
<PAGE>   1
                                                                   EXHIBIT 10.31

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

                            DATED AS OF MAY 2, 1994

         THIS SEVENTH AMENDMENT dated as of May 2, 1994 (this "AMENDMENT"), is
entered into by and among BEVERLY ENTERPRISES, INC., a Delaware corporation
("BEI"), BEVERLY CALIFORNIA CORPORATION, a California corporation ("BORROWER"),
the SUBSIDIARY GUARANTORS listed on the signature pages hereof (together with
BEI, the "GUARANTORS"), the LENDERS listed on the signature pages hereof (such
lenders, together with each Person that may or has become a party to the Credit
Agreement (as defined below) pursuant to subsection 10.8 thereof, are
referred to herein individually as a "LENDER" and collectively as the 
"LENDERS"), BANK OF MONTREAL as co-agent for the Lenders (in such capacity, the
"CO-AGENT"), and THE LONG-TERM CREDIT BANK OF JAPAN, LTD., Los Angeles Agency
("LTCB"), as agent for the Lenders (in such capacity, the "AGENT"). This
Amendment amends the Credit Agreement dated March 24, 1992 by and among BEI,
Borrower, Co-Agent, Agent and Lenders, as amended by that First Amendment to
Credit Agreement dated April 7, 1992 by and among BEI, Borrower, Co-Agent,
Agent and the Lenders, as further amended by that Second Amendment to Credit
Agreement dated as of May 11, 1992 by and among BEI, Borrower, Co-Agent, Agent
and the Lenders, as further amended by that Third Amendment to Credit Agreement
dated as of March 1, 1993 by and among BEI, Borrower, Co-Agent, Agent and the
Lenders, as further amended by that Fourth Amendment to Credit Agreement dated
as of November 1, 1993 by and among BEI, Borrower, Co-Agent, Agent and the
Lenders, as further amended by that Fifth Amendment to Credit Agreement dated
as of March 21, 1994 by and among BEI, Borrower, Co-Agent, Agent and the
Lenders, as further amended by that Sixth Amendment to Credit Agreement dated
as of April 22, 1994 by and among BEI, Borrower, Co-Agent, Agent and the
Lenders (said Credit Agreement, as so amended, the "CREDIT AGREEMENT"), as set
forth herein. Capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Credit Agreement.

<PAGE>   2
                                    RECITALS

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

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

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

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

                                   AGREEMENT

SECTION 1. AMENDMENTS TO DEFINITIONS

         (a) Subsection 1.1 of the Credit Agreement is hereby amended by the
addition of the following definitions in alphabetical order:

         "'APPLICABLE MARGIN' means, for any day, the rate per annum set forth
    under the column heading 'Applicable Margin' below for the higher of the 
    S&P Rating or the Moody's Rating in effect on such day:

<TABLE>
<CAPTION>
               Higher of S&P Rating
                or Moody's Rating
               --------------------
    S&P Rating                     Moody's Rating             Applicable Margin
    ----------                     --------------             -----------------
    <S>                            <C>                        <C>
    BBB+(or higher)                Baa1(or higher)                  0.75%
    BBB                            Baa2                             1.00%
    BBB-                           Baa3                             1.25%
    BB+                            Ba1                              1.75%
    BB or BB-                      Ba2 or Ba3                       2.00%
    B+(or lower) or no rating      B1(or lower) or no rating        2.50%
</TABLE>

    Any change in the Applicable Margin shall become effective on the day on 
    which a change in the Moody's Rating or the S&P Rating that requires a 
    change in the Applicable Margin in accordance with this definition shall 
    be announced publicly by the respective rating agency.

         'APPRAISED VALUE' means, with respect to any asset subjected to or
    released from any Lien securing any Designated Obligations or any Pooled
    Mortgage Debt, the





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    value of such asset as determined by an independent appraisal performed
    within 90 days of, and as of a date not less than 90 days prior to, the
    date upon which such asset is subjected to or released from such Lien.

        'BEI 1992 DISPOSITION PLAN' means the disposition plan announced by BEI
    on November 9, 1992 relating to the proposed disposition of certain
    facilities and the establishment of reserves therefor, in each case, as
    summarized in Schedule VII to the Morgan Credit Agreement as in effect as of
    March 1, 1993.

        'COMMERCIAL PAPER BACKSTOP FACILITY' means a credit facility entered
    into by a Special Purpose Commercial Paper Issuer for the purposes of
    providing liquidity with respect to commercial paper issued by such Special
    Purpose Commercial Paper Issuer and of financing transactions of the type
    intended to be financed with the proceeds of such commercial paper.

        'COMMERCIAL PAPER PROGRAM' means a program pursuant to which a Special
    Purpose Commercial Paper Issuer issues commercial paper secured by (i)
    Medicaid, Medicare or other patient accounts receivable purchased from BEI
    and its Subsidiaries or (ii) security interests in Medicaid, Medicare or
    other patient accounts receivable granted by BEI and its Subsidiaries.

        'CONSOLIDATED CAPITAL EXPENDITURES' means, for any period, the sum,
    without duplication, of (i) the total amount of additions to property and
    equipment of BEI and its Consolidated Subsidiaries during such period of
    the types classified as "Capital expenditures" or "Payments for
    acquisitions, net of cash acquired" on the consolidated statement of cash
    flows included in the Coverage Base Financials and (ii) all investments
    (whether by means of share purchase, capital contribution, loan, time
    deposit or otherwise) made by BEI or any of its Subsidiaries during such
    period in Beverly Japan Corporation; provided that "Consolidated Capital
    Expenditures" shall exclude (A) the application of insurance or
    condemnation proceeds to rebuilding facilities as permitted by the Morgan
    Credit Agreement and the Security Documents (as defined in the Morgan
    Credit Agreement), (B) any acquisition by BEI or any of its Subsidiaries of
    any assets in connection with and as part of a Workout Transaction and (C)
    any acquisition by BEI or any of its Subsidiaries of any assets as part of
    a Lease Termination Acquisition.

        'CONSOLIDATED RENTAL EXPENSE' means, for any period, the gross rental
    expense of BEI and its Consolidated Subsidiaries with respect to leases of
    real property and improvements of real property less, with respect to any



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    facility identified in the BEI 1992 Disposition Plan, the amount of such
    gross rental expense with respect to such facility for such period to the
    extent, but only to the extent, that such expense is charged against the
    reserves established in respect of such facility as part of the BEI 1992
    Disposition Plan prior to March 1, 1993, determined on a consolidated basis
    for such period.

        'COVERAGE BASE FINANCIALS' means the consolidated balance sheet of BEI
    and its Consolidated Subsidiaries as of December 31, 1991 and the related
    consolidated statements of operation, stockholders' equity and cash flows
    for the year then ended, together with the notes thereto, included in BEI's
    1991 Form 10-K and reported on without qualification by Ernst & Young.

        'COVERAGE CONSOLIDATED EBIDA' means, for any period, Coverage 
    Consolidated Net Income of BEI and its Consolidated Subsidiaries for such 
    period plus, without duplication, any amounts deducted in determining such
    consolidated net income (loss) in respect of (a) Consolidated Interest 
    Charges for such period and (b) expenses for such period of the types 
    classified as "depreciation and amortization" on the consolidated 
    statements of operation included in the Coverage Base Financials.

        'COVERAGE CONSOLIDATED NET INCOME' means, for any period, the net
    income (calculated (a) before preferred and common stock dividends, and (b)
    exclusive of the effect of any extraordinary or other material non-recurring
    gain or loss outside the ordinary course of business) of BEI and its
    Consolidated Subsidiaries, determined on a consolidated basis for such
    period.

        'DESIGNATED OBLIGATIONS' shall have the meaning set forth in subsection
    5.13.

        'FIXED CHARGE COVERAGE RATIO' means, on any date, the ratio of (i) the
    sum of Coverage Consolidated EBIDA and Consolidated Rental Expense for the
    four consecutive fiscal quarters most recently ended on or prior to such
    date to (ii) the sum of Consolidated Interest Charges, Consolidated Rental
    Expense and Consolidated Capital Expenditures for such four fiscal
    quarters.

        'INCREMENTAL POOLED MORTGAGE DEBT' means, at any time with respect to
    any Pooled Mortgage Debt, the excess (but not less than zero) of (i) the
    aggregate principal amount of such Pooled Mortgage Debt outstanding at such
    time over (ii) the sum, without duplication, of (A) an amount equal to 80%
    of the cost of acquisition or construction of any Initial Pooled Mortgage
    Assets that have been acquired or constructed by BEI or any of its





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    Subsidiaries within 90 days of the incurrence of such Pooled Mortgage
    Debt and that are subject to a Lien securing such Pooled Mortgage Debt; (B)
    the aggregate principal amount of all Debt (including, without limitation,
    any obligation with respect to any letter of credit or similar instrument)
    and contingent obligations that had been secured by a Lien permitted under
    clauses (i), (v), (vi), (vii), (ix) or (x) of subsection 5.13A (or
    permitted under clause (xi) of subsection 5.13A as it relates to any of the
    foregoing clauses) on some or all of such Initial Pooled Mortgage Assets,
    which Debt (including, without limitation, any obligation with respect to
    any letter of credit or similar instrument) and contingent obligations
    either were refinanced by such Pooled Mortgage Debt or repaid within 180 
    days prior to the incurrence of such Pooled Mortgage Debt; and (C) the 
    value of any Initial Cash Collateral at such time.

        'INITIAL POOLED MORTGAGE ASSETS' means (i) assets from two or more
    facilities on which Liens securing Debt (including, without limitation, any
    obligation with respect to any letter of credit or similar instrument) and
    contingent obligations are created within 90 days after the incurrence of
    such Debt (including, without limitation, any obligation with respect to
    any letter of credit or similar instrument) and contingent obligations
    ('INITIAL POOLED MORTGAGE FACILITIES') and (ii) cash proceeds of such Debt
    (including, without limitation, any obligation with respect to any letter
    of credit or similar instrument) and contingent obligations (and Temporary
    Cash Investments made with such proceeds) that are held by a trustee to
    secure such Debt (including, without limitation, any obligation with
    respect to any letter of credit or similar instrument) and contingent
    obligations ('INITIAL CASH COLLATERAL').

        'LEASE TERMINATION ACQUISITION' means any acquisition by BEI or any of
    its Subsidiaries of a facility and related property that is made in
    connection with the early termination of a leasehold interest of BEI or any
    of its Subsidiaries in such facility.

        'MATERIAL DEBT' means Debt (including, without limitation, any
    obligation with respect to any letter of credit or similar instrument) and
    contingent obligations (other than such Debt (including, without limitation,
    any obligation with respect to any letter of credit or similar instrument)
    and contingent obligations that arise under this Agreement) of BEI and/or 
    one or more of its Subsidiaries, arising in one or more related or unrelated
    transactions, in an aggregate principal amount exceeding $15,000,000.



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<PAGE>   6
        'MOODY'S RATING' means, for any day, the rating of BEI's senior
    unsecured indebtedness by Moody's Investors Service, Inc.  in effect on
    such day.

        'MORGAN' means Morgan Guaranty Trust Company of New York and its
    successors.

        'MORGAN COLLATERAL' means the real property and related personal
    property that constitute Collateral (as defined in the Morgan Credit
    Agreement), as of the Morgan Effective Date.

        'MORGAN EFFECTIVE DATE' means March 3, 1993.

        'MORGAN FINANCING DOCUMENTS, means the Morgan Credit Agreement, the 
    Notes (as defined in the Morgan Credit Agreement), the Subsidiary Guaranty
    (as defined in the Morgan Credit Agreement) and the Security Documents (as
    defined in the Morgan Credit Agreement).

        'MORGAN OBLIGATIONS' shall have the meaning set forth in subsection
    5.13.

        'NEW ASSETS' shall have the meaning set forth in subsection 5.13.

        'NIPPON' means The Nippon Credit Bank, Ltd. and its successors.

        'NIPPON COLLATERAL' means the real property and related personal 
    property that constitutes Collateral (as defined in the Nippon Credit 
    Agreement) as of the Morgan Effective Date.

        'NIPPON CREDIT AGREEMENT' means that certain Credit Agreement, dated as
    of March 2, 1993, among Borrower, BEI, the lenders party thereto (the
    "NIPPON LENDERS") and Nippon, as agent, as amended, supplemented or
    modified.

        'NIPPON FINANCING DOCUMENTS' means the Nippon Credit Agreement, the 
    Nippon Notes and the Nippon Mortgages.

        'NIPPON MORTGAGES' means the Mortgages (as defined in the Nippon Credit
    Agreement).

        'NIPPON NOTES' means the Notes (as defined in the Nippon Credit
    Agreement) in favor of the Nippon Lenders.

        'NIPPON OBLIGATIONS' shall have the meaning set forth in subsection
    5.13.

        'POOLED MORTGAGE ASSETS' means Initial Pooled Mortgage Assets or
    Substitute Pooled Mortgage Assets.





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<PAGE>   7
        'POOLED MORTGAGE DEBT' means Debt (including, without limitation, any
    obligation with respect to any letter of credit or similar instrument) and
    contingent obligations secured by Pooled Mortgage Assets.

        'REFINANCED DEBT' shall have the meaning set forth in subsection 5.15.

        'REFINANCING DEBT' shall have the meaning set forth in subsection 5.15.

        'S&P RATING' means, for any day, the rating of BEI's senior unsecured
    indebtedness by Standard & Poor's Corporation on such day.

        'SENIOR NOTE AGREEMENT' means that certain Indenture, dated as of
    December 27, 1990, among Borrower, BEI and Yasuda Bank and Trust Company
    (U.S.A.), as Trustee, as amended, supplemented or modified.

        'SENIOR NOTE COLLATERAL' means the real property and related personal
    property described in Exhibit A to the Collateral Release Agreement (as
    defined in the Morgan Credit Agreement).

        'SENIOR NOTE DOCUMENTS' means the Senior Notes (as defined in the
    Senior Note Agreement), the Senior Note Agreement, the Trust Agreement (as
    defined in the Senior Note Agreement) and the Senior Note Mortgages.

        'SENIOR NOTE MORTGAGES' means the mortgages related to the Senior Note
    Collateral.

        'SENIOR NOTE OBLIGATIONS' shall have the meaning set forth in subsection
    5.13.

        'SPECIAL PURPOSE COMMERCIAL PAPER ISSUER' means a Wholly-Owned
    Subsidiary of BEI the sole purpose of which is to issue commercial paper
    and to purchase Medicare, Medicaid or other patient accounts receivable of
    BEI and its Subsidiaries and make advances to BEI and its Subsidiaries
    secured by security interests in such Medicare, Medicaid or other patient
    accounts receivable, which accounts receivable and security interests
    therein are to be pledged to secure such commercial paper and borrowings
    by such Special Purpose Commercial Paper Issuer under a Commercial Paper
    Backstop Facility.

        'SUBSTITUTE POOLED MORTGAGE ASSETS' means assets on which Liens are
    created in substitution of, or in addition to, any Initial Pooled Mortgage
    Facilities to secure Debt (including, without limitation, any obligation
    with respect to any letter of credit or




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<PAGE>   8
    similar instrument) and contingent obligations that are secured by such
    Initial Pooled Mortgage Assets.

        'TEMPORARY CASH INVESTMENT' means any investment (whether by means of
    share purchase, capital contribution, loan, time deposit or otherwise) in
    (i) direct obligations of the United States or any agency thereof, or
    obligations guaranteed by the United States or any agency thereof, (ii)
    commercial paper with maturities of not more than 180 days rated at least
    P-1 by Moody's Investors Service or A-1 by Standard & Poor's Corporation,
    (iii) deposit accounts in, and certificates of deposit, repurchase
    agreements and bankers' acceptances of, Wilmington Trust Company or United
    States branches of other commercial banks whose unsecured senior long-term
    debt is rated A or better by Moody's Investors Service or Standard & Poor's
    Corporation, in each case maturing within one year from the date of
    acquisition thereof or (iv) in addition to the accounts and instruments
    referred to in clause (iii), deposit accounts and certificates of deposit in
    United States branches of banks insured by the Federal Deposit Insurance
    Corporation that do not aggregate more than $100,000 in any one bank.

        'WORKOUT TRANSACTION' means any adjustment, renegotiation, exchange,
    subordination, amendment, sale or other disposition of any note receivable,
    investment in any Person (whether by means of share purchase, capital
    contribution, loan, time deposit or otherwise) or other similar asset of BEI
    or any of its Subsidiaries, any release, subordination, renegotiation or
    other adjustment or any Lien securing any Debt (including, without
    limitation, any obligation with respect to any letter of credit or similar
    instrument), contingent obligation or other obligation of any Person held
    by or owed to BEI or any of its Subsidiaries, any acquisition of any asset
    by BEI or any of its Subsidiaries or the making of any investment in an
    Person (whether by means of share purchase, capital contribution, loan,
    time deposit or otherwise) by BEI or any of its Subsidiaries, in each case
    in connection with (i) the foreclosure, enforcement or realization by BEI
    or any such Subsidiary on any Lien securing any Debt (including, without
    limitation, any obligation with respect to any letter of credit or similar
    instrument), contingent obligation or other obligation of any Person held
    by or owed to BEI or any such Subsidiary or (ii) any renegotiation,
    composition, adjustment, amendment or restructuring of, or any other
    similar arrangement with respect to, any such Debt (including, without
    limitation, any obligation with respect to any letter of credit or similar
    instrument), contingent obligation or other obligation, in each case in
    connection with the bankruptcy,




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    insolvency, financial distress or other similar condition of such
    Person; provided that any such adjustment, renegotiation, exchange,
    subordination, amendment, sale, disposition, release or acquisition or the
    making of any such investment in any Person (whether by means of share
    purchase, capital contribution, loan, time deposit or otherwise) (A) will,
    in the reasonable opinion of an Authorized Financial Officer of BEI, in
    light of the circumstances affecting the relevant obligor, be likely to
    maximize the amount to be realized by BEI and its Subsidiaries with respect
    to such Debt (including, without limitation, any obligation with respect to
    any letter of credit or similar instrument), contingent obligation or other
    obligation or (B) is imposed on BEI or any of its Subsidiaries pursuant to
    voting arrangements mandated by any law or contract arrangements binding
    upon BEI or such Subsidiary.'"

         (b) Subsection 1.1 of the Credit Agreement is hereby further amended
by deleting therefrom the definition of "Permitted Commercial Paper" and
replacing such definition with the following:

        "'PERMITTED COMMERCIAL PAPER' means commercial paper issued by a Special
    Purpose Commercial Paper Issuer pursuant to a Commercial Paper Program and
    borrowings by a Special Purpose Commercial Paper Issuer under a related
    Commercial Paper Backstop Facility."

         (C) Subsection 1.1 of the Credit Agreement is hereby further amended
by deleting therefrom the definition of "Permitted Liens" and replacing such
definition with the following:

        "'PERMITTED LIENS' means, with respect to any Collateral, those Liens
    set forth below:

        (i) Liens created or permitted by the Collateral Documents;

        (ii) Liens for taxes, assessments or governmental charges or claims the
    payment of which is not at the time required by subsection 5.17;

        (iii) Statutory Liens of landlords and Liens of carriers, warehousemen,
    mechanics, materialmen and other Liens imposed by law incurred in the
    ordinary course of business for sums not yet delinquent or being contested
    in good faith, if such reserve or other appropriate provision, if any, as
    shall be required by GAAP shall have been made therefor;

        (iv) Liens (other than any Lien imposed by ERISA) incurred or deposits
    made in the ordinary course of





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<PAGE>   10
    business in connection with workers' compensation, unemployment
    insurance and other types of social security, or to secure the performance
    of tenders, statutory obligations, surety and appeal bonds, bids, leases,
    government contracts, performance and return-of-money bonds and other
    similar obligations (exclusive of obligations for the payment of borrowed
    money);

        (v) Any attachment or judgment Lien, unless the judgment it secures
    shall not, within 60 days after the entry thereof, have been discharged or
    execution thereof stayed pending appeal, or shall not have been discharged
    within 60 days after the expiration of any such stay;

        (vi) Easements, rights-of-way, restrictions, other similar charges or
    encumbrances, in each case that do not interfere with the ordinary conduct
    of the business of BEI or any of its Subsidiaries; and

        (vii) Liens (excluding Liens securing Debt) set forth on the title
    insurance policies delivered in connection with the Mortgages that the
    Agent may approve in its sole discretion."

         (d) Subsection 1.1 of the Credit Agreement is hereby further amended
by deleting therefrom the definition of "Consolidated Interest Charges" and
replacing such definition with the following:

        "'CONSOLIDATED INTEREST CHARGES' means for any period all items for
    such period of the types classified as 'interest' on
    the consolidated statement of operations included in the Coverage Base
    Financials."

         (e) Subsection 1.1 of the Credit Agreement is hereby further amended
by deleting therefrom the definition of "Morgan Credit Agreement" and replacing
such definition with the following:

        "'MORGAN CREDIT AGREEMENT' means that certain Credit Agreement, dated 
    as of March 1, 1993, among Borrower, BEI, the banks party thereto, Morgan,
    as issuing bank and as agent, as amended, supplemented or modified."

SECTION 2.    AMENDMENTS WITH RESPECT TO THE ELIGIBLE
              COLLATERAL APPRAISAL VALUE

         (a) Subsection 2.6B of the Credit Agreement is hereby amended by
deleting the references to "160%" in the second and sixteenth lines thereof and
replacing such references with "125%".




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<PAGE>   11

         (b) Subsection 3.2D of the Credit Agreement is hereby amended by
deleting the reference to "160%" in the eighth line thereof and replacing such
reference with "125%"

         (c) Subsection 5.18A of the Credit Agreement is hereby amended by
deleting the reference to "160%" in the third line thereof and replacing such
reference with "125%".

         (d) Subsection 5.18D of the Credit Agreement is hereby amended by
deleting the references to "160%" in the second and eleventh lines thereof and
replacing such references with "125%".

         (e) Subsection 5.18E of the Credit Agreement is hereby amended by
deleting the reference to "160%" in the third line thereof and replacing such
reference with "125%".

SECTION 3.   AMENDMENT TO SUBSECTION 2.7A OF THE CREDIT AGREEMENT

         Subsection 2.7A of the Credit Agreement is hereby amended by deleting
such subsection in its entirety and replacing it with the following:

        "A. EURODOLLAR RATE LOANS. During such periods as such Loan is a
   Eurodollar Rate Loan, at a rate per annum equal at all times during each
   Interest Period for such Loan to the Adjusted Eurodollar Rate for such
   Interest Period plus the Applicable Margin; provided, that after the
   occurrence and during the continuation of any Event of Default, the
   Eurodollar Rate Loans shall bear interest from the date on which such Event
   of Default shall have occurred until such amount is paid in full at a rate
   per annum equal at all times to 2.0% per annum above the rate of interest
   otherwise payable under this subsection 2.7A, in each case payable in
   arrears on each Interest Payment Date and on the date of any prepayment
   thereof, unless such amounts are past due, in which case they shall be
   payable on demand."

SECTION 4.  AMENDMENT TO SUBSECTION 5.1 OF THE CREDIT AGREEMENT

         Subsection 5.1 of the Credit Agreement is hereby amended by deleting
the final word "and" from clause H thereof, relettering clause I thereof as
clause "J" and inserting a new clause I as follows:

        "I. promptly upon the occurrence of any change in the S&P Rating or the
   Moody's Rating from such ratings last notified to the Lenders, a written
   notice of such change setting forth the details thereof; and"




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<PAGE>   12
SECTION 5.  AMENDMENT TO SUBSECTION 5.5 OF THE CREDIT AGREEMENT

         Subsection 5.5 of the Credit Agreement is hereby amended by deleting
such subsection in its entirety and replacing it with the following:

        "5.5 FIXED CHARGE COVERAGE RATIO

        The Fixed Charge Coverage Ratio shall not be less than 1.00 to 1.00 at
   any time."

SECTION 6.  AMENDMENT TO SUBSECTION 5.8 OF THE CREDIT AGREEMENT

         Subsection 5.8 of the Credit Agreement is hereby amended by deleting
such subsection in its entirety and replacing it with the following:

        "5.8     CONSOLIDATED DEBT FOR BORROWED MONEY TO CONSOLIDATED 
                 EBITDA RATIO

        On the last day of each fiscal quarter, the ratio of (a) the quotient
   derived by dividing the sum of Consolidated Debt For Borrowed Money as of
   the last day of each of the four fiscal quarters ending on such date, by
   four, to (b) the sum of (i) Consolidated EBITDA and (ii) EBITDA for Sold
   Facility for each facility the Debt of which is guaranteed by BEI or a
   Subsidiary and which is included in Consolidated Debt for Borrowed Money for
   such four fiscal quarters shall not be more than 6.00 to 1.00."

SECTION 7.  AMENDMENT TO SUBSECTION 5.13A OF THE CREDIT AGREEMENT

         Subsection 5.13A of the Credit Agreement is hereby amended by deleting
such subsection in its entirety and replacing it with the following:

        "A. Neither BEI nor any of its Subsidiaries will create, assume or
   suffer to exist any Lien on any asset now owned or hereafter acquired by it,
   except the following:

            (i) Liens existing on the Morgan Effective Date securing Debt
        (including, without limitation, any obligation with respect to any 
        letter of credit or similar instrument), contingent obligations and 
        other obligations outstanding on the Morgan Effective Date;




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<PAGE>   13
        (ii) Liens created or permitted by the Collateral Documents;

        (iii) Liens on the Nippon Collateral securing the obligations ("NIPPON
     OBLIGATIONS") of BEI and its Subsidiaries under the Nippon Financing
     Documents and Liens on the Morgan Collateral securing obligations ("MORGAN
     OBLIGATIONS") of BEI and its Subsidiaries under the Morgan Financing
     Documents; provided that, in each case, the amount of Debt (including,
     without limitation, any obligation with respect to any letter of credit or
     similar instrument) and contingent obligations secured thereby does not
     exceed the amount that has been or may be borrowed thereunder as of the
     Morgan Effective Date;

        (iv) Liens on the Senior Note Collateral securing the obligations
     ("SENIOR NOTE OBLIGATIONS" and, together with the Nippon Obligations and
     the Morgan Obligations, the "DESIGNATED OBLIGATIONS") of BEI and its
     Subsidiaries outstanding on the Morgan Effective Date under the Senior
     Note Documents;

        (v) any Lien on any asset of any corporation that becomes a
     Consolidated Subsidiary of BEI after the Morgan Effective Date that exists
     at the time such corporation becomes such a Consolidated Subsidiary and
     (other than in a Workout Transaction) not created in contemplation
     thereof;

        (vi) any Lien existing on any asset prior to the acquisition thereof,
     acquired after the Morgan Effective Date by BEI or a Subsidiary of BEI and
     (other than in a Workout Transaction) not created in contemplation
     thereof;

        (vii) any Lien on any asset securing Debt (including, without
     limitation, any obligation with respect to any letter of credit or similar
     instrument) or contingent obligations incurred or assumed for the purpose
     of financing all or any part of the cost of acquiring or constructing such
     asset or reconstructing substantially all of such asset, provided that
     such Lien attaches to such asset concurrently with or within 90 days after
     the acquisition thereof;

        (viii) any Lien on any asset securing Debt (including, without
     limitation, any obligation with respect to any letter of credit or similar
     instrument) or contingent obligations incurred or assumed for the purpose
     of improving or making any




                                    13

<PAGE>   14
     addition to such asset, provided that (A) such Lien attaches to such
     asset concurrently with or within 180 days after the completion of the
     improvement thereof or addition thereto and (B) the aggregate principal
     amount of all such Debt (including, without limitation, any obligation
     with respect to any letter of credit or similar instrument) and contingent
     obligations secured by any such Lien shall not, at any time, exceed
     $20,000,000;

        (ix) Liens securing Debt (including, without limitation, any obligation
     with respect to any letter of credit or similar instrument) or contingent
     obligations incurred in connection with the early termination of a lease,
     provided that the aggregate amount of all such Debt (including, without
     limitation, any obligation with respect to any letter of credit or similar
     instrument) and contingent obligations secured by any such Lien shall not,
     at any time, exceed $20,000,000;

        (x) Liens securing industrial development revenue bonds (or securing
     contingent obligations to issuers of letters of credit issued to support
     industrial development revenue bonds) arising in connection with the
     conversion of the interest rate on such bonds from floating to long-term
     fixed rates or from fixed rates to other long-term fixed rates;

        (xi) any Lien arising out of the refinancing, extension, renewal or
     refunding of any Debt (including, without limitation, any obligation with
     respect to any letter of credit or similar instrument) or contingent
     obligations secured by any Lien permitted by any of the foregoing clauses
     of this subsection 5.13A, provided that the principal amount of such Debt
     (including, without limitation, any obligation with respect to any letter
     of credit or similar instrument) and contingent obligations is not
     increased and such Debt (including, without limitation, any obligation
     with respect to any letter of credit or similar instrument) and contingent
     obligations are not secured by any additional assets other than assets
     that relate directly to the facility subject to the original financing;

        (xii) Liens on Medicare, Medicaid or other patient accounts receivable 
     of BEI or any of its Subsidiaries granted to secure Permitted Commercial
     Paper, provided that the net amount of all uncollected accounts receivable
     owing to BEI or any of its Subsidiaries over which such a Lien is
        



                                    14

<PAGE>   15
     granted, together, without duplication, with the net amount of all
     uncollected accounts receivable owing to BEI or any of its Subsidiaries
     that are assigned to secure such Permitted Commercial Paper, shall not
     exceed, at any time, 175% of the  aggregate principal amount of all
     Permitted Commercial Paper then outstanding;

        (xiii) Liens incidental to the conduct of its business or the ownership
     of its assets that (A) do not secure Debt (including, without limitation,
     any obligation with respect to any letter of credit or similar instrument)
     or contingent obligations and (B) do not in the aggregate materially
     detract from the value of its assets or materially impair the use thereof
     in the operation of its business;

        (xiv) Liens on assets (other than Nippon Collateral) securing Nippon
     Obligations, Liens on assets (other than Morgan Collateral) securing
     Morgan Obligations or Liens on assets (other than Senior Note Collateral)
     securing Senior Note Obligations (such assets collectively, "NEW ASSETS"),
     provided that the sum of (A) the excess of the Appraised Value of all New
     Assets over the Appraised Value of all Nippon Collateral, Morgan
     Collateral and Senior Note Collateral no longer subject to any Lien
     securing any Designated Obligations, (B) the amount set forth in subclause
     (A) of clause (xvi) of this subsection 5.13A and (C) the aggregate
     principal amount of all Incremental Pooled Mortgage Debt and all Debt
     (including, without limitation, any obligation with respect to any letter
     of credit or similar instrument) and contingent obligations secured by
     Liens permitted under clause (xvii) of this subsection 5.13A shall not at
     any time exceed $50,000,000;

        (xv) Liens on Initial Pooled Mortgage Assets, provided that the sum of
     the amounts set forth in subclause (A) of each of clause (xiv) and clause
     (xvi) of this subsection 5.13A and the aggregate principal amount of all
     Incremental Pooled Mortgage Debt and all Debt (including, without
     limitation, any obligation with respect to any letter of credit or similar
     instrument) and contingent obligations secured by Liens permitted under
     clause (xvii) of this subsection 5.13A shall not at any time exceed
     $50,000,000;

        (xvi) Liens on Substitute Pooled Mortgage Assets, provided that the sum
     of (A) the excess of the Appraised Value of all Substitute Pooled





                                      15
<PAGE>   16
        Mortgage Assets over the Appraised Value of all Initial Pooled Mortgage
        Facilities no longer subject to any Lien securing any Pooled Mortgage 
        Debt, (B) the amounts set forth in subclause (A) of clause (xiv) of this
        subsection 5.13A, (C) the aggregate principal amount of all Incremental
        Pooled Mortgage Debt and (D) all Debt (including, without limitation, 
        any obligation with respect to any letter of credit or similar 
        instrument) and contingent obligations secured by Liens permitted 
        under clause (xvii) of this subsection 5.13A shall not at any time 
        exceed $50,000,000; and

             (xvii) Liens not otherwise permitted under clauses (i) through 
        (xvi) of this subsection 5.13A, provided that the sum of the amounts 
        set forth in subclause (A) of each of clause (xiv) and clause (xvi) of 
        this subsection 5.13A and the aggregate principal amount of all 
        Incremental Pooled Mortgage Debt and all Debt (including, without 
        limitation, any obligation with respect to any letter of credit or 
        similar instrument) and contingent obligations secured by Liens 
        permitted under this clause (xvii) shall not at any time exceed 
        $50,000,000.

        Notwithstanding the foregoing, neither BEI nor any of its Subsidiaries
   will create, assume or suffer to exist any Lien on any Collateral now owned
   or hereafter acquired by it, except the Permitted Liens."

 SECTION 8.      AMENDMENT TO SUBSECTION 5.15 OF THE CREDIT AGREEMENT

        Subsection 5.15 of the Credit Agreement is hereby amended by deleting
such subsection in its entirety and replacing it with the following:

        "5.15 INCURRENCE OF DEBT                                   

        BEI will not permit any of its Subsidiaries (other than the Borrower)
   to incur, assume or suffer to exist any Debt (including, without limitation,
   any obligation with respect to any letter of credit or similar instrument) or
   any contingent obligation, except:

             (a) Debt (including, without limitation, any obligation with 
        respect to any letter of credit or similar instrument) and contingent 
        obligations outstanding on March 1, 1993 and listed in Schedule II 
        attached to the Morgan Credit Agreement as in effect as of March 1, 
        1993;




                                   16

<PAGE>   17
        (b) Debt (including, without limitation, any obligation with respect to
   any letter of credit or similar instrument) and contingent obligations
   incurred in connection with the early termination of a lease, provided that
   the aggregate principal amount of all such Debt (including, without
   limitation, any obligation with respect to any letter of credit or similar
   instrument) and contingent obligations outstanding at any time shall not
   exceed $20,000,000;

        (c) Debt (including, without limitation, any obligation with respect to
   any letter of credit or similar instrument) and contingent obligations
   secured by a Lien permitted pursuant to clause (v) or (vi) of subsection
   5.13;

        (d) Debt (including, without limitation, any obligation with respect to
   any letter of credit or similar instrument) and contingent obligations
   ("REFINANCING DEBT") incurred to refinance Debt (including, without
   limitation, any obligation with respect to any letter of credit or similar
   instrument) and contingent obligations ("REFINANCED DEBT") permitted under
   clauses (a) through (c) above, provided that (i) the principal amount of
   such Refinancing Debt shall not exceed the principal amount of such
   Refinanced Debt and (ii) such Refinancing Debt shall have a weighted average
   life of not less than the remaining weighted average life of such Refinanced
   Debt or such Refinancing Debt shall not have any required payments of
   principal prior to February 15, 1997;

        (e) Permitted Commercial Paper, provided that the aggregate principal
   amount of all Permitted Commercial Paper outstanding at any time shall not
   exceed $100,000,000;

        (f) Debt (including, without limitation, any obligation with respect to
   any letter of credit or similar instrument) and contingent obligations
   incurred under the Loan Documents;

        (g) Debt (including, without limitation, any obligation with respect to
   any letter of credit or similar instrument) and contingent obligations
   incurred under the Morgan Financing Documents, the Nippon Financing
   Documents or the Senior Note Documents not in excess of the amounts
   specified in clauses (iii) and (iv) of subsection 5.13A;

        (h) Guarantees by any Subsidiary of BEI of any obligation of BEI or any
   of its other




                                        17
<PAGE>   18
   Subsidiaries that such guaranteeing Subsidiary would have been
   permitted to incur hereunder as a primary obligation;

        (i) Debt (including, without limitation, any obligation under any
   letter of credit or similar instrument) and contingent obligations
   consisting of advances from BEI or any of its Subsidiaries in connection
   with the normal operation of the business of BEI and its Subsidiaries;

        (j) Debt (including, without limitation, any obligation with respect to
   any letter of credit or similar instrument) and contingent obligations
   incurred in connection with and as part of a Workout Transaction;

        (k) Debt (including, without limitation, any obligation with respect to
   any letter of credit or similar instrument) and contingent obligations
   incurred or assumed for the purpose of financing the cost of acquiring,
   constructing or improving an asset of BEI or any of its Subsidiaries;

        (l) Debt (including, without limitation, any obligation with respect to
   any letter of credit or similar instrument) and contingent obligations
   secured by Pooled Mortgage Assets, provided that the aggregate principal
   amount of all Incremental Pooled Mortgage Debt and all Debt (including,
   without limitation, any obligation with respect to any letter of credit or
   similar instrument) and contingent obligations permitted under clause (m) of
   this subsection 5.15 shall not at any time exceed $50,000,000; and

        (m) Debt (including, without limitation, any obligation with respect to
   any letter of credit or similar instrument) and contingent obligations not
   otherwise permitted under clauses (a) through (l) of this subsection 5.15,
   provided that the  aggregate principal amount of all Incremental Pooled
   Mortgage Debt and all Debt (including, without limitation, any obligation
   with respect to any letter of credit or similar instrument) and contingent
   obligations permitted under this clause (m) shall not at any time exceed
   $50,000,000."




                                       18
<PAGE>   19
SECTION 9.  AMENDMENT TO SUBSECTION 6.4 OF THE CREDIT AGREEMENT

         Subsection 6.4 of the Credit Agreement is hereby amended by deleting
such subsection in its entirety and replacing it with the following:

         "6.4 BREACH OF OTHER AGREEMENTS

         Any event or condition shall occur that results in the acceleration of
   the maturity, or requires the early redemption or prepayment, of any
   Material Debt or any event or condition shall occur and be continuing that
   enables (or, with the giving of notice or lapse of time or both, would
   enable) the holder of any Material Debt or any Person acting on such
   holder's behalf to accelerate the maturity, or require the early redemption
   or prepayment, thereof (unless such event or condition shall have been
   waived and any acceleration or required redemption or prepayment rescinded),
   provided that the fact that the interest paid on any industrial development
   revenue bonds ceases to be exempt from federal income taxation shall not
   constitute an Event of Default under this subsection 6.4 unless such
   industrial development revenue bonds are accelerated, redeemed or prepaid or
   the aggregate principal amount of industrial development revenue bonds
   subject to acceleration or early redemption or prepayment as a result of
   such event or condition shall be at least $15,000,000; or"

SECTION 10.  AMENDMENT TO EXHIBIT VIII OF THE CREDIT AGREEMENT

         (a) Exhibit VIII of the Credit Agreement is hereby amended by deleting
section A.1 of Attachment No. 1 thereof in its entirety and replacing it with
section A.1 set forth in Exhibit A attached hereto.

         (b) Exhibit VIII of the Credit Agreement is hereby further amended by
deleting section A.4(a) of Attachment No. 1 thereof in its entirety and
replacing it with section A.4(a) set forth in Exhibit B attached hereto.

         (c) Exhibit VIII of the Credit Agreement is hereby further amended by
deleting section C(a) of Attachment No. 1 thereof in its entirety and replacing
it with section C(a) set forth in Exhibit C attached hereto.

         (d) Exhibit VIII of the Credit Agreement is hereby further amended by
adding at the end of Attachment No. 1 thereof sections D and E set forth in
Exhibit D attached hereto.




                                        19
<PAGE>   20
SECTION 11. REPRESENTATIONS AND WARRANTIES

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

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

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

         (c) Each Loan Party has performed in all material respects all
agreements and satisfied all conditions that the Credit Agreement and this
Amendment provide shall be performed by it on or before the date hereof;

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

         (e) The execution and delivery by each Loan Party of this Amendment
and the performance by each Loan Party of the Credit Agreement as amended by
this Amendment, do not and will not (i) violate any provision of any law or any




                                     20
<PAGE>   21

governmental rule or regulation applicable to any Loan Party, the Certificate
or Articles of Incorporation or Bylaws of any Loan Party or any order, judgment
or decree of any court or other agency of government binding on any Loan Party,
(ii) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any instrument that is material,
individually or in the aggregate, and that is binding on such Loan Party, (iii)
result in or require the creation or imposition of any Lien upon any of the
properties or assets of any Loan Party (other than any Liens created under 
any of the Loan Documents in favor of Agent on behalf of Lenders), or (iv) 
require any approval or consent of any Person under any instrument that is 
material, individually or in the aggregate, and that is binding on such Loan 
Party.

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

SECTION 12.  CONDITIONS TO EFFECTIVENESS

         Sections 1 through 10 of this Amendment shall become effective only
upon the satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "SEVENTH
AMENDMENT EFFECTIVE DATE"):

         A. On or before the Seventh Amendment Effective Date, BEI, Borrower
and each Subsidiary Guarantor shall deliver to Lenders (or to Agent for Lenders
with sufficient originally executed copies, as appropriate, for each Lender and
its counsel) the following, each, unless otherwise noted, dated the Seventh
Amendment Effective Date:

              (i) Resolutions of its Board of Directors approving and 
     authorizing the execution, delivery and performance of this Amendment, 
     certified as of the Seventh Amendment Effective Date by its corporate 
     secretary or an assistant secretary as being in full force and effect 
     without modification or amendment;

              (ii) Signature and incumbency certificates of its officers 
     executing this Amendment certified by its secretary or an assistant 
     secretary; and

              (iii) Executed counterparts of this Amendment.

         B. Lenders and their respective counsel shall have received originally
executed copies of one or more favorable written opinions of Robert W.
Pommerville, general counsel for




                                      21
<PAGE>   22
BEI, and Weil, Gotshal & Manges, counsel for BEI, Borrower and each Subsidiary
Guarantor, in form and substance reasonably satisfactory to Agent and its
counsel, dated as of the Seventh Amendment Effective Date and setting forth
substantially the matters in the opinions designated in Exhibit E to this
Amendment and as to such other matters as Agent acting on behalf of Lenders may
reasonably request.

         C. On or before the Seventh Amendment Effective Date, each Lender
shall have delivered to Agent a counterpart of this Amendment originally
executed by a duly authorized officer of such Lender or by telex or telephonic
confirmation.

         D. On or before the Seventh Amendment Effective Date:

              (i) Borrower shall have caused payment to each Lender of an 
     amendment fee equal to 0.10% of the aggregate principal amount of Loans of 
     such Lender outstanding on the Seventh Amendment Effective Date;

              (ii) Borrower shall have caused payment to Agent of all amounts
     regarding the costs and expenses reasonably incurred by Agent in connection
     with this Amendment which Borrower has agreed to pay;

              (iii) Borrower shall have delivered to Agent (with sufficient 
     copies for each Lender) an Appraisal dated on or a recent date prior to 
     the Seventh Amendment Effective Date covering all Collateral (other than 
     Collateral which will be released after taking into account the provisions 
     of this Amendment and after taking into account the prepayment of Loans 
     made on or prior to the Seventh Amendment Effective Date), which Appraisal
     shall show that the Eligible Collateral Appraisal Value of all Eligible 
     Collateral (other than any such Collateral which will be so released) is 
     greater than 125% of the aggregate outstanding principal amount of the 
     Loans;

              (iv) Amendment No. 3 dated as of March 15, 1994 to the Morgan 
     Credit Agreement (as defined in the Credit Agreement as amended by this 
     Amendment) shall have become effective in all respects; and

              (v) An amendment to the Nippon Credit Agreement (as defined in the
     Credit Agreement as amended by this Amendment), which amendment decreases 
     the minimum ratio of (x) the appraised value of the Collateral (as defined 
     in the Nippon Credit Agreement) to (y) the aggregate principal amount of 
     Debt outstanding under the Nippon Credit Agreement to 1.25 to 1.00, shall 
     have effective in all respects.




                                      22
<PAGE>   23
         E. On or before the Seventh Amendment Effective Date, all corporate
and other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Agent, acting on behalf of Lenders, and its counsel shall be
satisfactory in form and substance to Agent and such counsel, and Agent and
such counsel shall have received all such counterpart originals or certified
copies of such documents as Agent may reasonably request.

SECTION 13. THE GUARANTIES

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

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

         Each Guarantor acknowledges and agrees that (i) notwithstanding the
conditions to effectiveness set forth in this Amendment, such Guarantor is not
required by the terms of the Credit Agreement or any other Loan Document to
consent to the amendments to the Credit Agreement effected pursuant to this
Amendment or any other Loan Document and (ii) that neither the terms of the
Credit Agreement, any other Loan



                                      23
<PAGE>   24
Document nor this Amendment shall be deemed to require the consent of any
Guarantor to any future amendments to the Credit Agreement.

SECTION 14. COUNTERPARTS; EFFECTIVENESS

         This Amendment may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. This Amendment
(other than the provisions of Sections 1 through 10 hereof) shall become
effective upon the execution of a counterpart hereof by all Lenders and each of
the Loan Parties and receipt of written or telephonic notification of such
execution and authorization of delivery thereof.

SECTION 15. FEES AND EXPENSES

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

SECTION 16. EFFECT OF AMENDMENT

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

SECTION 17. APPLICABLE LAW

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




                                      24
<PAGE>   25
         WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.



                                   BEI:

                                   BEVERLY ENTERPRISES, INC.



                                   By: /s/ SCHUYLER HOLLINGSWORTH, JR.
                                   Title: Senior Vice President and Treasurer




                                   Borrower:

                                   BEVERLY CALIFORNIA CORPORATION



                                   By: /s/ SCHUYLER HOLLINGSWORTH, JR.
                                   Title: Senior Vice President and Treasurer



                                   AGENT, CO-AGENT AND LENDERS:

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



                                   By: /s/ YUTAKA KAMISAWA
                                   Title: Deputy General Manager



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



                                   By: /s/ DANIEL A. BROWN
                                   Title: Director





                                     S-1

<PAGE>   26
                                        LENDERS:

                                        INTERNATIONALE NEDERLANDEN (U.F.)
                                        CAPITAL CORPORATION


                                        By: /s/ J.W. LATIMER
                                        Title: Managing Director



                                        NIPPON SANSO NETHERLANDS B.V.


                                        By: /s/ NOBUYOSHI ASAI
                                        Title: Managing Director



                                        U.S. NATIONAL BANK OF OREGON


                                        By: /s/ JANET JORDAN
                                        Title: Vice President



                                        NICHIJUKIN (USA), LTD.


                                        By: /s/ KAYUAKI OGAWA
                                        Title: Treasurer and Secretary



                                        ORIX USA CORPORATION

                                        By:
                                        Title:




                                     S-2
<PAGE>   27
                                        NIPPON SHINPAN FINANCE
                                        (U.S.A.) CO., LTD.


                                        By: /s/ SHUICHI TANAKAMARU
                                        Title: President



                                        THE SUBSIDIARY GUARANTORS:

                                             Beverly Enterprises -
                                                  Alabama, Inc.

                                             Beverly Enterprises -
                                                  Arkansas, Inc.

                                             Beverly Enterprises -
                                                  Florida, Inc.

                                             Beverly Enterprises -
                                                  Georgia, Inc.

                                             Beverly Enterprises -
                                                  Maryland, Inc.

                                             Beverly Enterprises -
                                                  Massachusetts, Inc.

                                             Beverly Enterprises -
                                                  Minnesota, Inc.

                                             Beverly Enterprises -
                                                  Mississippi, Inc.

                                             Beverly Enterprises -
                                                  Missouri, Inc.

                                             Beverly Enterprises -
                                                  Nebraska, Inc.

                                             Beverly Enterprises -
                                                  North Carolina, Inc.

                                             Beverly Enterprises -
                                                  Oregon

                                             Beverly Enterprises -
                                                  Wisconsin, Inc.




                                     S-3
<PAGE>   28
                                   Commercial Management,   
                                        Inc.                
                                                            
                                   Hallmark Convalescent    
                                        Homes, Inc.         
                                                            
                                   Hospital Facilities      
                                        Corporation         
                                                            
                                   Moderncare of Lumberton, 
                                        Inc.                
                                                            
                                   Nebraska City S-C-H, Inc.
                                                            
                                   South Dakota - Beverly   
                                        Enterprises, Inc.   
                                                            
                                   Vantage Healthcare       
                                        Corporation         
                                                            
                                   AGI-Camelot, Inc.        
                                                            
                                   AGI-McDonald County      
                                        Health Care, Inc.   
                                                            
                                   Beverly Enterprises -    
                                        Arizona, Inc.       
                                                            
                                   Beverly Enterprises -    
                                        California, Inc.    
                                                            
                                   Beverly Enterprises -    
                                        Colorado, Inc.      
                                                            
                                   Beverly Enterprises -    
                                        Connecticut, Inc.   
                                                            
                                   Beverly Enterprises -    
                                        Garden Terrace, Inc.
                                                            
                                   Beverly Enterprises -    
                                        Hawaii, Inc.        
                                                            
                                   Beverly Enterprises -    
                                        Idaho, Inc.         
                                                            
                                   Beverly Enterprises -    
                                        Illinois, Inc.      
                                                            
                                   Beverly Enterprises -    
                                        Indiana, Inc.       
                                                            
                                   Beverly Enterprises -    
                                        Kansas, Inc.        





                                     S-4
<PAGE>   29
                                   Beverly Enterprises -       
                                        Kentucky, Inc.         
                                                               
                                   Beverly Enterprises -       
                                        Louisiana, Inc.        
                                                               
                                   Beverly Enterprises -       
                                        Michigan, Inc.         
                                                               
                                   Beverly Enterprises -       
                                        New Jersey, Inc.       
                                                               
                                   Beverly Enterprises -       
                                        Ohio, Inc.             
                                                               
                                   Beverly Enterprises -       
                                        Pennsylvania, Inc.     
                                                               
                                   Beverly Enterprises -       
                                        South Carolina, Inc.   
                                                               
                                   Beverly Enterprises -       
                                        Tennessee, Inc.        
                                                               
                                   Beverly Enterprises -       
                                        Texas, Inc.            
                                                               
                                   Beverly Enterprises -       
                                        Utah, Inc.             
                                                               
                                   Beverly Enterprises -       
                                        Virginia, Inc.         
                                                               
                                   Beverly Enterprises -       
                                        Washington, Inc.       
                                                               
                                   Beverly Enterprises -       
                                        West Virginia, Inc.    
                                                               
                                   Beverly Indemnity, Ltd.     
                                                               
                                   Beverly Manor Inc. of       
                                        Hawaii                 
                                                               
                                   Beverly Savana Cay Manor,   
                                        Inc.                   
                                                               
                                   Columbia-Valley Nursing     
                                        Home, Inc.             
                                                               
                                   Computran Systems, Inc.     





                                     S-5
<PAGE>   30
                                  Continental Care Centers          
                                       of Council Bluffs,  Inc.     
                                                                    
                                  Forest City Building Ltd.         
                                                                    
                                  Home Medical Systems,             
                                       Inc.                         
                                                                    
                                  Kenwood View Nursing              
                                       Home, Inc.                   
                                                                    
                                  Liberty Nursing Homes,            
                                       Incorporated                 
                                                                    
                                  Medical Arts Health               
                                       Facility of                  
                                       Lawrenceville, Inc.          
                                                                    
                                  Nursing Home Operators,           
                                       Inc.                         
                                                                    
                                  Petersen Health Care,             
                                       Inc.                         
                                                                    
                                  Pharmacy Corporation of           
                                       America                      
                                                                    
                                  Salem No.  1, Inc.                
                                                                    
                                  South Alabama Nursing             
                                       Home, Inc.                   
                                                                    
                                  Taylor County Health              
                                       Facility, Incorporated       
                                                                    
                                                                    
                                  By:  /s/ SCHUYLER HOLLINGSWORTH, JR.  
                                  Title: Senior Vice President & Treasurer     





                                     S-6
<PAGE>   31
                                  Exhibit A

<TABLE>
<S>      <C>     <C>                                                           <C>
1.       (a)     Minimum Fixed Charge Coverage Ratio permitted for
                 the Applicable Period pursuant to subsection 5.5 . . . . .    1.00:1.00

         (b)     (i)      Coverage Consolidated EBIDA for the four
                          consecutive fiscal quarters immediately
                          preceding and including the Period End
                          Date (the "APPLICABLE PERIOD")  . . . . . . . . .    $________

                 (ii)     Consolidated Rental Expense for the
                          Applicable Period . . . . . . . . . . . . . . . .    $________

                 (iii)    Sum of Coverage Consolidated EBIDA and
                          Consolidated Rental Expense for the
                          Applicable Period (Item (b)(i) plus Item
                          (b)(ii)). . . . . . . . . . . . . . . . . . . . .    $________

         (c)     (i)      Consolidated Interest Charges for the
                          Applicable Period . . . . . . . . . . . . . . . .    $________

                 (ii)     Consolidated Rental Expense for the
                          Applicable Period . . . . . . . . . . . . . . . .    $________

                 (iii)    Consolidated Capital Expenditures for
                          the Applicable Period . . . . . . . . . . . . . .    $________

                 (iv)     Sum of Consolidated Interest Charges,
                          Consolidated Rental Expense and
                          Consolidated Capital Expenditures for
                          the  Applicable  Period  (Item  (c)(i)
                          plus Item (c)(ii) plus Item (c)(iii)) . . . . . .    $________

         (d)     Actual Fixed Charge Coverage Ratio for the
                 Applicable Period (ratio of Item (b)(iii)
                 to Item (c) (iv))  . . . . . . . . . . . . . . . . . . . .    ___: 1.00
</TABLE>





                                      A-1
<PAGE>   32
                                   Exhibit B

<TABLE>
<S>      <C>     <C>                                                           <C>
4.       (a)     Maximum Consolidated Debt for Borrowed
                 money to Consolidated EBITDA ratio permitted
                 for the Applicable Period pursuant to
                 subsection 5.8     . . . . . . . . . . . . . . . . . . . .    6.00:1.00
</TABLE>





                                      B-1
<PAGE>   33
                                   Exhibit C

<TABLE>
<S>      <C>     <C>                                                           <C>
1.       (a)     Minimum Eligible Collateral Appraisal Value
                 percentage as permitted and described in
                 subsection 5.18A . . . . . . . . . . . . . . . . . . . . .    125%
</TABLE>





                                      C-1
<PAGE>   34
                                   Exhibit D

<TABLE>
<S>      <C>                                                                  <C>
D.       Negative Pledge
         ---------------

         (a)     Maximum aggregate principal amount of Debt
                 (including, without limitation, any obligation
                 with respect to any letter of credit or
                 similar instrument) and contingent obligations
                 secured by Liens on assets permitted pursuant to
                 subsection 5.13A(viii) . . . . . . . . . . . . . . . . . .    $20,000,000

         (b)     Actual aggregate principal amount of all such
                 Debt (including, without limitation, any obligation
                 with respect to any letter of credit or similar
                 instrument) and contingent obligations on the
                 Period End Date  . . . . . . . . . . . . . . . . . . . . .    $__________

         (c)     Maximum aggregate amount of Debt (including,
                 without limitation, any obligation with respect
                 to any letter of credit or similar instrument)
                 and contingent obligations secured by any
                 Lien and incurred in connection with early
                 termination of leases permitted
                 pursuant to subsection 5.13A(ix) . . . . . . . . . . . . .    $20,000,000

         (d)     Actual aggregate amount of such Debt (including,
                 without limitation, any obligation with respect
                 to any letter of credit or similar instrument) and
                 contingent obligations on the Period End Date  . . . . . .    $__________

         (e)     (i)      Maximum excess Appraised Value of all
                          New Assets plus excess Appraised Value
                          of Substitute Pooled Mortgage Assets plus
                          aggregate principal amount of all
                          Incremental Pooled Mortgage Debt and all
                          Debt (including, without limitation, any
                          obligation with respect to any letter of
                          credit or similar instrument) and
                          contingent obligations secured by Liens
                          permitted under subsection 5.13A(xvii)  . . . . .    $50,000,000

                 (ii)     Excess of the Appraised Value of all New
                          Assets over the Appraised Value of all
                          Nippon Collateral, Morgan Collateral, and
                          Senior Note Collateral no longer subject
                          to any Lien securing Designated Obligations
                          on the Period End Date  . . . . . . . . . . . . .    $__________
</TABLE>





                                      D-1
<PAGE>   35
<TABLE>
<S>      <C>                                                                  <C>
                 (iii)    Excess of the Appraised Value of all
                          Substitute Pooled Mortgage Assets over the
                          Appraised Value of all Initial Pooled
                          Mortgage Facilities no longer subject to any
                          Lien securing any Pooled Mortgage Debt on
                          the Period End Date . . . . . . . . . . . . . . .    $__________

                 (iv)     Aggregate principal amount of all Incremental
                          Pooled Mortgage Debt and all Debt (including,
                          without limitation, any obligation with
                          respect to any letter of credit or similar
                          instrument) and contingent obligations secured
                          by Liens permitted under subsection 5.13A(xvii)
                          on the Period End Date  . . . . . . . . . . . . .    $__________

                 (v)      Actual sum under subsections 5.13A(xiv), (xv),
                          (xvi) and (xvii) on the Period End Date (Item
                          (e)(ii) plus Item e(iii) plus Item (e)(iv)) . . .    $__________

E.       Incurrence of Debt
         ------------------

         (a)     Maximum aggregate principal amount of Debt (including,
                 without limitation, any obligation with respect to
                 any letter of credit or similar instrument) and
                 contingent obligations incurred by BEI's Subsidiaries
                 (other than Borrower) in connection with early
                 termination of leases permitted pursuant to subsection
                 5.15(b)    . . . . . . . . . . . . . . . . . . . . . . . .    $20,000,000

         (b)     Actual aggregate principal amount of such Debt (including,
                 without limitation, any obligation with respect to any
                 letter of credit or similar instrument) and contingent
                 obligations outstanding on the Period End Date . . . . . .    $___________

         (c)     Maximum aggregate principal amount of all Permitted
                 Commercial Paper permitted pursuant to subsection
                 5.15(e)    . . . . . . . . . . . . . . . . . . . . . . . .    $100,000,000

         (d)     Actual aggregate principal amount of all Permitted
                 Commercial Paper outstanding on the Period End Date  . . .    $___________
</TABLE>





                                      D-2
<PAGE>   36
<TABLE>


         <S>     <C>                                                            <C>          
          (e)    Maximum aggregate principal amount of Incremental
                 Pooled Mortgage Debt and all Debt (including, without
                 limitation, any obligation with respect to any letter
                 of credit or similar instrument) and contingent
                 obligations permitted under clause (m) of 
                 subsection 5.15  . . . . . . . . . . . . . . . . . . . . . .   $50,000,000

         (f)     Actual aggregate principal amount of Incremental Pooled       
                 Mortgage Debt and all Debt (including, without limitation,
                 any obligation with respect to any letter of credit or
                 similar instrument) and contingent obligations permitted
                 under clause (m) of subsection 5.15 on the Period End 
                 Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $__________  


</TABLE>




                                      D-3
<PAGE>   37

                                   Exhibit E

Matters to be Covered by Opinion of Counsel to Loan Parties

         1.      Each of the Loan Parties is a corporation duly incorporated,
validly existing and in good standing under the laws of its state of
incorporation, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted except where the failure to obtain such governmental licenses,
authorizations, consents and approvals would not, in my/our reasonable
judgment, have a material adverse effect on the business operations,
properties, assets, business prospects or condition of the Loan Parties taken
as a whole.

         2.      The execution, delivery and performance by each of the Loan
Parties of the Amendment and performance by each Loan Party party thereto of
the Credit Agreement, as amended by the Amendment (the "Amended Credit
Agreement") (i) are within the corporate powers of each of the Loan Parties and
have been duly authorized by all necessary corporate action, (ii) require no
action by or in respect of, or filing with any Federal, New York, California,
Michigan or Delaware governmental body, agency or official, (iii) do not
contravene the articles or certificate of incorporation or by-laws or each Loan
Party, (iv) to the best of my/our knowledge, do not contravene any provision of
Delaware corporate, Federal, New York, California or Michigan law or regulation
applicable to each Loan Party, (v) to the best of my/our knowledge, do not
contravene or constitute a default under any agreement, judgment, injunction,
order, decree or other instrument that is material individually or in the
aggregate and that is binding upon each Loan Party and (vi) to the best of
my/our knowledge, will not result in the creation or imposition of any Lien on
any asset of the Loan Parties.

         3.      The Amendment has been duly executed and delivered by the Loan
Parties.

         4.      Each of the Amendment and the Amended Credit Agreement
constitutes the legal, valid and binding obligation of each Loan Party party
thereto, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity).





                                      E-1
