According to the Company’s Form 10-Q for the quarterly period ended June 30, 2003, the defendants filed a motion to dismiss that complaint on October 8, 1999. Oral argument on this motion was held on April 6, 2000. By order and judgment dated October 17, 2001, defendants’ motion to dismiss was granted, and the complaint was dismissed with prejudice. Plaintiffs appealed this decision to the Eighth Circuit Court of Appeals (Case No. 01-3677). On January 23, 2003, the Eighth Circuit entered an order affirming the district court’s order dismissing the case with prejudice. The plaintiffs appealed the order of the Eighth Circuit en banc, but, on February 27, 2003, the Eighth Circuit denied the petition. The Eighth Circuit issued a mandate denying the petition and ordering the district court to enforce its ruling and dismiss the case. The plaintiffs did not petition for a writ of certiorari to the United States Supreme Court.

The original Complaint charges that Beverly and certain of its officers misled investors by issuing false and misleading information concerning the Company's financial results and compliance with Medicare regulations. In fact, the defendants had schemed to inflate the Company's Medicare derived revenues by improperly allocating to Medicare certified units and significant amounts of labor related costs, which were paid by the federal agency on a cost plus basis. The Company publicly reported that revenues and earnings were inflated throughout the Class Period, thereby artificially inflating the price of Beverly securities and allowing the individual defendants to reap the benefits of the fraud through the Company's performance incentive plan.