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                                                                    EXHIBIT 10.3


                            BEVERLY ENTERPRISES, INC.
                    NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

             (As Amended and Restated Effective as of June 1, 2001)

                                   ARTICLE I.

                                     PURPOSE

         1.1 Purpose. The purpose of the Plan is to build a proprietary
interest among the Company's Non-Employee Directors and thereby secure for the
Company's shareholders the benefits associated with common stock ownership by
those who will oversee the Company's future growth and success.

                                   ARTICLE II.

                          DEFINITIONS AND CONSTRUCTION

         2.1 Definitions. Whenever used as a capitalized term in the
Plan, the following terms shall have the respective meanings set forth below,
unless otherwise expressly provided:

                  (a) "Affiliate" means "affiliate" as defined in Rule 12b-2
under the Exchange Act.

                  (b) "Beneficial Owner" shall have the meaning ascribed
to such term in Rule 13d-3 under the Exchange Act.

                  (c) "Board" or "Board of Directors" means the Board of
Directors of the Company.

                  (d) "Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:

                           (1) Any Person, corporation or other entity or
         group 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 members of the Board; or

                           (2) As the result of, or in connection with,
         any tender or exchange offer, merger or other business combination,
         sale of assets or contested election, or any combination of the
         foregoing (a "Transaction"), the persons who were members of the Board
         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

                           (3) If at any time (A) the Company shall
         consolidate with, or merge with, any other Person and the Company shall
         not be the 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 Common 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

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         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 percent or more of the
         assets or earning power of the Company and its Subsidiaries (taken as
         a whole) to any Person or Persons; provided, however, that
         notwithstanding anything to the contrary set forth in such plan a
         Change in Control shall not include either (a) the Distribution or
         Merger, or (b) 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 or
         other owners of Controlled and immediately after the transaction(s)
         control more than 70% of the ownership and voting rights of
         Controlled.

                  (e) "Code" means the Internal Revenue Code of 1986, as
amended, and the regulations issued thereunder, as the same may be amended from
time to time.

                  (f) "Common Stock" means the common stock of the Company.

                  (g) "Company" means Beverly  Enterprises,  Inc.,  f/k/a New
Beverly Holdings, Inc., or any successor thereto.

                  (h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time.

                  (i) "Fair Market Value" means, on any given date, the
closing price of Common Stock as reported on the New York Stock Exchange
composite tape on such day or, if no shares of Common Stock were traded on such
Exchange, all as reported by such source as the Board may select. As to Options
granted to Participants in connection with the assumption of Options previously
granted by Beverly Enterprises, Inc. (BEI) pursuant to the Employee Benefit
Matters Agreement dated April 15, 1997 among BEI, the NBHI and Capstone, Fair
Market Value shall have the definition contained therein.

                  (j) "Grant Date" means June 1 of each calendar year
during the period this Plan remains in effect. The first "Grant Date" under the
Plan was June 1, 1998.

                  (k) "Non-Employee Director" means an individual who is a
member of the Board and who is not an employee of the Company or any Subsidiary
or Affiliate thereof.

                  (l) "Option" means an option granted under this Plan to
purchase a share or shares of Common Stock.

                  (m) "Participant" means a Non-Employee Director to whom an
Option has been granted under this Plan.

                  (n) "Person" means "person" as deemed in Section 3(a)(9) of
the Exchange Act and as used in 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d)(3) of the Exchange Act.


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                  (o) "Plan" means the "Beverly Enterprises, Inc. Non-Employee
Directors' Stock Option Plan" as set forth in this document, and as the same may
be amended from time to time.

                  (p) "Subsidiary" means a corporation at least 50 percent of
the combined voting power of all classes of stock of which is owned by the
Company, either directly or through one or more of its Subsidiaries.

                  (q) "Vesting Date" means, with respect to any Options
granted under the Plan, the next June 1 following the date of such grant. The
first Vesting Date under the Plan was June 1, 1999.

         2.2 Gender and Number; Headings. Except when otherwise indicated
by the context, any masculine terminology when used in this Plan shall also
include the feminine gender, and the definition of any term in the singular
shall also include the plural, Headings of Articles and Sections herein are
included solely for convenience, and if there is any conflict between such
headings and the text of the Plan, the text shall control.

                                  ARTICLE III.

                          ELIGIBILITY AND PARTICIPATION

         3.1 Eligibility; Participation. Each Non-Employee Director shall be
eligible to participate under this Plan and to receive a grant of an Option in
accordance with the provisions of this Plan.

         3.2 Grant of Stock Options. Each Non-Employee Director shall
automatically be granted an Option to Purchase 11,000 shares of Common Stock as
of the initial Grant Date applicable to such Non-Employee Director, and shall
automatically be granted an Option to purchase an additional 11,000 shares of
Common Stock as of each Grant Date subsequent to the initial Grant Date
applicable to such Non-Employee Director and during the term of this Plan, with
each such subsequent grant being effective as of the applicable Grant Date. To
be eligible to receive such an Option grant with respect to any such Grant Date,
the Non-Employee Director must be a Non-Employee Director on such Grant Date.
All Options granted under this Section 3.2 shall be subject to the Common Stock
availability provisions of Section 4.1.

         3.3 Initial Grant for Participants Newly Elected Outside of a
Grant Date. If an individual first becomes a Non-Employee Director on other than
a Grant Date, he shall receive an initial grant of an Option to purchase a
number of whole shares of Common Stock equal to 11,000 multiplied by a fraction,
the numerator of which shall be the number of full calendar months remaining
until the next succeeding Grant Date, and the denominator of which is twelve
(12). Such options shall vest on such next succeeding Grant Date.

                                   ARTICLE IV.

                             COMMON STOCK AVAILABLE

         4.1 In General. Subject to adjustment as provided in Section
4.2, an aggregate of 450,000 shares of Common Stock shall be available for grant
and issuance pursuant to the provisions of this Plan. Such shares may be
authorized and unissued shares or may be shares issued and thereafter acquired
by the Company. If an Option shall expire or terminate for any reason without
having been exercised in whole or in part, the unpurchased shares of Common




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Stock subject to such Option shall again be available for subsequent Option
grants under the Plan.

         4.2 Adjustment in Event of Changes in Capitalization. In the event of a
stock dividend, stock split, or combination of shares, recapitalization or other
change in the Company's capitalization, or other distribution with respect to
holders of the Company's Common Stock other than normal cash dividends, an
automatic adjustment shall be made in the number and kind of shares as to which
outstanding Options or portions thereof then unexercised shall be exercisable
and in the available shares set forth in Section 4.1, to the end that the
proportionate interest of the Participant or eligible Non-Employee Director
shall be maintained as before the occurrence of such event. Such adjustment in
outstanding Options shall be made without change in the total price applicable
to the unexercised portion of such Options and with a corresponding adjustment
in the Option price per share. Automatic adjustment shall also be made in the
number and kind of shares subject to Options subsequently granted under Article
III of the Plan.

                                   ARTICLE V.

                      TERMS AND CONDITIONS OF STOCK OPTIONS

         5.1 Exercise of Stock Options.

                  (a) Option Exercisabilily. Each Option granted under the Plan
shall be exercisable on or after the Vesting Date applicable to such Option,
subject to the provisions of Section 5.1(b) and (c).

                  (b) Immediate Vesting for Death, Disability, and Change of
Control. Notwithstanding the provisions of Section 5.1(a), an Option granted to
any Participant shall become immediately exercisable in full upon the first to
occur of --

                           (1) The death of the Participant, in which
         case the Option may be exercised by the Participant's executor or
         administrator, or if not so exercised, by the legatees or distributees
         of his or her estate or by such other person or persons to whom the
         Participant's rights under the Option shall pass by will or by the
         applicable laws of descent and distribution;

                           (2) Such time as the Participant ceases to be a
         member of the Board by reason of his or her disability; and

                           (3) Change in Control.

                  (c) Termination Other than Death or Disability. In the
event the Participant ceases to be a Non-Employee Director of the Company for
any reason other than death or disability when no Change of Control has
occurred, and such termination occurs prior to the time an Option granted to
such Participant has become exercisable, such Option shall terminate with
respect to the shares as to which the Option is not then exercisable and all
rights of the Participant to such shares shall terminate without further
obligation on the part of the Company. As regards any Option which is
exercisable by the Participant at such time, such Participant must exercise such
Option within 90 days following the date the Participant so ceased to be a
Non-Employee Director, and, any such Option remaining unexercised as of the
close of such period shall expire.

         5.2 Exercise Price. The exercise price of an Option for a share of
Common Stock shall be 100 percent of the Fair Market Value of such Common Stock
on the Grant Date relating


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to such Option. However, Options granted on the assumption of, or in
substitution for, options of another company with which the Company participates
in an acquisition, separation or similar corporate transaction may be issued at
an exercise price less than 100% of Fair Market Value.

         5.3 Expiration of Options.

                  (a) In General. An Option shall expire ten years from the date
such Option was granted, unless terminated earlier in accordance with the Plan.

                  (b) Death or Disability of Participant. In the event a
Participant ceases to be a Non-Employee Director of the Company by reason of
death or disability, including without limitation in the event that a
Participant dies after ceasing to be a member of the Board by reason of
disability, any Option granted to such Participant hereunder that has not been
fully exercised at the time of the Participant's death may be exercised at any
time within the greater of

                           (1) one year after the date of death or disability,
         or --

                           (2) in the event any Option is exercised by
         the executors, administrators, legatees, or distributees of the estate
         of a deceased Participant, the Company shall be under no obligation to
         issue Common Stock thereunder unless and until the Company is satisfied
         that the person or persons exercising the Option are the duly appointed
         legal representatives of the deceased optionee's estate or the proper
         legatees or distributees thereof.

         5.4 Exercise and Payment of Exercise Price.

                  (a) Number of Shares. Subject to the terms and
conditions of the Plan, an Option shall, to the extent then exercisable, be
exercisable in whole or in part by giving written notice to the Company stating
the number of shares with respect to which the Option is being exercised,
accompanied by payment in full for such shares; provided, however, that there
shall be no such exercise at any one to as time fewer than 100 shares or all or
the remaining shares then purchasable by the person or persons exercising the
Option, if fewer than 100 shares.

                  (b) Payment Methods. An Option may be paid for by --

                           (1) delivery of cash or a check payable to the order
         of the Company in an amount equal to the exercise price of such Option,
         or

                           (2) by delivery to the Company of shares of Common
         Stock of the Company already owned by the Participant for more than
         six months and having a Fair Market Value equal in amount to the
         exercise price of the Option being exercised, provided that such
         method is consistent with applicable tax and securities laws and is
         not contrary to any restriction on the Company's purchase of its own
         shares, or

                           (3) by any combination of such methods of payment.

         5.5 Rights as a Shareholder. Except as specifically provided by the
Plan, the grant of an Option shall not give a Participant rights as a
shareholder; and the Participant will obtain such rights only upon actual
receipt of Common Stock.

         5.6 Documentation of Option Grants. Option grants shall be evidenced by
written instruments prescribed by the Board from time to time. The instruments
may be in the form of agreements to be executed by both the Participant and the
Company or certificates, letters or



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similar instruments, which need not be executed by the Participant, but
acceptance of which will evidence agreement to the terms of the grant.

         5.7 Nontransferability of Options. No Option granted under the Plan
shall be assignable or transferable by the Participant to whom it is granted,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution or pursuant to a "qualified domestic relations order" ("QDRO")
as defined under Section 414(p) of the Code. Any such attempted assignment or
transfer in violation of this Section 5.7 shall be null and void. During the
life of the Participant, the Option shall be exercisable only by such person or
an alternate payee under a QDRO, or, in the event of incapacity, by the person
or person properly appointed to act on his or her behalf.

                                   ARTICLE VI.

                              REGULATORY COMPLIANCE

         6.1 Issuance or Delivery of Shares. The issuance or delivery of any
shares of Common Stock subject to exercisable Options may be postponed by the
Board for such period as may be required to comply with any applicable
requirements under the Federal or applicable state securities laws, any
applicable listing requirements of any national securities exchange, or any
requirements under any law or regulation applicable to the issuance or delivery
of such shares. The Company shall not be obligated to issue or deliver any such
shares if, in the opinion of Company's counsel, the issuance or delivery thereof
would constitute a violation of any provision of any law or of any regulation of
any governmental authority or any national securities exchange.

                                  ARTICLE VII.

                                 ADMINISTRATION

         7.1 Plan Administration. The Plan shall be administered by the Board.
The Board shall have all the powers vested in it by the terms of the Plan, such
powers to include authority within the limitations described herein to prescribe
the form of the agreement embodying grants of Options. The Board shall have the
power to construe the Plan, to determine all questions arising thereunder, and
to adopt and amend such rules and regulations for the administration of the Plan
as it may deem desirable. Any decisions of the Board in the administration of
the Plan, as described herein, shall be final and conclusive. The Board may from
time to time delegate certain of its administrative responsibilities under the
Plan to Company personnel or to a committee. The Board may act only by a
majority of its members in office, except that the members thereof may authorize
any one or more of their number or any officer of the Company to execute and
deliver documents on behalf of the Board. No member of the Board shall be liable
for anything done or omitted to be done other than by such member's own willful
misconduct or as expressly provided by statute.

         7.2 Indemnification and Exculpation. The members of the Board, its
agents, and officers and employees of the Company shall be indemnified and held
harmless by the Company against and from any and all loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by them in connection
with or resulting from any claim, action, suit, or proceeding to which they may
be a party or in which they may be involved by reason of any action taken or
failure to act under this Plan and against and from any and all amounts paid by
them in settlement (with the Company's written approval) or paid by them in
satisfaction of a judgment in any such action, suit, or proceeding. The
foregoing provision shall not be applicable


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to any person if the loss, cost, liability, or expense is due to such person's
gross negligence or willful misconduct

                                  ARTICLE VIII.

                            AMENDMENT AND TERMINATION

         8.1 Amendment. The Board shall have the right to amend or modify
the Plan in full or in part at any time and from time to time; provided,
however, that unless required by law, no such amendment or modification shall --

                  (a) affect any right or obligation with respect to any Option
grant theretofore made, or

                  (b) unless previously approved by the shareholders of
the Company, where such approval is necessary to satisfy then applicable
requirements of Federal securities laws, the Code, or rules of any stock
exchange on which the Company's Common Stock is listed -

                           (1) in any manner materially affect the eligibility
         requirements set forth in Sections 3.1 and 3.2,

                           (2) materially increase the number of shares of
         Common Stock available for or subject to Options, or

                           (3) materially increase the benefits to Participants
         under the Plan.

         8.2 Termination.

                  (a) In General. The Board shall have the right to terminate
the Plan at any time; provided, however, that Options which are granted on or
before the termination date shall remain exercisable in accordance with their
respective terms after the termination of the Plan.

                  (b) Termination Date. Unless terminated earlier by the Board,
the Plan shall terminate on December 31, 2007; provided, however, that Options
which are granted on or before such date shall remain exercisable in accordance
with their respective terms after the termination of the Plan.

                                   ARTICLE IX.

                                  MISCELLANEOUS

         9.1 Shareholder Approval. The effectiveness of the Plan and of the
grant of all Options under the Plan are subject to shareholder approval as
provided in Section 1.4. The Company's obligation to issue and deliver shares of
Common Stock under the Plan is subject to the approval of any governmental
authority required in connection with the authorization, issuance, or delivery
of Common Stock.

         9.2 No Right to Reelection. Nothing in the Plan shall be deemed to
create any obligation on the part of the Board to nominate any Non-Employee
Director for reelection by the Company's shareholders, nor confer upon any
Non-Employee Director the right to remain a member of the Board for any period
of time, or at any particular rate of compensation.



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         9.3 Severability. In the event any provision of this Plan shall
be held invalid or illegal for any reason, any illegality or invalidity shall
not affect the remaining parts of this Plan, but this Plan shall be construed
and enforced as if the illegal or invalid provision had never been inserted, and
the Company shall have the privilege and opportunity to correct and remedy such
questions of illegality or invalidity by amendment as provided in this Plan.

         9.4 Status Under ERISA. This Plan is not maintained as and is
not intended to be an "employee benefit plan" under the Employee Retirement
Income Security Act of 1974, as amended.

         9.5 Applicable Law. The Plan shall be governed by, construed, and
administered in accordance with the laws of the State of Delaware, except to the
extent such laws are preempted by the laws of the United States.





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