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                                                                   EXHIBIT 10.30

                       EMPLOYMENT AND SEVERANCE AGREEMENT

         AGREEMENT made as of March 5, 2001 between BEVERLY ENTERPRISES, INC., a
Delaware corporation (the "Company"), and BOBBY W. STEPHENS (the "Executive").

         WHEREAS, Executive is currently employed by the Company; and

         WHEREAS, in connection with this Agreement and in exchange for the
consideration described herein (the receipt and sufficiency of which is hereby
acknowledged), the Executive has agreed to waive any rights he may currently
have under the Employment Contract dated August 22, 1997 and any change in
control, severance, or employment agreement or other compensation or employee
benefit plan with or previously assumed by the Company and has agreed to waive
any claim that any previous sale, transfer of assets, acquisition, spin-off,
merger, restructuring, reorganization, or any other corporate transaction
constitutes a "Change in Control" or "Termination of Employment for Good Reason"
under any such agreements or other employee benefit or compensation plans with
the Company or its predecessors except as set forth herein; and

         WHEREAS, it is the intent of the parties that all the terms of the
Employment Contract dated August 22, 1997 shall be superceded by this Agreement
and the rights and obligations of the parties shall be governed by this
Agreement as of its Effective Date; and

         WHEREAS, the Company desires to assure itself of the management
services of the Executive by directly engaging the Executive as the Executive
Vice President - Procurement of the Company; and

         WHEREAS, the Company recognizes that the Executive's contribution to
the Company's growth and success will be substantial; and

         WHEREAS, the Company wishes to encourage the Executive to remain with
and devote full time and attention to the business affairs of the Company and
wishes to provide income protection to the Executive for a period of time in the
event of an involuntary Termination of Employment without Cause or a voluntary
Termination of Employment for Specific Reason, whether or not in connection with
a Change in Control;

         NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the Company and the
Executive hereby agrees as follows:

         1. Definitions.

               (a) "Base Salary" shall mean the Executive's regular annual rate
     of base pay, as set forth in Paragraph 4(a), as of the date in question.



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               (b) The "Benefit Multiplier" shall be equal to 2.0, except that
     if Executive's Termination of Employment is pursuant to Paragraph 7(b), it
     shall be equal to 3.0.

               (c) The "Benefit Period" shall be the period of years equal to
     the Benefit Multiplier which follows the Executive's Termination of
     Employment.

               (d) "Cause" shall mean the Executive's (i) conviction of a crime
     involving moral turpitude or theft or embezzlement of property from the
     Company or (ii) willful misconduct or willful failure substantially to
     perform the duties of his position, but only if such has continued after
     receipt of notice from the Company's Board of Directors and such reasonable
     cure period as is set forth in such notice.

               (e) A "Change in Control" shall be deemed to have taken place if:
     (i) any person, corporation, or other entity or group, including any
     "group" as defined in Section 13(d)(3) of the Securities Exchange Act of
     1934, other than any employee benefit plan then maintained by the Company,
     becomes the beneficial owner of shares of the Company having 30 percent or
     more of the total number of votes that may be cast for the election of
     Directors of the Company; (ii) as the result of, or in connection with, any
     contested election for the Board of Directors of the of the Company, or any
     tender or exchange offer, merger or other business combination or sale of
     assets, or any combination of the foregoing (a "Transaction"), the persons
     who were Directors of the Company before the Transaction shall cease to
     constitute a majority of the Board of Directors of the Company or any
     successor to the Company or its assets or (iii) at any time (a) the Company
     shall consolidate with, or merge with, any other Person and the Company
     shall not be continuing or surviving corporation, (b) any Person shall
     consolidate with, or merge with the Company, and the Company shall be the
     continuing or surviving corporation and in connection therewith, all or
     part of the outstanding Company stock shall be changed into or exchanged
     for stock or other securities of any other Person or cash or any other
     property, (c) the Company shall be a party to a statutory share exchange
     with any other Person after which the Company is a subsidiary of any other
     Person, or (d) the Company shall sell or otherwise transfer 50% or more of
     the assets of earning power of the Company and its subsidiaries (taken as a
     whole) to any Person or Person; provided, however, that notwithstanding
     anything to the contrary herein, a Change in Control shall not include any
     transfer to a consolidated --- subsidiary, reorganization, spin-off,
     split-up, distribution, or other similar or related transaction(s) or any
     combination of the foregoing in which the core business and assets of the
     Company and its subsidiaries (taken as a whole) are transferred to another
     entity ("Controlled") with respect to which (1) the majority of the Board
     of Directors of the Company (as constituted) immediately prior to such
     transaction(s)) also serve as directors of Controlled and immediately after
     such transaction(s) constitute a majority of Controlled's board of
     directors, and (2) more than 70% of the shareholders of the Company
     (immediately prior to such transaction(s)) become shareholders of other
     owners of Controlled and immediately after the transaction(s) control more
     than 70% of the ownership and voting rights of Controlled.

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               (f) The "Change in Control Date" shall mean the date immediately
     prior to the effectiveness of the Change in Control.

               (g) The "Committee" shall mean the Compensation Committee of the
     Company's Board of Directors.

               (h) The "Competitive Businesses" shall mean any of the health
     care businesses in which the Company is engaged on the effective date of
     the Distribution. Executive's serving on the Board of Directors of Capstone
     is specifically excluded from the definition of competitive businesses.

               (i) "Effective Date" shall mean the date first written above.

               (j) "Person" shall have the meaning ascribed to such term in
     Section 3(a)(9) of the Securities Exchange Act of 1934 and used in Sections
     13(d) and 14(d) thereof, including a "group" as defined in Section 13(d).

               (k) "Target Bonus" shall mean the target bonus (100% level)
     established for the Executive for the year in question under the Company's
     "Annual Incentive Plan."

               (l) "Termination of Employment" shall mean the termination of the
     Executive's employment by the Company other than such a termination in
     connection with an offer of immediate reemployment by a successor or assign
     of the Company or purchaser of the Company or its assets under terms and
     conditions which would not permit the Executive to terminate his employment
     for Specific Reason.

               (m) "Specific Reason" shall mean Termination of Employment
     triggered by Executive at any time by giving written notice of intent to
     terminate employment to Company's Secretary. Company and Executive
     recognize and agree that the Company's reorganization in January, 2001
     created a right for Executive to terminate his employment for "Good Reason"
     under his Employment Contract dated August 22, 1997 which entitled
     Executive to receive severance benefits. Because Executive has elected to
     continue his employment with the Company notwithstanding his entitlement to
     severance benefits under his August 22, 1997 Employment Contract, Company
     agrees that Executive will receive the benefits described in this Agreement
     at such time as he triggers Termination of Employment for "Specific
     Reason".

         2. Term. The initial term of this Agreement shall be for the period
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. The renewal Term shall be automatically extended by one
additional day for each day beyond the Effective Date of this Agreement that the
Executive remains employed by the Company until such time as the Company elects
to cease such extension by giving ninety (90) days written notice to the
Executive. In such event, the Agreement shall thus terminate at the end of such
notice period.

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         3. Position and Duties. During the Term, the Executive shall serve, as
an employee, as the Executive Vice President - Procurement, Facilities
Management, and Joint Venture of Japan and Chile, of the Company and shall have
such duties, functions, responsibilities and authority as are consistent with
the Executive's position as the senior executive officer in charge of
procurement, facilities management, and joint venture of Japan and Chile,for the
Company.

         4. Compensation and Related Matters.

               (a) Annual Base Salary. The Executive shall receive a Base Salary
     at a rate of $343,990 per annum through December 31, 2001 and thereafter at
     any such greater rate as is determined by the Committee.

               (b) Benefits. During the Term, the Executive shall be entitled to
     all of the following and any other benefits and prerequisites offered by
     the Company to executives generally:

                    (i) Participate in the Company's present and future
               Long-Term Incentive Stock Plan and any other stock option,
               restricted stock, phantom stock and other similar equity-based
               incentive plans, pursuant to their terms.

                    (ii) Participate in the Company's Employee Stock Purchase
               Plan, pursuant to its terms;

                    (iii) Participate in the Company's Executive Deferred
               Compensation Plan, pursuant to its terms;

                    (iv) Participate in the Company's Executive SavingsPlus
               Plan, pursuant to its terms;

                    (v) $300,000 of individual life insurance coverage under the
               Company's Executive Split Dollar Life Insurance Plan;

                    (vi) $336,000 (or such greater amount as the Company may
               make available to its senior executives generally) of group term
               life insurance coverage;

                    (vii) $100,000 (or such greater amount as the Company may
               make available to its senior executives generally) of business
               travel accident insurance coverage when traveling on Company
               business;

                    (viii) Participate in the Company's Medical Plan, and Dental
               Plan, pursuant to their terms, except that the premium cost for
               such shall be treated as a benefit under the Company's Executive
               Medical Reimbursement Plan;

                    (ix) Participate in the Company's Executive Medical
               Reimbursement Plan (with a maximum benefit of $5,000 (or such
               greater or lesser


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               amount as the Company may make available to its senior executives
               generally), a portion of which shall be deemed applied to the
               payment of premiums under the Company's Medical Plan and Dental
               Plan as described above), pursuant to its terms;

                    (x) Participate in the Company's group Long-Term Disability
               Plan, at the maximum benefit level, pursuant to its terms, and
               participate in the Company's Supplemental Long-Term Disability
               Plan, according to its terms;

                    (xi) 4 weeks of paid vacation;

                    (xii) Participate in or receive benefits under any other
               employee benefit plan or other arrangement made available by the
               Company to any of its employees, subject to and on a basis
               consistent with the terms, conditions and overall administration
               of such plan or arrangement.

               (c) Annual Bonus. As additional compensation for services
     rendered, the Executive shall be eligible to receive an annual bonus in
     cash pursuant to the Company's Annual Incentive Plan.

               (d) Expenses. The Company shall promptly reimburse the Executive
     for all reasonable travel and other business expenses incurred by the
     Executive in the performance of his duties to the Company hereunder.

               (e) Reporting. The Executive shall report directly to the
     President and Chief Executive Officer of the Company.

         5. Non-Solicitation.

               (a) Executive shall not at any time during the period of his
     employment with the Company, or during the two (2) year period immediately
     following his Termination of Employment with the Company ("Non-Solicitation
     Period"), without the prior written consent of the Company, on behalf of
     himself or any other person, solicit for employment or employ any of the
     current officers or employees of the Company; provided, however, that
     nothing contained herein shall prohibit Executive from hiring employees of
     the Company when such employment results from general solicitations for
     employment.

               (b) Executive shall not at any time during the period of his
     employment with the Company, or during the Non-Solicitation Period, without
     the prior written consent of the Company, solicit for his own use, or for
     the use of any company or person by whom he is employed, or for whom he may
     be acting, any of the current customers of the Company, nor shall he
     divulge to any other person any information or fact relating to the
     management, business (including prospective business), finances, its
     customers or the terms of any of the contracts of the Company which has
     heretofore or which may hereafter come to the knowledge of Executive which
     is not freely available to the public.

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               (c) Executive shall not, during the Non-Solicitation Period, in
     any way defame the Company or disparage its business capabilities,
     products, plans or management to any customer, potential customer, vendor,
     supplier, contractor, subcontractor of the Company so as to affect
     adversely the goodwill or business of the Company.

               (d) Executive covenants and agrees that a breach of these
     subparagraphs (a), (b) or (c) would immediately and irreparably harm the
     Company and that a remedy at law would be inadequate to compensate the
     Company for its losses by reason of such breach and therefore that the
     Company shall, in addition to any rights and remedies available under this
     Agreement, at law or otherwise, be entitled to any injunction to be issued
     by any court of competent jurisdiction enjoining and restraining Executive
     from committing any violation of these subparagraphs (a), (b) or (c), and
     Executive hereby consent to the issuance of such injunction.

               (e) For purposes of this Paragraph 5 and in consideration of this
     Agreement, this non-solicitation agreement has been separately negotiated
     and bargained for, and constitutes a substantial portion of the
     consideration for this Agreement.

         6. Non-disclosure of Proprietary Information, Surrender of Records;
Inventions and Patents.

               (a) Proprietary Information. Executive shall not during the term
     of employment or at any time thereafter (irrespective of the circumstances
     under which Executive's employment terminates), directly or indirectly use
     for his own purpose or for the benefit of any person or entity other than
     Company, nor otherwise disclose, any proprietary information, as defined
     below, to any individual or entity, unless such disclosure has been
     authorized in writing by the Company or is otherwise required by law. For
     purposes of this Agreement, the term "proprietary information" shall
     include, but is not limited to: (a) the name or address of any client or
     affiliate of Company or any information concerning the transactions or
     relations of any client or affiliate of Company with Company or any of its
     shareholders; (b) any information concerning any product, service,
     methodology, analysis, presentation, technology or procedure employed by
     Company but not generally known to its clients or competitors, or under
     development by or being tested by Company but not at the time offered
     generally to clients; (c) any information relating to Company's computer
     software, computer systems, pricing or marketing methods, capital
     structure, operating results, borrowing arrangements or business plans; (d)
     any information which is generally regarded as confidential or proprietary
     in any line of business engaged in by Company; (e) any information
     contained in any of Company's written or oral policies and procedures or
     employee manuals; (f) any information belonging to clients or affiliates of
     Company which Company has agreed to hold in confidence; (g) any inventions,
     innovations or improvements covered by subparagraph 6(c) below; (h) any
     other information which Company has reasonably determined to be
     confidential or proprietary; and (i) all written, graphic, electronic and
     other material relating to any of the foregoing. Information that is not
     novel or copyrighted or patented may nonetheless be proprietary
     information. Proprietary information, however, shall not include any
     information that is or becomes

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     generally known, or is readily accessible through public means, to the
     industries in which Company competes through sources independent of Company
     or Executive or through authorized publication by Company to persons other
     than Company's employees.

               (b) Confidentiality and Surrender of Records. Executive shall not
     during the term of employment or at any time thereafter (irrespective of
     the circumstances under which Executive's employment terminates), except as
     required by law, directly or indirectly give or disclose any "confidential
     records" (as hereinafter defined) to, or permit any inspection of copying
     of confidential records by, any individual or entity other than in the
     ordinary course and scope of such individual's or entity's employment or
     retention by Company, nor shall he use or retain any of the same following
     termination of his employment. Executive shall promptly return to Company
     all "confidential records" upon the termination of Executive's employment
     with Company. For purposes hereof, "confidential records" means all
     correspondence, memoranda, files, analyses, studies, reports, notes,
     documents, manuals, books, lists, financial, operating or marketing
     records, computer software, magnetic tape, or electronic or other media or
     equipment of any kind which may be in Executive's possession or under his
     control or accessible to him which contain any proprietary information as
     defined in subparagraph 6(a) above. All confidential records shall be and
     remain the sole property of Company during the term of employment and
     thereafter.

               (c) Inventions, Patents, and Copyrights. All inventions,
     innovations or improvements in Company's method of conducting its business
     (including policies, procedures, products, improvements, software, ideas
     and discoveries, whether or not patentable or copyrightable) conceived or
     made by Executive, either alone or jointly with others, during the term of
     employment belong to Company. Executive will promptly disclose in writing
     such inventions, innovations or improvements to Company and perform all
     actions reasonably requested by Company to establish and confirm such
     ownership by Company, including, but not limited to, cooperating with and
     assisting Company in obtaining patents and copyrights for Company in the
     United States and in foreign countries. Any patent or copyright application
     filed by Executive within a year after termination of his employment
     hereunder shall be presumed to relate to an invention or work of authorship
     which was made during the term of employment unless Executive can provide
     conclusive evidence to the contrary.

         7. Eligibility for Severance Benefits. The Executive shall be eligible
for the benefits described in Paragraph 8 (the "Severance Benefits") if:

               (a) during the Term, the Executive has a Termination of
     Employment initiated (i) by the Company without Cause (this shall include a
     unilateral determination by the Chief Executive Officer, that he wishes to
     terminate Executive without Cause, which shall be given to Executive in
     writing) or (ii) by the Executive for Specific Reason, and subparagraph (b)
     does not apply,

               (b) during the Term either (i) there has been a Change in Control
     and during the two year period commencing on the Change in Control Date the
     Executive has a Termination of Employment which is initiated by the Company
     without Cause or by the

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     Executive for Specific Reason, or (ii) the Executive has a Termination of
     Employment initiated by the Company without Cause or by the Executive for
     Specific Reason following the commencement of any discussion with a third
     person that ultimately results in a Change in Control with such third
     person within 12 months of the commencement of such discussions (in which
     case, the date of such discussion shall be substituted for the Change in
     Control Date wherever appropriate, including in the definition of "Specific
     Reason" and in Paragraph 8 hereof).

         8. Severance Benefit. Upon satisfaction of the requirements set forth
in Paragraph 7, and subject to Paragraphs 9 and 12, the Executive shall be
entitled to the following Severance Benefits:

               (a) Cash Payment. In the event of a Termination of Employment
     under Paragraph 7 (a), the Executive shall be entitled to receive an amount
     of cash equal to the Benefit Multiplier times:

                    (i) the sum of the Executive's Base Salary as in effect upon
               the Termination of Employment, and the greater of

                         (A) the Executive's Target Bonus as in effect upon the
                    Termination of Employment or,

                         (B) the Executive's actual bonus under the Company's
                    "Annual Incentive Plan" for the year prior to the year of
                    the Executive's Termination of Employment; or

               (b) Cash Payment. In the event of a Termination of Employment
     under Paragraph 7 (b), the Executive shall be entitled to receive an amount
     of cash equal to the Benefit Multiplier times:

                    (i) the sum of the Executive's Base Salary as in effect on
               the Change in Control Date, and the greater of

                         (A) the Executive's Target Bonus as in effect upon the
                    Change in Control Date or,

                         (B) the Executive's actual bonus under the Company's
                    "Annual Incentive Plan" for the year prior to the Change in
                    Control Date.

The payment shall be made in a single lump sum within ten days following the
Executive's Termination of Employment.

               (c) Long-Term Incentive Award; Equity-Based Compensation.

                    (i) In the event the Executive's Termination of Employment
               arises under Paragraph 7(a), the Executive's interest in any
               outstanding and unvested shares of Restricted Stock awarded under
               any of the Company's Long-Term Incentive Plan(s) shall vest in
               equal one-third (1/3) amounts beginning on

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               the date of Termination of Employment and continuing on each of
               the next two (2) annual anniversary dates from the date of
               Termination of Employment and any unvested stock options shall be
               fully vested on the date of Termination of Employment,
               notwithstanding any restricted stock or stock option agreement to
               the contrary; or

                    (ii) In the event the Executive's Termination of Employment
               arises under Paragraph 7(b), the Executive's interest under all
               of the Company's long-term incentive plans shall be fully vested.
               Any and all (i) options to purchase Company stock and (ii)
               restricted stock of the Company, owned by the Executive shall be
               fully vested.

               (d) Continuation of Benefits.

                    (i) For the Benefit Period, the Executive shall be treated
               as if he had continued to be an executive employee for all
               purposes under the Company's Medical Plan, Executive Medical
               Reimbursement Plan and Dental Plan, as described in Paragraph
               4(b). Following this period, the Executive shall be entitled to
               receive continuation coverage under Part Six of Title I of ERISA
               ("COBRA Benefits") treating the end of this period as a
               termination of the Executive's employment (other than for gross
               misconduct).

                    (ii) The Company shall fully vest and maintain in force, at
               its own expense, for the remainder of the Executive's life, the
               life insurance in effect under the Company's Executive Split
               Dollar Life Insurance Plan (as described in Paragraph 4(b)) as of
               the Change in Control Date or as of the date of Termination of
               Employment, whichever is greater.

               (e) Relocation Benefit. If, within two (2) years after the
     Executive's Termination of Employment with the Company, the Executive gives
     the Company written notice that he desires to relocate within the
     continental United States, the Company will reimburse the Executive for any
     reasonable relocation expenses (in accordance with the Company's general
     relocation policy for executives as then in effect, or, at the Executive's
     election, as in effect on the Change in Control Date) in connection with
     such relocation.

               (f) Executive SavingsPlus Plan. For the year of the Executive's
     Termination of Employment, the Company will make the contribution to the
     Executive SavingsPlus Plan on behalf of the Executive that it would have
     made if the Executive had not had a Termination of Employment, but in no
     event less than the percentage contribution it made for the Executive in
     the immediately preceding year (and increased to take account of the
     additional year of Service), in each case taking account of the Executive's
     annualized rate of "Compensation" (as defined in the Executive SavingsPlus
     Plan) and the percentage of such Compensation that the Executive is
     contributing to the Executive SavingsPlus Plan) and the percentage of such
     Compensation that the Executive is contributing to the Executive
     SavingsPlus Plan, as of the date of Termination of Employment, and the
     Company's matching contribution rate for such year (or, if greater,


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     the preceding year). The portion of the Company's matching contribution
     which is based on the preceding year's contribution percentage shall be
     contributed to the Executive SavingsPlus Plan on behalf of the Executive
     immediately upon the Executive's Termination of Employment and any
     additional contribution required shall be paid as soon as the amount is
     determined.

               (g) Executive Deferred Compensation Plan. For the year of the
     Executive's Termination of Employment, the Company will make the
     contribution to its Executive Deferred Compensation Plan (the "EDC Plan")
     that it would have made if the Executive had not had a Termination of
     Employment determined based on the Executive's deferral for such year. At
     Executive's election, the Company contribution shall be paid to the
     Executive immediately upon his Termination of Employment.

               (h) Disability. For the Benefit Period, the Company shall provide
     long-term disability insurance benefits coverage to Executive equivalent to
     the coverage that the Executive would have had had he remained employed
     under the Company's Long-Term Disability Plan and Supplemental Long-Term
     Disability Plan as described in Paragraph 4(b) applicable to Executive on
     the date of Termination of Employment, or, at the Executive's election, the
     plan or plans applicable to Executive as of the Change in Control Date.
     Should Executive become disabled during such period, Executive shall be
     entitled to receive such benefits, and for such duration, as the applicable
     plan(s) provide.

               (i) Plan Amendments. The Company shall adopt such amendments to
     its employee benefit plans and insurance policies as are necessary to
     effectuate the provisions of this Agreement. If and to the extent any
     benefits under this Paragraph 7 are not paid or payable or otherwise
     provided to the Executive or his dependents or beneficiaries under any such
     plan or policy (whether due to the terms of the plan or policy, the
     termination thereof, applicable law, or otherwise), then the Company itself
     shall pay or provide for such benefits.

         9. Golden Parachute Gross-Up. If, in the written opinion of a Big 6
accounting firm engaged by either the Company or the Executive for this purpose
(at the Company's expense), or if so alleged by the Internal Revenue Service,
the aggregate of the benefit payments under Paragraph 8 would cause the payment
of one or more of such benefits to constitute an "excess parachute payment" as
defined in Section 280G(b) of the Internal Revenue Code ("Code"), then the
Company will pay to the Executive an additional amount in cash (the "Gross-Up
Payment") equal to the amount necessary to cause the net amount retained by the
Executive, after deduction of any (i) excise tax on payments under Paragraph 8,
(ii) federal, state or local income tax on the Gross-Up Payment, and (iii)
excise tax on the Gross-Up Payment, to be equal to the aggregate remuneration
the Executive would have received under Paragraph 8, excluding such Gross-Up
Payment (net of all federal, state and local excise and income taxes), as if
Sections 280G and 4999 of the Code (and any successor provisions thereto) had
not been enacted into law. The Gross-Up Payment provided for in this Paragraph
shall be made within ten (10) days after the termination of Executive's
employment, provided however, that if the amount of the payment cannot be
finally determined at the time, the Company shall pay to Executive an estimate
as determined in good faith by the Company of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as
the




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amount thereof can be determined but in no event later than the thirtieth (30th)
day after the date of termination. Any dispute concerning the application of
this Paragraph shall be resolved pursuant to Paragraph 11, and if Paragraph 12
applies, any reference in this Paragraph to Paragraph 8 shall also be deemed to
include a reference to Paragraph 12 as well.

         10. Waiver and Release of Other Severance Benefits. The benefits
payable pursuant to this Agreement are in lieu of any other severance benefits
which may otherwise be payable to the Executive upon termination of employment
with the Company, whether or not in connection with a Change in Control
(including, without limitation, any benefits to which Executive might otherwise
have been entitled under any employment, change in control, or severance
agreement or other compensation or employee benefit plan to which the Company
was a party or which was assumed by the Company), except those benefits which
are to be made available to the Executive as required by applicable law.
Specifically, Executive waives and releases any claims Executive may have under
the Employment Contract dated August 22, 1997 for any severance benefits
including but not limited to the immediate vesting of any shares of Restricted
Stock held by Executive.

         11. Disputes. Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either party, be finally determined and settled by binding
arbitration in the city of Fort Smith, Arkansas, using a single arbitrator, in
accordance with the Labor Arbitration rules and procedures of the American
Arbitration Association, and judgment upon the award may be entered in any court
having jurisdiction thereof. The arbitrator shall have the power to order
specific performance, mandamus, or other appropriate legal or equitable relief
to enforce the provisions of this Agreement. The Company shall pay all costs of
the arbitration and all reasonable attorney's and accountant's fees of the
Executive in connection therewith.

         12. Additional Payments Due to Dispute. Notwithstanding anything to the
contrary herein, and without limiting the Executive's rights at law or in
equity, if the Company fails or refuses to timely pay to the Executive the
benefits due under Paragraphs 8 and/or 9 hereof, then the benefits under
Paragraph 8(a) shall be increased and the benefits under Paragraphs 8(c), 8(d),
and 8(g) shall each be continued by one additional day for each day of any such
failure or refusal of the Company to pay. In addition, any Gross-Up Payment due
under Paragraph 9 shall be increased to take in to account any increased
benefits under this Paragraph.

         13. No Set-Off. There shall be no right of set-off or counterclaim in
respect of any claim, debt, or obligation against any payment to or benefit for
the Executive provided for in this Agreement.

         14. No Mitigation Obligation. The parties hereto expressly agree that
the payment of the benefits by the Company to the Executive in accordance with
the terms of this Agreement will be liquidated damages, and that the Executive
shall not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor shall any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise.

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         15. Successors: Binding Agreement.

               (a) This Agreement shall not be terminated by the voluntary or
     involuntary dissolution of the Company or by any merger or consolidation
     where the Company is not the surviving corporation, or upon any transfer of
     all or substantially all of the Company's assets, or any other Change in
     Control. The Company shall require any purchaser, assign, surviving
     corporation or successor (whether direct or indirect, by purchase, merger,
     consolidation, reorganization or otherwise) to all or substantially all of
     the business and/or assets of the Company, by agreement in form and
     substance satisfactory to the Executive, expressly to assume and agree to
     perform this Agreement in the same manner and to the same extent the
     Company would be required to perform if no such succession had taken place.
     This Agreement shall be binding upon and insure to the benefit of the
     Company and any purchaser, assign, surviving corporation or successor to
     the Company, including without limitation any persons acquiring directly or
     indirectly all or substantially all of the business and/or assets of the
     Company whether by purchase, merger, consolidation, reorganization,
     transfer of all of substantially all of the business or assets of the
     Company, or otherwise (and such purchaser, assign, surviving corporation or
     successor shall thereafter be deemed the "Company" for the purposes of this
     Agreement), but this Agreement shall not otherwise be assignable,
     transferable or delegable by the Company.

               (b) This Agreement shall inure to the benefit of and be
     enforceable by the Executive's personal or legal representatives,
     executors, administrators, successors, heirs, distributees and/or legatees.

               (c) This Agreement is personal in nature and neither of the
     parties hereto shall, without the consent of the other, assign, transfer or
     delegate this Agreement or any rights or obligations hereunder except as
     expressly provided in this Paragraph 15. Without limiting the generality of
     the foregoing, the Executive's right to receive payments hereunder shall
     not be assignable, transferable or delegable, whether by pledge, creation
     of a security interest or otherwise, or otherwise subject to anticipation,
     alienation, sale encumbrance, charge, hypothecation, or set-off in respect
     of any claims, debt, or obligation, or to execution, attachment, levy or
     similar process, or assignment by operation of law, other than by a
     transfer by his will or by the laws of descent and distribution. Any
     attempt, voluntary or involuntarily, to effect any action prohibited by
     this Paragraph shall be null, void, and of no effect.

         16. Notices. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, or other similar
means of communication, as follows:

               (a) If to the Company, addressed to its principal executive
     offices to the attention of its Secretary;

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<PAGE>

               (b) If to the Executive, to him at the address set forth below
     under the Executive's signature, or at any such other address as either
     party shall have specified by notice in writing to the other.

         17. Amendments: Waivers. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Executive and by
a duly authorized representative of the Board of Directors except as set forth
in Paragraph 2. By an instrument in writing similarly executed, either party may
waive compliance by the other party with any provision of this Agreement that
such other party was or is obligated to comply with or perform; provided,
however, that such waiver shall not operate as a waiver of, or estoppel with
respect to, any other or subsequent failure. No failure to exercise and no delay
in exercising any right, remedy, or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, or power
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, or power provided herein or by law or in equity.

         18. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto. The parties further
intend that this Agreement shall constitute the complete and exclusive statement
of its terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding involving this Agreement.

         19. Severability; Enforcement. If any provision of this Agreement, or
the application thereof to any person, place, or circumstance shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.

         20. Indemnification. Executive has entered into an Indemnification
Agreement dated January 16, 1991 which shall govern the rights and obligations
of the parties with respect to indemnification.

         21. Governing Law. This Agreement shall be interpreted, administered
and enforced in accordance with the law of the State of Arkansas, except (i) to
the extent pre-empted by Federal law and (ii) Paragraph 20 which shall be
interpreted, administered and enforced in accordance with the law of the state
of Delaware.

         22. Severance Agreement and Release. To obtain any severance benefits
under this Agreement, Executive agrees to execute the attached form of Severance
Agreement and Release of Claims within twenty-one (21) days of his Termination
of Employment unless he agrees to a shorter period of time for consideration of
the Severance Agreement and Release of Claims.

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<PAGE>

                  The parties have duly executed this Agreement as of the date
first written above.

BEVERLY ENTERPRISES, INC.                      EXECUTIVE

By:
   -------------------------------------       ---------------------------------
   William R. Floyd                            Bobby W. Stephens
   President and Chief Executive Officer       3700 Free Ferry Road
                                               Fort Smith, AR  72903

By:
   -------------------------------------
   Douglas J. Babb
   Executive Vice President -
   Law and Government Relations
   and Secretary


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