
<PAGE>   1
                                                                   EXHIBIT 10.37

                                SECOND AMENDMENT
                              TO CREDIT AGREEMENT
                                     AMONG
                           BEVERLY ENTERPRISES, INC.,
                        BEVERLY CALIFORNIA CORPORATION,
                   THE SUBSIDIARY GUARANTORS LISTED HEREIN,
                          THE LENDERS LISTED HEREIN,
                                     AND
                          THE NIPPON CREDIT BANK, LTD.
                         LOS ANGELES AGENCY, AS AGENT

                            DATED AS OF MAY 19, 1994

         THIS SECOND AMENDMENT dated as of May 19, 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"), and
THE NIPPON CREDIT BANK, LTD., Los Angeles Agency ("NIPPON"), as agent for the
Lenders (in such capacity, the "AGENT"). This Amendment amends the Credit
Agreement dated as of March 2, 1993 by and among BEI, Borrower, Agent and
Lenders (as amended by that certain First Amendment to Credit Agreement dated
as of May 6, 1994, 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.

                                    RECITALS

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

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

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

         NOW, THEREFORE, in consideration of the terms and conditions herein
contained, BEI, Borrower, Guarantors, Agent and Lenders agree as follows:
<PAGE>   2
                                   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)                                           O.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 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





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<PAGE>   3
         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 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





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         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 nonrecurring 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 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





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         (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.

                 'LTCB' means The Long-Term Credit Bank of Japan, Ltd. and its
         successors.

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

                 'LTCB CREDIT AGREEMENT' means that certain Credit Agreement,
         dated as of March 24, 1992, among Borrower, BEI, the lenders party
         thereto (the "LTCB Lenders"), Bank of Montreal, as co-agent, and LTCB,
         as agent, as amended, supplemented or modified.

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

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

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

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

                 '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,





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<PAGE>   6
         arising in one or more related or unrelated transactions, in an
         aggregate principal amount exceeding $15,000,000.

                 '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.

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

                 '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





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         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
         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 an 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.





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<PAGE>   8
                 '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 of 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 any 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, 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





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<PAGE>   9
         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 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





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"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 definitions of "New Morgan Credit Agreement"
and "Old Morgan Credit Agreement" and adding the following definition in
alphabetical order:

                 "'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."

The Credit Agreement and other Loan Documents also are amended by changing all
references to "New Morgan Credit Agreement" or "Old Morgan Credit Agreement"
therein to "Morgan Credit Agreement."

                 (f) Subsection 1.1 of the Credit Agreement is hereby further
amended by deleting therefrom the definition of "LTCB Agreement."

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%"

                 (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%"





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<PAGE>   11
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"

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."





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<PAGE>   12

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 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;

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

                          (iii) Liens on the LTCB Collateral securing the
                 obligations ("LTCB OBLIGATIONS") of BEI and its Subsidiaries
                 under the LTCB 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;





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<PAGE>   13
                          (iv) Liens on the Senior Note Collateral securing the
                 obligations ("SENIOR NOTE OBLIGATIONS" and, together with the
                 LTCB 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 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




                                      13
<PAGE>   14
                 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 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 LTCB Collateral)
                 securing LTCB 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




                                      14
<PAGE>   15
                 ASSETS"), provided that the sum of (A) the excess of the
                 Appraised Value of all New Assets over the Appraised Value of
                 all LTCB 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 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.





                                      15


<PAGE>   16
                 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 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;

                          (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





                                      16
<PAGE>   17
                 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 LTCB 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 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





                                      17
<PAGE>   18
                 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 (1) 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."

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 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





                                      18
<PAGE>   19
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 (i) adding immediately after section C of Attachment No. 1 thereof
new sections D and E set forth in Exhibit D attached hereto, (ii) relettering
current section D of Attachment No. 1 thereof to section "F" and (iii) deleting
in its entirety current section E of Attachment No. 1 thereof.

SECTION 11. REPRESENTATIONS AND WARRANTIES

                 In order to induce Agent and Lenders to enter into this
Amendment, each of BEI and Borrower represents and warrants to 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
Second 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 Second 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





                                      19
<PAGE>   20
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 Second Amendment Effective Date,
the Credit Agreement, as amended by this Amendment, will constitute, a valid
and binding agreement of BEI and Borrower, enforceable against BEI and Borrower
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles,
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability.

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

                 (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 "Second
Amendment Effective Date"):

                 A. On or before the Second 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)





                                      20
<PAGE>   21
the following, each, unless otherwise noted, dated the Second 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 Second 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 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 Second
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 Second 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 Second Amendment Effective Date:

                          (i) Borrower shall have caused payment to each Lender
         of an amendment fee equal to 0.25% of the aggregate principal amount 
         of Loans of such Lender outstanding on the Second 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 Second 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 Second 
         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





                                      21
<PAGE>   22
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 LTCB 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 LTCB Credit Agreement) to (y) the
         aggregate principal amount of Debt outstanding under the LTCB Credit
         Agreement to 1.25 to 1.00, shall have become effective in all
         respects.

                 E. On or before the Second 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 full 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





                                      22
<PAGE>   23
party or otherwise bound are true, correct and complete in all material
respects on and as of the Second Amendment Effective Date to the same extent as
though made on and as of that date except to the extent that such
representations and warranties specifically relate to an earlier date, in which
case they are true, correct and complete in all material respects as of such
earlier date.

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





                                      23
<PAGE>   24
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:

                                            Borrower:

                                            BEVERLY CALIFORNIA CORPORATION

                                            By: /s/ SCHUYLER HOLLINGSWORTH, JR.
                                            Title:
 
                                            Agent:

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


                                            By: /s/ BERNARDO CORREA-HENSCHKE
                                            Title:  

                                            Lenders:

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

                                            By: /s/ BERNARDO CORREA-HENSCHKE
                                            Title:





                                      S-2
<PAGE>   26
                                             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>   27
                                                 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>   28
                                                 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>   29
                                                 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: 





                                      S-6
<PAGE>   30
                                   Exhibit A

<TABLE>
<S>      <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>   31
                                   Exhibit B

<TABLE>
<S>      <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>   32
                                   Exhibit C

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





                                      C-1
<PAGE>   33
                                   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 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 LTCB 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>   34

<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 . . . . . .        $__________

         (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

</TABLE>





                                      D-2
<PAGE>   35

<TABLE>
         <S>                                                                            <C>
         (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>   36
                                   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
