1
                                                      Registration No. 33-64111
                                                      Pursuant to Rule 424(b)(1)
                                                      Prospectus 

PROSPECTUS
FEBRUARY 9, 1996
 
                                  $180,000,000
 
                           BEVERLY ENTERPRISES, INC.
 
LOGO                        9% 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 February 15 and August 15 of each year, commencing
August 15, 1996. The Senior Notes will not be redeemable by Beverly until
February 15, 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 $938,000,000, of which approximately $690,000,000 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.
                                      


- -------------------------------------------------------------------------------------------------
                                          PRICE            UNDERWRITING           PROCEEDS
                                         TO THE            DISCOUNTS AND           TO THE
                                        PUBLIC(1)         COMMISSIONS(2)        COMPANY(1)(3)
- -------------------------------------------------------------------------------------------------
                                                                   
Per Senior Note...................        100.0%               2.5%                 97.5%
- -------------------------------------------------------------------------------------------------
Total.............................     $180,000,000         $4,500,000          $175,500,000
- -------------------------------------------------------------------------------------------------

 
(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 February 14, 1996.
 
DONALDSON, LUFKIN & JENRETTE
         SECURITIES CORPORATION
 
             MERRILL LYNCH & CO.
 
                           STEPHENS INC.
 
                                       J.P. MORGAN SECURITIES INC.
 
                                                        CHEMICAL SECURITIES INC.
   2
 
     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
   3
 
                               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
   4
 
     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
   5
 
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
   6
 
                                  THE OFFERING
 
ISSUER..................Beverly Enterprises, Inc. ("Beverly")
 
SECURITIES OFFERED......$180,000,000 principal amount of 9% Senior Notes due
                        2006 (the "Senior Notes").
 
MATURITY DATE...........February 15, 2006.
 
INTEREST PAYMENT
DATES...................February 15 and August 15, commencing August 15, 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 February
                        15, 2001. At any time on or after February 15, 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 $938,000,000
                        of which approximately $690,000,000 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 $174,850,000
                        (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
   7
 
                         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   $   88,173
Working capital......................                                                                      245,213      302,708
Total assets.........................                                                                    2,544,964    2,582,609
Current portion of long-term
  obligations........................                                                                       59,118       34,118
Long-term obligations, excluding
  current portion....................                                                                      897,103    1,110,147
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
   8
 
                                  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 $1,110,000,000,
which would have accounted for 56% 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
   9
 
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
   10
 
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 $938,000,000
of senior indebtedness of Beverly and its subsidiaries outstanding, of which
approximately $690,000,000 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
   11
 
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
   12
 
                                USE OF PROCEEDS
 
     The net proceeds to Beverly from the sale of the Senior Notes in this
Offering are estimated to be approximately $174,850,000 (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     $    88,173
                                                         ==========     ===========     ===========
Short-term borrowings and current portion of long-term
  debt.................................................  $   71,118     $    89,223     $    46,118
                                                         ==========     ===========     ===========
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         153,250
  9% Senior Notes due 2006.............................          --              --         180,000
  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       1,110,147
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     $ 1,990,828
                                                         ==========     ===========     ===========

 
                                       12
   13
 
                   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
   14
 
                      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
   15
 
     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
   16
 
  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
   17
 
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
   18
 
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
   19
 
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 $174,850,000) (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
   20
 
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 ($34,100,000 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
   21
 
                                    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
   22
 
     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
   23
 
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
   24
 
     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 has recently hired a Senior Vice
President of Sales and Marketing who will be 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
   25
 
  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
   26
 
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
   27
 
     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
   28
 
     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
   29
 
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
   30
 
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
   31
 
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
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                                   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
   33
 
     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
   34
 
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
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                          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 $180 million and will mature on February 15, 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 February 15 and August 15 of each year, commencing on August 15, 1996, to
Holders of record on the immediately preceding February 1, and August 1,
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
February 15, 2001. The Senior Notes will be redeemable at the option of Beverly,
in whole or in part, at any time on or after February 15, 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 February 15 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......................................................................     104.5%
    2002......................................................................     103.0
    2003......................................................................     101.5
    2004 and thereafter.......................................................     100.0

 
     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
   36
 
     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 45 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
   37
 
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
   38
 
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
   39
 
          (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.
 
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  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
 
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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
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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
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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.
 
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   44
 
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
   45
 
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.
 
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   46
 
     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
   47
 
(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
   48
 
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
   49
 
     "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
   50
 
     "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
   51
 
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
   52
 
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
   53
 
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
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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
   55
 
                      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
   56
 
     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
   57
 
                                  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............  $ 90,000,000
        Merrill Lynch, Pierce, Fenner & Smith
                     Incorporated......................................    22,500,000
        Stephens Inc. .................................................    22,500,000
        J.P. Morgan Securities Inc. ...................................    22,500,000
        Chemical Securities Inc. ......................................    22,500,000
                                                                         ------------
                                                                         $180,000,000
                                                                         ============

 
     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 0.4% of the principal amount of the Senior
Notes. The Underwriters may allow, and such dealers may reallow, discounts not
in excess of 0.25% 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
   58
 
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.
 
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   59
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     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

 
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                                  $180,000,000
 
                           BEVERLY ENTERPRISES, INC.
 
                            9% SENIOR NOTES DUE 2006
 
                              --------------------
                                   PROSPECTUS
                              --------------------
 
                          DONALDSON, LUFKIN & JENRETTE
                             SECURITIES CORPORATION
 
                              MERRILL LYNCH & CO.
 
                                 STEPHENS INC.
 
                          J.P. MORGAN SECURITIES INC.
 
                            CHEMICAL SECURITIES INC.
                                FEBRUARY 9, 1996
 
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