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                                                                   EXHIBIT 10.34

                    SEVERANCE AGREEMENT AND RELEASE OF CLAIMS


         This Severance Agreement and Release of Claims ("Release") is entered
into between Beverly Enterprises, Inc., its officers, agents, directors,
employees, successors, subsidiaries, insurers, parents and/or affiliated
companies, and assigns (the "Company") and BOBBY W. STEPHENS (the "Employee").

         WHEREAS, the Employee and the Company had entered into an Employment
and Severance Agreement dated March 5, 2001 ("Agreement"), and it is the parties
intent that all the terms of such Agreement shall be superceded on the Effective
Date of this Release and the terms of this Release shall govern the rights and
obligations of the parties after the Employee's termination of employment except
as otherwise set forth in this Release; and

         WHEREAS, Employee will be retiring from the position of Executive Vice
President on December 5, 2004 ("Retirement Date") and wishes to be placed on a
paid leave of absence ("LOA") until his Retirement Date; and

         WHEREAS, Employee has discontinued his current responsibilities as of
October 5 in order to permit him to begin his LOA; and

         WHEREAS, the change in Employee's responsibilities as of October 5
constitutes a "Termination of Employment for Specific Reason" under paragraph
1(m) of the March 1, 2001 Agreement triggering certain rights and benefits in
favor of Employee; and

         WHEREAS, Employee and Company desire to enter into this Release to
modify the terms of the March 5, 2001 Agreement to facilitate a transition.

         1. TERMINATION OF EMPLOYMENT/LOA/RETIREMENT DATE. Beginning October 5,
         2002, Employee will relinquish his existing duties as Executive Vice
         President - Procurement, Facilities Management and Joint Venture of
         Japan and Chile, and his officer status and begin his LOA. Employee
         will maintain his present office at the Company's headquarters until
         December 31, 2002 at which time he will no longer have an office at the
         Headquarters location or at Company expense. Employee will remain in
         his LOA period until his Retirement Date. Provided that Employee has
         complied and continues to comply with the terms of this Release, from
         the date of this Release until the Retirement Date, in other words
         during the LOA period, Employee will continue to receive his present
         salary of $348,989 and remain eligible to receive all benefits under
         the Company's plans applicable to other executives. In the event of
         Employee's death during the LOA, Employee's salary will continue to be
         paid to his spouse under the term so this Release and benefits will
         continue consistent with the terms of the plan documents. Employee will
         continue to be covered under the Executive Medical Plan (i.e., the Plan
         that reimburses up to $5,000 annually for

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         medical and dental expenses). Employee will also remain eligible for an
         incentive compensation payment ("bonus") based on the Company's
         performance under applicable plans and associated goals subject to the
         discretion of the Chairman and the Company's Board of Directors to the
         same extent as other senior officers reporting to the Chairman. During
         the LOA period and after his Retirement Date, Employee will be eligible
         to receive the benefits described in paragraphs 2 and 3 below.

                    a. Long-Term Incentive Award; Equity-Based Compensation.

                        i. Employee's interest in any outstanding and
                           unvested shares of Restricted Stock shall vest on
                           August 18, 2004. Any unvested stock options shall be
                           fully vested on the Retirement Date notwithstanding
                           any provision in a stock option agreement to the
                           contrary. No further awards, restricted stock, stock
                           options or other equities will be granted to Employee
                           beginning on the date of this Release.

                       ii. From the Retirement Date until December 5, 2006 (the
                           "Benefit Period"), Employee will be eligible to
                           participate in those Company health and dental plans
                           in existence and applying to him on December 5, 2004.
                           Employee understands that during the Benefit Period
                           plans existing on December 5, 2004 may be amended,
                           changed, terminated or added to by the Company and
                           its Board of Directors. Following the Benefit Period,
                           Employee shall be entitled to receive continuation
                           coverage under Part Six of Title 1 of ERISA ("COBRA
                           Benefits") treating the end of the Benefit Period as
                           a termination of his employment.

                      iii. The Company shall fully vest and maintain in
                           full force, at its own expense, the life insurance in
                           effect under the Company's Split Dollar Life
                           Insurance Plan as of Employee's Retirement Date or,
                           if required by law or changes in Company policies,
                           the Company may provide at its expense insurance of
                           similar value to Employee which must be in place and
                           provided to Employee no later than March 1, 2003.

                   b. Relocation Benefit. If, within two (2) years after
                      Employee's Retirement Date, he gives the Company written
                      notice that he desires to relocate his primary residence
                      in Fort Smith, Arkansas to a point within the continental
                      United States, the Company will reimburse the Employee for
                      any reasonable relocation expenses (in accordance with the
                      Company's general relocation policy for executives as then
                      in effect) in connection with such relocation.


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                   c. Executive SavingsPlus Plan. For 2002, the Company will
                      make the contribution to the SavingsPlus Plan on behalf of
                      the Employee that it would have made if the Employee had
                      not had a Termination of Employment for Specific Reason,
                      but in no event less than the percentage contribution it
                      made for the Employee in the immediately preceding year
                      (and increased to take account of the additional year of
                      Service), in each case taking account of the Employee's
                      annualized rate of "Compensation" (as defined in the
                      Executive SavingsPlus Plan) and the percentage of such
                      Compensation that the Employee 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 great, 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 Employee immediately upon the Employee's
                      Termination of Employment any additional contribution
                      required shall be paid as soon as the amount is
                      determined.

                   d. Deferred Compensation Plan (the "Frozen DCP"). Existing
                      balances will be paid out in the manner Employee elected
                      and in accordance with the current plan.

                   e. Repayment of Loan; Supplemental Executive Retirement
                      Plan. Employee agrees to repay in full the outstanding
                      amount of his loan from Regions Bank in Fort Smith,
                      Arkansas (approximately $323,000 as of the date of this
                      Release) prior to December 4, 2004. Provided that Employee
                      has provided evidence that this loan has been repaid prior
                      to December 4, 2004, Employee shall be deemed fully vested
                      in the Company's Supplemental Executive Retirement Plan
                      ("SERP") upon his attainment of age 60 on December 4,
                      2004. For purposes of determining Employee's benefits
                      under the SERP, the Company will use the estimated amount
                      of three hundred forty eight thousand nine hundred and
                      eighty nine dollars ($348,989) as Employee's final average
                      compensation. Employee shall receive retirement benefits
                      under the SERP in the manner he elects and in accordance
                      with the current plan.

                   f. Extent of Benefit Eligibility. Employee will cease to
                      be eligible to participate under any stock option, bonus,
                      incentive compensation, commission, medical, dental, life
                      insurance, retirement, and any other compensation or
                      benefit plans of the Company or any affiliate following
                      the Termination Date except to the extent described above


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                      and except where the governing documents of those plans
                      provide otherwise. Any payment from these plans will be in
                      accordance with the election(s) previously made by
                      Employee.

         In the event of any material breach by the Employee of the terms of
this Release, the Employee's right to receive any further payments or benefits
under the Release shall immediately end, and the Employee will forfeit and be
required to return to the Company any payments or benefits received. Any such
breach shall not relieve the Employee of any obligations under the Release, and
the cessation of any benefits on account of a breach shall not limit the
Company's right to any other relief it may have as a matter of law or equity.
Notwithstanding the foregoing, any challenge as to the validity of the ADEA
release contained in subsection 4(d) of this Release shall not be considered a
material breach, to the extent such treatment is mandated by applicable law.

         2. BENEFITS DURING LOA. Provided that the Employee has complied and
         continues to comply with the terms of this Release, while the Employee
         is on LOA, he will remain eligible for the health care, life and
         disability insurance benefits and other benefit programs applicable to
         other executives. Employee understands that during the LOA, the benefit
         plans in existence may be amended, changed, terminated or added to by
         the Company and its Board of Directors.

         3. BENEFITS UPON AND AFTER RETIREMENT. Provided that the Employee has
         complied and continues to comply with the terms of this Release, the
         Company promises that he will receive the benefits set forth in this
         Section 3 on his Retirement Date subject to the terms of this Release
         and in lieu of all other termination benefits. Employee specifically
         waives any other rights to any and all benefits, except as otherwise
         provided herein, in his Employment and Severance Agreement dated March
         5, 2001 and his Employment dated August 22, 1997.

         4. CONSIDERATION OF RELEASE. Employee acknowledges that, before signing
         this Release, he was given at least 21 days in which to consider this
         Release. Employee waives any right he might have to additional time
         within which to consider this Release. Employee further acknowledges
         that: (1) he took advantage of the time he was given to consider this
         Release before signing it; (2) he carefully read this Release; (3) he
         fully understand it; (4) he is entering into it voluntarily; (5) he is
         receiving valuable consideration in exchange for his execution of this
         Release that he would not otherwise be entitled to receive; and (6) the
         Company, in writing, encouraged him to discuss this Release with his
         attorney (at his own expense) before signing it, and that he did so to
         the extent he deemed appropriate.

         5. GENERAL RELEASE

                   a. In General: Except for obligations established in this
                      Release, Employee irrevocably and unconditionally releases
                      all the Claims


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                      described in this Section 4 that he may now have against
                      the Released Parties listed in Section 5(b). Company
                      irrevocably and unconditionally releases any and all
                      claims it may have or could assert against Employee.

                   b. Released Parties: The Released Parties are the Company,
                      all current and former parents, subsidiaries, related
                      companies, partnerships, or joint ventures, and, with
                      respect to each of them, their predecessors and
                      successors; and, with respect to each such entity, all of
                      its past, present, and future employees, officers,
                      directors, stockholders, owners, representatives, assigns,
                      attorneys, agents, insurers, employee benefit programs
                      (and the trustees, administrators, fiduciaries, and
                      insurers of such programs), and any other persons acting
                      by, through, under or in concert with any of the persons
                      or entities listed in this subsection, and their
                      successors.

                   c. Claims Released: The Claims Employee is releasing under
                      this Section 4 and the claims Company is releasing against
                      Employee include all known and unknown claims, promises,
                      causes of action, or similar rights of any type that
                      Employee presently may have ("Claims") with respect to any
                      Released Party listed in Section 5(b). Employee
                      understands that the Claims Employee is releasing might
                      arise under many different foreign, domestic, national,
                      state, or local laws (including statutes, regulations,
                      other administrative guidance, and common law doctrines),
                      as set forth in this Section 4.

                   d. Employee acknowledges that a portion of the amounts or
                      benefits under this Release is being paid to induce him to
                      release any claims that he may have under the Age
                      Discrimination in Employment Act ("ADEA"). Employee
                      acknowledges that he has adequate and legally sufficient
                      time to review and seek legal guidance concerning this
                      Release. Specifically, Employee acknowledges that this
                      Release was provided to him on October 16, 2002, and that
                      he has until November 6, 2002 to consider this Release. If
                      Employee chooses to execute this Release prior to November
                      6, 2002, it is solely his choice. Employee may revoke the
                      waiver of the ADEA claims in this Section of this Release
                      (which Employee acknowledges constitutes an entirely
                      separate release from the balance of this Release) within
                      seven (7) days after signing of this Release, in which
                      case Employee will not be paid that portion of the amounts
                      or benefits that are being paid to Employee for his
                      release of ADEA claims. Employee agrees that any
                      revocation will be in writing and accompanied by all sums
                      received pursuant to this Release and received by the
                      Executive Vice President, General Counsel by the end of
                      the seven (7) day period. Employee has



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                      been advised to consult with an attorney or advisor
                      concerning this Release. Employee understands the rights
                      that have been waived by this Release, including rights
                      under the Age Discrimination in Employment Act of 1967, 29
                      U.S.C. Section 62 1, et seq., as amended. Employee further
                      represents and warrants that he freely negotiated the
                      terms of this Release, and enters into it and executes it
                      voluntarily. He understands that this is a voluntary
                      waiver of any claims under the laws and orders stated
                      below, that relate in any way to his employment with,
                      complaints about, compensation due, or separation from the
                      Company.

                      Anti-discrimination statutes, such as the Age
                      Discrimination in Employment Act and Executive Order
                      11141, which prohibit age discrimination in employment;
                      Title VII of the Civil Rights Act of 1964, Sections 1981
                      and 1983 of the Civil Rights Act of 1866, and Executive
                      Order 11246, which prohibit discrimination based on race,
                      color, national origin, religion, or sex; the Equal Pay
                      Act, which prohibits paying men and women unequal pay for
                      equal work; the Americans With Disabilities Act and
                      Sections 503 and 504 of the Rehabilitation Act of 1973,
                      which prohibit discrimination based on disability; and any
                      other federal, state, or local laws prohibiting employment
                      discrimination, such as the State of Arkansas.

                      Federal employment statutes, such as the WARN Act, which
                      requires that advance notice be given of certain work
                      force reductions; the Employee Retirement Income Security
                      Act of 1974, which, among other things, protects employee
                      benefits; the Fair Labor Standards Act of 1938, which
                      regulates wage and hour matters; the Family and Medical
                      Leave Act of 1993, which requires employers to provide
                      leaves of absence under certain circumstances; and any
                      other federal laws relating to employment, such as
                      veterans' reemployment rights laws.

                      Other laws, such as any federal, state, or local laws
                      providing workers' compensation benefits, mandating leaves
                      of absence, restricting an employer's right to terminate
                      employees, or otherwise regulating employment; any
                      federal, state, or local law enforcing express or implied
                      employment contracts or requiring an employer to deal with
                      employees fairly or in good faith; any other federal,
                      state, or local laws providing recourse for alleged
                      wrongful discharge, tort, physical or personal injury,
                      emotional distress, fraud, negligent misrepresentation,
                      defamation, and similar or related claims, and any other
                      law, such as the State of Arkansas.



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                      Examples of released Claims include, but are not limited
                      to the following (except to the extent explicitly
                      preserved by Section 1 or 2(a) of this Release): (i)
                      Claims that in any way relate to Employee's employment
                      with the Company, or the termination of that employment,
                      such as Claims for compensation, bonuses, commissions,
                      lost wages, or unused accrued vacation or sick pay except
                      as otherwise provided in paragraph 2(a); (ii) Claims that
                      in any way relate to the design or administration of any
                      employee benefit program; (iii) Claims that Employee has
                      irrevocable or vested rights to severance or similar
                      benefits or to post-employment health or group insurance
                      benefits; (iv) any Claims to attorneys' fees or other
                      indemnities (such as under the Civil Rights Attorneys'
                      Fees Act), with respect to Claims Employee is releasing,
                      or any Claims that Employee has under his Employment
                      Contract.

                   e. Employee represents and covenants that Employee, his
                      heirs, representatives, executors, administrators,
                      successors, and assigns have not and will not file any
                      claims, charges, or complaints against the Company, with
                      any Federal, State, or local agency or court arising out
                      of his employment and/or separation from the Company.
                      Employee further represents that if any such agency or
                      court ever assumes jurisdiction of or otherwise pursues
                      any such lawsuit, claim, charge, or complaint and/or
                      purports to bring any legal proceeding, in whole or in
                      part, on behalf of Employee, or Employee's heirs,
                      representatives, executors, administrators, successors,
                      and/or assigns, behalf against the Company, Employee, or
                      Employee's heirs, representatives, executors,
                      administrators, successors, and/or assigns, promptly, in
                      writing, will request the agency or court to withdraw from
                      and/or dismiss the lawsuit, claim, charge or complaint
                      with prejudice and will take all available legal action to
                      be removed from any such legal proceeding brought, in
                      whole or in part, on behalf of Employee. This subsection
                      shall not apply to challenges to the ADEA release in
                      subsection 4(d) of this Release, to the extent, if any,
                      prohibited by applicable law.

                   f. Employee understands and agrees that his employment
                      with the Company will terminate on his Retirement Date,
                      and he will not apply for or otherwise seek re-employment
                      with the Company, or its successors, at any time. The
                      Company shall have the absolute right, without incurring
                      liability of any kind, to refuse Employee's consideration
                      for employment and Employee agrees that he shall not
                      authorize any person or agency to pursue any claim for
                      such refusal of employment. The Employee acknowledges that
                      he has received no promise or assurance that his
                      employment will resume at any point in


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                      the future or that he will ever be rehired by the Company
                      or its affiliates, parent, or subsidiaries.

                   g. As further consideration for the covenants set forth
                      herein, Employee hereby agrees to cooperate fully with the
                      Company's Legal Department and/or any lawyer, law firm, or
                      consultant that the Company designates with respect to any
                      litigation, deposition, hearing, arbitration, or other
                      proceeding (including, but not limited to, support of the
                      Company's position in defending any employment-related
                      lawsuits or claims concerning which Employee has knowledge
                      or audits, investigations, lawsuits, complaints or
                      proceedings by government entities of state or federal law
                      compliance) where the Company's legal or financial
                      interests are at issue. Employee further covenants that he
                      will contact the Company's Legal Department in the event
                      that there is any subpoena, notice or other instruction
                      directing the Employee to appear in any legal proceeding
                      involving the Company.

                   h. To the maximum extent permitted by law, the Company
                      shall indemnify Employee against all expenses (including
                      reasonable attorneys' fees), judgments, fines and amounts
                      paid in settlement actually incurred by himself in
                      connection with any claim, action, suit or proceeding,
                      whether civil, criminal, administrative or investigative,
                      to which Employee becomes a party or in which Employee
                      becomes otherwise involved by reason of the fact that
                      Employee was a director, officer, employee or agent of the
                      Company or of any subsidiary or affiliate of the Company.
                      In addition, the Company shall continue to include
                      Employee among those individuals covered by the Company's
                      director and officer liability insurance, as long as such
                      insurance is available and the Company elects to maintain
                      such insurance; provided, however, that the unavailability
                      of such insurance coverage or the Company's discontinuance
                      of such insurance shall in no way limit, reduce or
                      otherwise affect Employee's rights to indemnification by
                      the Company under the first sentence of this subsection.
                      This subsection shall remain in full force and effect
                      indefinitely with respect to any claims based upon events
                      occurring on or prior to December 5, 2004.

                   i. Employee also promises neither to contest the validity
                      of this Release, nor sue the Company concerning any claim
                      he may have relating to his employment with the Company or
                      the termination of that employment. This subsection shall
                      not apply to challenges to the ADEA release in subsection
                      5(d) of this Release, to the extent, if any, prohibited by
                      applicable law.



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         6. TRANSFER OF DUTIES. During the LOA period and Benefit Period, the
         Employee will act at all times with complete loyalty and good faith in
         promoting the best interests of the Company. To this end, the Employee
         will: (a) fully inform the Company and the Employee's successor (if
         any) of all material activities performed by the Employee and of
         progress on assigned duties; and (b) transfer or otherwise make
         available to the Company and the Employee's successor (if any), to the
         extent reasonably possible, the Employee's knowledge and experience
         regarding his activities on behalf of the Company. Employee will also
         promote the goodwill, reputation, and ongoing business of the Company,
         and take all steps necessary to maintain, and in no way act to hinder,
         the foregoing interests.

         7. COMPANY PROPERTY: By December 31, 2002, Employee will return to the
         Company all files, memoranda, documents, records, copies of the
         foregoing, credit cards, keys, and any other property of the Company or
         its affiliates in his possession, provided, however, that Employee and
         his Administrative Assistant may retain their existing office furniture
         and equipment. Company agrees to pay the reasonable and necessary
         expenses of moving this furniture and equipment to its first
         non-Company location.

         8. OWNERSHIP OF CLAIMS: Employee has not assigned or transferred any
         Claim he is purporting to release, nor has he attempted to do so.

         9. OTHER REPRESENTATIONS: In addition to Employee's other
         representations in this Release, Employee has made the following
         representations to the Company, on which he acknowledges it also has
         relied in entering into this Release with Employee: (a) Employee has
         not suffered any discrimination on account of his age, sex, race,
         national origin, marital status, sexual orientation, or any other
         protected status, and none of these ever has been an adverse factor
         used against Employee by any Released Party; (b) Employee has not
         suffered any job-related wrongs or injuries for which he might still be
         entitled to compensation or relief, such as an injury for which
         Employee might receive a workers' compensation award in the future; (c)
         Employee has no knowledge of any wrongdoing by the Company that would
         subject the Company to any harm, civil or criminal; and (d) Employee
         has provided no information, oral or in writing, to anyone -
         individual, corporation or any other organization, private, public or
         governmental - that involves any wrongdoing, civil or criminal, by the
         Company.

         10. FALSE CLAIMS REPRESENTATIONS AND PROMISES: Employee has disclosed
         to the Company any information he has concerning any conduct involving
         the Company or any affiliate that he has any reason to believe may be
         unlawful or that involves any false claims to the United States.
         Employee promises to cooperate fully in any investigation the Company
         or any affiliate undertakes into matters occurring during Employee's
         employment with the


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         Company or any affiliate. Employee understands that nothing in this
         Release prevents him from cooperating with any U.S. government
         investigation. In addition, to the fullest extent permitted by law,
         Employee hereby irrevocably assigns to the U.S. government any right he
         might have to any proceeds or awards in connection with any false
         claims proceedings against the Company or any affiliate.

         11. COOPERATION REQUIRED: Employee agrees that, as requested by the
         Company, he will fully cooperate with the Company or any affiliate in
         effecting a smooth transition of his responsibilities to others.

         11. NON-SOLICITATION. Employee agrees to the following prohibitions on
         solicitation of the Company's employees, customers, and business
         interests, to wit:

              (a) Employee shall not at any time during the LOA period or
                  the Benefit Period (the "Non-Solicitation Period"), without
                  the prior written consent of the Company, on behalf of himself
                  or any other person or entity, solicit for employment or
                  employ any of the current officers or employees of the
                  Company; provided, however, that nothing contained herein
                  shall prohibit the Employee from hiring employees of the
                  Company when such employment results from general
                  solicitations for employment.

              (b) Employee 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 benefit, or for the benefit of any company
                  or persons 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, or customers of the Company or the terms
                  of any contracts of the Company which is not freely available
                  to the public.

              (c) Employee covenants and agrees that a material breach of
                  the foregoing subsections 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 Release, at law
                  or otherwise, be entitled to an injunction to be issued by any
                  court of competent jurisdiction enjoining and restraining the
                  Employee from committing any violation of the foregoing
                  subsections.



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<PAGE>

         12. NON-DISCLOSURE, RETURN OF PROPRIETARY INFORMATION, AND INVENTIONS
AND PATENTS. The Company and the Employee agree that during his employment with
the Company, the Employee has received and become acquainted with confidential,
proprietary, and trade secret information of the Company including, but not
limited to, information regarding Company business programs, plans, and
strategies; finances; customers and prospective customers; suppliers and
vendors; marketing plans and results; personnel matters regarding Company
employees, officers, directors, and owners; manners of operation and services
provided; negotiating positions and strategies; legal arguments, theories,
claims, and defenses; pending, threatened, or potential legal actions, claims,
investigations, and audits; or information which could lead to the same; and
similar sensitive information regarding the operation and business of the
Company. The Employee acknowledges that such information has been developed or
acquired by the Company through the expenditure of substantial time, effort, and
money, that such information provides the Company with strategic and business
advantages over others who do not know or use such information, and that the
Company has implemented specific policies and practices to keep such information
secret. Accordingly, the Employee agrees to abide by the prohibitions on use and
disclosure of such information set forth hereinafter:

              (a) Proprietary Information. Employee shall not during the
                  term of employment or at any time thereafter (irrespective of
                  the circumstances under which Employee'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





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<PAGE>

                  agreed to hold in confidence; (g) any inventions, innovations
                  or improvements covered by subsection (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 generally known to the
                  industries in which Company competes through sources
                  independent of Company or Employee or through authorized
                  publication by Company to persons other than Company's
                  employees.

              (b) Confidentiality and Surrender of Records. Employee shall
                  not during the term of employment or at any time thereafter
                  (irrespective of the circumstances under which Employee'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 or 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. Employee shall promptly return to Company all
                  "confidential records" upon the termination of Employee'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 Employee's possession or under his
                  control or accessible to him which contain any proprietary
                  information as defined in subsection (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 Employee,
                  either alone or jointly with others, during the term of
                  employment belong to Company. Employee will promptly disclose
                  in writing such inventions, innovations or improvements to
                  Company and perform all actions




                                       12
<PAGE>

                  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
                  Employee 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 Employee can provide conclusive evidence to the
                  contrary.

         13. PUBLIC STATEMENTS. Employee also agrees that he will make no
disparaging remarks to any third parties concerning the Company, its employees,
agents, representatives, subsidiaries, parents, affiliates, and shareholders nor
will Company make any disparaging remarks about Employee. Employee further
agrees that he will not disparage the Company's business capabilities, products,
plans, or management to any customer, potential customer, vendor, supplier,
contractor or subcontractor of the Company so as to affect adversely the good
will or business of the Company.

         14. CONSEQUENCES OF VIOLATING PROMISES:

              (a) GENERAL CONSEQUENCES: In addition to any other remedies or
                  relief that may be available, Employee agrees to pay the
                  reasonable attorneys' fees as a result of his breaching a
                  promise he made in this Release (such as by suing a Released
                  Party over a released Claim) or if any representation he made
                  in this Release was false when made. Employee further agrees
                  that the Company would be irreparably harmed by any actual or
                  threatened violation of Sections 11 and 12 that involves
                  Release-related disclosures or disclosure or use of
                  confidential information or trade secrets or solicitation of
                  employees, customers, or suppliers, and that the Company will
                  be entitled to an injunction prohibiting Employee from
                  committing any such violation.

              (b) CHALLENGES TO VALIDITY: Should Employee attempt to
                  challenge the enforceability of this Release, Employee agrees
                  first: (1) to deliver a certified check to the Company for all
                  amounts he has received because he signed this Release, plus
                  10 percent interest per annum; (2) to direct in writing that
                  all future benefits or payments Employee is to receive because
                  he signed this Release be suspended; and (3) to invite the
                  Company to cancel this Release. If the Company accepts
                  Employee's offer, this Release will be canceled. If it rejects
                  Employee's offer, the Company will notify Employee and deposit
                  the amount Employee repaid, plus all suspended future benefits
                  and payments, in an interest-bearing


                                       13
<PAGE>

                  account pending a determination of the enforceability of this
                  Release. If the Release is determined to be enforceable, the
                  Company is to pay Employee the amount in the account, less any
                  amounts Employee owes the Company. If the Release is
                  determined to be unenforceable, the amount credited to the
                  account shall be paid to the entities that paid the
                  consideration for this Release in proportion to their
                  payments, and the suspension of future benefits or payments
                  shall become permanent.

              (c) ADEA CLAIMS: This section shall not apply to a challenge
                  to the ADEA release in subsection 4(b) of this Release to the
                  extent, if any, prohibited by applicable law.

15. NO ADMISSION OF LIABILITY. This Release shall not in any way be construed as
an admission by the Company that it has acted wrongfully with respect to
Employee or any other person, entity or agency, or that Employee has any rights
whatsoever against the Company. The Company further specifically disclaims and
denies any liability to or wrongful acts against Employee or any other person,
entity or agency, on the part of itself, its employees and its agents.

16. SUCCESSORS AND ASSIGNS. This Release shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, successors, legal
representatives, and assigns. However, neither this Release nor any right or
interest hereunder shall be assignable by Employee, his beneficiaries, or legal
representatives, except as provided by law or pursuant to referenced benefit
plan documents.

17. SEVERABILITY AND REFORMATION. The provisions of this Release are severable.
If any provision of this Release shall be determined to be invalid, illegal, or
unenforceable, in whole or in part, neither the validity of the remaining parts
of such provision nor the validity of any other provision of this Release shall
in any way be affected thereby. In lieu of such invalid, illegal, or
unenforceable provision, there shall be added automatically as part of this
Release a provision as similar in terms to such invalid, illegal, or
unenforceable provision as may be possible and be valid, legal, and enforceable.
Each party also agrees that, without receiving further consideration, it will
sign and deliver such documents and do anything else necessary in the future to
make the provisions of this Release effective.

18. TAXES. Employee understands that he will be responsible for paying all taxes
that may become due on any of the severance benefits provided herein. If he
fails to pay these payments, or any taxing authority alleges that he has failed
to do so or that the Company is responsible for the payment of these taxes, for
any reason, Employee agrees to be fully responsible for any judgments or orders,
fines and penalties, and that he will indemnify the Company including, but not
limited




                                       14
<PAGE>

to, the satisfaction of judgments, orders, fines or penalties in the payment of
the Company's defense by counsel of its choice in such proceedings. The
taxability of the amounts contained herein shall not affect the validity of this
Release.

19. GOVERNING LAW. This Release shall be governed by the law of the State of
Arkansas.

20. ARBITRATION OF DISPUTES:

              (a) In the event the Company believes that Employee has
                  breached this Release in any way, prior to seeking any remedy,
                  including arbitration, the Company's General Counsel will
                  first contact Employee and inform him of the claimed breach.
                  Employee will then have seven (7) days within which to address
                  the Company's claim before it may take any action under this
                  Release.

              (b) ARBITRABLE DISPUTES: The Company and Employee agree to
                  resolve any claims they may have with each other (except, if
                  either Employee or the Company so elects, any dispute for
                  which injunctive relief is a principal remedy) through final
                  and binding arbitration in accordance with this section.
                  Employee also agrees to resolve in accordance with this
                  section any claim between him and any other Released Party who
                  offers or agrees to arbitrate the claim in this manner. This
                  arbitration requirement applies to, among other things,
                  disputes about the validity, interpretation, or effect of this
                  Release or alleged violations of it, claims of discrimination
                  under federal or state law, or other statutory violation
                  claims.

              (c) THE ARBITRATION: Except as otherwise provided in any other
                  enforceable arbitration agreement between Employee and the
                  Company (Another Arbitration Agreement), which the Company and
                  Employee hereby reaffirm if one exists, the arbitration shall
                  be in accordance with the then-current arbitration rules and
                  procedures for employment disputes governing arbitrations
                  administered by the Judicial Arbitration and Mediation Service
                  (JAMS), except as provided in this section. Arbitration shall
                  take place before a panel of three arbitrators experienced in
                  employment law licensed to practice in the state of Arkansas
                  selected in accordance with subsection (c). The arbitrators
                  may not modify or change this Release in any way. Employee,
                  the Company, and any Released Party who agrees to arbitrate an
                  Arbitrable Dispute under this section agree to submit to
                  personal jurisdiction in the state listed in the first Section
                  of this Release for




                                       15
<PAGE>

                  such arbitration and in any jurisdiction necessary for the
                  enforcement of any arbitration award.

              (d) SELECTION OF THE ARBITRATORS: The arbitrators shall be
                  selected as follows: JAMS shall give each party a list of 11
                  arbitrators drawn from its panel of employment dispute
                  arbitrators from the state of Arkansas. Each party may strike
                  all names on the list it deems unacceptable. If only three
                  common names remain on the lists of both parties, those
                  individuals shall be designated as the Arbitrators. If more
                  than three common names remain on the lists of both parties,
                  the parties shall strike names alternately from the list of
                  common names until only three remain. The party who did not
                  initiate the claim shall strike first. If no common name
                  exists on the lists of both parties, JAMS shall furnish an
                  additional list and the process shall be repeated. If the
                  arbitrators have been selected after two lists have been
                  distributed, then the parties shall strike alternately from a
                  third list, with the party initiating the claim striking
                  first, until only three names remain. Those persons shall be
                  designated as the arbitrators. Striking decisions must be made
                  and communicated to the other party and JAMS within 10
                  calendar days after the date of the transmittal communication
                  relaying the arbitrators remaining for selection. In the event
                  a party does not make a timely strike, the other party may
                  select the arbitrators from the names remaining.

              (e) EXCLUSIVE REMEDY: Arbitration in this manner shall be the
                  exclusive remedy for any claim that must be arbitrated
                  pursuant to this section. Should Employee or the Company
                  attempt to resolve such a claim by any method other than
                  arbitration pursuant to this section, the responding party
                  will be entitled to recover from the initiating party all
                  damages, expenses, and attorneys' fees incurred as a result of
                  that breach.

              (f) FEES AND EXPENSES: Each party shall pay the fees of his or
                  her attorneys, the expenses of his or his witnesses, and any
                  other expenses that party incurs in connection with the
                  arbitration, but all other costs of the arbitration, including
                  the fees of the arbitrator, the cost of any record or
                  transcript of the arbitration, administrative fees, and other
                  fees and costs shall be paid in equal shares by the Employee
                  and Company. Except as provided in Another Arbitration
                  Agreement, the party losing the arbitration shall reimburse
                  the party who prevailed for all attorneys' fees and expenses
                  the prevailing party paid pursuant to the preceding sentence.



                                       16
<PAGE>

21. ENTIRE RELEASE. This Release constitutes the entire Release between the
parties with respect to the subject matter hereof and supersedes all prior
agreements, oral and written, between the parties hereto to the extent such
agreements are inconsistent herewith, including but not limited to, any prior
agreements with respect to severance benefits. This Release may be modified or
amended only by an instrument in writing signed by both parties hereof.




                                       17
<PAGE>

READ THIS RELEASE, AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS BEFORE SIGNING
IT: IT INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS, AND ITS
ARBITRATION-OF-CLAIMS REQUIREMENT WAIVES EMPLOYEE'S RIGHT TO A JURY TRIAL. IF
EMPLOYEE WISHES, HE SHOULD TAKE ADVANTAGE OF THE FULL CONSIDERATION PERIOD
AFFORDED BY SECTION 3 AND YOU SHOULD CONSULT AN ATTORNEY.

                  Employee represents that as of the date of this Release, he
has not filed, and during the LOA period and Benefit Period, he will not file
any lawsuits, charges, complaints, or claims relating to his employment or any
other matters that involve the Company. Employee agrees to cause the withdrawal
or dismissal with prejudice of all of these matters unless otherwise stated by
the Company, to the extent still pending within five (5) days after this Release
becomes irrevocable, and until such withdrawal or dismissal is accepted or
ordered, no amounts otherwise due Employee under this Release shall become
payable.

         IN WITNESS WHEREOF, the Company and the Employee have executed this
Release as of the day and year indicated below.

                                          Beverly Enterprises, Inc.


Dated:                                    By:
       ---------------------------           ----------------------------------
                                          William R. Floyd
                                          Chairman of the Board,
                                          President and Chief Executive Officer


                                          Employee


Dated:
      ----------------------------        -------------------------------------
                                          Bobby W. Stephens





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