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                                                                   EXHIBIT 10.28

                    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 DAVID R. BANKS (the "Employee").

         WHEREAS, the Employee and the Company had entered into an Employment
Contract dated August 22, 1997, 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of such Agreement shall be superceded on the Effective Date of this Release and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 retired from the position of Non-executive Chairman
of the Board of the Company on December 30, 2001 pursuant to a retirement
transition arrangement authorized by the Company's Board of Directors on January
15, 2001 (attached as Exhibit 1) in recognition of his substantial contributions
to the Company, his change in position from Chairman and CEO to Non-executive
Chairman, and to provide him with both retirement and pension-like benefits.

         NOW, THEREFORE, in consideration of the mutual promises and other
consideration described herein, the Company and the Employee agree as follows.

               1. Termination of Employment. The Employee hereby tenders, and
the Company hereby accepts, the Employee's termination ("Termination"), as a
result of his retirement, as an officer and employee of the Company effective
December 30, 2001 (the "Termination Date" or "Termination of Employment"). The
parties agree that, upon the Termination Date of this Release, the Employee
shall have no further right or duty to render services to or on behalf of the
Company except as provided for under Section 2(b) hereof. The "Effective Date"
of this Release will be the eighth day following receipt by the Company of an
original of this Release executed by the Employee, provided that there has been
no revocation as specified in Section 4(d) by the Employee.

               2. Severance. The Company promises that Employee will receive the
amounts or benefits set forth in this Section 2, subject to the terms of this
Release, and in lieu of all other severance benefits:

               (a)  Retirement Transition Payment and Pension-like Benefits. The
                    benefits described in Exhibit 1 constitute Employee's
                    retirement arrangement from the Company and have been paid
                    or conferred by the Company as of the date of this Release.

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               (b)  Continuation of Benefits.

                    (i)  For the period of three (3) years from the Termination
                         Date, the Employee shall be treated as if he had
                         continued to be an employee for all purposes under the
                         Company's Medical Plan, Executive Medical Reimbursement
                         Plan and Dental Plan. Following this period, the
                         Employee 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 Employee's employment.

                    (ii) The Company shall maintain in force, at its own
                         expense, for the remainder of the Employee's life, the
                         vested life insurance in effect under the Company's
                         Executive Split Dollar Life Insurance Plan as of the
                         Termination Date.

               (c)  Relocation Benefit; Office.

                    (i)  If, within three (3) years after the Employee's
                         Termination Date, the Employee gives the Company
                         written notice that he desires to relocate 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.

                    (ii) For the lesser of three (3) years following Employee's
                         Termination Date or the date Employee commences
                         employment which provides an office for Employee, the
                         Company shall provide Employee with first-class office
                         space of approximately 800 square feet in the Fort
                         Smith or Fayetteville area. The Company may elect to
                         extend its responsibility for paying Employee's office
                         rental beyond the initial three (3) year period on a
                         year-to-year basis at its sole discretion. For three
                         (3) years from Employee's Termination Date, Company
                         agrees to pay Employee an annual amount of $40,000 for
                         his administrative/secretarial support. The Employee
                         shall be solely responsible for the payment of any
                         applicable taxes.

               (d)  Executive Retirement Plan. For the year of the Employee's
                    Termination of Employment, the Company will make the
                    contribution to the Executive Retirement Plan on behalf of
                    the Employee that it would have made if the Employee had not
                    had a Termination of Employment, but in no event less than
                    the

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                    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 Retirement Plan) and the percentage
                    of such Compensation that the Employee is contributing to
                    the Executive Retirement Plan, as of the date of Termination
                    of Employment, and the Company's matching contribution rate
                    for such year (or, if greater, 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 Retirement Plan on behalf of
                    the Employee immediately upon the Employee's Termination
                    Date and any additional contribution required shall be paid
                    as soon as the amount is determined.

               (e)  Executive Deferred Compensation Plan. For the year of the
                    Employee'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 Employee had
                    not had a Termination of Employment determined based on the
                    Employee's deferral for such year. At Employee's election,
                    the Company contribution shall be paid to the Employee
                    immediately upon his Termination of Employment.

               (f)  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 2 are
                    not paid or payable or otherwise provided to the Employee 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.

               (g)  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 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.

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         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.

               3. 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.

               4. General Release

               (a)  In General: Except for obligations established in this
                    Release, Employee irrevocably and unconditionally releases
                    all the Claims described in this Section 4 that he may now
                    have against the Released Parties listed in Section 4(b).

               (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 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 4(b). Employee understands
                    that the Claims Employee is

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                    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 January 11, 2002, and that he
                    has until January 31, 2002 to consider this Release. If
                    Employee chooses to execute this Release prior to January
                    31, 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 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.ss.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

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                    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.

                    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

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                    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 has terminated effective December 30, 2001, 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
                    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

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                    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 30,
                    2001.

               (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 4(d)
                    of this Release, to the extent, if any, prohibited by
                    applicable law.

               5. Transfer of Duties. During the period preceding the
Termination Date and for one (1) year thereafter, 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.

               6. Company Property: By Employee's last day of work, Employee
will return to the Company all files, memoranda, documents, records, copies of
the

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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.

               7. Ownership of Claims: Employee has not assigned or transferred
any Claim he is purporting to release, nor has he attempted to do so.

               8. 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.

               9. 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 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 assign 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.

               10. 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 period of his
                    employment with the Company, or during the one (1) year
                    period immediately following the effective date of his
                    termination (the

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                    "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.

               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

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specific policies and practices to keep such information secret. Accordingly,
the Employee acknowledges and agrees to abide by the prohibitions on use and
disclosure of such information set forth in his August 22, 1997 Employment
Contract, to wit:

               (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 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

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          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 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.
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

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                    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 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

                                       13
<PAGE>

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 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

                                       14
<PAGE>

                    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 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.

                                       15
<PAGE>

               (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.

               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.

================================================================================
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 December 30, 2001, he has not
filed 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.

                                       16
<PAGE>

         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:                                    --------------------------------------
       --------------------------         David R. Banks

                                       17<PAGE>
                                                                   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.

<PAGE>

               (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.

                                       2

<PAGE>

               (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.

                                       3

<PAGE>

         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

                                       4
<PAGE>

               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.

                                       5

<PAGE>

               (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

                                       6

<PAGE>

     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

                                       7

<PAGE>

     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

                                       8

<PAGE>

               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,

                                       9
<PAGE>

     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

                                       10
<PAGE>

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.

                                       11

<PAGE>

         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;

                                       12

<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.

                                       13

<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

                                       14

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