
<PAGE>   1
                                                                    EXHIBIT 10.7


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

                           DATED AS OF JUNE 28, 1996

                 THIS SEVENTEENTH AMENDMENT, dated as of June 28, 1996 (this
"AMENDMENT"), is entered into by and among BEVERLY ENTERPRISES, INC., a
Delaware corporation ("BEI"), BEVERLY HEALTH AND REHABILITATION SERVICES, INC.
(formerly known as Beverly California Corporation), a California corporation
("BORROWER"), the SUBSIDIARY GUARANTORS listed on the signature pages hereof
(together with BEI, the "GUARANTORS"), the LENDERS listed on the signature
pages hereof (such lenders, together with each Person that may or has become a
party to the Credit Agreement (as defined below) pursuant to subsection 10.8
thereof, are referred to herein individually as a "LENDER" and collectively as
the "LENDERS"), BANK OF MONTREAL as co-agent for the Lenders (in such capacity,
the "COAGENT"), and THE LONG-TERM CREDIT BANK OF JAPAN, LTD., Los Angeles
Agency ("LTCB"), as agent for the Lenders (in such capacity, the "AGENT").
This Amendment amends the Credit Agreement dated March 24, 1992 by and among
BEI, Borrower, Co-Agent, Agent and Lenders, as amended by that First Amendment
to Credit Agreement dated April 7, 1992 by and among BEI, Borrower, Co-Agent,
Agent and the Lenders, as further amended by that Second Amendment to Credit
Agreement dated as of May 11, 1992 by and among BEI, Borrower, CoAgent, Agent
and the Lenders, as further amended by that Third Amendment to Credit Agreement
dated as of March 1, 1993 by and among BEI, Borrower, Co-Agent, Agent and the
Lenders, as further amended by that Fourth Amendment to Credit Agreement dated
as of November 1, 1993 by and among BEI, Borrower, Co-Agent, Agent and the
Lenders, as further amended by that Fifth Amendment to Credit Agreement dated
as of March 21, 1994 by and among BEI, Borrower, Co-Agent, Agent and the
Lenders, as further amended by that Sixth Amendment to Credit Agreement dated
as of April 22, 1994 by and among BEI, Borrower, Co-Agent, Agent and the
Lenders, as further amended by that Seventh Amendment to Credit Agreement dated
as of May 2, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders,
as further amended by that Eighth Amendment to Credit Agreement dated as of
November 1, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders,
as further amended by that Ninth Amendment to Credit Agreement dated as of
November 9, 1994 by and among BEI, Borrower, Co-Agent, Agent and the
Lenders, as further amended by that Tenth Amendment to Credit Agreement dated
as of
<PAGE>   2

December 6, 1994 by and among BEI, Borrower, Co-Agent, Agent and the Lenders,
as further amended by that Eleventh Amendment to Credit Agreement dated as of
March 27, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders, as
further amended by that Twelfth Amendment to Credit Agreement dated as of
October 23, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders,
as further amended by that Thirteenth Amendment to Credit Agreement dated as of
September 29, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders,
as further amended by that Fourteenth Amendment to Credit Agreement dated as of
December 7, 1995 by and among BEI, Borrower, Co-Agent, Agent and the Lenders,
as further amended by that Fifteenth Amendment to Credit Agreement dated as of
February 12, 1996 by and among BEI, Borrower, Co-Agent, Agent and the Lenders,
as further amended by that Sixteenth Amendment to Credit Agreement dated as of
June 5, 1996 by and among BEI, Borrower, Co-Agent, Agent and the Lenders (said
Credit Agreement, as so amended, the "CREDIT AGREEMENT"), as set forth
herein. Capitalized terms used herein without definition shall have the same
meanings herein as set forth in the Credit Agreement.

                                    RECITALS

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

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

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

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

                                   AGREEMENT

SECTION 1. AMENDMENT TO SUBSECTION 5.5 OF THE CREDIT AGREEMENT

          Subsection 5.5 of the Credit Agreement is hereby amended
<PAGE>   3
by deleting the table set forth therein in its entirety and replacing it with
the following table:

<TABLE>
<CAPTION>
                  Period                                Ratio
                  ------                                -----
<S>                                                   <C>
Effective Date through December 30, 1995              1.10 to 1
                                                   
December 31, 1995 through June 29, 1996               1.15 to 1
                                                   
June 30, 1996 through December 30, 1996               1.10 to 1
                                                   
December 31, 1996 through December 30, 1997           1.15 to 1
                                                   
December 31, 1997 and thereafter                      1.20 to 1
</TABLE>                                           

SECTION 2.       REPRESENTATIONS AND WARRANTIES

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

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

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

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

        (d)     The execution, delivery and performance of this
Amendment and the Credit Agreement as amended by this Amendment, by each Loan
Party are within the corporate power and authority of each such Loan Party and,
as of the Seventeenth 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 Seventeenth Amendment Effective Date, is
duly executed and delivered by each of such Loan Parties and will constitute a
valid and binding agreement of each of such Loan Parties, enforceable against
such Loan Parties in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability. The Credit Agreement constitutes and, as
of the Seventeenth Amendment Effective Date,
<PAGE>   4
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; and

        (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 3.      CONDITIONS TO EFFECTIVENESS

        Section 1 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 "SEVENTEENTH
AMENDMENT EFFECTIVE DATE"):
        
        A.      On or before the Seventeenth Amendment Effective Date, BEI,
Borrower and each Subsidiary Guarantor shall deliver to Lenders (or to Agent for
Lenders with sufficient originally executed copies, as appropriate, for each
Lender and its counsel) the following, each, unless otherwise noted, dated the
Seventeenth Amendment Effective Date:

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

                (ii)    Executed counterparts of this Amendment.
<PAGE>   5
         B.      On or before the Seventeenth Amendment Effective Date,
Requisite Lenders 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.

SECTION 4.        THE GUARANTIES

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

         Each Guarantor acknowledges and agrees that any of the Guaranty 
Agreements and the Collateral Documents to which it is a party or otherwise
bound shall continue in full force and effect and that all of its obligations
thereunder shall be valid and enforceable and shall not be impaired or limited
by the execution or effectiveness of this Amendment. Each Guarantor represents
and warrants that all representations and warranties contained in the Credit
Agreement as amended by this Amendment and the Guaranty Agreements and the
Collateral Documents to which it is a party or otherwise bound are true,
correct and complete in all material respects on and as of the Seventeenth
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 5.        COUNTERPARTS; EFFECTIVENESS

         This Amendment may be executed in any number of counterparts, and by 
different parties hereto in separate
<PAGE>   6
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 Section 1 hereof)
shall become effective upon the execution of a counterpart hereof by Requisite
Lenders and each of the Loan Parties and receipt of written or telephonic
notification of such execution and authorization of delivery thereof.

SECTION 6.        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 7.        EFFECT OF AMENDMENT

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

SECTION 8.        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.

                  [Remainder of page intentionally left blank]
<PAGE>   7
         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:
                                          -------------------------------------
                                       Title: 
                                             ----------------------------------

                                       Borrower:
                                       ---------

                                       BEVERLY HEALTH AND REHABILITATION
                                       SERVICES, INC. (formerly known as Beverly
                                       California Corporation)


                                       By: 
                                          -------------------------------------
                                       Title: 
                                             ----------------------------------
                                       
                                       Agent, Co-Agent and Lenders:
                                       ----------------------------
                                       THE LONG-TERM CREDIT BANK OF JAPAN, 
                                       LOS ANGELES AGENCY, 
                                       as Agent and as a Lender


                                       By: 
                                          -------------------------------------
                                       Title: 
                                             ----------------------------------


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


                                       By: 
                                          -------------------------------------
                                       Title: 
                                             ----------------------------------





                                      S-1

<PAGE>   8

                                       LENDERS:

                                       INTERNATIONALE NEDERLANDEN (U.S.)
                                       CAPITAL CORPORATION

                                       By: 
                                          -------------------------------------
                                       Title: 
                                             ----------------------------------

                                       U.S. NATIONAL BANK OF OREGON

                                       By: 
                                          -------------------------------------
                                       Title: 
                                             ----------------------------------





                            THE SUBSIDIARY GUARANTORS:
                            --------------------------

                                 A.B.C. Health Equipment Corp.

                                 Alliance Health Services, Inc.

                                 Alliance Home Health Care, Inc.

                                 Amco Medical Service, Inc.

                                 American Transitional Hospitals
                                 -- Texas Medical Center, Inc.

                                 ATH Clear Lake, Inc.

                                 ATH Columbus, Inc.

                                 ATH Oklahoma City, Inc.

                                 Beverly Acquisition Corporation

                                 Beverly Assisted Living, Inc.

                                 Beverly Enterprises - Alabama, Inc.

                                 Beverly Enterprises - Arkansas, Inc.

                                 Beverly Enterprises -- Delaware, Inc.





                                      S-2
<PAGE>   9
                                 Beverly Enterprises -- District of
                                 Columbia, Inc.

                                 Beverly Enterprises - Florida, Inc.

                                 Beverly Enterprises - Georgia, Inc.

                                 Beverly Enterprises -- Iowa, Inc.

                                 Beverly Enterprises -- Maine, Inc.

                                 Beverly Enterprises - Maryland, Inc.

                                 Beverly Enterprises -- Massachusetts, Inc.

                                 Beverly Enterprises -- Minnesota, Inc.

                                 Beverly Enterprises -- Mississippi, Inc.

                                 Beverly Enterprises -- Missouri, Inc.

                                 Beverly Enterprises -- Montana, Inc.

                                 Beverly Enterprises -- Nebraska, Inc.

                                 Beverly Enterprises -- Nevada, Inc.

                                 Beverly Enterprises -- New Hampshire,
                                 Inc.

                                 Beverly Enterprises -- New Mexico, Inc.

                                 Beverly Enterprises -- North Carolina, Inc.

                                 Beverly Enterprises -- North Dakota, Inc.

                                 Beverly Enterprises -- Oklahoma, Inc.

                                 Beverly Enterprises -- Oregon

                                 Beverlv Enterprises -- Rhode Island, Inc.

                                 Beverly Enterprises -- Vermont, Inc.

                                 Beverly Enterprises - Wisconsin, Inc.

                                 Beverly Enterprises -- Wyoming, Inc.

                                 Beverly Enterprises Medical Equipment
                                 Corporation





                                      S-3
<PAGE>   10
                                 Beverly Enterprises Rehabilitation
                                 Corporation

                                 Beverly Holdings I, Inc.

                                 Beverly Real Estate Holdings, Inc.

                                 Beverly Remic Depositor, Inc.

                                 Brownstone Pharmacy, Inc.

                                 Commercial Management, Inc.

                                 DD Wholesale, Inc.

                                 Dunnington Drug, Inc.

                                 Dunnington RX Services of Rhode Island,
                                 Inc.

                                 Dunnington RX Services of Massachusetts,
                                 Inc.

                                 Hallmark Convalescent Homes, Inc.

                                 Healthcare Prescription Services, Inc.

                                 Hospital Facilities Corporation

                                 Insta-Care Holdings, Inc.

                                 Insta-Care Pharmacy Services Corporation

                                 Insurance Software Packages, Inc.

                                 Medical Health Industries, Inc.

                                 Medview Services, Incorporated

                                 Moderncare of Lumberton, Inc.

                                 Nebraska City S-C-H, Inc.

                                 Omni Med B, Inc.

                                 Pharmacy Corporation of America -
                                 Massachusetts, Inc.

                                 Pharmacy Dynamics Group, Inc.

                                 Phymedsco, Inc.





                                      S-4
<PAGE>   11
                                 Resource Opportunities, Inc.

                                 Spectra Rehab Alliance, Inc.

                                 South Dakota - Beverly Enterprises, Inc.

                                 TMD Disposition Company

                                 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.

                                 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.





                                      S-5
<PAGE>   12
                                 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.

                                 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.

                                 American Transitional Care Centers of
                                  Texas, Inc.

                                 American Transitional Care Dallas-Ft.
                                  Worth, Inc.

                                 American Transitional Health Care, Inc.

                                 American Transitional Hospitals, Inc.

                                 American Transitional Hospitals of
                                  Indiana, Inc.

                                 American Transitional Hospitals of





                                      S-6
<PAGE>   13
                                 Oklahoma, Inc.

                                 American Transitional Hospitals of
                                  Tennessee, Inc.

                                 ATH Del Oro, Inc.
                                 
                                 ATH Heights, Inc.

                                 ATH Tucson, Inc.

                                 Beverly Enterprises Japan Limited

                                 AdviNet, Inc.

                                 Beverly Crest Corporation

                                 Beverly Enterprises-Distribution Services,
                                  Inc.

                                 Hospice Preferred Choice, Inc.

                                 Beverly Rehabilitation Services, Inc.

                                 Synergos, Inc.

                                 Synergos-Scottsdale, Inc.

                                 Synergos-Pleasanthill, Inc.

                                 Synergos-North Hollywood, Inc.


                                       By:

                                          -------------------------------------
                                       Title: 
                                             ----------------------------------






                                      S-7
