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                                                                   EXHIBIT 10.40

                  FORM OF NON QUALIFIED STOCK OPTION AGREEMENT


         This Agreement between Beverly Enterprises, Inc., a Delaware
corporation (the "Corporation") and ___________________, an individual and
resident of the State of _______________ (the "Holder"), relates to an
Agreement and Plan of Merger dated June 22, 1994 (the "Merger Agreement"), by
and among the Corporation, ATH Acquisition, Inc., a Delaware corporation and
wholly-owned subsidiary of the Corporation ("Acquisition") and American
Transitional Hospitals, Inc., a Delaware corporation ("ATH"), whereby on the
Effective Date, Acquisition was merged with and into ATH, whereupon ATH as the
surviving corporation, became a wholly-owned subsidiary of the Corporation (the
"Merger").

         On ___________, 19___, ATH granted an option to the Holder (the
"Option") to purchase from ATH fully paid and non- assessable shares of ATH's
$.01 par value per share common stock at an exercise price of $_____ per share,
pursuant to a Non Qualified Stock Option Agreement dated _________, 19___ (the
"Old Option Agreement"), which is attached hereto as Exhibit A.

         The Old Option Agreement and the Option were granted pursuant to the
1993 Non Qualified Stock Option Plan (the "Plan") of ATH adopted by ATH's Board
of Directors on April 27, 1993, and approved by the stockholders of ATH on July
31, 1993.  The Option assumed hereby and modified as described below is subject
to all of the terms, conditions and provisions of the Plan, as assumed by the
Corporation pursuant to the Merger Agreement and this Agreement which
supersedes the Old Option Agreement.  A copy of the Plan and the Merger
Agreement are attached hereto collectively as Exhibit B and made a part of this
Agreement as if fully set out herein.

         Pursuant to the Merger Agreement and as part of the Merger, the Option
assumed by the Corporation is hereby modified from and after the Effective Date
as follows:  (i) the Corporation's compensation committee of its Board of
Directors shall be substituted for ATH's Board of Directors administering the
Plan and the Option; (ii) the Option may be exercised solely for the
Corporation's $.10 par value per share common stock (the "Common Stock"); (iii)
the number of shares of Common Stock subject to the Option is equal to
____________ (which amount is equal to the number of shares of ATH common stock
originally issuable pursuant to the exercise of the Option times the ATH Pro
Rata Allocation (_______) divided by the ATH Exchanged Securities (____)); and
(iv) the per share exercise for each share of Common Stock will equal $____ per
share (which amount is equal to the per share exercise price for shares of ATH
common stock originally issuable pursuant to the Option ($____) divided by the
fraction the numerator of which is the ATH Pro Rata Allocation (____) and the
denominator of which is the ATH Exchanged Securities (____)).
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         The parties intend that any capitalized terms used in this Agreement
and not otherwise defined shall have the meanings ascribed to them in the
Merger Agreement.

         The Option shall be exercisable by the Holder in whole or in part as
set forth in the chart below, but in no case may the Holder exercise the Option
for a fraction of a share.  The Option will not be exercisable for shares of
Common Stock after the respective expiration dates provided in the chart below.

<TABLE>
<CAPTION>
Number of Shares
of Common Stock                    Vesting Date                  Expiration Date
- ----------------                   ------------                  ---------------
<S>                                <C>                           <C>
</TABLE>




         The Holder may exercise the Option granted hereunder, in whole or in
part, by giving not less than five (5) days' written notice of exercise to the
Corporation, specifying the number of shares to be purchased and the person in
whose name the stock certificate or certificates for shares of Common Stock is
to be registered, signed by the Holder, and accompanied by payment of the full
purchase price therefore.  The exercise price shall be payable immediately upon
the exercise of the Option in the United States dollars, paid in cash or by
check.

         The number of shares of Common Stock covered by the Option shall be
subject to adjustment in accordance with the terms of the Plan assumed by the
Corporation pursuant to the Merger Agreement.  To the extent any such
adjustment relates to stock or securities of the Corporation, the adjustment
related to stock or securities of the Corporation, the adjustment shall be made
by the Board of Directors of the Corporation, whose determination shall be
conclusive.

         The Holder shall have no rights as a stockholder of the Corporation
with respect to any shares covered by the Option until the date of issuance of
a stock certificate to him pursuant to exercise of the Option, in whole or in
part.  Except as expressly provided in the Plan, as assumed by the Corporation
pursuant to the Merger Agreement, the Holder shall have no rights by reason of
any subdivision or combination of shares of stock of any class, or the payment
of any stock dividend or any other increase or decrease in the number of shares
of stock of any class, or any such spin-off or spin-out of assets, or by reason
of any dissolution, liquidation, merger, consolidation or distribution to the
Corporation's stockholders of assets or stock of another corporation.  Any
issue by the Corporation of shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to the Option.





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         This Agreement shall not affect in any way the right or power of the
Corporation to make or authorize any adjustment, reclassification,
reorganization or other change in its capital or business structure, any merger
or consolidation of the Corporation, any issue of debt or equity securities
having preferences or priorities as to the Common Stock or the rights thereof,
the dissolution or liquidation of the Corporation, any sale or transfer of all
or any part of its business or assets, or any other corporate act or
proceeding.

         The Corporation shall have the authority to make reasonable
constructions of the Plan as assumed by the Corporation pursuant to the Merger
Agreement and of the Option, to correct any defect or supply any omission or
reconcile any inconsistency in the Option, and to prescribe reasonable rules
and regulations relating to the administration of the Option and other similar
options granted under the Plan assumed by the Corporation pursuant to the
Merger Agreement, if any.

         IN WITNESS WHEREOF, the Corporation and the Holder have executed this
Agreement on the _____ day of __________, 1994.

HOLDER:                                            BEVERLY ENTERPRISES, INC.


____________________________,                      _____________________________
an individual and resident of                      Title:_______________________
the State of ________________


Date:________________________                      Date:________________________





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