UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

BEVERLY ENTERPRISES, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[                    ], 2005

Dear Fellow BEI Stockholder:

      I am pleased to invite you to a special meeting of stockholders of BEI to be held on [                    ], 2006, at [               ] a.m., local time, at [                    ]. At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of August 16, 2005, as amended as of August 23, 2005, September 22, 2005 and November 20, 2005, by and among BEI, Pearl Senior Care, Inc., PSC Sub, Inc. and Geary Property Holdings, LLC. A composite copy of the merger agreement, reflecting all of the prior amendments, is attached as Annex A to the enclosed proxy statement. Please read it carefully.

      The BEI Board of Directors, upon the recommendation of the independent members of the Board, unanimously approved the merger agreement, which provides for the acquisition of BEI by Pearl Senior Care, Inc., a Delaware corporation formed by Fillmore Capital Partners, LLC. If the merger is completed, you will be entitled to receive $12.50 in cash, without interest, for each share of BEI common stock you own.

      Following the completion of the merger, Pearl Senior Care, Inc. will own all of BEI’s issued and outstanding capital stock. As a result, our common stock will no longer be listed on any exchange and we will no longer be required to file periodic and other reports with the Securities and Exchange Commission. After the merger, you will no longer have an equity interest in BEI and will not participate in any potential future earnings and growth of BEI.

      The Board of Directors has determined that the merger agreement is advisable, fair to and in the best interests of BEI and its stockholders. Accordingly, the Board has approved the merger agreement and recommends that you vote “FOR” the approval and adoption of the merger agreement at the special meeting; “FOR” the authorization of the proxies to vote in their discretion with respect to the approval of any proposal to postpone or adjourn the special meeting to a later date to solicit additional proxies in favor of the approval and adoption of the merger agreement if there are not sufficient votes for approval and adoption of the merger agreement at the special meeting; and “FOR” the authorization of the proxies to vote on such other matters as may properly come before the special meeting or any adjournment or postponement of the special meeting.

      We cannot complete the merger unless holders of a majority of our outstanding common stock vote to adopt the merger agreement. Failure to submit a properly executed proxy will have the same effect as a vote against the merger agreement. Whether or not you plan to be present at the special meeting, we urge you to vote by completing and returning the enclosed proxy card as promptly as possible. By voting your proxy now, you will not be precluded from attending the meeting and voting in person.

      If you have any questions or need any assistance in voting your shares, please feel free to call our proxy solicitors, Georgeson Shareholder Communications Inc., at one of the telephone numbers set forth below.

      If your shares are registered in the name of a broker or other nominee, only your broker or such nominee can execute a proxy and vote your shares and only after receiving your specific instructions. Please sign, date and promptly mail the voting instruction card in the envelope provided by your broker or other nominee. Remember, your shares cannot be voted unless you return a signed and executed voting instruction card to your broker or such nominee.

Stockholders call (877) 278-4793 (toll-free in the United States and Canada)

Banks and Brokers call (212) 440-9800 (collect)

The Proxy Statement is dated [               ], 2005 and is first being mailed to stockholders on or about [               ], 2005.

Beverly Enterprises, Inc.

One Thousand Beverly Way

Fort Smith, Arkansas 72919

(479) 201-2000

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

[                    ], 2005

Table of Contents

PROXY STATEMENT FOR

BEVERLY ENTERPRISES, INC.

SPECIAL STOCKHOLDERS MEETING

ANSWERS TO FREQUENTLY ASKED QUESTIONS

      The following questions and answers address briefly some questions you may have regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder of Beverly Enterprises, Inc. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement. In this proxy statement, unless the context requires otherwise, the terms “BEI,” “Company,” “we,” “our,” “ours,” and “us” refer to Beverly Enterprises, Inc. and our consolidated subsidiaries. The term “PSC” refers to Pearl Senior Care, Inc.

SUMMARY TERM SHEET

      This summary, together with the preceding question and answer section, highlights selected information from this proxy statement about the proposed merger and our special meeting. It does not contain all of the information that is important to you. Accordingly, we encourage you to read this proxy statement and the other documents to which we refer you carefully, and in their entirety, for a complete understanding of the matters being considered at the special meeting.

      References in this proxy statement, unless the context requires otherwise, to “BEI,” the “Company,” “we,” “our,” “ours,” and “us” refer to Beverly Enterprises, Inc. and our consolidated subsidiaries. The term “PSC” refers to Pearl Senior Care, Inc. The term “PSC Sub” refers to PSC Sub, Inc. The term “GPH” refers to Geary Property Holdings, LLC. The term “Fillmore Capital Partners” refers to Fillmore Capital Partners, LLC.

The Parties to the Merger

Beverly Enterprises, Inc.

      BEI is one of the largest providers of long-term healthcare services in the United States, including the operation of nursing facilities, assisted living centers, hospice and home care centers and rehabilitation therapy services. As of September 30, 2005, BEI operated 345 nursing facilities with a total of approximately 36,189 licensed beds. BEI’s nursing facilities are located in 22 states and the District of Columbia and range in capacity from 34 to 355 licensed beds. As of September 30, 2005, we also operated 18 assisted living centers containing 480 units, 66 hospice and home care centers and we provided rehabilitation therapy services in 36 states and the District of Columbia. BEI is incorporated in the state of Delaware with its principal executive offices at One Thousand Beverly Way, Fort Smith, Arkansas 72919. The Company’s telephone number is (479) 201-2000.

Pearl Senior Care, Inc.

      PSC is a Delaware corporation with its principal executive office at 140 Pacific Avenue, San Francisco, California 94111. PSC’s telephone number is (415) 834-1477. PSC is a wholly owned indirect subsidiary of Fillmore Capital Partners. PSC was formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. It has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

PSC Sub, Inc.

      PSC Sub is a Delaware corporation and a wholly owned subsidiary of PSC. PSC Sub’s principal executive offices are located at 140 Pacific Avenue, San Francisco, California 94111 and its telephone number is (415) 834-1477. PSC Sub was organized solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. It has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement. Under the terms of the merger agreement, PSC Sub will merge with and into the Company. The Company will survive the merger and PSC Sub will cease to exist.

Geary Property Holdings, LLC

      GPH is a Delaware limited liability company and is a wholly owned indirect subsidiary of Fillmore Strategic Investors, L.L.C., an affiliate of Fillmore Capital Partners. GPH’s principal executive offices are located at 140 Pacific Avenue, San Francisco, California 94111 and its telephone number is (415) 834-1477. GPH was organized for the purpose of entering into the merger agreement, consummating the transactions contemplated by the merger agreement and owning the real estate and certain other assets of the Company

following the consummation of the merger. It has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

The Special Meeting

Time, Place and Date (Page [     ])

      The special meeting will be held on [                    ], 2006, starting at [     ] a.m., local time, at [          ].

Purpose (Page [     ])

      You will be asked to consider and vote upon adoption of the merger agreement. The merger agreement provides that PSC Sub will be merged with and into BEI, and each outstanding share of BEI’s common stock (other than shares held in the treasury of BEI or owned by PSC, PSC Sub or any subsidiary of PSC, PSC Sub or BEI and other than shares held by stockholders who properly demand statutory appraisal rights) will be converted into the right to receive $12.50 in cash, without interest.

      The persons named in the accompanying proxy card will also have discretionary authority to vote upon other business, if any, that properly comes before the special meeting and any adjournments or postponements of the special meeting.

Adjournments (Page [     ])

      If the requisite stockholder vote approving and adopting the merger agreement has not been received at the time of the special meeting, holders of BEI common stock may be asked to vote on a proposal to adjourn or postpone the special meeting in order to solicit additional proxies in favor of the merger proposal.

Record Date and Quorum (Page [     ])

      You are entitled to vote at the special meeting if you owned shares of BEI’s common stock at the close of business on [                    ], 2005, the record date for the special meeting. You will have one vote for each share of BEI’s common stock that you owned on the record date. As of the record date, there were [                    ] shares of BEI’s common stock entitled to be voted.

Required Vote (Page [     ])

      For us to complete the merger, stockholders holding at least a majority of our common stock outstanding at the close of business on the record date must vote “FOR” the approval and adoption of the merger agreement at the special meeting. All of our stockholders are entitled to one vote per share. A failure to vote your shares of BEI common stock or an abstention will have the same effect as a vote against the merger.

Voting of Proxies (Page [     ])

      Any BEI stockholder of record entitled to vote may submit a proxy by returning the enclosed proxy card by mail, or may vote in person by appearing at the special meeting. If your shares are held in “street name” by your broker, you should instruct your broker on how to vote your shares using the instructions provided by your broker. If you do not provide your broker with instructions, your shares will not be voted and that will have the same effect as a vote against the merger.

Revocability of Proxy (Page [     ])

      Any BEI stockholder of record who executes and returns a proxy card may revoke the proxy at any time before it is voted in any one of the following ways:

Simply attending the special meeting will not constitute revocation of a proxy. If you have instructed your broker to vote your shares, the above-described options for revoking your proxy do not apply and instead you must follow the directions provided by your broker to change these instructions.

The Merger

Structure of the Merger

      Subject to the terms and conditions of the merger agreement, PSC Sub will be merged with and into BEI and BEI will continue as the surviving corporation. As a result of the merger, BEI, as the surviving corporation, will cease to be a publicly traded company and will be owned by PSC.

What You Will Receive in the Merger (page [     ])

      If we complete the merger, holders of our common stock will be entitled to receive $12.50 per share in cash, without interest, in exchange for each share of common stock that they own (other than shares for which appraisal rights are properly being sought) at the time the merger is completed.

Appraisal Rights (page [     ])

      Holders of our common stock who do not wish to accept the $12.50 per share cash consideration payable pursuant to the merger may seek, under Delaware law, appraisal of the fair value of their shares by the Delaware Court of Chancery. The fair value, which would be exclusive of any value arising from the accomplishment or expectation of the merger, could be more or less than, or the same as, the merger consideration of $12.50 per share. This “right of appraisal” is subject to a number of restrictions and requirements. Generally, in order to exercise appraisal rights, among other things you:

      Because a signed proxy card not marked “AGAINST” or “ABSTAIN” will, unless revoked, be voted for the adoption of the merger agreement, the submission of a signed proxy card not marked “AGAINST” or “ABSTAIN” will result in the loss of your appraisal rights. However, simply submitting a signed proxy card marked “AGAINST” or “ABSTAIN,” or failing to submit a proxy card, will not constitute a demand for appraisal under Delaware Law. If you hold shares in the name of a broker or other nominee, you must instruct your broker or nominee to take the steps necessary to enable you to exercise your appraisal rights. If you or your nominee fails to follow all of the steps required by the Delaware appraisal statute, you will lose your right of appraisal.

      Annex E to this proxy statement sets forth the Delaware statute relating to your right of appraisal. This proxy statement constitutes the notice required by Delaware law concerning the appraisal rights of our common stockholders.

      Under the merger agreement, PSC is not required to complete the merger if holders of more than 10% of our outstanding common stock have perfected appraisal rights in accordance with Delaware law.

Recommendation of our Board of Directors (page [     ])

      Our Board of Directors has determined that the merger is advisable and is fair to, and in the best interests of, our stockholders. Accordingly, our Board of Directors unanimously recommends that you vote “FOR” the approval and adoption of the merger agreement at the special meeting; “FOR” the authorization of the proxies to vote in their discretion with respect to the approval of any proposal to postpone or adjourn the special meeting to a later date to solicit additional proxies in favor of the approval and adoption of the merger agreement if there are not sufficient votes for approval and adoption of the merger agreement at the special meeting; and “FOR” the authorization of the proxies to vote on such matters as may properly come before the special meeting or any adjournment or postponement of the special meeting.

Our Reasons for the Merger (page [     ])

      Our Board of Directors determined to unanimously recommend approval of the adoption of the merger agreement based on its consideration of a number of factors, which are described in the section of this proxy statement entitled “The Merger — Recommendation and Reasons.”

Financing; Source of Funds (page [     ])

      PSC has obtained commitment letters from Column Financial, Inc. and CapitalSource Financial, LLC. Under these commitment letters, Column Financial and CapitalSource Financial agreed to provide PSC with up to $1.875 billion in debt financing to fund the consideration to be paid in connection with the merger. We refer to these letters as the “debt commitment letters.” The obligations of the lenders under these debt commitment letters are subject to various conditions described under “The Merger — Financing; Source of Funds.”

      In addition, Fillmore Strategic Investors, an affiliate of Fillmore Capital Partners, has delivered an equity commitment letter to PSC. We refer to this letter as the “equity commitment letter.” Under the equity commitment letter, Fillmore Strategic Investors has agreed to make an equity contribution to PSC or GPH in the aggregate amount of $350 million (less the $10 million deposit described below). The obligations of Fillmore Strategic Investors under the equity commitment letter are subject to the satisfaction of the conditions to the merger contained in the merger agreement and the consummation of the financing contemplated by the debt commitment letters.

Deposit and Letter of Credit (page [     ])

      In connection with the execution of the merger agreement, a $10 million deposit was placed in escrow pursuant to an escrow agreement with PSC, as the assignee of North American Senior Care (“NASC”), and we received a letter of credit issued by Morgan Stanley Asset Funding, Inc. from Fillmore Strategic Investors in an amount of $50 million. If the merger agreement is terminated (i) by us or PSC because the merger agreement has not been consummated by March 1, 2006 (or June 30, 2006, in the case of an extension of the termination date in order to obtain regulatory approval) or (ii) by us because PSC or PSC Sub breaches any representations, warranties, covenants or agreements that would result in a closing condition to the merger not being satisfied, then we will be able to draw under this letter for the amount of $50 million and collect the $10 million that is held in escrow, subject to limitations specified in the merger agreement. We are entitled to retain $7 million of the deposit if the merger agreement is terminated by PSC if (i) a reduction in the amount of loans provided under the debt commitment letters occurs for specified reasons or (ii) PSC is unable to obtain a necessary health care license required for consummation of the merger or to implement an alternative transaction structure which would allow for the consummation of the merger as a result of an action or omission by us or a current practice of ours that does not comply with applicable legal requirements.

Interests of Certain Persons (page [     ])

      Some of our directors and officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally, including the following:

      PSC has had discussions with certain executive officers regarding PSC’s plans for management following the closing of the merger. As of the date of this proxy statement, however, none of our executive officers has entered into any agreements with PSC or its affiliates regarding employment with the surviving corporation. Although no such agreement, arrangement or understanding currently exists, it is generally expected that a number of our executive officers will remain after the merger is completed, which means that such executive officers may, prior to the closing of the merger, enter into new arrangements with PSC or its affiliates regarding employment with the surviving corporation.

Opinions of BEI’s Financial Advisors (page [     ])

      Lehman Brothers Inc. In connection with the merger, the BEI Board of Directors received a written opinion, dated November 20, 2005, of Lehman Brothers Inc. as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be offered to the by holders of BEI common stock. The full text of Lehman Brothers’ written opinion is attached to this proxy statement as Annex B. We encourage you to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and relied upon and limitations and qualifications on the review undertaken. Lehman Brothers’ opinion was provided to the BEI Board of Directors in connection with its evaluation of the merger consideration and relates only to the fairness, from a financial point of view, of the merger consideration offered to the holders of BEI common stock. The opinion does not address any other term or aspect of the merger and does not constitute a recommendation as to how any stockholder should vote or act with respect to any matters relating to the merger.

      J.P. Morgan Securities Inc. In connection with the merger, the BEI Board of Directors received a written opinion, dated November 20, 2005, of J.P. Morgan Securities Inc. as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received by holders of BEI common stock. The full text of JPMorgan’s written opinion is attached to this proxy statement as Annex C. We encourage you to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and relied upon and limitations and qualifications on the review undertaken. JPMorgan’s opinion was provided to the BEI Board of Directors in connection with its evaluation of the merger consideration and relates only to the fairness, from a financial point of view, of the merger consideration to be received by the holders of BEI common stock. The opinion does not address any other term or aspect of the merger and does not constitute a recommendation as to how any stockholder should vote or act with respect to any matters relating to the merger.

      CIBC World Markets Corp. In connection with the merger, the BEI Board of Directors received a written opinion, dated November 20, 2005, of CIBC World Markets Corp. as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received by holders of BEI common stock. The full text of CIBC World Markets’ written opinion is attached to this proxy statement as Annex D. We encourage you to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and relied on and limitations on the review undertaken. CIBC World Markets’ opinion was provided to the BEI Board of Directors in connection with its evaluation of the merger consideration and relates only to the fairness, from a financial point of view, of the merger consideration. The opinion does not address any other term or aspect of the merger and does not constitute a recommendation as to how any stockholder should vote or act with respect to any matters relating to the merger.

Material Federal Income Tax Consequences (page [     ])

      The exchange of BEI common stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under applicable state, local, foreign and other tax laws. For U.S. federal income tax purposes, a stockholder who receives cash as a result of the merger will generally recognize gain or loss equal to the difference between the adjusted basis of the shares exchanged and the amount of cash received therefor. Any such recognized gain or loss will be capital gain or loss if the shares are held as capital assets by the stockholder, and will generally be long-term capital gain or loss if the stockholder has held the shares for more than one year. Long-term capital gain of a non-corporate stockholder is generally subject to a maximum U.S. federal income tax rate of 15%.

      The income tax discussion set forth above may not be applicable to stockholders in special situations such as stockholders who will own, actually or constructively, an interest in the surviving corporation following the merger, stockholders who received their shares upon the exercise of stock options or otherwise as compensation, stockholders who are traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, stockholders who are not U.S. persons and stockholders who are partnerships. Stockholders are urged to consult their own tax advisors with respect to the specific tax consequences to them of the merger, including the application and effect of federal, state, local, foreign or other tax laws.

Conditions to the Merger (page [     ])

      BEI and PSC are not required to consummate the merger unless a number of conditions are satisfied or waived, including:

      Furthermore, PSC and PSC Sub are not required to consummate the merger unless the following additional conditions are satisfied or waived:

      Our obligation to complete the merger is subject to the satisfaction or waiver of additional conditions, including:

      A party to the merger agreement could choose to complete the merger even though a condition has not been satisfied, so long as the law allows it to do so. Some of these conditions are beyond our control. We

cannot assure you that any of these conditions, including the conditions within our control, will be satisfied or waived, or that the merger will be completed.

No Solicitation (page [     ])

      The merger agreement contains restrictions on the ability of BEI and its affiliates to solicit or engage in discussions or negotiations with a third party regarding a proposal to acquire BEI or a significant interest in BEI after December 12, 2005. Notwithstanding these restrictions, under certain limited circumstances before the approval of our stockholders is obtained, our Board may respond to a bona fide unsolicited written takeover proposal that it concludes constitutes, or could be reasonably expected to result in, a superior proposal. In addition, before our stockholders adopt the merger agreement, we may terminate the merger agreement to enter into an agreement with respect to a superior proposal. See “The Merger Agreement — No Solicitation” for a further description of these restrictions.

Termination of the Merger Agreement (page [     ])

      The merger agreement may be terminated:

Termination Fee and Reimbursement of Expenses if Merger is Not Consummated (page [     ])

      We agreed to reimburse PSC for its expenses, as well as the expenses incurred by NASC, NASC Acquisition Corp., which we refer to as “NASC Acquisition,” and SBEV Property Holdings LLC, which we refer to as “SBEV,” with respect to the merger prior to November 20, 2005 (the “NASC expenses”), not to exceed $30 million in the aggregate, if the merger agreement is terminated by us or PSC because our stockholders fail to approve the merger at the special meeting or any adjournment of the special meeting, and no third party has made a takeover proposal after November 20, 2005.

      If we terminate the merger agreement when our Board has received a superior proposal and authorized BEI to enter into an agreement to consummate the transaction pursuant to the superior proposal, then we agreed to pay PSC a termination fee of $60 million.

      If (i) the merger agreement is terminated because our stockholders fail to approve the merger at the special meeting or any adjournment of the special meeting, or because we have breached any covenant, representation or warranty in the merger agreement and (ii) a third party has made a takeover proposal after December 12, 2005 and (iii) we enter into a definitive agreement with respect to, or consummate, an alternative takeover proposal within nine months after the termination of the merger agreement, then we have agreed to pay PSC a termination fee of $60 million.

      We agreed to reimburse PSC for its expenses and the NASC expenses, not to exceed $30 million in the aggregate, if PSC terminates the merger agreement, in circumstances unrelated to a takeover proposal, because, prior to obtaining BEI stockholder approval, our Board withdraws or modifies in a manner adverse to PSC its recommendation that BEI’s stockholders adopt the merger agreement.

      We agreed to pay PSC a termination fee of $60 million if PSC terminates the merger agreement, in circumstances related to another takeover proposal, because, prior to obtaining BEI stockholder approval:

Business Interruption Fee if Merger Agreement is Terminated (page [     ])

      If the merger agreement is terminated (i) by us or PSC because the merger has not been consummated by the termination date or (ii) by us because PSC or PSC Sub breaches any representations, warranties,

covenants or agreements that would result in a closing condition not being satisfied, then, so long as specified conditions to the merger are otherwise reasonably capable of being satisfied, PSC has agreed to pay BEI a business interruption fee of $60 million.

      PSC also agreed that it will pay us a $7 million business interruption fee if PSC terminates the merger agreement because, by the termination date:

      The amount of the business interruption fee will be offset by any portion of the $10 million deposit previously received by BEI and any amounts drawn under the letter of credit provided by Fillmore Strategic Investors.

THE SPECIAL MEETING

General

      The enclosed proxy is solicited by BEI on behalf of the Board of Directors of BEI for use at a special meeting of stockholders to be held on [                    ], 2006, at [     ] a.m., Central Standard Time, at [                    ], or at any adjournments or postponements thereof, for the purposes set forth in this proxy statement and in the accompanying notice of special meeting. BEI intends to mail this proxy statement and accompanying proxy card on or about [                    ], 2005, to all stockholders entitled to vote at the special meeting. At the special meeting, you will be asked to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of August 16, 2005, as amended as of August 23, 2005, September 22, 2005 and November 20, 2005, by and among BEI, PSC, PSC Sub and GPH. You also will be asked to vote on a proposal to approve the adjournment or postponement of the special meeting to a later date to solicit additional proxies in favor of the approval and adoption of the merger agreement if there are not sufficient votes for approval and adoption of the merger agreement at the special meeting.

      The Board of Directors, following the unanimous recommendation of the independent members of the Board, unanimously approved the merger agreement and the merger. The Board of Directors unanimously recommends that you vote “FOR” the approval and adoption of the merger agreement at the special meeting; “FOR” the authorization of the proxies to vote in their discretion with respect to the approval of any proposal to postpone or adjourn the special meeting to a later date to solicit additional proxies in favor of the approval and adoption of the merger agreement if there are not sufficient votes for approval and adoption of the merger agreement at the special meeting; and “FOR” the authorization of the proxies to vote on such matters as may properly come before the special meeting or any adjournment or postponement of the special meeting.

Record Date, Shares Entitled to Vote and Quorum

      Only holders of record of BEI common stock at the close of business on [                    ], 2005, the record date for the special meeting, will be entitled to notice of and to vote at the special meeting. At the close of business on the record date, [                    ] shares of BEI common stock were outstanding and entitled to vote and held by approximately [                    ] holders of record. A list of the BEI stockholders entitled to vote at the special meeting will be available for review, for any proper purpose relating to the special meeting, at BEI’s

executive offices during regular business hours for a period of 10 days prior to the special meeting and at the special meeting. Each holder of record of BEI common stock on the record date will be entitled to one vote for each share held. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of common stock entitled to vote at the special meeting is necessary to constitute a quorum for the transaction of business at the special meeting.

Voting Information

      All votes will be tabulated by IVS Associates, Inc., the inspector of election appointed for the special meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Brokers who hold shares in street name for clients typically have the authority to vote on routine proposals when they have not received instructions from beneficial owners. However, absent specific instructions from the beneficial owner of the shares, brokers are not allowed to exercise their voting discretion with respect to the approval and adoption of non-routine matters, such as the merger agreement. Proxies submitted without a vote by the brokers on these matters are referred to as broker non-votes. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the special meeting.

Vote Required for Adoption of the Merger Agreement

      The affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote is required to approve and adopt the merger agreement. Accordingly, proxies that reflect abstentions and broker non-votes, as well as proxies that are not returned, will have the same effect as a vote against approval and adoption of the merger agreement. The Board of Directors urges the stockholders to complete, sign, date and return the enclosed proxy card in the accompanying self-addressed postage prepaid envelope as soon as possible.

      Stockholders who do not vote in favor of approval and adoption of the merger agreement, and who otherwise comply with the applicable statutory procedures and requirements of the DGCL summarized elsewhere in this proxy statement, will be entitled to seek appraisal of the value of their shares as set forth in Section 262 of DGCL. See “Appraisal Rights” beginning on page [     ] and see Annex E.

      Your shares can be voted at the special meeting only if you are present or represented by proxy. Whether or not you plan to attend the special meeting, you are encouraged to vote by proxy to ensure that your shares will be represented. Unless your shares are represented in the name of a broker, bank or other nominee, you may vote by completing and mailing a proxy card in the postage-paid envelope provided.

Voting by Directors, Executive Officers and Principal Stockholders

      As of the record date, our directors and executive officers as a group owned and were entitled to vote [                    ] shares of our common stock, which represents approximately [          ]% of the total common stock outstanding on that date. Each of our directors and executive officers has indicated that he or she intends to vote in favor of adoption of the merger agreement but has no obligation to do so.

Voting of Proxies

      All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the holders. Properly executed proxies that do not contain voting instructions will be voted “FOR” the approval and adoption of the merger agreement at the special meeting; “FOR” the authorization of the proxies to vote in their discretion with respect to the approval of any proposal to postpone or adjourn the special meeting to a later date to solicit additional proxies in favor of the approval and adoption of the merger agreement if there are not sufficient votes for approval and adoption of the merger agreement at the special meeting; and “FOR” the authorization of the proxies to vote on such matters as may properly come before the special meeting or any adjournment or postponement of the special meeting.

      We do not expect that any matter other than the proposal to approve the merger agreement will be brought before the special meeting. If, however, our Board of Directors properly presents other matters, the person named as proxy will vote in accordance with his judgment as to matters that he believes to be in the best interests of the stockholders. A proxy in the accompanying form will give authority to Douglas J. Babb, William R. Floyd and Jeffrey P. Freimark to vote on such matters at their respective discretion and they intend to do so in accordance with their respective best judgment on any such matter.

Revocation of Proxies

      You may revoke your proxy at any time before it is voted at the special meeting. A proxy may be revoked by filing, with the Secretary of BEI at BEI’s executive offices located at One Thousand Beverly Way, Fort Smith, Arkansas 72919, a written notice of revocation or a duly executed proxy bearing a later date, or by attending the special meeting and voting in person. Attendance at the special meeting will not, by itself, revoke a proxy. Furthermore, if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain from the record holder a proxy issued in the stockholder’s name. If you have instructed a broker to vote your shares, you must follow your broker’s directions to change such instructions.

Expenses of Proxy Solicitation

      BEI will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to stockholders in connection with their proxy. BEI has retained Georgeson Shareholder Communications to assist in the solicitation of proxies for a fee of $25,000, plus reimbursement of out-of-pocket expenses. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of BEI common stock beneficially owned by others to forward to the beneficial owners. BEI will reimburse persons representing beneficial owners of its common stock for their costs of forwarding solicitation materials to the beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, telegram or other electronic means, or by personal solicitation by directors, officers or other regular employees of BEI or by representatives of Georgeson Shareholder Communications. No additional compensation will be paid to directors, officers or other regular employees of BEI for their services in connection with the solicitation of proxies.

Adjournments

      If the requisite stockholder vote approving the adoption of the merger agreement has not been received at the time of the special meeting, holders of BEI common stock may be asked to vote on a proposal to adjourn or postpone the special meeting, if necessary, to solicit additional proxies in favor of the merger proposal. The Board of Directors unanimously recommends that you vote “FOR” the approval of any such adjournment or postponement of the meeting, if necessary.

Stock Certificates

      Please do not send us your stock certificates at this time. If the merger is completed, the paying agent for the merger will distribute instructions regarding the procedures for exchanging BEI stock certificates for the merger consideration. See “The Merger Agreement — Payment Procedures” beginning on page [     ].

THE MERGER

Background

      On December 16, 2004, Arnold M. Whitman, the Chief Executive Officer of Formation Capital LLC, called William R. Floyd, the Chairman, President and Chief Executive Officer of BEI, and expressed an interest in a possible transaction involving BEI. During this conversation, Mr. Whitman did not propose any

prices or terms for such a possible transaction. Mr. Floyd informed Mr. Whitman that BEI was not currently considering a sale of the Company or any of its divisions.

      On December 27, Mr. Floyd received a letter, dated December 22, 2004, from Formation Capital expressing an interest by a group consisting of Formation, Appaloosa Management L.P. and Franklin Mutual Advisers, LLC, in acquiring BEI for $11.50 per share. The letter also suggested that this group would be prepared to discuss an alternative transaction involving the purchase of BEI’s real estate assets and nursing facilities operations, leaving BEI with its ancillary service businesses. In its December 22 letter, Formation indicated that this group owned approximately 4.5% of BEI’s outstanding common stock. The December 22 letter also indicated that the proposal was being provided to BEI on a confidential basis and that Formation Capital expected that BEI would not disclose the proposal to anyone other than BEI’s Board and advisors.

      Mr. Floyd promptly forwarded the letter to the entire Board and convened a Board meeting on December 30 to discuss the December 22 letter. Following that meeting, BEI formally retained Latham & Watkins LLP as its legal advisor to assist the Board of Directors of BEI in fully evaluating the December 22 letter. Representatives of BEI also contacted Lehman Brothers to discuss retaining Lehman Brothers as BEI’s financial advisor. Lehman Brothers was officially retained by BEI as its financial advisor pursuant to an engagement letter dated as of January 5, 2005.

      On January 5, 2005, and in subsequent telephone conversations, Mr. Floyd advised Mr. Whitman that — consistent with its fiduciary obligations and acting in good faith — the BEI Board would meet to carefully consider the Formation group’s expression of interest in an acquisition of BEI at a special meeting in late January.

      Our Board met again on January 21, 2005 to consider the Formation group’s December 22 letter. At the meeting, the Board adopted a policy to hold BEI’s annual meeting of stockholders as early as practicable in each calendar year and, in particular, to hold our 2005 annual meeting on April 21, 2005. Although the Formation group’s proposal was considered, the Board made no formal decision with regard to the Formation group’s December 22 letter at the January 21 Board meeting.

      When Mr. Floyd returned from the Board meeting on the afternoon of January 21, 2005, he received a second letter from Mr. Whitman dated January 19, 2005. The January 19 letter reiterated the Formation group’s interest in acquiring BEI for $11.50 per share, subject to the terms and conditions contained in Mr. Whitman’s earlier letter. The January 19 letter also indicated that the Formation group would be prepared to discuss the alternative transaction in which the Formation group would acquire BEI’s real estate assets and nursing facilities operations, leaving BEI with its ancillary service businesses. Specifically, the January 19 letter indicated that, subject to completion of business, regulatory, legal and accounting due diligence, the Formation group was prepared to pay $9.00 per share in cash for BEI’s nursing facilities operations and assume all liabilities not related to BEI’s ancillary service businesses. The January 19 letter also suggested that the Formation group believed the remaining company comprised of the ancillary service businesses would trade at approximately a valuation of $4.00 per share.

      The January 19 letter required that our Board, together with its outside legal advisors and Lehman Brothers, evaluate the additional information and the alternative acquisition structure described in the letter. On January 24, Mr. Floyd sent Mr. Whitman a letter informing him that the Board would meet again to consider the January 19 letter and that the Formation group could expect a response during the first week of February.

      Following the close of business on January 24, Mr. Whitman, Appaloosa, Formation Capital, Franklin Mutual and Northbrook NBV, LLC, among others, filed a Schedule 13D with the SEC explaining that they had acquired over 8% of our common stock and disclosing the December 22 letter and January 19 letter as well as their intent to acquire BEI. The Schedule 13D filing was triggered by the Formation group’s accumulation of more than 5% of the BEI common stock the open market on or about January 14, 2005.

      On January 25, 2005, in light of the rapid accumulation of our shares by the Formation group, our Board adopted a Share Purchase Rights Plan to protect our stockholders from the threat of additional stock

accumulations before the Board could meet to fully consider the Formation group’s proposals and make a recommendation to our stockholders.

      On January 27, 2005, we received a letter from a lawyer for the Formation group indicating that Mr. Whitman might propose a slate of directors for election at our 2005 annual meeting.

      Our Board met again on the evening of February 2, 2005 to consider the transactions described in the Formation group’s January 19 letter. After consultation with its legal advisors and Lehman Brothers, the Board unanimously concluded that the transactions described in the Formation group’s letters of December 22 and January 19 were not in the best interests of BEI’s stockholders. In reaching this conclusion, the Board took into account, among other things, BEI’s strategic plan and growth initiatives, BEI’s operating and financial progress in recent years and the contingent nature of the Formation group’s proposals. The Board determined that both of the Formation group’s proposals undervalued BEI, after consulting with Lehman Brothers which provided guidance and assistance to the Board in analyzing BEI’s historical financial statements, its stock market prices over the past several years and other financial measures of performance, including, but not limited to, cash flows and comparisons with comparable companies. On February 3, 2005, Mr. Floyd sent Mr. Whitman a letter describing the Board’s decision.

      On February 4, 2005, the Formation group announced that it had submitted a slate of six independent nominees for election to the Board at the 2005 annual meeting as well as its intention to file a proxy statement with the SEC for the solicitation of BEI’s stockholders for the election of the alternative slate of directors. The Formation group also sent a letter to Mr. Floyd reiterating its interest in acquiring BEI in a transaction under the terms disclosed in the December 22 and January 19 letters and its ability to finance such an acquisition. The Formation group also indicated that it might raise its offer price if such an increase was justified by further due diligence.

      On February 17, 2005, BEI formally engaged JPMorgan as a second financial advisor to offer additional analysis and to further the Board’s pursuit of strategic alternatives.

      On February 18, 2005, BEI filed its preliminary proxy statement in connection with the 2005 annual meeting. The proxy statement contained a summary of the events leading up to the Formation group’s proposal and detailed the reasons that the Board chose not to pursue the proposal. The proxy statement urged BEI’s stockholders to support the Board’s slate of directors at the 2005 annual meeting.

      On February 18, 2005, the Formation group filed a preliminary proxy statement in which it stressed the merits of its proposal for acquiring BEI and urged stockholders to elect the group’s alternative slate of directors at the annual meeting. The Formation group’s preliminary proxy statement also contained several other proposals for stockholders, including a restriction on increasing the size of the Board and a prohibition on the Board amending the Company by-laws. The Formation group also amended its 13D filing to include a statement of the possibility that it would divest BEI’s ancillary businesses as a way of financing its proposed acquisition of the Company.

      On February 21, 2005, the Board met again to review the developments in the proxy contest with the Formation group and to further consider BEI’s strategic alternatives. Lehman Brothers and JPMorgan discussed the changing nature of the Company’s stockholder base, additional elements of the Formation group’s proposals and the Company’s financial and operating results and projections. BEI’s legal advisors also discussed the Board’s fiduciary duties. The Board authorized these advisors to conduct additional analysis on BEI’s strategic and legal options and directed management to work with the advisors to prepare a presentation on the Company’s options at a March Board meeting.

      On March 14, 2005, the Formation group filed its definitive proxy statement urging the election of its alternative slate of directors at the 2005 annual meeting.

      On March 15, 2005, we filed our definitive proxy statement urging the re-election of the current Board at the 2005 annual meeting.

      Between March 14 and March 17, 2005, members of BEI’s management met with 23 investor groups, which in the aggregate owned approximately 37 million shares as of the record date for the 2005 annual

meeting, representing approximately 34% of the outstanding shares at that time. The investor groups consisted of a combination of arbitrage, hedge, growth and index funds. Through these meetings, BEI learned that these investors were focused on short-term value and liquidity maximization.

      On March 21, 2005, the Board met to consider comprehensively its strategic alternatives in the context of its changing stockholder base, feedback received from stockholders in their meetings with management, the acquisition proposal by the Formation group and the ensuing proxy contest. Lehman Brothers and JPMorgan discussed stockholder composition and potential strategic alternatives. BEI’s legal advisors discussed conversations with the Formation group regarding a potential settlement which would resolve the proxy contest should the Board decide to commence an auction process. Following discussion, the Board unanimously adopted resolutions authorizing commencement of an auction process for the sale of BEI to maximize stockholder value. To underscore the Board’s commitment to this course of action, the Board also adopted a resolution enabling BEI’s stockholders to replace the Board prior to the 2006 annual meeting in the event they were not satisfied with the auction process.

      Lehman Brothers and JPMorgan compiled a list of prospective financial and strategic buyers, including combination “hybrid” buyers and healthcare REITs to be contacted regarding their potential interest in a transaction with BEI. At the direction of BEI, representatives of Lehman Brothers and JPMorgan commenced contacting these potential buyers and identified additional parties which were also contacted as part of the process. Initial contacts were made with representatives of 48 parties and consisted of a brief discussion of BEI’s possible interest in engaging in a sale of BEI and an inquiry as to whether the potential party would be interested in receiving further information.

      On April 1, 2005, we engaged Covington & Burling on behalf of the independent members of the Board of Directors to be their counsel in connection with the proposed sale of BEI. Latham & Watkins continued to serve as counsel to BEI. References in this proxy statement to BEI’s legal advisors refer to Latham & Watkins and Covington & Burling unless the context requires otherwise.

      On April 4, 2005, BEI opened an on-line data room, where all bidders interested in pursuing the purchase of BEI which had executed confidentiality agreements could have access to due diligence information regarding BEI.

      On April 11, 2005, we entered into a settlement agreement with the Formation group under which the Formation group agreed to discontinue the solicitation of proxies in connection with our 2005 annual meeting of stockholders and withdraw its nominees for election to our Board. In addition, we agreed to reimburse the Formation group for up to $600,000 of out-of-pocket fees and expenses incurred by it in connection with its proxy solicitation. Also on April 11, we signed a confidentiality agreement with the Formation group. The confidentiality agreement permitted the Formation group and its representatives to examine confidential, nonpublic information regarding BEI for the purpose of evaluating a possible transaction with BEI pursuant to the same restrictions imposed on other bidders involved in the auction process. BEI committed in the confidentiality agreement to allow the Formation group to participate in BEI’s on-going auction process on an equitable basis with all other potential buyers of BEI.

      Between April 12 and April 14, 2005, Lehman Brothers and JPMorgan sent a first round process letter to 24 potential bidders or bidding groups that invited non-binding written indications of interest for a proposed transaction to be submitted no later than 5:00 p.m. (EDT) on May 9, 2005. The letter described, in specific terms, the items to be addressed in a proposal.

      During the first phase of the sale process, BEI management accommodated the requests of potential bidders to meet and ask questions about the current legal structure of the Company and potential savings that might be achievable from certain changes to that structure. The management team participated in six such meetings. In advance of these meetings, a set of ground rules for any discussion was prepared, which dictated that there would be no management presentation, and that all questions, topics and a list of attendees must be provided in writing in advance to Lehman Brothers. In addition, bidders were prohibited from discussing with management any plans or proposals regarding management’s potential continued role at BEI following a

transaction, including terms of employment. These rules were orally communicated to all parties requesting a meeting.

      On April 28, 2005, the independent members of the Board of Directors met to consider the advisability of making available to all bidders as part of the bidding process a “stapled” debt financing package under which the winning bidder would have access to pre-arranged real estate-based debt financing to support the purchase of BEI. Because the auction process required multiple parties to undertake time consuming and expensive due diligence without assurance that they would be the selected bidder, the independent members of the Board, after consultation with Lehman Brothers, JPMorgan and their legal advisors, determined that making a “stapled” financing package available to all bidders would increase the likelihood of multiple bidders remaining in the auction for the longest possible period, thereby increasing the competitiveness of the auction. In addition, they believed that providing the common real estate due diligence that would be generated as part of the “stapled” financing package and could be utilized by any potential lender would increase the likelihood that the winning bidder would have a fully committed debt commitment at the time of announcement of any agreement. Accordingly, the Board instructed Lehman Brothers and JPMorgan, together with its legal advisors, to work with management to develop a debt financing package to be offered to all bidders by JPMorgan and Lehman Brothers, and to produce the underlying real estate due diligence necessary to support such debt financing in a manner that could be used by any other provider of the real estate financing to support a bid. In light of the financial interest of JPMorgan and Lehman Brothers as the result of the proposed “stapled” financing, the independent members of the Board also discussed their desire for independent financial advisory services.

      By April 28, 2005, we had executed confidentiality agreements with 23 potential bidders or bidding groups providing access to the online data room and other Company information relevant to a potential transaction.

      On May 9, 2005, Mr. Floyd, Jeffrey Freimark, our Chief Financial Officer, and the Finance Committee of our Board of Directors met with representatives of three financial advisory firms, including CIBC World Markets, regarding an engagement to render an independent opinion to the Board in connection with the proposed sale of BEI. The BEI Board subsequently engaged CIBC World Markets for this purpose.

      On May 9 and 10, 2005, we received preliminary indications of interest from five bidders or bidding groups for the purchase of the entire Company at prices ranging from $11.00 to $12.50 per share, including two groups which proposed to purchase the Company through separate but related transactions. The preliminary indication of interest submitted by NASC proposed a price of $12.00 per share. We also received indications of interest from four parties interested in purchasing only the rehabilitation and/or hospice components of our business.

      At a meeting of the Board of Directors on May 15, 2005, management and representatives of Lehman Brothers and JPMorgan provided the Board with an update regarding the ongoing sale process and the preliminary indications of interest with respect to the purchase of BEI that had been received. After discussion of the preliminary indications of interest, the Board of Directors authorized management to continue discussions with all bidders or bidding groups which had submitted preliminary indications of interest, but to indicate to one bidder that a condition of its further participation in the auction process was to provide additional detail concerning the status of its due diligence review and the sources of its debt and equity financing.

      Also at the May 15 Board meeting, in order to maximize the value to be obtained for the whole company, Lehman Brothers and JPMorgan were authorized to share the names of potential bidders for our ancillary businesses with bidders for the whole company which had been invited to participate in the second round of the auction.

      On May 16, 2005, Lehman Brothers received a call from a party that had not submitted an indication of interest, inquiring about the status of the auction process and whether the Board was still accepting indications of interest. During this and subsequent phone conversations, the party was informed that while preliminary

indications of interest had been due on May 9, as outlined in the process letter it had received, the Board was willing to consider any and all credible proposals. Accordingly, this party was encouraged to submit a proposal.

      On May 25, 2005, independent members of the Board of Directors met with representatives of Covington & Burling via teleconference to discuss the existing employment, change of control, severance, and incentive plans and other arrangements of BEI. Because the employment plans and agreements pre-dated (in many cases by several years) the initial December 2004 contact from Formation, the independent directors of BEI sought an evaluation of the impact of the employment plans and agreements and recommendations for addressing the plans and agreements in the context of a merger transaction. The independent members of the Board instructed representatives of Covington & Burling to work with BEI’s benefits consultants, Towers Perrin, to develop recommendations to address the operation of the plans and agreements in the context of a change of control of BEI.

      During May and June, 2005, nine bidders or bidding groups continued to access the data room for continued due diligence investigations, and BEI and its legal advisors, in consultation with Lehman Brothers and JPMorgan, worked on a draft merger agreement and disclosure schedule to be sent to bidders. In addition, during this period, JPMorgan and Lehman Brothers worked with the Company’s management to develop a stapled financing package and organize the common real estate due diligence that would be made available to all bidders at the Company’s expense.

      During the week of June 6, 2005, the management of BEI hosted formal in-person management presentations at the offices of Latham & Watkins and Lehman Brothers for each of the potential round two bidders. The meetings included a formal presentation by management about the Company, its organization, lines of business, operations, strategies, and historical and projected financial performance, including potential upside opportunities. Potential bidders had the opportunity to ask questions during the presentation. A series of breakout sessions on more specific topics requested by each potential bidder also occurred on the same day or on follow-up telephone calls. However, the bidders were prohibited from discussing with management any plans or proposals regarding management’s potential continued role at BEI following a transaction, including terms of employment.

      During the weeks of June 13 and June 20, 2005, the management of Aegis and Aseracare, the rehabilitation and hospice business units of BEI, hosted formal in-person management presentations in Milwaukee, Wisconsin for each of the parties interested in partnering with a bidder for the whole Company to acquire one or more of the ancillary businesses. The meetings included a formal presentation by BEI’s management about the line or lines of business of interest to the party, operations, strategies and historical and projected financial performance, including potential upside opportunities. However, the bidders were prohibited from discussing with management any plans or proposals regarding management’s potential continued role at BEI following a transaction, including terms of employment.

      On June 17, 2005, our Board of Directors met via teleconference to review the results of the due diligence presentation meetings with bidders and to provide a status report on the bidders remaining in the process and their levels of interest. Management, Lehman Brothers and JPMorgan provided a full briefing concerning the existing and potential bidders, and made recommendations regarding the procedures to be transmitted to the bidders. The Board of Directors then authorized Lehman Brothers and JPMorgan to transmit bidding instructions to bidders remaining in the process.

      In executive session, the independent directors then discussed with Mr. Floyd the ground rules for discussions between management and bidders about the future role of management with BEI following the closing of the merger. After discussion, Mr. Floyd agreed with the independent directors that no discussions between members of the BEI management team and any bidder regarding the future role of the existing BEI management team would take place until after the submission of firm bids, and then only on the basis of a common set of criteria developed by management and approved by the independent members of the Board of Directors.

      Following the Board of Directors meeting on June 17, 2005, Lehman Brothers and JPMorgan sent instructions to five final bidders or bidding groups regarding the procedures for submitting firm bids for BEI on July 15, 2005.

      On June 21, 2005, we received a letter from another potential bidder indicating an interest in acquiring the Company at $12.50 per share. However, in light of the timing of the letter and its lack of detail regarding the proposal, Lehman Brothers and JPMorgan were instructed to advise this bidder that it would not be invited to continue in the second round of bidding at that time but that it was welcome to develop a more comprehensive proposal, in which case it would be allowed to participate in the second round of the auction.

      On June 27, 2005, independent members of our Board of Directors’ Nominating and Compensation Committee and Finance Committee met with representatives of Covington & Burling via teleconference to review in detail the operation of the legacy employee benefit plans and agreements and their impact on a sale of BEI. Covington & Burling then briefed the directors on the tentative recommendations of Covington & Burling and Towers Perrin to address the change of control payments and other terms required under those legacy agreements in connection with a transaction. The directors instructed Covington & Burling to develop a full presentation for the June 29 meeting of our Board of Directors.

      On June 29, 2005, our Board of Directors met via teleconference with management, BEI’s legal advisors, Lehman Brothers and JPMorgan to discuss the proposed draft merger agreement. Latham & Watkins and Covington & Burling explained various provisions in the draft merger agreement to the Board. At that meeting, the Board met in executive session without Mr. Floyd and without other members of management present. The independent members of the Board discussed the impact of certain provisions in the employment, severance and change of control agreements applicable to a number of BEI employees, and certain employee benefit plans, the terms of which could require BEI to create trusts or other financial security for the payment of certain benefits to employees following a change of control. The Board instructed its legal advisors to work with management to develop, for consideration by the Board, mitigation strategies to minimize the impact on bidders of the change of control costs imposed by the terms of the pre-existing agreements and plans.

      On July 8, 2005, John Fowler, the chairman of our Board of Directors’ Nominating and Compensation Committee, met via teleconference with Mr. Floyd and representatives of Covington & Burling to review the proposed treatment of the legacy employment agreements and employee plans in the context of a change in control of BEI. Mr. Fowler directed that Covington & Burling prepare materials for a full presentation to the Board of Directors at its next meeting.

      On July 11, 2005, our Board of Directors met via teleconference and reviewed with Covington & Burling the terms of the legacy employment agreements and plans, their potential costs in a change of control transaction and alternatives for addressing those costs. In executive session without members of management present, the independent members of the Board of Directors discussed alternatives for addressing the costs associated with the legacy agreements and plans, including the possibility of seeking waivers from employees of certain benefits to which employees were entitled under the plans. The independent directors instructed Covington & Burling to explore with senior management whether such waivers might be obtainable and, if not, whether there were other mitigation strategies that we could pursue to minimize the impact of the change of control payments on the bidding process.

      On July 13, 2005, representatives of BEI had separate meetings via teleconference with representatives of NASC, the Formation group and one other bidder to discuss proposed changes to BEI’s compensation plans and agreements in connection with a sale transaction.

      On July 15, 2005, we received separate bids for the purchase of 100% of the equity of BEI from the Formation group and NASC, together with a mark-up, in each case, of the merger agreement. The Formation group proposed to pay $12.00 per share in cash, subject to reduction to $11.75 if BEI did not take actions (including and in addition to those outlined by BEI’s representatives on July 13) to reduce the change of control payments to employees under the terms of their existing agreements. The Formation group’s proposal was also conditioned on a sale of BEI’s ancillary businesses to a third party, as well as significant (but unspecified) reductions in BEI’s capital expenditures to make available more cash from BEI for purposes of

the closing. NASC proposed to pay $12.65 per share in cash. Another bidder indicated that it would pay more than $11.50 per share, but did not submit a firm bid or a mark-up of the merger agreement.

      On July 18, 2005, the Board of Directors met via teleconference with management and BEI’s legal advisors, together with Lehman Brothers and JPMorgan, who briefed the Board of Directors on the proposals received from NASC and the Formation group.

      Between July 18 and July 21, 2005, Lehman Brothers and JPMorgan contacted NASC and the Formation group about each of their bids and sought further details concerning the pricing, conditionality and steps needed to complete agreements with each bidder.

      On July 20, 2005, the Nominating and Compensation Committee of the Board of Directors met via teleconference with representatives of Covington & Burling and Towers Perrin to discuss different means of addressing the change of control costs associated with BEI’s employment, change of control, and severance agreements and employee benefit plans. Towers Perrin confirmed to the Nominating and Compensation Committee that the terms of the plans and agreements left the Board with little discretion to reduce the payments, and that a significant portion of the costs was associated with “gross up” provisions under which BEI was contractually obligated to pay excise taxes for the benefit of employees receiving severance and/or change of control-related payments. Covington & Burling confirmed that discussions with senior management concerning the possibility of waivers of the change of control benefits had not been fruitful. Covington & Burling reported that because the provisions of the BEI employee benefit plans and agreements (and the associated benefits to employees associated with change of control) were contractual, long-standing and had been adopted at a time when the Company’s stock was trading at a fraction of the prices being proposed by the current bidders, senior management had expressed the view, and believed that other covered employees would similarly view, that the change of control benefits were viewed as “fully vested” for prior performance and that employees would not be willing to relinquish those benefits voluntarily. After extensive discussion, the members of the Nominating and Compensation Committee concluded that the contractual benefits afforded by the change of control plans and agreements would be regarded by the employees as fairly reflecting their past contributions to the business, and that the value of the employees’ continued cooperation in effecting a sale of the Company was paramount. The members of the committee then concluded that further negotiations with employees seeking voluntary reductions in their contractual change of control benefits would be unproductive and not in the best interests of the Company’s stockholders. On the advice of Towers Perrin and Covington & Burling, the Nominating and Compensation Committee considered the possibility of making early payments of certain benefits, including benefits that were either previously earned by the affected employees or would, in the ordinary course, be paid shortly after the beginning of the calendar year (in respect of services rendered and/or Company performance in the prior year) as a potential means of obtaining employee waivers of certain arbitration, security and “trust” deposit provisions in their agreements that would operate upon a change of control, thereby reducing the out-of-pocket cost and future excise tax obligations faced by BEI upon a change of control. See “The Merger — Interests of Certain Persons” beginning on page [     ].

      On July 21, 2005, the Board of Directors met at the New York offices of Lehman Brothers with management, BEI’s legal advisors, Lehman Brothers and JPMorgan, who described the proposals received from NASC and the Formation group in detail. After an extensive discussion of the proposals, including an executive session in which neither Mr. Floyd nor any other members of BEI’s management participated, the Board instructed management, its legal advisors, Lehman Brothers and JPMorgan to continue negotiations with NASC and the Formation group with the goal of improving both bids, from a financial and legal standpoint. From a legal perspective, the Board was particularly interested in reducing the conditionality of both bids with respect to financing and related real estate matters and with respect to the Formation group’s proposed condition that BEI’s ancillary businesses contemporaneously be sold to third parties.

      Between July 21, 2005 and August 16, 2005, numerous meetings and teleconferences were held between BEI’s legal advisors, Lehman Brothers and JPMorgan and representatives of the Formation group and NASC.

      On July 29, 2005, NASC sent a letter to BEI in care of Lehman Brothers modifying its proposal by agreeing to increase the consideration offered to $12.70 per share and to post a $5 million letter of credit at the

signing of the merger agreement which would be forfeited if NASC terminated the merger agreement within a 30-day due diligence period. At the end of the 30-day due diligence period, NASC offered to post an additional $45 million letter of credit, for a total $50 million deposit, to support payment of a business interruption fee in the event the merger agreement were terminated for specified reasons after the initial 30-day due diligence period.

      On July 29, 2005, our Board of Directors met via teleconference with BEI’s legal advisors, Lehman Brothers and JPMorgan, who briefed the Board on the revised proposal from NASC. After discussing the proposal, the Board instructed management and such advisors to continue negotiations with NASC and the Formation group with the goal of improving both bids, and to also focus on negotiating the detailed terms of a merger agreement with NASC.

      On August 5, 2005, our Board of Directors received an update via teleconference from BEI’s legal advisors, Lehman Brothers and JPMorgan. Lehman Brothers and JPMorgan reported that NASC had increased its bid to $12.80 per share, agreed to make a $7 million deposit and have a total business interruption fee of $65 million and indicated that this was its best and final offer. The Board instructed management, together with BEI’s legal advisors, Lehman Brothers and JPMorgan, to start negotiating on a fast track with NASC based on this latest proposal and simultaneously to continue to try to improve the Formation group’s bid, especially with respect to conditionality surrounding the sale of the ancillary businesses.

      Between August 5, 2005 and August 16, 2005, representatives of BEI along with our legal advisors, Lehman Brothers and JPMorgan met in person and via teleconference with representatives of NASC, its legal counsel Troutman Sanders LLP, and its financial advisors to discuss and negotiate the merger agreement.

      On August 11, 2005, the Board of Directors received an update via teleconference from BEI’s legal advisors, Lehman Brothers and JPMorgan on the status of negotiations with NASC and communications with the Formation group.

      On August 13, 2005, the Finance Committee of our Board met via teleconference with representatives of Covington & Burling to review the status of the bids and negotiations. The Finance Committee members instructed Covington & Burling to report regularly to Mr. Fowler (and other independent members of the Board) on the progress of negotiations.

      From the evening of August 14 through the afternoon of August 15, 2005, BEI’s legal advisors, Lehman Brothers and JPMorgan met with Troutman Sanders to negotiate the final terms of a proposed merger agreement, under which NASC would make a $7 million deposit, of which $3.5 million would be refundable during the first seven days in the event that NASC’s financial advisors were not satisfied with the progress of due diligence and appraisals on BEI’s real property. NASC outlined other terms of its proposed offer, including a 30-day period in which to post the additional $53 million deposit or letter of credit to secure a proposed $60 million business interruption fee. In response to a BEI proposal that the parties delay the execution of a merger agreement until the additional due diligence could be completed, NASC stated that it was unwilling to proceed with further due diligence and negotiations unless BEI signed an agreement with NASC as proposed. However, NASC agreed that during the seven-day period following the execution of an agreement, BEI could accept without payment of a breakup fee (other than the return of NASC’s deposit and the payment of up to $3.5 million in NASC’s documented out-of-pocket expenses) a superior proposal involving a higher price to shareholders. NASC demanded that it have prior notice of any superior proposals, and a right to submit its own superior proposal in response. After consulting with Mr. Fowler and other independent members of the Board, our legal advisors proceeded to draft provisions for the merger agreement reflecting the latest proposals for consideration by the full Board.

      On August 15, 2005, our Board of Directors met at the New York offices of Lehman Brothers with management and BEI’s legal advisors, Lehman Brothers, JPMorgan and CIBC World Markets. Representatives of Covington & Burling, Latham & Watkins, JPMorgan and Lehman Brothers reviewed for the Board of Directors in detail the terms of the merger agreement and other aspects of the NASC proposal, including, in particular, the business interruption fee that would be payable by NASC under certain circumstances if NASC terminated the merger agreement and the termination fees that would be payable by BEI under certain

circumstances if we terminated the merger agreement. The Board reviewed the NASC agreement as compared to the latest Formation group proposal. The Board noted that the Formation group proposal was at a lower price per share and had significantly greater conditionality involving the minimum cash requirements at closing, the nature of the regulatory approval process for transfer of BEI’s health care licenses and more restrictive operating covenants prior to closing. In addition, the Board noted that the Formation group’s proposal was dependent on the proceeds from the sale of BEI’s ancillary businesses as a source of cash to fund the payment of the purchase price at closing. There was also a discussion surrounding the financing risk and issues involving the ability of NASC to obtain adequate real estate appraisals to obtain debt financing for the transaction. The Board also discussed the relative weakness of the equity commitment being provided by NASC as compared with the equity sources offered by the Formation group. The Board instructed JPMorgan and Lehman Brothers to provide whatever assistance they could to facilitate the financing of the NASC transaction, including the real estate appraisal process. After a full discussion of the proposed NASC agreement and the Formation group’s proposal, including an executive session in which neither Mr. Floyd nor any other members of the management team participated, each of JPMorgan, Lehman Brothers and CIBC World Markets separately reviewed with the Board of Directors its financial analysis of the per share consideration as then proposed.

      On August 16, 2005 representatives of Lehman Brothers and Latham & Watkins received calls from representatives of Eureka Capital, financial advisor to the Formation group, and Fried, Frank, Harris, Shriver & Jacobson LLP, legal advisor to the Formation group, who reported that the Formation group had revised its offer to remove the requirement that certain ancillary businesses be divested as a condition to closing and to increase the per share merger consideration to $12.80 per share. The Formation group then delivered a letter to Lehman Brothers confirming the offer and requesting that BEI engage in further negotiations with the Formation group. By its terms, that written offer was to expire on August 17 at 5:00 p.m. (EDT).

      On August 16, 2005, the Board of Directors met by teleconference with management, BEI’s legal advisors and Lehman Brothers, JPMorgan and CIBC World Markets. Representatives of Lehman Brothers reported on the revised proposal from the Formation group. There was then a discussion comparing the two proposals. The Board determined that the NASC proposal remained preferable, considering in particular the fact that a merger agreement was ready to be signed with NASC, while an agreement with the Formation group remained to be negotiated, and also the relatively unprotected nature of the transaction with NASC for a short period following the signing of the merger agreement, which would provide the Formation group the ability to submit a topping bid during that period. Each of JPMorgan, Lehman Brothers and CIBC World Markets then separately delivered to the Board its oral opinion, confirmed by delivery of a written opinion, to the effect that, as of August 16, 2005 and based on and subject to the matters described in its opinion, the $12.80 per share merger consideration was fair, from a financial point of view, to the holders of BEI common stock. Following additional discussion and deliberation, on recommendation of the independent members of the Board of Directors, the Board (with Mr. Floyd abstaining) approved the merger agreement with NASC and the transactions contemplated by the merger agreement and resolved to recommend that our stockholders vote to adopt that merger agreement.

      On August 16, 2005, we entered into a merger agreement with NASC, NASC Acquisition and SBEV. Prior to the opening of trading on the New York Stock Exchange on August 17, 2005, BEI issued a press release announcing the execution of the merger agreement with NASC.

      On August 18, 2005, the Formation group sent a letter to BEI indicating its disappointment with BEI’s execution of the merger agreement with NASC and offering to purchase BEI for $12.90 per share in cash, post a $10 million deposit and not condition the transaction on the sale of the ancillary businesses. The bid was also contingent on no more than $3.5 million being payable to NASC as a termination fee. The letter also attached commitments from the Formation group’s sources of financing. As required by the merger agreement, NASC was notified of the Formation group’s letter, and NASC responded by expressing its continuing desire to acquire BEI.

      At 4:00 p.m. (EDT) on August 18, 2005, a telephonic meeting of the Board of Directors was convened to discuss the proposal from the Formation group. After a discussion of the proposal and the requirements of the

merger agreement with NASC, the Board concluded that the proposal from the Formation group was reasonably likely to constitute a superior proposal under the merger agreement and, therefore, satisfied the conditions for BEI to engage in discussions with the Formation group about its proposal. The Board of Directors instructed BEI’s management, together with BEI’s legal advisors, Lehman Brothers and JPMorgan, to negotiate with the Formation group in order to receive a revised proposal from them later that evening that the Board could consider.

      At 10:30 p.m. (EDT) on August 18, 2005 a telephonic meeting of the Board of Directors was convened to discuss a revised proposal from the Formation group. The revised proposal was consistent with the proposal received earlier in the day, with more detail on certain points requested by BEI. After a lengthy discussion of the revised proposal and the requirements of the merger agreement, on the recommendation of the independent directors, the Board of Directors concluded that the revised proposal was a superior proposal under the merger agreement and, in accordance with the merger agreement, that NASC be notified of that determination and BEI’s intention to accept the proposal from the Formation group between noon and 5 p.m. on August 23, 2005. That notice was delivered to NASC and the Formation group later that evening. Under the NASC merger agreement, if BEI terminated the merger agreement by 5:00 p.m. (EDT) on August 23, 2005 to accept a superior proposal, the termination fee payable to NASC would be $3.5 million; after 5:00 p.m. (EDT) on August 23, 2005, the termination fee payable to NASC would have increased to $20 million (or to $60 million if NASC had at the time of such termination posted a cash deposit or letter of credit for an additional $53 million).

      From August 19 to August 21, 2005, representatives of BEI and the Formation group met to negotiate a merger agreement reflecting the most recent Formation group proposal. At the instruction of the Board, our legal advisors, Lehman Brothers and JPMorgan had regular calls with Mr. Fowler and other independent members of the Board during the negotiations. At the instruction of the Board, these advisors sought to have the Formation group further improve its most recent bid. The Board believed that NASC would match or top a $12.90 bid from Formation, and such advisors urged Formation to increase its bid to a level above which NASC was able to bid.

      The Formation group’s representatives confirmed that the Formation group was not prepared to bid more for BEI. According to the terms of our merger agreement with NASC, a higher bid from Formation would have required a separate notice to NASC, extending the negotiations beyond the period during which a $3.5 million break up fee would be payable to the point at which a higher $20 million breakup fee would have been payable to NASC. The Formation group indicated that it was not prepared to acquire BEI if BEI were required to pay an increased termination fee to NASC. Further negotiations with the Formation group’s representatives confirmed a continued and significant shortfall between BEI’s own projections for cash balances at the likely closing date, and the Formation group’s financial model for the sources and uses of cash, and debt and equity financings to support of the purchase price. Continued negotiations with the Formation group over operating covenants to be applied to BEI between the execution of the merger agreement and closing focused on the preservation of cash and BEI’s belief that the restrictive nature of the covenants proposed by the Formation group contributed to additional execution risk in the proposed transaction.

      On August 21, 2005, BEI’s representatives again met with representatives of the Formation group to explain the need for a higher price and for more flexibility in the proposed operating covenants applicable to BEI. BEI’s representatives also explained that other elements of the Formation group proposal, particularly those involving the conditions to closing and the structure of the regulatory approval process proposed by the Formation group, would raise concerns with the Board concerning the conditionality of the Formation group proposal. The Formation group’s representatives indicated that they believed there was no further flexibility on price terms, but that they would evaluate whether the Formation group could agree to additional flexibility with respect to operating covenants, closing conditions and the proposed regulatory approval process.

      On August 22, 2005, the Board of Directors met by teleconference with management, BEI’s legal advisors, and Lehman Brothers, JPMorgan and CIBC World Markets. BEI’s legal advisors, Lehman Brothers and JPMorgan reported on the progress of negotiations with the Formation group. It was noted that the Formation group was unlikely to bid more than $12.90 per share, in part because of the Formation group’s

refusal to permit BEI to pay to NASC an increased termination fee associated with a new Formation group proposal at a price higher than $12.90 per share. Based on a review of the Formation group’s financial model by Lehman Brothers and BEI’s management, the Board also expressed continuing concerns over the validity of the Formation group’s assumptions regarding the amount of cash in BEI available for use as part of the purchase price. However, the Board believed that the Formation group’s recent indications of flexibility with respect to operating covenants and closing conditions suggested that continued negotiations were appropriate, and the Board authorized BEI’s legal advisors, Lehman Brothers and JPMorgan to engage in further negotiations with both NASC and the Formation group for a higher price, and to agree to increased deal protection if either party agreed to increase the merger consideration above $12.90 per share.

      As a result of those discussions, NASC indicated that it would increase its offer to $13.00 per share in exchange for increased deal protection, but the Formation group indicated it was not willing to increase its offer.

      During the evening of August 22 and throughout the day on August 23, 2005, representatives of BEI and NASC continued to negotiate over the terms of an amendment to the original NASC merger agreement providing for a $13.00 price per share and an additional $20 million breakup fee payable to NASC in the event of a termination prior to the receipt of NASC’s increased good faith deposit. Mr. Fowler supervised the final negotiations, and, together with directors Donald L. Seeley, James W. McLane and Ivan R. Sabel, participated in multiple calls with our legal advisors, Lehman Brothers and JPMorgan during the night of August 22.

      On the afternoon of August 23, 2005, the Formation group repeated its prior offer of $12.90 per share, and submitted a revised markup of the merger agreement based on its original more restrictive operating covenants, including significant restrictions on capital expenditures and other cash-related operating covenants that the Board believed were designed to close the gap between the closing cash balance projections of the Formation group and BEI’s own closing cash projections.

      On August 23, 2005, the Board of Directors met by teleconference with management, BEI’s legal advisors, Lehman Brothers, JPMorgan and CIBC World Markets. BEI’s legal advisors, Lehman Brothers and JPMorgan reported on the new proposal received from NASC and the terms of a draft amendment to the merger agreement received from NASC. Among other things, NASC proposed to increase the per share merger consideration to $13.00 per share and also to increase the amount of the termination fee payable to NASC prior to NASC raising its business interruption fee deposit to $40 million from $20 million. NASC also agreed to waive its right to terminate the merger agreement with respect to real estate appraisals. The Board then discussed the latest NASC proposal and compared it to the Formation group’s proposal at $12.90 per share. In addition to noting that the terms of its current merger agreement with NASC prohibited the Board from accepting a proposal with a nominal per share value less than that being proposed by NASC, the Board also noted that the Formation group’s proposal would have required BEI to agree to substantially more restrictive operating covenants that the Board viewed as unacceptable because they significantly increased the risk that BEI would be unable to comply with the covenants and thus could not satisfy the closing conditions for the merger. Although the Formation group’s proposal included a stronger equity commitment, the Board did not believe that, in light of these other concerns, this was sufficient to make the Formation group’s proposal superior to NASC’s $13.00 per share proposal. Each of JPMorgan, Lehman Brothers and CIBC World Markets then separately delivered to the Board its oral opinion, confirmed by delivery of a written opinion, to the effect that, as of August 23, 2005 and based on and subject to the matters described in its opinion, the $13.00 per share merger consideration was fair, from a financial point of view, to the holders of BEI common stock. Following additional discussion and deliberation, the Board of Directors approved the amendment to the merger agreement with NASC and the transactions contemplated by the amended merger agreement and resolved to recommend that our stockholders vote to adopt the amended merger agreement. Mr. John P. Howe, III, M.D. (who joined the meeting late) and Mr. Floyd abstained from the vote.

      On August 23, 2005, the amendment to the merger agreement with NASC was executed by BEI and NASC. Prior to the opening of trading on the New York Stock Exchange on August 24, 2005, BEI issued a press release announcing the execution of the amendment to the merger agreement.

      On August 25, 2005, the Formation group filed a statement with the Securities and Exchange Commission indicating that it no longer had any present intention to submit further proposals to acquire BEI.

      On September 19, 2005, NASC notified BEI that it would likely be able to provide the debt commitment letters and solvency opinion required to be submitted to BEI by September 22, 2005, as required by the merger agreement. NASC also confirmed that it would be able to provide an equity commitment letter and letter of credit for the additional $53 million good faith deposit or letter of credit by September 22, 2005, but neither would conform to the terms of the merger agreement because both the equity letter and the letter of credit would be subject to certain additional conditions. NASC at that time identified Fillmore Capital Partners as the likely source of the equity financing for the transaction, but NASC confirmed that Fillmore Capital Partners’ funding would be subject to certain contingencies until mid-November, because Fillmore Capital Partners was working to obtain financing.

      On September 20 and 21, 2005, the Board of Directors met by teleconference with management, BEI’s legal advisors, Lehman Brothers and JPMorgan to discuss developments regarding NASC’s likely failure to satisfy the September 22, 2005 requirements. The Board authorized management and these advisors to continue discussions with NASC regarding potential amendments to the terms of the merger agreement to permit NASC more time to perform.

      On September 21 and 22, 2005, BEI’s representatives continued negotiations with representatives of NASC concerning the terms of a possible amendment to the merger agreement providing NASC more time to fulfill its obligations and permitting BEI to actively solicit superior offers for the acquisition of BEI. The proposed amendment would also modify the terms of the merger agreement relating to a superior proposal, making it easier for BEI to conclude that a superior proposal had been received and eliminating the breakup fee payable to NASC in the event that BEI was able to secure a superior proposal prior to NASC’s fulfillment of its obligations.

      On September 22, 2005, the Board of Directors met by teleconference with management, BEI’s legal advisors, Lehman Brothers and JPMorgan. The Board discussed various alternatives, including terminating the merger agreement. After extensive discussion, including an executive session in which neither Mr. Floyd nor any other members of the management team participated, the Board (with Mr. Floyd abstaining) approved an amendment to the merger agreement providing that the initial good faith deposit would be increased from $7 million to $10 million, the updated debt commitment letters and solvency opinion would not be required to be delivered until October 21, 2005, BEI would have a right to terminate the merger agreement if a firm letter of credit or deposit for $50 million was not delivered by October 21, 2005 and NASC would be required to deliver a firm equity commitment letter and $50 million deposit or letter of credit by November 18, 2005. In addition, until all of these documents were delivered, BEI would not be limited in its ability to speak with other potential bidders, there would be no termination fee payable to NASC, and, in the event BEI terminated the merger agreement in order to enter into a superior transaction with another bidder, BEI would reimburse NASC for its expenses only to the extent NASC had deposited additional cash as a good faith deposit.

      During the night of September 22, 2005, our legal advisors finalized the terms of the second amendment to the merger agreement under the supervision of Mr. Fowler. The second amendment to the merger agreement with NASC was executed by BEI, NASC, NASC Acquisition and SBEV. Prior to the opening of trading on the New York Stock Exchange on September 23, 2005, BEI issued a press release announcing the execution of the second amendment to the merger agreement.

      Between September 23 and November 18, 2005, Lehman Brothers and JPMorgan contacted a number of parties which had previously expressed interest in acquiring BEI, including representatives of the former members of the Formation group, to inquire as to whether they were interested in submitting a proposal that would be more favorable to BEI than the merger agreement with NASC. No proposals for the acquisition of BEI were received from any of the parties contacted.

      On October 21, 2005, Mr. Fowler contacted a principal of Franklin Mutual Advisors, L.L.C., which had formerly been a member of the Formation group, to see if Franklin Mutual had an interest in reforming the

Formation group and submitting a competing bid. Franklin Mutual indicated to Mr. Fowler that, at that time, there no longer was a Formation group, and there was no intent to proceed. However, Franklin Mutual indicated it might have a continued interest in making a bid, but not at the pricing levels previously contemplated and not as part of a competitive process with NASC.

      Between October 19 and 21, 2005, BEI, our legal advisors, Lehman Brothers and JPMorgan discussed and negotiated with NASC, Fillmore Capital Partners and their respective legal advisors the forms of updated debt commitment letters and solvency opinion to be delivered to BEI on October 21, 2005.

      On October 21, 2005, NASC delivered updated debt commitment letters and a solvency opinion, as contemplated by the merger agreement.

      During the weeks of November 7 and November 14, 2005, Lehman Brothers and Covington & Burling had regular telephone contact with NASC and Fillmore Capital Partners concerning the status of the equity financing, the updated equity commitment letters and the letter of credit required under the merger agreement for delivery on or before November 18, 2005. NASC expressed Fillmore Capital Partners’ concerns about litigation and legislative developments relating to BEI in Arkansas, but expressed their confidence to both Lehman Brothers and Covington & Burling that the equity financing for the transaction would be in place and that all required deliveries would be made by the November 18 deadline.

      On November 11, 2005, our Board of Directors met with management, BEI’s legal advisors, Lehman Brothers and JPMorgan to discuss the status of the merger agreement with NASC and potential alternatives to the NASC transaction if NASC failed to deliver the equity commitment and letter of credit by November 18, 2005 as required under the merger agreement. The alternative transactions discussed included transactions with other parties which had expressed an interest in BEI, a leveraged recapitalization, the separation of BEI’s real estate assets from its operating assets, a merger with a strategic partner, growth through acquisitions and the continuation of BEI’s strategic plan as an independent company.

      Late in the evening on November 16, 2005, Troutman Sanders advised Covington & Burling that NASC was encountering difficulty in meeting certain of its merger agreement obligations, and raised the possibility that NASC might not be able to fulfill its obligation to deliver a firm equity commitment and letter of credit by the November 18 deadline as required under the merger agreement.

      On the morning of November 17, 2005, the Board of Directors of BEI met via teleconference with management, BEI’s legal advisors, Lehman Brothers and JPMorgan to discuss the range of alternatives that could be pursued in the event that NASC was unable to make the required deliveries. The alternatives considered by the Board included termination of the merger agreement and retention of the NASC deposit, further negotiation with NASC over changed terms, and, in either event, contacting other interested parties, including in particular former members of the Formation group, to see if there was continued interest in bidding for the Company. The Board of Directors instructed Lehman Brothers and JPMorgan to contact parties that had expressed continued interest in acquiring BEI to see if they would be interested in pursuing a transaction if NASC did not satisfy its obligations under the merger agreement. The Board also instructed Covington & Burling to advise NASC that in the event that NASC was ultimately unable to meet its obligations under the merger agreement, NASC should submit a specific proposal for dealing with the default. The Board also instructed Covington & Burling to advise NASC that, in the absence of a specific proposal, the Board would have no alternative but to terminate the NASC merger agreement if NASC failed to perform by the November 18 deadline.

      During the afternoon of November 17, 2005, representatives of Dechert LLP and Troutman Sanders LLP, in their capacity as counsel to Fillmore Capital Partners, communicated to Covington & Burling an offer of $12.30 per share for the Company, contingent upon the assignment of the NASC merger agreement (including the $10 million deposit) to Fillmore Capital Partners and certain other changes to the NASC merger agreement. Fillmore Capital Partners’ counsel stated that Fillmore Capital Partners’ offer was without prejudice to NASC’s rights to perform under the merger agreement, and confirmed that they were not asserting that NASC would not perform.

      On November 17, 2005, Lehman Brothers contacted Eureka Capital, financial advisor to the former Formation group, to see whether any of their clients remained interested in submitting a bid and pursuing a transaction with BEI, in the event that NASC failed to make the required deliveries on November 18, 2005. After checking with its clients, Eureka advised Lehman Brothers that the individual members of the former Formation group would not submit a bid before any agreement with NASC was terminated and that they did not want to be a “stalking horse” to maintain the pricing with NASC. Lehman Brothers and JPMorgan also contacted other potentially interested parties, but none expressed interest in submitting a bid at that time to acquire BEI.

      At 9:00 a.m. (EST) on November 18, 2005, the Board of Directors met via teleconference to hear reports from Covington & Burling and Lehman Brothers concerning the status of discussions with NASC. Representatives of Lehman Brothers, JPMorgan and Covington & Burling reported on the Fillmore Capital Partners proposal, and noted that NASC had not affirmatively declared that it would not perform its obligations under the merger agreement. The Board discussed whether to submit a counter-proposal, and concluded that NASC had not at that time failed to meet the deadline for its required deliveries and had not affirmatively indicated that it was unwilling or unable to do so. Accordingly, the Board instructed Covington & Burling, Lehman Brothers and JPMorgan not to communicate a specific response to the Fillmore Capital Partners’ proposal until and unless the deadline had passed without performance by NASC.

      By 5:00 p.m. (EST) on November 18, 2005, NASC had not delivered the letter of credit or firm equity commitment letter contemplated by the merger agreement. Shortly after the deadline, Troutman Sanders confirmed to Covington & Burling that NASC endorsed the proposal of Fillmore Capital Partners to permit PSC, a newly formed affiliate of Fillmore Capital Partners, to assume NASC’s obligations under the merger agreement at the reduced purchase price of $12.30 per share.

      On the evening of November 18, 2005, our Board of Directors met via teleconference with management, BEI’s legal advisors, Lehman Brothers and JPMorgan to discuss actions that should be taken as a result of NASC’s failure to make the required deliveries and Fillmore Capital Partners’ proposal at a reduced price. The Board of Directors instructed management and such advisors to continue negotiating the terms and price of a revised agreement with Fillmore Capital Partners and they would consider the best and final terms that could be negotiated against other alternatives that had been discussed at previous Board meetings and were again reviewed at the Board meeting. The Board also advised management and such advisors of the Board’s view that the reduced price of $12.30 per share was not sufficient to warrant assigning the NASC merger agreement and $10 million deposit to Fillmore Capital Partners. The Board further concluded that any negotiated price reduction with Fillmore Capital Partners would need to involve (i) the delivery of an updated equity commitment letter and an irrevocable letter of credit meeting the requirements set forth in the NASC merger agreement, and (ii) the extension of BEI’s ability freely to solicit competing offers to purchase BEI for some period of time without having to pay a break-up fee (other than the reimbursement of Fillmore Capital Partners’ out-of-pocket expenses (including expenses previously incurred by NASC), subject to a reimbursement cap of $30 million) if BEI agreed to accept a superior offer. Finally, on advice from the management team, its legal advisors, Lehman Brothers and JPMorgan, the Board instructed Covington & Burling and Lehman Brothers to communicate to Fillmore Capital Partners a counter-offer of $12.85 per share, together with the requirement that BEI be permitted an additional three weeks actively to solicit competing offers.

      Late in the evening of November 18, 2005, Fillmore Capital Partners rejected BEI’s counter-proposal of $12.85 per share. Fillmore Capital Partners’ representatives reiterated Fillmore Capital Partners’ offer of $12.30 per share, but indicated a willingness to accept an “active shop” clause that extended the time during which BEI and its representatives could actively seek competing superior offers for BEI’s shares.

      On the morning of November 19, 2005, Messrs. Fowler, McLane, Seely and Floyd met via teleconference with representatives of Covington & Burling and Lehman Brothers to discuss the status of negotiations. The directors instructed BEI’s representatives to obtain a “best and final” offer from Fillmore Capital Partners for discussion with the full Board that afternoon. Following that call, representatives of Covington & Burling communicated the Board’s desire for a best and final offer. During the morning of November 19, 2005, management, BEI’s legal advisors, Lehman Brothers and JPMorgan began to negotiate with representatives of

Fillmore Capital Partners and NASC the terms of the third amendment to the merger agreement and assignment of the merger agreement from NASC to PSC.

      On the evening of November 19, 2005, the Board of Directors of BEI met via teleconference with management and BEI’s legal advisors, Lehman Brothers and JPMorgan to discuss the status of negotiations with Fillmore Capital Partners. It was reported to the Board that Fillmore Capital Partners had rejected the $12.85 price offered by the Board on the evening of November 18, but had agreed in principle to a price of $12.50 per share, to an extension of the period during which BEI could actively solicit competing offers for its shares, and to other terms relating to the acceleration of certain employee payments and mutual releases between BEI and NASC. Other terms of the amendment continued to be negotiated. The Board of Directors instructed management and such advisors to continue to negotiate the terms of the amendment and determined to meet on the following day to determine what action to take, based on the final terms for a merger agreement with Fillmore Capital Partners.

      On the evening of November 20, 2005, our Board of Directors met via teleconference with management, BEI’s legal advisors and Lehman Brothers, JPMorgan and CIBC World Markets. At this meeting, BEI’s legal advisors, Lehman Brothers and JPMorgan discussed the status of negotiations with Fillmore Capital Partners and the terms of the third amendment, including the price of $12.50 per share and the ability to solicit offers for BEI until December 12, 2005 without having to pay a break up fee if a better offer was accepted (other than the reimbursement of Fillmore Capital Partners’ out-of-pocket expenses (including expenses previously incurred by NASC), up to $30 million). The Board discussed the other terms of the amendment and compared the merger agreement, as amended, to the other alternatives available to the Company, including termination of the NASC merger agreement. Each of JPMorgan, Lehman Brothers and CIBC World Markets confirmed that it was prepared to deliver to the Board its opinion (each of which was thereafter delivered in writing) to the effect that, as of November 20, 2005 and based on and subject to the matters described in its opinion, the $12.50 per share merger consideration was fair, from a financial point of view, to the holders of BEI common stock.

      Following additional discussion and deliberation, the Board of Directors approved the amendment to the merger agreement with Fillmore Capital Partners and the transactions contemplated by the amended merger agreement and resolved to recommend that the stockholders of BEI vote to adopt the amended merger agreement. However, the Board also directed Lehman Brothers and JPMorgan again to contact prospective bidders, including representatives of the former Formation group, and actively to solicit superior offers for BEI during the period on or prior to December 12, 2005.

      Later on November 20, 2005, the amendment to the merger agreement was executed by BEI, NASC, NASC Acquisition, SBEV, PSC, PSC Sub and GPH, and PSC delivered to BEI an updated equity commitment letter and a firm letter of credit for $50 million, together with new debt commitment letters and a new solvency opinion. Prior to the opening of trading on the New York Stock Exchange on November 21, 2005, BEI issued a press release announcing the execution of the amendment to the merger agreement.

      On Monday, November 21, 2005, following the issuance of the press release announcing the November 20 amendment to the merger agreement, Lehman Brothers and JPMorgan contacted five parties, including Eureka Capital, the advisors to the former members of the Formation group, who might potentially have an interest in submitting an alternative proposal to acquire BEI. Representatives of Eureka indicated that they would speak with their clients to determine if any of them was interested and call Lehman Brothers and JPMorgan back with a response. The other parties contacted made similar statements. During the week of November 28, all five parties who had been contacted advised Lehman Brothers or JPMorgan that they would not submit an alternative proposal. In particular, representatives of Eureka called Lehman Brothers on December 1, 2005, to advise them that their clients would not submit an alternative proposal.

Recommendation and Reasons

      After careful consideration, BEI’s Board of Directors by unanimous vote:

      The Board of Directors consulted with BEI’s senior management and legal and financial advisors and considered a number of factors in evaluating the merger agreement and the transactions contemplated by the merger agreement. The factors considered by the Board included those set forth below:

      In addition to taking into account the foregoing factors, the Board of Directors also considered the following potential drawbacks and risks associated with the merger in reaching its decision to approve the merger agreement:

The Board of Directors concluded, however, that these potential drawbacks and risks did not outweigh the benefits of the merger to BEI and its stockholders.

      In view of the variety of factors and the amount of information considered, the Board of Directors did not find it practicable to, and did not, make specific assessments of, quantify or otherwise assign relative weights to the above factors in reaching its decision. In addition, individual members of the Board of Directors may have given different weights to different factors and considered factors other than those described above.

Opinions of Financial Advisors

      The Board of Directors of BEI retained Lehman Brothers and JPMorgan to act as its financial advisors in connection with its analysis and consideration of the merger. Both investment banking firms provided the Board of Directors with financial advice and assistance in connection with its evaluation of the merger.

      The full texts of the written opinions of Lehman Brothers and JPMorgan, which set forth the assumptions made, procedures followed, matters considered and relied upon and limitations and qualifications on the review undertaken by each of Lehman Brothers and JPMorgan in connection with their respective opinions, are attached as Annexes B and C, respectively, to this proxy statement and are incorporated herein by reference. The summaries of these opinions set forth below are qualified in their entirety by reference to the full text of the opinions.

      Lehman Brothers and JPMorgan provided their respective advisory services and opinions for the information of the Board of Directors of BEI in connection with and for the purposes of its evaluation of the merger, and such services and opinions are not on behalf of any stockholder or any other person other than the Board of Directors of BEI and should not be used or relied upon for any other purpose. Neither the Lehman Brothers opinion nor the JPMorgan opinion is intended to be, nor does either opinion constitute, a recommendation to any stockholder as to how such stockholder should vote or act on any matters relating to the merger. Neither Lehman Brothers nor JPMorgan was requested to opine as to, and Lehman Brothers’ opinion and JPMorgan’s opinion do not address, BEI’s underlying business decision to proceed with or effect the merger.

      Opinion of Lehman Brothers. At a meeting of the Board of Directors of BEI held on November 20, 2005, Lehman Brothers delivered to the Board of Directors of BEI its oral opinion subsequently confirmed in writing to the effect that, as of such date and based upon and subject to the factors, limitations, qualifications and assumptions set forth in its opinion, the merger consideration offered to the holders of BEI common stock in the merger was fair, from a financial point of view, to such holders.

      In arriving at its opinion, Lehman Brothers, among other things reviewed and analyzed:

      In addition, Lehman Brothers had discussions with the management of BEI concerning BEI’s business, operations, assets, financial condition and prospects and undertook such other studies, analyses and investigations as Lehman Brothers deemed appropriate.

      In arriving at its opinion, Lehman Brothers assumed and relied upon the accuracy and completeness of the financial and other information used by it without assuming any responsibility for independent verification of such information and Lehman Brothers further relied upon the assurances of management of BEI that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections of BEI, upon the advice of BEI, Lehman Brothers assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of BEI as to the future financial performance of BEI and that BEI would perform in accordance with such projections. In arriving at its opinion, Lehman Brothers did not conduct a physical inspection of the properties and facilities of BEI and did not make or obtain any evaluations or appraisals of the assets or liabilities of BEI, other than real estate appraisals of the nursing home facilities of BEI that Lehman Brothers deemed relevant. Lehman Brothers’ opinion necessarily was based upon market, economic and other conditions as they exist on, and can be evaluated as of, the date of its opinion. BEI imposed no other instructions or limitations on Lehman Brothers with respect to the investigations made or the procedures followed by it in rendering its opinion.

      Opinion of JPMorgan. At a meeting of the Board of Directors held on November 20, 2005, JPMorgan delivered to the Board of Directors of BEI its oral opinion subsequently confirmed in writing to the effect that, as of such date and based upon and subject to the factors, limitations, qualifications and assumptions set forth in its opinion, the merger consideration to be received by the holders of BEI common stock in the merger was fair, from a financial point of view, to such holders.

      In arriving at its opinion, among other things, JPMorgan:

      In addition, JPMorgan held discussions with certain members of the management of BEI with respect to certain aspects of the merger, and the past and current business operations of BEI, the financial condition and future prospects and operations of BEI, and certain other matters JPMorgan believed necessary or appropriate to its inquiry.

      In giving its opinion, JPMorgan relied upon and assumed, without assuming responsibility or liability for independent verification, the accuracy and completeness of all information that was publicly available or was furnished to or discussed with JPMorgan by BEI or otherwise reviewed by or for JPMorgan. In arriving at its opinion, JPMorgan did not conduct a physical inspection or valuation or appraisal of the properties and facilities of BEI, but JPMorgan did review independent evaluations or appraisals of the nursing home facilities of BEI provided to JPMorgan by BEI as it deemed relevant. In addition, JPMorgan did not evaluate the solvency of BEI or PSC under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to it, JPMorgan assumed that they had been reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of BEI to which such analyses or forecasts related.

      JPMorgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. JPMorgan also assumed that the merger and that the other transactions contemplated by the merger agreement would be consummated as described in the merger agreement, and that the definitive merger agreement would not differ in any material respects from the merger agreement as amended by the draft of the amendment to the merger agreement furnished to JPMorgan. JPMorgan relied as to all legal matters relevant to rendering its opinion upon the advice of counsel. JPMorgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger would be obtained without any adverse effect on BEI.

      JPMorgan’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion. It should be understood that subsequent developments may affect JPMorgan’s opinion and that JPMorgan does not have any obligation to update, revise, or reaffirm its opinion. JPMorgan’s opinion is limited to the fairness, from a financial point of view, of the consideration to be received by the holders of BEI’s common stock in the merger and JPMorgan expressed no opinion as to the fairness of the merger to, or any consideration of, the holders of any other class of securities, creditors or other constituencies of BEI. BEI imposed no other instructions or limitations on JPMorgan with respect to the investigations made or the procedures followed by it in rendering its opinion.

      Summary of Financial Analysis. The following is a summary of the material financial and comparative analyses that were performed by Lehman Brothers and JPMorgan in connection with rendering their opinions. Some of the financial analyses summarized below include information presented in tabular format. In order to fully understand Lehman Brothers’ and JPMorgan’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Accordingly, the financial analyses set forth in the tables and described below must be considered as a whole. Considering any portion of such financial analyses, without considering all of the financial analyses, could create a misleading or incomplete view of the process underlying Lehman Brothers’ and JPMorgan’s financial analyses.

      The summary of the analyses by Lehman Brothers and JPMorgan described below is not a complete description of the analyses underlying their opinions. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial and comparative analysis and the application of those methods to the particular circumstances. Therefore, such opinions are not readily susceptible to summary description. In arriving at their respective opinions, Lehman Brothers and JPMorgan

did not ascribe a specific range of value to BEI, but rather made their determinations as to the fairness, from a financial point of view, to BEI stockholders of the consideration to be offered or received, as applicable, to such stockholders in the proposed transaction on the basis of the financial and comparative analyses. Furthermore, in arriving at their respective opinions, Lehman Brothers and JPMorgan did not attribute any particular weight to any analysis or factor considered by them, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Lehman Brothers and JPMorgan believe that their analyses must be considered as a whole and that considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying their opinions.

      In their analyses, Lehman Brothers and JPMorgan made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of BEI. For purposes of Lehman Brothers’ and JPMorgan’s review, Lehman Brothers and JPMorgan utilized, among other things, projections of the future financial performance of BEI, as prepared by the management of BEI. None of BEI, PSC, Lehman Brothers, JPMorgan or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth therein.

      The terms of the merger were determined through arm’s length negotiations between BEI and PSC and were unanimously approved by the BEI and PSC Boards. Lehman Brothers and JPMorgan did not recommend any specific amount or form of merger consideration. The type and amount of consideration payable in the merger were determined through negotiations between the Board of Directors of BEI and PSC. Lehman Brothers and JPMorgan did not express any opinion as to the price or range of prices at which the shares of common stock of BEI may trade subsequent to the announcement of the merger. The decision to enter into the merger agreement was solely that of the BEI Board of Directors. The analyses below do not purport to be appraisals or to reflect the prices at which any securities may trade at the present time or at any time in the future or purport to be appraisals or to reflect the prices at which businesses actually may be sold. In addition, the Lehman Brothers and JPMorgan opinions were just two of the many factors taken into consideration by BEI’s Board of Directors. Consequently, Lehman Brothers’ and JPMorgan’s analyses should not be viewed as determinative of the decision of BEI’s Board of Directors or BEI’s management with respect to the fairness of the merger consideration.

      Historical Stock Price Analysis. Lehman Brothers and JPMorgan reviewed the trading history of BEI common stock for the three year period ending January 24, 2005, the day prior to the public announcement of the Formation group’s 13-D filing, and the period beginning January 24, 2005 and ending November 18, 2005, the last full trading day prior to the delivery of their opinions. The first period of analysis indicated that the high and low trading prices of BEI common stock for the three year period ending January 24, 2005, were $9.60 and $1.64, respectively, as compared to the consideration in the merger of $12.50 per share. The second period of analysis indicated that the high and low trading prices of BEI common stock for the period beginning January 24, 2005 and ending November 18, 2005 were $13.03 and $11.23, respectively, as compared to the consideration in the merger of $12.50 per share. The BEI common stock price as of November 18, 2005 was $11.73, as compared to the consideration in the merger of $12.50 per share.

      Comparison of Publicly Traded Companies. Lehman Brothers and JPMorgan reviewed and analyzed selected companies in the skilled nursing facility industry that they deemed similar to BEI for the purposes of this analysis based on Lehman Brothers’ and JPMorgan’s knowledge of the skilled nursing facility industry. Specifically, using Wall Street equity research estimates, public filings and other publicly available information, Lehman Brothers and JPMorgan assessed public trading multiples for four skilled nursing facility companies. The selected companies were:

      The multiples of the selected companies were calculated using the closing stock prices of the selected companies on November 18, 2005. Lehman Brothers and JPMorgan calculated:

      Lehman Brothers and JPMorgan determined the following implied trading multiples:

      In consideration of the appropriate range of multiples for the 2005 and 2006 EBITDA analysis, Lehman Brothers and JPMorgan excluded Kindred Healthcare, Inc. because of the high proportion of leased facilities in its portfolio. In consideration of the appropriate range of multiples for the 2005 and 2006 EBITDA, 2005 and 2006 EBITDAR and 2005 and 2006 P/ E analyses, Lehman Brothers and JPMorgan took into account that Manor Care was an investment grade rated company whereas BEI was a below investment grade rated company.

      Based on the foregoing, Lehman Brothers and JPMorgan determined for BEI a range of multiples of estimated 2005 EBITDA of 6.7x to 8.4x, estimated 2006 EBITDA of 7.0x to 8.1x, estimated 2005 EBITDAR of 6.5x to 8.4x, estimated 2006 EBITDAR of 6.0x to 8.1x, estimated 2005 P/ E of 12.9x to 18.6x and estimated 2006 P/ E of 12.0x to 17.4x. Using this information, Lehman Brothers and JPMorgan determined an implied price range for BEI common stock of $11.30 to $14.40 for EBITDA, $8.80 to $14.50 for EBITDAR and $7.30 to $12.20 for P/ E (rounded to the nearest $0.10), as compared in each case to the consideration in the merger of $12.50 per share.

      Selected Precedent Transaction Multiples Analysis. Lehman Brothers and JPMorgan analyzed transaction multiples relating to 13 healthcare facilities mergers and acquisitions announced in the last five years. The transactions reviewed in connection with this analysis were:

      Based on Wall Street equity research, public SEC filings and other publicly available information, Lehman Brothers and JPMorgan calculated the transaction value as multiples of the latest 12 month or “LTM” EBITDA for the target companies in the selected transactions. Lehman Brothers and JPMorgan determined the following multiples based on the transactions used in their analysis:

      Based on the foregoing, Lehman Brothers and JPMorgan applied a range of multiples of LTM EBITDA (as of September 30, 2005) of 8.0x to 10.0x to the corresponding data for BEI based on: (i) actual results as reported (adjusted to treat BEI’s California operations as continuing operations for the entire LTM period); (ii) actual results as reported minus an estimate provided by BEI of the negative impact of changes to Medicare reimbursement, known as RUGs, on BEI’s 2006 EBITDA; and (iii) actual results as reported minus an estimate provided by BEI of the negative impact of changes to RUGs on BEI’s 2006 EBITDA, minus an estimate provided by BEI of the negative impact of BEI facility leases in Indiana being terminated by the lessor. Lehman Brothers and JPMorgan then determined an implied share price range for BEI common stock of $10.70 and $15.90, as compared to the consideration in the merger of $12.50.

      Discounted Cash Flow Analysis. Lehman Brothers and JPMorgan calculated a range of discounted cash flows for BEI using forecasts provided by management of BEI. This analysis was based on the sum of (i) the present value of projected after-tax, un-levered free cash flows of BEI for the three-month period ending December 31, 2005 through fiscal year ending December 31, 2009, and (ii) the present value of the projected terminal value, based on an annual perpetuity free cash flow growth rate as well as based on a multiple of 2009 estimated EBITDA. Utilizing a cost of capital ranging from 10.0% to 11.0%, perpetuity free cash flow growth rates ranging from 2.50% to 3.50% and multiples of 2009 estimated EBITDA from 6.0x to 8.0x, Lehman Brothers and JPMorgan determined an implied share range for BEI common stock as of September 30, 2005 of $11.70 to $16.20, as compared to the consideration in the merger of $12.50 per share.

      Fees and Qualifications. Lehman Brothers is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other

purposes. The BEI Board of Directors selected Lehman Brothers to act as its financial advisor in connection with the merger and the proposals received from the Formation group in December 2004 and January 2005 because of its expertise, reputation and familiarity with BEI and the long-term care and related medical specialty services industry generally and because its investment banking professionals have substantial experience in transactions comparable to the merger.

      Lehman Brothers has acted as financial advisor to the Board of Directors in connection with the merger and the proposals received from the Formation group in December 2004 and January 2005 and as of the date hereof has received fees in the aggregate amount of $2,250,000 for its services, including a fee of $2,000,000 for its opinions with respect to the fairness of the consideration that would have been paid pursuant to the original merger agreement and the first amendment to the merger agreement. Lehman Brothers will receive a further fee of $8,750,000 in connection with the termination of the proposals received from the Formation group in December 2004 and January 2005. An additional $500,000 became payable to Lehman Brothers upon delivery of its November 20, 2005 opinion. Lehman Brothers will receive a further fee of approximately $400,000 for its services upon completion of the merger. Lehman Brothers will also receive reimbursement for its reasonable and customary out-of-pocket expenses (including professional and legal fees and disbursements) incurred in connection with its engagement.

      Lehman Brothers has also performed various investment banking services for BEI in the past, including, but not limited to, acting as the administrative agent on BEI’s existing credit facility, as a joint bookrunner in connection with BEI’s offering of debt securities, as book-running manager in connection with BEI’s offering of convertible debt securities, and has received customary fees for such services. Lehman Brothers received an aggregate of approximately $2,376,000 from BEI since January 1, 2004 in connection with Lehman Brothers’ investment banking activities, exclusive of any fees related to this transaction. In the ordinary course of Lehman Brothers’ business, it has in the past actively traded in the securities of BEI for its own account and for the accounts of its customers and, accordingly, has and may at any time hold a long or short position in such securities.

      As a part of its investment banking business, JPMorgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. The BEI Board of Directors selected JPMorgan to act as its financial advisor in connection with the merger and the proposals received from the Formation group in December 2004 and January 2005 on the basis of JPMorgan’s reputation, experience and familiarity with BEI.

      JPMorgan has acted as financial advisor to the Board of Directors in connection with the merger and the proposals received from the Formation group in December 2004 and January 2005 and as of the date hereof has received fees in the aggregate amount of $2,250,000 for its services, including a fee of $2,000,000 for its opinions with respect to the fairness of the consideration that would have been paid pursuant to the original merger agreement and the first amendment to the merger agreement. JPMorgan will receive a further fee of $3,250,000 in connection with the termination of the proposals received from the Formation group in December 2004 and January 2005. An additional $500,000 became payable to JPMorgan upon delivery of its November 20, 2005 opinion. JPMorgan will receive a further fee of approximately $600,000 for its services upon completion of the merger. JPMorgan will also receive reimbursement for its reasonable and customary out-of-pocket expenses (including professional and legal fees and disbursements) incurred in connection with its engagement.

      JPMorgan and its affiliates have performed in the past a variety of investment banking and commercial banking services for BEI. These services have included acting as financial advisor to BEI in its sale of certain skilled nursing facilities in 2003, 2004 and 2005 and acting as joint bookrunner for the offering of public debt securities in BEI in 2004. JPMorgan received an aggregate of approximately $3,300,000 from BEI since January 1, 2004 in connection with JPMorgan’s investment banking activities, exclusive of any fees related to this transaction. In the ordinary course of JPMorgan’s businesses, JPMorgan and its affiliates may actively

trade the debt and equity securities of BEI for its own account or for the accounts of its customers and, accordingly, JPMorgan may at any time hold long or short positions in such securities.

      CIBC World Markets acted as an additional financial advisor to the BEI Board of Directors to evaluate, and render to the BEI Board of Directors an opinion with respect to, the merger consideration. On November 20, 2005, CIBC World Markets delivered to the BEI Board of Directors a written opinion to the effect that, as of that date and based on and subject to the matters described in its opinion, the merger consideration was fair, from a financial point of view, to the holders of BEI common stock.

      The full text of CIBC World Markets’ written opinion, dated November 20, 2005, which describes the assumptions made, procedures followed, matters considered and relied on and limitations on the review undertaken, is attached to this proxy statement as Annex D. CIBC World Markets’ opinion was provided to the BEI Board of Directors in connection with its evaluation of the merger consideration and relates only to the fairness, from a financial point of view, of the merger consideration. The opinion does not address any other term or aspect of the merger and does not constitute a recommendation as to how any stockholder should vote or act with respect to any matters relating to the merger. The summary of CIBC World Markets’ opinion described below is qualified in its entirety by reference to the full text of its opinion. Holders of BEI common stock are encouraged to read the opinion carefully in its entirety.

      In arriving at its opinion, CIBC World Markets:

      In rendering its opinion, CIBC World Markets relied upon and assumed, without independent verification or investigation, the accuracy and completeness of all of the financial and other information provided to or discussed with CIBC World Markets by BEI and its employees, representatives and affiliates or otherwise reviewed by CIBC World Markets. With respect to the financial forecasts and estimates relating to BEI which were provided to or discussed with CIBC World Markets by BEI’s management, CIBC World Markets assumed, at the direction of BEI’s management, without independent verification or investigation, that the forecasts and estimates were reasonably prepared on bases reflecting the best available information, estimates and judgments of BEI’s management as to BEI’s future financial condition and operating results. CIBC World

Markets assumed, with BEI’s consent, that the merger would be consummated in accordance with its terms without waiver, modification or amendment of any material term, condition or agreement and in compliance with all applicable laws and that, in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on BEI or the merger.

      CIBC World Markets neither made nor obtained any independent evaluations or appraisals of BEI’s assets or liabilities, contingent or otherwise. CIBC World Markets did not express any opinion as to BEI’s underlying valuation, future performance or long-term viability. CIBC World Markets expressed no view as to, and its opinion did not address, BEI’s underlying business decision to effect the merger, nor did its opinion address the relative merits of the merger as compared to any alternative business strategies that might exist for BEI or the effect of any other transaction in which BEI might engage. In connection with its engagement, CIBC World Markets was not requested to, and it did not, participate in the negotiation or structuring of the merger. CIBC World Markets also was not requested to, and it did not, solicit third party indications of interest in the possible acquisition of all or a part of BEI; however, CIBC World Markets considered the results of the solicitation process undertaken by BEI and its other advisors. CIBC World Markets’ opinion was necessarily based on the information available to it and general economic, financial and stock market conditions and circumstances as they existed and could be evaluated by CIBC World Markets on the date of its opinion. Although subsequent developments may affect its opinion, CIBC World Markets does not have any obligation to update, revise or reaffirm its opinion. BEI imposed no other instructions or limitations on CIBC World Markets with respect to the investigations made or the procedures followed by it in rendering its opinion.

      This summary is not a complete description of CIBC World Markets’ opinion or the financial analyses performed and factors considered by CIBC World Markets in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. CIBC World Markets arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion. Accordingly, CIBC World Markets believes that its analyses and this summary must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying CIBC World Markets’ analyses and opinion.

      In performing its analyses, CIBC World Markets considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond BEI’s control. No company, transaction or business used in the analyses as a comparison is identical to BEI or the merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed.

      The estimates contained in CIBC World Markets’ analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not necessarily purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, CIBC World Markets’ analyses are inherently subject to substantial uncertainty.

      The type and amount of consideration payable in the merger was determined through negotiation among BEI, PSC and GPH, and the decision to enter into the merger was solely that of the BEI Board of Directors. CIBC World Markets’ opinion was only one of many factors considered by the BEI Board of Directors in its

evaluation of the merger and should not be viewed as determinative of the views of the BEI Board of Directors or BEI’s management with respect to the merger or the merger consideration.

      The following is a summary of the material financial analyses provided to the BEI Board of Directors in connection with CIBC World Markets’ opinion dated November 20, 2005. The financial analyses summarized below include information presented in tabular format. In order to fully understand CIBC World Markets’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of CIBC World Markets’ financial analyses. For purposes of calculating implied per share equity reference ranges for BEI in its analyses, CIBC World Markets subtracted from implied enterprise values BEI’s estimated net debt as of September 30, 2005, which reflected the inclusion in BEI’s cash and cash equivalents of the estimated present value of net operating losses and other tax credits and assumed the conversion of BEI’s convertible notes at $7.45, and lease expenses attributable to facilities of BEI which are expected by the management of BEI to close by year-end were excluded from BEI’s operating results for the latest 12-month period ended September 30, 2005.

      Selected Companies Analysis. CIBC World Markets reviewed financial and stock market information for BEI and the following four selected publicly held long-term care companies in the skilled nursing industry:

      CIBC World Markets also reviewed financial and stock market information for the following two selected publicly held rehabilitation companies and two selected publicly held hospice service companies:

      In the case of BEI and the selected long-term care companies, CIBC World Markets reviewed, among other things, enterprise values, calculated as fully-diluted market value, plus debt and preferred stock, including out-of-the-money convertible securities, plus minority interests, less cash and cash equivalents, as multiples of latest 12 months and estimated calendar years 2005 and 2006 earnings before interest, taxes, depreciation, amortization and rent, commonly referred to as EBITDAR, and estimated earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA. CIBC World Markets also reviewed closing stock prices as a multiple of calendar years 2005 and 2006 estimated earnings per share, commonly referred to as EPS. In the case of the selected rehabilitation companies and hospice service companies, CIBC World Markets reviewed, among other things, enterprise values as multiples of latest 12 months and calendar years 2005 and 2006 estimated EBITDA.

      CIBC World Markets then applied a range of selected multiples of latest 12 months and estimated calendar years 2005 and 2006 EBITDAR and EBITDA and calendar years 2005 and 2006 estimated EPS derived from the selected long-term care companies to corresponding financial data of BEI. CIBC World Markets also applied to corresponding financial data of BEI a range of selected multiples of latest 12 months and estimated calendar years 2005 and 2006 EBITDA derived from the selected long-term care companies and the selected rehabilitation companies and hospice service companies, taking into account the relative EBITDA contributions for such periods of BEI’s long-term care, rehabilitation and hospice service segments. Multiples for BEI and the selected companies were based on closing stock prices as of November 18, 2005. Financial data for the selected companies were based on public filings, publicly available research analysts’ estimates and other publicly available information. Financial data for BEI were based on internal estimates of

BEI’s management, public filings and other publicly available information. This analysis indicated the following mean implied per share equity reference ranges for BEI, as compared to the per share merger consideration:

      Selected Precedent Transactions Analysis. CIBC World Markets reviewed transaction values and implied transaction multiples in the following 13 selected transactions in the healthcare industry since October 2000:

      CIBC World Markets reviewed transaction values, calculated as the equity value implied for the target company based on the consideration payable in the selected transaction, plus debt and preferred stock, including out-of-the-money convertible securities, plus minority interests, less cash and cash equivalents, as a multiple of latest 12 months EBITDA. CIBC World Markets then applied a range of selected multiples of latest 12 months EBITDA derived from the selected transactions to corresponding financial data of BEI. Estimated financial data for the selected transactions were based on publicly available information at the time of announcement of the relevant transaction. Financial data for BEI were based on internal estimates of BEI’s management, public filings and other publicly available information. This analysis indicated the following implied per share equity reference range for BEI, as compared to the per share merger consideration:

      Discounted Cash Flow Analysis. CIBC World Markets performed a discounted cash flow analysis to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that BEI could generate for the fourth quarter of the fiscal year ending December 31, 2005 through the fiscal year ending December 31, 2009 based on internal estimates of BEI’s management, excluding non-recurring expenses in the fourth quarter of the fiscal year ending December 31, 2005. CIBC World Markets calculated a range of estimated terminal values by applying EBITDAR terminal value multiples ranging from 6.5x to 8.0x to BEI’s fiscal year 2009 estimated EBITDAR. The cash flows and terminal values were then discounted to present

value using discount rates ranging from 10.0% to 12.0%. This analysis indicated the following implied per share equity reference range for BEI, as compared to the per share merger consideration:

      Premiums Paid Analysis. CIBC World Markets reviewed the premiums paid in all-cash transactions with transaction values of between $500.0 million and $5.0 billion announced since January 1, 2004 relative to the closing stock prices for the target companies in such transactions one trading day, one week and four weeks prior to public announcement of the relevant transaction. CIBC World Markets applied a range of selected premiums derived from the selected transactions to the closing prices of BEI common stock on January 24, 2005, January 14, 2005 and December 27, 2004 (which dates represent one trading day, one week and four weeks, respectively, prior to the date on which the Formation group publicly filed a Schedule 13D/ A indicating its intentions to acquire BEI), both before and after adjustment to reflect the average stock performance of the selected long-term care companies referred to under “Selected Companies Analysis” since January 24, 2005, January 14, 2005 and December 27, 2004, respectively. This analysis indicated the following mean implied per share equity reference ranges for BEI, as compared to the merger consideration:

      Miscellaneous. BEI has agreed to pay CIBC World Markets for its financial advisory services with respect to its opinion delivered to the BEI Board of Directors in connection with the merger an aggregate fee of $1.5 million, a significant portion of which was payable upon delivery of CIBC World Markets’ opinion. In addition, BEI has agreed to reimburse CIBC World Markets for its reasonable expenses, including reasonable fees and expenses of its legal counsel, and to indemnify CIBC World Markets and related parties against liabilities, including liabilities under the federal securities laws, relating to, or arising out of, its engagement. In the ordinary course of business, CIBC World Markets and its affiliates may actively trade securities of BEI for their own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in those securities.

      CIBC World Markets was requested to act as an additional financial advisor to the BEI Board of Directors based on CIBC World Markets’ reputation and experience. CIBC World Markets is an internationally recognized investment banking firm and, as a customary part of its investment banking business, is regularly engaged in valuations of businesses and securities in connection with acquisitions and mergers, underwritings, secondary distributions of securities, private placements and valuations for other purposes.

Risk that the Merger Will Not Be Completed

      Completion of the merger is subject to various conditions described under “The Merger Agreement — Conditions to the Consummation of the Merger.” As a result of the conditions to the completion of the merger, even if the requisite stockholder approval is obtained, there can be no assurance that the merger will be completed. In particular, as described under “The Merger — Litigation,” we are a defendant in two lawsuits seeking to enjoin the merger. We believe the allegations contained in the complaints are without merit and intend to contest the actions vigorously. However, we cannot assure you as to the outcome of these litigations.

      We expect that if the merger agreement is not approved and adopted by stockholders, or if the merger is not completed for any other reason, our current management, under the direction of our Board, will continue to manage BEI as an on-going business. As described above under “The Merger — Background” and “The Merger — Reasons and Recommendation” our Board has considered a number of strategic alternatives in addition to the merger. In the event the merger is not completed for any reason our Board may determine to pursue one or more of these alternatives, although there can be no assurance as to whether the Board would ultimately conclude to do so or the timing or terms of any alternative that the Board might pursue.

Material Federal Income Tax Consequences

      The following is a discussion of the material U.S. federal income tax consequences of the merger to holders of our common stock. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated under the Code, and judicial and administrative rulings and decisions in effect on the date hereof. These authorities may change at any time, possibly retroactively, and any such change could affect the continuing validity of this discussion. We have not requested a ruling from the Internal Revenue Service (the “IRS”) with respect to the U.S. federal income tax consequences described in this proxy statement and accordingly, we cannot assure you that the IRS will agree with the discussion in this proxy statement. This discussion does not address any tax consequences arising under the laws of any state, locality or foreign jurisdiction, and accordingly, is not a comprehensive description of all of the tax consequences that may be relevant to any particular holder of our common stock.

      This discussion assumes that holders hold shares of our common stock as capital assets and does not address the tax consequences that may be relevant to a particular holder subject to special treatment under U.S. federal income tax law, including but not limited to:

      For U.S. federal income tax purposes, PSC Sub should be disregarded as a transitory entity, and the merger of PSC Sub with and into BEI should be treated as a taxable transaction to holders of our common stock and should not be treated as a taxable transaction to BEI.

      We intend to take the position that, as a result of the merger, holders of our common stock should be treated for U.S. federal income tax purposes as if they (1) sold a portion of their stock for cash and (2) had a portion of their stock redeemed by BEI for cash.

      Due to the lack of legislative, judicial or other interpretive authority on this matter, it is unclear how the allocation of proceeds between the deemed sale and deemed redemption portions of the transaction should be determined. We intend to take the position that (1) the portion of our common stock that is converted, by reason of the merger, into the cash proceeds contributed by PSC is being sold for cash and (2) we are redeeming that portion of our common stock that is converted, by reason of the merger, into the cash proceeds of indebtedness incurred by PSC Sub and assumed by us in connection with the merger. There can be no assurance, however, that the IRS will agree with such allocation.

      Holders of BEI common stock are urged to consult their own tax advisors regarding the determination and allocation of their tax basis in their stock surrendered in the merger.

      To the extent that a holder is considered to have sold BEI common stock, a holder will recognize capital gain or loss equal to the difference between the amount realized on the deemed sale of stock (that is, the cash proceeds properly allocated to such sale) and the holder’s adjusted tax basis allocated to such stock. Such gain or loss will be long-term capital gain or loss if at the time of the deemed sale the holder had held its BEI common stock for more than one year. Gain or loss recognized on a sale of BEI common stock must generally be determined separately for each block of BEI common stock (i.e., stock acquired at the same cost in a single transaction).

      Holders who surrender all of their BEI common stock for cash in the merger, and who do not own, actually or constructively, any interest in the surviving corporation following the merger, should have their redemption of BEI common stock treated as a sale or exchange, subject to the same treatment as set forth above under the caption “— Sale of BEI Common Stock.”

      Under Section 302 of the Code, holders who will own, actually or constructively, an interest in the surviving corporation following the merger (for example, holders who own an interest in PSC or entities which own an interest in PSC) should in most cases have their redemption of BEI common stock treated as a sale of stock, but could under certain circumstances be treated as having received a dividend. Due to the fact-intensive nature of the determination of tax consequences under Section 302 of the Code, holders of our common stock are advised to consult with their tax advisers concerning the tax consequences of their particular circumstances.

      Certain noncorporate holders of our common stock may be subject to information reporting and backup withholding, at applicable rates (currently 28%), on cash payments received pursuant to the merger. Backup withholding will not apply, however, to a holder who furnishes a correct taxpayer identification number and certifies that the holder is not subject to backup withholding on IRS Form W-9 or a substantially similar form or is otherwise exempt from backup withholding. If a holder does not provide its correct taxpayer identification number or fails to provide the certification described above, the IRS may impose a penalty on the holder, and amounts received by the holder pursuant to the merger may be subject to backup withholding. Amounts withheld, if any, under the backup withholding rules are generally not an additional tax and may be refunded or credited against the holder’s U.S. federal income tax liability, provided that the holder furnishes the required information to the IRS.

      ALTHOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES GENERALLY APPLICABLE TO THE MERGER, THIS DISCUSSION DOES NOT ADDRESS EVERY U.S. FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A PARTICULAR HOLDER OF OUR COMMON STOCK. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF OUR COMMON STOCK PURSUANT TO THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.

Governmental and Regulatory Matters

      Consummation of the merger is subject to the regulatory approvals and required consents described below. Although we have no reason to believe that these regulatory approvals will not be obtained, we cannot predict whether the required regulatory approvals will be obtained within the time frame contemplated by the merger agreement or on conditions that would not be detrimental to us and/or PSC, or whether these approvals will be obtained at all. We are not aware of any other material governmental approvals or actions that are required prior to consummation of the merger other than those described below.

      Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (referred to herein as the HSR Act), and the rules and regulations promulgated under such legislation, the merger cannot be completed until we and PSC notify and furnish information to the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice, and specified waiting period requirements have been satisfied. We and PSC plan to file such notification and report forms as soon as practicable under the HSR Act with the Federal Trade Commission and the Antitrust Division. If early termination of the waiting period is not granted and if additional information is not requested, the waiting period will expire thirty days after filing the notification and report forms.

      At any time before or after completion of the merger, the Federal Trade Commission or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin consummation of the merger or seeking divestiture of substantial assets by us or PSC. Individual states or private parties also may bring actions under the antitrust laws in certain circumstances. We cannot provide any assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, that it will not be successful.

      The merger is subject to applicable local, state and federal requirements for notice and/or review and approval of the transaction and the post-merger operation of our health care facilities and businesses, which can encompass permits, licenses, certificates of need, third party payor certifications and contracts, and/or other requirements, all as mandated by the applicable jurisdiction within which any BEI facility or business is located. Other than the foregoing, we are not aware of any other governmental or regulatory approvals required for the consummation of the merger. We do not believe that satisfying such requirements will prevent or delay the consummation of the merger and the transactions related thereto.

      In certain instances, the merger will also require the consent of third parties. We are in the process of contacting such third parties with regard to obtaining any necessary consents, but have not yet determined whether such consents will be granted or upon what terms they will be available. No assurances can be given with regard to the ultimate likelihood of obtaining such consents, or the economic and other terms upon which any such consent may be conditioned, or the materiality thereof. If we are unable to obtain certain of such consents, it could affect the ability to consummate the merger.

Interests of Certain Persons

      In considering the recommendation of our Board with respect to the merger, you should be aware that we decided to pursue a merger only after our stockholders indicated a desire for the sale of BEI. Additionally, you should be aware that some of our directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. These interests, to the extent material, are described below. Our Board was aware of these interests and considered them, among other matters, before approving the merger agreement and the merger and recommending approval of the merger to the stockholders. Importantly, you should also be aware that the payments described below are being made under compensation programs established before the inquiries by the Formation group in late 2004. The executive officers and directors were already eligible to receive most of these payments over the course of time, subject to certain vesting conditions, and the merger and transactions related to the merger result in an acceleration of the payments and cancellation of such vesting conditions. Since receiving the inquiries by the Formation group in late 2004, BEI has not put in place any new compensation or retirement plans that would generate additional liquidity events for our executive officers or directors in the event of a change in control of BEI. The plans reward management for increases in stockholder value, and during the past five years, BEI stock has traded as low as $1.63 per share (February 2003). On December 21, 2004, the day prior to the Formation Group’s unsolicited expression of interest in acquiring BEI, BEI stock closed at $9.17 per share. As measured at the $12.50 transaction price offered by PSC, BEI’s stock price has increased more than seven times in value

from its low during the past five years. Additionally, please note that when we discuss directors and executive officers below, we are referring only to our current directors and executive officers.

      As of November 30, 2005, approximately 5,788,634 shares of our common stock were subject to stock options granted under our equity incentive plans, including options for approximately 3,580,355 shares granted to our directors and executive officers. The options were granted with an exercise price equal to BEI’s stock price on the date of grant. Accordingly, any value resulting from the exercise or cancellation of options is as a result of an increase in BEI’s stock price. In accordance with the terms of the merger agreement, each outstanding option that remains unexercised as of the closing of the merger, whether or not the option is vested or exercisable, will be canceled and the holder of each option will be eligible to receive a cash payment (subject to applicable withholding) equal to the product of:

      The following table summarizes the vested and unvested options with exercise prices of less than $12.50 per share held by our directors and executive officers as of November 30, 2005 and the approximate consideration that each of them is eligible to receive under the merger agreement (before any withholding) when their options are canceled:

      The weighted average exercise price of the options, in the middle column above, reflects the average price of the underlying BEI common stock at the time the individuals were awarded options under the relevant plan. While the successful completion of the merger will accelerate the vesting of certain options, the total number of options will remain the same as what the optionholders were eligible to receive in any case if they satisfied the applicable vesting requirements.

      As of November 30, 2005, our directors and employees held an aggregate of approximately 3,710,807 shares of restricted stock and performance units convertible into common stock issued in accordance with our equity incentive plans, including 2,261,378 shares held by our executive officers. In addition, as of November 30, 2005, our directors held an aggregate of approximately 190,860 deferred units and phantom shares convertible into our common stock under our non-employee director deferred compensation plan. In accordance with the merger agreement, at the effective time, (i) all shares of restricted stock, performance units and director deferred units that are outstanding will vest and be canceled and converted into common stock, (ii) each holder thereof will be entitled to receive a cash payment (subject to applicable withholding) of $12.50 per share of common stock and (iii) the phantom shares will vest and be paid in cash.

      The following table summarizes the restricted stock, performance units, director deferred units and director phantom shares held by our directors and executive officers as of November 30, 2005, and the consideration that each of them will be eligible to receive under the merger agreement when their restricted stock, deferred units and phantom shares are converted to shares and canceled or, in the case of the phantom shares, paid in cash:

(1) Does not include amounts transferred pursuant to a domestic relations order.

      Each of our non-employee directors receives an annual retainer of $35,000 in addition to fees ranging from $625 to $1,500 for attending Board and Committee meetings. Under the non-employee director deferred compensation plan, directors may elect to receive director deferred units and/or phantom shares in lieu of all or part of such fees. We anticipate that we will grant an aggregate of approximately 7,500 additional director deferred units and phantom shares to our directors as compensation for their services between the date hereof and the closing of the merger. In addition, Marilyn R. Seymann, Ph.D., one of our directors, will be entitled to receive, at the closing of the merger, deferred cash held for her under our non-employee director deferred compensation plan, in the amount of $172,901.90 (the account balance as of November 30, 2005) plus accrued interest at 7.75% per annum to the closing of the merger.

      Approximately 44 of our key management employees, including certain of our executive officers, have employment offer letters or employment, change in control, severance and/or retention agreements with BEI containing language related to a change in control of the Company (collectively the “employment agreements”). Many of the employment agreements were entered into to secure strong leadership at a time when BEI was experiencing a broad range of operating and financial challenges. Under each of the employment agreements with an executive officer, if, within two years after a change in control, the executive’s employment is terminated by the Company without “cause” or, except for those with employment offer letters, by the executive for “good reason,” as those terms are defined in the respective employment agreements, the executive will be entitled to receive a lump-sum payment equal to the product of a multiple times a compensatory amount, each as described below:

      The employment agreements also provide certain continuing health, welfare and other fringe benefits for up to three years after termination of employment, depending on the particular agreement. In addition, William R. Floyd, Douglas J. Babb, Jeffrey P. Freimark and Cindy Susienka have the right to receive the severance compensation and benefits described above if their employment is terminated (voluntarily or involuntarily) for any reason other than “cause” or death during the 31-day period that starts on the first day of the 13th month after the change in control.

      Finally, the employment agreements for certain executives also contain a provision whereby if an executive incurs an excise tax by reason of his or her receipt of any payment that constitutes a “parachute payment” under Section 280G of the Internal Revenue Code of 1986, as amended, the executive will receive a payment that puts the executive in the same after-tax position that he or she would have been in if no excise tax had applied.

      The following table shows the amount of potential severance and the value of continued benefits that would be payable to our current executive officers if they terminate employment with the Company on February 28, 2006, following a change in control. The table also shows the estimated tax gross-up payments to each such officer.

      The merger agreement requires BEI to cooperate reasonably with PSC in accelerating certain awards or payments identified by PSC, subject to PSC’s agreement to advance funds to BEI (or provide other adequate security) for the excess of the amount that BEI determines is necessary to make such accelerated payments over the sum of (x) any accelerated payments of benefits under the Executive Deferred Compensation Plan that are vested as of the requested payment date and (y) any portion of the accelerated payments as the plans and/or individuals identified by PSC would, in the absence of a change in ownership or control, receive on or before April 30, 2006, and (z) $10,000,000. PSC has discussed with BEI certain awards or payments that they might wish to accelerate. However, no final agreement has been reached to accelerate any payments other than certain payments under the 2003 Long-Term Program and the Executive Deferred Compensation Plan.

      Upon the completion of the merger, all cash awards under BEI’s 1997 Long-Term Incentive Plan, whether or not then vested, will become fully vested and all payments under those plans that have not yet been made will be accelerated and made. In addition, cash awards under BEI’s 2003 Long-Term Program are scheduled to vest and be paid in the ordinary course as of January 1, 2006. Pursuant to PSC’s request, we have agreed to pay these awards upon the earlier of December 28, 2005, or the closing of the merger.

      Consistent with customary compensation practices in our industry, the value of BEI’s long-term incentive awards is based on actual performance, compared to pre-established targets. Our performance levels for 2004 and year-to-date 2005 are significantly ahead of targets established for the awards, which, ordinarily under the terms of the awards, would entitle participating employees to receive increased payouts. However, because the awards are being accelerated as a result of the merger, participants will only receive payouts reflecting targeted performance levels, rather than payments reflecting our current above-target performance.

      The following table shows the cash amounts payable to our executive officers under the 2003 Long-Term Program (payable upon the earlier of December 28, 2005 and the closing of the merger) and the 1997 Long-Term Incentive Plan (payable upon the closing).

      In addition to maintaining standard broad-based tax-qualified employee retirement plans, we maintain non-qualified retirement plans for certain executives. These plans consist of the supplemental executive retirement plan (the “SERP”), the enhanced supplemental executive retirement plan (the “ESERP”) and the executive deferred compensation plan (the “EDC Plan”), the last of which includes the retention enhancement plan (the “REP”). In connection with the merger, the Company will terminate all of these non-qualified deferred compensation plans and cause all benefits accrued under these plans to be distributed to participants as set forth below. As a result of terminating the plans, although executives will receive certain benefits that are not yet vested, they will lose the tax benefit of deferring compensation.

      Material information about each plan is set forth below.

      SERP. In general, the SERP provides for an annual retirement income benefit equal to the product of 3.33% multiplied by (a) the participant’s final average base compensation (not to exceed $1,000,000 per year) and (b) the participant’s years (including partial years) of credited service. The benefit is payable for a maximum of 15 years, if the executive retires at age 65 or older, with 15 years of service after age 50. For purposes of calculating participants’ SERP benefits, incentive compensation and bonuses are disregarded. Benefits are reduced for retirement before age 65 or for less than 15 years of service. Subject to a 15 percent reduction for accelerated payments, participants may elect to receive their benefits in the form of a single lump sum payment.

      The SERP was modified as of October 2001 with respect to Mr. Floyd to provide him an enhanced retirement benefit equal to 50% of his final average base compensation (up to $1,000,000) regardless of his years of service. For purposes of calculating Mr. Floyd’s SERP benefit, incentive compensation and bonuses would be disregarded. Mr. Floyd’s benefit is now fully vested. In addition, the reductions for retirement before age 65 and for less than 15 years of service were waived for Mr. Floyd.

      Under the SERP, upon a change in control, all accrued benefits become fully vested and active participants are credited with up to five years of additional service credit and final average compensation is enhanced. In connection with the merger, the Company will terminate the SERP and provide that each active participant will receive a lump-sum payment equal to the present value of his or her accrued benefit under the SERP, taking into account the additional service credit, but without regard to the 15 percent reduction for accelerated payment described above.

      ESERP. The ESERP is a deferred compensation plan, funded (subject to claims of the Company’s general creditors) through a so-called “rabbi trust.” Under the ESERP, BEI has discretion to credit annual amounts on each participant’s behalf equal to a percentage of his or her salary and incentive compensation. The ESERP provides that, after a change in control, the level of annual credits must not fall below the level of annual credits in effect immediately prior to the change in control. If a participant dies, becomes disabled or is terminated without cause within two years after a change in control, amounts will continue to be credited on the participant’s behalf based on the participant’s compensation and the amounts credited to his or her ESERP account immediately prior to the participant’s death, disability or termination. Such credits will continue until the earlier of the time the participant attains (or would have attained) age 60 or would have completed ten years of plan participation. If a participant’s employment is involuntarily terminated without cause prior to a change in control and prior to the time the participant attains age 60 or completes 10 years of plan participation, BEI, in its sole discretion, may continue crediting amounts on the terminated participant’s behalf up to the level of annual credits, and for the period of time, that would apply had the participant died or become disabled.

      Each participant’s ESERP account is generally credited with deemed investment earnings or losses based on the participant’s hypothetical investment elections. Participants vest in their ESERP benefits upon the earliest of (i) attaining age 60, (ii) completing 10 years of plan participation, (iii) death, (iv) total and permanent disability, (v) a change in control or (vi) involuntary termination of employment without cause, and ESERP benefits are distributed upon a termination of employment after reaching age 60 or completing ten years of plan participation (whichever is earlier). Distributions may be made in either a lump sum or annual installment payments over a five, ten or fifteen year period as elected by the participant. However, distributions due to death, disability or involuntary termination of employment without cause within two years of a change in control must be made in a lump sum.

      In connection with the merger, the Company will terminate the ESERP and provide that each active participant will receive his or her ESERP account balance immediately prior to closing, plus the present value of the enhanced benefit accruals described above.

      EDC Plan (including REP). The EDC Plan is a nonqualified, unsecured deferred compensation plan, informally funded through a so-called “rabbi trust.” Eligible employees can elect to defer up to 75% of their base salary and 100% of their bonus or incentive compensation each year. Additional discretionary credits are also possible. In addition, due to the freezing of the SERP for participants under age 56 (as well as for any new participants), in January 2003 BEI credited an initial amount to the EDC Plan for two affected participants with vested SERP benefits, and will credit ongoing, future age-weighted amounts to the EDC Plan for other former SERP participants, in exchange for such participants waiving their rights under the SERP. Each participant’s EDC Plan account is generally credited with deemed investment earnings or losses based on the participant’s hypothetical investment elections.

      Participants are always vested in their own compensation deferrals. Additional amounts credited by BEI generally vest after five years of combined EDC Plan and SERP participation. Vesting is accelerated upon a change in control of BEI. Participants can elect in-service withdrawals at a specified future date, in either a lump sum or, for withdrawals of $25,000 or more, in annual installments over two to five years. Upon termination of employment, participants can elect to receive either a lump sum payout or, if they have at least five years of combined EDC Plan and SERP service and a distribution of at least $25,000, annual installments for up to 15 years.

      The REP was established in March 2004, as part of the EDC Plan, to provide enhanced retirement, death and disability benefits to Mr. Floyd to supplement his SERP benefits, and to provide an additional incentive

for him to remain with BEI until he attains age 65. Pursuant to the REP, BEI credits amounts each year to an account established for Mr. Floyd under the EDC Plan. The Nominating and Compensation Committee has discretion to determine the amount of those credits each year, but it is intended that when the total credits and earnings on the credits are added to Mr. Floyd’s SERP benefits, Mr. Floyd will receive a combined retirement benefit equal to 40% of his total final compensation. Earnings and losses will be credited to the REP credits made on Mr. Floyd’s behalf based on his hypothetical investment elections. Mr. Floyd’s REP benefits are scheduled to vest upon the earliest of the following events to occur while Mr. Floyd is still employed by BEI: (i) he attains age 65, (ii) he dies or becomes disabled, or (iii) BEI undergoes a change in control. If Mr. Floyd’s employment is terminated without cause prior to the date he otherwise fully vests in his REP benefits, he will vest in the balance of his REP account at that time, and the Nominating and Compensation Committee, in its discretion, may continue awarding credits to Mr. Floyd’s REP account until he attains age 65. Mr. Floyd may receive his REP benefits in either a lump sum or in annual installments over a period of two to fifteen years.

      In connection with the merger, BEI will terminate the EDC Plan and provide that (1) all accounts, to the extent vested, will be paid to active participants upon the earlier of December 28, 2005, or the closing of the merger, and (2) all unvested amounts will become fully vested and will be paid to active participants upon the closing of the merger.

      The following table shows the estimated payments to our executive officers under the non-qualified deferred compensation plans, assuming vested benefits under the EDC Plan are paid on December 28, 2005, and all other benefits are distributed on January 31, 2006.

      The merger agreement provides that, unless otherwise required by law, for six years from and after the effective time of the merger, the certificate of incorporation and bylaws of BEI and the comparable documents of its subsidiaries will contain provisions no less favorable with respect to elimination of liability of directors and indemnification of directors, officers, employees and agents than those set forth in our certificate of incorporation and bylaws (or the equivalent documents of our relevant subsidiary). In the event any claims are

asserted against any person entitled to the protections of the indemnification provisions in the surviving corporation’s certificate of incorporation and bylaws, such provisions will not be modified until the final disposition of any such claims.

      PSC and the surviving corporation, jointly and severally, have agreed to indemnify, defend and hold harmless, to the fullest extent permitted under applicable law and as required by any of our or our subsidiaries’ indemnity agreements, each of our and our subsidiaries’ present and former directors and officers against all costs or expenses, judgments, fines, losses, claims, settlements, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation arising out of or pertaining to any matters pending, existing or occurring at or prior to the effective time of the merger and any representations and warranties made by PSC and/or PSC Sub under the merger agreement. In this regard, PSC and the surviving corporation, jointly and severally, will be required to advance expenses to an indemnified officer or director, provided that the person to whom expenses are advanced provides an undertaking, in customary form and consistent with our past practice, to repay such advances if it is ultimately determined that this person is not entitled to indemnification.

      The merger agreement requires that PSC shall or shall cause the surviving corporation to maintain in effect, for a period of six years after the effective time of the merger, our current directors’ and officers’ liability insurance policies in respect of acts or omissions occurring at or prior to the effective time of the merger, covering each person currently covered by such policies, on terms with respect to the coverage, deductible and amounts no less favorable than those of our policies in effect on the date the merger agreement was signed, subject to a maximum annual premium of 300% of our current premium; if the annual premiums of insurance coverage exceed 300% of our current annual premium, the surviving corporation must obtain a policy with the greatest coverage available for a cost not exceeding 300% of the current annual premium paid by us. BEI may acquire a “tail” directors’ and officers’ insurance policy consistent with above parameters, in which case PSC shall not have such an obligation.

      Each of our non-employee directors receives an annual retainer of $35,000 in addition to fees ranging from $625 to $1,500 for attending Board and Committee meetings. In addition, the Board granted to Mr. Fowler a special compensation payment in the amount of $45,000 in recognition of his significant oversight responsibilities in connection with the auction of BEI during June, July and August of 2005.

      Employees of the Company, including executive officers, will remain employed by the surviving corporation following the merger unless their employment is terminated or they resign. As of the date of this proxy statement, none of our executive officers has entered into any agreements with PSC or its affiliates regarding employment with the surviving corporation. Although no such agreements currently exist, our executive officers who remain with the surviving corporation after the merger is completed may, prior to or after the closing of the merger, enter into new arrangements with PSC or its affiliates (which may amend their existing agreements) regarding employment with the surviving corporation. Executive officers who continue working for PSC or its affiliates, or who resign voluntarily without good reason, might not qualify to receive some of the benefits described above.

Financing; Source of Funds

      It is anticipated that PSC will require approximately $2.29 billion in order to complete the transactions contemplated by the merger agreement. The $2.29 billion requirement consists of payment of approximately $1.6 billion as the purchase price for the shares of common stock and stock options, the repayment or refinancing of approximately $431 million of indebtedness of BEI (including the senior notes, as defined below), the payment of $41 million related to the prepayment of debt and the payment of approximately $220 million in severance costs, transaction fees and other expenses. PSC has informed BEI that it presently contemplates it will raise the $2.29 billion required pursuant to financings pursuant to loan commitments from

Column Financial, Inc. and CapitalSource Finance LLC and an equity contribution by Fillmore Strategic Investors, L.L.C.

      PSC and GPH have received a mortgage loan commitment letter, dated November 18, 2005, from Column Financial in the aggregate amount of $1.325 billion for the financing of the transactions contemplated by the merger agreement. PSC and GPH have also received loan commitment letters, dated November 18, 2005, for the financing of the transactions contemplated by the merger agreement from Capital Source for various facilities totaling an aggregate of $550 million. We refer to these two letters as the “loan commitment letters.”

      The funding of the Column Financial mortgage financing is subject to various closing conditions, including, but not limited to:

      The funding of the CapitalSource financings is subject to various closing conditions, including, but not limited to:

      In addition, Fillmore Strategic Investors, has delivered an equity commitment letter to PSC. We refer to this letter as the “equity commitment letter.” Under the equity commitment letter, Fillmore Strategic Investors has agreed to make an equity contribution to PSC or GPH in the aggregate amount of $350 million (less the $10 million deposit described below). The obligations of Fillmore Strategic Investors under its equity commitment letter are subject to the satisfaction of the conditions to the merger contained in the merger agreement and the consummation of the financing contemplated by the debt commitment letters.

      No assurances can be given with regard to the satisfaction of the foregoing closing conditions to the Column Financial and CapitalSource commitments. If any or all of these closing conditions are not satisfied, the lender for the affected financing could potentially terminate its commitment and adversely affect the consummation of the merger. See “The Merger Agreement — Business Interruption Fee if Merger Agreement is Terminated.”

Deposit and Letter of Credit

      In connection with the execution of the merger agreement, a $10 million deposit was placed in escrow pursuant to an escrow agreement with PSC, as the assignee of NASC, and we received a letter of credit issued by Morgan Stanley Asset Funding, Inc. from Fillmore Strategic Investors, L.L.C. in the amount of $50 million. If the merger agreement is terminated (i) by us or PSC because the merger agreement has not been consummated by March 1, 2006 (or June 30, 2006, in the case of an extension of the termination date in order to obtain regulatory approval) or (ii) by us because PSC or PSC Sub breaches any representations, warranties, covenants or agreements that would result in a closing condition not being satisfied, then we will be able to draw under this letter for the amount of $50 million and collect the $10 million that is held in escrow, subject to limitations specified in the merger agreement. We are entitled to retain $7 million of the deposit if the merger agreement is terminated by PSC because (i) a reduction in the amount of loans provided under the debt commitment letters occurs for specified reasons or (ii) PSC is unable to obtain a necessary health care license required for consummation of the merger or to implement an alternative transaction structure which would allow for the consummation of the merger as a result of an action or omission by us or a current practice of ours that does not comply with applicable legal requirements. See “The Merger Agreement — Business Interruption Fee if Merger Agreement is Terminated.”

Delisting and Deregistration

      Our common stock is currently listed on the NYSE under the symbol “BEV.” Following the merger, our common stock will no longer be traded on the NYSE, price quotations will no longer be available and the registration of our common stock under the Securities Exchange Act of 1934 will be terminated.

Litigation

      On November 2, 2005, the plaintiffs in two patient care lawsuits previously filed against BEI in Arkansas state court filed motions seeking to enjoin the merger between NASC and BEI. One such motion was filed in connection with a lawsuit captioned Martha Tedder individually and as administrator of the estate of

Lawrence Keasler, deceased, and on behalf of the wrongful death beneficiaries of Lawrence Keasler v. Beverly Enterprises, Inc., et al. The Tedder lawsuit, which is pending in Greene County Circuit Court, was originally filed on July 25, 2005. The second motion was filed in connection with a lawsuit captioned Janice Fischer v. Beverly Enterprises, et al. The Fischer case, which is pending in Drew County Circuit Court, was originally filed on October 3, 2005. The motions filed in the Tedder and Fischer cases are identical. Both plaintiffs argue that the acquisition of BEI by NASC would deplete BEI’s assets and deny plaintiffs the right to recover for harm alleged to have occurred at BEI facilities. On that basis, the plaintiffs in Tedder and Fischer have asked the courts to enjoin the merger with NASC and impose a constructive trust over BEI’s liability reserves. Alternatively, plaintiffs have asked the courts to order BEI to post bond to cover damages that may be awarded to the plaintiffs at trial. On November 15, 2005, BEI removed both actions to United States District Court for the Eastern District of Arkansas pursuant to the Class Action Fairness Act of 2005. The court has set the plaintiffs’ motions for a hearing on December 19, 2005. BEI intends to continue to resist the plaintiffs’ motions should they continue to seek the requested relief.

THE MERGER AGREEMENT

      The following is a summary of certain provisions of the merger agreement. The summary is not a complete description of the terms and conditions of the merger agreement, a composite copy of which is attached to this proxy statement as Annex A. The merger agreement contains some provisions that only applied on or prior to December 12, 2005 and other provisions that applied after December 12, 2005. The following summary of the merger agreement refers only to the provisions of the merger agreement in effect after December 12, 2005. We urge you to read the merger agreement and the other annexes attached to this proxy statement carefully and in their entirety.

Structure and Effective Time

      If all of the conditions to the merger are satisfied or waived in accordance with the merger agreement, PSC Sub will be merged with and into BEI and BEI will continue as the surviving corporation. As a result of the merger, we will cease to be a publicly traded company and will be owned by PSC.

      The merger shall become effective at such time as the certificate of merger is filed with the Secretary of State of Delaware in accordance with the merger agreement (or at such later time as specified in the Certificate of Merger). We intend to file the certificate of merger as promptly as practicable following satisfaction or waiver of the conditions to the merger in accordance with the merger agreement, including the adoption of the merger agreement by our stockholders and receipt of all regulatory clearances. See “The Merger Agreement — Conditions to the Consummation of the Merger” and “The Merger Agreement — Agreement to Obtain Clearance from Regulatory Authorities.”

Board of Directors and Officers of BEI Following the Merger

      The directors of PSC Sub immediately prior to the effective time will be the directors of BEI after the merger. The officers of BEI immediately prior to the effective time, and such other persons as PSC may designate, will be the officers of BEI after the merger.

Merger Consideration

      Upon completion of the merger, each share of BEI common stock issued and outstanding immediately prior to the effective time (other than shares held by PSC, PSC Sub, any subsidiary of PSC or PSC Sub, in the treasury of BEI or by any of our subsidiaries, and other than shares held by stockholders exercising appraisal rights) will be converted into the right to receive $12.50 in cash, without interest, and canceled and retired and cease to exist.

Payment Procedures

      No later than the effective time of the merger, PSC will designate an exchange agent reasonably acceptable to us to make payments of the merger consideration under the merger agreement upon surrender of certificates representing BEI common stock and deposit an amount of cash with the exchange agent sufficient to pay the merger consideration to each of our stockholders.

      Within three business days after completion of the merger, the exchange agent will mail a letter of transmittal and instructions to you advising you how to surrender your stock certificates in exchange for the merger consideration.

      You should NOT return your stock certificates with the enclosed proxy card, and you should NOT forward your stock certificates to the exchange agent without an executed letter of transmittal.

      You will not be entitled to receive the merger consideration until you surrender your stock certificates to the exchange agent, together with a duly completed and executed letter of transmittal and any other documents the exchange agent requires in accordance with the instructions sent by the exchange agent. The surviving corporation will reduce the amount of any merger consideration paid to you by any applicable withholding taxes.

      No interest will be paid or will accrue on the cash payable upon surrender of the stock certificates.

      At the effective time of the merger, we will close our stock ledger. After that time, if you present common stock certificates to the surviving corporation, the surviving corporation will cancel them in exchange for cash as described in this section.

      The transmittal instructions will tell you what to do if you have lost your stock certificate, or if it has been stolen or destroyed.

      After completion of the merger, subject to the exceptions in the next sentence, you will cease to have any rights as a BEI stockholder. The exceptions include the right to receive dividends or other distributions with respect to your common stock with a record date before the effective time of the merger, the right to surrender your stock certificate in exchange for payment of the merger consideration or, if you exercise your appraisal rights, the right to perfect your right to receive payment for the fair value of your shares as determined by the Delaware Court of Chancery pursuant to Delaware law.

      One year after the merger occurs, the exchange agent will return to the surviving corporation all funds in its possession that constitute any portion of the merger consideration, and the exchange agent’s duties will terminate. After that time, stockholders may surrender their certificates to the surviving corporation and, subject to applicable abandoned property laws, escheat and similar laws, will be entitled to receive the merger consideration without interest. None of PSC, BEI or the paying agent will be liable to stockholders for any merger consideration delivered to a public official pursuant to applicable abandoned property laws, escheat and similar laws.

Treatment of Stock Options and Equity Plans

      Concurrent with the effective time of the merger, all outstanding options to acquire our common stock granted to a director or employee pursuant to an equity compensation plan, whether or not then vested or exercisable, will become fully vested and will be deemed exercised and canceled, and the holder of each stock option will be entitled to receive at the effective time from the surviving corporation (or at PSC’s option, PSC) an amount in cash, less applicable withholding taxes or other taxes required by law to be withheld, equal to the product of:

      Concurrent with the effective time of the merger, each outstanding share of our restricted stock under our equity compensation plans, whether or not then vested, will become fully vested and will be converted into the right to receive $12.50 in cash in the merger.

      At or prior to the effective time of the merger, each outstanding right to receive our common stock pursuant to a performance unit award shall be treated as fully vested, canceled and terminated, and payable. Concurrent with the effective time of the merger, each director deferred unit will be canceled and terminated, and converted to a share of our common stock, which share will be converted into the right to receive $12.50 in cash in the merger. Concurrent with the effective time of the merger, each restricted stock unit award that was deferred by directors will be treated as fully vested and converted to shares of our common stock, which shares will be converted into the right to receive $12.50 in cash in the merger.

No Solicitation

      The merger agreement provides that neither we nor our affiliates, nor our representatives (including our executive officers, directors, employees, investment bankers, attorneys, consultants, accountants and other representatives) will:

      We must promptly inform PSC of any request for information relating to a takeover proposal, any takeover proposal or any inquiry with respect to any takeover proposal and keep PSC reasonably informed as to the status and material details of any such request.

      For purposes of the merger agreement, a “takeover proposal” means any third party inquiry, proposal or offer relating to:

      However, prior to the adoption of the merger agreement by our stockholders, if we receive a bona fide takeover proposal that was not solicited and our Board of Directors determines in good faith (after consultation with outside counsel) that such action is necessary in order for it to comply with its fiduciary duties to our stockholders under applicable law and (after consultation with outside counsel and a financial advisor of nationally recognized reputation) that such proposal constitutes, or is reasonably likely to result in, a superior proposal, we may:

      For purposes of the merger agreement, “superior proposal” means a bona fide written takeover proposal (with the threshold used in the definition of “takeover proposal” increased to 50% rather than 20%) that our Board determines, after consulting with its financial advisors and legal counsel, to be more favorable to the holders of our common stock than the merger. Our Board’s decision as to whether a proposal is a superior proposal may take into account, among other things, the party making such proposal and all legal, financial, regulatory, and other aspects of the merger agreement and the takeover proposal, including any conditions related to financing and regulatory approvals. Additionally, our Board must also take into account any adjustments to the terms and provisions of the merger agreement submitted by PSC in response to such takeover proposal.

Access to Information

      We have agreed to provide PSC and PSC Sub, as well as their respective officers, directors, employees, consultants and other advisors, representatives and agents, with reasonable access during normal business hours to our officers, employees, agents, properties, offices and other facilities, and the books and records thereof. Any information we provide will be subject to the terms of our confidentiality agreement with PSC.

Stockholder Approval; BEI Board Recommendation

      We have agreed to call and hold the special meeting described in this proxy statement and our Board of Directors has recommended that our stockholders vote to adopt the merger agreement at the special meeting. We also agreed to include our Board’s recommendation in this proxy statement.

      We agreed to provide PSC with a reasonable opportunity to review and comment on the proxy statement, any comments made by the SEC and any proposed amendments to the proxy statement prior to filing it with the SEC and to promptly advise PSC of the receipt of any comments or requests for amendments to this proxy statement, any responses to such requests and any requests by the SEC for additional information.

      We agreed in the merger agreement that our Board of Directors will only (i) withdraw or modify in a manner adverse to PSC our Board’s recommendation of the merger, or (ii) approve or recommend any takeover proposal if (a) in response to a takeover proposal, our Board of Directors determines in good faith (after consultation with its outside legal counsel and financial advisors) that the takeover proposal constitutes a superior proposal (as defined above) and (after consultation with its outside legal counsel) that taking such action is necessary for the members of our Board of Directors to comply with their fiduciary duties to our stockholders under applicable law, (b) we provide PSC five days prior written notice that our Board of Directors intends to take such action, including a description of the material terms of the superior proposal that is the basis for taking such action, and (c) after negotiating with PSC in good faith during the five day notice period, our Board of Directors has considered in good faith any proposed changes to the merger agreement proposed by PSC, and (after consultation with its outside legal counsel and financial advisors) determines that the takeover proposal would still constitute a superior proposal, after giving effect to the changes to the merger agreement proposed by PSC.

      In addition, prior to the adoption of the merger agreement by our stockholders, if we receive a takeover proposal and our Board of Directors determines in good faith (after consultation with its outside legal counsel and financial advisors) that the proposal is a superior proposal and that taking such actions are necessary to comply with the Board’s fiduciary duties, the Board may terminate the merger agreement, so long as on the date of such termination (i) the Board has authorized us to enter into an agreement for the superior proposal, (ii) we have paid to PSC the termination fee described under “The Merger Agreement — Termination Fee if Merger is Not Consummated,” and (iii) we have complied with the merger agreement’s provisions concerning solicitation of transactions and the Board’s change of recommendation to stockholders, as explained above.

Representations and Warranties

      In the merger agreement, we made customary representations and warranties, subject to exceptions disclosed to PSC and to customary qualifications for materiality. The representations we made to PSC relate to, among other things:

      For purposes of the merger agreement a “company material adverse effect” means a change, circumstance, event or effect that is materially adverse to (i) the business, properties, assets, results of operations or financial condition of BEI and its subsidiaries taken as a whole or (ii) the ability of BEI to perform its obligations pursuant to the merger agreement, other than (a) the execution, delivery or public announcement of the merger agreement or the transactions provided for in the merger agreement or any actions required to be taken under the merger agreement or with the consent of PSC, (b) any change in any health care program reimbursement laws, regulations, policies or procedures (or any interpretation thereof) that applies to services rendered by BEI or its subsidiaries, (c) changes generally affecting the industries in which BEI or its subsidiaries operate, (d) changes in economic conditions in the U.S. or in any region thereof, (e) any changes in law or GAAP (or any interpretation thereof) and (f) the effects on BEI of any litigation (to the extent worse than the proposed settlement), in the event BEI proposes to settle such litigation and PSC does not, if requested, provide its consent to such settlement unless, in the case of clauses (b), (c) and (e), such changes would have a materially disproportionate impact on the business, properties, assets, results of operation or financial condition of BEI and its subsidiaries taken as a whole relative to other industry participants.

      In the merger agreement, PSC and PSC Sub made certain customary representations and warranties, subject to exceptions disclosed to us, and to customary qualifications for materiality. The representations PSC and PSC Sub made to us relate to, among other things:

      In the merger agreement, GPH made certain representations and warranties to us, including with respect to GPH’s power and authority to enter into the merger agreement and to complete the transactions contemplated by the merger agreement and the valid authorization of the merger agreement by GPH.

      This description of the representations and warranties has been included in this proxy statement to provide investors with information regarding the terms of the merger agreement. The assertions embodied in the representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the merger agreement. The disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties. Moreover, some of the representations and warranties may not be complete or accurate as of a particular date because they are subject to a contractual standard of materiality that is different from those generally applicable to shareholders and/or were used for the purpose of allocating risk among the parties rather than establishing certain matters as facts. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts at the time they were made or otherwise.

Covenants; Conduct of the Business of BEI Prior to the Merger

      The merger agreement provides that, with certain exceptions, prior to the effective time, we shall (i) conduct our business substantially in the ordinary course consistent with past practice, and (ii) use commercially reasonable best efforts to keep available the services of our current officers, key employees and consultants, and preserve our business relationships.

      The merger agreement also provides that, with certain exceptions, prior to the effective time, we will not take, and will not permit our subsidiaries to take, any of the following actions without the prior consent of PSC (which consent may not be unreasonably withheld or delayed):

      The merger agreement also provides that we will use our commercially reasonable best efforts to cooperate with and assist PSC in the negotiation, payoff and restructuring of any debt obligations which PSC will want to implement after the closing of the merger. We will also use our best efforts to cooperate with PSC to redeem our 7⁷/8% notes and provide notice to the holders of our 2.75% convertible notes as to how they can convert their notes for our common stock, which will then be converted into the right to receive $12.50 in cash, without interest, and canceled and retired and cease to exist.

Agreement To Obtain Clearance From Regulatory Authorities

      BEI, PSC and PSC Sub have agreed to use their commercially reasonable best efforts to take all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations (including the HSR Act) to consummate and make effective the transactions contemplated by the merger agreement.

      Among other things, each party has agreed to use such efforts to:

      PSC and PSC Sub have also agreed to use commercially reasonable best efforts to obtain, as promptly as practicable, all governmental consents, including licenses, certifications, permits, approvals, provider numbers and authorizations as are required to operate our health care businesses. If, after complying with its requirements to obtain consents, PSC has obtained the governmental consents necessary to operate at least 95 percent, but less than 100 percent, of our health care facilities as currently operated, PSC and BEI agreed to use their best efforts to implement an “alternative structure” such as a management agreement or liquidating trust in order to enable PSC to obtain any remaining approvals.

      The merger agreement further provides that BEI, PSC and PSC Sub must:

      Additionally, each of BEI, PSC and PSC Sub have agreed, subject to applicable law and the limitations set forth in the merger agreement and except as prohibited by any applicable governmental entity:

      Additionally, GPH has agreed to use commercially reasonable best efforts to complete the financing transactions contemplated by the debt commitment letters and the equity commitment letter, including:

Indemnification and Insurance

      Under the merger agreement, PSC and the surviving corporation have agreed to indemnify all present and former directors and officers of BEI and its subsidiaries, acting in such capacities, to the fullest extent permitted by law, against any expenses or losses incurred in connection with any claim, action, suit, proceeding or investigation arising out of or pertaining to matters pending, existing or occurring at or prior to the merger. PSC and PSC Sub have agreed that the surviving corporation will cause to be maintained charter and bylaw provisions with respect to elimination of liability of directors, and indemnification of officers, directors, employees and agents, that are no less favorable to the intended beneficiaries than those contained in our certificate of incorporation and bylaws or the certificate of incorporation and bylaws of the relevant subsidiary as in effect on the date the merger agreement was signed. PSC and PSC Sub have also agreed that the surviving corporation will honor all indemnification agreements entered into by BEI or any of its subsidiaries.

      In addition, PSC has agreed that the surviving corporation will provide or, in the alternative, BEI has the right to acquire directors’ and officers’ liability insurance in respect of acts or omissions occurring at or prior to the merger covering each person currently covered by our directors’ and officers’ liability insurance policy for six years after the merger on terms and in amounts no less favorable than those of our policy in effect on the date the merger agreement was signed, provided that the surviving corporation will not be required to pay annual premiums for such insurance in excess of 300% of our annual premium in effect on the date the merger agreement was signed or, if BEI acquires the insurance prior to closing, it may not pay a one-time premium that exceeds 300% of our annual premium in effect on the date the merger agreement was signed.

Employee Benefits

      For the period following the effective time of the merger through and including the later of December 31, 2006 and the one-year anniversary of the effective time, PSC has agreed that it will, or will cause the surviving corporation to, provide each of our and our subsidiaries’ employees as of the effective time with at least the same level of base salary and wages on substantially the same terms and conditions that was provided to our

and our subsidiaries’ employees immediately before the merger, and to maintain benefit plans that are substantially equivalent in the aggregate to those provided to our and our subsidiaries’ employees immediately before the merger. However, PSC or the surviving corporation shall not be required to increase spending on health and welfare benefits by more than 15% in any one year.

      In addition, from and after the effective time of the merger, PSC has agreed to:

      The merger agreement provides that at least 15 days prior to the stockholders meeting, PSC must expressly identify to us in writing certain employees that, within the twelve months following the merger, it intends to not retain, or employees for which it intends to materially reduce the duties, responsibilities, authority, compensation or benefits, or require relocation of as a condition to continued employment. In addition, at least five days prior to the stockholders meeting, we have agreed to use our commercially reasonable efforts to cause any employee who is a party to any change in control, severance, retention and/or employment agreements with us and who intends to terminate his or her employment for good reason immediately following the merger, pursuant to a right to so terminate expressly set forth in such agreement, to notify us of such intention in writing.

      The employees identified by PSC and the employees who provide written notice to us of the intent to terminate his or her employment with us for good reason immediately following the merger, as described in the preceding paragraph, will receive, at the effective time of the merger, all payments specified in any written change of control, severance, retention and/or employment agreements or arrangements with us or our subsidiaries.

Termination of the Merger Agreement

      The merger agreement may be terminated:

Termination Fee and Reimbursement of Expenses if Merger is Not Consummated

      We agreed to reimburse PSC for its expenses, as well as the NASC expenses not to exceed $30 million in the aggregate if the merger agreement is terminated by us or PSC because our stockholders fail to adopt the merger agreement at, the special meeting or any adjournment of the special meeting, and no third party has made a takeover proposal after November 20, 2005.

      If we terminate the merger agreement when our Board has received a superior proposal and authorized BEI to enter into an agreement to consummate the transaction pursuant to the superior proposal, then we agreed to pay PSC a termination fee of $60 million.

      If (i) the merger agreement is terminated because our stockholders fail to approve the merger at the special meeting or any adjournment of the special meeting, or because we have breached any covenant, representation or warranty in the merger agreement and (ii) a third party has made a takeover proposal after December 12, 2005 and (iii) we enter into a definitive agreement with respect to, or consummate, an

alternative takeover proposal (with references to 20% in the definition of takeover proposal changed to 50%) within nine months after the termination of the merger agreement, then we agreed to pay PSC a termination fee of $60 million.

      We agreed to reimburse PSC for its expenses and the NASC expenses, not to exceed $30 million in the aggregate, if PSC terminates the merger agreement, in circumstances unrelated to a takeover proposal, because, prior to obtaining BEI stockholder approval, our Board withdraws or modifies in a manner adverse to PSC its recommendation that BEI’s stockholders adopt the merger agreement.

      We agreed to pay PSC a termination fee of $60 million if PSC terminates the merger agreement, in circumstances related to another takeover proposal, because, prior to obtaining BEI stockholder approval:

      We will not be required to reimburse PSC for its expenses or pay a termination fee if, at the time of termination of the merger agreement, PSC, PSC Sub or GPH is in material default under the terms of the merger agreement.

Business Interruption Fee if Merger Agreement is Terminated

      PSC has agreed to pay us a business interruption fee of $60 million if (i) we or PSC terminate the merger agreement because the merger has not been completed by the termination date and the conditions to the merger relating to stockholder approval of the merger agreement, the expiration of applicable waiting periods under the HSR Act, the absence of injunctions or legal restraints on the merger, the accuracy of our representations and warranties and our compliance with our covenants in the merger agreement have been satisfied or are reasonably capable of being satisfied as of the date of termination of the merger agreement, or (ii) we terminate the merger agreement because PSC or PSC Sub breaches any representations, warranties, covenants or agreements that would result in a closing condition not being satisfied, and the conditions to the merger relating to the expiration of applicable waiting periods under the HSR Act, the absence of injunctions or legal restraints on the merger, the accuracy of our representations and warranties and our compliance with our covenants in the merger agreement have been satisfied or are reasonably capable of being satisfied as of the date of termination of the merger agreement.

      PSC has agreed that it will pay us a $7 million business interruption fee if the conditions to the merger relating to stockholder approval of the merger agreement, the expiration of the applicable waiting periods under the HSR Act, the absence of injunctions or legal restraints on the merger, the accuracy of our representations and warranties and our compliance with our covenants in the merger agreement have been satisfied or are reasonably capable of being satisfied as of the date of termination of the merger agreement and PSC terminates the merger agreement pursuant to Section 8.1(d)(iii) of the merger agreement because, by the termination date:

      The amount of the business interruption fee will be offset by any portion of the $10 million deposit previously received by BEI and any amounts drawn under the letter of credit provided by Fillmore Strategic Investors.

Conditions to the Consummation of the Merger

      BEI and PSC are not required to consummate the merger unless a number of conditions are satisfied or waived, including:

      Furthermore, PSC and PSC Sub are not required to consummate the merger unless the following additional conditions are satisfied or waived:

      Our obligation to complete the merger is subject to the satisfaction or waiver of additional conditions, including: