BEVERLY ENTERPRISES INC /DE/, 10-Q, 1996-11-14

BEVERLY ENTERPRISES INC /DE/
10-Q, 1996-11-14
SKILLED NURSING CARE FACILITIES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
------- ---------

COMMISSION FILE NUMBER 1-9550

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

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

5111 ROGERS AVENUE, SUITE 40-A
FORT SMITH, ARKANSAS 72919-0155
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (501) 452-6712

INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO
BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

YES X NO
--- ---

SHARES OF REGISTRANT'S COMMON STOCK, $.10 PAR VALUE, OUTSTANDING,
EXCLUSIVE OF TREASURY SHARES, AT OCTOBER 31, 1996 -- 99,309,569

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<PAGE> 2
BEVERLY ENTERPRISES, INC.

FORM 10-Q

SEPTEMBER 30, 1996

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 8

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>

1
<PAGE> 3
PART I

BEVERLY ENTERPRISES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 1996 AND DECEMBER 31, 1995

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- -----------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 48,882 $ 56,303
Accounts receivable-patient, less allowance for doubtful accounts:
1996--$26,045; 1995--$22,860 ................................................. 507,956 514,820
Accounts receivable-nonpatient, less allowance for doubtful accounts:
1996--$563; 1995--$497 ....................................................... 10,418 15,995
Notes receivable ............................................................... 10,665 7,460
Operating supplies ............................................................. 55,946 59,109
Deferred income taxes .......................................................... 18,365 24,892
Prepaid expenses and other ..................................................... 42,065 38,013
----------- -----------
Total current assets ........................................................ 694,297 716,592
Property and equipment, net of accumulated depreciation and amortization:
1996--$628,511; 1995--$581,025 ................................................ 1,241,029 1,189,985
Other assets:
Notes receivable, less allowance for doubtful notes:
1996--$5,514; 1995--$4,953 .................................................. 37,653 41,915
Designated and restricted funds ................................................ 60,240 57,082
Goodwill, net .................................................................. 405,504 380,681
Other, net ..................................................................... 121,232 120,206
----------- -----------
Total other assets .......................................................... 624,629 599,884
----------- -----------
$ 2,559,955 $ 2,506,461
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable ............................................................... $ 113,987 $ 155,385
Short-term borrowings .......................................................... 64,000 78,000
Accrued wages and related liabilities .......................................... 133,700 134,391
Accrued interest ............................................................... 13,858 10,261
Other accrued liabilities ...................................................... 82,958 88,869
Current portion of long-term obligations ....................................... 39,182 84,639
----------- -----------
Total current liabilities ................................................... 447,685 551,545
Long-term obligations ............................................................. 1,085,234 988,909
Deferred income taxes payable ..................................................... 70,856 54,687
Other liabilities and deferred items .............................................. 89,528 90,987
Commitments and contingencies
Stockholders' equity:
Common stock, shares issued: 1996--104,146,247; 1995--102,618,241 ............. 10,415 10,262
Additional paid-in capital ..................................................... 770,076 766,549
Retained earnings .............................................................. 137,226 83,657
Treasury stock, at cost: 1996--4,879,108; 1995--3,972,208 ...................... (51,065) (40,135)
----------- -----------

Total stockholders' equity .................................................. 866,652 820,333
----------- -----------
$ 2,559,955 $ 2,506,461
=========== ===========
</TABLE>

NOTE: The balance sheet at December 31, 1995 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.

See accompanying notes.

2
<PAGE> 4
BEVERLY ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995

(UNAUDITED)

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net operating revenues ................................ $ 822,562 $ 834,905 $2,431,942 $2,420,899
Interest income ....................................... 3,377 3,505 10,312 10,267
---------- ---------- ---------- ----------
Total revenues ................................. 825,939 838,410 2,442,254 2,431,166
Costs and expenses:
Operating and administrative:
Wages and related ................................ 456,884 442,679 1,351,406 1,285,091
Other ............................................ 280,147 308,177 853,637 914,490
Interest ........................................... 23,417 21,598 69,545 63,872
Depreciation and amortization ...................... 27,361 25,991 78,384 77,982
---------- ---------- ---------- ----------
Total costs and expenses ....................... 787,809 798,445 2,352,972 2,341,435
---------- ---------- ---------- ----------

Income before provision for income taxes .............. 38,130 39,965 89,282 89,731
Provision for income taxes ............................ 15,252 15,187 35,713 34,098
---------- ---------- ---------- ----------
Net income ............................................ $ 22,878 $ 24,778 $ 53,569 $ 55,633
========== ========== ========== ==========

Net income per share of common stock:
Primary:
Net income applicable to common shares ........... $ 22,878 $ 22,715 $ 53,569 $ 49,445
========== ========== ========== ==========
Net income per share of common stock ............. $ .23 $ .23 $ .54 $ .54
========== ========== ========== ==========
Shares used to compute net income per share ...... 99,163 99,879 99,740 91,736
========== ========== ========== ==========

Fully diluted:
Net income applicable to common shares ........... $ 24,116 $ 24,778 $ 57,283 $ 49,445
========== ========== ========== ==========
Net income per share of common stock ............. $ .22 $ .22 $ .52 $ .54
========== ========== ========== ==========
Shares used to compute net income per share ...... 110,451 111,209 111,008 91,907
========== ========== ========== ==========
</TABLE>

For the three-month and nine-month periods ended September 30, 1995, net
income applicable to common shares was computed by deducting preferred stock
dividends from net income, when dilutive. During the fourth quarter of 1995,
the Company exchanged its cumulative convertible exchangeable preferred stock
into 5 1/2% convertible subordinated debentures. Primary earnings per share
for the three-month and nine-month periods ended September 30, 1996 and 1995
and fully diluted earnings per share for the nine-month period ended September
30, 1995 were computed by dividing net income applicable to common shares by
the weighted average number of shares of common stock outstanding during the
period and the weighted average number of shares issuable upon exercise of
stock options, calculated using the treasury stock method. Fully diluted
earnings per share for the three-month and nine-month periods ended September
30, 1996 were computed as above and assumed conversion of the Company's 5 1/2%
convertible subordinated debentures. Fully diluted earnings per share for the
three-month period ended September 30, 1995 was computed as above and assumed
conversion of the Company's cumulative convertible exchangeable preferred
stock. Conversion of the Company's 7 5/8% convertible subordinated debentures
and zero coupon notes would have an anti-dilutive effect and, therefore, were
not assumed.

See accompanying notes.

3
<PAGE> 5

BEVERLY ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

(UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................... $ 53,569 $ 55,633
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .............................................. 78,384 77,982
Provision for reserves and discounts on patient, notes and other
receivables, net ......................................................... 18,729 10,788
Amortization of deferred financing costs ................................... 3,417 3,346
Gains on dispositions of facilities and other assets, net .................. (4,924) (1,990)
Deferred taxes ............................................................. 15,502 7,007
Net decrease in insurance related accounts ................................. (8,730) (5,154)
Changes in operating assets and liabilities, net of acquisitions
and dispositions:
Accounts receivable - patient ............................................ (15,858) (29,900)
Operating supplies ....................................................... 2,501 106
Prepaid expenses and other receivables ................................... (78) 616
Accounts payable and other accrued expenses .............................. (36,174) 5,673
Income taxes payable ..................................................... 12,947 9,447
Other, net ............................................................... (2,606) (5,784)
--------- ---------
Total adjustments ..................................................... 63,110 72,137
--------- ---------
Net cash provided by operating activities ............................. 116,679 127,770
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired ............................... (78,900) (30,719)
Proceeds from dispositions of facilities and other assets ..................... 23,001 15,002
Collections on notes receivable and REMIC investment .......................... 8,859 15,337
Capital expenditures .......................................................... (112,981) (82,187)
Construction and development in progress, net ................................. 17,832 (42,436)
Other, net .................................................................... (8,450) (10,851)
--------- ---------
Net cash used for investing activities ................................ (150,639) (135,854)
Cash flows from financing activities:
Revolver borrowings ........................................................... 932,000 661,000
Repayments of Revolver borrowings ............................................. (946,000) (649,000)
Proceeds from issuance of long-term obligations ............................... 196,618 25,000
Repayments of long-term obligations ........................................... (142,660) (35,759)
Purchase of common stock into treasury ........................................ (10,930) --
Proceeds from exercise of stock options ....................................... 2,503 1,950
Deferred financing costs ...................................................... (6,107) (1,621)
Dividends paid on preferred stock ............................................. (688) (6,188)
Proceeds from designated funds, net ........................................... 1,803 416
--------- ---------
Net cash provided by (used for) financing activities .................. 26,539 (4,202)
--------- ---------
Net decrease in cash and cash equivalents ........................................... (7,421) (12,286)
Cash and cash equivalents at beginning of period .................................... 56,303 67,964
--------- ---------
Cash and cash equivalents at end of period .......................................... $ 48,882 $ 55,678
========= =========

Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) .......................................... $ 62,531 $ 59,695
Income taxes (net of refunds) ................................................. 7,264 17,644
</TABLE>

See accompanying notes.

4
<PAGE> 6
BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

(UNAUDITED)

(i) The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, and include all adjustments of a
normal recurring nature which are, in the opinion of management, necessary for
a fair presentation of the results of operations for the three-month and
nine-month periods ended September 30, 1996 and 1995 pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures in these condensed consolidated financial statements are
adequate to make the information presented not misleading. These condensed
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included in
the Company's 1995 Annual Report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for the three-month and
nine-month periods ended September 30, 1996 are not necessarily indicative of
the results for a full year. Unless the context indicates otherwise, the
Company means Beverly Enterprises, Inc. and its consolidated subsidiaries.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Certain prior year amounts have been reclassified to conform with the 1996
presentation.

(ii) The provisions for income taxes for the three-month and nine-month
periods ended September 30, 1996 and 1995 were based on estimated annual
effective tax rates of 40% and 38%, respectively. The Company's estimated
annual effective tax rates for 1996 and 1995 are different than the federal
statutory rate primarily due to the impact of state income taxes and
amortization of nondeductible goodwill. The Company's estimated annual
effective tax rate increased to 40% in 1996 primarily as a result of
amortization of nondeductible goodwill. The provisions for income taxes
consist of the following for the three-month and nine-month periods ended
September 30 (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Federal:
Current ...................................... $ 6,188 $ 8,195 $15,687 $21,180
Deferred ..................................... 6,067 3,794 12,906 5,739

State:
Current ...................................... 1,833 2,383 4,524 5,911
Deferred ..................................... 1,164 815 2,596 1,268
------- ------- ------- -------
$15,252 $15,187 $35,713 $34,098
======= ======= ======= =======
</TABLE>

(iii) During the nine months ended September 30, 1996, the Company
purchased one previously managed nursing facility (180 beds), 14 previously
leased nursing facilities (1,680 beds) and certain other assets including,
among other things, pharmacy, hospice and outpatient therapy businesses, for
approximately $80,400,000 cash, approximately $1,900,000 security and other
deposits and approximately $800,000 acquired debt. The Company does not
operate three of such nursing facilities which were subleased to other nursing
home operators in prior year transactions. Also during such period, the
Company sold or terminated the leases on 75 nursing facilities (4,382 beds)
(including the three nursing facilities which were not operated by the Company,
as mentioned above) and certain other assets for cash proceeds of approximately
$25,200,000 and approximately $4,250,000 of notes receivable. The Company
recognized net pre-tax gains of approximately $4,900,000 as a result of these
dispositions. The operations of these facilities were immaterial to the
Company's financial position and results of operations.

5
<PAGE> 7
BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1996

(UNAUDITED)

to the workers' compensation market and is the nation's largest workers'
compensation-related Preferred Provider Organization with 120,000 member
providers. It also offers case management and injury reporting and tracking
services. The transaction, which is scheduled to close during the fourth
quarter of 1996, is expected to generate net cash proceeds of approximately
$70,000,000. The Company anticipates using such net cash proceeds to repay
indebtedness, to repurchase Common Stock and/or to make selective acquisitions.
The operations of MedView are immaterial to the Company's financial position
and results of operations.

(iv) In February 1996, the Company completed the sale of $180,000,000 of 9%
Senior Notes due February 15, 2006 (the "Senior Notes") through a public
offering (the "Senior Notes offering") for net cash proceeds of approximately
$174,850,000. The Company used approximately $87,500,000 of such net proceeds
to prepay certain scheduled maturities under its 1994 Term Loan, approximately
$28,000,000 to prepay certain scheduled maturities under its 1992 Term Loan,
approximately $8,750,000 to prepay certain scheduled maturities under its
Nippon Term Loan, and the remaining net proceeds to repay Revolver borrowings
and for general corporate purposes. The Senior Notes are unsecured obligations,
guaranteed by substantially all of the Company's present and future
subsidiaries, and impose on the Company certain restrictive covenants. In
addition, the Company has amended certain of its other credit agreements during
1996 to change various restrictive covenants.

In May 1996, the Company filed a Registration Statement covering
$200,000,000 of debt securities, shares of preferred stock, shares of Common
Stock and warrants to purchase Common Stock which may be offered, separately or
together, in separate series in amounts, at prices and on terms to be
determined at the time of sale. The net proceeds from the offerings are
anticipated to be used for general corporate purposes, which may include, but
are not limited to, working capital, capital expenditures, repayments of
indebtedness and acquisitions. As of September 30, 1996, no securities have
been issued under such registration statement.

In June 1996, the Company announced that its Board of Directors had
authorized a stock repurchase program whereby the Company may repurchase, from
time to time on the open market, up to a total of 10,000,000 shares of its
outstanding Common Stock. During June 1996, the Company repurchased
approximately 900,000 shares of its Common Stock at a cost of approximately
$10,900,000. The repurchases were financed primarily through proceeds from
dispositions and borrowings under the Company's revolving credit facility.

In July 1996, the Company entered into a term loan facility (the "GE Capital
Facility"), whereby the Company may borrow up to $25,000,000 from time to time
in separate series, in amounts and at interest rates based on the three-year
U.S. Treasury Note rate plus 230 basis points at the date of funding. The GE
Capital Facility requires monthly principal and interest payments and is
secured by a security interest in certain lighting equipment of various nursing
facilities. As of September 30, 1996, the Company had issued approximately
$6,100,000 under the GE Capital Facility.

In August 1996, the Company entered into a $10,500,000 promissory note (the
"Note") which bears interest at the rate of 9.08% per annum. The Note is due in
equal monthly installments of $107,000, including principal and interest,
commencing in October 1996 with the remaining outstanding balance due in
September 2003. The Note is secured by a mortgage interest in the real property
and a security interest in the personal property of four nursing facilities.

(v) There are various lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages. The Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on the Company's consolidated
financial position or results of operations.

(vi) Effective July 31, 1987, Beverly Enterprises, a California corporation
("Beverly California"), became a wholly-owned subsidiary of Beverly
Enterprises, Inc., a Delaware corporation ("Beverly Delaware"). Effective
January 1, 1995, Beverly California changed its name to Beverly Health and
Rehabilitation Services, Inc. ("BHRS") and distributed certain of its
wholly-owned subsidiaries to Beverly Delaware in an effort to better focus
management's attention on specific services delivered by the Company within the
long-term healthcare arena. Beverly Delaware (the parent) provides financial,
administrative and legal services to its subsidiaries, including BHRS, for
which it charges management fees.

6
<PAGE> 8

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1996

(UNAUDITED)

The following summarized unaudited financial information concerning BHRS is
being reported because BHRS's 7 5/8% convertible subordinated debentures due
March 2003 and its zero coupon notes (collectively, the "Debt Securities") are
publicly held. Beverly Delaware is co-obligor of the Debt Securities. Summary
unaudited financial information for BHRS is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . $ 682,869 $ 709,455 $2,028,071 $2,109,660
Total costs and expenses . . . . . . . . . . . . . . 643,503 673,154 1,937,357 2,031,519
Net income . . . . . . . . . . . . . . . . . . . . 23,619 22,506 54,428 48,447
</TABLE>

<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . $ 403,695 $ 421,641
Long-term assets . . . . . . . . . . . . . . . . . . 1,413,685 1,365,413
Current liabilities . . . . . . . . . . . . . . . . . 296,749 367,074
Long-term liabilities . . . . . . . . . . . . . . . . 752,114 709,515

</TABLE>

7
<PAGE> 9
BEVERLY ENTERPRISES, INC.

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

SEPTEMBER 30, 1996

(UNAUDITED)

GENERAL

Healthcare system reform and concerns over rising Medicare and Medicaid
costs continue to be high priorities for both federal and state governments.
Although no comprehensive healthcare, Medicare or Medicaid reform legislation
has yet been implemented, pressures to contain costs and the active discussion
and issues raised by the Clinton Administration, Congress and various other
groups have impacted the healthcare delivery system. Many states are
experimenting with alternatives to traditional Medicaid delivery systems
through federal waiver programs, and efforts to provide these services more
efficiently will continue to be a priority in the upcoming year. In August
1996, Congress passed the Health Insurance Portability and Accountability Act
of 1996 which, among other things, provides favorable changes in the tax
treatment of long-term care insurance and allows inclusion of long-term care
insurance in medical savings accounts. Although the Company believes this
legislation will have a favorable impact on the long-term care industry,
regulations detailing the implementation of such legislation have not yet been
released, and as such, the full effect is not readily determinable. There can
be no assurances made as to the ultimate impact of this, or future healthcare
reform legislation, on the Company's financial position, results of operations
or cash flows. However, future healthcare reform legislation and regulatory
changes may negatively impact the Company.

The federal government recently increased the minimum wage. The Company
does not anticipate that this new legislation will require a material increase
in its wage rates, since a substantial portion of the Company's associates
currently earn in excess of the new minimum wage levels; however, the Company
believes there may be competitive pressures to increase the wage levels of
associates earning above the new minimum wage. Although the full impact of the
new minimum wage has not yet been determined, the effect on the Company's
future operations is not expected to be material as the Company believes that a
significant portion of such increase will be reimbursed through Medicare and
Medicaid rate increases.

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

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

OPERATING RESULTS

THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995

Net income was $22,878,000 for the third quarter of 1996, as compared to net
income of $24,778,000 for the same period in 1995. Income before provision for
income taxes was $38,130,000 for the third quarter of 1996, as compared to
$39,965,000 for the same period in 1995. The Company's estimated annual
effective tax rate increased to 40% in 1996, compared to 38% in 1995, primarily
as a result of amortization of nondeductible goodwill.

Net operating revenues and operating and administrative costs decreased
approximately $12,300,000 and $13,800,000, respectively, for the third quarter
of 1996, as compared to the same period in 1995. These decreases consist of the
following: decreases in net operating revenues and operating and administrative
costs of approximately $40,400,000 and $32,500,000, respectively, due to the
disposition of, or lease terminations on, 75 facilities in 1996 and 29
facilities in 1995; partially offset by increases in net operating revenues and
operating and administrative costs for facilities which the Company operated
during each of the quarters ended September 30, 1996 and 1995 ("same facility
operations") of approximately $20,700,000 and $12,200,000, respectively; and
increases in net operating revenues and operating and administrative costs of
approximately $7,400,000 and

8
<PAGE> 10
BEVERLY ENTERPRISES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

SEPTEMBER 30, 1996

(UNAUDITED)

$6,500,000, respectively, related to the acquisitions of pharmacy, hospice and
outpatient therapy businesses during 1996 and the expanded operations of
American Transitional Hospitals, Inc. ("ATH").

The increase in net operating revenues for same facility operations for the
third quarter of 1996, as compared to the same period in 1995, was due
primarily to increases in room and board rates of approximately $29,200,000 and
approximately $4,100,000 due to increases in pharmacy-related revenues. This
increase in net operating revenues was partially offset by the following:
approximately $5,700,000 due to a decrease in same facility occupancy to 87.7%
for the third quarter of 1996, as compared to 88.7% for the same period in
1995; approximately $5,400,000 due to decreases in ancillary revenues primarily
due to the Company's continuing efforts to bring therapists on staff as opposed
to contracting for their services; and approximately $1,500,000 due to various
other items.

The increase in operating and administrative costs for same facility
operations for the third quarter of 1996, as compared to the same period in
1995, was due to the following: approximately $26,900,000 due to increased
wages and related expenses (excluding pharmacy) principally due to higher wages
and greater benefits required to attract and retain qualified nursing, therapy
and other personnel, the hiring of therapists on staff as opposed to contracting
for their services and increased staffing levels in the Company's nursing
facilities to cover increased patient acuity; approximately $2,400,000 due to
increases in nursing supplies and other variable costs; and approximately
$5,100,000 due to various other items. These increases in operating and
administrative costs were partially offset by approximately $22,200,000 due to a
decrease in contracted therapy expenses as a result of hiring therapists on
staff as opposed to contracting for their services.

Interest expense increased approximately $1,800,000 as compared to the same
period in 1995 primarily due to the exchange of Preferred Stock into 5 1/2%
Convertible Subordinated Debentures in November 1995, partially offset by a
reduction of approximately $52,800,000 of long-term obligations in conjunction
with the disposition of certain facilities. Although depreciation and
amortization expense increased only $1,400,000 as compared to the same period
in 1995, it was affected by the following: approximately $2,800,000 increase
primarily due to capital additions and improvements as well as certain
pharmacy, hospice and outpatient therapy clinic acquisitions during 1996,
partially offset by a decrease of approximately $1,400,000 related to the
disposition of, or lease terminations on, certain facilities.

NINE MONTHS 1996 COMPARED TO NINE MONTHS 1995

Net income was $53,569,000 for the nine months ended September 30, 1996, as
compared to net income of $55,633,000 for the same period in 1995. Income
before provision for income taxes was $89,282,000 for the nine months ended
September 30, 1996, as compared to $89,731,000 for the same period in 1995.

Net operating revenues and operating and administrative costs increased
approximately $11,000,000 and $5,500,000, respectively, for the nine months
ended September 30, 1996, as compared to the same period in 1995. These
increases consist of the following: increases in net operating revenues and
operating and administrative costs for facilities which the Company operated
during each of the nine-month periods ended September 30, 1996 and 1995 ("same
facility operations") of approximately $24,900,000 and $27,300,000,
respectively; increases in net operating revenues and operating and
administrative costs of approximately $94,400,000 and $77,400,000,
respectively, related to the acquisition of Pharmacy Management Services, Inc.
("PMSI") in mid-1995, pharmacy, hospice and outpatient therapy clinic
acquisitions during 1996 and the expanded operations of ATH; and decreases in
net operating revenues and operating and administrative costs of approximately
$108,300,000 and $99,200,000, respectively, due to the disposition of, or lease
terminations on, 75 facilities in 1996 and 29 facilities in 1995.

The increase in net operating revenues for same facility operations for the
nine months ended September 30, 1996, as compared to the same period in 1995,
was due to the following: approximately $74,300,000 due primarily to increases
in room and board rates; and approximately $5,600,000 due to one additional
calendar day for the nine months ended September 30, 1996, as compared to the
same period in 1995. These increases in net operating revenues were partially
offset by approximately $23,400,000 due to a decrease in same facility
occupancy to 87.7% for the nine months ended September 30, 1996, as compared to
89.0% for the same period in 1995; approximately $18,200,000 due to decreases
in ancillary revenues primarily due to the Company's continuing efforts to
bring therapists on staff as opposed to contracting for their services;
approximately $2,700,000

9
<PAGE> 11
BEVERLY ENTERPRISES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

SEPTEMBER 30, 1996

(UNAUDITED)

due to decreases in pharmacy-related revenues primarily related to changes in
pricing and service levels at Pharmacy Corporation of America; and
approximately $10,700,000 due to various other items.

The increase in operating and administrative costs for same facility
operations for the nine months ended September 30, 1996, as compared to the
same period in 1995, was due to the following: approximately $80,800,000 due to
increased wages and related expenses (excluding pharmacy) principally due to
the hiring of therapists on staff as opposed to contracting for their services,
higher wages and greater benefits required to attract and retain qualified
nursing, therapy and other personnel and increased staffing levels in the
Company's nursing facilities to cover increased patient acuity; approximately
$6,700,000 due to increases in nursing supplies and other variable costs; and
approximately $15,200,000 due to increases in pharmacy-related costs and various
other items. These increases in operating and administrative costs were
partially offset by approximately $75,400,000 due to a decrease in contracted
therapy expenses as a result of hiring therapists on staff as opposed to
contracting for their services.

Interest expense increased approximately $5,700,000 as compared to the
same period in 1995 primarily due to the exchange of Preferred Stock into
5 1/2% Convertible Subordinated Debentures in November 1995, write-off of
unamortized deferred financing costs associated with certain debt that was
repaid with the net cash proceeds from the issuance of Senior Notes (as
discussed below), as well as the issuance and assumption of approximately
$40,000,000 of long-term obligations in conjunction with certain acquisitions
and the issuance of $25,000,000 of taxable revenue bonds during 1995, partially
offset by a reduction of approximately $52,800,000 of long-term obligations in
conjunction with the disposition of certain facilities. Although depreciation
and amortization expense increased only $400,000 as compared to the same period
in 1995, it was affected by the following: approximately $4,600,000 increase
primarily due to the acquisition of PMSI in mid-1995, as well as pharmacy,
hospice and outpatient therapy clinic acquisitions during 1996, partially
offset by a decrease of approximately $4,200,000 related to the disposition of,
or lease terminations on, certain facilities.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1996, the Company had approximately $48,900,000 in cash
and cash equivalents and net working capital of approximately $246,600,000.
The Company anticipates that approximately $23,900,000 of its existing cash at
September 30, 1996, while not legally restricted, will be utilized to fund
certain workers' compensation and general liability claims, and the Company
does not expect to use such cash for other purposes. The Company had
approximately $54,700,000 of unused commitments under its Revolver/Letter of
Credit Facility as of September 30, 1996.

Net cash provided by operating activities for the nine months ended
September 30, 1996 was approximately $116,700,000. Net cash used for investing
activities and net cash provided by financing activities were approximately
$150,600,000 and $26,500,000, respectively, for the nine months ended September
30, 1996. The Company primarily used cash generated from operations to fund
capital expenditures, construction and development costs totaling approximately
$95,100,000. The Company received net cash proceeds of approximately
$174,850,000 from the issuance of Senior Notes (as discussed below),
approximately $16,600,000 from the issuance of certain other long-term
obligations and approximately $23,000,000 from the dispositions of facilities
and other assets. Such net cash proceeds, along with cash generated from
operations and cash on hand, were used to repay approximately $142,700,000 of
long-term obligations, to fund acquisitions of approximately $78,900,000, to
repurchase shares of Common Stock (as discussed below), and to repay Revolver
borrowings.

In February 1996, the Company completed the sale of $180,000,000 of 9%
Senior Notes due February 15, 2006 (the "Senior Notes") through a public
offering (the "Senior Notes offering") for net cash proceeds of approximately
$174,850,000. The Company used approximately $87,500,000 of such net proceeds
to prepay certain scheduled maturities under its 1994 Term Loan, approximately
$28,000,000 to prepay certain scheduled maturities under its 1992 Term Loan,
approximately $8,750,000 to prepay certain scheduled maturities under its
Nippon Term Loan, and the remaining net proceeds to repay Revolver borrowings
and for general corporate purposes. The Senior Notes are unsecured obligations,
guaranteed by substantially all of the Company's present and future
subsidiaries, and impose on the Company certain restrictive covenants. In
addition, the Company has amended certain of its other credit agreements during
1996 to change various restrictive covenants.

10
<PAGE> 12
BEVERLY ENTERPRISES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

SEPTEMBER 30, 1996

(UNAUDITED)

In August 1996, the Company entered into a $10,500,000 promissory note (the
"Note") which bears interest at the rate of 9.08% per annum. The Note is due
in equal monthly installments of $107,000, including principal and interest,
commencing in October 1996 with the remaining outstanding balance due in
September 2003. The Note is secured by a mortgage interest in the real
property and a security interest in the personal property of four nursing
facilities.

The Company has entered into a definitive agreement to sell its MedView
Services business unit ( "MedView") to Value Health, Inc., for cash of
approximately $87,500,000. MedView provides a full range of managed care
services to the workers' compensation market and is the nation's largest
workers' compensation-related Preferred Provider Organization with 120,000
member providers. It also offers case management and injury reporting and
tracking services. The transaction, which is scheduled to close during the
fourth quarter of 1996, is expected to generate net cash proceeds of
approximately $70,000,000. The Company anticipates using such net cash
proceeds to repay indebtedness, to repurchase Common Stock and/or to make
selective acquisitions. The operations of MedView are immaterial to the
Company's financial position and results of operations.

The Company believes that its existing cash and cash equivalents, working
capital from operations, net cash proceeds from the MedView transaction,
borrowings under its banking arrangements, issuance of certain debt securities
and refinancings of certain existing indebtedness will be adequate to repay its
debts due within one year of approximately $39,200,000 (including scheduled
sinking fund redemption requirements with respect to the Company's 7-5/8%
convertible subordinated debentures, which may be funded in whole or in part
from time to time through open market purchases of such debentures), to make
normal recurring capital additions and improvements for the twelve months ending
September 30, 1997 of approximately $170,000,000, to make selective
acquisitions, including the purchase of previously leased facilities, and to
meet working capital requirements.

As of September 30, 1996, the Company had total indebtedness of
approximately $1,124,400,000 (excluding $64,000,000 of Revolver borrowings) and
total stockholders' equity of approximately $866,700,000. The ability of
the Company to satisfy its long-term obligations will be dependent upon its
future performance, which will be subject to prevailing economic conditions and
to financial, business and other factors beyond the Company's control, such as
federal and state healthcare reform. In addition, healthcare service
providers, such as the Company, operate in an industry that is currently
subject to significant changes from business combinations, new strategic
alliances, legislative reform, increased regulatory oversight, aggressive
marketing practices by competitors and market pressures. In this environment,
the Company is frequently contacted by, and otherwise engages in discussions
with, other healthcare companies and financial advisors regarding possible
strategic alliances, joint ventures, business combinations and other financial
alternatives. The terms of substantially all of the Company's debt instruments
require the Company to repay or refinance indebtedness under such debt
instruments in the event of a change of control. There can be no assurance
that the Company will have the financial resources to repay such indebtedness
upon a change of control. See "-- General."

11
<PAGE> 13
PART II

BEVERLY ENTERPRISES, INC.

OTHER INFORMATION

SEPTEMBER 30, 1996

(UNAUDITED)

ITEM 1. LEGAL PROCEEDINGS

There are various lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages. The Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on the Company's consolidated
financial position or results of operations.

ITEM 6(a). EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>

10.1 Eighteenth Amendment dated as of September 30, 1996 to the LTCB Credit Agreement
10.2 Eleventh Amendment dated as of September 30, 1996 to the Nippon Credit Agreement
10.3 Fifth Amendment dated as of September 30, 1996 to the Morgan Credit Agreement
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule for the nine months ended September 30, 1996

</TABLE>

ITEM 6(b). REPORTS ON FORM 8-K

No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1996.

12
<PAGE> 14
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

BEVERLY ENTERPRISES, INC.
Registrant

Dated: November 14, 1996 By: /s/ SCOTT M. TABAKIN
----------------------------
Scott M. Tabakin
Executive Vice President and
Chief Financial Officer

<PAGE> 15

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>

</TABLE>

<PAGE> 1
EXHIBIT 10.1

EIGHTEENTH AMENDMENT TO CREDIT AGREEMENT
AMONG
BEVERLY ENTERPRISES, INC.,
BEVERLY HEALTH AND REHABILITATION SERVICES, INC.,
THE SUBSIDIARY GUARANTORS LISTED HEREIN,
THE LENDERS LISTED HEREIN,
BANK OF MONTREAL, AS CO-AGENT,
AND
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
LOS ANGELES AGENCY, AS AGENT

DATED AS OF SEPTEMBER 30, 1996

THIS EIGHTEENTH AMENDMENT, dated as of September 30, 1996 (this
"AMENDMENT"), is entered into by and among BEVERLY ENTERPRISES, INC., a
Delaware corporation ("BEI"), BEVERLY HEALTH AND REHABILITATION SERVICES, INC.
(formerly known as Beverly California corporation), a California corporation
("BORROWER"), the SUBSIDIARY GUARANTORS listed on the signature pages hereof
(together with BEI, the "GUARANTORS"), the LENDERS listed on the signature
pages hereof (collectively, the "LENDERS"), BANK OF MONTREAL as co-agent for
the Lenders (in such capacity, the "CO-AGENT"), and THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., Los Angeles Agency ("LTCB"), as agent for the Lenders (in such
capacity, the "AGENT"). This Amendment amends the Credit Agreement dated March
24, 1992 by and among BEI, Borrower, Co-Agent, Agent and Lenders, as amended by
a First Amendment to Credit Agreement dated April 7, 1992, a Second Amendment
to Credit Agreement dated as of May 11, 1992, a Third Amendment to Credit
Agreement dated as of March 1, 1993, a Fourth Amendment to Credit Agreement
dated as of November 1, 1993, a Fifth Amendment to Credit Agreement dated as of
March 21, 1994, a Sixth Amendment to Credit Agreement dated as of April 22,
1994, a Seventh Amendment to Credit Agreement dated as of May 2, 1994, an
Eighth Amendment to Credit Agreement dated as of November 1, 1994, a Ninth
Amendment to Credit Agreement dated as of November 9, 1994, a Tenth Amendment
to Credit Agreement dated as of December 6, 1994, an Eleventh Amendment to
Credit Agreement dated as of March 27, 1995, a Twelfth Amendment to Credit
Agreement dated as of October 23, 1995, a Thirteenth Amendment to Credit
Agreement dated as of September 29, 1995, a Fourteenth Amendment to Credit
Agreement dated as of December 7, 1995, a Fifteenth Amendment to Credit
Agreement dated as of February 12, 1996, a Sixteenth Amendment to Credit
Agreement dated as of June 5, 1996 and a Seventeenth Amendment to Credit
Agreement dated as of June 28, 1996 (said Credit Agreement, as so amended, the
"CREDIT AGREEMENT"), as set forth herein. Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
<PAGE> 2
RECITALS

WHEREAS, Borrower desires to amend the Credit Agreement in certain
respects;

WHEREAS, Lenders, Co-Agent and Agent have agreed to approve such
amendments; and

WHEREAS, Guarantors desire to reaffirm the effectiveness respectively
of the Subsidiary Guaranty Agreement and the BEI Guaranty Agreement.

NOW, THEREFORE, in consideration of the terms and conditions herein
contained, the parties agree as follows:

AGREEMENT

SECTION 1. AMENDMENT TO SUBSECTION 1.1 OF THE CREDIT AGREEMENT

Subsection 1.1 of the Credit Agreement is hereby amended by adding the
following proviso at the end of the definition of "Consolidated Capital
Expenditures":

", provided, that for purposes of this clause (B) up to
$20,000,000 to be borrowed from Bank United for the purpose of
financing the construction of nursing homes shall, if such Debt is
incurred in October 1996, be deemed to have been incurred in September
1996."

SECTION 2. REPRESENTATIONS AND WARRANTIES

In order to induce Agent, Co-Agent and Lenders to enter into this
Amendment, each of BEI and Borrower represents and warrants to Agent, Co-Agent
and Lenders that:

(a) The representations and warranties of each Loan Party
contained in the Credit Agreement are true, correct and complete in all
material respects on and as of the date hereof to the same extent as though
made on and as of the date hereof except to the extent that such
representations and warranties specifically relate to an earlier date, in which
case they are true, correct and complete in all material respects as of such
earlier date;

(b) No event has occurred and is continuing or would result from
the execution of this Amendment that constitutes an Event of Default or
Potential Event of Default;

(c) Each Loan Party has performed in all material respects all
agreements and satisfied all conditions that the Credit Agreement and this
Amendment provide shall be performed by it on or before the date hereof;
<PAGE> 3
(d) The execution, delivery and performance of this Amendment and
the Credit Agreement as amended by this Amendment, by each Loan Party are
within the corporate power and authority of each such Loan Party and, as of the
Eighteenth Amendment Effective Date (as hereinafter defined), will be duly
authorized by all necessary corporate action on the part of each Loan Party,
and this Amendment, as of the Eighteenth Amendment Effective Date, is duly
executed and delivered by each of such Loan Parties and will constitute a valid
and binding agreement of each of such Loan Parties, enforceable against
such Loan Parties in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability. The Credit Agreement constitutes and, as
of the Eighteenth Amendment Effective Date, the Credit Agreement, as amended by
this Amendment, will constitute, a valid and binding agreement of BEI and
Borrower, enforceable against BEI and Borrower in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws or equitable principles, relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability;

(e) The execution and delivery by each Loan Party of this
Amendment and the performance by each Loan Party of the Credit Agreement as
amended by this Amendment, do not and will not (i) violate any provision of any
law or any governmental rule or regulation applicable to any Loan Party, the
Certificate or Articles of Incorporation or Bylaws of any Loan Party or any
order, judgment or decree of any court or other agency of government binding on
any Loan Party, (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any instrument that is
material, individually or in the aggregate, and that is binding on such Loan
Party, (iii) result in or require the creation or imposition of any Lien upon
any of the properties or assets of any Loan Party (other than any Liens created
under any of the Loan Documents in favor of Agent on behalf of Lenders), or
(iv) require any approval or consent of any Person under any instrument that is
material, individually or in the aggregate, and that is binding on such Loan
Party; and

(f) The execution and delivery by each Loan Party of this
Amendment and the performance by each Loan Party of the Credit Agreement as
amended by this Amendment, do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
<PAGE> 4
SECTION 3. CONDITIONS TO EFFECTIVENESS

Section 1 of this Amendment shall become effective only upon delivery
to Agent for Lenders by BEI, Borrower and each Subsidiary Guarantor (with
sufficient originally executed copies for each Lender) of executed counterparts
of this Amendment and delivery by Requisite Lenders to Agent of a counterpart
of this Amendment originally executed by a duly authorized officer of such
Lender or by telex or telephonic confirmation, the date of the last such
delivery being referred to herein as the "EIGHTEENTH AMENDMENT EFFECTIVE
DATE").

SECTION 4. THE GUARANTIES

Each Guarantor acknowledges that it has reviewed the terms and
provisions of the Credit Agreement and this Amendment and consents to the
amendment of the Credit Agreement effected pursuant to this Amendment. Each
Guarantor hereby confirms that the Guaranty Agreement and the Collateral
Documents to which it is a party or otherwise bound and all Collateral
encumbered thereby will continue to guaranty or secure, as the case may be, to
the fullest extent possible the payment and performance of all Obligations,
Guarantied Obligations (as defined in the applicable Guaranty Agreements) and
Secured Obligations (as defined in the Collateral Documents), as the case may
be, including, without limitation, the payment and performance of all
Obligations of Borrower now or hereafter existing under or in respect of the
Credit Agreement as amended by this Amendment and the Notes defined therein.

Each Guarantor acknowledges and agrees that any of the Guaranty
Agreements and the Collateral Documents to which it is a party or otherwise
bound shall continue in full force and effect and that all of its obligations
thereunder shall be valid and enforceable and shall not be impaired or limited
by the execution or effectiveness of this Amendment. Each Guarantor represents
and warrants that all representations and warranties contained in the Credit
Agreement as amended by this Amendment and the Guaranty Agreements and the
Collateral Documents to which it is a party or otherwise bound are true,
correct and complete in all material respects on and as of the Eighteenth
Amendment Effective Date to the same extent as though made on and as of that
date except to the extent that such representations and warranties specifically
relate to an earlier date, in which case they are true, correct and complete in
all material respects as of such earlier date.

Each Guarantor acknowledges and agrees that (i) notwithstanding the
conditions to effectiveness set forth in this Amendment, such Guarantor is not
required by the terms of the Credit Agreement or any other Loan Document to
consent to the amendments to the Credit Agreement effected pursuant to this
Amendment or any other Loan Document and (ii) that neither the terms of the
Credit Agreement, any other Loan Document nor this
<PAGE> 5
Amendment shall be deemed to require the consent of any Guarantor to any future
amendments to the Credit Agreement.

SECTION 5. COUNTERPARTS; EFFECTIVENESS

This Amendment may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.

SECTION 6. FEES AND EXPENSES

Borrower acknowledges that all costs, fees and expenses as described
in subsection 10.4 of the Credit Agreement incurred by Agent and its counsel
with respect to this Amendment and the documents and transactions contemplated
hereby shall be for the account of Borrower.

SECTION 7. EFFECT OF AMENDMENT

It is hereby agreed that, except as specifically provided herein, this
Amendment does not in any way affect or impair the terms and conditions of the
Credit Agreement, and all terms and conditions of the Credit Agreement are to
remain in full force and effect unless otherwise specifically amended or
changed pursuant to the terms and conditions of this Amendment.

SECTION 8. APPLICABLE LAW

This Amendment and the rights and obligations of the parties hereto
and all other aspects hereof shall be deemed to be made under, shall be
governed by, and shall be construed and enforced in accordance with, the laws
of the State of New York without regard to principles of conflicts of laws.

[Remainder of page intentionally left blank]
<PAGE> 6
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.

BEI:
----

BEVERLY ENTERPRISES, INC.

By:
------------------------------------------
Title:
---------------------------------------

BORROWER:
---------

BEVERLY HEALTH AND REHABILITATION
SERVICES, INC. (formerly known as Beverly
California Corporation)

By:
------------------------------------------
Title:
---------------------------------------

AGENT, CO-AGENT AND LENDERS:
----------------------------

THE LONG-TERM CREDIT BANK OF JAPAN, LOS ANGELES
AGENCY, as Agent and as a Lender

By:
------------------------------------------
Title:
---------------------------------------

BANK OF MONTREAL,
as Co-Agent and as a Lender

By:
------------------------------------------
Title:
---------------------------------------

S-1
<PAGE> 7
LENDERS:
--------

INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION

By:
------------------------------------------
Title:
---------------------------------------

U.S. NATIONAL BANK OF OREGON

By:
------------------------------------------
Title:
---------------------------------------

THE SUBSIDIARY GUARANTORS:
--------------------------

A.B.C. Health Equipment Corp.

Alliance Health Services, Inc.

Alliance Home Health Care, Inc.

Amco Medical Service, Inc.

American Transitional Hospitals -- Texas
Medical Center, Inc.

ATH Clear Lake, Inc.

ATH Columbus, Inc.

ATH Oklahoma City, Inc.

Beverly Acquisition Corporation

Beverly Assisted Living, Inc.

Beverly Enterprises - Alabama, Inc.

Beverly Enterprises - Arkansas, Inc.

Beverly Enterprises -- Delaware, Inc.

S-2
<PAGE> 8
Beverly Enterprises -- District of Columbia,
Inc.

Beverly Enterprises -- Florida, Inc.

Beverly Enterprises -- Georgia, Inc.

Beverly Enterprises -- Iowa, Inc.

Beverly Enterprises -- Maine, Inc.

Beverly Enterprises -- Maryland, Inc.

Beverly Enterprises -- Massachusetts, Inc.

Beverly Enterprises -- Minnesota, Inc.

Beverly Enterprises -- Mississippi, Inc.

Beverly Enterprises -- Missouri, Inc.

Beverly Enterprises -- Montana, Inc.

Beverly Enterprises -- Nebraska, Inc.

Beverly Enterprises -- Nevada, Inc.

Beverly Enterprises -- New Hampshire, Inc.

Beverly Enterprises -- New Mexico, Inc.

Beverly Enterprises -- North Carolina, Inc.

Beverly Enterprises -- North Dakota, Inc.

Beverly Enterprises -- Oklahoma, Inc.

Beverly Enterprises -- Oregon

Beverly Enterprises -- Rhode Island, Inc.

Beverly Enterprises -- Vermont, Inc.

Beverly Enterprises -- Wisconsin, Inc.

Beverly Enterprises -- Wyoming, Inc.

Beverly Enterprises Medical Equipment
Corporation

S-3
<PAGE> 9
Beverly Enterprises Rehabilitation Corporation

Beverly Holdings I, Inc.

Beverly Real Estate Holdings, Inc.

Beverly Remic Depositor, Inc.

Brownstone Pharmacy, Inc.

Commercial Management, Inc.

DD Wholesale, inc.

Dunnington Drug, Inc.

Dunnington RX Services of Rhode Island, Inc.

Dunnington RX Services of Massachusetts, Inc.

Hallmark Convalescent Homes, Inc.

Healthcare Prescription Services, Inc.

Hospital Facilities Corporation

Insta-Care Holdings, Inc.

Insta-Care Pharmacy Services Corporation

Insurance Software Packages, Inc.

Medical Health Industries, Inc.

Medview services, Incorporated

Moderncare of Lumberton, Inc.

Nebraska City S-C-H, Inc.

Omni Med B, Inc.

Pharmacy Corporation of America --
Massachusetts, Inc.

Pharmacy Dynamics Group, Inc.

Phymedsco, Inc.

S-4
<PAGE> 10
Resource Opportunities, Inc.

Spectra Rehab Alliance, Inc.

South Dakota - Beverly Enterprises, Inc.

TMD Disposition Company

Vantage Healthcare Corporation

AGI-Camelot, Inc.

AGI-McDonald County Health Care, Inc.

Beverly Enterprises - Arizona, Inc.

Beverly Enterprises - California, Inc.

Beverly Enterprises - Colorado, Inc.

Beverly Enterprises - Connecticut, Inc.

Beverly Enterprises - Garden Terrace, Inc.

Beverly Enterprises - Hawaii, Inc.

Beverly Enterprises - Idaho, Inc.

Beverly Enterprises - Illinois, Inc.

Beverly Enterprises - Indiana, Inc.

Beverly Enterprises - Kansas, Inc.

Beverly Enterprises - Kentucky, Inc.

Beverly Enterprises - Louisiana, Inc.

Beverly Enterprises - Michigan, Inc.

Beverly Enterprises - New Jersey, Inc.

Beverly Enterprises - Ohio, Inc.

Beverly Enterprises - Pennsylvania, Inc.

Beverly Enterprises - South Carolina, Inc.

Beverly Enterprises - Tennessee, Inc.

Beverly Enterprises - Texas, Inc.

Beverly Enterprises - Utah, Inc.

S-5
<PAGE> 11
Beverly Enterprises - Virginia, Inc.

Beverly Enterprises - Washington, Inc.

Beverly Enterprises - West Virginia, Inc.

Beverly Indemnity, Ltd.

Beverly Manor Inc. of Hawaii

Beverly Savana Cay Manor, Inc.

Columbia-Valley Nursing Home, Inc.

Computran Systems, Inc.

Continental Care Centers of Council Bluffs,
Inc.

Forest City Building Ltd.

Home Medical Systems, Inc.

Kenwood View Nursing Home, Inc.

Liberty Nursing Homes, Incorporated

Medical Arts Health Facility of Lawrenceville,
Inc.

Nursing Home Operators, Inc.

Petersen Health Care, Inc.

Pharmacy Corporation of America

Salem No. 1, Inc.

South Alabama Nursing Home, Inc.

American Transitional Care Centers of Texas,
Inc.

American Transitional Care Dallas-Ft. Worth,
Inc.

American Transitional Health Care, Inc.

American Transitional Hospitals, Inc.

American Transitional Hospitals of Indiana,
Inc.

American Transitional Hospitals of Oklahoma,
Inc.

S-6
<PAGE> 12
American Transitional Hospitals of Tennessee,
Inc.

ATH Del Oro, Inc.

ATH Heights, Inc.

ATH Tucson, Inc.

Beverly Enterprises Japan Limited

AdviNet, Inc.

Beverly Crest Corporation

Beverly Enterprises-Distribution Services, Inc.

Hospice Preferred Choice, Inc.

Beverly Rehabilitation Services, Inc.

Synergos, Inc.

Synergos-Scottsdale, Inc.

Synergos-Pleasanthill, Inc.

Synergos-North Hollywood, Inc.

By:
----------------------------------
Title:
-------------------------------

S-7

<PAGE> 1
EXHIBIT 10.2

ELEVENTH AMENDMENT
TO CREDIT AGREEMENT
AMONG
BEVERLY ENTERPRISES, INC.,
BEVERLY HEALTH AND REHABILITATION SERVICES, INC.
(FORMERLY KNOWN AS BEVERLY CALIFORNIA CORPORATION),
THE SUBSIDIARY GUARANTORS LISTED HEREIN,
THE LENDERS LISTED HEREIN,
AND
THE NIPPON CREDIT BANK, LTD.
LOS ANGELES AGENCY, AS AGENT

Dated as of September 30, 1996

THIS ELEVENTH AMENDMENT dated as of September 30, 1996 (this
"AMENDMENT"), is entered into by and among BEVERLY ENTERPRISES, INC., a
Delaware corporation ("BEI"), BEVERLY HEALTH AND REHABILITATION SERVICES, INC.
(formerly known as Beverly California Corporation), a California corporation
("BORROWER"), the SUBSIDIARY GUARANTORS listed on the signature pages hereof
(together with BEI, the "GUARANTORS"), the LENDERS listed on the signature
pages hereof (such lenders, together with each Person that may or has become a
party to the Credit Agreement (as hereinafter defined) pursuant to subsection
10.8 thereof, are referred to herein individually as a "LENDER" and
collectively as the "LENDERS"), and THE NIPPON CREDIT BANK, LTD., Los Angeles
Agency ("NIPPON"), as agent for the Lenders (in such capacity, the "AGENT").
This Amendment amends the Credit Agreement dated as of March 2, 1993 by and
among BEI, Borrower, Agent and Lenders, as amended by that certain First
Amendment to Credit Agreement dated as of May 6, 1994, as further amended by
that certain Second Amendment to Credit Agreement dated as of May 19, 1994, as
further amended by that certain Third Amendment to Credit Agreement dated as of
November 1, 1994, as further amended by that certain Fourth Amendment to Credit
Agreement dated as of November 9, 1994, as further amended by that certain
Fifth Amendment to Credit Agreement dated as of December 30, 1994, as further
amended by that certain Sixth Amendment to Credit Agreement dated as of July
25, 1995, as further amended by that certain Seventh Amendment to Credit
Agreement dated as of September 29, 1995, as further amended by that certain
Eighth Amendment to Credit Agreement dated as of February 14, 1996, as further
amended by that certain Ninth Amendment to Credit Agreement dated as of April
22, 1996, and as further amended by that certain Tenth Amendment to Credit
Agreement dated as of June 28, 1996 (as so amended, the "CREDIT AGREEMENT"), as
set forth herein.
<PAGE> 2
RECITALS

WHEREAS, Borrower desires to amend the Credit Agreement in
certain respects;

WHEREAS, Lenders and Agent have agreed to approve such
amendments;

WHEREAS, Guarantors desire to reaffirm the effectiveness
respectively of the Subsidiary Guaranty Agreement and the BEI Guaranty
Agreement;

AGREEMENT

NOW, THEREFORE, in consideration of the terms and conditions
herein contained, BEI, Borrower, Guarantors, Agent and Lenders agree as
follows:

1. DEFINITIONS, INTERPRETATION. All capitalized terms defined
above and elsewhere in this Amendment shall be used herein as so defined.
Unless otherwise defined herein, all other capitalized terms used herein shall
have the respective meanings given to those terms in the Credit Agreement, as
amended by this Amendment. The rules of construction set forth in Section I of
the Credit Agreement shall, to the extent not inconsistent with the terms of
this Amendment, apply to this Amendment and are hereby incorporated by
reference.

2. AMENDMENT TO CREDIT AGREEMENT. Subject to conditions set forth
in paragraph 4 hereof, the Credit Agreement is hereby amended by adding the
following proviso at the end of the definition of "Consolidated Capital
Expenditures" set forth in Subsection 1.1:

"provided, that for purposes of this clause (B) up to
$20,000,000 to be borrowed from Bank United for the purpose of
financing the construction of nursing homes shall, if such Debt is
incurred in October 1996, be deemed to have been incurred in September
1996."

3. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent
and the Lenders to enter into this Amendment, each of BEI and Borrower
represents and warrants to the Agent and the Lenders that:

(a) The representations and warranties of each Loan Party
contained in the Credit Agreement are true, correct and complete in
all material respects on and as of the date hereof to the same extent
as though made on and as of the date hereof except to the extent that
such representations and warranties specifically relate to an earlier
date, in which case they are true, correct and complete in all
material respects as of such earlier date;

2
<PAGE> 3
(b) No event has occurred and is continuing or would result
from the execution of this Amendment that constitutes an Event of
Default or Potential Event of Default;

(d) The execution, delivery and performance of this
Amendment, and the Credit Agreement as amended by this Amendment, by
each Loan Party which is a party thereto are within the corporate power
and authority of each such Loan Party and, as of the Eleventh Amendment
Effective Date (as hereinafter defined), will be duly authorized by all
necessary corporate action on the part of each Loan Party, and this
Amendment as of the Eleventh Amendment Effective Date, are duly
executed and delivered by each of such Loan Parties which is a party
thereto and will constitute a valid and binding agreement of each of
such Loan Parties, enforceable against such Loan Parties in accordance
with their terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability. The Credit Agreement constitutes
and, as of the Eleventh Amendment Effective Date, the Credit Agreement,
as amended by this Amendment, will constitute, a valid and binding
agreement of each applicable Loan Party, enforceable against each
applicable Loan Party in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws or equitable principles, relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.

(e) The execution and delivery by each applicable Loan
Party of this Amendment, and the performance by each such Loan Party of
the Credit Agreement as amended by this Amendment, do not and will not
(i) violate any provision of any law or any governmental rule or
regulation applicable to any Loan Party, the Certificate or Articles of
Incorporation or Bylaws of any Loan Party or any order, judgment or
decree of any court or other agency of government binding on any Loan
Party, (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any instrument
that is material, individually or in the aggregate, and that is binding
on such Loan Party, (iii) result in or require the creation or
imposition of any Lien upon any of the properties or assets of any Loan
Party, or (iv) require any approval or consent of any Person under any
instrument that is material, individually or in the aggregate, and that
is binding on such Loan Party.

3
<PAGE> 4
(f) The execution and delivery by each applicable Loan
Party of this Amendment, and the performance by each such Loan Party
of the Credit Agreement as amended by this Amendment, do not and will
not require any registration with, consent or approval of, or notice
to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.

4. CONDITIONS TO EFFECTIVENESS. Section 2 of this Amendment shall
become effective only upon the satisfaction of all of the following conditions
precedent (the date of satisfaction of such conditions being referred to herein
as the "ELEVENTH AMENDMENT EFFECTIVE DATE"):

(a) On or before the Eleventh Amendment Effective Date,
Borrower shall deliver to the Lenders (or to the Agent for the Lenders
with sufficient originally executed copies, as appropriate, for each
Lender and its counsel) the following, each, unless otherwise noted,
dated the Eleventh Amendment Effective Date, duly executed and
delivered by the parties thereto:

(i) Signature and incumbency certificates of each
of BEI, Borrower and each Subsidiary Guarantor of its
respective officers executing this Amendment certified by such
party's respective secretary or assistant secretary; and

(ii) Executed counterparts of this Amendment.

(b) On or before the Eleventh Amendment Effective Date,
all corporate and other proceedings taken or to be taken in connection
with the transactions contemplated hereby and all documents incidental
thereto not previously found acceptable by the Agent, acting on behalf
of the Lenders, and its counsel shall be satisfactory in form and
substance to the Agent and such counsel, and the Agent and such
counsel shall have received all such counterpart originals or
certified copies of such documents as the Agent may reasonably
request.

(c) On or before the Eleventh Amendment Effective Date,
the Borrower shall have caused payment to the Agent of all amounts
regarding the costs and expenses reasonably incurred by Agent in
connection with this Amendment.

5. ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS. Each Guarantor
acknowledges that it has reviewed the terms and provisions of the Credit
Agreement and this Amendment and consents to the amendment of the Credit
Agreement effected pursuant to this Amendment. Each Guarantor hereby confirms
that the Guaranty Agreement and the Collateral Documents to which it is a party
or otherwise bound and all Collateral encumbered thereby will continue to
guaranty or secure, as the case may be,

4
<PAGE> 5
to the fullest extent possible the payment and performance of all Obligations,
Guarantied Obligations (as defined in the applicable Guaranty Agreements) and
Secured Obligations (as defined in the Collateral Documents), as the case may
be, including, without limitation, the payment and performance of all
obligations of Borrower now or hereafter existing under or in respect of the
Credit Agreement as amended by this Amendment and the Notes defined therein.

Each Guarantor acknowledges and agrees that any of the
Guaranty Agreements and the Collateral Documents to which it is a party or
otherwise bound shall continue in full force and effect and that all of its
obligations thereunder shall be valid and enforceable and shall not be impaired
or limited by the execution or effectiveness of this Amendment. Each Guarantor
represents and warrants that all representations and warranties contained in
the Credit Agreement as amended by this Amendment and the Guaranty Agreements
and the Collateral Documents to which it is a party or otherwise bound are
true, correct and complete in all material respects on and as of the Eleventh
Amendment Effective Date to the same extent as though made on and as of that
date except to the extent that such representations and warranties specifically
relate to an earlier date, in which case they are true, correct and complete in
all material respects as of such earlier date.

Each Guarantor acknowledges and agrees that in addition to all
the other waivers agreed to and made by Guarantor as set forth in the Guaranty
Agreement and the Collateral Documents to which it is a party or otherwise
bound, and pursuant to the provisions of California Civil Code Section 2856,
"Guarantor waives all rights and defenses arising out of an election of
remedies by the creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the Guarantor's rights of subrogation and reimbursement against
the principal by the operation of Section 580d of the Code of Civil Procedure
or otherwise."

Each Guarantor acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this Amendment,
such Guarantor is not required by the terms of the Credit Agreement or any
other Loan Document to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment or any other Loan Document and (ii) that
neither the terms of the Credit Agreement, any other Loan Document nor this
Amendment shall be deemed to require the consent of any Guarantor to any future
amendments to the Credit Agreement.

6. EFFECTIVENESS; COUNTERPARTS. This Amendment may be executed in
any number of counterparts, and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same

5
<PAGE> 6
instrument. This Amendment (other than the provisions of Section 2) shall
become effective upon the execution of a counterpart hereof by all Lenders and
each of the Loan Parties and receipt of written or telephonic notification of
such execution and authorization of delivery thereof.

7. FEES AND EXPENSES. The Borrower acknowledges that all costs,
fees and expenses as described in subsection 10.4 of the Credit Agreement
incurred by the Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of the
Borrower.

8. EFFECT OF AMENDMENT. It is hereby agreed that, except as
specifically provided herein, this Amendment does not in any way affect or
impair the terms and conditions of the Credit Agreement, and all terms and
conditions of the Credit Agreement are to remain in full force and effect
unless otherwise specifically amended or changed pursuant to the terms and
conditions of this Amendment.

9. APPLICABLE LAW. This Amendment and the rights and obligations
of the parties hereto and all other aspects hereof shall be deemed to be made
under, shall be governed by, and shall be construed and enforced in accordance
with, the laws of the State of New York without regard to principles of
conflicts of laws.

6
<PAGE> 7
WITNESS the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.

BEI:
----

BEVERLY ENTERPRISES, INC.

By:
-------------------------------
Title:
----------------------------

BORROWER:
---------

BEVERLY HEALTH AND REHABILITATION
SERVICES, INC.

By:
-------------------------------
Title:
----------------------------

AGENT:
------

THE NIPPON CREDIT BANK, LTD.,
LOS ANGELES AGENCY,
as Agent

By:
-------------------------------
Title:
----------------------------

S-1
<PAGE> 8
LENDERS:
--------

THE NIPPON CREDIT BANK, LTD.,
LOS ANGELES AGENCY,
as a Lender

By:
-------------------------------
Title:
----------------------------

TORONTO-DOMINION (TEXAS), INC.,
as a Lender

By:
-------------------------------
Title:
----------------------------

[Signatures Continued)

S-2
<PAGE> 9
Taylor County Health Facility,
Incorporated

Alliance Health Services, Inc.

Healthcare Prescription Services, Inc.

Dunnington Drugs, Inc.

Insta-Care Holdings, Inc.

AdviNet, Inc.

Beverly Crest Corporation

Beverly Enterprises - Distribution
Services, Inc.

Hospice Preferred Choice, Inc.

Beverly Rehabilitation Services, Inc.

Synergos, Inc.

Synergos-Scottsdale, Inc.

Synergos-Pleasanthill, Inc.

Synergos-North Hollywood, Inc.

By:
-------------------------------------------
Title:
----------------------------------------

S-7

<PAGE> 1
EXHIBIT 10.3

AMENDMENT NO. 5 TO CREDIT AGREEMENT

AMENDMENT dated as of September 30, 1996 among BEVERLY HEALTH &
REHABILITATION SERVICES, INC., a California corporation (the "Borrower"),
BEVERLY ENTERPRISES, INC., a Delaware corporation (the "Guarantor"), the BANKS
listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent and Issuing Bank.

W I T N E S S E T H:

WHEREAS, the parties hereto have heretofore entered into a Credit
Agreement dated as of November 1, 1994 (as amended, the "Credit Agreement");
and

WHEREAS, the parties hereto desire to amend the Credit Agreement as
hereinafter provided;

NOW, THEREFORE, the parties hereto agree as follows:

SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
shall have the meaning assigned to such term in the Credit Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Credit Agreement shall from and after the date
hereof refer to the Credit Agreement as amended hereby.

SECTION 2. Amendment to Definition of Consolidated Net Capital
Expenditures. Section 1.01 of the Credit Agreement is hereby amended by adding
the following proviso at the end of the definition of "Consolidated Net Capital
Expenditures":

' provided, that for purposes of this clause (D) up to
$20,000,000 to be borrowed from Bank United in October 1996 for the
purpose of financing the construction of nursing homes shall be deemed
to have been incurred in September 1996.

<PAGE> 2
SECTION 3. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.

SECTION 4. Counterparts; Effectiveness. This Amendment may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective as of the date hereof when
the Agent shall have received duly executed counterparts hereof signed by the
Borrower, the Guarantor and the Required Banks (or, in the case of any party as
to which an executed counterpart shall not have been received, the Agent shall
have received telegraphic, telex or other written confirmation from such party
of execution of a counterpart hereof by such party).

2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.

THE BORROWER
------------

BEVERLY HEALTH & REHABILITATION SERVICES, INC.

By
----------------------------------------

THE GUARANTOR
-------------

BEVERLY ENTERPRISES, INC.

By
----------------------------------------

BANKS
-----

MORGAN GUARANTY TRUST COMPANY OF NEW YORK