S-3/A

   1
 
   
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1996
    
                                                       REGISTRATION NO. 33-64111
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------
 
   
                                AMENDMENT NO. 2
    
                                       TO
 
                                    FORM S-3
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                            ------------------------
 
                           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
                                 (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:
 
         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
 
                            ------------------------
 
        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.  / /

                            ------------------------
 
   
     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.
    

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   2
 
                       TABLE OF ADDITIONAL CO-REGISTRANTS
 


                                                      (STATE OR OTHER
                 (EXACT NAME OF                       JURISDICTION OF
                CO-REGISTRANT AS                     INCORPORATION OR        (I.R.S. EMPLOYER
           SPECIFIED IN ITS CHARTER)                   ORGANIZATION)        IDENTIFICATION NO.)
- ------------------------------------------------   ---------------------   ---------------------
                                                                     
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

   3
 


                                                      (STATE OR OTHER
                 (EXACT NAME OF                       JURISDICTION OF
                CO-REGISTRANT AS                     INCORPORATION OR        (I.R.S. EMPLOYER
           SPECIFIED IN ITS CHARTER)                   ORGANIZATION)        IDENTIFICATION NO.)
- ------------------------------------------------   ---------------------   ---------------------
                                                                     
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

   4
 


                                                      (STATE OR OTHER
                 (EXACT NAME OF                       JURISDICTION OF
                CO-REGISTRANT AS                     INCORPORATION OR        (I.R.S. EMPLOYER
           SPECIFIED IN ITS CHARTER)                   ORGANIZATION)        IDENTIFICATION NO.)
- ------------------------------------------------   ---------------------   ---------------------
                                                                     
Insta-Care Holdings, Inc........................          Florida               59-2213553
Insta-Care Pharmacy Services Corporation........           Texas                59-1817412
Insurance Software Packages, Inc................          Florida               59-3090233
Kenwood View Nursing Home, Inc..................          Kansas                48-6111286
Liberty Nursing Homes, Incorporated.............         Virginia               54-0784334
Medical Arts Health Facility of Lawrenceville,
  Inc...........................................          Georgia               58-1329700
Medical Health Industries, Inc..................         Delaware               39-1140633
MedView Services, Incorporated..................          Florida               59-3090223
Moderncare of Lumberton, Inc....................      North Carolina            56-1217025
Nebraska City S-C-H, Inc........................         Nebraska               41-1413481
Nursing Home Operators, Inc.....................           Ohio                 34-0949279
Omni Med B, Inc.................................        Connecticut             06-1303450
Petersen Health Care, Inc.......................          Florida               59-2043392
Pharmacy Corporation of America.................        California              95-3849613
Pharmacy Corporation of
  America -- Massachusetts, Inc.................         Delaware               71-0776297
Pharmacy Dynamics Group, Inc....................          Florida               65-0166808
Phymedsco, Inc..................................       West Virginia            55-0582953
Resource Opportunities, Inc.....................          Florida               58-1930884
Salem No. 1, Inc................................         Missouri               43-1130257
South Alabama Nursing Home, Inc.................          Alabama               95-3809397
South Dakota -- Beverly Enterprises, Inc........        California              95-3750887
Spectra Rehab Alliance, Inc.....................         Delaware               71-0759298
Synergos, Inc...................................        California              33-0203515
Synergos -- North Hollywood, Inc................        California              33-0242556
Synergos -- Pleasant Hill, Inc..................        California              33-0256657
Synergos -- Scottsdale, Inc.....................          Arizona               94-3085083
Taylor County Health Facility, Inc..............          Florida               59-1779865
TMD Disposition Company.........................          Florida               59-3151568
Vantage Healthcare Corporation..................         Delaware               35-1572998

   5
 
     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 JANUARY 30, 1996
    
PROSPECTUS
   
            , 1996
    
   
                                  $150,000,000
    
 
                           BEVERLY ENTERPRISES, INC.
LOGO                        % SENIOR NOTES DUE 2006
 
   
     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
            , 2001. In addition, upon the occurrence of a Change of Control (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 September
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 $908,000,000, of which approximately $694,000,000 would have been
secured indebtedness that would have effectively ranked senior to the Senior
Notes. The Senior Notes have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance.
    
 
     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.
 


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                                          PRICE            UNDERWRITING           PROCEEDS
                                         TO THE            DISCOUNTS AND           TO THE
                                        PUBLIC(1)         COMMISSIONS(2)        COMPANY(1)(3)
- -------------------------------------------------------------------------------------------------
                                                                   
Per Senior Note...................           %                   %                    %
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Total.............................   $                   $                    $
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(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             , 1996.
    
 
DONALDSON, LUFKIN & JENRETTE
         SECURITIES CORPORATION
 
             MERRILL LYNCH & CO.
 
                           STEPHENS INC.
 
                                       J.P. MORGAN SECURITIES INC.
 
                                                        CHEMICAL SECURITIES INC.
   6
 
     THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

                             ---------------------
 
     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, June 30, 1995 and September 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 January 30, 1996;
    
 
   
          5.  Current Report on Form 8-K dated December 19, 1995;
    
 
   
          6.  Current Report on Form 8-K dated December 8, 1995;
    
 
   
          7.  Current Report on Form 8-K dated June 27, 1995;
    
 
   
          8.  Current Report on Form 8-K dated May 30, 1995;
    
 
   
          9.  Current Report on Form 8-K dated April 6, 1995; and
    
 
   
        10.  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
   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.
 
     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.
 
     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.
 
     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.
 
     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. 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.
 
                                        3
   8
 
     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.
 
     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
 
   
FOURTH QUARTER OPERATING RESULTS
    
 
   
     On January 30, 1996, the Company announced its operating results for the
three months and the year ended December 31, 1995, a summary of which is
presented below (dollars in thousands in table):
    
 
   


                                                   THREE MONTHS ENDED          YEARS ENDED
                                                      DECEMBER 31,             DECEMBER 31,
                                                  --------------------    ----------------------
                                                    1994        1995        1994         1995
                                                  --------    --------    ---------    ---------
                                                                           
Net operating revenues..........................  $764,712    $807,654    $2,969,239   $3,228,553
Interest expense, net...........................    13,626      16,412       50,214       70,017
Impairment losses...............................        --     108,654           --      108,654
Income (loss) before provision for (benefit
  from) income taxes and extraordinary charge...    28,761     (95,885)     114,795       (6,154)
Extraordinary charge, net of income taxes.......    (2,412)         --       (2,412)          --
Net income (loss)...............................    16,858     (63,756)      74,501       (8,123)
Adjusted EBITDA (1).............................    66,085      54,780      253,743      276,098

    
 
- ---------------
 
   
(1) As defined herein, and as further adjusted for impairment losses recorded in
    the fourth quarter of 1995.
    
 
   
     The 1995 fourth quarter results include a previously announced charge of
$108,654,000 for impaired assets ($68,130,000 related to the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 121 and $40,524,000
related to the write-off of development and other costs), as well as a charge of
$4,000,000 related to an overhead and staff reduction program.
    
 
                                        4
   9
 
   
REDEMPTION OF SENIOR SECURED FIXED RATE NOTES
    
 
   
     On December 15, 1995, Beverly utilized approximately $18,105,000 in
short-term borrowings to redeem all of its outstanding 14 1/4% Senior Secured
Fixed Rate Notes due 1997 (the "Redemption").
    
 
   
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 $150,000,000 aggregate principal amount of 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.
 
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. 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 (including the appointment of
Robert D. Woltil as President) and certain of its operating and pricing policies
to address these difficulties. On December 19, 1995, Beverly announced that PCA
was continuing to experience difficulties consolidating recent acquisitions and
that it would defer indefinitely plans to spin off any portion of PCA. On
January 17, 1996, the Company announced that Robert D. Woltil resigned as an
Executive Vice President of the Company and as President of PCA. A successor has
not yet been named. There can be no assurance that the PCA spin-off or any other
strategic transaction will occur. For the years ended December 31, 1994 and
1995, PCA's revenues were approximately $247,400,000 and $452,856,000,
respectively, and its Adjusted EBITDA (as defined above) was approximately
$36,300,000 and $39,692,000, respectively. At December 31, 1995, PCA's total
assets and total liabilities were approximately $434,811,000 and $300,049,000,
respectively. The foregoing PCA financial data is unaudited and does not reflect
certain intercompany allocations, eliminations and adjustments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The PCA spin-off is permitted by the terms of the indenture
governing the Senior Notes, subject to certain limitations and conditions. See
"Description of Senior Notes -- Repurchase at the Option of Holders -- Asset
Sales."
    
 
   
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 November 1995,
Congress passed the Seven Year Balanced Budget Reconciliation Act of 1995 (the
"1995 Balanced Budget Act") providing for, among other things, the reshaping of
the Medicare and Medicaid programs. In December 1995, President Clinton vetoed
the 1995 Balanced Budget Act and proposed alternative Medicare and Medicaid
legislation. Each of the legislative proposals offered by the President and
Congress provide for significant reductions in the overall rate of Medicare and
Medicaid spending growth. There is active discussion concerning this proposed
legislation 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 could have a material adverse effect
on the Company's future financial position, results of operations and cash
flows.
    
 
                                        5
   10
 
                                  THE OFFERING
 
ISSUER..................Beverly Enterprises, Inc. ("Beverly")
 
   
SECURITIES OFFERED......$150,000,000 principal amount of      % Senior Notes due
                        2006 (the "Senior Notes").
    
 
   
MATURITY DATE...........            , 2006.
    
 
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
                          , 2001. At any time on or after             , 2001,
                        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, 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, 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. 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.
                        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 September 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 $908,000,000
                        of which approximately $694,000,000 would have been
                        secured indebtedness that would have effectively ranked
                        senior to the Senior Notes. 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
   11
 
                         SUMMARY FINANCIAL INFORMATION
 
     The following summary consolidated statement of operations data for the
periods ended 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 nine months ended September 30, 1994 and 1995 and the
consolidated balance sheet data as of September 30, 1995 are derived from
Beverly's unaudited condensed consolidated financial statements. All dollar
amounts are presented in thousands.
 


                                                                                                           NINE MONTHS ENDED
                                                          YEARS ENDED DECEMBER 31,                           SEPTEMBER 30,
                                       --------------------------------------------------------------   -----------------------
                                          1990         1991         1992         1993         1994         1994         1995
                                                                                                
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net operating revenues...............  $2,117,868   $2,308,307   $2,607,756   $2,884,451   $2,969,239   $2,204,527   $2,420,899
Operating income(1)..................      82,958      100,863       62,589      138,567      165,009      122,622      143,336
Depreciation and amortization........      63,566       78,057       80,226       82,938       88,734       65,036       77,982
Interest expense, net................      62,536       59,195       56,441       50,927       50,214       36,588       53,605
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       86,034       89,731
  Before extraordinary charge and
    cumulative effect of accounting
    change...........................      13,143       29,238        1,945       57,956       76,913       57,643       55,633
  Before cumulative effect of
    accounting change................      13,143       29,238       (6,890)      55,611       74,501       57,643       55,633
Net income (loss)....................      13,143       29,238      (12,344)      55,611       74,501       57,643       55,633
Net income (loss) applicable to
  common shares......................      12,143       29,238      (13,344)      31,173       66,251       51,455       49,445

 
   


                                                                                                          SEPTEMBER 30, 1995
                                                                                                        -----------------------
                                                                                                                         AS
                                                                                                          ACTUAL     ADJUSTED(2)
                                                                                                
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............                                                                   $   55,678   $   58,923
Working capital......................                                                                      245,213      280,958
Total assets.........................                                                                    2,544,964    2,552,609
Current portion of long-term
  obligations........................                                                                       59,118       26,618
Long-term obligations, excluding
  current portion....................                                                                      897,103    1,087,647
Stockholders' equity.................                                                                    1,030,681      880,681

    
 


                                                                                                           NINE MONTHS ENDED
                                                          YEARS ENDED DECEMBER 31,                           SEPTEMBER 30,
                                       --------------------------------------------------------------   -----------------------
                                          1990         1991         1992         1993         1994         1994         1995
                                                                                                
OPERATING DATA:
Patient days (in thousands)..........      30,139       29,334       29,341       29,041       26,766       20,172       19,096
Average occupancy percentage.........        87.3%        88.1%        88.4%        88.5%        88.5%        88.4%        88.2%
Number of nursing home beds..........      91,414       90,228       89,298       85,001       78,058       78,360       75,890
OTHER FINANCIAL DATA:
Adjusted EBITDA(3)...................    $146,524     $178,920     $199,815     $221,505     $253,743     $187,658     $221,318
Capital additions and improvements...      41,979       60,760       77,808       95,542      108,653       82,173       93,715
Rent expense.........................     143,163      141,155      140,168      135,262      127,187       95,118       94,853
Ratio of Adjusted EBITDA to interest
  expense, net(3)....................         2.3x         3.0x         3.5x         4.3x         5.1x         5.1x         4.1x
Ratio of earnings to fixed
  charges(4).........................         1.1x         1.3x         1.0x         1.6x         1.9x         1.9x         1.9x

 
- ------------------------------
 
(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, extraordinary
    items and cumulative effect of an accounting change 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
   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 Redemption, the Offering and the application of the estimated net proceeds
therefrom, such total indebtedness would have been approximately $1,088,000,000,
which 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
 
   
     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 November 1995,
Congress passed the 1995 Balanced Budget Act providing for, among other things,
the reshaping of the Medicare and Medicaid programs. In December 1995, President
Clinton vetoed the 1995 Balanced Budget Act and proposed alternative Medicare
and Medicaid legislation. Each of the legislative proposals offered by the
President and Congress provide for significant reductions in the overall rate of
Medicare and Medicaid spending growth. There is active discussion concerning
this proposed legislation 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 could have a material adverse
effect on the Company's future financial position, results of operations and
cash flows.
    
 
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
programs. 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
 
                                        8
   13
 
reduce federal and state expenditures, there have been, and the Company expects
that there will continue to 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") 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 HCFA surveys for a significant number of the Company's
facilities indicate that approximately 91% of such facilities surveyed have been
determined to be in compliance with the HCFA criteria. HCFA has reported that of
all facilities surveyed nationally (Company and non-Company), approximately 83%
of such facilities were determined to be similarly in 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 the revised
HCFA regulations, the Company believes its programs and facilities are generally
consistent with industry standards.
 
     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. 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 such patients. 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
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.
 
   
LIMITATIONS ON REPURCHASE OF SENIOR NOTES UPON A CHANGE OF CONTROL
    
 
   
     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, 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. 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. See "Description of Certain Indebtedness" and
"Description of Senior Notes -- Repurchase at the Option of Holders -- Change of
Control."
    
 
     In addition, health care service providers, such as Beverly, operate in a
highly competitive environment and in an industry that is currently subject to
significant changes from business consolidations, new strategic
 
                                        9
   14
 
alliances, legislative reform, aggressive marketing practices by competitors and
market pressures. See "-- Competition; -- Potential Adverse Effect of Health
Care Reform; -- Governmental Regulation and Reimbursement." In this environment,
Beverly is frequently contacted by, and otherwise engages in discussions with,
other health care companies and financial advisors regarding possible strategic
alliances, joint ventures, business combinations and other financial
alternatives. In the past several months, various reports have indicated that
Beverly may be a potential party to an unsolicited business combination,
creating the possibility of a "change of control" transaction involving Beverly
while the Senior Notes are outstanding. See "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 proceedings relating to the Company, 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 September 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 $908,000,000
of senior indebtedness of Beverly and its subsidiaries outstanding, of which
approximately $694,000,000 would have been secured indebtedness that would have
effectively ranked senior to the Senior Notes. 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
 
                                       10
   15
 
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 nurse's aide shortage could force the Company to pay even
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, location, physician services and price. The Company's operations
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.
 
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 successfully manage the
Company's expansion of service beyond the traditional long-term care services
provided by the Company. 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
 
     The Senior Notes have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. 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.
 
                                       11
   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 $8,750,000 to prepay certain scheduled maturities under the Nippon
Credit Agreement (as defined herein); and (iv) the remaining net proceeds to
repay short-term borrowings and 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
September 30, 1995, pro forma to give effect to the Exchange and the Redemption,
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."
    
 
   


                                                                  AS OF SEPTEMBER 30, 1995
                                                         ------------------------------------------
                                                                                         PRO FORMA
                                                           ACTUAL        PRO FORMA      AS ADJUSTED
                                                                   (DOLLARS IN THOUSANDS)
                                                                               
Cash and cash equivalents..............................  $   55,678     $    55,678     $    58,923
                                                         ==========      ==========      ==========
Short-term borrowings and current portion of long-term
  debt.................................................  $   71,118     $    89,223     $    38,618
                                                         ==========      ==========      ==========
Long-term debt, net of current portion:
  Industrial development revenue bonds.................  $  207,389     $   207,389     $   207,389
  Notes, mortgages and other bonds payable.............     322,850         322,850         322,850
  Bank term loans......................................     252,500         252,500         160,750
     % Senior Notes due 2006...........................          --              --         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............................      28,734          28,734          28,734
  14 1/4% Senior secured notes due 1997................      17,706              --              --
                                                         ----------      ----------      ----------
          Total long-term debt.........................     897,103       1,029,397       1,087,647
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; 102,364,501 issued; 98,392,293 shares
     outstanding.......................................      10,236          10,236          10,236
  Additional paid-in capital...........................     762,480         762,480         762,480
  Retained earnings....................................     148,100         148,100         148,100
  Treasury stock, at cost; 3,972,208 shares............     (40,135)        (40,135)        (40,135)
                                                         ----------      ----------      ----------
          Total stockholders' equity...................   1,030,681         880,681         880,681
                                                         ----------      ----------      ----------
Total capitalization...................................  $1,927,784     $ 1,910,078     $ 1,968,328
                                                         ==========      ==========      ==========

    
 
                                       12
   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 nine month
periods ended and as of September 30, 1994 and 1995 are derived from Beverly's
unaudited condensed consolidated financial statements. Operating results for the
nine months ended September 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.
 


                                                                                                             NINE MONTHS ENDED
                                                            YEARS ENDED DECEMBER 31,                           SEPTEMBER 30,
                                         --------------------------------------------------------------   -----------------------
                                            1990         1991         1992         1993         1994         1994         1995
                                                                                                  
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Net operating revenues.................. $2,117,868   $2,308,307   $2,607,756   $2,884,451   $2,969,239   $2,204,527   $2,420,899
Interest income.........................     24,455       20,048       14,502       15,269       14,578       10,709       10,267
                                         ----------   ----------   ----------   ----------   ----------   ----------   ----------
        Total revenues..................  2,142,323    2,328,355    2,622,258    2,899,720    2,983,817    2,215,236    2,431,166
Costs and expenses:
  Wages and related.....................  1,258,758    1,358,639    1,486,191    1,593,410    1,600,580    1,183,900    1,285,091
  Other operating and administrative....    712,586      770,748      921,750    1,069,536    1,114,916      832,969      914,490
  Interest..............................     86,991       79,243       70,943       66,196       64,792       47,297       63,872
  Depreciation and amortization.........     63,566       78,057       80,226       82,938       88,734       65,036       77,982
  Restructuring costs...................         --           --       57,000           --           --           --           --
                                         ----------   ----------   ----------   ----------   ----------   ----------   ----------
        Total costs and expenses........  2,121,901    2,286,687    2,616,110    2,812,080    2,869,022    2,129,202    2,341,435
                                         ----------   ----------   ----------   ----------   ----------   ----------   ----------
Income before income taxes,
  extraordinary charge and cumulative
  effect of accounting change...........     20,422       41,668        6,148       87,640      114,795       86,034       89,731
Provision for income taxes..............      7,279       12,430        4,203       29,684       37,882       28,391       34,098
                                         ----------   ----------   ----------   ----------   ----------   ----------   ----------
Income before extraordinary charge and
  cumulative effect of accounting
  change................................     13,143       29,238        1,945       57,956       76,913       57,643       55,633
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   $   57,643   $   55,633
                                         ==========   ==========   ==========   ==========   ==========   ==========   ==========
Net income (loss) applicable to common
  shares................................ $   12,143   $   29,238   $  (13,344)  $   31,173   $   66,251   $   51,455   $   49,445
                                         ==========   ==========   ==========   ==========   ==========   ==========   ==========
CONSOLIDATED BALANCE SHEET DATA:
Total assets............................ $1,625,781   $1,677,851   $1,859,361   $2,000,804   $2,322,578   $2,065,094   $2,544,964
Current portion of long-term
  obligations...........................     50,918       35,846       30,466       43,125       60,199       37,336       59,118
Long-term obligations, excluding current
  portion...............................    694,689      629,245      712,896      706,917      918,018      724,181      897,103
Stockholders' equity....................    499,490      600,443      593,505      742,862      827,244      810,587    1,030,681
OPERATING DATA:
Patient days (in thousands).............     30,139       29,334       29,341       29,041       26,766       20,172       19,096
Average occupancy percentage............       87.3%        88.1%        88.4%        88.5%        88.5%        88.4%        88.2%
Number of nursing home beds.............     91,414       90,228       89,298       85,001       78,058       78,360       75,890
OTHER FINANCIAL DATA:
Adjusted EBITDA(1)...................... $  146,524   $  178,920   $  199,815   $  221,505   $  253,743   $  187,658   $  221,318
Capital additions and improvements......     41,979       60,760       77,808       95,542      108,653       82,173       93,715
Rent expense............................    143,163      141,155      140,168      135,262      127,187       95,118       94,853
Ratio of Adjusted EBITDA to
  interest expense, net(1)..............        2.3x         3.0x         3.5x         4.3x         5.1x         5.1x         4.1x
Ratio of earnings to fixed charges(2)...        1.1x         1.3x         1.0x         1.6x         1.9x         1.9x         1.9x

 
- ------------------------------
 
(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, extraordinary
    items and cumulative effect of an accounting change 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
   18
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
GENERAL
 
   
     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 November 1995,
Congress passed the 1995 Balanced Budget Act providing for, among other things,
the reshaping of the Medicare and Medicaid programs. In December 1995, President
Clinton vetoed the 1995 Balanced Budget Act and proposed alternative Medicare
and Medicaid legislation. Each of the legislative proposals offered by the
President and Congress provide for significant reductions in the overall rate of
Medicare and Medicaid spending growth. There is active discussion concerning
this proposed legislation 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 could have a material adverse
effect on the Company's future financial position, results of operations and
cash flows.
    
 
     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, 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 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
    
 
  NINE MONTHS 1995 COMPARED TO NINE MONTHS 1994
 
     Net income was $55,633,000 for the nine months ended September 30, 1995, as
compared to net income of $57,643,000 for the same period in 1994. Income before
provision for income taxes was $89,731,000 for the nine months ended September
30, 1995, as compared to $86,034,000 for the same period in 1994.
 
   
     The provision for income taxes for the nine months ended September 30, 1995
was based on an estimated annual effective tax rate of 38% for the year ended
December 31, 1995, compared to an annual effective tax rate of 33% for the year
ended December 31, 1994. The Company's annual effective tax rate in 1994 was
different than the federal statutory rate primarily due to the utilization of
certain tax credit carryforwards, partially offset by the impact of state income
taxes. On January 30, 1996, the Company released its operating results for the
year ended December 31, 1995, which included a negative annual effective tax
rate of 32%. The Company's annual effective tax rate in 1995 was different than
the federal statutory rate primarily due to the impact of non-deductible
goodwill included in the adjustments resulting from the adoption of SFAS No.
121.
    
 
                                       14
   19
 
     Net operating revenues and operating and administrative costs increased
approximately $216,400,000 and $182,700,000, respectively, for the nine months
ended September 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 nine month periods ended September 30, 1995 and 1994 ("same
facility operations") of approximately $137,600,000 and $108,300,000,
respectively; increases in net operating revenues and operating and
administrative costs of approximately $185,800,000 and $168,900,000,
respectively, related to the expanded operations of ATH and the acquisitions of
Insta-Care Holdings, Inc. ("Insta-Care") and the institutional pharmacy
subsidiaries of Synetic, Inc. ("Synetic") in late 1994 as well as Pharmacy
Management Services, Inc. ("PMSI") in mid-1995; and decreases in net operating
revenues and operating and administrative costs of approximately $107,000,000
and $94,500,000, respectively, due to the disposition of, or lease terminations
on, 28 facilities in 1995 and 77 facilities in 1994.
 
     The increase in net operating revenues for same facility operations for the
nine months ended September 30, 1995, as compared to the same period in 1994,
was due to the following: approximately $88,600,000 due primarily to increases
in Medicaid room and board rates, and to a lesser extent, private and Medicare
room and board rates; approximately $28,800,000 due to increased ancillary
revenues as a result of providing additional ancillary services to the Company's
Medicare and private-pay patients; approximately $25,000,000 due primarily to
increases in pharmacy-related revenues; and approximately $9,000,000 due to
various other items. These increases in net operating revenues were partially
offset by a decrease of approximately $13,800,000 in net operating revenues due
to a reduction in same facility occupancy to 88.6% for the nine months ended
September 30, 1995, as compared to 89.4% for the same period in 1994.
 
     The increase in operating and administrative costs for same facility
operations for the nine months ended September 30, 1995, as compared to the same
period in 1994, was due to the following: approximately $98,100,000 due to
increased wages and related expenses (excluding pharmacy) principally due to
higher wages and greater benefits required to attract and retain qualified
personnel, the hiring of therapists on staff as opposed to contracting for their
services and increased staffing levels in the Company's nursing facilities to
cover increased patient acuity; approximately $23,600,000 due to increases in
nursing supplies and other variable costs; and approximately $19,600,000 due
primarily to increases in pharmacy-related costs and various other items. These
increases in operating and administrative costs were partially offset by a
decrease of approximately $33,000,000 in operating and administrative costs due
to a reduction in contracted therapy services as a result of hiring therapists
on staff as opposed to contracting for their services.
 
     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 nine months
ended September 30, 1995 were approximately $706,500,000 and represented 29.2%
of net operating revenues, as compared to approximately $528,200,000 of
ancillary revenues for the same period in 1994 which represented 24.0% of net
operating revenues for the nine months ended September 30, 1994. The Company is
pursuing further growth of ancillary revenues through expansion of specialty
services, such as rehabilitation therapy and sales of pharmaceuticals. Due to
the Company's continuing efforts to bring therapists on staff, as opposed to
contracting for their services, and the corresponding reduction in such costs,
the overall rate of growth in ancillary revenues could be adversely impacted.
See "-- Liquidity and Capital Resources."
 
     Interest expense increased approximately $16,600,000 as compared to the
same period in 1994 primarily due to additional interest related to the issuance
of approximately $308,000,000 of long-term obligations primarily in conjunction
with certain acquisitions. Depreciation and amortization expense increased
approximately $12,900,000 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 facilities.
 
                                       15
   20
 
  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 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
 
                                       16
   21
 
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 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
 
                                       17
   22
 
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 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.
 
                                       18
   23
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At September 30, 1995, the Company had approximately $55,700,000 in cash
and cash equivalents and net working capital of approximately $245,200,000. The
Company anticipates that approximately $30,800,000 of its existing cash at
September 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
$98,600,000 of unused commitments under its Revolver/LOC Facility (as defined
herein) as of September 30, 1995.
 
     Net cash provided by operating activities for the nine months ended
September 30, 1995 was approximately $130,400,000, an increase of approximately
$43,700,000 from the prior year. Net cash used for investing and financing
activities was approximately $138,500,000 and $4,200,000, respectively, for the
nine months ended September 30, 1995. The Company primarily used cash generated
from operations to fund capital expenditures, construction and development
totaling approximately $124,600,000. The Company received cash proceeds of
approximately $15,000,000 from the dispositions of facilities and other assets
and approximately $25,000,000 from the issuance of long-term obligations. Such
proceeds, along with borrowings under the Revolver/LOC Facility (as defined
herein), were primarily used to repay approximately $35,800,000 of long-term
obligations and to fund acquisitions of approximately $30,700,000. Approximately
$22,600,000 of net cash proceeds from the sales of certain facilities and other
assets during September 1995 was received in October 1995.
 
     Pursuant to the Exchange, effective November 1, 1995, Beverly exercised its
option to exchange all of the outstanding shares of its Preferred Stock for
$150,000,000 aggregate principal amount of its Subordinated Debentures. Beverly
issued $50 principal amount of Subordinated Debentures in the 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. Had the Exchange been completed prior to January 1, 1995, the pro forma
net income per share for the three-month and nine-month periods ended September
30, 1995 would have been $0.24 and $0.56, respectively.
 
     In June 1995, Beverly completed its acquisition of PMSI in exchange for
approximately 12,400,000 shares of Beverly'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, Beverly 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.
 
   
     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. 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 (including the appointment of
Robert D. Woltil as President) and certain of its operating and pricing policies
to address these difficulties. On December 19, 1995, Beverly announced that PCA
was continuing to experience difficulties consolidating recent acquisitions and
that it would defer indefinitely plans to spin off any portion of PCA. On
January 17, 1996, the Company announced that Robert D. Woltil resigned as an
Executive Vice President of the Company and as President of PCA. A successor has
not yet been named. There can be no assurance that the PCA spin-off or any other
strategic transaction will occur.
    
 
   
     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
    
 
                                       19
   24
 
   
herein); (iii) to prepay certain scheduled maturities under the Nippon Credit
Agreement (as defined herein); and (iv) to repay short-term borrowings and 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 $59,100,000 ($26,600,000 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 September 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.
 
                                       20
   25
 
                                    BUSINESS
 
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
"-- Properties."
 
     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.
 
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.
 
     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.
 
                                       21
   26
 
     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. 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:
 
     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. Since substantially
all of the Company's facilities are Medicare certified and, as such, are
required to maintain
 
                                       22
   27
 
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.
    
 
     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 network are provided by personnel located in Fort
Smith, Arkansas.
 
                                       23
   28
 
     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.
 
                                       24
   29
 
  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 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.
 
                                       25
   30
 
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:
 


                                          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
                                                                               
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

 
     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.
 
                                       26
   31
 
     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 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.
 
                                       27
   32
 
     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:
 


                                  NURSING HOME                         TRANSITIONAL
                                   FACILITIES          ASSISTED          HOSPITALS
                                -----------------   LIVING CENTERS   -----------------
                                          TOTAL     --------------             TOTAL     PHARMACIES   HOSPICES
                                         LICENSED            TOTAL            LICENSED   ----------   --------
           LOCATION             NUMBER     BEDS     NUMBER   UNITS   NUMBER     BEDS       NUMBER      NUMBER
                                                                              
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
                                  ===      ======     ==     =====     ==        ===         ==          ==

 
                                       28
   33
 
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 November 1995,
Congress passed the 1995 Balanced Budget Act providing for, among other things,
the reshaping of the Medicare and Medicaid programs. In December 1995, President
Clinton vetoed the 1995 Balanced Budget Act and proposed alternative Medicare
and Medicaid legislation. Each of the legislative proposals offered by the
President and Congress provide for significant reductions in the overall rate of
Medicare and Medicaid spending growth. There is active discussion concerning
this proposed legislation 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 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 programs, 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 HCFA surveys for a significant number of the
Company's facilities indicate
 
                                       29
   34
 
that approximately 91% of such facilities surveyed have been determined to be in
compliance with the HCFA criteria. HCFA has reported that of all facilities
surveyed nationally (Company and non-Company), approximately 83% of such
facilities were determined to be similarly in 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 the 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 the federal courts to require states to comply with their legal
obligation to adequately fund Medicaid programs. However, 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;
therefore, there can be no assurance that nursing facility operators will be
able to utilize federal courts for such purposes in the future.
 
                                       30
   35
 
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, location, physician services and price. The Company's operations
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 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 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 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 nurse's aide shortage could force the Company to pay even
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.
 
                                       31
   36
 
                                   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
January 26, 1996.
    
 
   


                NAME                                      POSITION                       AGE
                                                                                   
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                        55
Robert W. Pommerville................    Executive Vice President, General Counsel       55
                                         and Secretary
Bobby W. Stephens....................    Executive Vice President                        51
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                                        53

    
 
- ------------------------------
 
(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.
 
                                       32
   37
 
     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. 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., 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.
 
                                       33
   38
 
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.
 
                                       34
   39
 
                          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 million and will mature on             ,
2006. 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
            , 2001. The Senior Notes will be redeemable at the option of
Beverly, in whole or in part, at any time on or after             , 2001 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:
    
 
   


                                       YEAR                                     PERCENTAGE
                                                                             
    2001......................................................................        %
    2002......................................................................
    2003......................................................................
    2004 and thereafter.......................................................     100%

    
 
     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.
 
                                       35
   40
 
     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, 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 (the "Change of Control Payment Date"). Within 30 days
following any Change of Control, 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.
    
 
     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."
 
   
     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, 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. 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
    
 
                                       36
   41
 
   
assurance that Beverly will have the financial resources to repurchase the
Senior Notes in the event of a Change of Control. 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 Cash Equivalents (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 or Cash Equivalents (but shall not be deemed to be Net
Proceeds for purposes of the following provisions until reduced to cash or Cash
Equivalents) 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 15% 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 15% or more
from Beverly's actual Debt to Consolidated Cash Flow Ratio as of such date, (iv)
PCA shall have satisfied in full all Indebtedness of PCA and its Subsidiaries to
Beverly and its Subsidiaries and (v) 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 (A) consummate the Spinoff
Transaction and (B) use up to $100 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 $100 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 foregoing
clause (B) and the following provisions when Beverly or such Subsidiary receives
cash or Cash Equivalents from a sale,
    
 
                                       37
   42
 
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 (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 Beverly is permitted to be engaged
pursuant to the covenant described below under the caption "-- Certain
Covenants -- Line of Business," (iii) to permanently reduce Indebtedness (other
than Subordinated Indebtedness) of Beverly or its Subsidiaries, (iv) 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) or (v) if such Net Proceeds are derived from the Spinoff
Transaction, use up to $100 million of the Net Proceeds of such transaction to
make Restricted Payments or for any other purpose not prohibited by the
Indenture, in accordance with the second sentence of the preceding paragraph.
Pending the final application of any such Net Proceeds, Beverly or such
Subsidiary 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):
 
                                       38
   43
 
          (a) no Default or Event of Default shall have occurred and be
     continuing or would occur as a consequence thereof; and
 
          (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 Issuance of
     Preferred Stock"; and
 
   
          (c) such Restricted Payment, together with the aggregate of all other
     Restricted Payments made by Beverly and its Subsidiaries after December 31,
     1995 (excluding Restricted Payments permitted by clauses (w), (x), (y) 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 December 31, 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 December 31, 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: (v) 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; (w) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of Beverly
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; (x) 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; (y) 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"
and (z) any Restricted Payment permitted in accordance with the provisions of
the second paragraph of the covenant entitled "Repurchase at the Option of
Holders -- Asset Sales"; provided, however, in the case of each of clauses (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.
 
                                       39
   44
 
  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, contingently 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 (other than Beverly Funding), 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 any of its 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 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 Holders -- Asset Sales" after the
     date of the Indenture;
    
 
          (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 second
paragraph 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
 
                                       40
   45
 
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.
 
  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 (other than Beverly Funding) 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 dividended 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 or entering into agreements in connection therewith that impose
restrictions on the transfer or disposition of the property or assets subject to
such 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
 
                                       41
   46
 
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,
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 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 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, or upon the dissolution of any Guarantors which sale,
disposition or dissolution 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 sale,
disposition or dissolution. 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
 
                                       42
   47
 
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 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 caption "-- 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 caption
"-- Certain Covenants -- Restricted Payments" or "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; (v)
failure by Beverly or any Guarantor for 60 days after notice to comply with any
of its 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 in excess of $20 million;
(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.
 
                                       43
   48
 
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
Senior 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.
 
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, 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
 
                                       44
   49
 
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 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 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, or (vii) make any change in
the foregoing amendment and waiver provisions.
    
 
   
     Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, Beverly, the Guarantors 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 Beverly's or any Guarantor's obligations to
Holders of Senior Notes 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 Senior Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, 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.
 
                                       45
   50
 
     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.
 
     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
"-- Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales"), 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
 
                                       46
   51
 
(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 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 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).
 
     "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.
    
 
   
     "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) 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) other non-cash items of such Person and its Subsidiaries for such period to
the extent such non-cash items 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 items
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 the 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, if positive,
of any Person that is not a Subsidiary or that is accounted for by the equity
method of
 
                                       47
   52
 
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Subsidiary thereof, (ii)
the Net Income, if positive, 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 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. In the event that such Person or any
of its Subsidiaries incurs, assumes, guarantees, redeems or repays any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the Reference Period but prior
to the Debt Ratio Calculation Date, then the Debt to Consolidated Cash Flow
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, redemption or repayment of Indebtedness, or such issuance
or redemption of preferred stock, as if the same had occurred at the beginning
of the applicable Reference Period. 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, (ii) the
Consolidated Cash Flow attributable to operations or businesses disposed of
prior to the Debt Ratio Calculation Date shall be excluded and (iii) in any
Reference Period commencing on or prior to November 1, 1995, the Exchange shall
be deemed to have occurred on the first day of such Reference Period.
 
     "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).
 
                                       48
   53
 
     "Existing Collateral" means property or assets of Beverly or its
Subsidiaries (other than Beverly Funding) that are, or since the Closing Date
have been, 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 such
Person or any of its Subsidiaries incurs, assumes, guarantees, redeems or repays
any Indebtedness (other than revolving credit borrowings) or issues or redeems
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, redemption or
repayment 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 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, (ii) the Consolidated Cash Flow and Fixed
Charges attributable to operations or businesses disposed of prior to the
Calculation Date shall be excluded and (iii) in any Reference Period commencing
on or prior to November 1, 1995, the Exchange shall be deemed to have occurred
on the first day of such Reference Period.
 
     "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; provided, however, in the event that any cash
dividend payment is deductible for federal, state and/or local tax purposes, the
amount of the tax deduction relating to such cash dividend payment for such
period shall be subtracted from the Fixed Charges for such Person for such
period.
 
     "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.
 
                                       49
   54
 
     "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 any other Person 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" 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
Beverly or any Subsidiary to the extent permitted by the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," 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).
    
 
   
     "Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, and before any reduction in
respect of preferred stock dividends, excluding, however, the effect of any
extraordinary or other material non-recurring gain or loss outside the ordinary
course of business, together with any related provision for taxes on such
extraordinary or other material non-recurring 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 or non-Cash Equivalent
consideration received by Beverly or a Subsidiary of Beverly in connection with
an Asset Sale and any non-cash or non-Cash Equivalent 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
 
                                       50
   55
 
calculated in accordance with clause (x), but not clause (y), of the proviso to
the first sentence under the caption "-- Repurchase at the Option of
Holders -- Asset Sales." 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.
 
   
     "Payment Default" means any failure to pay any scheduled installment of
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.
    
 
     "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 of acquisition thereof by Beverly or any Subsidiary of
Beverly, 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) 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; provided that such Liens do
not extend to or cover any property or assets of Beverly or any of its
Subsidiaries other than assets or property securing the Indebtedness so
refinanced or Substitute Mortgage Collateral therefor; (viii) Liens on
Substitute Mortgage Collateral; (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 on real estate and related personal property with a fair market value not
in excess of 50% of the fair market value of any Existing Collateral which has
become free and clear of all Liens securing Indebtedness since the Closing Date;
(xii) Liens of carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen and other Liens imposed by law incurred in the ordinary course of
business; (xiii) easements, rights-of-way, zoning restrictions, reservations,
encroachments and other similar encumbrances in respect of real property; (xiv)
any interest or title of a lessor under any Capitalized Lease Obligation; (xv)
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;
(xvi) 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; (xvii)
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-off; (xviii) 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
 
                                       51
   56
 
   
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; (xix) Liens securing Hedging Obligations agreements relating to
Indebtedness otherwise permitted under the Indenture; (xx) Liens securing stay
and appeal bonds or judgment Liens in connection with any judgment not giving
rise to a Default under the Indenture; (xxi) Liens on property or assets
("Substitute Liens") in substitution for Liens released on the stock of PCA and
its Subsidiaries; provided that (A) the fair market value of such property or
assets subject to such Substitute Liens (as conclusively evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) is substantially equivalent to or less than the fair
market value of the stock of PCA and its Subsidiaries, and (B) the Indebtedness
secured by such Substitute Liens is permitted by the terms of the Indenture; and
(xxii) other Liens on assets of Beverly or any of its Subsidiaries 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
$5 million.
    
 
     "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 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) if the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is a Subsidiary that is not a Guarantor, such Permitted Refinancing
Indebtedness shall only be incurred by such Subsidiary.
 
     "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 asset or
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.
 
   
     "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.
    
 
     "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
 
                                       52
   57
 
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," including,
without limitation, as a result of the Spinoff Transaction, (vii) Investments
made as the result of the guarantee by Beverly or any of its Subsidiaries of
Indebtedness of a Person or Persons other than Beverly or any Subsidiary of
Beverly that is secured by Liens on assets sold or otherwise disposed of by
Beverly or such Subsidiary to such Person or Persons; 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 Beverly or such
Subsidiary to foreclose on the pledged or mortgaged assets if Beverly or such
Subsidiary are required to perform under such guarantee and (viii) Investments
in any Related Business; 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" means 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.
 
   
     "Spinoff Transaction" means a pro rata distribution by Beverly to its
stockholders of all or a portion of the shares of PCA or a sale or other
disposition to a Person or Persons other than Beverly or a Subsidiary of Beverly
of all or a portion of the 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 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.
 
   
     "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 such 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).
    
 
     "Substitute Mortgage Collateral" means real estate and related personal
property on which Liens are created in substitution for the release of Liens on
other real estate and related personal property ("Initial Liens"); provided,
that (i) such Initial Liens were permitted by the terms of the Indenture, (ii)
the fair
 
                                       53
   58
 
   
market value of the Substitute Mortgage Collateral (as conclusively evidenced by
an Officers' Certificate delivered to the Trustee within 60 days prior to the
date of such substitution of collateral) is substantially equivalent to or less
than the fair market value of the property subject to the released Initial Liens
and (iii) the Indebtedness secured by the Liens on Substitute Mortgage
Collateral is permitted by the terms of the Indenture.
    
 
     "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.
 
                                       54
   59
 
                      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 Facility 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.
 
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.
 
                                       55
   60
 
     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 certain nursing facilities, an assisted living 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.
 
                                       56
   61
 
                                  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:
 
   


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

    
 
     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 allow, and such dealers 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 have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. 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
 
                                       57
   62
 
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 Senior 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 the Company by Robert W. Pommerville, General Counsel of the
Company. 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,
as amended, 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.
 
                                       58
   63
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

     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
 


                                                            PAGE
                                                          
                    Available Information.................    2 
                    Incorporation of Certain Documents by       
                      Reference...........................    2 
                    Prospectus Summary....................    3 
                    Risk Factors..........................    8 
                    Use of Proceeds.......................   12 
                    Capitalization........................   12 
                    Selected Historical Financial               
                      Information.........................   13 
                    Management's Discussion and Analysis        
                      of Financial Condition and Results        
                      of Operations.......................   14 
                    Business..............................   21 
                    Management............................   32 
                    Description of Senior Notes...........   35 
                    Description of Certain Indebtedness...   55 
                    Underwriting..........................   57 
                    Legal Matters.........................   58 
                    Experts...............................   58 

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


- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
   
                                  $150,000,000
    
 
                           BEVERLY ENTERPRISES, INC.
 
   
                            % SENIOR NOTES DUE 2006
    
 
                              --------------------
 
                                   PROSPECTUS

                              --------------------
 
                          DONALDSON, LUFKIN & JENRETTE
                             SECURITIES CORPORATION
 
                              MERRILL LYNCH & CO.
 
                                 STEPHENS INC.
 
                          J.P. MORGAN SECURITIES INC.
 
                            CHEMICAL SECURITIES INC.
   
                                            , 1996
    
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
   64
 
                                    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 discounts and
commissions, are as follows:
 
   
                                                                          
    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................................................     45,000
    Trustee fees and expenses.................................................     25,000
    Miscellaneous.............................................................      7,775
                                                                                 --------
              Total...........................................................   $650,000
                                                                                 ========

    
    
 
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
   65
 
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
   66
 
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
   67
 
     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
 
   
                  
           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


    
 
- ---------------
 
   
* Previously filed.
    
 
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.
 
     (c) Each of the undersigned Registrants hereby undertakes that:
 
          (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
   68
 
                                   SIGNATURES
 
   
     Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Fort Smith, State
of Arkansas on January 30, 1996.
    
 
                                            For the Registrants set forth in the
                                            facing page and on the table of
                                            additional Co-Registrants
 
                                            By:                *
                                               --------------------------------
                                                       David R. Banks
                                                   Chairman of the Board
                                                and Chief Executive Officer
                                                of Beverly Enterprises, Inc.
 
   
     Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
    
 
   


                  SIGNATURE                                 TITLE                     DATE
- ---------------------------------------------   -----------------------------   -----------------
                                                                          
                      *                         Chairman of the Board, Chief     January 30, 1996
- ---------------------------------------------   Executive Officer and    
                David R. Banks                  Director                 
                                                                         
                      *                         Senior Vice President, Acting    January 30, 1996
- ---------------------------------------------   Chief Financial Officer, 
               Scott M. Tabakin                 Controller and Chief    
                                                Accounting Officer      
                                                                        
                                                Director                         January 30, 1996
- ---------------------------------------------                            
            Beryl F. Anthony, Jr.            

                      *                         Director                         January 30, 1996
- ---------------------------------------------                            
               James R. Greene               

                      *                         Director                         January 30, 1996
- ---------------------------------------------                            
               Edith E. Holiday              

                                                Director                         January 30, 1996
- ---------------------------------------------                            
               Jon E. M. Jacoby              

                                                Director                         January 30, 1996
- ---------------------------------------------                            
            Risa J. Lavizzo-Mourey           

                      *                         Director                         January 30, 1996
- ---------------------------------------------                            
                Louis W. Menk                

                      *                         Director                         January 30, 1996
- ---------------------------------------------                            
              Marilyn R. Seymann             

                      *                         Director                         January 30, 1996
- ---------------------------------------------                            
             Boyd W. Hendrickson             

*By           JOHN W. MACKENZIE       
    -----------------------------------------                            
              John W. MacKenzie              
               Attorney-in-fact              

    
 
                                      II-5
                                      
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        


                                        
   69
 
                                 EXHIBIT INDEX
 
   


                                                                                 SEQUENTIALLY
    EXHIBIT                                                                        NUMBERED
     NUMBER                               DESCRIPTION                                PAGE
- -----------------------------------------------------------------------------------------------
                                                                         
           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................

    
 
- ---------------
 
   
* Previously filed.
    

EX-1.1

   1
                                                                     EXHIBIT 1.1


                           BEVERLY ENTERPRISES, INC.

                           ___% Senior Notes Due 2006


                             UNDERWRITING AGREEMENT


                                                               February __, 1996


DONALDSON, LUFKIN & JENRETTE
  SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER &
  SMITH INCORPORATED
STEPHENS INC.
J.P. MORGAN SECURITIES INC.
CHEMICAL SECURITIES INC.
c/o Donaldson, Lufkin & Jenrette
  Securities Corporation
  140 Broadway
  New York, New York  10005

Ladies and Gentlemen:

                 Subject to the terms and conditions herein contained, Beverly
Enterprises, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Stephens Inc., J.P. Morgan
Securities Inc. and Chemical Securities Inc.  (collectively with DLJ, the
"Underwriters") an aggregate of $150,000,000 principal amount of its ___%
Senior Notes Due 2006 (the "Securities"), which notes are irrevocably and
unconditionally guaranteed by the guarantors listed on Schedule II hereto (each
a "Guarantor" and collectively, the "Guarantors").  The Securities are to be
issued pursuant to the provisions of an Indenture to be dated as of February
__, 1996 (the "Indenture"), by and among the Company, the Guarantors and
Chemical Bank, as Trustee (the "Trustee").

                 For purposes of this agreement, the term "Securities" means
the Securities together with the guarantees (the "Guarantees") thereof by each
of the Guarantors.
   2
                 1.  Registration Statement and Prospectus.  The Company and
the Guarantors have prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission promulgated pursuant thereto (collectively, the "Act"), a
registration statement on Form S-3 (No. 33-64111), with respect to the
Securities, including a preliminary prospectus, subject to completion, relating
to the Securities.  The registration statement, as amended at the time it
becomes effective (including in each case all documents incorporated or deemed
incorporated by reference therein, if any, all financial statements and
exhibits, and the information, if any, contained in a prospectus subsequently
filed with the Commission pursuant to Rule 424(b) under the Act and deemed to
be a part of the registration statement at the time of its effectiveness
pursuant to Rule 430A of the Act) and any post-effective amendment to the
registration statement on Form S-3 and any additional registration statement
relating to the issuance of additional Securities filed pursuant to Rule 462
under the Act is hereinafter referred to as the "Registration Statement"; and
the prospectus, constituting a part of the Registration Statement at the time
it became effective, or such revised prospectus as shall be provided to the
Underwriters for use in connection with the offering of the Securities by the
Underwriters (the "Offering") that differs from the prospectus on file with the
Commission at the time the Registration Statement became effective (including,
in each case, all documents incorporated or deemed incorporated by reference
therein, if any), whether or not filed with the Commission pursuant to Rule
424(b) under the Act, is hereinafter referred to as the "Prospectus."

                 2.  Agreements to Sell and Purchase.  On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell to the Underwriters,
and the Underwriters agree, severally and not jointly, to purchase from the
Company, the Securities in the respective principal amounts set forth opposite
their names on Schedule I hereto, plus such amount as they may individually
become obligated to purchase pursuant to Section 8 hereof, at a purchase price
equal to ___% of the principal amount thereof (the "Purchase Price").



                                      2
   3
                 The yield of the Securities shall not be lower than the
maximum price recommended by DLJ acting as "qualified independent underwriter"
within the meaning of Schedule E to the By-Laws of the National Association of
Securities Dealers, Inc. (the "NASD").

                 3.  Delivery and Payment.  Delivery to you of and payment for
the Securities shall be made at 10:00 A.M., New York City time, on the third or
fourth business day (such time and date being referred to as the "Closing
Date") following the date of the initial public offering of the Securities as
advised by you to the Company, at the Office of DLJ at 140 Broadway, New York,
New York 10005, or such other place as you shall reasonably designate.  The
Closing Date and the location of delivery of, and the form of payment for, the
Securities may be varied by agreement between DLJ and the Company.             

                 The Securities in definitive form shall be registered in such
names and issued in such denominations, which shall be in increments of no less
than $1,000, as you shall request in writing not later than two full business
days prior to the Closing Date, and shall be made available to you at the
offices of DLJ (or at such other place as shall be acceptable to you) for
inspection not later than 10:00 A.M., New York City time, on the business day
next preceding the Closing Date.  The Securities shall be delivered to you on
the Closing Date with any transfer taxes payable upon initial issuance thereof
duly paid by the Company, for your respective accounts against payment of the
Purchase Price by certified or official bank check or checks payable in New
York Clearing House or similar next-day funds to the order of the Company.

                 4.  Agreements of the Company.  The Company and the
Guarantors, as applicable, agree with each of you that:

                     (a)  The Company and the Guarantors will, if the
Registration Statement has not heretofore become effective under the Act, and
if otherwise necessary or required by law, file an amendment to the
Registration Statement or, if necessary pursuant to Rule 430A of the Act, a
post-effective amendment to the Registration Statement, in each case as soon as
practicable after the execution and delivery of this Agreement, and will use
                     




                                       3
   4
their best efforts to cause the Registration Statement or such post-effective
amendment to become effective at the earliest possible time.  If the
Registration Statement has become effective and the Company and the Guarantors,
omitting from the Prospectus certain information in reliance upon Rule 430A of
the Act, elect not to file a post-effective amendment pursuant to Rule 430A of
the Act, they will file the form of Prospectus required by Rule 424(b) of the
Act within the time period specified by Rule 430A and Rule 424(b) of the Act.
The Company and the Guarantors will otherwise comply fully and in a timely
manner with the applicable provisions of Rule 424, Rule 430A and Rule 462 of
the Act.

                          (b)  The Company will advise you promptly and, if
requested by any of you, confirm such advice in writing, (i) when the
Registration Statement has become effective, if and when the Prospectus is sent
for filing pursuant to Rule 424 of the Act and when any post-effective
amendment to the Registration Statement becomes effective, (ii) of the receipt
of any comments from the Commission or any state securities commission or any
other regulatory authority that relate to the Registration Statement or
requests by the Commission or any state securities commission or any other
regulatory authority for any amendment or supplement to the Registration
Statement or any amendment or supplements to the Prospectus or for additional
information, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, or of the
suspension of qualification of the Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by the
Commission or any state securities commission or any other regulatory authority
and (iv) of the happening of any event during the period referred to in
paragraph (d), below, which makes any statement of a material fact made in the
Registration Statement untrue or which requires the making of any additions to
or changes in the Registration Statement in order to make the statements
therein not misleading or that makes any statement of a material fact made in
the Prospectus untrue or which requires the making of any addition to or change
in the Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.  The Company shall
use its best efforts to prevent the issuance of any stop order or order
suspending the qualification or





                                       4
   5
exemption of the Securities under any Federal or state securities or Blue Sky
laws, and, if at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, or any state securities
commission or any other regulatory authority shall issue an order suspending
the qualification or exemption of the Securities under any state securities or
Blue Sky laws, the Company shall use every reasonable effort to obtain the
withdrawal or lifting of such order at the earliest possible time.

                          (c)  Promptly after the Registration Statement
becomes effective, and from time to time thereafter for such period in your
reasonable judgment as a prospectus is required to be delivered in connection
with sales of the Securities by an Underwriter or a dealer, the Company will
furnish to each Underwriter and each dealer, without charge, as many copies of
the Prospectus (and of any amendment or supplement to the Prospectus) as you
may reasonably request.

                          (d)  If during such period as in your judgment you
are required to deliver a prospectus in connection with offers or sales of the
Securities by you any event shall occur as a result of which it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing as of the date the
Prospectus is delivered to an offeree or a purchaser, not misleading, or if it
is necessary to amend or supplement the Prospectus to comply with any law, the
Company and the Guarantors will promptly prepare and file with the Commission
an appropriate amendment or supplement to the Prospectus so that the statements
in the Prospectus, as so amended or supplemented, will not, in the light of the
circumstances existing as of the date the Prospectus is so delivered, be
misleading, and will comply with applicable law, and will promptly notify you
of such event and amendment or supplement and furnish to you without charge
such number of copies thereof as you may reasonably request.

                          (e)  The Company will mail and make generally
available to its security holders, as soon as practicable and for the time
period specified by Rule 158 under the Act, a consolidated earnings statement
which shall satisfy the provisions of Section 11(a) and Rule





                                       5
   6
158 of the Act and to advise you in writing when such statement has been made
available.

                          (f)  Whether or not the transactions contemplated
hereby are consummated or this Agreement is terminated, the Company will pay
and be responsible for all costs, charges, liabilities, expenses, fees and
taxes incurred in connection with or incident to (i) the preparation, printing,
filing, distribution and delivery under the Act of the Registration Statement
(including financial statements and exhibits), each preliminary prospectus, the
Prospectus and all amendments and supplements thereto, (ii) the registration
with the Commission and the issuance and delivery of the Securities, (iii) the
preparation, printing, execution, distribution and delivery of this Agreement,
the Indenture, any memoranda describing state securities or Blue Sky laws and
all other agreements, memoranda, reports, correspondence and other documents
printed, distributed and delivered in connection with the offering of the
Securities, provided, however, that fees of legal counsel to the Underwriters
for legal work concerning Blue Sky laws be limited as set forth in (f)(iv),
below, (iv) the registration or qualification of the Securities for offer and
sale under the securities or Blue Sky laws of the jurisdictions referred to in
paragraph (i), below (including, in each case, the fees and disbursements of
counsel relating to such registration or qualification and memoranda relating
thereto, which fees and disbursements of counsel shall not exceed $10,000, and
any filing fees in connection therewith), (v) furnishing such copies of the
Registration Statement (including exhibits), Prospectus and preliminary
prospectuses, and all amendments and supplements to any of them, including any
document incorporated by reference therein, as may be requested by the
Underwriters or by dealers, (vi) the filing, registration and clearance with
the National Association of Securities Dealers, Inc. (the "NASD") of the
Underwriters' compensation in connection with the offering of the Securities
(including, without limitation, any filing fees in connection therewith), (vii)
the listing of the Securities, if any, on any stock exchange or automated
quotation system, or other similar markets, (viii) the rating of the Securities
by investment rating agencies, (ix) the costs of distributing the terms of
agreement relating to the organization of the underwriting syndicate and
selling group to the members thereof by mail, telex or other means of
communication,





                                       6
   7
(x) any "qualified independent underwriter" as required by Schedule E of the
Bylaws of the NASD (including fees and disbursements of counsel for such
qualified independent underwriter, which fees and disbursements of counsel
shall not exceed $5,000) and (xi) the performance by the Company of its other
obligations under this Agreement, including (without limitation) the fees of
the Trustee, the cost of its personnel and other internal costs, the cost of
printing and engraving the certificates representing the Securities, and all
expenses and taxes incident to the sale and delivery of the Securities to the
Underwriters; provided, however, that with respect to items (i), (ii), (iii)
(except for legal fees arising from legal work concerning Blue Sky laws, which
legal fees shall be limited as set forth above), (v), (vi), (vii), (viii), (ix)
and (xi) of this paragraph (f), the Company will not be responsible for any
fees or expenses of legal counsel to the Underwriters.

                          (g)  The Company will furnish to each of the
Underwriters, without charge, two (2) copies (plus one additional copy to your
legal counsel) of the Registration Statement as first filed with the Commission
and of each amendment or supplement to it, including each post-effective
amendment and all exhibits filed therewith, and will furnish to each of the
Underwriters, such number of copies of the manually executed Registration
Statement and such number of conformed copies of the Registration Statement as
so filed and of each amendment to it, including each post-effective amendment,
as you may reasonably request.

                          (h)  The Company and the Guarantors will not file any
amendment or supplement to the Registration Statement, whether before or after
the time when it becomes effective, or make any amendment or supplement to the
Prospectus, of which you shall not previously have been advised and provided a
copy within two business days prior to the filing thereof (or such reasonable
amount of time as is necessitated by the exigency of such amendment or
supplement) or to which you shall reasonably object; and the Company and the
Guarantors will prepare and file with the Commission, promptly upon your
reasonable request, any amendment or supplement to the Registration Statement
or amendment or supplement to the Prospectus which may be necessary or
advisable in connection with the distribution of the Securities by you, and
will use





                                       7
   8
their best efforts to cause the same to become effective as promptly as
possible.

                          (i)  Prior to any public offering of the Securities,
the Company and the Guarantors will cooperate with you and your counsel in
connection with the registration or qualification of the Securities for offer
and sale by the Underwriters under the state securities or Blue Sky laws of
such jurisdictions as you may reasonably request.  The Company and the
Guarantors will continue such qualification in effect so long as required by
law for distribution of the Securities and will file such consents to service
of process or other documents as may be necessary in order to effect such
registration or qualification (provided that neither the Company nor any
Guarantor shall be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified nor to take any action that would
subject it to general consent to service of process in any jurisdiction in
which it is not now so subject).

                          (j)  The Company will timely complete all required
filings and otherwise comply fully in a timely manner with all provisions of
the Securities Exchange Act of 1934, as amended, including the rules and
regulations thereunder (collectively, the "Exchange Act"), to effect the
registration of the Securities pursuant thereto, and will file promptly all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of the Prospectus and for so
long as the delivery of a prospectus is required in connection with the offer
or sale of Securities.  The Company will cause the Securities to be listed on
the New York Stock Exchange and will use its best efforts to maintain such
listing while any of the Securities are outstanding.

                          (k)  (i)   So long as the Securities are outstanding
and whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall mail or arrange to
have mailed to the record holders of the Securities, as soon as practicable
after the Company 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





                                       8
   9
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 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Company's independent auditors 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.

                               (ii)    The Company shall mail to each of the
Underwriters, without charge, a copy of each report or such other publicly
available information furnished to holders of the Securities, or filed with the
Commission, whether or not required by law or pursuant to the Indenture, and
such other publicly available information concerning the Company and its
subsidiaries (each, a "Subsidiary" and collectively, the "Subsidiaries") as you
may reasonably request, at the same time as such reports or other information
are furnished to such holders. 

                          (l)  During the period beginning on the date of this
Agreement and continuing to and including the Closing Date, there will be no
transactions entered into by the Company or any of the Subsidiaries, except for
such transactions which either singly or in the aggregate could not have a
material adverse effect on the business, results of operations or prospects of
the Company and its Subsidiaries, taken as a whole (a "Material Adverse
Effect"), and there will be no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock.

                          (m)  The Company will not voluntarily claim, and will
actively resist any attempts to claim, the benefit of any usury laws against
the holders of the Securities.

                          (n)  The Company will use the proceeds from the sale
of the Securities in the manner described in the Prospectus under the caption
"Use of Proceeds."





                                       9
   10
                          (o)  During the period referred to in paragraph (l),
(x) the Company will not offer, sell, contract to sell or otherwise dispose of
any debt securities of the Company or the Subsidiaries or warrants, rights, or
options to purchase debt securities of the Company (other than (i) the
Securities, (ii) commercial paper issued in the ordinary course of business)
and (iii) industrial revenue bond refundings and (y) none of the Subsidiaries
will offer, sell, contract to sell or otherwise dispose of any debt securities
or warrants, rights or options to purchase debt securities (other than
commercial paper issued in the ordinary course of business), in any case
without the prior written consent of DLJ, which consent will not be
unreasonably withheld.

                          (p)  The Company and the Guarantors will use their
best efforts to do and perform all things required to be done and performed
under this Agreement by them prior to or after the Closing Date and to satisfy
all conditions precedent on their part to the delivery of the Securities.

                 5.  Representations and Warranties.  The Company and the
Guarantors represent and warrant to each Underwriter that:

                          (a)  When the Registration Statement becomes
effective, including on the date of any post-effective amendment, at the date
of the Prospectus (if different) and at the Closing Date, the Registration
Statement will comply in all material respects with the provisions of the Act,
and will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; the Prospectus and each supplement or
amendment thereto will not at the date of the Prospectus, at the date of any
such supplement or amendment and at the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the representations and
warranties contained in this paragraph (a) shall not apply to statements in or
omissions from the Registration Statement or the Prospectus (or any supplement
or amendment to them) made in reliance upon and in conformity with information
relating to any Underwriter





                                       10
   11
furnished to the Company in writing by or on behalf of such Underwriter through
DLJ expressly for use therein.  The Company and the Guarantors acknowledge for
all purposes under this Agreement (including this paragraph and Section 6
hereof) that the statements set forth in the last paragraph on the cover page
and in paragraph three and the last paragraph under the caption "Underwriting"
in the Prospectus constitute the only written information furnished to the
Company by or on behalf of any Underwriter through DLJ expressly for use in the
Registration Statement, the preliminary prospectus, or the Prospectus (or any
amendment or supplement to any of them) and that the Underwriters shall not be
deemed to have provided any information (and therefore are not responsible for
any statements or omissions) pertaining to any arrangement or agreement with
respect to any party other than the Underwriters.  When the Registration
Statement becomes effective, including at the date of any post-effective
amendment, at the date of the Prospectus and any amendment or supplement
thereto (if different) and at the Closing Date, the Indenture will have been
qualified under and will conform in all material respects to the requirements
of the Trust Indenture Act of 1939, as amended, and the rules and regulations
promulgated pursuant thereto (collectively, the "TIA").  No contract or
document of a character required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration Statement
has not been described and filed as required.

                          (b)  Each preliminary prospectus and the Prospectus,
filed as part of the Registration Statement as originally filed or as part of
any amendment or supplement thereto, or filed pursuant to Rule 424 or 430A
under the Act, complied when so filed in all material respects with the Act.

                          (c)  The documents incorporated by reference in the
Registration Statement, the Prospectus, any amendment or supplement thereto or
any preliminary prospectus, when they became or become effective under the Act
or were or are filed with the Commission under the Exchange Act, as the case
may be, conformed or will conform in all material respects with the
requirements of the Act or the Exchange Act, as applicable.





                                       11
   12
                          (d)  No action has been taken and no statute, rule,
regulation or order has been enacted, adopted or issued by any governmental
body, agency or official which prevents the issuance of the Securities,
suspends the effectiveness of the Registration Statement, prevents or suspends
the use of any preliminary prospectus or suspends the sale of the Securities in
any jurisdiction referred to in Section 4(i) hereof; no injunction, restraining
order, or order of any nature by any Federal or state court has been issued
with respect to the Company or any of the Subsidiaries which would prevent or
suspend the issuance or sale of the Securities, the effectiveness of the
Registration Statement, or the use of any preliminary prospectus or Prospectus
in any jurisdiction referred to in Section 4(i) hereof; no action, suit or
proceeding before any court or arbitrator or any governmental body, agency or
official, domestic or foreign, is pending against or, to the best of the
Company's knowledge, threatened against, the Company or any of the Subsidiaries
which, if adversely determined, would interfere with or adversely affect the
issuance of the Securities or could reasonably be expected to affect the
validity of this Agreement, the Indenture or the Securities; and the Company
and the Guarantors have complied with every request of the Commission or any
securities authority or agency of any jurisdiction for additional information
(to be included in the Registration Statement or the Prospectus or otherwise).

                          (e)  The capitalization table set forth in the
Prospectus under the caption "Capitalization" identifies in reasonable detail
as of the date specified all outstanding short-term and long-term indebtedness
and stockholders' equity of the Company and the Subsidiaries, prior to the
Offering and the Exchange (as defined in the Prospectus), pro forma to give
effect to the Exchange and pro forma as adjusted to give effect to the Offering
and the application of proceeds therefrom; and since the respective dates as of
which information is given in the Registration Statement and the Prospectus
there has been no material change in the capital stock or long-term debt of the
Company and the Subsidiaries taken as a whole.

                          (f)  The Indenture has been duly authorized by the
Company and the Guarantors and, when duly executed and delivered in accordance
with its terms, will be a valid and legally binding agreement of the Company





                                       12
   13
and the Guarantors, enforceable against the Company and the Guarantors in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity) and except to the extent that a waiver of rights under any usury laws
may be unenforceable.

                          (g)  The Securities have been duly authorized by the
Company and the Guarantors, as applicable, and, on the Closing Date will have
been duly executed by the Company and the Guarantors and will, when issued,
executed, authenticated and delivered in accordance with the Indenture and paid
for in accordance with the terms of this Agreement, constitute valid and
legally binding obligations of the Company and the Guarantors, enforceable
against the Company and the Guarantors according to their terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws affecting creditors' rights and remedies generally
and to general principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity) and except to the extent that a
waiver of rights under any usury laws may be unenforceable, will be entitled to
the benefits of the Indenture and will conform in all material respects to the
description thereof in the Prospectus.  The ranking of the Securities will be
as set forth in the Indenture and the Prospectus.

                          (h)  This Agreement has been duly authorized and
validly executed and delivered by the Company and the Guarantors and
constitutes a valid and legally binding agreement of the Company and the
Guarantors, enforceable against the Company and the Guarantors in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws affecting creditors' rights
and remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity) and except
to the extent that indemnification from liability in connection with the
Federal securities laws may be unenforceable.

                          (i)  The execution and delivery of this Agreement,
the Indenture and the Securities by the Company





                                       13
   14
and the Guarantors, as applicable, the issuance and sale of the Securities, the
performance of this Agreement and the Indenture and the consummation of the
transactions contemplated by this Agreement and the Indenture (A) will not
conflict with or constitute or result in a breach or violation of any (or an
event which, with notice or lapse of time, or both, would constitute a breach
or violation of) of the respective charters or bylaws of the Company or any of
the Guarantors or any of the terms or provisions of, or (B) will not constitute
a default or cause an acceleration of any obligation under or result in the
imposition or creation of (or the obligation to create or impose) any security
interest, mortgage, pledge, claim, lien, encumbrance or adverse interest of any
nature (each, a "Lien") with respect to, any obligation, bond, agreement, note,
debenture, or other evidence of indebtedness, or any indenture, mortgage, deed
of trust or other agreement, lease, license or instrument to which the Company
or any of the Subsidiaries is a party or by which it or any of them is bound,
or to which any properties of the Company or any of the Subsidiaries is or may
be subject, or any order of any court or governmental agency, body or official
having jurisdiction over the Company or any of the Subsidiaries or any of their
properties, or (C) will not violate or conflict with any statute, judgment,
decree, order, rule of any court, governmental agency or other body or
self-regulatory organization applicable to the Company or any of the
Subsidiaries, or any of their respective assets or properties, except, in the
case of (B) and (C), for such defaults, accelerations, Liens, violations or
conflicts which, singly or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.

                          (j)  No authorization, approval or consent or order
of, or filing with, any court or governmental body, agency or official is
necessary in connection with the transactions contemplated by this Agreement,
except such as may be required by the NASD or have been obtained and made under
the Act, the TIA or state securities or Blue Sky laws or regulations.  Neither
the Company nor any of its affiliates is presently doing business with the
government of Cuba or with any person or affiliate located in Cuba.





                                       14
   15
                          (k)  The Securities have been approved for listing on
the New York Stock Exchange, subject to official notice of issuance.

                          (l)  The Company and each of the Subsidiaries has
been duly organized, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the requisite power
and authority to carry on its business as it is currently being conducted, to
own, lease and operate its properties and, as applicable, to authorize the
offering of the Securities, to execute, deliver and perform their respective
obligations under this Agreement, the Indenture and the Securities, as
applicable, and to issue, sell and deliver the Securities, as applicable, and
each is duly qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction where the operation, ownership
or leasing of property or the conduct of its business requires such
qualification, except where the failure so to be qualified could not reasonably
be expected to have a Material Adverse Effect.

                          (m)  All of the issued and outstanding shares of
capital stock of, or other ownership interests in, each Subsidiary have been
duly authorized and validly issued, and all of the shares of capital stock of,
or other ownership interests in, each Subsidiary are owned, directly or through
Subsidiaries, by the Company.  All such shares of capital stock are fully paid
and nonassessable, and are owned free and clear of any Lien, except as set
forth in the Credit Agreement (as such term is defined in the Indenture).
There are no outstanding subscriptions, rights, warrants, options, calls,
convertible or exchangeable securities, commitments of sale, or Liens related
to or entitling any person to purchase or otherwise to acquire any shares of
the capital stock of, or other ownership interest in, any Subsidiary.

                          (n)  Neither the Company nor any of the Subsidiaries
is in violation of its respective charter or bylaws or in default in the
performance of any obligation, bond, agreement, debenture, note or any other
evidence of indebtedness, or any indenture, mortgage, deed of trust or other
contract, lease, license, permit, certificate or other instrument to which the
Company or any of the Subsidiaries is a party or by which any of them is bound,
or to which any of the property or assets





                                       15
   16
of the Company or of any of the Subsidiaries is subject, except as, singly or
in the aggregate, could not have a Material Adverse Effect.

                          (o)  Except as set forth in the Prospectus, there is
no action, suit, or proceeding before or by any court or governmental agency or
body, or arbitration board or tribunal, domestic or foreign, pending against or
affecting the Company or any of the Subsidiaries, or any of their respective
assets or properties, which is required to be disclosed in the Registration
Statement or the Prospectus, or which singly or in the aggregate would have a
Material Adverse Effect or which might materially and adversely affect the
Company's or the Guarantors' performance of their obligations pursuant to this
Agreement or the transactions contemplated hereby, and to the best of the
Company's and the Guarantors' knowledge, after such inquiry as is conducted in
the Company's and the Subsidiaries' ordinary course of business, no such
action, suit, or proceeding is contemplated or threatened, except for those
which singly or in the aggregate would not have a Material Adverse Effect.
Neither the Company nor any of the Subsidiaries is subject to any judgement,
order, decree, rule or regulation of any court, governmental authority or
arbitration board or tribunal, except for those judgements, orders, decrees,
rules or regulations which singly or in the aggregate would not have a Material
Adverse Effect.

                          (p)  Neither the Company nor any of the Subsidiaries
is in violation of any Federal, state or local laws and regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of toxic or
hazardous substances, materials or wastes, or petroleum and petroleum products
("Materials of Environmental Concern"), or the storage, disposal, transport or
handling of Materials of Environmental Concern (collectively, "Environmental
Laws"), which violation includes, but is not limited to, noncompliance with any
permits or other governmental authorizations, except where such violations
either singly or in the aggregate would not have a Material Adverse Effect; to
the best of the Company's knowledge, neither the Company nor any Subsidiary





                                       16
   17
has received any communication (written or oral), whether from a governmental
authority or otherwise, alleging any such violation or noncompliance; there is
no pending or, to the best of the Company's knowledge, threatened claim,
action, investigation or notice (written or oral) by any person or entity
alleging potential liability for investigatory, cleanup, or governmental
responses costs, or natural resources or property damages, or personal
injuries, attorney's fees or penalties relating to (x) the presence, or release
into the environment, of any Material of Environmental Concern at any location
owned or operated by the Company or any Subsidiary, now or in the past, or (y)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law (collectively, "Environmental Claims"), except as either
singly or in the aggregate would not have a Material Adverse Effect.

                          (q)  Neither the Company nor any Subsidiary is in
violation of any Federal, state or local law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable wage or hour laws that
singly or in the aggregate could reasonably be expected to have a Material
Adverse Effect.  Except as disclosed in the Prospectus, there is (A) no
significant unfair labor practice complaint pending against the Company or any
Subsidiary or, to the best knowledge of the Company, threatened against any of
them, before the National Labor Relations Board or any state or local labor
relations board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against the Company or any Subsidiary or, to the best knowledge of the
Company, threatened against any of them, and (B) no labor dispute in which the
Company or any Subsidiary is involved nor, to the best knowledge of the
Company, is any labor dispute imminent, other than routine disciplinary and
grievance matters and periodic collective bargaining contract negotiations.
The Company is in compliance in all material respects with all presently
applicable provisions of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and the regulations and published interpretations
thereunder; no "reportable event" (as defined in ERISA and the regulations and
published interpretations thereunder) has occurred with respect to any "pension
plan" (as defined in ERISA and the regulations and published interpretations





                                       17
   18
thereunder) established or maintained by the Company or any of its
Subsidiaries; the amount of "unfunded benefit liabilities" (as defined in ERISA
and the regulations and published interpretations thereunder) under all
"pension plans" does not exceed $2,000,000; neither the Company nor any of the
Subsidiaries has incurred and does not expect to incur liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Section 4971, 4975, or 4980B of the Internal Revenue
Code of 1986, as amended (the "Code"); and each "pension plan" established or
maintained by the Company that is intended to be qualified under Section 401(a)
of the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification.

                          (r)  Except as disclosed in the Prospectus and except
as singly or in the aggregate could not have a Material Adverse Effect, the
Company and each Subsidiary has good and marketable title, free and clear of
all Liens, to all property and assets described in the Registration Statement
as being owned by it and such properties and assets, in the aggregate, are in
good repair and suitable for use as so described.  All leases to which the
Company or each Subsidiary is a party are valid and binding and no default has
occurred or is continuing thereunder which singly or in the aggregate could
result in a Material Adverse Effect, and the Company and each Subsidiary enjoy
peaceful and undisturbed possession under all such leases to which any of them
is a party as lessee with such exceptions as singly or in the aggregate could
not have a Material Adverse Effect.

                          (s)  The Company and its Subsidiaries maintain
insurance at least in such amounts and covering at least such risks as is
adequate for the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in similar
businesses in similar industries.

                          (t)  The firm of accountants that has certified or
shall certify the applicable consolidated financial statements and supporting
schedule and the notes thereto of the Company filed or to be filed with the
Commission as part of the Registration Statement and the Prospectus are
independent auditors with respect to





                                       18
   19
the Company and the Subsidiaries, as required by the Act.  The consolidated
financial statements, together with related schedule and notes, set forth or
incorporated by reference in the Prospectus and the Registration Statement,
comply as to form in all material respects with the requirements of the Act and
fairly present the consolidated financial position of the Company and the
Subsidiaries at the respective dates indicated and the results of their
operations and their cash flows for the respective periods indicated, in
accordance with generally accepted accounting principles in the United States
of America ("GAAP") consistently applied throughout such periods in accordance
with Regulation S-X.  The pro forma financial statements contained in the
Registration Statement have been prepared on a basis consistent with such
historical statements, except for the pro forma adjustments specified otherwise
therein, and give effect to assumptions made on a reasonable basis and present
fairly the historical and proposed transactions contemplated to be addressed by
the preliminary prospectuses, the Prospectus and this Agreement.  The Company's
ratios of earnings to fixed charges (actual and, if any, pro forma) included in
the Prospectus under the captions "Prospectus Summary - Summary Financial
Information" and "Selected Historical Financial Information" and in Exhibit 12
to the Registration Statement have been calculated in compliance with Item
503(d) of the Commission's Regulation S-K.  The other financial and statistical
information and data included or incorporated by reference in the Prospectus
and in the Registration Statement, historical and pro forma, are accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company.

                          (u)  Subsequent to the respective dates as of which
information is presented in the Registration Statement and the Prospectus and
up to the Closing Date, (i) neither the Company nor any of the Subsidiaries has
incurred any liabilities or obligations, direct or contingent, which are
material to the Company and the Subsidiaries, taken as a whole, nor entered
into any transaction not in the ordinary course of business, except for such
transactions which, either singly or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect, (ii) there has been no decision or
judgment in the nature of litigation or arbitration that singly or in the
aggregate could have a Material Adverse





                                       19
   20
Effect, (iii) there has not been, singly or in the aggregate, any material
adverse change, or any development which could reasonably be expected to
involve a material adverse change, in the properties, facilities, plans,
business, results of operations, general affairs, management, condition
(financial or otherwise), prospects or business affairs of the Company or the
Subsidiaries, taken as a whole (any of the items set forth in clause (i), (ii),
or (iii), above, a "Material Adverse Change").

                          (v)  To the best of the Company's knowledge, all Tax
Returns (as hereinafter defined) required to be filed by the Company or any of
the Subsidiaries in any jurisdiction have been filed and all Taxes (as
hereinafter defined), including withholding Taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such entities
have been paid, other than those being contested in good faith and for which
adequate reserves have been provided or those currently payable without penalty
or interest.  All Tax Returns (as hereinafter defined) filed by the Company and
its Subsidiaries prior to the date hereof were complete and accurate in all
material respects.  No material claim for assessment or collection of Taxes is
presently being asserted against the Company or its Subsidiaries.  Furthermore,
except as disclosed to the Underwriters, the Company and its Subsidiaries are
not parties to any pending action, proceeding or investigation by any
governmental authority for the assessment or collection of Taxes, nor does the
Company have knowledge of any such threatened action, proceeding or
investigation, except as, singly or in the aggregate, could not result in a
Material Adverse Effect.  Except as disclosed to the Underwriters, to the best
of the knowledge of the Company and its Subsidiaries, no material waivers of
statutes of limitation in respect of any Tax Returns have been given by or
requested of the Company or any of its Subsidiaries, nor has the Company or any
of its Subsidiaries agreed to any extension of time with respect to a Tax
assessment or deficiency.  No material claim by any authority in a jurisdiction
where the Company or any of its Subsidiaries does not currently file a Tax
Return is pending to the effect that the Company or any of its Subsidiaries is
or may be subject to taxation by that jurisdiction.  No Liens are presently
imposed upon or asserted against any of the Company's or any of its
Subsidiaries' assets as a result of or in connection with any failure,





                                       20
   21
or alleged failure, to pay any Tax.  As of the Closing Date, the Company and
its Subsidiaries will not have any agreement, whether or not written, providing
for the payment of Tax liabilities or entitlement to refunds with any other
party.  The Company and its Subsidiaries have withheld and paid all Taxes that
in its reasonable opinion are required to be withheld in connection with any
amounts paid or owing to any employee, creditor, independent contractor or
other third party with respect to the business of the Company or its
Subsidiaries.  The unpaid income Taxes of the Company and its Subsidiaries with
respect to historical periods for which tax returns were required to be filed
by the Company and its Subsidiaries do not exceed the reserve for Tax liability
(as opposed to any reserve for deferred Taxes established to reflect temporary
differences between book and tax income) set forth on the most recent balance
sheet of the Company, as adjusted for the passage of time through the date
hereof in accordance with the past custom and practice of the Company in filing
its Tax Returns.  For purposes of this Agreement, the terms "Tax" and "Taxes"
shall mean all federal, state, local or foreign income, payroll, employee
withholding, unemployment insurance, social security, sales, use, service use,
leasing use, excise, franchise, gross receipts, value added, alternative or
add-on minimum, estimated, occupation, real and personal property, stamp,
transfer, workers' compensation, severance, windfall profits, environmental
(including taxes under Section 59A of the Internal Revenue Code of 1986, as
amended), or other tax of the same or of a similar nature, including any
interest, penalty, or addition thereto, whether disputed or not.  The term "Tax
Return" means any return, declaration, report, form, claim for refund, or
information return or statement relating to Taxes or income subject to
taxation, or any amendment thereto, and including any schedule or attachment
thereto.

                          (w)  (i)  Each of the Company and the Subsidiaries
has all certificates, consents, exemptions, orders, permits, licenses,
authorizations, or other approvals or rights (each, an "Authorization") of and
from, and has made all declarations and filings with, all Federal, state, local
and other governmental authorities, all self-regulatory organizations and all
courts and other tribunals, necessary or required, in its reasonable opinion,
to own, lease, license and use its properties and assets and to conduct its
business in the manner described





                                       21
   22
in the Prospectus in the states wherein presently operated, and such other
certifications, accreditations and eligibility to participate in specified
programs as and to the extent described in the Registration Statement and
Prospectus, including, without limitation, to the extent so described,
eligibility to participate in Medicare and Medicaid, except where failure to do
so, singly or in the aggregate, would not have a Material Adverse Effect, (ii)
each of such Authorizations, certifications, accreditations and determinations
of eligibility are valid and in full force and effect, except as singly or in
the aggregate would not have a Material Adverse Effect, (iii) the Company and
the Subsidiaries are in compliance in all respects with the terms and
conditions of all such Authorizations, certifications, accreditations and
determinants of eligibility and with the rules and regulations of the
regulatory authorities and governing bodies having jurisdiction with respect
thereto, except where failure to do so, singly or in the aggregate, would not
have a Material Adverse Effect and (iv) neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such Authorization, certification, accreditation or
determination of (except in the ordinary course of business in connection with
the receipt of a routine survey that outlines areas which require Company or
Subsidiary action to maintain compliance or to preclude such revocation or
modification) that would have a Material Adverse Effect and no such
Authorization contains any restrictions that are materially burdensome to any
of them.  The Company and the Subsidiaries possess the patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names (collectively,
"Intellectual Property") presently employed by them in connection with the
businesses now operated by them, and neither the Company nor any of the
Subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to the foregoing except as singly or in
the aggregate could not have a Material Adverse Effect.  To the best of the
Company's knowledge, the use of such Intellectual Property in connection with
the business and operations of the Company and the Subsidiaries does not
infringe on the rights of any person, except as, singly or in the aggregate,
could not have a Material Adverse Effect.





                                       22
   23
                          (x)  The Company and each of the Subsidiaries
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.

                          (y)  Neither the Company nor any of the Subsidiaries
is (i) an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended,
or (ii) a "holding company" or a "subsidiary company" of a holding company, or
an "affiliate" thereof within the meaning of the Public Utility Holding Company
Act of 1935, as amended.

                          (z)  Except as disclosed in the Prospectus, there are
no business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.

                          (aa)  Each certificate signed by any officer of the
Company or any Subsidiary and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by the Company
or such Subsidiary, as applicable, to each Underwriter as to the matters
covered thereby.

                          (ab)  Neither the Company nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any of its Subsidiaries,
has used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision of
the Foreign Corrupt Practices Act of 1977; made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment; or, to the





                                       23
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best of the Company's knowledge, is in violation of any Federal "fraud and
abuse legislation" or Federal "anti-kickback law."

                          (ac)  To the extent described in the Prospectus, all
facilities owned or operated as continuing operations by the Company or the
Subsidiaries (the "Company Facilities") (i) are certified for participation or
enrollment in the Medicare and Medicaid programs, except where failure to do
so, singly or in the aggregate, would not have a Material Adverse Effect, (ii)
have a current and valid provider contract with the Medicare and Medicaid
programs, except where failure to have such contract, singly or in the
aggregate, would not have a Material Adverse Effect, and (iii) are in
substantial compliance with the terms and conditions of participation of such
programs and have received all approvals or qualifications necessary for
capital reimbursement of the Company's assets except, in each case, where the
failure to be so certified, to have such contracts, to be in such compliance or
to have such approvals or qualifications, singly or in the aggregate, would not
have a Material Adverse Effect.  To the knowledge of the Company, the amounts
established as provisions for Medicare and Medicaid adjustments and adjustments
by any other third party payors on the financial statements of the Company and
the Subsidiaries are sufficient in all material respects to pay any amounts for
which the Company or any of the Subsidiaries may be liable.  Neither the
Company nor any of the Subsidiaries has received notice from the regulatory
authorities which enforce the statutory or regulatory provisions in respect of
the Medicare or Medicaid programs of any pending or threatened investigations,
surveys (other than routine surveys) or decertification proceedings, and
neither the Company nor any of the Subsidiaries has any reason to believe that
any such investigations, surveys or proceedings are pending, threatened or
imminent which notices or threatened actions singly or in the aggregate are
likely to have a Material Adverse Effect.

                          (ad)  Each such Company Facility is licensed by the
proper state department of health to conduct its business in substantially the
manner conducted by such Company Facility and is authorized to operate the
number of beds utilized therein.  The Company Facilities are presently in
substantial compliance with all of the





                                       24
   25
terms, conditions and provisions of such licenses.  The facilities, equipment,
staffing and operations of the Company Facilities satisfy the applicable state
licensing requirements in all material respects.

                 6.  Indemnification.

                          (a)  The Company and each of the Guarantors jointly
and severally, agree to indemnify and hold harmless (i) each of the
Underwriters and (ii) each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) any of the
Underwriters (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person"), and (iii) the respective
officers, directors, partners, employees, representatives and agents of any of
the Underwriters or any controlling person (any person referred to in clause
(i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Person")
to the fullest extent lawful, from and against any and all losses, claims,
damages, judgments, actions, costs, assessments, expenses and other liabilities
(collectively, "Liabilities"), including without limitation and as incurred,
reimbursement of all reasonable costs of investigating, preparing, pursuing or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to any Indemnified Person, directly or indirectly
caused by, related to, based upon, arising out of or in connection with any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any supplement or amendment thereto), or the
Prospectus (including any amendment or supplement thereto) or any preliminary
prospectus, or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
(in the case of the Prospectus, in light of the circumstances under which they
were made) not misleading, except insofar as such Liabilities are caused by an
untrue statement or omission or alleged untrue statement or omission that is
(x) made in reliance upon and in conformity with information relating to any of
the Underwriters furnished in writing to the Company by or on behalf of the
Underwriter through DLJ expressly for use in the Registration Statement (or any
amendment or supplement thereto) or the Prospectus (or any amendment or





                                       25
   26
supplement thereto) or any preliminary prospectus or (y) with respect to the
Underwriter from whom the person asserting the Liabilities purchased
Securities, made in any preliminary prospectus if a copy of the Prospectus (as
amended or supplemented, if the Company shall have furnished the Underwriters
with such amendments or supplements thereto on a timely basis) was not
delivered by or on behalf of such Underwriter to the person asserting the
Liabilities, if required by law to have been so delivered by the Underwriter
seeking indemnification, at or prior to the written confirmation of the sale of
the Securities, and it shall be finally determined by a court of competent
jurisdiction, in a judgment not subject to appeal or review, that the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such Liability.  The Company shall notify you promptly of the
institution, threat or assertion of any claim, proceeding (including any
governmental investigation) or litigation in connection with the matters
addressed by this Agreement which involves the Company or an Indemnified
Person.

                 The Company and each of the Guarantors, jointly and severally,
also agree to indemnify and hold harmless each Indemnified Person from and
against any and all losses, claims, damages, liabilities and judgments incurred
as a result of such Indemnified Person's connection to DLJ in its capacity as a
"qualified independent underwriter" within the meaning of Schedule E to the
By-Laws of the NASD in connection with the offering of the Securities, except
for any losses, claims, damages, liabilities and judgments resulting solely
from such Indemnified Person's willful misconduct or gross negligence.

                          (b)  In case any action or proceeding (for all
purposes of this Section 6, including any governmental investigation) shall be
brought or asserted against any of the Indemnified Persons with respect to
which indemnity may be sought against the Company or any Guarantor, such
Underwriter (or the Underwriter controlled by such controlling person) promptly
shall notify the Company in writing; provided that the failure to give such
notice shall not relieve the Company or any Guarantor of its obligations
pursuant to this Agreement, except to the extent the Company or such Guarantor
was prejudiced by such failure to provide such notice.  Upon receiving





                                       26
   27
such notice, the Company or any Guarantor shall be entitled to participate in
any such action or proceeding and to assume, at its sole expense, the defense
thereof, with counsel reasonably satisfactory to such Indemnified Person (who
shall not, except with the consent of the Indemnified Person, be counsel to the
Company or a Guarantor of the Company) and, after written notice from the
Company to such Indemnified Person of its election so to assume the defense
thereof within fifteen (15) business days after receipt of the notice from the
Indemnified Person of such action or proceeding, the Company and the Guarantors
shall not be liable to such Indemnified Person hereunder for legal expenses of
other counsel subsequently incurred by such Indemnified Person in connection
with the defense thereof, other than reasonable costs of investigation, unless
(i) the Company and the Guarantors agree to pay such reasonable fees and
expenses, or (ii) the Company fails promptly to assume such defense or fails to
employ counsel reasonably satisfactory to such Indemnified Person, or (iii) the
named parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Person and the Company or an affiliate
of the Company, and either (x) there may be one or more legal defenses
available to such Indemnified Person that are different from or additional to
those available to the Company or such affiliate or (y) a conflict may exist
between such Indemnified Person and the Company or such affiliate.  In the
event of any of clause (i), (ii) and (iii) of the immediately preceding
sentence, if such Indemnified Person notifies the Company in writing, the
Company shall not have the right to assume the defense thereof and such
Indemnified Person shall have the right to employ its own counsel in any such
action and the reasonable fees and expenses of such counsel shall be paid, as
incurred, by the Company, which shall be reimbursed to the extent that it is
ultimately determined that an Indemnified Party is not entitled to
indemnification or contribution hereunder, it being understood, however, that
the Company and the Guarantors shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions
or proceedings arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) at any time for each such Indemnified
Person; provided, however, that if indemnity may be sought pursuant to the
second paragraph





                                       27
   28
of this Section, then, in addition to such separate firm for each such
Indemnified Person, the indemnifying party shall be liable for the reasonable
fees and expenses of not more than one separate firm (in addition to any local
counsel) for each Indemnified Person that is a party to an action or proceeding
arising from DLJ's participation as a "qualified independent underwriter."  In
the case of any such separate firm for such Indemnified Person, such firm shall
be designated in writing by such Indemnified Person.  The Company and the
Guarantors shall be liable for any settlement of any such action or proceeding
effected with the Company's prior written consent, which consent will not be
unreasonably withheld, and the Company and the Guarantors agree to indemnify
and hold harmless any Indemnified Person from and against any Liabilities by
reason of any settlement of any action effected with the written consent of the
Company.  The Company and the Guarantors agree to be liable for any settlement
of any proceeding effected without its written consent if (i) such settlement
is entered into more than thirty (30) business days after receipt by the
Company of the aforesaid request for payment in respect of an indemnification
obligation pursuant hereto and (ii) the Company shall not have reimbursed the
Indemnified Person in accordance with such request prior to the date of such
settlement.  The Company and the Guarantors shall not, without the prior
written consent of each Indemnified Person, which consent shall not be
unreasonably withheld, settle or compromise or consent to the entry of any
judgment in or otherwise seek to terminate any pending or threatened action,
claim, litigation or proceeding in respect of which indemnification or
contribution may be sought pursuant hereto (whether or not any Indemnified
Person is a party thereto), unless such settlement, compromise, consent or
termination includes an unconditional release of each Indemnified Person from
all Liabilities arising out of such action, claim, litigation or proceeding.

                          (c)  Each of the Underwriters agrees, severally and
not jointly, to indemnify and hold harmless (i) the Company, (ii) each person,
if any, who controls (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act) the Company, and (iii) the Company's officers and
directors who sign the Registration Statement, to the same extent as the
foregoing indemnity from the Company to each of the Indemnified Persons, but





                                       28
   29
only with respect to claims and actions based on information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter through
DLJ expressly for use in the Registration Statement, Prospectus or preliminary
prospectus, as applicable.  In case any action or proceeding (including any
governmental investigation) shall be brought or asserted against the Company,
any of its directors, any such officer, or any such controlling person based on
the Registration Statement, the Prospectus or any preliminary prospectus in
respect of which indemnity is sought against any Underwriter pursuant to the
foregoing sentence, the Underwriter shall have the rights and duties given to
the Company (except that if the Company shall have assumed the defense thereof,
such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Underwriter), and the
Company, its directors, any such officers and each such controlling person
shall have the rights and duties given to the Indemnified Person by Section
6(b) above.

                          (d)  If the indemnification provided for in this
Section 6 is finally determined by a court of competent jurisdiction to be
unavailable to an indemnified party in respect of any Liabilities referred to
herein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such Liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other hand from the offering of the
Securities or (ii), if the allocation provided by clause (i), above, is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i), above, but also the
relative fault of the indemnifying parties and the indemnified party, as well
as any other relevant equitable considerations.  The relative benefits received
by the Company and the Guarantors, on the one hand, and any of the Underwriters
(and its related Indemnified Persons), on the other hand, shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and Guarantors bear to the total underwriting discounts and
commissions





                                       29
   30
received by such Underwriter, in each case as set forth in the Prospectus.  The
relative benefits received by the Company and the Guarantors, on the one hand,
and the "qualified independent underwriter" (and its related Indemnified
Persons), on the other hand, shall be deemed to be in the same proportion as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and the
total fee paid to the "qualified independent underwriter" in its capacity as
"qualified independent underwriter" bear to the total price to the public of
the Securities, in each case as set forth in the Prospectus.  The relative
fault of the Company and the Guarantors, on the one hand, and the Underwriter
or "qualified independent underwriter," on the other, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact related to information supplied by the Company or a Guarantor or
the Underwriter or "qualified independent underwriter" and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.  The indemnity and contribution obligations
of the Company and the Guarantors set forth herein shall be in addition to any
liability or obligation the Company and the Guarantors may otherwise have to
any Indemnified Person.

                 The Company, the Guarantors and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 6(d)
were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph.  The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, judgments, liabilities or expenses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.  Notwithstanding the provisions of this
Section 6, none of the Underwriters (and their related Indemnified Persons)
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the total underwriting discount





                                       30
   31
applicable to the Securities purchased by such Underwriter exceeds the amount
of any damages or liabilities which such Underwriter (and its related
Indemnified Persons) has otherwise been required to pay or incur by reason of
such untrue or alleged untrue statement or omission or alleged omission.  No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.  The Underwriters' obligations to
contribute pursuant to this Section 6(d) are several in proportion to the
respective aggregate principal amount of Securities purchased by each of the
Underwriters hereunder and not joint.

                 7.  Conditions of Underwriters' Obligations.  The respective
obligations of the several Underwriters to purchase any Securities under this
Agreement are subject to the satisfaction of each of the following conditions
on the Closing Date:

                          (a)  All of the representations and warranties of the
Company and the Guarantors contained in this Agreement shall be true and
correct on the Closing Date, with the same force and effect as if made on and
as of the Closing Date.  The Company and the Guarantors shall have performed or
complied with all of their obligations and agreements herein contained and
required to be performed or complied with by each of them in all material
respects at or prior to the Closing Date.

                          (b)  (i) The Registration Statement shall have become
effective (or, if a post-effective amendment is required to be filed pursuant
to Rule 430A or 462 of the Act, such post-effective amendment shall have become
effective (or, if any Securities are sold in reliance upon Rule 430A of the Act
and no post-effective amendment is so required to be filed, the form of
prospectus required by Rule 424(b) of the Act shall have been timely filed with
the Commission in accordance with Section 4(a) hereof)) on the date of this
Agreement or at such later date and time as you may approve in writing, (ii) at
the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending before or, to the best of
the knowledge of the Company, contemplated by the Commission and





                                       31
   32
every request for additional information on the part of the Commission shall
have been complied with in all material respects, and (iii) no stop order
suspending the sale of the Securities in any jurisdiction referred to in
Section 4(i) shall have been issued and no proceeding for that purpose shall
have been commenced or shall be pending or, to the best knowledge of the
Company, threatened and every request for additional information on the part of
any state securities commission has been complied with in all material
respects.

                          (c)  No action shall have been taken and no statute,
rule, regulation or order shall have been enacted, adopted or issued by any
governmental agency, body or official which would, as of the Closing Date,
prevent the issuance of the Securities; and no injunction, restraining order or
order of any nature by any court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the
Securities.  Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have been any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) of the Act.

                          (d)  (i) Since the earlier of the date hereof or the
dates as of which information is given in the Registration Statement and the
Prospectus, there shall not have been any Material Adverse Change, (ii) since
the date of the latest balance sheet included in the Registration Statement and
the Prospectus, there shall not have been any Material Adverse Change, or
development involving a prospective Material Adverse Change, in the capital
stock or debt, of the Company or any of the Subsidiaries (except for any change
resulting from the adoption or implementation of Rule 121 by the Financial
Accounting Standards Board) and (iii) the Company and the Subsidiaries shall
have no liability or obligation, direct or contingent, that is material to the
Company and the Subsidiaries, individually or in the aggregate, and which is
not disclosed in the Registration Statement and the Prospectus.





                                       32
   33
                          (e)  You shall have received a certificate of each of
(i) the Company, executed by the Chief Operating Officer and the Senior Vice
President, Controller and Chief Accounting Officer and (ii) each Guarantor,
executed by one or more officers of such Guarantor, each dated the Closing
Date, confirming, as of the Closing Date, the matters set forth in paragraphs
(a), (b), (c) and (d) of this Section 7.

                          (f)  On the Closing Date, you shall have received:

                          (1)  an opinion (satisfactory to you and your
counsel), dated the Closing Date, of Latham & Watkins, counsel for the Company,
to the effect that:

                          (i)  The Company has been duly incorporated and is
         validly existing and in good standing under the laws of the State of
         Delaware.

                          (ii) The Indenture has been duly authorized, executed
         and delivered by the Company and each Guarantor listed on Section A of
         Schedule II attached hereto (the "Section A Guarantors"), and
         (assuming due authorization, execution and delivery by the Trustee) is
         the legally valid and binding agreement of each of the Company and the
         Section A Guarantors, enforceable against the Company and the Section
         A Guarantors in accordance with its terms.

                          (iii)  The Securities, when executed and
         authenticated in accordance with the terms of the Indenture and
         delivered to and paid for by the Underwriters in accordance with the
         terms of this Agreement, will be legally valid and binding obligations
         of the Company, enforceable against the Company in accordance with
         their terms.

                          (iv)  The Guarantees have been duly authorized by
         each of the Section A Guarantors, 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 legally,
         valid





                                       33
   34
         and binding obligations of the Section A Guarantors, enforceable
         against the Section A Guarantors in accordance with their terms.

                          (v)  The Indenture has been duly qualified under the
         Trust Indenture Act.

                          (vi)  The Underwriting Agreement has been duly
         authorized, executed and delivered by the Company and each of the
         Section A Guarantors.

                          (vii)  The issuance and sale of the Securities by the
         Company and the Section A Guarantors pursuant to the Underwriting
         Agreement will not result in the violation by the Company or any
         Section A Guarantor of its Certificate of Incorporation or Bylaws or
         any federal or California or New York statute, rule or regulation
         known to such counsel to be applicable to the Company or any Section A
         Guarantor (other than federal or state securities laws, which are
         specifically addressed elsewhere herein).

                          (viii)  To the best of such counsel's knowledge, no
         consent, approval, authorization or order of, or filing with, any
         federal or California or New York court or governmental agency or body
         is required for the consummation of the issuance and sale of the
         Securities by the Company and the Section A Guarantors pursuant to the
         Underwriting Agreement, except such as have been obtained under the
         Act and such as may be required under state securities laws in
         connection with the purchase and distribution of such Securities by
         the Underwriters.

                          (ix)  Neither the Company nor any of the Subsidiaries
         is an "investment company" or a company "controlled" by an investment
         company within the meaning of the Investment Company Act of 1940, as
         amended.

                          (x)  The Registration Statement has become effective 
         under the Act and, to the best





                                       34
   35
         of such counsel's knowledge, no stop order suspending the
         effectiveness of the Registration Statement has been issued under the
         Act and no proceedings therefor have been initiated by the Commission;
         and any required filing of the Prospectus pursuant to Rule 424(b)
         under the Act has been made in accordance with Rule 424(b) and 430A
         under the Act.

                          (xi)  The Registration Statement and the Prospectus
         comply as to form in all material respects with the requirements for
         registration statements on Form S-3 under the Act, the Trust Indenture
         Act and the rules and regulations of the Commission thereunder; it
         being understood, however, that such counsel need express no opinion
         with respect to the financial statements, schedules and other
         financial and statistical data included in the Registration Statement
         or the Prospectus or with respect to the Form T-1.  In passing upon
         the compliance as to form of the Registration Statement and the
         Prospectus, such counsel may assume that the statements made and
         incorporated by reference therein are correct and complete.

                          (xii)  The statements set forth in the Prospectus
         under the headings "Description of Senior Notes," insofar as such
         statements constitute a summary of legal matters, documents or
         proceedings, are accurate in all material respects.

                          2(A)  In giving their opinion required by subsection
f(1) of this Section 7, such counsel may state that such opinion is limited as
to matters governed by the federal laws of the Unites States of America, the
laws of the States of New York and California, and the General Corporation Laws
of the State of Delaware.  In addition, such counsel shall state that it has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the Company
and the Underwriters' representatives, at which the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although such counsel need not pass





                                       35
   36
upon, and need not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus and need not have made any independent check or verification
thereof, during the course of such participation (relying as to materiality to
a large extent upon the statements of officers and other representatives of the
Company), such counsel shall state that no facts came to such counsel's
attention that caused it to believe that the Registration Statement, at the
time it became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus as of its
date contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; it being understood
that such counsel need express no belief with respect to the financial
statements, schedules and other financial and statistical data included in the
Registration Statement or the Prospectus or incorporated therein or with
respect to the Form T-1.

                 The opinions relating to the enforceability of the Indenture,
the Securities and the Guarantees, respectively, shall be subject to the
following exceptions, limitations and qualifications: (i) the effect of
bankruptcy, insolvency, reorganization, moratorium 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 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; (iv) no opinion shall be expressed concerning the enforceability of the
waiver of rights or defenses contained in Section 4.6 of the Indenture; and (v)
the manner by which the acceleration of the Securities may affect the
collectibility of that portion of the stated principal





                                       36
   37
amount thereof which might be determined to constitute unearned interest
thereon.

                          (2)(B)  You shall have received an opinion dated the
Closing Date, from Robert W. Pommerville, Esq., general counsel of the Company,
in form and substance reasonably satisfactory to you, (which may state that
such opinion is limited to matters governed by the Federal laws of the United
States of America, the laws of the State of Delaware and the laws of the State
of California) to the effect that:

                                    (i)  Each of the Company and the
         Subsidiaries is a duly incorporated and validly existing corporation
         in good standing under the laws of its respective jurisdiction of
         organization, has the requisite corporate power and authority to own,
         lease and operate its properties and to conduct its business as
         described in the Registration Statement and the Prospectus, to
         execute, deliver and perform its obligations pursuant to the Indenture
         and this Agreement and to guarantee the Securities as contemplated by
         this Agreement and is duly qualified as a foreign corporation and in
         good standing in each jurisdiction where the ownership, leasing or
         operation of property or the conduct of its business requires such
         qualification other than in jurisdictions where the failure to qualify
         would not have a Material Adverse Effect; and each of this Agreement,
         the Securities and the Indenture has been duly authorized, executed
         and delivered by the Company and the Guarantors.

                                   (ii)  The execution and delivery of this
         Agreement and the Indenture, the issuance and sale of the Securities,
         the performance by the Company and the Guarantors of their obligations
         pursuant to this Agreement and the Indenture, as applicable, and the
         consummation of the transactions contemplated by this Agreement and
         the Indenture (A) will not conflict with or result in a breach or
         violation of any of the respective charters or bylaws of the Company
         or any of the Subsidiaries or the terms or provisions of, (B) will not





                                       37
   38
         constitute a default by the Company or any Subsidiary under any
         statute, rule or regulation or to the best of such counsel's
         knowledge, any material agreement or instrument to which the Company
         or any of the Subsidiaries is a party or by which any of them is
         bound, or to which any of the assets or properties of the Company or
         any of the Subsidiaries is subject, or to the best of such counsel's
         knowledge any order of any court or governmental agency, body or
         official having jurisdiction over the Company or any of the
         Subsidiaries or any of their properties, and (C) will not result in
         the violation by the Company or any Subsidiary of any federal or state
         statute, rule or regulation known to such counsel to be applicable to
         the Company or such Subsidiary, as the case may be (other than federal
         and state securities laws), except, with respect to clauses (B) and
         (C), where such defaults or violations, either singly or in the
         aggregate, would not have a Material Adverse Effect.

                                  (iii)  To the best of such counsel's
         knowledge, no consent, approval, authorization or order of, or filing
         with, any federal or state court or governmental agency or body is
         required for the consummation of the issuance and sale, pursuant to
         this Agreement, of the Securities by the Guarantors listed in Section
         B to Schedule II attached hereto (the "Section B Guarantors"), except
         such as have been obtained under the Act and such as may be required
         under state securities laws in connection with the purchase and
         distribution of such Securities by the Underwriters.

                                   (iv)   To the best of such counsel's
         knowledge, each document filed pursuant to the Exchange Act and
         incorporated by reference in the Prospectus, at the time it was filed
         or last amended (except for financial statements, the notes thereto
         and related schedules and other financial, numerical, statistical or
         accounting data included or incorporated by reference therein or
         omitted therefrom, as to which such counsel need express no





                                       38
   39
         opinion), complied as to form to the applicable requirements of the
         Exchange Act.

                                   (v)  To the best of such counsel's
         knowledge, there is no current, pending or threatened action, suit or
         proceeding before any court or governmental agency, authority or body
         or any arbitrator involving the Company or any Subsidiary or to which
         any of their respective property is subject, which is of such a
         material nature as to be required to be disclosed in the Registration
         Statement, which is not adequately disclosed in the Prospectus.

                                   (vi)  Each of the Company and its
         Subsidiaries has such Authorizations from all regulatory or
         governmental officials, bodies and tribunals as are, in its reasonable
         opinion, necessary to own, lease and operate its respective properties
         and to conduct its business in the manner described in the Prospectus
         and such certifications, accreditations and eligibility to participate
         in specified programs as and to the extent described in the
         Registration Statement and Prospectus, including, without limitation,
         eligibility to participate in Medicare and Medicaid programs, except
         where the failure to have such Authorizations, certifications or to be
         eligible would not have a Material Adverse Effect.

                                 (vii)  To the best of such counsel's knowledge,
         except as otherwise set forth in the Prospectus, the Company and each
         of its Subsidiaries has good and marketable title, free and clear of
         all Liens, except liens for taxes not yet due and payable, to all
         property and assets described in the Registration Statement as being
         owned by it, except where failure to have such title or to be free of
         such Liens would not have a Material Adverse Effect.

                                 (viii)  All of the issued and outstanding
         shares of capital stock of, or other ownership interests in, each
         Subsidiary are owned directly or through Subsidiaries, by the





                                       39
   40
         Company, are fully paid and nonassessable, and to the best of such
         Counsel's knowledge and except as set forth in the Credit Agreement
         are owned free and clear of any Lien.

                                 (ix)  The descriptions in the Registration
         Statement and the Prospectus of statutes, legal and governmental
         proceedings, contracts and other documents and regulatory matters,
         including, without limitation, the matters described under the
         headings "Business--Governmental Regulation," "Business--Employees"
         and "Description of Certain Indebtedness" in the Prospectus, insofar
         as such statements constitute summaries of legal matters, documents or
         proceedings referred to therein are accurate in all material respects
         and fairly present the information required to be shown.

                                 (x)  To the best of such counsel's
         knowledge, there are no outstanding subscriptions, rights, warrants,
         options, calls, convertible securities, commitments of sale or Liens
         related to or entitling any person to purchase or otherwise to acquire
         any shares of the capital stock of, or other ownership interest in,
         any Subsidiary.

                          (g)  You shall have received an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom, counsel for the
Underwriters, in form and substance reasonably satisfactory to you.

                          (h)  You shall have received letters on and as of the
date hereof as well as on and as of the Closing Date (in the latter case
constituting an affirmation of the statements set forth in the former, in form
and substance satisfactory to you, from Ernst & Young LLP, independent auditors
complying with Rule 2-01 of Regulation S-X of the Commission, with respect to
the consolidated financial statements and certain financial information
contained in the Registration Statement and the Prospectus as you shall
reasonably require.

                          (i)  All corporate proceedings and other legal
matters incident to the authorization, form and validity of this Agreement, the
Securities, the Registration





                                       40
   41
Statement and the Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to Skadden, Arps, Slate, Meagher & Flom,
and such counsel shall have been furnished with such documents, in addition to
those set forth above, as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in this Section 7,
in order to evidence the accuracy, completeness and satisfaction in all
material respects of any of the representations, warranties or conditions
herein contained and to render the opinion referred to in Section 7(g).

                          (j)  Prior to the Closing Date, the Company shall
have furnished to you such further information, certificates and documents as
you may reasonably request.

                          (k)  The Company shall not have failed at or prior to
the Closing Date to perform or comply in all material respects with any of the
agreements herein contained and required to be performed or complied with by
the Company at or prior to the Closing Date.

                 8.  Effective Date of Agreement, Default and Termination.
This Agreement shall become effective upon the later of (i) the execution and
delivery of this Agreement by the parties hereto, (ii) unless the Company
intends to rely on Rule 430A of the Act, the effectiveness of the Registration
Statement, and (iii) if the Company intends to rely on Rule 430A of the Act,
the earlier of the effectiveness of a post-effective amendment filed in
compliance with Rule 430A or Rule 462 of the Act or the filing of a final
prospectus pursuant to Rule 424(b).

                 This Agreement may be terminated at any time on or prior to
the Closing Date by DLJ by notice to the Company if any of the following has
occurred: (i) subsequent to the date the Registration Statement is declared
effective or the date of this Agreement, any Material Adverse Change which, in
the judgment of DLJ, impairs the investment quality of the Securities, (ii) any
outbreak or escalation of hostilities or other national or international
calamity, crisis or emergency or material adverse change in the financial
markets of the United States or elsewhere, or any other substantial national or





                                       41
   42
international calamity or emergency if the effect of such outbreak, escalation,
calamity, crisis or emergency would, in DLJ's judgment make it impracticable or
inadvisable to market the Securities or to enforce contracts for the sale of
the Securities, (iii) any suspension or limitation of trading generally in
securities on the New York, American or Pacific Stock Exchanges, the National
Association of Securities Dealers Automated Quotation National Market, or the
over-the-counter markets or any setting of minimum prices for trading on such
exchanges or markets, (iv) any declaration of a general banking moratorium by
either Federal or New York authorities, (v) the taking of any action by any
Federal, state or local government or agency in respect of its monetary or
fiscal affairs that in DLJ's judgment has a material adverse effect on the
financial markets in the United States, and would, in DLJ's judgment, make it
impracticable or inadvisable to market the Securities to enforce contracts for
the sale of the Securities, (vi) any securities of the Company or any of the
Subsidiaries shall have been downgraded or placed on any "watch list" for
possible downgrading or reviewed for a possible change that does not indicate
the direction of the possible change by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule 436(g)(2) of
the Act, (vii) the delisting of the Common Stock from the Nasdaq-NM, NYSE or
American or Pacific Stock Exchanges, or (viii) the enactment, publication,
decree or other promulgation of any Federal or state statute, regulation, or
rule or order of any court or other governmental authority which in the
judgment of DLJ could have a Material Adverse Effect.

                 If this Agreement shall be terminated by the Underwriters
pursuant to clause (i), (vi), or (vii) of the second paragraph of this Section
8 or because of the failure or refusal on the part of the Company or any of the
Guarantors to comply in all material respects with the terms or to fulfill any
of the conditions of this Agreement, the Company agrees to reimburse you for
all reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) incurred by you.  Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has
agreed to pay pursuant to Section 4(f) hereof.  If this Agreement is terminated
pursuant to this Section 8, such





                                       42
   43
termination shall be without liability of any Underwriter to the Company or any
Guarantor.

                 If on the Closing Date any of the Underwriters shall fail or
refuse to purchase the Securities which it has agreed to purchase hereunder on
such date, and the aggregate principal amount of such Securities that such
defaulting Underwriter or Underwriters, as the case may be, agreed but failed
or refused to purchase does not exceed 10% of the total principal amount of
such Securities to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion
which the amount of Securities set forth opposite its name in Schedule I hereto
bears to the aggregate principal amount of Securities which all the
non-defaulting Underwriters, as the case may be, have agreed to purchase, or in
such other proportion as you (at your option) may specify, to purchase the
Securities that such defaulting Underwriter or Underwriters, as the case may
be, agreed but failed or refused to purchase on such date; provided that in no
event shall the aggregate principal amount of Securities that any Underwriter
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 8 by an amount in excess of one-ninth of such principal amount of
Securities without the written consent of such Underwriter.  If, on the Closing
Date any of the Underwriters shall fail or refuse to purchase the Securities,
as the case may be, and the total principal amount of Securities with respect
to which such default occurs exceeds 10% of the total amount of Securities to
be purchased on such date by all Underwriters and arrangements satisfactory to
you and the Company for the purchase of such Securities are not made within 48
hours after such default, this Agreement shall terminate without liability on
the part of the non-defaulting Underwriters and the Company, except as
otherwise provided in this Section 8.  In any such case that does not result in
termination of this Agreement, either you or the Company may postpone the
Closing Date for not longer than seven (7) days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected.  Any action taken under this
paragraph shall not relieve a defaulting Underwriter from liability in respect
of any default of any such Underwriter under this Agreement.





                                       43
   44
                 9.  Notices.  Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, to it at 5111
Rogers Avenue, Suite 40-A, Fort Smith, Arkansas 72919-0155, Attention: Robert
W.  Pommerville, with a copy to Latham & Watkins, 633 West 5th Street, Suite
4000, Los Angeles, California 90071, Attention: Gary Olson, and (b) if to any
Underwriter, to Donaldson, Lufkin & Jenrette Securities Corporation, 140
Broadway, New York, New York 10005, Attention:  Syndicate Department, and, in
each case, with a copy to Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York 10022, Attention: Mark C. Smith, or in any case to
such other address as the person to be notified may have requested in writing.

                 10.  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY, ON BEHALF OF
ITSELF AND THE GUARANTORS         , HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF
NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS
AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY
DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY
SUCH COURT.  THE COMPANY, ON BEHALF OF ITSELF AND THE GUARANTORS,  IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.

                 11. Severability.  Any determination that any provision of
this Agreement may be, or is, unenforceable shall not affect the enforceability
of the remainder of this Agreement.

                 12.  Successors.  Except as otherwise provided, this Agreement
has been and is made solely for the benefit of and shall be binding upon the
Company, the Guarantors, the Underwriters, any Indemnified Person referred





                                       44
   45
to herein and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement.  The terms "successors and assigns" shall
not include a purchaser of any of the Securities from any of the Underwriters
merely because of such purchase.

                 13.  Certain Definitions.  For purposes of this Agreement, (a)
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading and (b) "subsidiary" has the meaning set forth in Rule 405 of the
Securities Act.

                 14.  Counterparts.  This Agreement may be executed in one or
more counterparts and, if executed in one or more counterpart, the executed
counterparts shall each be deemed to be an original, not all such counterparts
shall together constitute one and the same instrument.

                 15.  Headings.  The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to effect
the meaning or interpretation of, this Agreement.

                 16.  Survival.  The indemnities and contribution provisions
and the other agreements, representations and warranties of the Company, its
officers and directors, the Guarantors and of the Underwriters set forth in or
made pursuant to this Agreement shall remain operative and in full force and
effect, and will survive delivery of and payment for the Securities, regardless
of (i) any investigation, or statement as to the results thereof, made by or on
behalf of any of the Underwriters or by or on behalf of the Company, the
officers or directors of the Company or any controlling person of the Company
or the Subsidiaries, (ii) acceptance of the Securities and payment for them
hereunder and (iii) termination of this Agreement.





                                       45
   46
                 This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.  Please confirm that the
foregoing correctly sets forth the agreement among the Company and you.


                                       Very truly yours,


                                       BEVERLY ENTERPRISES, INC.



                                       By: ________________________
                                           Name:
                                           Title:


                                       THE GUARANTORS LISTED ON
                                        SCHEDULE II HERETO
                                       By:  BEVERLY ENTERPRISES, INC.



                                       By: ________________________
                                           Name:
                                           Title:





                                       46
   47
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.

DONALDSON, LUFKIN & JENRETTE
  SECURITIES CORPORATION

MERRILL LYNCH, PIERCE FENNER
  & SMITH INCORPORATED
STEPHENS INC.
J.P. MORGAN SECURITIES INC.
CHEMICAL SECURITIES INC.

Acting on behalf of themselves

DONALDSON, LUFKIN & JENRETTE
  SECURITIES CORPORATION



By: _______________________
         Name:
         Title:





                                       47
   48
MERRILL LYNCH, PIERCE, FENNER
  & SMITH INCORPORATED



By: _______________________
     Name:
     Title:


STEPHENS INC.



By: _______________________
     Name:
     Title:



J.P. MORGAN SECURITIES INC.



By: _______________________
     Name:
     Title:



CHEMICAL SECURITIES INC.



By: _______________________
     Name:
     Title:






                                       48
   49
                                   SCHEDULE I





                                               Principal
                                                Amount
                                             ------------
                                          
                                          
Donaldson, Lufkin & Jenrette              
  Securities Corporation . . . . . . . . .   $
                                          
Merrill Lynch, Pierce, Fenner & Smith     
  Incorporated . . . . . . . . . . . . . .
                                          
Stephens Inc.  . . . . . . . . . . . . . .
                                          
J.P. Morgan Securities Inc.  . . . . . . .
                                          
Chemical Securities Inc. . . . . . . . . .
                                          
                                          
                                          
                                             ------------
         Total . . . . . . . . . . . . . .   $150,000,000






                                       49
   50
                                  SCHEDULE II

                                   GUARANTORS

SECTION A

American Transitional Hospitals, Inc.
Beverly Health and Rehabilitation Services, Inc.
Beverly Enterprises -- California, Inc.
Beverly Enterprises -- Florida, Inc.
Beverly Enterprises -- Texas, Inc.
Pharmacy Corporation of America

SECTION B

A.B.C. Health Equipment Corp.
AdviNet, Inc.
AGI-Camelot, Inc.
AGI-McDonald County Health Care, Inc.
Alliance Health Services, Inc.
Alliance Home Health Care, Inc.
Amco Medical Service, Inc.
American Transitional Care Centers of Texas, Inc.
American Transitional Care Dallas -- Ft. Worth, Inc.
American Transitional Health Care, Inc.
American Transitional Hospitals of Indiana, Inc.
American Transitional Hospitals of Oklahoma, Inc.
American Transitional Hospitals of Tennessee, Inc.
American Transitional Hospitals -- Texas Medical
  Center, Inc.
ATH -- Clear Lake, Inc.
ATH Columbus, Inc.
ATH Del Oro, Inc.
ATH Heights, Inc.
ATH Oklahoma City, Inc.
ATH Tucson, Inc.
Beverly Acquisition Corporation
Beverly Assisted Living, Inc.
Beverly Enterprises -- Alabama, Inc.
Beverly Enterprises -- Arizona, Inc.
Beverly Enterprises -- Arkansas, Inc.
Beverly Enterprises -- Colorado, Inc.
Beverly Enterprises -- Connecticut, Inc.
Beverly Enterprises -- Delaware, Inc.
Beverly Enterprises -- Distribution Services, Inc.
Beverly Enterprises -- District of Columbia, Inc.
Beverly Enterprises -- Garden Terrace, Inc.





                                       50
   51
Beverly Enterprises -- Georgia, Inc.
Beverly Enterprises -- Hawaii, Inc.
Beverly Enterprises -- Idaho, Inc.
Beverly Enterprises -- Illinois, Inc.
Beverly Enterprises -- Indiana, Inc.
Beverly Enterprises -- Iowa, Inc.
Beverly Enterprises -- Kansas, Inc.
Beverly Enterprises -- Kentucky, Inc.
Beverly Enterprises -- Louisiana, Inc.
Beverly Enterprises -- Maine, Inc.
Beverly Enterprises -- Maryland, Inc.
Beverly Enterprises -- Massachusetts, Inc.
Beverly Enterprises -- Michigan, 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 Jersey, Inc.
Beverly Enterprises -- New Mexico, Inc.
Beverly Enterprises -- North Carolina, Inc.
Beverly Enterprises -- North Dakota, Inc.
Beverly Enterprises -- Ohio, Inc.
Beverly Enterprises -- Oklahoma, Inc.
Beverly Enterprises -- Oregon, Inc.
Beverly Enterprises -- Pennsylvania, Inc.
Beverly Enterprises -- Rhode Island, Inc.
Beverly Enterprises -- South Carolina, Inc.
Beverly Enterprises -- Tennessee, Inc.
Beverly Enterprises -- Utah, Inc.
Beverly Enterprises -- Vermont, Inc.
Beverly Enterprises -- Virginia, Inc.
Beverly Enterprises -- Washington, Inc.
Beverly Enterprises -- West Virginia, Inc.
Beverly Enterprises -- Wisconsin, Inc.
Beverly Enterprises -- Wyoming, Inc.
Beverly Enterprises Japan Limited
Beverly Enterprises Medical Equipment Corporation
Beverly Enterprises Rehabilitation Corporation
Beverly Holdings I, Inc.
Beverly Manor Inc. of Hawaii
Beverly Real Estate Holdings, Inc.
Beverly REMIC Depositor, Inc.
Beverly Savana Cay Manor, Inc.
Brownstone Pharmacy, Inc.





                                       51
   52
Columbia-Valley Nursing Home, Inc.
Commercial Management, Inc.
Computran Systems, Inc.
Continental Care Centers of Council Bluffs, Inc.
DD Wholesale, Inc.
Dunnington Drug, Inc.
Dunnington Rx Services of Rhode Island, Inc.
Dunnington Rx Services of Massachusetts, Inc.
Forest City Building Ltd.
Hallmark Convalescent Homes, Inc.
Healthcare Prescription Services, Inc.
Home Medical Systems, Inc.
Hospice Preferred Choice, Inc.
Hospital Facilities Corporation
Insta-Care Holdings, Inc.
Insta-Care Pharmacy Services Corporation
Insurance Software Packages, Inc.
Kenwood View Nursing Home, Inc.
Liberty Nursing Homes, Incorporated
Medical Arts Health Facility of Lawrenceville, Inc.
Medical Health Industries, Inc.
MedView Services, Incorporated
Moderncare of Lumberton, Inc.
Nebraska City S-C-H, Inc.
Nursing Home Operators, Inc.
Omni Med B, Inc.
Petersen Health Care, Inc.
Pharmacy Corporation of America -- Massachusetts, Inc.
Pharmacy Dynamics Group, Inc.
Phymedsco, Inc.
Resource Opportunities, Inc.
Salem No. 1, Inc.
South Alabama Nursing Home, Inc.
South Dakota -- Beverly Enterprises, Inc.
Spectra Rehab Alliance, Inc.
Synergos, Inc.
Synergos -- North Hollywood, Inc.
Synergos -- Pleasant Hill, Inc.
Synergos -- Scottsdale, Inc.
Taylor County Health Facility, Inc.
TMD Disposition Company
Vantage Healthcare Corporation





                                       52

EX-4.1

   1
                                                                     EXHIBIT 4.1


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



                           BEVERLY ENTERPRISES, INC.




   
                         ______________________________
    


                                  $150,000,000

   
                          ___% SENIOR NOTES DUE 2006

    
   
                         ______________________________
    



   
                         ______________________________
    

                                   INDENTURE

   
                         DATED AS OF FEBRUARY ___, 1996
    

   
                         ______________________________
    



   
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                                 CHEMICAL BANK

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                                   AS TRUSTEE


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   2
                               TABLE OF CONTENTS

   


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ARTICLE 1    DEFINITIONS AND INCORPORATION
              BY REFERENCE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

         SECTION 1.1.      Definitions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
         SECTION 1.2.      Other Definitions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
         SECTION 1.3.      Incorporation By Reference of
                              TIA   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
         SECTION 1.4.      Rules of Construction  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23

ARTICLE 2    THE SECURITIES; OFFER TO PURCHASE
              PROCEDURES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23

         SECTION 2.1.       Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
         SECTION 2.2.       Execution and Authentication  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
         SECTION 2.3.       Registrar and Paying Agent  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
         SECTION 2.4.       Paying Agent to Hold Money in
                             Trust  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
         SECTION 2.5.       Holder Lists  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
         SECTION 2.6.       Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
         SECTION 2.7.       Replacement Securities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
         SECTION 2.8.       Outstanding Securities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
         SECTION 2.9.       Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
         SECTION 2.10.      Temporary Securities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
         SECTION 2.11.      Cancellation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
         SECTION 2.12.      Defaulted Interest  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         SECTION 2.13.      Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         SECTION 2.14.      CUSIP Number  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         SECTION 2.15.      Offer to Purchase by Application
                             of Excess Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30

ARTICLE 3    REDEMPTION   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34

         SECTION 3.1.       Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         SECTION 3.2.       Notices to Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         SECTION 3.3.       Selection of Securities to be
                             Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
         SECTION 3.4.       Notice of Redemption  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
         SECTION 3.5.       Effect of Notice of Redemption  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
         SECTION 3.6.       Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
         SECTION 3.7.       Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38


    




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ARTICLE 4    COVENANTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38

         SECTION 4.1.       Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38
         SECTION 4.2.       Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
         SECTION 4.3.       Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         SECTION 4.4.       Compliance Certificate; Notice of
                             Default  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         SECTION 4.5.       Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         SECTION 4.6.       Stay, Extension and Usury Laws  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         SECTION 4.7.       Limitations on Restricted
                             Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         SECTION 4.8.       Limitations on Dividend and
                             Other Payment Restrictions
                             Affecting Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
         SECTION 4.9.       Limitations on Incurrence of In-
                             debtedness and Issuance of Pre-
                             ferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
         SECTION 4.10.      Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  50
         SECTION 4.11.      Limitations on Transactions With
                             Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
         SECTION 4.12.      Limitations on Liens  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  54
         SECTION 4.13.      Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  54
         SECTION 4.14.      Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  57
         SECTION 4.15.      Line of Business  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  57

ARTICLE 5    SUCCESSORS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  58

         SECTION 5.1.       Limitations on Mergers, Consoli-
                             dations or Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  58
         SECTION 5.2.       Successor Corporation or Person
                             Substituted  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  59

ARTICLE 6    DEFAULTS AND REMEDIES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  60

         SECTION 6.1.       Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  60
         SECTION 6.2.       Acceleration  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62
         SECTION 6.3.       Other Remedies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  63
         SECTION 6.4.       Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  63
         SECTION 6.5.       Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  63
         SECTION 6.6.       Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  64
         SECTION 6.7.       Rights of Holders to Receive
                             Payment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  64
         SECTION 6.8.       Collection Suit by Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  65
         SECTION 6.9.       Trustee May File Proofs of Claim  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  65


    




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         SECTION 6.10.      Priorities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  66
         SECTION 6.11.      Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  66

ARTICLE 7    TRUSTEE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  67
                                                                                                                        
         SECTION 7.1.       Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  67
         SECTION 7.2.       Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  69
         SECTION 7.3.       Individual Rights of Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  70
         SECTION 7.4.       Trustee's Disclaimer  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  71
         SECTION 7.5.       Notice of Defaults  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  71
         SECTION 7.6.       Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  71
         SECTION 7.7.       Compensation and Indemnity  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  72
         SECTION 7.8.       Replacement of Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  73
         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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  75

ARTICLE 8    DISCHARGE OF INDENTURE   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  75

         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   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  82

         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



    



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ARTICLE 10   GUARANTEE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  87

         SECTION 10.1.      Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  87
         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  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  94

         SECTION 11.1.      TIA Controls  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  94
         SECTION 11.2.      Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  94
         SECTION 11.3.      Communication by Holders With
                             Other Holders  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  95
         SECTION 11.4.      Certificate and Opinion as to
                             Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  96
         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 Direc-
                             tors, Officers, Employees and
                             Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  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

EXHIBIT A    Form of Security   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   A-1


    




                                      iv
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                             CROSS-REFERENCE TABLE*

   


TRUST INDENTURE                                                                               INDENTURE
 ACT SECTION                                                                                   SECTION 
- ---------------                                                                               ---------

                                                                                          
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)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         11.3
         (c)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         11.3
313      (a)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         7.6
         (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         N.A.
         (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         7.6
         (c)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         7.6; 11.2
         (d)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         7.6
314      (a)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         4.3; 11.2
         (b)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          N.A.
         (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         11.4
         (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         11.4
         (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         N.A.
         (d)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         N.A.
         (e)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         11.5
         (f)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         N.A.
315      (a)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         7.1(ii)
         (b)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         7.5; 11.2
         (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)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         11.1
         (b)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         N.A.
         (c)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         11.1


    
   
N.A.  means not applicable.     
    

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





   7
   
                 INDENTURE dated as of February __, 1996, 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 2006 (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 or Paying Agent.
    




   8
   
                 "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 million or (b) for net proceeds in excess of $10 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.
    

   
                 "Bankruptcy Law" means title 11, U.S. Code, or any similar
federal or state law for the relief of debtors.
    

   
                 "Beverly Funding" means Beverly Funding Corporation, a
Delaware corporation, and any successor thereto.
    

   
                 "Beverly Indemnity" means Beverly Indemnity, Ltd., a Vermont
corporation, and any successor thereto.
    

                 "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.





                                      2

   9
                 "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.

                 "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 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
    





                                      3

   10
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 the Company 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 the 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.
   
    

                 "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) 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) other non-cash items of such Person and its
Subsidiaries for such period to the extent such non-cash items were deducted in
computing such Consolidated Net Income, in each case, on a consolidated basis
and determined
    





                                      4

   11
   
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 items 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 the 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 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, if positive, 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 Subsidiary thereof, (ii) the Net Income, if positive, 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





                                      5

   12
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 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 11.2 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.
    

   
                 "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
    

                 "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





                                      6

   13
   
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.  In the event that such Person or any of its Subsidiaries
incurs, assumes, guarantees, redeems or repays any Indebtedness (other than
revolving credit borrowings) or issues or redeems preferred stock subsequent to
the commencement of the Reference Period but prior to the Debt Ratio
Calculation Date, then the Debt to Consolidated Cash Flow Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee,
redemption or repayment of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the applicable
Reference Period.  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, (ii) the Consolidated
Cash Flow attributable to operations or businesses disposed of prior to the
Debt Ratio Calculation Date shall be excluded and (iii) in any Reference Period
commencing on or prior to November 1, 1995, the Exchange shall be deemed to
have occurred on the first day of such Reference Period.
    

                 "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" means the exchange of the Company's $2.75
Cumulative Convertible Exchangeable Preferred Stock, $1 par value, for the
Company's 5 1/2% Convertible Subordinated Debentures due August 1, 2018,
consummated on November 1, 1995.
    

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





                                      7

   14
                 "Excluded Guarantee Subsidiary" shall have the meaning
specified in Section 10.3.

   
                 "Existing Collateral" means property or assets of Beverly or
its Subsidiaries (other than Beverly Funding) that are, or since the Closing
Date have been, subject to one or more Permitted Liens.
    

                 "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 such Person or any of its Subsidiaries incurs, assumes, guarantees,
redeems or repays any Indebtedness (other than revolving credit borrowings) or
issues or redeems 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, redemption or repayment 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 Reference Period, (ii)
the Consolidated Cash Flow and Fixed Charges attributable to operations or
businesses disposed of prior to the Calculation Date shall be excluded and
(iii) in any Reference Period commencing on or prior to November 1, 1995, the
Exchange shall be deemed to have occurred on the first day of such Reference
Period.
    

                 "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





                                      8

   15
   
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; provided, however, in the
event that any cash dividend payment is deductible for federal, state and/or
local tax purposes, the amount of the tax deduction relating to such cash
dividend payment for such period shall be subtracted from the Fixed Charges for
such Person for such period.
    

   
                 "Future Subsidiary Guarantor" shall have the meaning specified
in Section 10.3.
    

                 "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.





                                      9

   16
   
                 "Guarantors" means (i) the Subsidiaries designated as such on
the signature pages hereof, and their successors and assigns and (ii) Future
Subsidiary Guarantors that became Guarantors pursuant to the terms of this
Indenture, but excluding Beverly Funding and Beverly Indemnity, 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 any other Person
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.





                                      10

   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
Section 4.9 hereof, 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.
    

   
                 "Legal Holiday" means 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.
    

                 "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).

                 "Maturity Date" means, when used with respect to any Security,
the date specified on such Security as





                                      11

   18
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, and before any
reduction in respect of preferred stock dividends, excluding, however, the
effect of any extraordinary or other material non-recurring gain or loss
outside the ordinary course of business, together with any related provision
for taxes on such extraordinary or other material non-recurring 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 or non-Cash
Equivalent consideration received by the Company or a Subsidiary of the Company
in connection with an Asset Sale and any non-cash or non-Cash Equivalent
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
    





                                      12

   19
   
received in connection with such Asset Sale calculated in accordance with
clause (x), but not clause (y), of the proviso to the first sentence in Section
4.10 hereof.  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 or any
Subsidiary, as the case may be.
    

                 "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 principal on any Indebtedness within the grace period provided
for such payment in the documentation governing such Indebtedness.
    





                                      13

   20
   
                 "PCA" means Pharmacy Corporation of America, a California
corporation, and its successors.
    

   
                 "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) 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;
provided that such Liens do not extend to or cover any property or assets of
the Company or any of its Subsidiaries other than assets or property securing
the Indebtedness so refinanced or Substitute Mortgage Collateral therefor;
(viii) Liens on Substitute Mortgage Collateral; (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 on real estate and related personal property with a
fair market value not in excess of 50% of the fair market value of any Existing
Collateral
    





                                      14

   21
   
which has become free and clear of all Liens securing Indebtedness since the
Closing Date; (xii) Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the ordinary
course of business; (xiii) easements, rights-of-way, zoning restrictions,
reservations, encroachments and other similar encumbrances in respect of real
property; (xiv) any interest or title of a lessor under any Capitalized Lease
Obligation; (xv) 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; (xvi) Liens securing reimbursement obligations with
respect to letters of credit (whether or not issued under the Credit Agreement)
otherwise permitted hereunder and issued in connection with the purchase of
inventory or equipment by the Company or any Subsidiary in the ordinary course
of business; (xvii) 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; (xviii) Liens
securing Acquired Debt or acquisition Indebtedness otherwise permitted
hereunder; 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;
(xix) Liens securing Hedging Obligations agreements relating to Indebtedness
otherwise permitted under the Indenture; (xx) Liens securing stay and appeal
bonds or judgment Liens in connection with any judgment not giving rise to a
Default hereunder; (xxi) Liens on property or assets ("Substitute Liens") in
substitution for Liens released on the stock of PCA and its Subsidiaries;
provided that (A) the fair market value of such property or assets subject to
such Substitute Liens (as conclusively evidenced by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the Trustee) is
substantially equivalent to or less than the fair market value of the stock of
PCA and its Subsidiaries, and (B) the Indebtedness secured by such Substitute
Liens is permitted by the terms hereof;
    





                                      15

   22
   
and (xxii) other Liens on assets of the Company or any of its Subsidiaries
securing Indebtedness that is permitted hereunder to be outstanding having an
aggregate principal amount at any one time outstanding not to exceed $5
million.
    

   
                 "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 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) if the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is a Subsidiary that is not
a Guarantor, such Permitted Refinancing Indebtedness shall only be incurred by
such Subsidiary.
    

   
                 "Person" means an individual, corporation, partnership,
limited liability company, 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
    





                                      16

   23
   
asset or 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 the Company other than Redeemable Stock of the Company.
   
    

                 "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 Securities 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.





                                      17

   24
                 "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 determination is to be made
pursuant to the terms of the Securities or this 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) with direct responsibility for the
administration of this Indenture 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 including, without limitation, as a result of
    





                                      18

   25
   
the Spinoff Transaction, (vii) Investments made as the result of the guarantee
by the Company or any of its Subsidiaries of Indebtedness of a Person or
Persons other than the Company or any Subsidiary of the Company that is secured
by Liens on assets sold or otherwise disposed of by the Company or such
Subsidiary to such Person or Persons; 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, and (viii) Investments in any Related
Business; provided, however, that a merger of another Person with or into the
Company or a Guarantor shall not be deemed to be a Restricted Investment so
long as the surviving entity is the Company or a direct wholly owned Guarantor.
    

   
                 "S&P" means Standard & Poor's, a division of The McGraw Hill
Companies, and its successors.
    

                 "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.
   
    

   
                 "Spinoff Transaction" means a pro rata distribution by the
Company to its stockholders of all or a portion of the shares of PCA or a sale
or other disposition to a Person or Persons other than the Company or a
Subsidiary of the Company of all or a portion of the 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





                                      19

   26
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 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.
    

   
                 "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 such 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).
    

   
                 "Substitute Mortgage Collateral" means real estate and related
personal property on which Liens are created in substitution for the release of
Liens on other real estate and related personal property ("Initial Liens");
provided, that (i) such Initial Liens were permitted hereunder, (ii) the fair
market value of the Substitute Mortgage Collateral (as conclusively evidenced
by an Officers' Certificate delivered to the Trustee within 60 days prior to
the date of such substitution of collateral) is substantially equivalent to or
less than the fair market value of the property subject to the released Initial
Liens and (iii) the Indebtedness secured by the Liens on Substitute Mortgage
Collateral is permitted hereunder.
    

   
                 "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;
provided,
    





                                      20

   27
   
however, that, in the event the Trust Indenture Act  of 1939 is amended after
such date, "TIA" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939, as so amended.
    

                 "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.

                 "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.





                                      21

   28
                 SECTION 1.2.  Other Definitions.

   


                                                                                DEFINED IN
         TERM                                                                     SECTION  
         ----                                                                   -----------
                                                                              
         "Affiliate Transaction"  . . . . . . . . . . . . . . . . . .            4.11
         "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
         "Event of Default" . . . . . . . . . . . . . . . . . . . . .            6.1
         "Excess Proceeds"  . . . . . . . . . . . . . . . . . . . . .            4.10
         "Guarantee"  . . . . . . . . . . . . . . . . . . . . . . . .            10.1
         "incur"  . . . . . . . . . . . . . . . . . . . . . . . . . .            4.9
         "Legal Defeasance" . . . . . . . . . . . . . . . . . . . . .            8.2
         "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

    

                 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 Indenture;
    

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





                                      22

   29
   
                 "Obligor" on the Securities means the Company, any Guarantor
                 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;

   
                 (5)      provisions apply to successive events and
                          transactions;
    

   
                 (6)      "herein," "hereof," "hereunder" and other words of
                          similar import refer to this Indenture as a whole (as
                          amended or supplemented from time to time) and not to
                          any particular Article, Section or other subdivision;
                          and
    

   
                 (7)      references to sections of or rules under the
                          Securities Act or the Exchange Act shall be deemed to
                          include substitute, replacement and successor
                          sections or rules adopted by the Commission from time
                          to time.
    


                                   ARTICLE 2
                  THE SECURITIES; OFFER TO PURCHASE PROCEDURES

                 SECTION 2.1.  Form and Dating.





                                      23

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                 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.  The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and to the
extent applicable, the Company, the Guarantors and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.  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.

   
                 Two Officers 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, from time to time, 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 2.8 hereof.
    





                                      24

   31
                 The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities.  Unless limited by the terms of such
appointment, an authenticating 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, from time to time, 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 or 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 or 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.





                                      25

   32
                 On or prior to the due date of principal of, premium, if any,
and interest on any Securities, the 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 all 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





                                      26

   33
   
exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to 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.
    

   
                 Neither the Company nor the Registrar shall be required to (i)
issue, register the transfer of, or exchange Securities during a period
beginning at the opening of business 15 days before the day of any selection of
Securities for redemption under Section 3.2 hereof and ending at the close of
business on the day of selection, (ii) register the transfer of, or exchange
any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part, or (iii) 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 a  transfer of
any Security, the Trustee, any Agent, the Company and any agent of the
foregoing 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
(provided, that defaulted interest shall be paid as set forth in Section 2.12
hereof), and neither the Trustee, any Agent nor the Company shall be affected
by notice to the contrary.
    

                 SECTION 2.7.  Replacement Securities.





                                      27

   34
   
                 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, upon written
request of the Holder thereof, 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 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 and shall be entitled to all of the benefits of this Indenture equally
and proportionally with all other Securities duly issued hereunder.
    

                 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 (or its agent),
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 (as such term is
defined in Section 8-302 of the Uniform Commercial Code as in effect in the
State of New York).
    

                 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.





                                      28

   35
                 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.

                 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, Holders
of temporary Securities shall be entitled to all of the rights, benefits and
privileges  of this Indenture.
    

                 SECTION 2.11.  Cancellation.

   
                 The Company at any time may deliver Securities to the Trustee
(or its agent) for cancellation.  The Registrar and Paying Agent shall forward
to the Trustee any Securities surrendered to them for registration of transfer,
exchange or payment.  The Trustee (or its agent) shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall destroy such cancelled Securities unless the Company
otherwise directs.  The Company may not issue new Securities to replace
Securities that it
    





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has paid or that have been delivered to the Trustee (or its agent) 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, upon
written request of the Company, the Trustee, in the name of and at the expense
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.





                                      30

   37
                 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 10 days following the date on which the
aggregate amount of Excess Proceeds exceeds $25 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 such Senior
Asset Sale Offer on a date no later than 20 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
the extent required by applicable law (as so extended, the "Offer Period").  No
later than three Business Days 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 shall cause to be sent 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
    





                                      31

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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 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;





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                 (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 decision 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;





                                      33

   40
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.


                                   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 _______ __, 2001.  On or after ______ __, 2001, 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 hereof) 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





                                      34

   41
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 period 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.
    

   
                 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, by a method that complies with the requirements of
any exchange on which the Securities are listed 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 or cause to be mailed 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
    





                                      35

   42
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 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 upon cancellation of the
         original Security;
    





                                      36

   43
                                  (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.

                 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 Trustee or 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 Trustee or
    





                                      37

   44
   
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 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 issue and the Trustee shall authenticate and deliver to the
Holder, at the expense of the Company, 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 Trustee or the Paying
Agent, if other than the Company or a Subsidiary of the Company, holds as of
10:00 a.m. New York City Time on the due date money deposited by the Company in
immediately available funds and designated
    





                                      38

   45
   
for and sufficient to pay all principal, premium, if any, and interest then
due.  The Trustee or such Paying Agent shall return to the Company, no later
than three days following the date of payment, any money  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.

                 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 or 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.





                                      39

   46
                 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 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
a "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.





                                      40

   47
   
                 (a)  The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate complying with
Section 314(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 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.





                                      41

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                 (c)  The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming
actually aware of any Default or Event of Default, an Officers' Certificate
specifying such 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.

    
   

                 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,





                                      42

   49

    
   
(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 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 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 December 31, 1995
                          (excluding Restricted Payments permitted by clauses
                          (ii), (iii), (iv) and (v) of the next succeeding
                          paragraph), is less than the sum
    





                                      43

   50
   
                          (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 December 31,
                          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 Consolidated 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 December 31, 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
                          hereof 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 (4) $20 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





                                      44

   51
                            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 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 (1) 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 (2) 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; and
    

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

   
provided, however, in the case of each of clauses (ii), (iii), (iv) and (v) of
this paragraph, no Default or
    





                                      45

   52
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, 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 (other than a
consensual Transfer Restriction with respect to Beverly Funding), except for
such Transfer Restrictions existing under or by reason of:
    

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

                 (b)      this Indenture,

                 (c)      applicable law,

   
                 (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 dividended to the Company
    





                                      46

   53
                          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 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 or entering into agreements in
connection therewith that impose restrictions on the transfer or disposition of
the property or assets subject to such 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





                                      47

   54
   
hereof any Indebtedness (including Acquired Debt) and the Company will not
permit any of its Subsidiaries (other than Beverly Funding) 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
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 provision shall not apply to:
    

   
                 (a)      the incurrence by the Company or any of its
                          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 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 the date of this
                          Indenture;
    

                 (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,





                                      48

   55
                          without limitation, Existing Indebtedness);

   
                 (d)      the incurrence by the Company or any of its
                          Subsidiaries of intercompany Indebtedness between or
                          among the Company and any of its Subsidiaries;
                          provided that in the case of such Indebtedness of the
                          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
                          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,
    





                                      49

   56
   
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness permitted by the second paragraph of this
covenant, the Company 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.
    

                 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 Cash Equivalents (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 or Cash Equivalents (but shall not be deemed
to be Net Proceeds for purposes of the following provisions until reduced to
    





                                      50

   57
   
cash or Cash Equivalents) and (y) the fair market value of any Non-Cash
Consideration received by the Company 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' 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 the Company or any of
its Subsidiaries since the date hereof in all Non-Qualified Asset Sales does
not exceed 6% of the Company'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 15% 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 15% or more from the
Company's actual Debt to Consolidated Cash Flow Ratio as of such date, (iv) PCA
shall have satisfied in full all indebtedness of PCA and its Subsidiaries to
Beverly and its Subsidiaries and (v) 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,
    





                                      51

   58
   
the Company shall be entitled to (A) consummate the Spinoff Transaction and (B)
use up to $100 million of the Net Proceeds of such transaction to make
Restricted Payments or for any other purpose not prohibited by this Indenture;
provided that (x) any Net Proceeds in excess of $100 million shall be applied
in accordance with the following provisions and (y) all Non-Cash Consideration
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 foregoing clause (B)
and 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 permanently reduce Indebtedness
(other than Subordinated Indebtedness) of the Company or its Subsidiaries, (iv)
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 hereof to reduce
Senior Revolving Debt without a corresponding reduction in commitments with
respect thereto) or (v) if such Net Proceeds are derived from the Spinoff
Transaction, use up to $100 million of the Net Proceeds of such transaction to
make Restricted Payments or for any other purpose not prohibited by this
Indenture, in accordance with the second sentence of the preceding paragraph.
Pending the final application of any such Net Proceeds, the Company or such
Subsidiary 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
    





                                      52

   59
   
amount of Excess Proceeds exceeds $25 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 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 million, a resolution of the Board of Directors
set forth in
    





                                      53

   60
   
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 aggregate consideration in
excess of $10 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
officer indemnification agreements or employee or director 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, 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 (the "Change of Control
Payment Date").
    





                                      54

   61
   
                 Within 45 days following any Change of Control, the Company
shall mail or cause to be mailed 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 at least the close of business on
the third Business Day preceding the Change of Control Payment Date.  The
notice, which shall govern the terms of the Change of 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 Securities
                          tendered will be accepted for payment;

   
                 (2)      the Change of Control Payment and the Change of
                          Control Payment Date, which date shall be no earlier
                          than 30 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;





                                      55

   62
   
                 (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 third 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 purchase, 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 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





                                      56

   63
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.

   
                 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.
    

                 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.





                                      57

   64
                                   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
properties or assets in one or more related transactions, to another Person
unless:
    

   
                 (i)        the Company is the surviving corporation 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 Person formed by or surviving any such
                            consolidation or merger (if other than the Company)
                            or the 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 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
    





                                      58

   65
   
                            immediately preceding the transaction and (B)
                            shall, 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 Section 4.9 hereof.
    

   
                 The Company shall deliver to the Trustee prior to the
consummation of the proposed transaction an Officers' Certificate covering
clauses (i) through (iv) above and an Opinion of Counsel covering clauses (i)
and (ii) above, and each 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 or Person 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 or Person 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 or Person and not to the Company), and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor corporation or Person had been named as the Company, herein.
    





                                      59

   66
                                   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;

   
                 (iii)        failure by the Company or any Guarantor to comply
                              with the provisions of Section 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 Section 4.7 or 4.9 hereof;
    

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





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                              the principal amount of any other such
                              Indebtedness under which there has been a Payment
                              Default or that has been so accelerated,
                              aggregates in excess of $20 million;
    

   
                 (vii)        failure by the Company or any of its Significant
                              Subsidiaries to pay a final judgment or judgments
                              aggregating in excess of $20 million entered by a
                              court or courts of competent jurisdiction against
                              the Company or such Significant Subsidiaries,
                              which judgment or judgments are not paid,
                              discharged or stayed for a period of 60 days;
    

   
                 (viii)       any Guarantee shall cease, for any reason not
                              permitted by this 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;
    

                 (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,

                              (c) consents to the appointment of a Custodian of
                                  it or for all or substantially all of its
                                  property,

                              (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





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                 (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

   
                              (c) orders the liquidation of the Company or any
                                  Significant Subsidiary thereof, and the order
                                  or decree remains unstayed and in effect for
                                  60 consecutive days.
    

                 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





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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.
   
    

                 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 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 exercising any remedy
    





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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 Securities 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
                                outstanding 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





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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 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 that 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
    





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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.
    

                 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 any, 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





                                      66

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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.


                                   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





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                                      to the Trustee and conforming to the
                                      requirements of this Indenture.  However,
                                      in the case of any 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 action, 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 in 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





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                              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.

   
                 (vii)        The Trustee shall not be charged with knowledge
                              of any Default or Event of Default with respect
                              to the Securities unless either (1) a Responsible
                              Officer shall have actual knowledge of such
                              Default or Event of Default or (2) written notice
                              of such Default or Event of Default shall have
                              been given to the Trustee by the Company, any
                              Guarantor or any other obligor on the Securities
                              or by any Holder of the Securities.
    

                 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





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   76
                              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 shall be sufficient if
                              signed by an Officer of the Company.

   
                 (vi)         The Trustee shall not be charged with knowledge
                              of any Default or Event of Default with respect
                              to the Securities unless either (1) a Responsible
                              Officer shall have actual knowledge of such
                              Default or Event of Default or (2) written notice
                              of such Default or Event of Default shall have
                              been given to the Trustee by the Company, any
                              Guarantor or any other obligor on the Securities
                              or by any Holder of the Securities.
    

                 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.





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                 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 such Default or Event of
Default 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.
    

                 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).
    





                                      71

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                 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 in accordance with TIA
Section 313(d).  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
reasonable compensation for its acceptance of this Indenture and services
rendered by it hereunder. 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 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.





                                      72

   79
                 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 payment 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 resignation
or removal of the Trustee and 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:

                 (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,





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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 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





                                      74

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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.


                                   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





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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 herein, 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 Guarantors shall be
released from their respective obligations under the covenants contained in
Sections 2.15, 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14 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
    





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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.

                 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





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                              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 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





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                              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 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 Indenture) 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.





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                 (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 or with the intent of
                              defeating, hindering, delaying or defrauding
                              creditors of the Company or others.
    

   
                 (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 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





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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 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





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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 principal 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.

   
                 Notwithstanding Section 9.2 hereof, the Company, the
Guarantors 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, consolidation or sale of
                              assets pursuant to Section 10.4 hereof;
    

                 (v)          to provide for additional Guarantors of the
                              Securities;





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                 (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;

                 (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 amended or
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 amended or 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 amended or 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





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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 amended or
supplemental indenture, and upon 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 and the Guarantors in the execution of
such amended or supplemental indenture unless such amended or 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 amended or 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 any such supplemental indenture or
waiver.  Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority in
aggregate principal amount of the Securities then outstanding may waive
compliance in a particular instance by the Company or any Guarantor 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;





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                 (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 least a majority in 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; or
    

   
                 (vii)        make any change in this sentence of this Section
                              9.2.
    

   
                 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, supplement 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, supplement or amendment becomes
effective.  An amendment waiver, or supplement 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, supplement
or waiver.  If the Company fixes a record date, the record date shall be
    





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fixed at (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.

   
                 If a record date is fixed, then notwithstanding the last
sentence of the immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to consent to such amendment or waiver or revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date.
    

   
                 After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless such amendment, supplement or waiver makes a
change described in any of clauses (i) through (vii) of Section 9.2, in which
case, the amendment, supplement or waiver shall bind only each Holder of a
Security who has consented to it and every subsequent Holder of a Security or
portion of a Security that evidences the same indebtedness as the consenting
Holder's Security.
    

                 SECTION 9.5.  Notation on or Exchange of Securities.

   
                 The Trustee may place an appropriate notation about an
amendment, supplement 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, supplement or waiver.
    

   
                 Failure to make the appropriate notation or issue a new
Security shall not affect the validity and effect of such amendment, supplement
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 or supplemental
indenture 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
    





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entitled to receive and, subject to Section 7.1, shall be fully protected in
relying upon, in addition to the documents required by Section 11.4, 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. Neither the Company nor
any Guarantor may sign such amendment or supplemental indenture until its 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 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, in accordance with the terms of this Indenture and the
Securities:  (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 payment obligations of the Company to
the Holders or the Trustee under this Indenture or the Securities will be
promptly paid in full; 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
    





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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 Securities 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 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 hereof).  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 hereof) 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 hereof).  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,
    





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(i) the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article 6 hereof 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 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





                                      89

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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 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 of the Company or any Guarantor 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
    





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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
hereof; and, within 60 days of the date of such occurrence, such Future
Subsidiary Guarantor shall execute and deliver to the Trustee a supplemental
indenture, which shall be in a form satisfactory to the Trustee, making such
Future Subsidiary Guarantor a party to this Indenture; provided, however, that
the foregoing provisions shall not apply to (A) any 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 hereof (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 hereof, 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 hereof, or (D)
Beverly Funding, Beverly Indemnity or any of their respective successors.
    

   
                 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 hereof) 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





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of a Guarantor are sold or conveyed, the Guarantees of such Guarantor (as set
forth in Section 10.1 hereof) 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 hereof, 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 a 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 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, or
upon the dissolution of any Guarantor, which sale, disposition or dissolution
is otherwise in compliance
    





                                      92

   99
   
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 sale, disposition or dissolution.
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.
    

                 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,





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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.


                                   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),
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 72919-0155
                 Telecopier No.:  (501) 452-3760
                 Attention:  Secretary
    

   
                 With, in the case of notices delivered in connection with 
                 Section 6.1 hereof, a copy to:
    

                 Latham & Watkins
                 633 West Fifth Street
                 Suite 4000
                 Los Angeles, California 90071
                 Telecopier No.:  (213) 891-8763
                 Attention:  Gary Olson





                                      94

   101
                 If to the Trustee:

   
                 Chemical Bank
                 Corporate Trust Department - 15th Floor
                 450 West 33rd Street
                 New York, New York 10001
                 Telecopier No.:  (212) 946-7799
                 Attention:   Vice President-Corporate Trustee
                              Administration
    

   
                 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 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





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   102
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:

                 (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





                                      96

   103
                 (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.

                 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.

   
                 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 Stockholders.
    

   
                 No director, officer, employee, incorporator or stockholder of
the Company or of any Guarantor, as such, shall have any liability for any
obligations of the Company or of any Guarantor 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.
    

                 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.





                                      97

   104
                 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.





                                      98

   105
                                   SIGNATURES


   
Executed this ___ day of February, 1996.
    

                                         BEVERLY ENTERPRISES, INC.



                                         By:_____________________________
                                               Name:
                                               Title:


   
                                         CHEMICAL BANK, as Trustee
    


   
                                         By:_____________________________
                                               Name:
                                               Title:
    


   
                                         GUARANTORS LISTED ON SCHEDULE I
                                         HERETO
    



   
                                         By:_____________________________
                                               Name:  David Banks
                                               Title: __________ of each
                                                       Guarantor
    





                                      99

   106
   
                                   SCHEDULE I
    

   
Guarantors
    

   
A.B.C. Health Equipment Corp.
AdviNet, Inc.
AGI-Camelot, Inc.
AGI-McDonald County Health Care, Inc.
Alliance Health Services, Inc.
Alliance Home Health Care, Inc.
Amco Medical Service, 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.
American Transitional Hospitals of Tennessee, Inc.
American Transitional Hospitals -- Texas Medical
  Center, Inc.
ATH -- Clear Lake, Inc.
ATH Columbus, Inc.
ATH Del Oro, Inc.
ATH Heights, Inc.
ATH Oklahoma City, Inc.
ATH Tucson, Inc.
Beverly Acquisition Corporation
Beverly Assisted Living, Inc.
Beverly Health and Rehabilitation Services, Inc.
Beverly Enterprises -- Alabama, Inc.
Beverly Enterprises -- Arizona, Inc.
Beverly Enterprises -- Arkansas, Inc.
Beverly Enterprises -- California, Inc.
Beverly Enterprises -- Colorado, Inc.
Beverly Enterprises -- Connecticut, Inc.
Beverly Enterprises -- Delaware, Inc.
Beverly Enterprises -- Distribution Services, Inc.
Beverly Enterprises -- District of Columbia, Inc.
Beverly Enterprises -- Florida, Inc.
Beverly Enterprises -- Garden Terrace, Inc.
Beverly Enterprises -- Georgia, Inc.
Beverly Enterprises -- Hawaii, Inc.
Beverly Enterprises -- Idaho, Inc.
Beverly Enterprises -- Illinois, Inc.
Beverly Enterprises -- Indiana, Inc.
Beverly Enterprises -- Iowa, Inc.
Beverly Enterprises -- Kansas, Inc.
Beverly Enterprises -- Kentucky, Inc.
Beverly Enterprises -- Louisiana, Inc.
    





                                     100

   107
   
Beverly Enterprises -- Maine, Inc.
Beverly Enterprises -- Maryland, Inc.
Beverly Enterprises -- Massachusetts, Inc.
Beverly Enterprises -- Michigan, 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 Jersey, Inc.
Beverly Enterprises -- New Mexico, Inc.
Beverly Enterprises -- North Carolina, Inc.
Beverly Enterprises -- North Dakota, Inc.
Beverly Enterprises -- Ohio, Inc.
Beverly Enterprises -- Oklahoma, Inc.
Beverly Enterprises -- Oregon, Inc.
Beverly Enterprises -- Pennsylvania, Inc.
Beverly Enterprises -- Rhode Island, Inc.
Beverly Enterprises -- South Carolina, Inc.
Beverly Enterprises -- Tennessee, Inc.
Beverly Enterprises -- Texas, Inc.
Beverly Enterprises -- Utah, Inc.
Beverly Enterprises -- Vermont, Inc.
Beverly Enterprises -- Virginia, Inc.
Beverly Enterprises -- Washington, Inc.
Beverly Enterprises -- West Virginia, Inc.
Beverly Enterprises -- Wisconsin, Inc.
Beverly Enterprises -- Wyoming, Inc.
Beverly Enterprises Japan Limited
Beverly Enterprises Medical Equipment Corporation
Beverly Enterprises Rehabilitation Corporation
Beverly Holdings I, Inc.
Beverly Manor Inc. of Hawaii
Beverly Real Estate Holdings, Inc.
Beverly REMIC Depositor, Inc.
Beverly Savana Cay Manor, Inc.
Brownstone Pharmacy, Inc.
Columbia-Valley Nursing Home, Inc.
Commercial Management, Inc.
Computran Systems, Inc.
Continental Care Centers of Council Bluffs, Inc.
DD Wholesale, Inc.
Dunnington Drug, Inc.
Dunnington Rx Services of Rhode Island, Inc.
Dunnington Rx Services of Massachusetts, Inc.
Forest City Building Ltd.
Hallmark Convalescent Homes, Inc.
    





                                     101

   108
   
Healthcare Prescription Services, Inc.
Home Medical Systems, Inc.
Hospice Preferred Choice, Inc.
Hospital Facilities Corporation
Insta-Care Holdings, Inc.
Insta-Care Pharmacy Services Corporation
Insurance Software Packages, Inc.
Kenwood View Nursing Home, Inc.
Liberty Nursing Homes, Incorporated
Medical Arts Health Facility of Lawrenceville, Inc.
Medical Health Industries, Inc.
MedView Services, Incorporated
Moderncare of Lumberton, Inc.
Nebraska City S-C-H, Inc.
Nursing Home Operators, Inc.
Omni Med B, Inc.
Petersen Health Care, Inc.
Pharmacy Corporation of America
Pharmacy Corporation of America -- Massachusetts, Inc.
Pharmacy Dynamics Group, Inc.
Phymedsco, Inc.
Resource Opportunities, Inc.
Salem No. 1, Inc.
South Alabama Nursing Home, Inc.
South Dakota -- Beverly Enterprises, Inc.
Spectra Rehab Alliance, Inc.
Synergos, Inc.
Synergos -- North Hollywood, Inc.
Synergos -- Pleasant Hill, Inc.
Synergos -- Scottsdale, Inc.
Taylor County Health Facility, Inc.
TMD Disposition Company
Vantage Healthcare Corporation
    





                                     102

   109
                                                                       EXHIBIT A
   
    

                               (Face of Security)

   
                           ___% Senior Note due 2006
    


   
CUSIP:
No.                                                                 $___________
    

   
                 BEVERLY ENTERPRISES, INC. promises to pay to
______________________ or its registered assigns, the principal sum
of________________ Dollars on _________ __, 2006.
    

   
Interest Payment Dates:          ________ __ and _________ 
                                 __, commencing ___________ 
                                 __, 1996
    

   
Record Dates:             ______________ __ and __________ __ 
                            (whether or not a Business Day).
    


                                           BEVERLY ENTERPRISES, INC.



   
                                           By:__________________________
                                                   Name:
                                                   Title:
    


   
                                           By:__________________________
                                                   Name:
                                                   Title:
    

   
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 Officer
    





                                     A-1

   110
                               (Back of Security)

   
                           ___% Senior Note Due 2006
    

                 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 ______% until maturity.  The Company
shall pay interest semi-annually in arrears on ____________ __ and ____________
__ of each year, commencing _____________, 1996, 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, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
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.  Principal, premium, if any,
    





                                     A-2

   111
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 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 February __, 1996 (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").  The Securities are subject to all
such terms, and Holders are referred to the Indenture and the TIA 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 ___________ __, 2001, 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 Date.  The Securities may not be so redeemed
prior to ___________ __, 2001.
    





                                     A-3

   112
   


                          If redeemed during
                          the 12-month period
                          commencing                                         Redemption Price
                          --------------------                               ----------------
                                                                                            
                          2001                                                                    %
                          2002                                                                    %
                          2003                                                                    %
                          2004 and thereafter                                                  100%

    

                 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, 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 or such Subsidiary 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 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, (d) 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) or (e) if such Net Proceeds are derived from
the Spinoff Transaction, use up to $100
    





                                     A-4

   113
   
million of the Net Proceeds of such transaction to make Restricted Payments or
for any other purpose not prohibited by the Indenture, in accordance with the
second sentence of the the second paragraph of Section 4.10 of the Indenture.
Pending the final application of any such Net Proceeds, the Company or such
Subsidiary 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 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.
    

   
                 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.  Neither the Company nor the Registrar shall
be required to register the transfer of or exchange Securities for a period of
    





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15 days before a selection of Securities to be redeemed (except the unredeemed
portion of any Security being redeemed in part) or during the period 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 (provided that
defaulted interest shall be paid as set forth in Section 2.12 of the
Indenture), 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 two 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 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
any 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
    





                                     A-6

   115
   
interest on the Securities, or (vii) make any change in the foregoing amendment
and waiver provisions.
    

   
                 Notwithstanding the foregoing, without the consent of any
Holder of Securities, the Company, the Guarantors 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 Company's or any Guarantor's obligations
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 Securities.
    

   
                 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 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 Section 4.10 or 4.13 of the Indenture; (iv) a failure by the Company or
any Guarantor for 30 days after notice to comply with the provisions of Section
4.7 or 4.9 of the Indenture; (v) a failure by the Company or any Guarantor for
60 days after notice to comply with any of 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 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
    





                                     A-7

   116
   
Default or that has been so accelerated, aggregates in excess of $20 million;
(vii) failure by the Company or any of its Significant Subsidiaries to pay a
final judgment or judgments aggregating in excess of $20 million entered by a
court or courts of competent jurisdiction against the Company or any of its
Significant Subsidiaries which such final judgment or 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 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 inactions) 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 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 the Indenture except a
continuing Default or Event of Default in the payment of the principal of,
premium, if any, or interest on the Securities.

                 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





                                     A-8

   117
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 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 each Holder of Securities and to the Trustee and its successors and assigns,
that, in accordance with the terms of the Indenture and the Securities (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
payment obligations of the Company to the Holders or the Trustee under the
Indenture or this Security will be promptly paid in full, 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.
    





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                 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, stockholder or
other Affiliate of the Company or any Guarantor, as such, shall have any
liability for any obligations of the Company or other Affiliate 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.
    

                 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 or
contained in any notice of redemption 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 72919-0155
                          Attention:  Secretary
    





                                     A-10

   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).





                                     A-11

   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-12

EX-23.1

   1
 
                                                                    EXHIBIT 23.1
 
                        CONSENT OF INDEPENDENT AUDITORS
 
   
     We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-3 No. 33-64111) 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
 
   
January 29, 1996
    
Little Rock, Arkansas