BEVERLY ENTERPRISES INC
EX-10.35 EMPLOYMENT CONTRACT - DOUGLAS J BABB
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<TYPE>EX-10.35
<SEQUENCE>7
<FILENAME>d03650exv10w35.txt
<DESCRIPTION>EX-10.35 EMPLOYMENT CONTRACT - DOUGLAS J BABB
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                                                                   EXHIBIT 10.35

                               EMPLOYMENT CONTRACT

         AGREEMENT made as of April 1, 2000 between BEVERLY ENTERPRISES, INC., a
Delaware corporation (the "Company"), and DOUGLAS J. BABB (the "Executive").

         WHEREAS, Executive is employed by the Company or by one of its
wholly-owned consolidated subsidiaries; 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, General Counsel and Secretary of the Company; 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 not for Cause or a voluntary
Termination of Employment for Good Reason within the Term of this Agreement;

         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 agree 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.

                  (b) The "Benefit Multiplier" shall be equal to 2.0 except that
         if Executive's Termination of Employment is pursuant to Paragraphs 6(b)
         or 6(c) 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 l3(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 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 the
         continuing or surviving corporation, (b) any Person shall consolidate
         with, or merge with the Company, and the




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         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 or earning
         power of the Company and its subsidiaries (taken as a whole) to any
         Person or Persons; provided, however, that notwithstanding anything to
         the contrary herein, a Change in Control shall not include either any
         transfer to a consolidated subsidiary, reorganization, spin-off,
         split-up, distribution, or other similar or related transaction(s) or
         any combination of the foregoing in which the core business and assets
         of the Company and its subsidiaries (taken as a whole) are transferred
         to another entity ("Controlled") with respect to which (1) the majority
         of the Board of Directors of the Company (as constituted immediately
         prior to such transaction(s)) also serve as directors of Controlled and
         immediately after such transaction(s) constitute a majority of
         Controlled's board of directors, and (2) more than 70% of the
         shareholders of the Company (immediately prior to such transaction(s))
         become shareholders or other owners of Controlled and immediately after
         the transaction(s) control more than 70% of the ownership and voting
         rights of Controlled.

                  (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.

                  (i) The Executive shall have "Good Reason" to terminate
         employment if: (i) the Executive is not elected, reelected, or
         otherwise continued in the office of the Company or any of its
         subsidiaries which he held immediately prior to the Change in Control
         Date, or he is removed as a member of the Board of Directors of the
         Company or any of its subsidiaries if the Executive was a director
         immediately prior to the Change in Control Date; (ii) the Executive's
         duties, responsibilities or authority as an employee are materially
         reduced or diminished from those in effect on the Change in Control
         Date without the Executive's consent; (iii) the Executive's duties,
         responsibilities, or authority as an employee are materially reduced or
         diminished from those in effect on the Effective Date without the
         Executive's consent; (iv) the Executive's compensation or benefits are
         reduced without the Executive's consent, unless all Executive-level
         officers have their compensation or benefits reduced in the same
         percentage amount; (v) the Company reduces the potential earnings of
         the Executive under any performance-based bonus or incentive plan of
         the Company in effect immediately prior to the Change in Control Date;
         (vi) the Company requires that the Executive's employment be based
         other than at its location on the Effective Date without his consent;
         (vii) any purchaser, assign, surviving corporation, or successor of the
         Company or its business or assets (whether by acquisition, merger,
         liquidation, consolidation, reorganization, sale or transfer of assets
         or business, or otherwise) fails or refuses to expressly assume in
         writing this Agreement and all of the duties and obligations of the
         Company hereunder pursuant to Section 16 hereof; or (viii) the Company
         breaches any of the provisions of this Agreement.

                  (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).


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                  (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 Good 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 thereof.
The 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 written notice of such to the Executive. (In such event, the Agreement
shall thus terminate on the third anniversary of the effective date of such
notice).

         3. Position and Duties. During the Term, the Executive shall serve, as
an employee, as the Executive Vice President, General Counsel and Secretary 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 the Legal functions of the Company.

         4. Compensation and Related Matters.

                  (a) Annual Base Salary. The Executive shall receive a Base
         Salary at a rate of $325,000 per annum through March 1, 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
                  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 Savings
                  Plus Plan, pursuant to its terms;

                           (v) $325,000 of individual life insurance coverage
                  under the Company's Executive Split Dollar Life Insurance
                  Plan;

                           (vi) $325,000 (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


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                  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, described
                  below, (and therefore at the present time, there shall be no
                  payroll deduction as a condition of coverage in the Medical
                  Plan and Dental Plan);

                           (ix) Participate in the Company's Executive Medical
                  Reimbursement Plan (with a maximum benefit of $11,500 (or such
                  greater 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
         Chairman 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 one (1) 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


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         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.

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

                  (a) during the Term, the Executive has a Termination of
         Employment initiated (i) by the Company without Cause, or (ii) by the
         Executive for Good Reason, and, in either case, subsections (b) or (c)
         do not apply,

                  (b) during the Term there has been a Change in Control and
         during the 31 day period commencing on the first day of the 13th
         calendar month following the Change in Control Date (e.g. the period
         April 1, 1999 - May 1, 1999, inclusive, for a Change in Control which
         is effective in the month of March, 1998), the Executive has a
         Termination of Employment initiated by the Executive without Good
         Reason, or

                  (c) 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 Executive for Good
         Reason, or (ii) the Executive has a Termination of Employment initiated
         by the Company without Cause or by the Executive for Good 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 "Good Reason"
         and in Paragraph 7 hereof).

         7. Severance Benefit. Upon satisfaction of the requirements set forth
in Paragraph 6, and subject to Paragraphs 8 and 11, the Executive shall be
entitled to the following Severance Benefits:

                  (a) Cash Payment. The Executive shall be entitled to receive
         an amount of cash equal to the Benefit Multiplier times the greater of:


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                  (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

                  (ii) 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.

                  (b) Long-Term Incentive Award; Equity-Based Compensation. The
         Executive's interest under the Company's long-term incentive plans
         shall be fully vested. Any and all (i) options, phantom units, and
         other awards granted to Executive to purchase Company stock or which is
         measured by the current market value of Company stock and (ii)
         restricted stock of the Company, owned by the Executive shall be fully
         vested.

                  (c) Continuation of Benefits.

                           (i) For the Benefit Period, the Executive 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
                  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 maintain in force, at its own
                  expense, for the remainder of the Executive's life, the vested
                  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.

                  (d) Relocation Benefit. If, within the Benefit Period after
         the Executive's Termination of Employment, 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.

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                  (e) Executive Savings Plus Plan. For the year of the
         Executive's Termination of Employment, the Company will make the
         contribution to the Executive Savings Plus 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 Savings Plus Plan) and the
         percentage of such Compensation that the Executive is contributing to
         the Executive Savings Plus 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 Savings
         Plus 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.

                  (f) 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.

                  (g) 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 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.

                  (h) 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.


         8. 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 7 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 the payments under Paragraph
7, (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 Section 7, 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

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with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon
as the 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 10, and if Paragraph
11 applies, any reference in this Paragraph and to Paragraph 7 shall also be
deemed to include a reference to Paragraph 11 as well.

         9. Waiver 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.

         10. 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.

         11. 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 7 and/or 8 hereof, then the benefits under
Paragraph 7(a) shall be increased and the benefits under Paragraphs 7(c), 7(d),
and 7(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 8 shall be increased to take into account any increased benefits
under this Paragraph.

         12. 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.


         13. 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.

         14. Waiver of Rights. Executive hereby waives any rights against the
Company, including without limitation any rights under any employment, change in
control, or severance agreement; under any stock option or long-term incentive
plan or any other compensation or employee benefit plan.

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

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                  (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 subsection
         15(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 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 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. 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 subsection 15(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


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         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.

         16. 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 inure 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 or
         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 Section 16. 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 claim,
         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,
         voluntarily or involuntarily, to effect any action prohibited by this
         Paragraph shall be null, void, and of no effect.

         17. 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 in 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;



                                       10
<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.

         18. 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 Company. 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.

         19. 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.

         20. 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.

         21. Indemnification. The Company shall indemnify, defend, and hold the
Executive harmless from and against any liability, damages, costs, or expenses
(including attorney's fees) in connection with any claim, cause of action,
investigation, litigation, or proceeding involving him by reason of his having
been an officer, director, employee, or agent of the Company, unless it is
judicially determined, in a final, nonappealable order that the Executive was
guilty of gross negligence or willful misconduct. The Company also agrees to
maintain adequate directors and officers liability insurance for the benefit of
Executive for the term of this Agreement and for at least three years,
thereafter, to the extent such insurance is reasonably available and provided to
all executives of the Company.

         22. ERISA. This Agreement is pursuant to the Company's Severance Plan
for Executives (the "Plan") which is unfunded and maintained by the Company
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees. The Plan constitutes an employee
welfare benefit plan ("Welfare Plan") within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Any
payments pursuant to this Agreement which could cause the Plan not to constitute
a Welfare Plan shall be deemed instead to be made pursuant to a separate
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA as
to which the applicable portions of the document constituting the Plan shall be
deemed to be incorporated by reference. None of the benefits hereunder may be
assigned in any way.

         23. Governing Law. This Agreement shall be interpreted, administered
and enforced in accordance with the law of the State of Arkansas, except to the
extent pre-empted by Federal law.

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


                                       11
<PAGE>

BEVERLY ENTERPRISES, INC.                       EXECUTIVE


By:
     ---------------------------------------    --------------------------------
     David R. Banks                             Douglas J. Babb
     Chairman and Chief Executive Officer       503 St. James Court
                                                Southlake, TX  76092

By:
     --------------------------------------
     John W. MacKenzie
     Vice President, Deputy General Counsel
            and Assistant Secretary


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</TEXT>
</DOCUMENT>
