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                                                                    EXHIBIT 10.1

                       EMPLOYMENT AND SEVERANCE AGREEMENT



                  AGREEMENT made as of March 31, 2001 between BEVERLY
ENTERPRISES, INC., a Delaware corporation (the "Company"), and SCOTT M. TABAKIN
(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the Employment Contract dated August 22, 1997 shall be superceded by this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 and Chief Financial Officer of the Company; and

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

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

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

                  1.       Definitions.

                           (a) "Base Salary" shall mean the Executive's regular
         annual rate of base pay, as set forth in Paragraph 4(a), as of the date
         in question.
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                           (b) The "Benefit Multiplier" shall be equal to 2.0,
         except that if Executive's Termination of Employment is pursuant to
         Paragraph 7(b), it shall be equal to 3.0.

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

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

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

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

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

                           (h) The "Competitive Businesses" shall mean any of
         the health care businesses in which the Company is engaged on the
         effective date of the Distribution.

                           (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 Long Term Incentive Plan."

                           (l) "Termination of Employment" shall mean the
         termination of the Executive's employment by the Company or by the
         Executive with Specific Reason other than such a termination by the
         Company 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 Executive Vice
         President, Law and Government Relations, and 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 severance and other 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.       Position and Duties. During the Term, the Executive
shall serve, as an employee, as the Executive Vice President and Chief Financial
Officer of the Company and shall

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have such duties, functions, responsibilities and authority as are consistent
with the Executive's position as the senior executive officer in charge of
financial affairs for the Company.

                  4.       Compensation and Related Matters.

                           (a) Annual Base Salary. The Executive shall receive a
         Base Salary at a rate of $371,000 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) $362,000 (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 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;

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                                    (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 Long Term 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.

                           (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.

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                           (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 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

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         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 triggered (i) by the Company without Cause (this shall
         include a unilateral determination by William R. Floyd, President and
         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 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

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         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 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

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                                    (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, 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.

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                           (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
paragraph 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 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.

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                  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.

                  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

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         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;

                           (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

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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 October 1, 1992 which shall govern the rights
and obligations of the parties with respect to indemnification.

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

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

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

BEVERLY ENTERPRISES, INC.                    EXECUTIVE

By:
      --------------------------------       -----------------------------------
      William R. Floyd                       Scott M. Tabakin
      President and Chief Executive Officer  1808 Wheaton Trace
                                             Fort Smith, AR  72908

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


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