<PAGE>
                                                                   EXHIBIT 10.43

                     MASTER AMENDMENT NO. 3 TO AMENDED AND
                        RESTATED PARTICIPATION AGREEMENT

         This AMENDMENT NO. 3 TO AMENDED AND RESTATED PARTICIPATION AGREEMENT
(this "Amendment"), is entered into as of April 25, 2001, among BEVERLY
ENTERPRISES, INC., a Delaware corporation ("BEI"), as the Representative,
Construction Agent, Parent Guarantor and a Lessee (in its capacity as
Representative, the "Representative"; in its capacity as Construction Agent, the
"Construction Agent"; in its capacity as Parent Guarantor, the "Parent
Guarantor" and together with the Guarantors listed on the signature page to the
Guaranty (each a "Guarantor") and the Structural Guarantors, collectively, the
"Guarantors"; and, in its capacity as Lessee, a "Lessee"); certain subsidiaries
of BEI that are signatories hereto, as Lessees; BANK OF MONTREAL GLOBAL CAPITAL
SOLUTIONS, INC. (formerly known as BMO LEASING (U.S.), INC.), a Delaware
corporation, as a Lessor (together with any permitted successors and assigns
thereto, each a "Lessor" and collectively the "Lessors") and as Agent Lessor for
the Lessors (in such capacity, the "Agent Lessor"); the various financial
institutions as are or may from time to time become lenders (the "Lenders")
under the Loan Agreement; BANK OF MONTREAL, a Canadian banking organization
("BMO"), as Administrative Agent (in such capacity, the "Administrative Agent")
for the Lenders, as Arranger and Syndication Agent (all of the parties of this
preamble, collectively, the "Parties").

         The effective date of this Amendment shall be the Effective Date of the
Morgan Credit Agreement (the "Amendment No.3 Effective Date").

                                   RECITALS:

         The Parties entered into an Amended and Restated Participation
Agreement dated as of August 28, 1998, amending and restating the Participation
Agreement dated as of March 21, 1997 (the "Original Participation Agreement").

         The Parties entered into a Master Amendment No. 1 to Amended and
Restated Participation Agreement and Amended and Restated Master Lease and
Open-End Mortgage, dated as of September 30, 1999 (the "First Amendment"), which
amended the Original Participation Agreement.

         The Parties entered into an Amendment No. 2 to Amended and Restated
Participation Agreement, dated as of November 1, 1999 (the "Second Amendment"),
which amended the Original Participation Agreement as amended by the First
Amendment.

         The Parties wish to further amend certain provisions of the Original
Participation Agreement, as amended by the First Amendment and the Second
Amendment, as set forth herein.


<PAGE>


                                   AGREEMENT:

         NOW, THEREFORE, in consideration of the premises made hereunder, and
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereto, intending to be legally bound, hereby
agree as follows:

                1. Defined Terms; References. Unless otherwise expressly defined
herein, all capitalized terms used herein and defined in Appendix A to the
Participation Agreement shall be used herein as so defined. Unless otherwise
expressly stated herein, all Section and Article references herein shall refer
to Sections and Articles of the Participation Agreement.

                2. Added Defined Terms. (a) Effective as of the Amendment No. 3
Effective Date, the following defined terms shall be added to Appendix A of the
Participation Agreement.

         "Credit Agreement Bank" means each BANK party to the Morgan Credit
         Agreement from time to time.

         "Bank of Montreal Synthetic Lease" means the Participation Agreement
         and the Operative Documents, as defined therein. "Credit Agreement
         Administrative Agent" means Morgan Guaranty Trust Company of New York.

         "Existing Bank" means a Bank as defined in the Morgan Credit Agreement.

         "Financing Documents" has the meaning set forth in the Morgan Credit
         Agreement.

         "Florida Disposition" means the sale, transfer or other disposition by
         the Representative and its Subsidiaries, in one or more transactions
         and pursuant to sales of facilities and related assets, sales of stock
         of Subsidiaries or a combination thereof, of all or substantially all
         of the assisted living and skilled nursing facilities of the
         Representative and its Subsidiaries located in Florida.

         "Foreign Jurisdiction" is defined in Section 10.2(e)(xv).

         "Guarantee" by any Person means any obligation, contingent or
         otherwise, of such Person directly or indirectly guaranteeing any
         Indebtedness or other obligation of any other Person and, without
         limiting the generality of the foregoing, any obligation, direct or
         indirect, contingent or otherwise, of such Person (i) to purchase or
         pay (or advance or supply funds for the purchase or payment of) such
         Indebtedness or other obligation (whether arising by virtue of
         partnership arrangements, by agreement to keep-well, to purchase
         assets, goods, securities or services, to take-or-pay, or to maintain
         financial statement conditions or otherwise) or (ii) entered into for
         the purpose of assuring in any


                                       2
<PAGE>

         other manner the obligee of such Indebtedness or other obligation of
         the payment thereof or to protect such obligee against loss in respect
         thereof (in whole or in part); provided that the term Guarantee shall
         not include endorsements for collection or deposit in the ordinary
         course of business. The term "Guarantee" used as a verb has a
         corresponding meaning.

         "Issuer" shall have the meaning set forth in the Morgan Credit
         Agreement.

         "Issuing Bank" means Morgan Guaranty Trust Company of New York in its
         capacity as issuer of Letters of Credit, and its successors in such
         capacity.

         "Letter of Credit" shall have the meaning set forth in the Morgan
         Credit Agreement.

         "Mortgage Assets" is defined in Section 10.2(g)(xii).

         "Mortgages" means the mortgages and deeds of trust described in Exhibit
         I attached hereto and made a part hereof, in each case as the same has
         been or may be amended from time to time.

         "New Senior Notes" means the senior unsecured notes of the
         Representative due April 15, 2009 in an aggregate principal amount of
         not less than $150,000,000, issued pursuant to the Indenture dated as
         of April 25, 2001 between the Representative and The Bank of New York,
         as trustee.

         "Other Financing Agreements" means the Bank of Montreal Synthetic
         Lease, the PNC Facilit y and the Encore Facilit y. "Other Financing
         Agreements Liens" means the (i) Liens outstanding on the Amendment No.
         3 Effective Date securing the obligations of the Representative and
         certain of its Subsidiaries under the Other Financing Agreements and
         (ii) Liens on property ("Substitute Collateral") substituted for
         property (the "Original Collateral") subject to a Lien referred to in
         clause (i) above; provided that (x) such Lien on Substitute Collateral
         secures the same obligations as the Lien on the Original Collateral for
         which it is substituted and (y) the value (determined on the basis of
         an amount equal to (A) Consolidated EBITDA for such Substituted
         Collateral for the four consecutive fiscal quarters most recently
         completed prior to the date upon which such substitution is made for
         which financial statements have been delivered pursuant to Section
         10.1(d)(i) or 10.1(d)(ii) multiplied by (B) 6) of such Substitute
         Collateral shall not exceed, by more than 5%, the value (as so
         determined) of the Original Collateral for which it is substituted.

         "Participation Agreement" means the Original Participation Agreement,
         as amended by the First Amendment, the Second Amendment and this
         Amendment, as the same may be further amended from time to time.

                                       3
<PAGE>

         "Pledge Agreement" means the Amended and Restated Pledge Agreement
         dated as of April 25, 2001 among the Representative, Beverly Health and
         the Credit Agreement Administrative Agent , amending and restating the
         Pledge Agreement dated as of September 30,1999, as the same has been or
         may be amended from time to time.

         "Pledged Subsidiary Mortgage Assets" is defined in Section 10.2(g)(b).

         "Security Documents" means the Pledge Agreement and the Mortgages,
         together with all related filings, assignments, instruments, mortgages
         and other papers.

         "Specified Restructuring Charges" means the restructuring charges,
         writedowns, severance costs and special charges, the material
         components of which are described in the memorandum dated December 15,
         2000 from the Representative to the Credit Agreement Administrative
         Agent and the Existing Banks, in each case to the extent actually
         incurred by the Representative or one of its Consolidated Subsidiaries
         during the fiscal quarters of the Representative ended December 31,
         2000 and March 31, 2001.

         "Subsidiary Guaranty" means the Amended and Restated Subsidiary
         Guaranty dated as of April 25, 2001 by the Representative and the
         Subsidiaries of the Representative parties thereto in favor of the
         Credit Agreement Banks, the Credit Agreement Administrative Agent and
         the Issuing Bank, amending and restating the Subsidiary Guaranty dated
         as of September 30, 1999, as the same may be amended from time to time.

         "Termination Date" means April 25, 2004.

                3. Amended Defined Terms. (a) The following defined terms in
Appendix A to the Participation Agreement are hereby amended by deleting such
definitions in their entirety and inserting the following in lieu thereof:

         "Adjusted Consolidated Debt" means, at any date, the sum, without
         duplication, of (i) all liabilities of the Representative and its
         Subsidiaries at such date of the types classified as "current
         liabilities: short-term borrowings", "current liabilities: current
         portion of long-term obligations," "long-term obligations" and, to the
         extent arising out of claims made by governmental authorities relating
         to reimbursement obligations or settlements thereof, "other liabilities
         and deferred items" on the consolidated balance sheet included in the
         Base Financials, (ii) all guarantees at such date of obligations of
         other issuers (other than guarantees outstanding on the Amendment No. 3
         Effective Date of obligations outstanding on the Amendment No. 3
         Effective Date, in amounts not in excess of $57,191,572 and reported in
         the Base Financials) and (iii) an amount equal to the product of eight
         multiplied by the Consolidated Rental Expense for the four fiscal
         quarters of the Representative most recently completed on or prior to
         such date; provided that for purposes of determining compliance with
         Section 10.2(c) and 10.2(f)(v) and determining the Pricing Ratio only,
         Consolidated Rental Expense for any such period of four fiscal quarters
         shall be calculated after giving pro forma effect (including, in the
         case


                                       4
<PAGE>

         of any acquisition, as to any cost savings and the like resulting from
         such acquisition, but only to the extent permitted under Regulation S-X
         promulgated by the Securities and Exchange Commission) to any
         acquisition or disposition by the Representative or any of its
         Subsidiaries of any business, nursing home or other facility or any
         Subsidiary consummated after the first day of such period and on or
         prior to the date as of which such determination is to be made, as if
         such acquisition or disposition had been consummated on the first day
         of such period, if, but only if, the Consolidated EBITDAR attributable
         to all such businesses, nursing homes and other facilities and all such
         Subsidiaries, in any transaction or series of related transactions, for
         such period, in the aggregate, equals or exceeds $10,000,000.

         "Base Financials" means the consolidated balance sheet of the
         Representative and its Consolidated Subsidiaries as of December 31,
         2000 and the related consolidated statements of operations,
         stockholders' equity and cash flows for the year then ended, together
         with the notes thereto, included in the Representative's 2000 Form 10-K
         and reported on without qualification by Ernst & Young LLP.

         "Consolidated EBITDA" means, for any period, Consolidated Net Income of
         the Representative and its Consolidated Subsidiaries for such period
         plus, without duplication, any amounts deducted in determining such
         Consolidated Net Income in respect of (a) Consolidated Interest Charges
         for such period, (b) Consolidated Tax Charges for such period and (c)
         expenses for such period of the types classified as "depreciation and
         amortization" on the consolidated statement of operations included in
         the Base Financials.

         "Consolidated EBITDAR" means, for any period, the sum of Consolidated
         EBITDA and Consolidated Rental Expense for such period; provided that
         for purposes of determining compliance with Sections 10.2(c) and
         10.2(f)(v) and determining the Pricing Ratio only, Consolidated EBITDAR
         for any period of four fiscal quarters referred to therein shall be
         calculated after giving pro forma effect (including, in the case of any
         acquisition, as to any cost savings and the like resulting from such
         acquisition, but only to the extent permitted under Regulation S-X
         promulgated by the Securities and Exchange Commission) to any
         acquisition or disposition by the Representative or any of its
         Subsidiaries of any business, nursing home or other facility or any
         Subsidiary consummated after the first day of such period and on or
         prior to the date as of which such determination is to be made, as if
         such acquisition or disposition had been consummated on the first day
         of such period if, but only if, the Consolidated EBITDAR attributable
         to all such businesses, nursing homes and other facilities and all such
         Subsidiaries, in any transaction, or series of related transactions,
         for such period equals or exceeds $10,000,000.

         "Consolidated Gross Capital Expenditures" means, for any period, the
         total amount of additions to property and equipment, other than
         software development costs, of the Representative and its Consolidated
         Subsidiaries during such period of the types


                                       5
<PAGE>

         classified as "capital expenditures" on the consolidated statement of
         cash flows included in the Base Financials.

         "Consolidated Net Income" means, for any period, the net income (loss)
         (calculated (a) before preferred and common stock dividends and (b)
         exclusive of the effect of (i) any extraordinary or other material
         non-recurring gain or loss outside the ordinary course of business,
         (ii) Specified Restructuring Charges in an aggregate amount, on a
         pretax basis, during the period from October 1, 2000 through March 31,
         2001 not exceeding $105,000,000 and (iii) the charges or losses, in an
         aggregate amount, on a pretax basis, not exceeding $110,000,000 during
         the term of this [Participation Agreement], incurred by the
         Representative and its Consolidated Subsidiaries (in connection with
         the Florida Disposition) for the Representative and its Consolidated
         Subsidiaries, determined on a consolidated basis for such period.

         "Consolidated Net Worth" means, at any date, the consolidated
         stockholders' equity of the Representative and its Consolidated
         Subsidiaries at such date, without giving effect to (i) charges and
         losses, in an aggregate amount, on a pretax basis, not exceeding
         $110,000,000 during the term of this [Participation Agreement],
         incurred by the Representative and its Consolidated Subsidiaries in
         connection with the Florida Disposition and (ii) Specified
         Restructuring Charges recorded in the fiscal quarter ended March 31,
         2001 in an amount not exceeding, on a pretax basis, $20,000,000.

         "Fixed Charge Coverage Ratio" means, on any date, the ratio of (i)
         Consolidated EBITDAR minus Consolidated Gross Capital Expenditures for
         the four consecutive fiscal quarters most recently ended on or prior to
         such date to (ii) the sum of Consolidated Interest Charges and
         Consolidated Rental Expense for such four fiscal quarters.

         "Lessor Margin" shall have the meaning ascribed to such term on
         Schedule IV attached hereto and made a part hereof. "Loan Margin" shall
         have the meaning ascribed to such term on Schedule IV attached hereto
         and made a part hereof.

         "Morgan Credit Agreement" means the Amended and Restated Credit
         Agreement dated as of April 30, 1998 amending and restating the Amended
         and Restated Credit Agreement dated as of August 20, 1997 among the
         Representative, the Banks listed on the signature pages thereof, Morgan
         Guaranty Trust Company of New York, as Issuing Bank, and Morgan
         Guaranty Trust Company of New York, as Agent, as the same has been or
         may be modified, amended or supplemented.

         "Sale and Leaseback Transaction" has the meaning set forth in Section
         10.2(m).


                                       6
<PAGE>

                4. Negative Covenants of the Representative. Effective as of the
Amendment No. 3 Effective Date, Section 10.2 of the Participation Agreement is
hereby amended as follows:

                    (a) Section 10.2(a) is hereby amended by deleting such
         section in its entirety and replacing same with the following:

                           "(a) Minimum Consolidated Net Worth. Consolidated Net
                  Worth of the Representative shall be at least $525,000,000,
                  plus (i) 50% of the aggregate positive Consolidated Net Income
                  (excluding any consolidated net loss) of BEI and its
                  Consolidated Subsidiaries for each fiscal quarter ending after
                  December 31, 2000, plus (ii) 50% of the aggregate net
                  proceeds, including the fair market value of property other
                  than cash (as determined in good faith by BEI's board of
                  directors), received by BEI from the issuance and sale after
                  December 31, 2000 of any capital stock of BEI (other than the
                  proceeds of any issuance and sale of any capital stock (x) to
                  a Subsidiary or (y) which is required to be redeemed, or is
                  redeemable at the option of the holder, if certain events or
                  conditions occur or exist or otherwise) or in connection with
                  the conversion or exchange of any Indebtedness of BEI into
                  capital stock of BEI after December 31, 2000."

                    (b) Section 10.2(b) of the Participation Agreement is hereby
         amended by deleting such section in its entirety and replacing same
         with the following:

                           "(b) Fixed Charge Coverage Ratio. The Fixed Charge
                  Coverage Ratio at any date shall not be less than 1.15 to
                  1.0."

                    (c) Section 10.2(c) of the Participation Agreement is hereby
         amended by deleting such section in its entirety and replacing same
         with the following:

                           "(c) Adjusted Consolidated Debt Ratio. The ratio at
                  any date during any period set forth below of (a) Adjusted
                  Consolidated Debt to (b) Consolidated EBITDAR for the period
                  of four consecutive fiscal quarters most recently ended on or
                  prior to such date shall not be more than the ratio set forth
                  below opposite such period:


                                       7
<PAGE>

<Table>
<Caption>
Period                                          Maximum Ratio
------                                          -------------
<S>                                             <C>
January 1, 2001 - December 30, 2001             5.50 to 1.0
December 31, 2001 - December 30, 2002           5.25 to 1.0
December 31, 2002 and thereafter                5.00 to 1.0 "
</Table>

                    (d) Section 10.2(d) is hereby amended by deleting said
         section in its entirety and inserting the following in lieu thereof:

                           "(d) Ownership of Stock of Wholly-Owned Subsidiaries.
                  Fail to at all times maintain, or cause a Wholly-Owned
                  Subsidiary of the Representative to maintain, ownership of
                  100% of each class of voting securities (except for directors'
                  qualifying shares) in, each of their Subsidiaries that are
                  Wholly-Owned Subsidiaries of the Representative on the date
                  hereof and each Person that shall become a Wholly-Owned
                  Subsidiary of the Representative after the date hereof, except
                  in each case any such Wholly-Owned Subsidiary that shall
                  hereafter be disposed of in its entirety, consolidated or
                  merged with or into the Representative or another such
                  Wholly-Owned Subsidiary or liquidated."

                    (e) Section 10.2(e) is hereby amended by deleting said
         section in its entirety and inserting the following in lieu thereof:

                           "(e) Investments. Has neither made or acquired nor
                  will make or acquire after the Amendment No. 3 Effective Date
                  any Investment in any Person other than:

                           (i)      Investments in the Representative or in
                                    Persons that were Subsidiaries of the
                                    Representative on the Amendment No. 3
                                    Effective Date;

                           (ii)     Investments in Persons that are (i)
                                    primarily engaged in the health-care
                                    business and (ii) after the making of such
                                    Investment, are Subsidiaries of the
                                    Representative;

                           (iii)    Temporary Cash Investments;

                           (iv)     extensions of credit or Guarantees of
                                    obligations of one or more other Persons
                                    (other than Encore Nursing Center Partners,
                                    Ltd.-85) as an integral part of the
                                    financing of the acquisition, construction,
                                    equipping or improving of


                                       8
<PAGE>

                                    facilities from which the Representative or
                                    its Subsidiaries will provide medical or
                                    related services;

                           (v)      other miscellaneous Investments related to
                                    the acquisition and financing (in the
                                    ordinary course of the Representative's
                                    business) of health-care facilities t hrough
                                    industrial development revenue bonds issued
                                    for the benefit of the Representative and
                                    its Subsidiaries;

                           (vi)     capital contributions required to be made by
                                    the Representative to Beverly Indemnity,
                                    Ltd. in accordance with applicable law and
                                    insurance regulations;

                           (vii)    stock, obligations or securities received
                                    from nursing home patients in the ordinary
                                    course of business of the Representative and
                                    its Subsidiaries;

                           (viii)   negotiable instruments endorsed for deposit
                                    or collection or similar instruments in the
                                    ordinary course of business;

                           (ix)     (a) promissory notes and other Investments
                                    received as consideration for facilities
                                    sold (other than in connection with, or as
                                    part of, the Florida Disposition), provided
                                    that the aggregate net book value of all
                                    outstanding Investments permitted by this
                                    subclause (ix)(i) shall not, at any time,
                                    exceed $25,000,000 and (b) promissory notes
                                    received as partial consideration for the
                                    Florida Disposition, provided that the
                                    aggregate principal amount of all such
                                    promissory notes permitted by this subclause
                                    (ix)(b) shall not, at any time, exceed
                                    $20,000,000;

                           (x)      Guarantees permitted by Section 10.2(i);

                           (xi)     any Investment made by the Representative or
                                    any of its Subsidiaries in connection with
                                    and as part of a Workout Transaction;

                           (xii)    Investments made by the Representative or
                                    any of its Subsidiaries in one or more
                                    Special Purpose Receivables Financing
                                    Subsidiaries by means of the sale of, or the
                                    granting of security interests in, Medicare,
                                    Medicaid or other patient accounts
                                    receivable owing to the Representative or
                                    such Subsidiary, in either case to such
                                    Special Purpose Receivables Financing
                                    Subsidiaries


                                       9
<PAGE>

                                    pursuant to a Receivables Financing Program,
                                    provided that the net amount of all
                                    uncollected accounts receivable owing to the
                                    Representative or any of its Subsidiaries
                                    that have been so sold or in which a
                                    security interest has been so granted shall
                                    not exceed 200% of the aggregate principal
                                    or redemption amount of all Permitted
                                    Receivables Financing Securities then
                                    outstanding;

                           (xiii)   Investments made in Beverly Japan
                                    Corporation in an aggregate amount
                                    outstanding at any time not to exceed
                                    $10,000,000;

                           (xiv)    Investments made in Persons that are
                                    primarily engaged in the health-care
                                    business, the consideration for which
                                    consists exclusively of common stock of the
                                    Borrower or Permitted Preferred Stock; and

                           (xv)     any Investment not otherwise permitted by
                                    the foregoing clauses of this Section (other
                                    than promissory notes and other Investments
                                    received as consideration for facilities
                                    sold) in any Person engaged primarily in the
                                    health-care business if, immediately after
                                    such Investment is made or acquired, (i) the
                                    aggregate net book value of all such
                                    Investments then held by the Borrower or its
                                    Subsidiaries and permitted by this clause
                                    (xv) does not exceed $75,000,000 and (ii)
                                    the aggregate net book value of all such
                                    Investments then held by the Borrower or its
                                    Subsidiaries in Persons organized under the
                                    laws of any jurisdiction other than the
                                    United States or any political subdivision
                                    thereof (each such other jurisdiction a
                                    "Foreign Jurisdiction") or having their
                                    chief executive offices or a substantial
                                    portion of their operations or assets in any
                                    Foreign Jurisdiction that is otherwise
                                    permitted by this clause (xv) does not
                                    exceed $15,000,000."

                     (f) Sections 10.2(f) is hereby amended by deleting said
         section in its entirety inserting the following in lieu thereof:

                           "(f) Restricted Payments on Stock. (x) declare or
                  make any dividend payment or other distribution on any capital
                  stock of the Representative (other than dividends payable
                  solely in shares of the Representative's capital stock) or (y)
                  declare or make any payment on account of the purchase,
                  redemption, retirement or acquisition of the Representative's
                  capital stock; provided that, so long as at the time of and


                                       10
<PAGE>

         after giving effect to any such payment no Event of Default shall have
         occurred and be continuing,

                           (i)      the Representative may make any such payment
                                    or distribution from the proceeds of the
                                    sale by the Representative (other than a
                                    sale to a Subsidiary of the Representative)
                                    after the Amendment No. 3 Effective Date of
                                    its common stock,

                           (ii)     the Representative may make dividend
                                    payments with respect to its preferred stock
                                    (A) from any source in an amount not to
                                    exceed $2,500,000 in any fiscal quarter and
                                    (B) from proceeds of the sale by the
                                    Representative (other than a sale to a
                                    Subsidiary of the Representative) after the
                                    Amendment No. 3 Effective Date of Permitted
                                    Preferred Stock in any amount,

                           (iii)    the Representative may make payments on
                                    account of the purchase, redemption,
                                    retirement or acquisition of its preferred
                                    stock from the proceeds of the sale by the
                                    Representative (other than a sale to a
                                    Subsidiary of the Representative) after the
                                    Amendment No. 3 Effective Date of any
                                    Permitted Preferred Stock,

                           (iv)     the Representative may make odd-lot
                                    repurchases of its common stock for an
                                    aggregate consideration not exceeding
                                    $10,000 in any calendar year, and

                           (v)      the Representative may make any such payment
                                    or distribution if, after giving effect
                                    thereto, the aggregate amount of all such
                                    payments or distributions made after the
                                    Amendment No. 3 Effective Date (including,
                                    without limitation, any such payments or
                                    distributions permitted under subclause
                                    (ii)(A) or clause (iv) above) does not
                                    exceed (A) on any date on which no Event of
                                    Default shall have occurred and be
                                    continuing or shall result from such payment
                                    and the ratio of (x) Adjusted Consolidated
                                    Debt on such day to (y) Consolidated EBITDAR
                                    for the period of four consecutive fiscal
                                    quarters most recently ended on or prior to
                                    such date is (I) less than 5.00 to 1.00 but
                                    not less than 4.75 to 1.00, $25,000,000,
                                    (II) less than 4.75 to 1.00 but not less
                                    than 4.50 to 1.00, $30,000,000, and (III)
                                    less than 4.50 to 1.00, $40,000,000 and (B)
                                    on any other date, $10,000,000.


                                       11
<PAGE>

         Nothing in this Section shall prohibit the payment of any dividend or
         distribution within 45 days after the declaration thereof if such
         declaration was not prohibited by this Section."

                      (g) Section 10.2(g) is hereby amended by deleting said
         section in its entirety and inserting the following in lieu thereof:

                           "(g) Negative Pledge. (a) Create, assume or suffer to
                  exist any Lien on any asset now owned or hereafter acquired by
                  it, except:

                           (i)      Liens existing on the Amendment No. 3
                                    Effective Date securing Indebtedness and
                                    other obligations outstanding on the
                                    Amendment No. 3 Effective Date;

                           (ii)     any Lien on any asset of any corporation
                                    that became or that becomes a Consolidated
                                    Subsidiary of the Representative after the
                                    Amendment No. 3 Effective Date that exists
                                    at the time such corporation became or
                                    becomes such a Consolidated Subsidiary and
                                    (other than in a Workout Transaction) not
                                    created in contemplation thereof;

                           (iii)    any Lien existing on any asset prior to the
                                    acquisition thereof, acquired after the
                                    Amendment No. 3 Effective Date by the
                                    Representative or a Subsidiary of the
                                    Representative and (other than in a Workout
                                    Transaction) not created in contemplation
                                    thereof;

                           (iv)     any Lien on any asset securing Indebtedness
                                    or lease 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 attached
                                    or attaches to such asset concurrently with
                                    or within one year after such acquisition,
                                    construction or reconstruction;

                           (v)      any Lien on any asset securing Indebtedness
                                    or lease obligations incurred or assumed for
                                    the purpose of improving or making any
                                    addition to such asset, provided that (A)
                                    such Lien attached or attaches to such asset
                                    concurrently with or within one year after
                                    the completion of the improvement thereof or
                                    addition thereto and (B) the aggregate
                                    outstanding principal amount of all such
                                    Indebtedness incurred after the Amendment
                                    No. 3 Effective Date (and refinancings
                                    thereof under clause (viii) below)


                                       12
<PAGE>

                                    secured by such Liens shall not, at any
                                    time, exceed $30,000,000;


                           (vi)     Liens securing Indebtedness incurred in
                                    connection with Lease Cancellation Payments,
                                    provided that the aggregate amount of all
                                    such Indebtedness incurred after the
                                    Amendment No. 3 Effective Date (and
                                    refinancings thereof under clause (viii)
                                    below) secured by such Liens shall not, at
                                    any time, exceed $20,000,000;

                           (vii)    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;

                           (viii)   any Lien arising out of the refinancing,
                                    extension, renewal or refunding of any
                                    Indebtedness secured by any Lien permitted
                                    by any of the foregoing clauses of this
                                    Section, provided that the principal amount
                                    of such Indebtedness is not increased and
                                    such Indebtedness is not secured by any
                                    additional assets other than assets that
                                    relate directly to the facility subject to
                                    the original financing;

                           (ix)     Liens on Medicare, Medicaid or other patient
                                    accounts receivable of the Representative or
                                    any of its Subsidiaries, or on Permitted
                                    Receivables Financing Securities, granted to
                                    secure Permitted Receivables Financing
                                    Securities, provided that the net amount of
                                    all uncollected accounts receivable owing to
                                    the Representative 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 the Representative or
                                    any of its Subsidiaries that are assigned to
                                    secure such Permitted Receivables Financing
                                    Securities, shall not exceed, at any time,
                                    200% of the aggregate principal or
                                    redemption amount of all Permitted
                                    Receivables Financing Securities then
                                    outstanding;

                           (x)      Liens incidental to the conduct of its
                                    business or the ownership of its assets
                                    which (A) do not secure Indebtedness or
                                    Derivatives Obligations and (B) do not in
                                    the aggregate materially detract from the
                                    value of its assets


                                       13
<PAGE>

                                    or materially impair the use thereof in the
                                    operation of its business;

                           (xi)     Liens on cash and cash equivalents securing
                                    Derivatives Obligations, provided that the
                                    aggregate amount of cash and cash
                                    equivalents subject to such Liens may at no
                                    time exceed $10,000,000;

                           (xii)    Liens on nursing homes and related real
                                    estate improvements and equipment ("Mortgage
                                    Assets") given in substitution for Liens on
                                    Mortgage Assets existing on the Amendment
                                    No. 3 Effective Date or for Liens on
                                    Mortgage Assets incurred pursuant to this
                                    clause (xii) or clause (xiii) below,
                                    provided that the sum of (A) the excess of
                                    the Appraised Value of all Mortgage Assets
                                    subjected to Liens pursuant to this clause
                                    (xiii) on or after the Amendment No. 3
                                    Effective Date over the Appraised Value of
                                    all such Mortgage Assets released from Liens
                                    on or after the Amendment No. 3 Effective
                                    Date and (B) all Indebtedness incurred after
                                    the Amendment No. 3 Effective Date and
                                    secured by Liens permitted under clause
                                    (xiii) below shall not at any time exceed
                                    $25,000,000;

                           (xiii)   Liens not otherwise permitted under clauses
                                    (i) through (xii) of this Section, provided
                                    that the sum of the amounts set forth in
                                    subclause (A) of clause (xii) above and the
                                    aggregate principal amount of all
                                    Indebtedness incurred after the Amendment
                                    No. 3 Effective Date and secured by Liens
                                    permitted under this clause (xiii) shall not
                                    at any time exceed $25,000,000;

                           (xiv)    Liens created under the Security Documents;
                                    and

                           (xv)     the Other Financing Agreements Liens.

                (b) The Representative will not permit any Issuer or any
Subsidiary of an Issuer to create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it except (i) Liens permitted by
clauses (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xiv) and
(xv) of Section 10.2(g)(a) above, (ii) Liens on nursing homes and related real
estate improvements and equipment of Issuers and their Subsidiaries ("Pledged
Subsidiary Mortgage Assets") given in substitution for Liens on Pledged
Subsidiary Mortgage Assets incurred pursuant to this clause (ii) or clause (iii)
below, provided that the sum of (A) the excess of the Appraised Value of all
Pledged Subsidiary Mortgage Assets subjected to Liens pursuant to this clause
(ii) on or after the Amendment No. 3 Effective Date over the Appraised Value of
all such


                                       14
<PAGE>

Pledged Subsidiary Mortgage Assets released from Liens on or after the Amendment
No. 3 Effective Date and (B) all Indebtedness incurred after the Amendment No. 3
Effective Date and secured by Liens permitted under clause (iii) below shall not
at any time exceed $25,000,000 and (iii) Liens not otherwise permitted under
clauses (i) and (ii) of this subsection (b), provided, that the sum of the
amounts set forth in subclause (A) of clause (ii) above and the aggregate
principal amount of all Indebtedness incurred after September 30, 1999 and
secured by Liens permitted under this clause (iii) shall not exceed
$25,000,000."

                     (h) Section 10.2(h) is hereby amended by deleting said
         section in its entirety and inserting the following language in lieu
         thereof:

                           "(h) Consolidations, Mergers and Sales of Assets.
                  Neither the Representative nor any of its Subsidiaries will
                  (i) consolidate or merge with or into any other Person, unless
                  the Representative or, except in the case of a merger or
                  consolidation to which the Representative is a party, a
                  Wholly-Owned Subsidiary of the Representative is the surviving
                  corporation or (ii) sell, lease or otherwise transfer all or
                  any substantial part of the assets of the Representative and
                  its Subsidiaries, taken as a whole, to any other Person,
                  provided that (A) this Section shall not apply to mergers,
                  dissolutions, reorganizations or liquidations of Subsidiaries
                  of the Representative that have disposed of all or
                  substantially all of their assets and (B) the Representative
                  and its Subsidiaries may assign or grant security interests in
                  their Medicare, Medicaid or other patient accounts receivable
                  to a Special Purpose Receivables Financing Subsidiary to
                  secure Permitted Receivables Financing Securities (provided
                  that the net amount at any time of all uncollected accounts
                  receivable owing to the Representative or any of its
                  Subsidiaries that are so assigned or in which a security
                  interest is so granted shall not exceed 200% of the aggregate
                  principal or redemption amount of all Permitted Receivables
                  Financing Securities then outstanding)."

                     (i) Section 10.2(i) is hereby amended by deleting said
         section in its entirety and inserting the following language in lieu
         thereof:

                           "(i) Incurrence of Indebtedness. (a) The
                  Representative will not permit any of its Subsidiaries to
                  incur, assume or suffer to exist any Indebtedness, except:

                           (i)      Indebtedness outstanding on the Amendment
                                    No. 3 Effective Date and included either in
                                    the Base Financials or listed in Schedule
                                    III hereto;

                           (ii)     Indebtedness incurred after the Amendment
                                    No. 3 Effective Date in connection with
                                    Lease Cancellation Payments,


                                       15
<PAGE>

provided that the aggregate principal amount of all such Indebtedness
outstanding at any time shall not exceed $20,000,000;

                           (iii)    Indebtedness secured by a Lien permitted
                                    pursuant to clause (iii) of subsection
                                    10.2(g)(a);

                           (iv)     Indebtedness of any corporation that became
                                    or becomes a Consolidated Subsidiary of the
                                    Representative after the Amendment No. 3
                                    Effective Date that existed or exists at the
                                    time such corporation became or becomes such
                                    a Consolidated Subsidiary and (other than in
                                    a Workout Transaction) not created in
                                    contemplation thereof;

                           (v)      Indebtedness ("Refinancing Debt") incurred
                                    to refinance Indebtedness ("Refinanced
                                    Debt") permitted under clauses (i) through
                                    (iv) above, provided that (A) the principal
                                    amount of such Refinancing Debt shall not
                                    exceed the principal amount of such
                                    Refinanced Debt and (B) 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 the first
                                    anniversary of the Termination Date;

                           (vi)     Permitted Receivables Financing Securities,
                                    provided that the aggregate principal and
                                    redemption amount of all Permitted
                                    Receivables Financing Securities outstanding
                                    at any time shall not exceed $100,000,000;

                           (vii)    Indebtedness incurred under the Financing
                                    Documents;

                           (viii)   Guarantees by any Subsidiary of the
                                    Representative of any obligation of the
                                    Representative or any of its other
                                    Subsidiaries that such guaranteeing
                                    Subsidiary would have been permitted to
                                    incur hereunder as a primary obligation;

                           (ix)     Indebtedness consisting of advances from the
                                    Representative or any of its Subsidiaries in
                                    connection with the normal operation of the
                                    business of the Representative and its
                                    Subsidiaries;

                           (x)      Indebtedness incurred in connection with and
                                    as part of a Workout Transaction;


                                       16
<PAGE>

                           (xi)     Indebtedness incurred or assumed for the
                                    purpose of financing the cost of acquiring,
                                    constructing or improving an asset of the
                                    Representative or any of its Subsidiaries;

                           (xii)    Indebtedness incurred under the New Senior
                                    Notes and Guarantees thereof by the
                                    Subsidiary Guarantors;

                           (xiii)   Permitted Preferred Stock; and

                           (xiv)    Indebtedness not otherwise permitted under
                                    clauses (i) through (xiii) of this Section,
                                    provided that the aggregate principal amount
                                    of all Indebtedness permitted under this
                                    clause (xiv) that is incurred on or after
                                    the Amendment No. 3 Effective Date shall not
                                    at any time exceed $20,000,000.

                           (b) The Representative will not permit any Issuer or
                  any Subsidiary of any Issuer to incur, assume or suffer to
                  exist Indebtedness other than (A) Indebtedness permitted under
                  clauses (i), (ii) (but only to the extent that the Lease
                  Cancellation Payments relate to a facility operated by any
                  such Issuer or Subsidiary), (iii), (iv), (v) (to the extent
                  the Refinanced Indebtedness referred to therein is
                  Indebtedness referred to in clauses (i), (ii) (but only to the
                  extent that the Lease Cancellation Payments relate to a
                  facility operated by any such Issuer or Subsidiary), (iii) and
                  (iv)), (vi), (vii), (viii), (ix), (x), (xi) (but only to the
                  extent that the assets acquired, constructed or approved with
                  the proceeds of such Indebtedness are assets of such Issuer or
                  such Subsidiary), (xii) and (xiv) of subsection 10.2(i)(a)
                  above; provided that the aggregate principal amount of
                  Indebtedness of such Issuers and Subsidiaries permitted under
                  clauses (viii) (other than guarantees by an Issuer or any of
                  its Subsidiaries of Indebtedness of an Issuer or any of its
                  Subsidiaries) and (xiv) shall not exceed, in the aggregate,
                  $20,000,000 and (B) guarantees of obligations of Subsidiaries
                  of the Representative, which obligations are permitted under
                  clause (xi) of Section 10.2(i)(a) above and arise under any of
                  the Other Financing Agreements and refinancings, extensions,
                  replacements and increases of any of the foregoing, provided
                  that the aggregate principal amount of Indebtedness permitted
                  under this clause (B) may not exceed $160,000,000."

                     (j) Section 10.2(j) shall be amended by deleting said
         section in its entirety and inserting the following in lieu thereof:

                           "(j) Lease Conversions. The Representative will not,
                  and will not permit any of its Subsidiaries to, make any Lease
                  Conversion in any calendar year unless:


                                       17
<PAGE>

                           (i)      the aggregate consideration paid or to be
                                    paid by the Representative and its
                                    Subsidiaries in connection with the
                                    termination of leases or the acquisition of
                                    facilities and related property pursuant to
                                    such Lease Conversion and all other Lease
                                    Conversions made during such calendar year
                                    would not exceed $100,000,000; and

                           (ii)     to the extent such Lease Conversion is
                                    financed or will be financed with
                                    Indebtedness of the Representative or any of
                                    its Subsidiaries, such Indebtedness is
                                    incurred within one year of such Lease
                                    Conversion."

                     (k) Section 10.2(k) shall be amended by deleting said
         section in its entirety and inserting the following in lieu thereof:

                           "(k) Transactions with Affiliates. The Representative
                  will not, after the date hereof, and will not permit any of
                  its Subsidiaries to, after the date hereof, enter into any
                  transaction or arrangement with any Affiliate (including,
                  without limitation, the purchase from, sale to or exchange of
                  property with, or the rendering of any service by or for, any
                  Affiliate), except in the ordinary course of and pursuant to
                  the reasonable requirements of the Representative's or such
                  Subsidiary's (as the case may be) business and upon fair and
                  reasonable terms no less favorable to the Representative or
                  such Subsidiary than would be obtained in a comparable
                  arm's-length transaction with a Person other than an
                  Affiliate."

                     (l) Section 10.2 is hereby amended by adding the following
         Section 10.2(l) and 10.2(m) after Section 10.2(k):

                           "(l) Consolidated Gross Capital Expenditures.
                  Consolidated Gross Capital Expenditures will not, for any of
                  the fiscal years set forth below, exceed the amount indicated
                  opposite such fiscal year:

<Table>
<Caption>
Fiscal Year Ending                 Amount
------------------                 ------
<S>                             <C>
December 31, 2001               $125,000,000
December 31, 2002               $125,000,000
December 31, 2003               $125,000,000
December 31, 2004               $130,000,000
</Table>


                                       18
<PAGE>

                To the extent that Consolidated Gross Capital Expenditures for
                any fiscal year set forth above are less than the applicable
                amount specified in the table, the difference may be carried
                forward to the next fiscal year (and for this purpose,
                Consolidated Gross Capital Expenditures in any subsequent fiscal
                year shall be applied, first, to any such carry-forward amount
                and, second, to the specified amount for such year)."

                  "(m) Sale and Leaseback Transactions. The Representative will
         not, and will not permit any of its Subsidiaries to, enter into any
         arrangement, directly or indirectly, whereby it shall sell or transfer
         any property, real or personal, used or useful in its business, whether
         now owned or hereafter acquired, which property has been owned and
         operated by the Representative and its Subsidiaries for more than 180
         days, and thereafter rent or lease such property or other property that
         it intends to use for substantially the same purpose or purposes as the
         property sold or transferred (each, a "Sale and Leaseback
         Transaction"), except for Sale and Leaseback Transactions the aggregate
         amount of Attributable Indebtedness in respect of which does not exceed
         $20,000,000 at any time outstanding."

                5. Effective as of the Amendment No. 3 Effective Date, Schedule
IV of the Participation Agreement is hereby amended by deleting said schedule in
its entirety and replacing said schedule with Schedule IV attached hereto and
made a part hereof.

                6. Representations and Warranties. To induce the Administrative
Agent, the Agent Lessor and the Participants to execute and deliver this
Amendment, each of the Beverly Entities that is a party hereto represents and
warrants (which representations and warranties shall survive the execution and
delivery of this Amendment) to each of the Administrative Agent, the Agent
Lessor and the Participants that:

                     (a) this Amendment has been duly authorized, executed and
         delivered by it and this Amendment constitutes the legal, valid and
         binding obligation, contract and agreement of such Beverly Entity
         enforceable against it in accordance with its terms, except as
         enforcement may be limited by bankruptcy, insolvency, reorganization,
         moratorium or similar laws or equitable principles relating to or
         limiting creditors' rights generally;

                     (b) the Original Participation Agreement, as amended by the
         First Amendment, the Second Amendment and this Amendment, constitutes
         the legal, valid and binding obligation, contract and agreement of such
         Beverly Entity enforceable against it in accordance with their
         respective terms, except as enforcement may be limited by bankruptcy,
         insolvency, reorganization, moratorium or similar laws or equitable
         principles relating to or limiti ng creditors' ri ghts generally;

                     (c) the execution, delivery and performance by such Beverly
         Entity of this Amendment (i) has been duly authorized by all requisite
         corporate action and, if


                                       19
<PAGE>

         required, shareholder action, (ii) does not require the consent or
         approval of any governmental or regulatory body or agency, and (iii)
         will not (A) violate (l) any provision of law, statute, rule or
         regulation or its certificate of incorporation or bylaws, (2) any order
         of any court or any rule, regulation or order of any other agency or
         government binding upon it, or (3) any provision of any material
         indenture, agreement or other instrument to which it is a party or by
         which its properties or assets are or may be bound, including, without
         limitation, the Morgan Credit Agreement (as the same has been amended
         or modified), or (B) result in a breach or constitute (alone or with
         due notice or lapse of time or both) a default under any indenture,
         agreement or other instrument referred to in clause (iii)(A)(3) of this
         subsection (c);

                     (d) as of the date hereof and after giving effect to this
         Amendment, no Default or Event of Default has occurred which is
         continuing; and

                     (e) all the representations and warranties contained in
         Section 8.2 of the Participation Agreement (after giving effect to this
         Amendment) are true and correct in all material respects with the same
         force and effect as if made by such Beverly Entity on and as of the
         date hereof.

                7. Conditions to Effectiveness of this Amendment. This Amendment
shall not become effective until, and shall become effective when, each and
every one of the following conditions shall have been satisfied to the
satisfaction of the Agent Lessor, the Administrative Agent and each Participant
(the conditions precedent are for the benefit of the Agent Lessor, the
Administrative Agent and each Participant only):

                     (a) The Agent Lessor, the Administrative Agent and the
         Participants shall have received executed counterparts of this
         Amendment, duly executed by the Beverly Entities party hereto;

                     (b) The Agent Lessor, the Administrative Agent and the
         Participants shall have received evidence satisfactory to them that the
         Morgan Credit Agreement has been amended in form and substance
         satisfactory to the Administrative Agent, the Agent Lessor and the
         Participants; and

                     (c) The representations and warranties of the Beverly
         Entities set forth in Section 8 hereof are true and correct on and with
         respect to the date hereof.

         Upon receipt of all of the foregoing, this Amendment shall become
         effective.

                8. Payment of Fees and Expenses. The Representative agrees to
pay upon demand, the reasonable fees and expenses of Mayer, Brown & Platt,
counsel to the Lessors, in connection with the negotiation, preparation,
approval, execution and delivery of this Amendment and all reasonable fees and
expenses attendant to any filing, registration, recording or perfection of any
Lien contemplated hereby.


                                       20
<PAGE>

                9. Counterparts. This Amendment may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute but one instrument.

                10. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.

                11. Successors and Assigns. This Amendment shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.


                     THERE IS NO FURTHER TEXT ON THIS PAGE


                                       21
<PAGE>

         IN WITNESS WHEREOF, the Parties have caused this Amendment to be duly
executed by their respective authorized officers as of the day and year first
above written.

                                            BEVERLY ENTERPRISES, INC., as
                                            Representative, Construction Agent,
                                            Parent Guarantor and a Lessee

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

                                            BANK OF MONTREAL, as Arranger,
                                            Administrative Agent and as a Lender

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

                                            BANK OF MONTREAL GLOBAL CAPITAL
                                            SOLUTIONS, INC., as Agent Lessor and
                                            as a Lessor

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

                                            GENERAL ELECTRIC CAPITAL
                                            CORPORATION, as a Lender

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

<PAGE>
                                            TORONTO-DOMINION (TEXAS), INC., as a
                                            Lender

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

                                            BANK OF AMERICA, NATIONAL
                                            ASSOCIATION, as a Lender

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

                                            VANTAGE HEALTHCARE CORPORATION, as
                                            Lessee and Structural Guarantor

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

                                            PETERSEN HEALTH CARE, INC., as
                                            Lessee and Structural Guarantor

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

                                            BEVERLY SAVANA CAY MANOR, INC., as
                                            Lessee and Structural Guarantor

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


<PAGE>

                                            BEVERLY ENTERPRISES - GEORGIA, INC.,
                                            as Lessee and Structural Guarantor

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

                                            BEVERLY ENTERPRISES - CALIFORNIA,
                                            INC., as Lessee and Structural
                                            Guarantor

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

                                            BEVERLY ENTERPRISES - ARKANSAS,
                                            INC., as Lessee and Structural
                                            Guarantor

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

                                            BEVERLY ENTERPRISES - FLORIDA, INC.,
                                            as Lessee and Structural Guarantor

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

                                            BEVERLY HEALTH AND REHABILITATION
                                            SERVICES, INC., as Lessee and
                                            Structural Guarantor

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

<PAGE>

                                            BEVERLY ENTERPRISES - WASHINGTON,
                                            INC., as Lessee and Structural
                                            Guarantor

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

<PAGE>


                                                                    SCHEDULE III
[SUBJECT TO REVISIONS BY THE COMPANY]

                             EXISTING Indebtedness

<Table>
<Caption>
                                 BALANCE
TYPE                          MARCH 31, 2001
----                          --------------
<S>                           <C>
NOTES & MORTGAGES              $146,468,123
TAX EXEMPT BONDS                130,705,000
FIRST MORTGAGE BONDS             31,912,000
MIFA TAXABLE BONDS               18,000,000
9% SENIOR NOTES                 180,000,000
REVOLVER OUTSTANDING            182,000,000
AIG LOAN                         32,500,000
BANK UNITED                      17,930,633
AMSOUTH BANK                     16,050,360
CAPITAL LEASES                   14,736,608
TOTAL                          $770,302,724
</Table>


<PAGE>

                                  SCHEDULE IV
                           TO PARTICIPATION AGREEMENT

                                PRICING CATEGORY

For purposes of this Pricing Schedule, the following terms have the following
meanings:

         "LESSOR MARGIN" means, with respect to the Lessor Amounts on any day,
the percentage set forth below opposite the Pricing Category in effect for such
date for the applicable type of Lessor Amount:

<Table>
<Caption>
Pricing Category    LIBO Margin     Base Rate Margin
----------------    -----------     ----------------
<S>                 <C>             <C>
        I               3.125%          2.125%
        II              3.375%          2.375%
        III             3.625%          2.625%
        IV              3.875%          2.875%
</Table>

         "LOAN MARGIN" means, with respect to the Loans on any day, the
percentage set forth below opposite the Pricing Category in effect for such day
for the applicable type of Loan:

<Table>
<Caption>
Pricing Category    LIBO Margin     Base Rate Margin
----------------    -----------     ----------------
<S>                 <C>             <C>
        I               2.625%          1.625%
        II              2.875%          1.875%
        III             3.125%          2.125%
        IV              3.375%          2.375%
</Table>

         "PRICING RATIO" means, on any day, the ratio of Adjusted Consolidated
Indebtedness on such day to Consolidated EBITDAR for the four consecutive fiscal
quarters most recently ended on or prior to such day.

         "CATEGORY I PRICING" applies on any day if, as of the last day of the
fiscal quarter of the Representative most recently ended on or prior to such day
and as to which the Representative shall have delivered, or been required to
deliver, o n or prior to such day a certificate pursuant to Section
10.01(d)(iii), the Pricing Ratio is less than 4.0 to 1.0.

         "CATEGORY II PRICING" applies on any day if, as of the last day of the
fiscal quarter of the Representative most recently ended on or prior to such day
and as to which the Representative shall have delivered, or been required to
deliver, o n or prior to such day a certificate pursuant to Section
10.01(d)(iii), (i) the Pricing Ratio is less than 4.5 to 1.0 and (ii) Category I
Pricing does not apply.

<PAGE>

         "CATEGORY III PRICING" applies on any day if, as of the last day of the
fiscal quarter of the Representative most recently ended on or prior to such day
and as to which the Representative shall have delivered, or been required to
deliver, o n or prior to such day a certificate pursuant to Section
10.01(d)(iii), (i) the Pricing Ratio is less than 5.0 to 1.0 and (ii) neither
Category I Pricing nor Category II Pricing applies.

         "CATEGORY IV PRICING" applies on any day if, on such day, no other
Pricing Category applies.


<PAGE>

                                                                       EXHIBIT I
                                                      TO PARTICIPATION AGREEMENT

                                   EXHIBIT I

(a)   VALLEY NURSING AND REHAB - FACILITY NO. 208    ST. MARY'S, OHIO

      Open-End Mortgage Deed, Assignment of Leases and Rents, Security Agreement
      and Financing Statement dated as of October 29, 1999 from Columbia-Valley
      Nursing Home, Inc. ("Columbia-Valley"), as mortgagor, to Morgan Guaranty
      Trust Company of New York ("Morgan"), as agent, as mortgagee, recorded in
      Auglaize County, Ohio on November 2, 1999 in Vol 381, Page 313

(b)   COMMUNITY NURSING HOME - FACILITY NO. 209    BOWLING GREEN, OHIO

      Open-End Mortgage Deed, Assignment of Leases and Rents, Security Agreement
      and Financing Statement dated as of October 29, 1999 from Nursing Home
      Operators, Inc. ("Nursing"), as mortgagor, to Morgan, as mortgagee,
      recorded in Wood County, Ohio on November 2, 1999 in Vol 1279, Page 150

(c)   NORTHEAST NURSING HOME - FACILITY NO. 210    NAPOLEON, OHIO

      Open-End Mortgage Deed, Assignment of Leases and Rents, Security Agreement
      and Financing Statement dated as of October 29, 1999 from Nursing, as
      mortgagor, to Morgan, as agent, as mortgagee, recorded in Henry County,
      Ohio on November 2, 1999 in Vol 60, Page 484

(d)   BEVERLY HEALTH & REHAB - PASCO - FACILITY NO. 261    PASCO, WASHINGTON

      Deed of Trust, Assignment of Leases and Rents, Security Agreement and
      Fixture Filing dated as of October 29, 1999 from Beverly Enterprises
      -Washington, Inc. ("Beverly"), as grantor, to Fidelity National Title
      Company of Washington ("Fidelity-Washington"), as trustee, for the benefit
      of Morgan, as agent, as grantee, recorded in Franklin County, Washington
      on November 2, 1999, as Instrument No. 1571747

(e)   GRAY'S HARBOR - FACILITY NO. 2554    ABERDEEN, WASHINGTON

      Deed of Trust, Assignment of Leases and Rents, Security Agreement and
      Fixture Filing dated as of October 29, 1999 from Beverly, as grantor, to
      Fidelity-Washington, as trustee, for the benefit of Morgan, as agent, as
      grantee, recorded in Grays Harbor County, Washington on November 2, 1999,
      as Instrument No. 1999-11020041


<PAGE>


(f)   BENSON HEIGHTS REHAB - FACILITY NO. 2132    KENT, WASHINGTON

      Deed of Trust, Assignment of Leases and Rents, Security Agreement and
      Fixture Filing dated as of October 29, 1999 from Beverly, as grantor, to
      Fidelity-Washington, as trustee, for the benefit of Morgan, as agent, as
      grantee, recorded in King County, Washington on November 2, 1999, as
      Document No. 19991102001006

(g)   BEVERLY HEALTH - FRANKFORT - FACILITY NO. 984    FRANKFORT, KENTUCKY

      Open-End Mortgage Deed, Assignment of Leases and Rents, Security Agreement
      and Financing Statement dated as of October 29, 1999 from Beverly Health
      and Rehabilitation Services, Inc. ("Beverly Health"), as mortgagor, to
      Morgan, as agent, as mortgagee, recorded in Franklin County, Kentucky on
      November 3, 1999 in Book 652, Page 87

(h)   GREEN HILL MANOR NURSING FACILITY - FACILITY NO. 71    GREENBERG, KENTUCKY

      Open-End Mortgage Deed, Assignment of Leases and Rents, Security Agreement
      and Financing Statement dated as of November 30, 1999 from Beverly Health,
      as mortgagor, to Morgan, as agent, as mortgagee, recorded in Green County,
      Kentucky on December 1, 1999 in Book 151, Page 688

(i)   FRANKENMUTH CONVALESCENT CTR - FACILITY NO. 3681    FRANKENMUTH, MICHIGAN

      Mortgage dated as of November 30, 1999 from Beverly Enterprises -Michigan,
      Inc., as mortgagor, to Morgan, as agent, as mortgagee, recorded in Saginaw
      County, Michigan on December 1, 1999 in Liber 2154, Page 2247