Company's certified independent public accountants as
such would be required in such reports to the Commission, and, in each case,
together with "Management's Discussion" and Analysis of Financial Condition and
Results of Operations which would be so required. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and will
make such information available to securities analysts and prospective
investors upon request. All obligors on the Securities shall comply with the
provisions of TIA Section 314(a).

(b) The Trustee, at the Company's expense, shall promptly
mail copies of all such annual reports, information, documents and other
reports provided to the Trustee pursuant to Section 4.3(a) hereof to the
Holders at their addresses appearing in the register of Securities maintained
by the Registrar. The Company shall provide the Trustee with a sufficient
number of copies of all reports and other documents and information that the
Trustee may be required to deliver to the Holders under this Section 4.3.

SECTION 4.4. Compliance Certificate; Notice of Default.

(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate complying with
Section 3.4(a)(4) of the TIA and stating that a review of the activities of the
Company and its Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining
whether each has kept, observed, performed and fulfilled its obligations under
this Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge each entity has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have

39
<PAGE> 47
knowledge and what action each is taking or proposes to take with respect
thereto, all without regard to periods of grace or notice requirements, and
that to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Securities is prohibited or if such event has
occurred, a description of the event and what action each is taking or proposes
to take with respect thereto. The Officers' Certificate shall also notify the
Trustee should the relevant fiscal year end on any date other than the current
fiscal year end date.

(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.3 above shall be
accompanied by a written statement of the Company's certified independent
public accountants (who shall be a firm of established national reputation)
that in making the examination necessary for certification of such financial
statements nothing has come to their attention which would lead them to believe
that the Company or any Subsidiary of the Company has violated any provisions
of Article 4 or of Article 5 of this Indenture or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.

(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of (a) any Default or Event of Default or (b) any event of default under any
other mortgage, indenture or instrument referred to in Section 6.1(vi) hereof,
an Officers' Certificate specifying such Default, Event of Default or event of
default and what action the Company is taking or proposes to take with respect
thereto. The Trustee shall not be deemed to have knowledge of any Default or
any event of Default unless one of its Trust Officers receives written notice
thereof from the company or any of the Holders.

40
<PAGE> 48
SECTION 4.5. Taxes.

The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except (i) as contested in good faith by appropriate
proceedings and with respect to which appropriate reserves have been taken in
accordance with GAAP or (ii) where the failure to effect such payment is not
adverse in any material respect to the Holders.

SECTION 4.6. Stay, Extension and Usury Laws.

The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.

SECTION 4.7. Limitations on Restricted Payments.

The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any distribution on account of the Equity Interests of the Company or any
of its Subsidiaries (other than (x) dividends or distributions payable in
Qualified Equity Interests of the Company, (y) dividends or distributions
payable to the Company or any Subsidiary of the Company, and (z) dividends or
distributions by any Subsidiary of the Company payable to all holders of a
class of Equity Interests of such Subsidiary on a pro rata basis); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any of its Subsidiaries; (iii) make any principal payment on,
or purchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness, except at the original final maturity date thereof;
or (iv) make any Restricted In-

41
<PAGE> 49
vestment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment (the amount of
any such Restricted Payment, if other than cash or Cash Equivalent, shall be
the fair market value (as conclusively evidenced by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the Trustee
within 60 days prior to the date of such Restricted Payment) of the asset(s)
proposed to be transferred by the Company or such Subsidiary, as the case may
be, pursuant to such Restricted Payment):

(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and

(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the
Reference Period immediately preceding the date of such
Restricted Payment, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first
paragraph of Section 4.9 hereof; and

(c) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company and its
Subsidiaries after _______ ___, 1995 (excluding
Restricted Payments permitted by clauses (ii), (iii),
(iv) and (vi) of the next succeeding paragraph), is less
than the sum (without duplication) of (1) 50% of the
Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of
the first fiscal quarter commencing after _________ ___,
1995 to the end of the Company's most recently ended
fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or,
if such Con-

42
<PAGE> 50
solidated Net Income for such period is a deficit, less
100% of such deficit), plus (2) 100% of the aggregate net
cash proceeds received by the Company from the issue or
sale (other than to a Subsidiary of the Company) since
_______ ___, 1995 of Qualified Equity Interests of the
Company or of debt securities of the Company or any of
its Subsidiaries that have been converted into or
exchanged for such Qualified Equity Interests of the
Company, plus (3) to the extent that any Restricted
Investment that was made after the date of the Indenture
is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with
respect to such Restricted Investment (net of taxes and
the cost of disposition, if any) or (B) the initial
amount of such Restricted Investment, plus (iv) $20.0
million.

The foregoing provisions shall not prohibit the following
Restricted Payments:

(i) the payment of any dividend within 60 days after the date
of declaration thereof, if at said date of declaration
such payment would have otherwise complied with the
provisions hereof;

(ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company or any
Subsidiary in exchange for, or out of the net cash
proceeds of, the substantially concurrent sale (other
than to a Subsidiary of the Company) of Qualified Equity
Interests of the Company; provided that the amount of any
such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(2) of the preceding
paragraph;

(iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net

43
<PAGE> 51
cash proceeds from an incurrence of Permitted Refinancing
Indebtedness or in exchange for or out of the net cash
proceeds from the substantially concurrent sale (other
than to a Subsidiary of the Company) of Qualified Equity
Interests of the Company; provided that the amount of any
such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(2) of the preceding
paragraph;

(iv) any purchase or defeasance of Subordinated Indebtedness
to the extent required upon a change of control or asset
sale (as defined therein) by the indenture or other
agreement or instrument pursuant to which such
Subordinated Indebtedness was issued, but only if the
Company (i) in the case of a Change of Control, has
complied with its obligations under the provisions
described under Section 4.13 of this Indenture or (ii) in
the case of an Asset Sale, has applied the Net Proceeds
from such Asset Sale in accordance with the provisions
under Sections 2.15 and 4.10 of this Indenture;

(v) any Restricted Payment permitted in accordance with the
provisions of the second paragraph of Section 4.10 of
this Indenture; and

(vi) a pro rata dividend or other distribution by the Company
to its stockholders of all or a portion of the common
stock of PCA in connection with the Spinoff Transaction;

provided, however, in the case of each of clauses (ii), (iii), (iv), (v) and
(vi) of the paragraph, no Default or Event of Default shall have occurred or be
continuing at the time of such Restricted Payment or would occur as a
consequence thereof.

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<PAGE> 52
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed.

SECTION 4.8. Limitations on Dividend and Other Payment
Restrictions Affecting Subsidiaries.

The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual Transfer Restriction, except for such Transfer
Restrictions existing under or by reason of:

(a) Existing Indebtedness as in effect on the date hereof,

(b) this Indenture,

(d) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of
its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation
of such acquisition or in violation of Section 4.9
hereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that
the Consolidated Cash Flow of such Person shall not
be taken into account in determining whether such
acquisition was permitted by the terms hereof except
to the extent that such Consolidated Cash Flow would
be permitted to be dividends to the Company without
the prior consent or approval of any third party,

45
<PAGE> 53
(e) customary non-assignment provisions in leases entered
into in the ordinary course of business,

(f) purchase money obligations for property acquired in
the ordinary course of business that impose
restrictions on the ability of any of the Company's
Subsidiaries to transfer the property so acquired to
the Company or any of its Subsidiaries,

(g) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements
governing the Indebtedness being refinanced, or

(h) the Credit Agreement and related documentation as the
same is in effect on the date hereof and as amended
or replaced from time to time, provided that no such
amendment or replacement is more restrictive as to
Transfer Restrictions than the Credit Agreement and
related documentation as in effect on the date
hereof.

Nothing contained in this Section 4.8 shall prevent the
Company or any subsidiary of the Company from creating, incurring, assuming or
suffering to exist any Permitted Liens.

SECTION 4.9. Limitations on Incurrence of Indebtedness and
Issuance of Preferred Stock.

The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") after the date hereof any
Indebtedness (including Acquired Debt) and the Company will not permit any of
its Subsidiaries to issue any shares of preferred stock; provided, however,
that the Company and its Subsidiaries may incur Indebtedness (including
Acquired Debt) if the Fixed Charge Coverage

46
<PAGE> 54
Ratio for the Reference Period immediately preceding the date on which such
additional Indebtedness is incurred would have been at least 2.5 to 1, in each
case determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred at
the beginning of such Reference Period. Indebtedness consisting of
reimbursement obligations in respect of a letter of credit shall be deemed to
be incurred when the letter of credit is first issued.

The foregoing provisions shall not apply to:

(a) the incurrence by the Company or the Subsidiaries of
Senior Revolving Debt pursuant to the Credit Agreement in
an aggregate principal amount at any time outstanding
(with letters of credit being deemed to have a principal
amount equal to the maximum potential reimbursement
obligation of the Company or any Subsidiary with respect
thereto) not to exceed an amount equal to $150.0 million
less the aggregate amount of all Net Proceeds of Asset
Sales applied to permanently reduce the commitments with
respect to such Indebtedness pursuant to Sections 2.15
and 4.10 hereof after ________ ___, 1995;

(b) the incurrence by the Company and the Guarantors of
Indebtedness represented by the Securities;

(c) the incurrence by the Company or any of its Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund, Indebtedness that was
permitted by this Indenture to be incurred (including,
without limitation, Existing Indebtedness);

(d) the incurrence by the Company or any of the Subsidiaries
of intercompany Indebtedness between or among the Company
and

47
<PAGE> 55
any of its Subsidiaries; provided that in the case of
such Indebtedness of Company, such obligations shall be
unsecured;

(e) the incurrence by the Company or any of its Subsidiaries
of Hedging Obligations that are incurred for the purpose
of fixing or hedging interest rate or currency risk with
respect to any fixed or floating rate Indebtedness that
is permitted by the terms hereof to be outstanding or any
receivable or liability the payment of which is
determined by reference to a foreign currency; provided
that the notional principal amount of any such Hedging
Obligation does not exceed the principal amount of the
Indebtedness or the amount of such receivable or
liability to which such Hedging Obligation relates;

(f) the incurrence by the Company or any of its Subsidiaries
of Indebtedness represented by perfor- mance bonds,
warranty or contractual service obligations, standby
letters of credit or appeal bonds, in each case to the
extent incurred in the ordinary course of business of the
Company or such Subsidiary; and

(g) the incurrence by the Company or any of its Subsidiaries
of Indebtedness (in addition to Indebt- edness permitted
by any other clause of this paragraph) in an aggregate
principal amount at any time outstanding not to exceed
$100.0 million.

For purposes of determining any particular amount of
Indebtedness under this covenant, guarantees, liens or obligations with respect
to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this covenant, (i) in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
permitted by the first paragraph above of this covenant, the Company shall
classify such item of Indebtedness and only be required to include the amount
and

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<PAGE> 56
type of such Indebtedness in one of the categories of permitted Indebtedness
described above and (ii) the outstanding principal amount on any date of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness on such date.

SECTION 4.10. Asset Sales.

The Company shall not, and shall not permit any of its
Subsidiaries to, consummate an Asset Sale, unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (as conclusively determined
by a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Subsidiary is in the form of cash or Cash
Equivalents; provided that for purposes of this provision, (x) the amount of
(A) any liabilities (as shown on the most recent balance sheet of the Company
or such Subsidiary or in the notes thereto), of the Company or such Subsidiary
(other than liabilities that are by their terms subordinated to the Securities
or the Guarantees) that are assumed by the transferee of any such assets and
(B) any securities or other obligations received by the Company or any such
Subsidiary from such transferee that are immediately converted by the Company
or such Subsidiary into cash (or as to which the Company or such Subsidiary has
received at or prior to the consummation of the Asset Sale a commitment (which
may be subject to customary conditions) from a nationally recognized
investment, merchant or commercial bank to convert into cash or Cash
Equivalents within 90 days of the consummation of such Asset Sale and which are
thereafter actually converted into cash or Cash Equivalents within such 90-day
period) shall be deemed to be cash (but shall not be deemed to be Net Proceeds
for purposes of the following provisions until reduced to cash) and (y) the
fair market value of any Non-Cash Consideration received by Beverly or a
Subsidiary in any Non-Qualified Asset Sale shall be deemed to be cash to the
extent that the aggregate fair market value (as conclusively determined by
resolution of the Board of Directors set forth in any Officers' Certif-

49
<PAGE> 57
icate delivered to the Trustee) of all Non-Cash Consideration (measured at the
time received and without giving effect to any subsequent changes in value)
received by Beverly or any of its Subsidiaries since the date hereof in all
Non- Qualified Asset Sales does not exceed 6% of Beverly's Stockholders' Equity
as of the date of such consummation. Notwithstanding the foregoing, to the
extent the Company or any of its Subsidiaries receives Non-Cash Consideration
as proceeds of an Asset Sale, such Non-Cash Consideration shall be deemed to be
Net Proceeds for purposes of (and shall be applied in accordance with) the
following provisions when the Company or such Subsidiary receives cash or Cash
Equivalents from a sale, repayment, exchange, redemption or retirement of or
extraordinary dividend or return of capital on such Non-Cash Consideration.

The provisions of clauses (i) and (ii) of the immediately
preceding paragraph shall not apply to the Spinoff Transaction if, after giving
pro forma effect to such transaction, including the application by the Company
of the net proceeds, if any, of any such transaction, as if it had occurred at
the beginning of the Reference Period immediately preceding the date on which
such transaction occurs, (i) the Company would have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.9 of this Indenture,
(ii) the Company's Fixed Charge Coverage Ratio would not be reduced by % or
more from the Company's actual Fixed Charge Coverage Ratio for such Reference
Period, (iii) the Company's Debt to Consolidated Cash Flow Ratio as of the date
such transaction occurs would not be increased by % or more from the
Company's actual Debt to Consolidated Cash Flow Ratio as of such date and (iv)
no Default or Event of Default would exist. If the Spinoff Transaction
(including the Company's proposed application of the net proceeds thereof, if
any) satisfies the requirements of the immediately preceding sentence, the
Company shall be entitled to (i) distribute all or a portion of the capital
stock of PCA to the stockholders of the Company and (ii) use up to $ million
of the Net Proceeds of such transaction to make Restricted Payments or for any
other purpose not prohibited by the Indenture; provided that (x) any Net
Proceeds in excess of $ million shall be applied in accordance with the
following provisions and (y) all Non-Cash Con-

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<PAGE> 58
sideration received by the Company or any Subsidiary of the Company as a result
of or in connection with the Spinoff Transaction will be deemed to be Net
Proceeds for purposes of (and shall be applied in accordance with) the
following provisions when the Company or such Subsidiary receives cash or Cash
Equivalents from a sale, repayment, exchange, redemption or retirement of or
extraordinary dividend or return of capital on such Non-Cash Consideration.

Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, the Company or such Subsidiary may apply such Net Proceeds (i) to
purchase one or more Nursing Facilities or Related Businesses and/or a
controlling interest in the Capital Stock of a Person owning one or more
Nursing Facilities and/or one or more Related Businesses, (ii) to make a
capital expenditure or to acquire other tangible assets, in each case, that are
used or useful in any business in which the Company is permitted to be engaged
pursuant to Section 4.15 hereof, (iii) to perma- nently reduce Indebtedness
(other than subordinated Indebtedness) of the company or its Subsidiaries, or
(iv) to permanently reduce Senior Revolving Debt (and to correspondingly reduce
commitments with respect thereto, except that up to an aggregate of $20.0
million of Net Proceeds from Asset Sales may be applied after the date hereof
to reduce Senior Revolving Debt without a corresponding reduction in
commitments with respect thereto). Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Senior Revolving Debt or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
terms hereof. Any Net Proceeds from Asset Sales that are not so invested or
applied shall be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $25.0 million, the Company shall make an
offer to all Holders of Securities and holders of any other Indebtedness of the
Company ranking on a parity with the Securities from time to time outstanding
with similar provisions requiring the Company to make an offer to purchase or
to redeem such Indebtedness with proceeds from any asset sales, pro rata in
proportion to the respective principal amounts of the Securities and such other
Indebtedness then outstanding (a "Senior Asset Sale Offer") to purchase the
maximum principal amount of Securities and such other Indebtedness that may be
purchased out of the Excess Proceeds, at an offer price in

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<PAGE> 59
cash equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase (the "Purchase Price"), in
accordance with the procedures set forth in Section 2.15 hereof. To the extent
that the aggregate amount of Securities and such other Indebtedness tendered
pursuant to a Senior Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes
not prohibited at the time by the provisions of this Indenture. If the
aggregate principal amount of Securities and such other Indebtedness
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Securities and such other Indebtedness shall be purchased on a pro rata basis.
Upon completion of a Senior Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.

SECTION 4.11. Limitations on Transactions With Affiliates.

The Company shall not, and shall not permit any of its
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of their
properties or assets to, or purchase any property or assets from, or enter into
or make any contract, agreement, understanding, loan, advance or Guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction") unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Company or the relevant Subsidiary than those that
could have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $5.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
was approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction involving all
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness of such Affiliate Transaction to the Company or such Subsidiary from a
financial point of view issued by an investment banking firm of national
standing; provided that (x) transactions or payments pursuant to any employment
arrangements, director or office indemnification agreements or employee or
director

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<PAGE> 60
benefit plans entered into by the Company or any of its Subsidiaries in the
ordinary course of business of the Company or such Subsidiary, (y) transactions
between or among the Company and/or its Subsidiaries and (z) Restricted
Payments permitted under Section 4.7 hereof, in each case, shall not be deemed
to be Affiliate Transactions.

SECTION 4.12. Limitations on Liens.

The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly create, incur, assume or suffer to
exist any Lien (except Permitted Liens) on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom unless all payments due hereunder and under the
Securities are secured on an equal and ratable basis with the Obligations so
secured until such time as such Obligations are no longer secured by a Lien.

SECTION 4.13. Change of Control.

Upon the occurrence of a Change of Control Triggering Event,
each Holder of Securities shall have the right to require the Company to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Securities pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, thereon to
the date of purchase (the "Change of Control Payment") on a date that is not
more than 90 days after the occurrence of such Change of Control Triggering
Event (the "Change of Control Payment Date").

Within 30 days following any Change of Control Triggering
Event, the Company shall mail, or at the Company's request, the Trustee shall
mail, a notice of a Change of Control to each Holder (at its last registered
address with a copy to the Trustee and the Paying Agent) offering to repurchase
the Securities held by such Holder pursuant to the procedures specified in such
notice. The Change of Control Offer shall remain open from the time of mailing
until the close of business on the Business Day next preceding the Change of
Control Payment Date. The notice, which shall govern the terms of the Change
of

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<PAGE> 61
Control Offer, shall contain all instructions and materials necessary to enable
the Holders to tender Securities pursuant to the Change of Control Offer and
shall state:

(1) that the Change of Control Offer is being made pursuant
to this Section 4.13 and that all Securi- ties tendered
will be accepted for payment;

(2) the Change of Control Payment and the Change of Control
Payment Date, which date shall be no ear- lier than 30
days nor later than 60 days from the date such notice is
mailed;

(3) that any Security not tendered will continue to accrue
interest in accordance with the terms of this Indenture;

(4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Securities accepted for
payment pursuant to the Change of Control Offer will
cease to accrue interest after the Change of Control
Payment Date;

(5) that Holders electing to have a Security purchased
pursuant to any Change of Control Offer will be required
to surrender the Security, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the
Security completed, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the
address specified in the notice prior to the close of
business on the Business Day next preceding the Change of
Control Payment Date;

(6) that Holders will be entitled to withdraw their election
if the Company, depositary or Paying Agent, as the case
may be, receives, not later than the close of business on
the Business Day next preceding the Change of Control
Payment Date, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the
Security the Holder delivered for pur-

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<PAGE> 62
chase, and a statement that such Holder is withdrawing
his election to have such Security purchased;

(7) that Holders whose Securities are being purchased only in
part will be issued new Securities equal in principal
amount to the unpurchased portion of the Securities
surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple
thereof; and

(8) the circumstances and relevant facts regarding such
Change of Control (including, but not limited to,
information with respect to pro forma historical
financial information after giving effect to such Change
of Control, information regarding the Person or Persons
acquiring control and such Person's or Persons' business
plans going forward) and any other information that would
be material to a decision as to whether to tender a
Security pursuant to the Change of Control Offer.

On the Change of Control Payment Date, the Company shall, to
the extent lawful, (i) accept for payment all Securities or portions thereof
properly tendered and not withdrawn pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Securities or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Securities so accepted
together with an Officers' Certificate stating the aggregate principal amount
of Securities or portions thereof being purchased by the Company. The Paying
Agent shall promptly mail to each Holder of Securities so tendered the Change
of Control Payment for such Securities, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Security equal in principal amount to any unpurchased portion of the
Securities surrendered, if any; provided that each such new Security shall be
in a principal amount of $1,000 or an integral multiple thereof. The Company
shall publicly announce the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.

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<PAGE> 63
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Securities as a result of a Change of Control Triggering Event.

SECTION 4.14. Corporate Existence.

Subject to Section 4.13 and Article 5 hereof, the Company
shall do or cause to be done all things necessary to preserve and keep in full
force and effect (i) its corporate existence, and the corporate, partnership or
other existence of each of its Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of each
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders.

SECTION 4.15. Line of Business.

The Company shall not, and shall not permit any of its
Subsidiaries to, engage to any material extent in any business other than the
ownership, operation and management of Nursing Facilities and Related
Businesses.

ARTICLE 5
SUCCESSORS

SECTION 5.1. Limitations on Mergers, Consolidations or Sales
of Assets.

The Company may not consolidate or merge with or into (whether
or not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its

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<PAGE> 64
properties or assets in one or more related transactions, to another
corporation, Person or entity unless:

(i) the Company is the surviving corporation or the
entity or the Person formed by or surviving any
such consolidation or merger (if other than the
Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or
existing under the laws of the United States, any
state thereof or the District of Columbia;

(ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than the
Company) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all
the Obligations of the Company under this
Indenture and the Securities pursuant to a
supplemental indenture in a form reasonably
satisfactory to the Trustee;

(iii) immediately after such transaction no Default or
Event of Default exists; and

(iv) the Company or the entity or Person formed by or
surviving any such consolidation or merger (if
other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other
disposition shall have been made (A) shall have
Consolidated Net Worth immediately after the
transaction equal to or greater than the
Consolidated Net Worth of the Company immediately
preceding the transaction and (B) shall, at the
time of such transaction had occurred at the
beginning of the Reference Period, be permitted to
incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of Section 4.9
hereof.

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<PAGE> 65
The Company shall deliver to the Trustee prior to the
consummation of the proposed transaction an Officers' Certificate to the
foregoing effect and an Opinion of Counsel, covering clauses (i) through (iv)
above, stating that the proposed transaction and such supplemental indenture
comply with this Indenture. The Trustee shall be entitled to conclusively rely
upon such Officers' Certificate and Opinion of Counsel.

SECTION 5.2. Successor Corporation Substituted.

Upon any consolidation or merger or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.1 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, assignment, transfer,
lease, conveyance or other disposition, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor corporation),
and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor Person has been named as the Company,
herein.

ARTICLE 6
DEFAULTS AND REMEDIES

SECTION 6.1. Events of Default.

Each of the following constitutes an "Event of Default":

(i) default for 30 days in the payment when due of
interest on the Securities;

(ii) default in payment when due of the principal of,
or premium, if any, on the Securities, at
maturity or otherwise;

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<PAGE> 66
(iii) failure by the Company or any Guarantor to
comply with the provisions of Sections 4.10 or
4.13 hereof;

(iv) failure by the Company or any Guarantor for 30
days after notice to comply with the provisions
of Sections 4.7 or 4.9 hereof;

(v) failure by the Company or any Guarantor for 60
days after notice to comply with any or its
agreements in the Indenture or the Securities;

(vi) any default that occurs under any mortgage,
indenture or instrument under which there may be
issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by
the Company or any of its Significant
Subsidiaries (or the payment of which is
guaranteed by the Company or any of its
Significant Subsidiaries), whether such
Indebtedness or guarantee exists on the date
hereof or is created after the date hereof,
which default (a) constitutes a Payment Default
or (b) results in the acceleration of such
Indebtedness prior to its express maturity and,
in each case, the principal amount of any such
Indebtedness, together with the principal amount
of any other such Indebtedness under which there
has been a Payment Default or that has been so
accelerated, aggregates $20.0 million or more;

(vii) failure by the Company or any of its Significant
Subsidiaries to pay a final judgment or final
judgments aggregating in excess of $20.0
million, which judgments are not paid,
discharged or staged for a period of 60 days.

(viii) if any Guarantee shall cease, for any reason not
permitted by this Indenture, to be in full force
and effect or any

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<PAGE> 67
Guarantor, or any person acting on behalf of any
Guarantor, shall deny or disaffirm its
obligations under its Guarantee;

(ix) the Company or any Significant Subsidiary
thereof pursuant to or within the meaning of any
Bankruptcy Law:

(a) commences a voluntary case,

(b) consents to the entry of an order for relief
against it in an involuntary case in which it
is the debtor,

(d) makes a general assignment for the benefit of
its creditors, or

(e) admits in writing its inability generally to
pay its debts as the same become due; and

(x) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that:

(a) is for relief against the Company or any
Significant Subsidiary thereof in an in-
voluntary case in which it is the debtor,

(b) appoints a Custodian of the Company or any
Significant Subsidiary thereof or for all or
substantially all of the property of the
Company or any Significant Subsidiary
thereof, or

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<PAGE> 68
remains unstayed and in effect for 60 days.

The term "Bankruptcy Law" means title 11, U.S. Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.

A Default under clause (iv) or (v) is not an Event of Default
until the Trustee notifies the Company in writing, or the Holders of at least
25% in aggregate principal amount of the then outstanding Securities notify the
Company and the Trustee in writing, of the Default and the Company does not
cure the Default within 30 days, with respect to a Default under clause (iv),
or 60 days, with respect to a Default under clause (v), after receipt of such
notice. The written notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default."

SECTION 6.2. Acceleration.

If any Event of Default occurs (other than an Event of Default
with respect to the Company specified in clause (ix) or (x) of Section 6.1
hereof) and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in aggregate principal amount of the then outstanding
Securities by written notice to the Company and the Trustee, may declare the
unpaid principal of, premium, if any, and accrued and unpaid interest on all
the Securities to be due and payable immediately. Upon such declaration the
principal, premium, if any, and interest shall be due and payable immediately.
If an Event of Default specified in clause (ix) or (x) of Section 6.1 hereof
occurs with respect to the Company such an amount shall ipso facto become and
be immediately due and payable without further action or notice on the part of
the Trustee or any Holder.

If an Event of Default occurs under this Indenture prior to
the maturity of the Securities by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of such Securities prior to the date of
maturity, then a premium with respect thereto (expressed as a percentage of the
amount

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<PAGE> 69
that would otherwise be due but for the provisions of this sentence) shall
become and be immediately due and payable to the extent permitted by law upon
the acceleration of such Securities if such Event of Default occurs during the
twelve- month period beginning on _______ __ of the years set forth below:

<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . %
1996 . . . . . . . . . . . . . . . . . . . . . . %
1997 . . . . . . . . . . . . . . . . . . . . . . %
1998 . . . . . . . . . . . . . . . . . . . . . . %
1999 . . . . . . . . . . . . . . . . . . . . . . %
2000 . . . . . . . . . . . . . . . . . . . . . . %
2001 . . . . . . . . . . . . . . . . . . . . . . %
2002 . . . . . . . . . . . . . . . . . . . . . . %
</TABLE>

Any determination regarding the primary purpose of any such
action or inaction, as the case may be, shall be made by and set forth in a
resolution of the Board of Directors (including the concurrence of a majority
of the independent directors of the Company then serving) delivered to the
Trustee after consideration of the business reasons for such action or
inaction, other than the avoidance of payment of such premium or prohibition on
redemption. In the absence of fraud, each such determination shall be final
and binding upon the Holders of Securities. Subject to Section 7.1 hereof, the
Trustee shall be entitled to rely on the determination set forth in any such
resolutions delivered to the Trustee.

SECTION 6.3. Other Remedies.

If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal or interest
on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.

The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or

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<PAGE> 70
acquiescence in the Event of Default. All remedies are cumulative to the
extent permitted by law.

SECTION 6.4. Waiver of Past Defaults.

The Holders of not less than a majority in aggregate principal
amount of the Securities then outstanding by written notice to the Trustee may,
on behalf of the Holders of all of the Securities, waive any existing Default
or Event of Default and its consequences under this Indenture except a
continuing Default or Event of Default in the payment of the principal of,
premium, if any, or interest on any Security. Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.

SECTION 6.5. Control by Majority.

Holders of the Securities may not enforce this Indenture or
the Securities except as provided in this Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders or that may involve the Trustee in
personal liability. The Trustee may take any other action which it deems
proper which is not inconsistent with any such direction.

SECTION 6.6. Limitation on Suits.

A Holder may pursue a remedy with respect to this Indenture or
the Securities only if:

(i) the Holder gives to the Trustee written notice of
a continuing Event of Default;

(ii) the Holders of at least 25% in principal amount
of the then outstanding Securi-

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<PAGE> 71
ties make a written request to the Trustee to
pursue the remedy;

(iii) such Holder or Holders offer and, if requested,
provide to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or
expense;

(iv) the Trustee does not comply with the request
within 60 days after receipt of the request and
the offer and, if requested, the provision of
indemnity; and

(v) during such 60-day period the Holders of a
majority in principal amount of the then out-
standing Securities do not give the Trustee a
direction inconsistent with the request.

A Holder may not use this Indenture to prejudice the rights of another Holder
or to obtain a preference or priority over another Holder.

SECTION 6.7. Rights of Holders to Receive Payment.

Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal, premium, if any, and
interest on the Security, on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.

SECTION 6.8. Collection Suit by Trustee.

If an Event of Default specified in Section 6.1(i) or (ii)
hereof occurs and is continuing, the Trustee is authorized to recover judgment
in its own name and as trustee of an express trust against the Company or any
other obligor for the whole amount of principal, premium, if any, and interest
remaining unpaid on the Securities and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover amounts due the Trustee under Section 7.7 hereof, including the costs and
expenses of

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collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.

SECTION 6.9. Trustee May File Proofs of Claim.

The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Securities), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.7 hereof. To the extent at the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment
of the same shall be secured by a Lien on, and shall be paid out of any and all
distributions, dividends, money, securities and other properties which the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to
or accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights
of any Holder thereof, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.

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SECTION 6.10. Priorities.

If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:

First: to the Trustee, its agents and attorneys for amounts
due under Section 7.7, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;

Second: to Holders for amounts due and unpaid on the
Securities for principal, premium, if an , and interest, ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Securities for principal, premium, if any and interest, respectively; and

Third: to the Company or to such party as a court of
competent jurisdiction shall direct.

The Trustee may fix a record date and payment date for any
payment to Holders pursuant to this Section 6.10 upon five Business Days prior
notice to the Company.

SECTION 6.11. Undertaking for Costs.

In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.7 hereof, or a suit by
Holders of more than 10% in principal amount of the then outstanding
Securities.

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ARTICLE 7
TRUSTEE

SECTION 7.1. Duties of Trustee.

(i) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of
the rights and powers vested in it by this
Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would
exercise or use under the circumstances in the
conduct of his own affairs.

(ii) Except during the continuance of an Event of
Default known to the Trustee:

(a) the duties of the Trustee shall be determined
solely by the express provisions of this
Indenture or the TIA and the Trustee need
perform only those duties that are
specifically set forth in this Indenture or
the TIA and no others, and no implied
covenants or obligations shall be read into
this Indenture against the Trustee, and

(b) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the
truth of the statements and the correctness
of the opinions expressed therein, upon
certificates or opinions furnished to the
Trustee and conforming to the requirements of
this Indenture. However, in the case of an
such certificates or opinions which by any
provisions hereof are required to be
furnished to the Trustee, the Trustee shall
examine the certificates and opinions to
determine whether or not they conform to the
requirements of this Indenture.

(iii) The Trustee may not be relieved from liabilities
for its own negligent ac-

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tion, its own negligent failure to act, or its
own willful misconduct, except that:

(a) this paragraph does not limit the effect of
paragraph (ii) of this Section;

(b) the Trustee shall not be liable for any
(error of judgment made in good faith by a
Responsible Officer, unless it is proved that
the Trustee was negligent in ascer- taining
the pertinent facts; and

(c) the Trustee shall not be liable with respect
to any action it takes or omits to take in
good faith accordance with a direction
received by it pursuant to Section 6.5
hereof.

(iv) Whether or not therein expressly so provided
every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs
(i), (ii), and (iii) of this Section.

(v) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or incur
any liability. The Trustee may refuse to perform
any duty or exercise any right or power unless it
receives security and indemnity satisfactory to
it against any loss, liability or expense.

(vi) The Trustee shall not be liable for interest on
any money received by it except as the Trustee
may agree in writing with the Company. Absent
written instruction from the Company, the Trustee
shall not be required to invest any such money.
Money held in trust by the Trustee need not be
segregated from other funds except to the extent
required by law.

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(vii) The Trustee shall not be deemed to have knowledge
of any matter unless such matter is actually
known to a Responsible Officer.

SECTION 7.2. Rights of Trustee.

(i) The Trustee may conclusively rely upon any
document believed by it to be genuine and to have
been signed or presented by the proper Person.
The Trustee need not investigate any fact or
matter stated in the document.

(ii) Before the Trustee acts or refrains from acting,
it may require an Officers' Certificate or an
Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to
take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Trustee
may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection
from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith
and in reliance thereon.

(iii) The Trustee may act through its attorneys and
agents and shall not be responsible for the
misconduct or negligence of any agent appointed
with due care.

(iv) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it
believes to be authorized or within its rights or
powers conferred upon it by this Indenture. A
permissive right granted to the Trustee hereunder
shall not be deemed an obligation to act.

(v) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or
notice from the Company

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shall be sufficient if signed by an Officer of
the Company.

SECTION 7.3. Individual Rights of Trustee.

The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company or
any Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 7.10 and 7.11 hereof.

SECTION 7.4. Trustee's Disclaimer.

The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Securities, nor shall it be accountable for the Company's use of the proceeds
from the Securities or any money paid to the Company or upon the Company's
direction under any provision of this Indenture, nor shall it be responsible
for the use or application of any money received by any Paying Agent other than
the Trustee, nor shall it be responsible for any statement or recital herein or
any statement in the Securities or any other document in connection with the
sale of the Securities or pursuant to this Indenture other than its certificate
of authentication.

SECTION 7.5. Notice of Defaults.

The Company is required, upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.

If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders a notice of
the Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in payment on any Security, the Trustee
may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of the Holders.

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SECTION 7.6. Reports by Trustee to Holders.

Within 60 days after each December 31 beginning with the
December 31 following the date hereof, the Trustee shall mail to the Holders a
brief report dated as of such reporting date that complies with TIA Section
313(a) (but if no event described in TIA Section 313( a) has occurred within
the twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with TIA Section 313(b). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).

A copy of each report at the time of its mailing to the
Holders shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Securities are listed. The Company shall promptly
notify the Trustee when the Securities are listed on any stock exchange.

SECTION 7.7. Compensation and Indemnity.

The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
Company and Trustee shall agree in writing. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust.
The Company shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.

The Company shall indemnify the Trustee against any and all
losses, liabilities, damages, claims or expenses incurred by it arising out of
or in connection with the acceptance of its duties and the administration of
the trusts under this Indenture, except as set forth below. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company
of its obligations hereunder. The Company shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of

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such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.

In addition, the Trustee will not be under any obligation to
exercise any of its rights or powers under this Indenture at the request of any
Holder of Securities, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

The obligations of the Company under this Section 7.7 shall
survive the satisfaction and discharge of this Indenture.

The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through its own
negligence or bad faith.

To secure the Company's patent obligations in this Section,
the Trustee shall have a Lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay principal
and interest on particular Securities. Such Lien shall survive the
satisfaction and discharge of this Indenture.

When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(ix) or (x) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.

SECTION 7.8. Replacement of Trustee.

A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.

The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of a majority in principal amount of the then outstanding Securities
may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:

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(1) the Trustee fails to comply with Section 7.10 hereof;

(2) the Trustee is adjudged a bankrupt or an insolvent or
an order for relief is entered with respect to the
Trustee under any Bankruptcy Law;

(3) a Custodian or public officer takes charge of the
Trustee or its property; or

(4) the Trustee becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding
Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.

If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of at least 10% in principal amount of the then
outstanding Securities may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

If the Trustee after written request by any Holder who has
been a Holder for at least six months fails to comply with Section 7.10 hereof,
such Holder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.

A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in

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Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to
this Section 7.8, the Company's obligations under Section 7.7 hereof shall
continue for the benefit of the retiring Trustee.

SECTION 7.9. Successor Trustee or Agent by Merger, etc.

If the Trustee or any Agent consolidates, merges or converts
into, or transfers all or substantially all of its corporate trust business to,
another corporation, the successor corporation without any further act shall be
the successor Trustee or Agent.

SECTION 7.10. Eligibility; Disqualification.

There shall at all times be a Trustee hereunder which shall be
a corporation organized and doing business under the laws of the United States
of America or of any state thereof authorized under such laws to exercise
corporate trustee power, shall be subject to supervision or examination by
federal or state authority and shall have a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.

This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).

SECTION 7.11. Preferential Collection of Claims Against
Company.

The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.

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ARTICLE 8
DISCHARGE OF INDENTURE

SECTION 8.1. Defeasance and Discharge of This Indenture and
the Securities.

The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
with respect to the Securities, elect to have either Section 8.2 or 8.3 hereof
be applied to all outstanding Securities upon compliance with the conditions
set forth below in this Article 8.

SECTION 8.2. Legal Defeasance and Discharge.

Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.2, the Company and the Guarantors shall be
deemed to have been discharged from their respective obligations with respect
to all outstanding Securities on the date the conditions set forth below are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Securities, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 8.5
hereof and the other Sections of this Indenture referred to in clauses (i) and
(ii) of this Section 8.2, and to have satisfied all its other obligations under
such Securities and this Indenture (and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following provisions which shall survive until otherwise
terminated or discharged hereunder: (i) the rights of Holders of outstanding
Securities to receive solely from the trust fund described in Section 8.4
hereof, and as more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest on such Securities when such
payments are due, (ii) the Company's obligations with respect to such
Securities under Sections 2.4, 2.6, 2.7, 2.10 and 4.2 hereof, (iii) the rights,
powers, trusts, duties and immunities of the Trustee hereunder, including,
without limitation, the Trustee's rights under Section 7.7 hereof, and the
Company's obligations in connection therewith and (iv) this Article 8. Upon
Legal Defeasance as provided here-

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in, the Guarantee of each Guarantor shall be fully released and discharged and
the Trustee shall promptly execute and deliver to the Company any documents
reasonably requested by the Company to evidence or effect the foregoing.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.2 notwithstanding the prior exercise of its option under
Section 8.3 hereof with respect to the Securities.

SECTION 8.3. Covenant Defeasance.

Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.3, the Company and the Guarantor's shall be
released from their respective obligations under the covenants contained in
Sections 2.15, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13 and 4.15 and Article 5
hereof with respect to the outstanding Securities on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Securities shall thereafter be deemed not "outstanding" for the
purposes of any direction, waiver, consent or declaration or act of Holders
(and the consequences of any thereof) in connection with such covenants, but
shall continue to be deemed "outstanding" for all other purposes hereunder (it
being understood that such Securities shall not be deemed outstanding for
accounting purposes). For this purpose, such Covenant Defeasance means that,
with respect to the outstanding Securities, the Company may omit to comply with
and shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of a reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Sections 6.1(iii) and 6.1(iv) hereof, but, except as specified above, the
remainder of this Indenture and such Securities shall be unaffected thereby.
In addition upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, Sections 6.1(v) through 6.1(viii) hereof shall
not constitute Events of Default.

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SECTION 8.4. Conditions to Legal or Covenant Defeasance.

The following shall be the conditions to the application of
either Section 8.2 or Section 8.3 hereof to the outstanding Securities:

(i) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or
another trustee satisfying the requirements of
Section 7.10 who shall agree to comply with the
provisions of this Article 8 applicable to it) as
trust funds in trust for the purpose of making
the following payments, specifically pledged as
security for, and dedicated solely to, the
benefit of the Holders of such Securities, (a)
cash in an amount, or (b) U.S. Government
Obligations which through the scheduled payment
of principal and interest in respect thereof in
accordance with their terms will provide, not
later than one day before the due date of any
payment, cash in an amount, or (c) a combination
thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of
independent public accountants expressed in a
written certification thereof delivered to the
Trustee, to pay and discharge and which shall be
applied by the Paying Agent (or other qualifying
trustee) to pay and discharge the principal of,
premium, if any, and interest on such outstanding
Securities on the Maturity Date or on the
applicable Redemption Date, as the case may be,
of such principal or installment of principal,
premium, if any, or interest on the Securities,
and the holders of the Securities must have a
valid, perfected, exclusive security interest in
such trust; provided that the Paying Agent shall
have been irrevocably instructed to apply such
cash and the proceeds of such U.S. Government
Obligations to said payments

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with respect to the Securities. The Paying Agent
shall promptly advise the Trustee in writing of
any cash or Securities deposited pursuant to this
Section 8.4.

(ii) In the case of an election under Section 8.2
hereof, the Company shall have delivered to the
Trustee an Opinion of Counsel in the United
States confirming that (a) the Company has
received from, or there has been published by,
the Internal Revenue Service a ruling or (b)
since the date hereof, there has been a change in
the applicable federal income tax law, in either
case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the
Holders of the outstanding Securities will not
recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the
same amounts, in the same manner and at the same
times as would have been the case if such Legal
Defeasance had not occurred.

(iii) In the case of an election under Section 8.3
hereof, the Company shall have delivered to the
Trustee an Opinion of Counsel in the United
States confirming that the Holders of the
outstanding Securities will not recognize income,
gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be
subject to federal income tax on the same
amounts, in the same manner and at the same times
as would have been the case if such Covenant
Defeasance had not occurred.

(iv) No Default or Event of Default with respect to
the Securities shall have occurred and be
continuing on the date of such deposit (other
than a Default or Event of Default resulting from
the

<PAGE> 86
borrowing of funds to be applied to such deposit)
or, insofar as Section 6.1(ix) or 6.1(x) hereof
is concerned, at any time in the period ending on
the 91st day after the date of such deposit (it
being understood that this condition shall not be
deemed satisfied until the expiration of such
period, but in the case of Covenant Defeasance,
the covenants which are defeased under Section
8.3 hereof will cease to be in effect unless an
Event of Default under Section 6.1(ix) or Section
6.1(x) hereof occurs during such period).

(v) Such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or
constitute a default under any material agreement
or instrument (other than this Inden- ture) to
which the Company or any of its Subsidiaries is a
party or by which the Company or any of its
Subsidiaries is bound (other than a breach,
violation or default resulting from the borrowing
of funds to be applied to such deposit).

(vi) The Company shall have delivered to the Trustee
an Opinion of Counsel to the effect that after
the 91st day following the deposit, the trust
funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights
generally.

(vii) The Company shall have delivered to the Trustee
an Officers' Certificate stating that the deposit
made by the Company pursuant to its election
under Section 8.2 or 8.3 hereof was not made by
the Company with the intent of preferring the
Holders of the Securities over the other
creditors of the Company with the intent of
defeating, hindering, delaying or defrauding
creditors of the Company or others.

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(viii) The Company shall have delivered to the Trustee
an Officers' Certificate and an Opinion of
Counsel in the United States, each stating that
all conditions precedent provided for relating to
either the Legal Defeasance under Section 8.2
hereof or the Covenant Defeasance under Section
8.3 hereof (as the case may be) have been
complied with as contemplated by this Section
8.4.

SECTION 8.5. Deposited Cash and U.S. Government Obligations
to be Held in Trust; Other Miscellaneous
Provisions.

Subject to Section 8.6 hereof, all cash and U.S. Government
Obligations (including the proceeds thereof) deposited with the Paying Agent
(or other qualifying trustee, collectively for purposes of this Section 8.5,
the "Paying Agent") pursuant to Section 8.4 hereof in respect of the
outstanding Securities shall be held in trust and applied by the Paying Agent,
in accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Securities of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.

The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or U.S.
Government Obligations deposited pursuant to Section 8.4 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Securities.

Anything in this Article 8 to the contrary notwithstanding,
the Trustee or the Paying Agent, as applicable shall deliver or pay to the
Company from time to time upon the Company's request any cash or U.S.
Government Obligations held by it as provided in Section 8.4 hereof which, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a

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written certification thereof delivered to the Trustee (which may be the
opinion delivered under Section 8.4(i) hereof), are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.

SECTION 8.6. Repayment to Company.

Any cash and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its written request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and
The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such notification or publication, any unclaimed
balance of such money then remaining will be repaid to the Company.

SECTION 8.7. Reinstatement.

If the Trustee or Paying Agent is unable to apply any cash or
U.S. Government Obligations in accordance with Section 8.2 or 8.3 hereof, as
the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and the Guarantors' obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as
the Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 8.2 or 8.3 hereof, as the case may be; provided, however, that, if
the Company makes any payment of prin-

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cipal of, premium, if any, or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Security to receive such payment from the cash and U.S.
Government Obligations held by the Trustee or Paying Agent.

ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER

SECTION 9.1. Without Consent of Holders.

The Company and the Trustee may amend or supplement this
Indenture or the Securities without the consent of any Holder:

(i) to cure any ambiguity, defect or inconsistency;

(ii) to provide for uncertificated Securities in
addition to or in place of certificated
Securities;

(iii) to provide for the assumption of the Company's
obligations to the Holders of the Securities in
the case of a merger, consolidation or sale of
assets pursuant to Article 5 hereof;

(iv) to provide for the assumption of any Guarantor's
obligations to the Holders of the Securities in
the case of a merger consultation or sale of
assets pursuant to Section 10.04 hereof;

(v) to provide for additional Guarantors of the
Securities;

(vi) to evidence the release of any Guarantor in
accordance with Article 10 hereof;

(vii) to make any change that would provide any
additional rights or benefits to the Holders of
the Securities or that does not adversely affect
the legal rights hereunder of any such Holder;

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(viii) to comply with requirements of the Commission in
order to effect or maintain the qualification of
this Indenture under the TIA;

(ix) in any other case where a supplemental indenture
is required or permitted to be entered into
pursuant to the provisions of Article 10 hereof
without the consent of any Holder; or

(x) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with
respect to the Securities.

Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such supplemental
indenture, and upon receipt by the Trustee of the documents described in
Section 9.6 hereof, the Trustee shall join with the Company in the execution of
any supplemental indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations which
may be therein contained, but the Trustee shall not be obligated to enter into
such supplemental indenture which affects its own rights, duties or immunities
under this Indenture or otherwise.

SECTION 9.2. With Consent of Holders.

Except as otherwise provided herein, this Indenture or the
Securities may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Securities then outstanding
(including consents obtained in connection with a tender offer or exchange
offer for such Securities), and any existing default or compliance with any
provision of this Indenture or the Securities may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding
Securities (including consents obtained in connection with a tender offer or
exchange offer for such Securities).

Upon the request of the Company, accompanied by a resolution
of its Board of Directors authorizing the execution of any such supplemental
indenture, and upon

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the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders as aforesaid, and upon receipt by the Trustee of the
documents described in Section 9.6 hereof, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such supplemental
indenture.

It shall not be necessary for the consent of the Holders under
this Section 9.2 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.

After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of an such supplemental indenture or
waiver. Subject to Sections 6.4 and 6.7 thereof the Holders of a majority in
aggregate principal amount of the Securities then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Securities. Without the consent of each Holder affected,
however, an amendment or waiver may not (with respect to any Security held by a
non-consenting Holder):

(i) reduce the principal amount of Securities whose
Holders must consent to an amendment, supplement
or waiver;

(ii) reduce the principal of or change the fixed
maturity of any Security;

(iii) reduce the rate of or change the time for payment
of interest on any Security;

(iv) waive a Default or Event of Default in the
payment of principal of, or premium, if any, or
interest, on the Securities (except a rescission
of acceleration of the Securities by the Holders
of at

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least a majority an aggregate principal amount
thereof and a waiver of the payment default that
resulted from such acceleration);

(v) make any Security payable in money other than
that stated in the Securities;

(vi) make any change in Section 6.4 or 6.7 hereof;

(vii) make any change in this sentence of this Section
9.2; or

(viii) except for the termination or release of any
Guarantee pursuant to the terms of this
Indentures, the release of the Guarantor from its
obligations under its Guarantee, or any change in
a Guarantee that would adversely affect the
Holders.

SECTION 9.3. Compliance With TIA.

Every amendment to this Indenture or the Securities shall be
set forth in a supplemental indenture that complies with the TIA as then in
effect.

SECTION 9.4. Revocation and Effect of Consents.

Until an amendment or waiver becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made
on any Security. However, any such Holder or subsequent Holder may revoke the
consent as to its Security if the Trustee receives written notice of revocation
before the date the waiver or amendment becomes effective. An amendment or
waiver becomes effective in accordance with its terms and thereafter binds
every Holder.

The Company may, but shall not be obligated to, fix a record
date for determining which Holders must consent to such amendment or waiver.
If the Company fixes a record date, the record date shall be fixed at

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(i) the later of 30 days prior to the first solicitation of such consent or the
date of the most recent list of Holders furnished to the Trustee prior to such
solicitation pursuant to Section 2.5 hereof or (ii) such other date as the
Company shall designate.

SECTION 9.5. Notation on or Exchange of Securities.

The Trustee may place an appropriate notation about an
amendment or waiver on any Security thereafter authenticated. The Company in
exchange for all Securities may issue and the Trustee shall authenticate new
Securities that reflect the amendment or waiver.

Failure to make the appropriate notation or issue a new
Security shall not affect the validity and effect of such amendment or waiver.

SECTION 9.6. Trustee to Sign Amendments, etc.

The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if the amendment does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. If it
does, the Trustee may, but need not, sign it. In signing or refusing to sign
such amendment or supplemental indenture, the Trustee shall be entitled to
receive and, subject to Section 7.1, shall be fully protected in relying upon,
an Officers' Certificate and an Opinion of Counsel as conclusive evidence that
such amendment or Supplemental Indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it shall be valid and
binding upon the Company in accordance with its terms. The Company may not
sign an amendment or supplemental indenture until the Board of Directors
approves it.

ARTICLE 10
GUARANTEE

SECTION 10.1. Guarantee.

In consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, each of the Guarantors
hereby irrevocably and

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unconditionally guarantees (the "Guarantee"), jointly and severally, on a
senior basis, to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of this Indenture, the Securities or the
obligations of the Company under this Indenture or the Securities, that: (i)
the principal and premium (if any) of and interest on the Securities will be
paid in full when due, whether at the Maturity Date or Interest Payment Date,
by acceleration, call for redemption or otherwise, (ii) the purchase price for
all Securities properly and timely tendered for acceptance in response to a
Change of Control Offer or a Senior Asset Sale Offer will be timely, or
otherwise in accordance with the provisions of this Indenture, paid in full;
(iii) all other obligations of the Company to the Holders or the Trustee under
this Indenture or the Securities will be promptly paid in full or performed,
all in accordance with the terms of this Indenture and the Securities; and (iv)
in case of any extension of time of payment or renewal of any Securities or any
of such other obligations, they will be paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at the Maturity
Date, as so extended, by acceleration, call for redemption, upon a Change of
Control Offer, upon a Senior Asset Sale Offer or otherwise. Failing payment
when due of any amount so guaranteed for whatever reason, each Guarantor shall
be jointly and severally obligated to pay the same before failure so to pay
becomes an Event of Default. If the Company or a Guarantor defaults in the
payment of the principal of, premium, if any, or interest on, the Securi- ties
when and as the same shall become due, whether upon maturity, acceleration,
call for redemption, upon a Change of Control Offer, Asset Sale Offer or
otherwise, without the necessity of action by the Trustee or any Holder, each
Guarantor shall be required, jointly and severally, to promptly make such
payment in full.

Each Guarantor hereby agrees that its obligations with regard
to this Guarantee shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or this Indenture, the absence
of any action to enforce the same, any delays in obtaining or realizing upon or
failures to obtain or realize upon collateral, the recovery of any judgment
against the Company, any action to enforce the same or any other

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circumstances that might otherwise constitute a legal or equitable discharge or
defense of a Guarantor (except as provided in Sections 10.4 and 10.5). Each
Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company or right to require
the prior disposition of the assets of the Company to meet its obligations,
protest, notice and all demands whatsoever and covenants that this Guarantee
will not be discharged (except to the extent released pursuant to Sections 10.4
or 10.5) except by complete performance of the obligations contained in the
Securities and this Indenture.

If any Holder or the Trustee is required by any court or
otherwise to return to either the Company or any Guarantor, or any Custodian,
trustee, or similar official acting in relation to either the Company or such
Guarantor, any amount paid by either the Company or such Guarantor to the
Trustee or such Holder, this Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect (except to the extent released
pursuant to Sections 10.4 or 10.5). Each Guarantor agrees that it will not be
entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Guarantor further agrees that, as between such
Guarantor, on the one hand, and the Holders and the Trustee, on the other hand,
(i) the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article 6 for the purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration as to the
Company of the obligations guaranteed hereby, and (ii) in the event of any
declaration of acceleration of those obligations as provided in Article 6,
those obligations (whether or not due and payable) will forthwith become due
and payable by each of the Guarantors for the purpose of this Guarantee.

Each Guarantor and by its acceptance of a Security issued
hereunder each Holder hereby confirms that it is the intention of all such
parties that the guarantee by such Guarantor set forth in the first paragraph
of this Section 10.1 not constitute a fraudulent transfer or conveyance for
purpose of any Bankruptcy Law, the Uniform

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Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
Federal or state law. To effectuate the foregoing intention, the Holders and
such Guarantor hereby irrevocably agree that the obligations of such Guarantor
under its Guarantee set forth in the first paragraph of this Section 10.1 shall
be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to the following paragraph of this Section 10.1, result in the
obligations of such Guarantor under such Guarantee not constituting such a
fraudulent transfer or conveyance.

Each Guarantor that makes any payment or distribution under
the first paragraph of this Section 10.1 shall be entitled to a contribution
from each other Guarantor equal to its Pro Rata Portion of such payment or
distribution. For purposes of the foregoing, the "Pro Rata Portion" of any
Guarantor means the percentage of the net assets of all Guarantors held by such
Guarantor, determined in accordance with GAAP.

It is the intention of each Guarantor and the Company that the
obligations of each Guarantor hereunder shall be joint and several and in, but
not in excess of, the maximum amount permitted by applicable law. Accordingly,
if the obligations in respect of the Guarantee would be annulled, avoided or
subordinated to the creditors of any Guarantor by a court of competent
jurisdiction in a proceeding actually pending before such court as a result of
a determination both that such Guarantee was made without fair consideration
and, immediately after giving effect thereto, such Guarantor was insolvent or
unable to pay its debts as they mature or left with an unreasonably small
capital, then the obligations of such Guarantor under such Guarantee shall be
reduced by such court if and to the extent such reduction would result in the
avoidance of such annulment, avoidance or subordination; provided, however,
that any reduction pursuant to this paragraph shall be made in the smallest
amount as is strictly necessary to reach such result. For purposes of this
paragraph, "fair consideration," "insolvency," "unable to pay its debts as they
mature," "unreasonably small capital" and the effective times of reductions, if

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any, required by this paragraph shall be determined in accordance with
applicable law.

SECTION 10.2. Execution and Delivery of Guarantee.

Each Guarantor shall, by virtue of such Guarantor's execution
and delivery of this Indenture or such Guarantor's execution and delivery of an
indenture supplement pursuant to Section 10.3 hereof, be deemed to have signed
on each Security issued hereunder the notation of guarantee set forth on the
form of the Securities attached hereto as Exhibit A to the same extent as if
the signature of such Guarantor appeared on such Security.

The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
guarantee set forth in Section 10.1 on behalf of each Guarantor. The notation
of a guaranty set forth on any Security shall be null and void and of no
further effect with respect to the guaranty of any Guarantor which, pursuant to
Section 10.4 or Section 10.5, is released from such Guarantee.

SECTION 10.3. Future Subsidiary Guarantors.

Upon (i) the acquisition by the Company or Guarantor of the
Capital Stock of any Person, if, as a result of such acquisition, such Person
becomes a Subsidiary or (ii) the last day of any fiscal quarter during which
any Subsidiary of the Company that is not a Guarantor as of such date and has
not previously been released as a Guarantor pursuant to Section 10.4 or Section
10.5 of this Indenture becomes a Subsidiary, such Subsidiary (hereinafter any
such Subsidiary, except any Excluded Guarantee Subsidiary (as defined below),
being called a "Future Subsidiary Guarantor") shall unconditionally guarantee
the obligations of the Company with respect to payment and performance of the
Securities and the other obligations of the Company under this Indenture to the
same extent that such obligations are guaranteed by the other Guarantors
pursuant to Section 10.1; and, within 60 days of the date of such occurrence,
such Future Subsidiary Guarantor shall execute and deliver to the Trustee a
supplemental indenture making such Future Subsidiary Guarantor a party to this
Indenture; provided, however, that the foregoing provisions shall not apply to
(A) any

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Subsidiary referenced in clause (i) or clause (ii) above that is prohibited by
law or by the terms of any agreement from making the guarantee set forth in
Section 10.1 (an "Excluded Guarantee Subsidiary") (provided that such
Subsidiary will become a Future Subsidiary Guarantor as of the date such
prohibition is removed or lapses), or (B) a Subsidiary which would have been
released from its guarantee, by virtue of events set forth in Section 10.5, had
such Subsidiary been a Guarantor at the time such events occurred, or (C) a
Subsidiary of any Person which has been released as a Guarantor pursuant to
Section 10.5.

SECTION 10.4. Guarantor May Consolidate, etc., on Certain
Terms.

Nothing contained in this Indenture or in any of the
Securities shall prevent any consolidation or merger of a Guarantor with or
into the Company or any other Guarantor. Upon any such consolidation or
merger, the Guarantees (as set forth in Section 10.1) of the Guarantor which is
not the survivor of the merger or consolidation, and of any Subsidiary of such
Guarantor that is also a Guarantor, shall be released and shall no longer have
any force or effect.

Nothing contained in this Indenture shall prevent any sale or
conveyance of assets of any Guarantor (whether or not constituting all or
substantially all of the assets of such Guarantor) to any Person, provided that
the Company shall comply with the provisions of Sections 2.15 and 4.10 hereof,
and provided further that, in the event that all or substantially all of the
assets of a Guarantor are sold or conveyed, the Guarantees of such Guarantor
(as set forth in Section 10.1) shall be released and shall no longer have any
force or effect.

Except as provided in the first paragraph of Section 10.4 or
Section 10.5, each Guarantor shall not, directly or indirectly, consolidate
with or merge with or into another Person, unless (i) either (a) the Guarantor
is the continuing entity or (b) the resulting or surviving entity is
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Guarantor in connection with the Securities and this
Indenture; (ii) no Default

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or Event of Default would occur as a consequence of (after giving effect, on a
pro forma basis, to) such transaction; and (iii) the Guarantor has delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation or merger and if a supplemental indenture is required,
such supplemental indenture comply with this Indenture and that all conditions
precedent herein relating to such transaction have been satisfied.

Upon any consolidation or merger of the Guarantor in
accordance with Section 10.4 hereof, the successor corporation formed by such
consolidation or into which the Guarantor is merged shall succeed to, and be
substituted for, and may exercise every right and power of, the Guarantor under
this Indenture with the same effect as if such successor corporation had been
named herein as the Guarantor, and when a successor corporation duly assumes
all of the obligations of the Guarantor pursuant hereto and pursuant to the
Securities, the Guarantor shall be released from such obligations.

SECTION 10.5. Release of Guarantors.

Without any further notice or action being required by any
Person, any Guarantor, and each Subsidiary of such Guarantor that is also a
Guarantor, shall be fully and conditionally released and discharged from all
obligations under its Guarantee and this Indenture upon the sale or
disposition (whether by merger, stock purchase, asset sale or otherwise) of a
Guarantor (or all of its assets), to an entity which is not a Subsidiary of the
Company, which transaction is otherwise in compliance with this Indenture, such
Guarantor shall be deemed released from its obligations under its Guarantee of
the Securities; provided, however, that any such termination shall occur only
to the extent that all obligations of such Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure any Indebtedness of the Company shall also terminate
upon such release, sale or transfer. Notwithstanding the foregoing, if upon
consummation of the Spinoff Transaction, PCA ceases to satisfy the conditions
necessary to be a subsidiary of the company under the definition of
"Subsidiary," PCA shall be deemed released from its Guarantee of the
Securities.

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The releases and discharges set forth in the first paragraph
of this Section 10.5 shall be effective on the date of consummation thereof.
At the written request of the Company, the Trustee shall promptly execute and
deliver appropriate instruments in forms reasonably acceptable to the Company
evidencing and further implementing any releases and discharges pursuant to the
foregoing provisions. If the Company desires the instruments evidencing or
implementing any releases or discharges to be executed prior to the
effectiveness of such releases and discharges as set forth above, such
instruments may be made conditional upon the occurrence of the events necessary
to cause the effectiveness of such releases and discharges, as specified in the
first sentence of this Section 10.5.

Notwithstanding the foregoing provisions of this Article 10,
(i) any Guarantor whose Guarantee would otherwise be released pursuant to the
provisions of this Section 10.5 may elect, by written notice to the Trustee, to
maintain such Guarantee in effect notwithstanding the event or events that
otherwise would cause the release of such Guarantee (which election to maintain
such Guarantee in effect may be conditional or for a limited period of time),
and (ii) any Subsidiary of the Company which is not a Guarantor may elect, by
written notice to the Trustee, to become a Guarantor (which election may be
conditional or for a limited period of time).

SECTION 10.6. Certain Bankruptcy Events.

Each Guarantor hereby covenants and agrees, to the fullest
extent that it may do so under applicable law, that in the event of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company, such Guarantor shall not file (or join in any filing of), or otherwise
seek to participate in the filing of, any motion or request seeking to stay or
to prohibit (even temporarily) execution on the Guarantee and hereby waives and
agrees not to take the benefit of any such stay of execution, whether under the
Bankruptcy Law or otherwise.

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ARTICLE 11
MISCELLANEOUS

SECTION 11.1. TIA Controls.

If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed duties
shall control.

SECTION 11.2. Notices.

Any notice or communication to the Company or any Guarantor or
the Trustee is duly given if in writing and delivered in person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, addressed
as follows:

If to the Company or to any Guarantor:

Beverly Enterprises, Inc.
5111 Rogers Avenue
Suite 40-A
Fort Smith, Arkansas 72919-1000
Telecopier Number: (501) [ - ]
Attention: [Schuyler Hollingsworth, Jr.]

With a copy to:

Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
Telecopier No.: (213) 891-8763
Attention: Gary Olson

If to the Trustee:

Chemical Bank
Corporate Agency Department
450 West 33rd Street
New York, New York 10001
Telecopier No.: (212) [ - ]
Attention:

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The Company or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.

All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.

Unless otherwise set forth above, any notice or communication
to a Holder shall be mailed by first class mail, certified or registered,
return receipt requested, or by overnight air courier guaranteeing next day,
delivery to its address shown on the register kept by the Registrar. Any
notice or communication shall also be so mailed to any Person described in TIA
Section 313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.

If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.

If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.

SECTION 11.3. Communication by Holders With Other Holders.

Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).

SECTION 11.4. Certificate and Opinion as to Conditions
Precedent.

Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:

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(1) an Officers' Certificate (which shall include the
statements set forth in Section 11.5 hereof)
stating that, in the opinion of the signers, all
conditions precedent and covenants, if any,
provided for in this Indenture relating to the
proposed action have been satisfied; and

(2) an Opinion of Counsel (which shall include the
statements set forth in Section 11.5 hereof)
stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been
satisfied.

SECTION 11.5. Statements Required in Certificate or Opinion.

Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall include:

(1) a statement that the person making such
certificate or opinion has read such covenant or
condition;

(2) a brief statement as to the nature and scope of
the examination or investigation upon which the
statements or opinions contained in such
certificate or opinion are based;

(3) a statement that, in the opinion of such person,
he has made such examination or investigation as
is necessary to enable him to express an informed
opinion as to whether or not such covenant or
condition has been satisfied; and

(4) a statement as to whether or not, in the opinion
of such person, such condition or covenant has
been satisfied; provided, however, that with
respect to matters of fact, an Opinion of Counsel
may rely on an Officers' Certificate or
certificates of public officials.

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SECTION 11.6. Rules by Trustee and Agents.

The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.

SECTION 11.7. Legal Holidays.

A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions in The City of New York or at a place of payment are
authorized or obligated by law, regulation or executive order to remain closed.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.

SECTION 11.8. No Personal Liability of Directors, Officers,
Employees and Shareholders.

No director, officer, employee, incorporator or shareholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Securities, the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
of the Securities by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Securities. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Commission that such a
waiver is against public policy.

SECTION 11.9. Duplicate Originals.

The parties may sign any number of copies of this Indenture.
One signed copy is enough to prove this Indenture.

SECTION 11.10. Governing Law.

The internal law of the State of New York, shall govern and be
used to construe this Indenture and the Securities, without regard to the
conflict of laws provisions thereof.

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SECTION 11.11. No Adverse Interpretation of Other Agreements.

This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.

SECTION 11.12. Successors.

All agreements of the Company in this Indenture and the
Securities shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successor.

SECTION 11.13. Severability.

In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, it being intended that all of the provisions hereof shall be
enforceable to the full extent permitted by law.

SECTION 11.14. Counterpart Originals.

The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.

SECTION 11.15. Table of Contents, Headings, etc.

The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.

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SIGNATURES

Dated as of __________________ BEVERLY ENTERPRISES, INC.

By: ______________________________

Name:
Title:

Attest:

______________________________ (SEAL)

Dated as of __________________ CHEMICAL BANK,

as Trustee

By: ______________________________

Name:
Title:

Attest:

______________________________ (SEAL)

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[SIGNATURES OF THE GUARANTORS]

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EXHIBIT A

(Face of Security)

____ % Senior Note
Due __________ ___, 2005

CUSIP:
No. $___________

BEVERLY ENTERPRISES, INC. promises to pay to ________________
______________ or its registered assigns, the principal sum of _____________
Dollars on _________ ___, 2005.

Interest Payment Dates: ________ ___ and ________ ___,
commencing ___________ ___, 1996

Record Dates: ___________ ___ and ___________ ___
(whether or not a Business Day).

BEVERLY ENTERPRISES, INC.

By:_____________________________

Dated: _____________, ____

(SEAL)

Trustee's Certificate of Authentication:

This is one of the Securities referred
to in the within-mentioned Indenture:

CHEMICAL BANK, as Trustee

By:_____________________________
Authorized Signatory

A-1
<PAGE> 109
(Back of Security)

____% SENIOR NOTE
Due __________ ___, 2005

Capitalized terms used herein have the meanings assigned to
them in the Indenture (as defined below) unless otherwise indicated.

1. Interest. Beverly Enterprises, Inc., a Delaware
corporation (the "Company"), promises to pay interest on the Principal amount
of this Security at the rate and in the manner specified below.

The Company shall pay interest in cash on the principal amount
of this Security at the rate per annum of ______%. The Company shall pay
interest semi-annually in arrears on _________ ___ and ________ ___ of each
year, commencing ___________ ___, _____ to Holders of record on the immediately
preceding __________ ___ and __________ ___, respectively, or if any such date
of payment is not a Business Day on the next succeeding Business Day (each an
"Interest Payment Date").

Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months. Interest shall accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of the original issuance of the Securities. To the extent lawful, the
Company shall pay interest on overdue principal at the rate of 1% per annum in
excess of the interest rate then applicable to the Securities; it shall pay
interest on overdue installments of interest (without regard to any applicable
grace periods) at the same rate to the extent lawful.

2. Method of Payment. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Holders of Securities at the close of business on the record date next
preceding the Interest Payment Date, even if such Securities are cancelled
after such record date and on or before such Interest Payment Date. The Holder
hereof must surrender this Security to a Paying Agent to collect principal
payments. The Company shall pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts.

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Principal, premium, if any, and interest shall be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the Holder's registered address. Notwithstanding the
foregoing, all payments with respect to Securities, the Holders of which have
given wire transfer instructions to the Paying Agent on or before the relevant
record date, shall be made by wire transfer of immediately available funds to
the accounts specified by such Holders.

3. Paying Agent and Registrar. Initially, the Trustee shall
act as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar or co-registrar without prior notice to any Holder. The Company and
any of its Subsidiaries may act in any such capacity.

4. Indenture. The Company issued the Securities under an
Indenture, dated as of ________ __, 1995 (the "Indenture"), by and among the
Company, the Guarantors named therein and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.
Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the
Indenture. The Securities are subject to all such terms, and Holders are
referred to the Indenture and such act for a statement of such terms. The
terms of the Indenture shall govern any inconsistencies between the Indenture
and the Securities. The Securities are unsecured senior obligations of the
Company. The Securities are limited to $150,000,000 in aggregate principal
amount.

5. Optional Redemption. The Securities may be redeemed, in
whole or in part, at any time on or after ________ __, 2000, at the option of
the Company, at the Redemption Price (expressed as a percentage of principal
amount) set forth below with respect to the indicated Redemption Date, in each
case (subject to the right of Holders of record on a Record Date that is on or
prior to such Redemption Date to receive interest due on the Interest Payment
Date to which such Record Date relates), plus any accrued but unpaid interest
to the Redemption

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Date. The Securities may not be so redeemed prior to _________ __, 2000.

<TABLE>
<CAPTION>
If redeemed during
the 12-month period
commencing Redemption Price
------------------- ----------------
<S> <C>
2000 %
2001 %
2002 %
2003 and %
thereafter 100%
</TABLE>

Any such redemption will comply with Article 3 of the
Indenture.

6. Mandatory Redemption. Subject to the Company's obligation
to make an offer to repurchase Securities under certain circumstances pursuant
to Sections 2.15, 4.10 and 4.13 of the Indenture (as described in paragraph 7
below), the Company shall have no mandatory redemption or sinking fund
obligations with respect to the Securities.

7. Repurchase at Option of Holder. (i) If there is a Change
of Control Triggering Event, the Company shall offer to repurchase on the
Change of Control Payment Date all outstanding Securities at 101% of the
aggregate principal amount thereof plus accrued and unpaid interest thereon to
the Change of Control Payment Date. Holders that are subject to an offer to
purchase shall receive a Change of Control Offer from the Company prior to any
related Change of Control Payment Date and may elect to have such Securities
purchased by completing the form entitled "Option of Holder to Elect Purchase"
appearing below.

(ii) If the Company or a Subsidiary consummates an Asset
Sale, within 365 days after the receipt of any Net Proceeds from such Asset
Sale, the Company may apply such Net Proceeds (a) to purchase one or more
Nursing Facilities or Related Businesses and/or a controlling interest in the
Capital Stock of a Person owning one or more Nursing Facilities and/or one or
more Related Businesses, (b) to make a capital expenditure or to acquire other
tangible assets, in each case, that are used or useful in any business in which
the Company is

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permitted to be engaged pursuant to Section 4.15 of the Indenture, (c) to
permanently reduce Indebtedness (other than Subordinated Indebtedness) of the
Company or its Subsidiaries, or (d) to permanently reduce Senior Revolving Debt
(and to correspondingly reduce commitments with respect thereto, except that up
to an aggregate of $20.0 million of Net Proceeds from Asset Sales may be
applied after the date of the Indenture to reduce Senior Revolving Debt without
a corresponding reduction in commitments with respect thereto). Pending the
final application of any such Net Proceeds, the Company may temporarily reduce
Senior Revolving Debt or otherwise invest such Net Proceeds in any manner that
is not prohibited by the Indenture. Any Net Proceeds from any Asset Sale that
are not so invested or applied shall be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company
shall make an offer to all Holders of Securities and holders of any other
Indebtedness of the Company ranking on a parity with the Securities from time
to time outstanding with similar provisions requiring the Company to make an
offer to purchase or to redeem such Indebtedness with the proceeds from any
asset sales, pro rata in proportion to the respective principal amounts of the
Securities and such other Indebtedness then outstanding (a "Senior Asset Sale
Offer") to purchase the maximum principal amount of Securities and such other
Indebtedness that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of purchase, in
accordance with the terms of the Indenture. To the extent that the aggregate
amount of Securities and such other Indebtedness tendered pursuant to a Senior
Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes not prohibited at the
time under the Indenture. If the aggregate principal amount of Securities and
such other Indebtedness surrendered by holders pursuant to a Senior Asset Sale
Offer exceeds the amount of Excess Proceeds, the Securities and such other
Indebtedness shall be purchased on a pro rata basis. Holders that are the
subject of an offer to purchase shall receive a Senior Asset Sale Offer from
the Company prior to any related purchase date and may elect to have such
Securities purchased by completing the form entitled "Option of Holder to Elect
Purchase" appearing below.

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8. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons, and in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and
the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Securities between a record date and the next succeeding
Interest Payment Date.

9. Persons Deemed Owners. Prior to due presentment to the
Trustee for registration of the transfer of this Security, the Trustee, any
Agent and the Company may deem and treat the Person in whose name this Security
is registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all other
purposes whatsoever, whether or not this Security is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the contrary.
The registered Holder of a Security shall be treated as its owner for all
purposes.

10. Amendment, Supplement and Waivers. Except as provided in
the next succeeding paragraphs, the Indenture or the Securities may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the Securities then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Securities)
and any existing default or compliance with any provision of the Indenture or
the Securities may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities (including consents
obtained in connection with a tender offer or exchange offer for Securities).

Without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Security held by a non-consenting Holder of
Securities): (i) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Security, (iii) reduce the rate of or change
the time

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for payment of interest on any Security, (iv) waive a Default or Event of
Default in the payment of principal of, or premium, if any, or interest on the
Securities, (except a rescission of acceleration of the Securities by the
Holders of at least a majority in aggregate principal amount thereof and a
waiver of the payment default that resulted from such acceleration), (v) make
an Security payable in money other than that stated in the Securities, (vi)
make any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Securities to receive payments of
principal of, or premium, if any, or interest on the Securities, (vii) make any
change in the foregoing amendment and waiver provisions or (viii) except for
the termination or release or any Guarantee pursuant to the terms of the
Indenture, the release of any Guarantor from its obligations under its
Guarantee that would adversely affect the Holders.

Notwithstanding the foregoing, without the consent of any
Holder of Securities, the Company and the Trustee may amend or supplement the
Indenture or the Securities to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Securities in addition to or in place of
certificated Securities, to provide for additional Guarantors of the Securities
or the release, in accordance with the Indenture, of any Guarantor, to provide
for the assumption of the obligations of the Company or any Guarantor to
Holders of the Securities in the case of a merger, consolidation or sale of
assets, to make any change that would provide any additional rights or benefits
to the Holders of the Securities or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements
of the Securities and Exchange Commission (the "Commission") in order to effect
or maintain the qualification of the Indenture under the TIA, to evidence and
provide for the acceptance of the appointment of a successor Trustee with
respect to the Securities, or in any other case, pursuant to the provisions of
the Indenture, where a supplemental indenture is required or permitted to be
entered into without the consent of any Holder of Senior Notes.

11. Defaults and Remedies. Events of Default under the
Indenture include: (i) a default for 30 days in the payment when due of
interest on the Securities; (ii) a default in payment when due of the principal
of, or

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<PAGE> 115
premium, if any, on the Securities, at maturity or otherwise; (iii) a failure
by the Company or any Guarantor to comply with the provisions described under
the covenants "Change of Control" or "Asset Sales"; (iv) a failure by the
Company or any Guarantor for 30 days after notice to comply with the provisions
under the covenants "Limitations on Restricted Payments," or "Limitations on
Incurrence of Indebtedness and Issuance of Preferred Stock"; (v) a failure by
the Company or any Guarantor for 60 days after notice to comply with any of its
other agreements in the Indenture or the Securities; (vi) any default that
occurs under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Significant Subsidiaries (or the payment
of which is guaranteed by the Company or any of its Significant Subsidiaries)
whether such Indebtedness or guarantee exists on the date of the Indenture, or
is created after the date of the Indenture, which default (a) constitutes a
Payment Default or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or that has been so accelerated,
aggregates $20.0 million or more; (vii) failure by the Company or any of its
Significant Subsidiaries to pay a final judgment or final judgments aggregating
in excess of $20.0 million entered by a court or courts or competent
jurisdiction against the Company or any of its Significant Subsidiaries if such
final judgment or judgments remain unpaid or undischarged for a period (during
which execution shall not be effectively stayed) of 60 days after their entry;
(viii) if any Guarantee shall cease, for any reason not permitted by the
Indenture, to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations
under its Guarantee; and (ix) certain events of bankruptcy or insolvency with
respect to the Company or any of its Significant Subsidiaries. If any Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the then outstanding Securities by written notice
to the Company and the Trustee, may declare all the Securities to be due and
payable immediately (plus, in the case of an Event of Default that is the
result of willful actions (or inac-

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<PAGE> 116
tions) by or on behalf of the Company intended to avoid prohibitions on
redemptions of the Securities contained in the Indenture or the Securities, an
amount of premium applicable pursuant to the Indenture). Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, all outstanding
Securities shall become due and payable without further action or notice.
Holders of the Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. Subject to certain limitations, Holders
of a majority in aggregate principal amount of the then outstanding Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Securities notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal or interest) if it determines that withholding notice is in such
Holders' interest.

The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.

The above description of Events of Default and remedies is
qualified by reference, and subject in its entirety, to the more complete
Description thereof contained in the Indenture.

12. Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and its Subsidiaries to incur
additional indebtedness and issue preferred stock, pay dividends or make other
distributions, repurchase Equity Interests or subordinated indebtedness, create
certain liens, enter into certain transactions with affiliates, sell assets of
the Company

A-9
<PAGE> 117
or its Subsidiaries, issue or sell Equity Interests of the Company's
Subsidiaries and enter into certain mergers and consolidations.

13. Notation of Guarantee. As set forth more fully in the
Indenture, the Persons constituting Guarantors from time to time, in accordance
with the provisions of the Indenture, unconditionally and jointly and severally
guarantee, on a senior basis, in accordance with Section 10.1 of the Indenture,
to the Holder and to the Trustee and its successors and assigns, that (i) the
principal of, premium, if any, and interest on the Security will be paid in
full when due, whether at the Maturity Date or Interest Payment Date, by
acceleration, call for redemption or otherwise; (ii) the purchase price for all
Securities properly and timely tendered for acceptance in response to a Change
of Control Offer or a Senior Asset Sale Offer will be timely, or otherwise in
accordance with the provisions of the Indenture, paid in full; (iii) all other
obligations of the Company to the Holders or the Trustee under the Indenture of
this Security will be promptly paid in full or performed, all in accordance
with the terms of the Indenture and this Security; and (iv) in the case of any
extension of time of payment or renewal of this Security or any of such other
obligations, they will be paid in full when due or performed in accordance with
the terms of such extension or renewal, whether at the Maturity Date, as so
extended, by acceleration, call for redemption, upon a Change of Control Offer,
upon a Senior Asset Sale Offer or otherwise. Such guarantees shall cease to
apply, and shall be null and void, with respect to any Guarantor who, pursuant
to Article 10 of the Indenture, is released from its Guarantees, or whose
Guarantees otherwise cease to be applicable pursuant to the terms of the
Indenture.

14. Trustee Dealings with Company. The Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Company or its Affiliates, and may
otherwise deal with the Company or its Affiliates, as if it were not Trustee.

15. No Personal Liability of Directors, Officers, Employees
and Stockholders. No director, officer, employee, incorporator or stockholder
of the Company, as such, shall have any liability for any obligations of the

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Company under the Securities, the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.

16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.

17. Abbreviations. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).

18. CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Securities and has directed the
Trustee to use CUSIP numbers as a convenience to Holders. No representation is
made as to the accuracy of such numbers either as printed on the Securities and
reliance may be placed only on the other identification numbers placed thereon.

The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Request may be made to:

Beverly Enterprises, Inc.
5111 Rogers Avenue
Suite 40-A
Fort Smith, Arkansas 72919-1000
Attention: Schuyler Hollingsworth, Jr.

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<PAGE> 119
ASSIGNMENT FORM

To assign this Security, fill in the form below: For value
received (I) or (we) hereby sell, assign and transfer this Security to

________________________________________________________________________________
(Insert assignee's Soc. Sec. or Tax I.D. No.)

________________________________________________________________________________

________________________________________________________________________________
(Print or type assignee's name, address and zip code)

and do hereby irrevocably constitute and appoint ______________________________
Attorney to transfer this Security on the books of the Company with full power
of substitution in the premises.

________________________________________________________________________________

Date:_____________________________

Your Signature:__________________________________
(Sign exactly as your name
appears on the face of this
Security)

Signature Guarantee*

_________________________
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).

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<PAGE> 120
OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have all or any part of this Security
purchased by the Company pursuant to Section 4.10 or Section 4.13 of the
Indenture, check the appropriate box:

[ ] Section 4.10 [ ] Section 4.13
(Asset Sale) (Change of Control)

If you want to have only part of the Security purchased by the
Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
amount you elect to have purchased:

$_________________________________

Date:_____________________________

Your Signature:_________________________________
(Sign exactly as your name
appears on the face of this
Security)

Signature Guarantee*

_________________________
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).

A-13
<PAGE> 121
EXHIBIT B

FORM OF SUPPLEMENTAL INDENTURE

SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as
of ________________, among _______________ (the "Guarantor"), a subsidiary of
Beverly Enterprises, Inc. (or its successor), a Delaware corporation (the
"Company"), and [NAME OF TRUSTEE], as trustee under the indenture referred to
below (the "Trustee").

W I T N E S E T H

WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of _______ __, 1995, providing
for the issuance of an aggregate principal amount of $150,000,000 of ______%
Senior Notes due 2005 (the "Securities");

WHEREAS, Section 10.3 of the Indenture provides that under
certain circumstances the Guarantor is required to execute and deliver to the
Trustee a supplemental indenture pursuant to which the Guarantor shall
guarantee the payment of the Securities pursuant to a Guarantee on the terms
and conditions set forth therein and herein; and

WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.

NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Guarantor and the Trustee mutually covenant and agree for the equal and
ratable benefit of the holders of the Securities as follows:

1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.

2. Agreement to Guarantee. The Guarantor hereby unconditionally
guarantees to each Holder of a Security authenticated and delivered by the
Trustee and

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<PAGE> 122
to the Trustee and its successors and assigns, irrespective of the validity and
enforceability of the Indenture, the Securities or the obligations of the
Company hereunder and thereunder, that: (i) the principal of, premium, if any,
and interest on the Securities will be promptly paid in full when due, whether
at the Maturity Date or Interest Payment Date, by acceleration, call for
redemption or otherwise; (ii) the purchase price for all Securities properly
and timely tendered for acceptance in response to a Change of Control Offer or
a Senior Asset Sale Offer will be timely, or otherwise in accordance with the
provisions of the Indenture or hereof, paid in full; (iii) all other
obligations of the Company to the Holders or the Trustee under the Indenture,
the Securities or hereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (iv) in case of any extension
of time of payment or renewal of any Securities or any of such other
obligations, they will be paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at the Maturity Date, as so
extended, by acceleration, call for redemption, upon a Change of Control Offer,
upon a Senior Asset Sale Offer or otherwise. Failing payment when due of any
amount so guaranteed for whatever reason, the Guarantor shall be obligated to
pay before failure so to pay becomes an Event of Default. An Event of Default
under the Indenture or the Securities shall constitute an event of default
under this Guarantee, and shall entitle the Holders of Securities to accelerate
the obligations of the Guarantor hereunder in the same manner and to the same
extent as the obligations of the Company. The Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or the Indenture, the absence of
any action to enforce the same, any delays in obtaining or realizing upon or
failures to obtain or realize upon collateral, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of
the Guarantor (except as provided in Sections 10.4 and 10.5 of the Indenture).
The Guarantor hereby waives diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company or right to require
the prior disposition of

B-2
<PAGE> 123
the assets of the Company to meet its obligations, protest, notice and all
demands whatsoever and covenants that this Guarantee will not be discharged
(except to the extent released pursuant to Sections 10.4 or 10.5 of the
Indenture) except by complete performance of the obligations contained in the
Securities and the Indenture. If any Holder or the Trustee is required by any
court or otherwise to return to the Company, the Guarantor, or any Custodian,
trustee, or similar official acting in relation to either the Company or the
Guarantor, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect (except to the extent released pursuant to Sections 10.4 or
10.5 of the Indenture). The Guarantor agrees that it shall not be entitled to
any right of subrogation in relation to the Holders in respect of the
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. The Guarantor further agrees that, as between the
Guarantor, on one hand, and the Holders and the Trustee, on the other hand, (x)
the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article 6 of the Indenture for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration as to the Company of the obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such obligations as provided in
Article 6 of the Indenture, such obligations (whether or not due and payable)
shall forthwith become due and payable by the Guarantor for the purpose of this
Guarantee.

3. Execution and Delivery of Guarantee. To evidence its Guarantee
set forth in Section 2, the Guarantor hereby agrees that a notation of such
Guarantee substantially in the form of Exhibit A shall be endorsed by an
officer of such Guarantor on each Security authenticated and delivered by the
Trustee and that this Supplemental Indenture shall be executed on behalf of
such Guarantor, by manual or facsimile signature, by its President or one of
its Vice Presidents.

The Guarantor hereby agrees that its Guarantee set forth in
Section 2 shall remain in full force and effect notwithstanding any failure to
endorse on each Security a notation of such Guarantee.

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<PAGE> 124
If an Officer whose signature is on this Supplemental Indenture
or on the Guarantee no longer holds that office at the time the Trustee
authenticates the Security on which a Guarantee is endorsed, the Guarantee
shall be valid nevertheless.

The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Guarantee set forth in this Indenture on behalf of the Guarantors.

4. Guarantors May Consolidate, etc. on Certain Terms.

(a) Nothing contained in this Supplemental Indenture or in
the Securities shall prevent any consolidation or merger of the Guarantor with
or into the Company or any other Guarantor or shall prevent any sale or
conveyance of the assets of the Guarantor (whether or not constituting all or
substantially all of the assets of the Guarantor) to any Person; provided that
the Company shall comply with the provisions of Sections 2.15 and 4.10 of the
Indenture; and provided further that, in the event that all or substantially
all of the assets of the Guarantor are sold or conveyed, the Guarantees of such
Guarantor shall be released and shall no longer have any force and effect.

(b) Except as provided in Section 4(a) hereof or in a
transaction referred to in Section 5 hereof, the Guarantor shall not, directly
or indirectly, consolidate with or merge with or into another Person unless (1)
either (x) the Guarantor shall be the continuing entity or (y) the resulting
surviving entity is a corporation organized under the laws of the United
States, any state thereof or the District of Columbia and expressly assumes all
the obligations of the Guarantor under this Guarantee in connection with the
Securities and the Indenture pursuant to a supplemental indenture substantially
in the form hereof; (2) after giving effect, on a pro forma basis, to such
transaction, no Default or Event of Default shall have occurred; and (3) the
Guarantor has delivered to the Trustee an Officers' Certificate and Opinion of
Counsel, each stating that this Supplemental Indenture and such consolidation
or merger complies with the Indenture, and that all condi-

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<PAGE> 125
tions precedent in the Indenture relating to such transaction have been
satisfied.

Upon any consolidation or merger of the Guarantor in accordance
with this Section 4(b) hereof, the successor corporation shall succeed to and
be substituted for, and may exercise every right and power of, the Guarantor
with the same effect as if it had been named herein as a Guarantor, and when a
successor corporation duly assumes all of the obligations of the Guarantor
pursuant to the Indenture and the Securities, the Guarantor shall be released
from such obligations. Such successor corporation thereupon may cause to be
signed any or all of the Guarantees to be endorsed upon all of the Securities
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All Guarantees so issued shall in all respects
have the same legal rank and benefit under the Indenture as the Guarantees
theretofore and thereafter issued in accordance with the terms of the Indenture
as though all of such Guarantees had been issued at the date of the execution
hereof.

5. Release of Guarantors. Without any further notice or action
being required by any Person, the Guarantor, and each Subsidiary of the
Guarantor that is also a Guarantor, shall be fully and conditionally released
and discharged from all obligations under its Guarantee and the Indenture upon
the sale or disposition (whether by merger, stock purchase, asset sale or
otherwise) of the Guarantor (or all of its assets), to an entity which is not a
Subsidiary of the Company, which transaction is otherwise in compliance with
the Indenture, such Guarantor shall be deemed released from its obligations
under its Guarantee of the Securities; provided, however, that any such
termination shall occur only to the extent that all obligations of the
Guarantor under all of its guarantees of, and under all of its pledges of
assets or other security interests which secure any Indebtedness of the Company
shall also terminate upon such release, sale or transfer; and provided further
that in the event of an Asset Sale, such Asset Sale is effected, and the Net
Proceeds therefrom are applied, in accordance with Sections 2.15 and 4.10 of
the Indenture. The releases and discharges set forth in the first paragraph of
this Section 5 shall be effective on the date of consummation thereof. At the
written request of the Company, the Trustee shall promptly execute and deliver
appropriate

B-5
<PAGE> 126
instruments in forms reasonably acceptable to the Company evidencing and
further implementing any releases and discharges pursuant to the foregoing
provisions.

Nothing herein shall relieve the Company from its obligations to
apply the proceeds of any Asset Sale as provided in Sections 2.15 and 4.10 of
the Indenture. Any Guarantor whose Guarantee would otherwise be released
pursuant to the provisions of this Section 5 may elect, by written notice to
the Trustee, to maintain such Guarantee in effect notwithstanding the event or
events that otherwise would cause the release of such Guarantee (which election
to maintain such Guarantee in effect may be conditional or for a limited period
of time), and (ii) any Subsidiary of the Company which is not a Guarantor may
elect, by written notice to the Trustee, to become a Guarantor (which election
may be conditional or for a limited period of time).

6. Certain Bankruptcy Events. The Guarantor hereby covenants
and agrees, to the fullest extent that it may do so under applicable law, that
in the event of the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Company, the Guarantor shall not file (or join in any
filing of), or otherwise seek to participate in the filing of, any motion or
request seeking to stay or to prohibit (even temporarily) execution on the
Guarantee and hereby waives and agrees not to take the benefit of any such stay
of execution, whether under the Bankruptcy Law or otherwise.

7. Limitation on Guarantor Liability. For purposes hereof, the
Guarantor's liability will be that amount from time to time equal to the
aggregate liability of the Guarantor hereunder, but shall be limited to the
lesser of (i) the aggregate amount of the obligations of the Company under the
Securities and the Indenture and (ii) the amount, if any, which would not have
(A) rendered the Guarantor "insolvent" (as such term is defined in the federal
Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or
(B) left it with unreasonably small capital at the time its Guarantee of the
Securities was entered into, after giving effect to the incurrence of existing
Indebtedness immediately prior to such time; provided that it shall be a
presumption in any lawsuit or other proceeding in which the Guarantor is a
party that the amount guaranteed pursuant

B-6
<PAGE> 127
to its Guarantee is the amount set forth in clause (i) above unless any
creditor, or representative of creditors of the Guarantor, or debtor in
possession or trustee in bankruptcy of the Guarantor, otherwise proves in such
a lawsuit that the aggregate liability of the Guarantor is limited to the
amount set forth in clause (ii). In making any determination as to the
solvency or sufficiency of capital of the Guarantor in accordance with the
previous sentence, the right of the Guarantor to contribution from other
Subsidiaries of the Company that have executed and delivered a supplemental
indenture substantially in the form hereof and any other rights the Guarantor
may have, contractual or otherwise, shall be taken into account.

8. "Trustee" to Include Paying Agent. In case at any time any
Paying Agent other than the Trustee shall have been appointed by the Company
and be then acting under the Indenture, the term "Trustee" as used in his
Supplemental Indenture shall in each case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within
its meaning as fully and for all intents and purposes as if such Paying Agent
were named in this Supplemental Indenture in place of the Trustee.

9. No Personal Liability of Directors, Officers, Employees and
Stockholders. No director, officer, employee, incorporator or stockholder of
the Guarantor, as such, shall have any liability for any obligations of the
Company or the Guarantor under the Securities, any Guarantees, the Indenture or
this Supplemental Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of the Securities
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Securities. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.

10. New York Law to Govern. The internal law of the State of
New York shall govern and be used to construe this Supplemental Indenture.

B-7
<PAGE> 128
11. Counterparts. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.

12. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.

IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.

Dated:____________________ __, ____

[GUARANTOR]

By:________________________________
Name:___________________________
Title:__________________________

[NAME OF TRUSTEE],
as Trustee

By:________________________________
Name:___________________________
Title:__________________________

B-8
<PAGE> 129
EXHIBIT A TO SUPPLEMENTAL INDENTURE

GUARANTEE

The Guarantor hereby unconditionally guarantees to each Holder of
a Security authenticated and delivered by the Trustee and to the Trustee and
its successors and assigns, irrespective of the validity and enforceability of
the Indenture, the Securities or the obligations of the Company hereunder and
thereunder, that: (i) the principal of, premium, if any, and interest on the
Securities will be promptly paid in full when due, whether at the Maturity Date
or Interest Payment Date, by acceleration, call for redemption or otherwise;
(ii) the purchase price for all Securities properly and timely tendered for
acceptance in response to a Change of Control Offer or a Senior Asset Sale
Offer will be timely, or otherwise in accordance with the provisions of the
Indenture or hereof, paid in full; (iii) all other obligations of the Company
to the Holders or the Trustee under the Indenture, the Securities or hereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (iv) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, they will be paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at the Maturity Date, as so extended, by acceleration, call
for redemption, upon a Change of Control Offer, upon a Senior Asset Sale Offer
or otherwise. Failing payment when due of any amount so guaranteed for
whatever reason, the Guarantor shall be obligated to pay before failure so to
pay becomes an Event of Default.

The obligations of the Guarantor to the Holders of Securities and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in a Supplemental Indenture, dated as of _______________ ___, ___ to the
Indenture, and reference is hereby made to the Indenture, as supplemented, for
the precise terms of this Guarantee.

This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Guarantor and its respective successors
and assigns to the extent set forth in the Indenture until full and final
payment of all of the Company's obligations under the Securities and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders of Securities and, in the event of any transfer or
assignment of rights by any Holder of Securities or the Trustee, the rights and
privileges

B-9
<PAGE> 130
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
This a Guarantee of payment and not a guarantee of collection.

This Guarantee shall not be valid or obligatory for an purpose
until the certificate of authentication on the Security upon which this
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized signatories.

For purposes hereof, the Guarantor's liability will be that
amount from time to time equal to the aggregate liability of the Guarantor
hereunder, but shall be limited to the lesser of (i) the aggregate amount of
the Obligations of the Company under the Securities and the Indenture and (ii)
the amount, if any, which would not have (A) rendered the Guarantor "insolvent"
(as such term is defined in the federal Bankruptcy Law and in the Debtor and
Creditor Law of the State of New York) or (B) left it with unreasonably small
capital at the time its Guarantee of the Securities was entered into, after
giving effect to the incurrence of existing Indebtedness immediately prior to
such time; provided that it shall be a presumption in any lawsuit or other
proceeding in which the Guarantor is a party that the amount guaranteed
pursuant to its Guarantee is the amount set forth in clause (i) above unless
any creditor, or representative of creditors of the Guarantor, or debtor in
possession or trustee in bankruptcy of the Guarantor, otherwise approves in
such a lawsuit that the aggregate liability of the Guarantor is limited to the
amount set forth in clause (ii). The Indenture provides that, in making any
determination as to the solvency or sufficiency of capital of a Guarantor in
accordance with the previous sentence, the right of the Guarantor to
contribution from other Subsidiaries of the Company that have become Guarantors
and any other rights the Guarantor may have, contractual or otherwise, shall be
taken into account.

Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.

[GUARANTOR]

By: _________________________________
Name:
Title:

B-10

<PAGE> 1

EXHIBIT 5.1

LATHAM & WATKINS
Attorneys at Law
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Telephone (213) 485-1234
Fax (213) 891-8763

November 9, 1995

Beverly Enterprises, Inc.
5111 Rogers Ave., Suite 40-A
Ft. Smith, Arkansas 72919-1000

Re: Registration Statement with respect to
$150,000,000 Aggregate Principal Amount
of Senior Notes

Ladies and Gentlemen:

In connection with the registration of $150,000,000 aggregate
principal amount of ___% Senior Notes due 2005 (the "Securities"), by Beverly
Enterprises, Inc., a Delaware corporation (the "Company"), and the guarantees
of the Securities (the "Guarantees") by the entities listed under the heading
"Table of Additional Co-Registrants" attached to the cover page of the
Registration Statement (the "Guarantors"), under the Securities Act of 1933, as
amended (the "Act"), on Form S-3 filed with the Securities and Exchange
Commission (the "Commission") on the date hereof, File No. 33-________, (the
"Registration Statement"), you have requested our opinion with respect to the
matters set forth below.

In our capacity as your special counsel in connection with
such registration, we are familiar with the proceedings taken and proposed to
be taken by the Company and the Guarantors in connection with the authorization
and issuance of the Securities and the Guarantees, respectively, and for the
purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such
legal and factual examinations and inquiries, including

<PAGE> 2
Beverly Enterprises, Inc.
November 9, 1995
Page 2

an examination of originals or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.

In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.

We are opining herein as to the effect on the subject
transaction only of the internal laws of the State of New York and the General
Corporation Law of the State of Delaware, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or, in the case of Delaware, any other laws, or as to any
matters of municipal law or the laws of any other local agencies within the
state.

Capitalized terms used herein without definition have the
meanings ascribed to them in the Registration Statement.

Subject to the foregoing and the other matters set forth
herein, it is our opinion that as of the date hereof:

(1) The Securities have been duly authorized by all necessary
corporate action of the Company, and when executed, authenticated and delivered
by or on behalf of the Company against payment therefor in accordance with the
terms of the Indenture, will constitute legally valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms.

(2) Each of the Guarantees has been duly authorized by all necessary
corporate action of the respective Guarantor, and when executed in accordance
with the terms of the Indenture and upon due execution, authentication and
delivery of the Securities and upon payment therefor, will be the legally valid
and binding obligation of the respective Guarantor, enforceable against such
Guarantor in accordance with its terms.

The opinions rendered in paragraphs 1 and 2 above relating to
the enforceability of the Securities and the Guarantees are subject to the
following exceptions, limitations

<PAGE> 3
Beverly Enterprises, Inc.
November 9, 1995
Page 3

and qualifications: (i) the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to or affecting the rights and remedies of creditors,
including, without limitation, the effect on the Guarantees of Section 547 or
548 of the federal Bankruptcy Code and comparable provisions of state law; (ii)
the effect of general principles of equity, whether enforcement is considered
in a proceeding in equity or at law, and the discretion of the court before
which any proceeding therefor may be brought; (iii) the unenforceability under
certain circumstances under law or court decisions of provisions providing for
the indemnification of or contribution to a party with respect to a liability
where such indemnification or contribution is contrary to public policy; and
(iv) the unenforceability of any provision requiring the payment of attorney's
fees, except to the extent that a court determines such fees to be reasonable.

To the extent that the obligations of the Company and the
Guarantors under the Indenture may be dependent upon such matters, we assume
for purposes of this opinion that the Trustee is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization; that the Trustee is duly qualified to engage in the activities
contemplated by the Indenture; that the Indenture has been duly authorized,
executed and delivered by the Trustee and constitutes the legally valid,
binding and enforceable obligation of the Trustee enforceable against the
Trustee in accordance with its terms; that the Trustee is in compliance,
generally and with respect to acting as a trustee under the Indenture, with all
applicable laws and regulations; and that the Trustee has the requisite
organizational and legal power and authority to perform its obligations under
the Indenture.

This opinion is rendered only to you and is solely for your
benefit in connection with the transactions covered hereby. This opinion may
not be relied upon by you for any other purpose, or furnished to, quoted to, or
relied upon by any other person, firm or corporation for any purpose, without
our prior written consent.

<PAGE> 4
Beverly Enterprises, Inc.
November 9, 1995
Page 4

We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Experts."

Very truly yours,

/s/ LATHAM & WATKINS

<PAGE> 1
EXHIBIT 12.1

BEVERLY ENTERPRISES, INC.
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before provision for income taxes,
extraordinary charge and cumulative effect
of change in accounting for income taxes . . . $ 20,422 $ 41,668 $ 6,148 $ 87,640 $114,795 $ 50,965 $ 49,766

Add fixed charges:
Interest expense (including capitalized
interest) . . . . . . . . . . . . . . . . . 84,119 66,982 62,077 62,614 60,268 29,208 40,887
Interest factor in rent expense . . . . . . . 93,028 85,304 77,372 67,916 55,831 28,898 24,515
Amortization of debt issue costs . . . . . . . 3,780 10,553 8,226 3,743 4,241 2,186 2,193
Amortization of debt discounts . . . . . . . . 311 2,661 2,126 1,794 2,206 1,003 73
-------- -------- -------- -------- -------- -------- --------

Total fixed charges . . . . . . . . . . . . . . 181,238 165,500 149,801 136,067 122,546 61,295 67,668
-------- -------- -------- -------- -------- -------- --------

Less capitalized interest . . . . . . . . . . . (1,219) (953) (1,486) (1,955) (1,923) (1,183) (879)
-------- -------- -------- -------- -------- -------- --------

Total earnings . . . . . . . . . . . . . . . . $200,441 $206,215 $154,463 $221,752 $235,418 $111,077 $116,555
======== ======== ======== ======== ======== ======== ========

Ratio of earnings to fixed charges . . . . . . 1.1 1.3 1.0 1.6 1.9 1.8 1.7
======== ======== ======== ======== ======== ======== ========
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 33- ) and related Prospectus of Beverly
Enterprises, Inc. for the registration of $150,000,000 of its Senior Notes and
to the incorporation by reference therein of our report dated February 3, 1995,
with respect to the consolidated financial statements and schedule of Beverly
Enterprises, Inc. included in its Annual Report on Form 10-K, as amended, for
the year ended December 31, 1994, filed with the Securities and Exchange
Commission.

ERNST & YOUNG LLP

November 7, 1995
Little Rock, Arkansas

<PAGE> 1
------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

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

FORM T-1

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE

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

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ____

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

CHEMICAL BANK
(Exact name of trustee as specified in its charter)

NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)

270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)

William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)

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

BEVERLY ENTERPRISES, INC.
(Exact name of obligor as specified in its charter)

DELAWARE 95-4100309
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)

1200 SOUTH WALDRON ROAD, SUITE 155
FORT SMITH, ARKANSAS 72913-3324
(Address of principal executive offices) (Zip Code)

------------------------------------------
SENIOR NOTES DUE 2005
(Title of the indenture securities)

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

GENERAL

Item 1. General Information.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority to
which it is subject.

New York State Banking Department, State House, Albany, New York
12110.

Board of Governors of the Federal Reserve System, Washington,
D.C., 20551

Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.

Federal Deposit Insurance Corporation, Washington, D.C., 20429.

(b) Whether it is authorized to exercise corporate trust powers.

Yes.

Item 2. Affiliations with the Obligor.

If the obligor is an affiliate of the trustee, describe each such
affiliation.

None.

-2-
<PAGE> 3
Item 16. List of Exhibits

List below all exhibits filed as a part of this Statement of
Eligibility.

1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985 and December 2, 1991 (see Exhibit 1 to
Form T-1 filed in connection with Registration Statement No. 33-50010, which is
incorporated by reference).

2. A copy of the Certificate of Authority of the Trustee to
Commence Business (see Exhibit 2 to Form T-1 filed in connection with
Registration Statement No. 33-50010, which is incorporated by reference).

3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.

4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 33-84460, which is
incorporated by reference).

5. Not applicable.

6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference).

7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its supervising or examining
authority.

8. Not applicable.

9. Not applicable.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
Chemical Bank, a corporation organized and existing under the laws of the State
of New York, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of New
York and State of New York, on the 27TH day of OCTOBER, 1995.

CHEMICAL BANK

By /s/ DAVID G. SAFER
-----------------------------
David G. Safer
Trust Officer

-3-
<PAGE> 4
Exhibit 7 to Form T-1

Bank Call Notice

RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF

Chemical Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,

at the close of business June 30, 1995, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.

<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ................................. $ 5,573
Interest-bearing balances ......................... 2,681
Securities: ..........................................
Held to maturity securities............................ 6,027
Available for sale securities.......................... 18,304
Federal Funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds sold ................................ 1,516
Securities purchased under agreements to resell ... 287
Loans and lease financing receivables:
Loans and leases, net of unearned income $73,829
Less: Allowance for loan and lease losses 1,885
Less: Allocated transfer risk reserve ... 104
------
Loans and leases, net of unearned income,
allowance, and reserve ............................ 71,840
Trading Assets ....................................... 25,315
Premises and fixed assets (including capitalized
leases)............................................ 1,395
Other real estate owned ............................... 69
Investments in unconsolidated subsidiaries and
associated companies............................... 158
Customer's liability to this bank on acceptances
outstanding ....................................... 1,120
Intangible assets ..................................... 484
Other assets .......................................... 7,254
--------

TOTAL ASSETS .......................................... $142,023
========
</TABLE>

-4-
<PAGE> 5

LIABILITIES

<TABLE>
<S> <C>
Deposits
In domestic offices ................................ $ 46,128
Noninterest-bearing .........................$16,282
Interest-bearing ............................ 29,846
------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's .......................................... 30,833
Noninterest-bearing .........................$ 199
Interest-bearing ............................ 30,634
------

Federal funds purchased and securities sold under agree-
ments to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBF's
Federal funds purchased ............................ 16,779
Securities sold under agreements to repurchase ..... 810
Demand notes issued to the U.S. Treasury .............. 1,001
Trading liabilities ................................... 20,888
Other Borrowed money:
With original maturity of one year or less ......... 6,505
With original maturity of more than one year ....... 602
Mortgage indebtedness and obligations under capitalized
leases ............................................. 18
Bank's liability on acceptances executed and outstanding 1,126
Subordinated notes and debentures ..................... 3,411
Other liabilities ..................................... 6,287

TOTAL LIABILITIES ..................................... 134,388
--------
</TABLE>

EQUITY CAPITAL

<TABLE>
<S> <C>
Common stock .......................................... 620
Surplus ............................................... 4,524
Undivided profits and capital reserves ................ 2,724
Net unrealized holding gains (Losses)
on available-for-sale securities ...................... (241)
Cumulative foreign currency translation adjustments ... 8

TOTAL EQUITY CAPITAL .................................. 7,635
--------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED
STOCK AND EQUITY CAPITAL .......................... $142,023
========

</TABLE>

I, Joseph L. Sclafani, S.V.P. & Controller of the
above-named bank, do hereby declare that this Report of
Condition has been prepared in conformance with the in-
structions issued by the appropriate Federal regulatory
authority and is true to the best of my knowledge and
belief.

JOSEPH L. SCLAFANI

We, the undersigned directors, attest to the correctness
of this Report of Condition and declare that it has been
examined by us, and to the best of our knowledge and
belief has been prepared in conformance with the in-
structions issued by the appropriate Federal regulatory
authority and is true and correct.

WALTER V. SHIPLEY )
EDWARD D. MILLER )DIRECTORS
WILLIAM B. HARRISON )

-5-