Document:

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                                                                    EXHIBIT 10.7

                      ORTHODONTIC CENTERS OF AMERICA, INC.

                         FORM OF PARTICIPATION AGREEMENT

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                             PARTICIPATION AGREEMENT

                      ORTHODONTIC CENTERS OF AMERICA, INC.
                              ____________ PROGRAM

         This Participation Agreement ("Agreement") is made and entered into as
of ______________, 2001, by and between Orthodontic Centers of America, Inc., a
Delaware corporation ("OCA"), and _______________________, an individual
residing in the State of ______________ (the "Participant").

                                    RECITALS:

         WHEREAS, OCA adopted the Orthodontic Centers of America, Inc. _______
Program (the "Program") through resolutions adopted by OCA's Board of Directors;
and

         WHEREAS, the Participant desires to participate in the Program, subject
to the terms and conditions therein and herein;

         NOW, THEREFORE, in consideration of the mutual covenants contained in
this agreement, the parties agree as follows:

                                   AGREEMENT:

1. Election to Participate. The Participant hereby elects to participate in the
Program, in accordance with and subject to all of the terms, conditions and
provisions of the Program and this Agreement, as such may be amended from time
to time. OCA hereby permits the Participant to participate in the Program
(subject to the Participant's fulfillment and compliance with all of the
criteria for participation specified in the Program), as and to the extent
provided in the Program and on the terms, conditions and provisions specified
therein and herein, as such may be amended from time to time. The Participant
represents and warrants to OCA that the Participant has, along with his or her
respective OrthAlliance Affiliated PC (as defined in the Program), executed and
delivered to OrthAlliance their respective (i) Amendments (as defined in the
Program) and/or (ii) OCA Business Services Agreement (as defined in the Program)
on the date or dates specified on Schedule 1 hereto. The Participant further
represents and warrants to OCA that he or she is an OrthAlliance Affiliated
Practitioner (as defined in the Program).

2. Program Document Controls. The Participant acknowledges and agrees that such
participation, and any and all awards, grants, shares or rights granted or
awarded to the Participant under the Program, will be governed by and subject to
all of the terms, conditions, and provisions of this Agreement and the Program,
as such exist on the date of this Agreement and as such may be amended from time
to time hereafter. A copy of the Program, as it exists on the date hereof, is
attached hereto as Exhibit A, and/or has been previously provided to the
Participant, and is made a part hereof as if fully set forth herein. In the
event of any conflict between the provisions of the Agreement and the provisions
of the Program, the terms of the Program, as such may be amended, shall control,
except as expressly stated otherwise therein.

3. Notice. Whenever any notice is required or permitted hereunder, such notice
must be in writing and personally delivered or sent by mail or a delivery
service that is approved by OCA. Any notice required or permitted to be
delivered hereunder shall be deemed to be delivered on the date which it is
personally delivered, or, whether actually received or not, on the third
business day after it is deposited in the United States mail, certified or
registered, postage prepaid, addressed to the

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person who is to receive it at the address identified in this Section. OCA or
the Participant may change, by written notice to the other, the address
specified for receiving notices. Notices to OCA shall be addressed as follows:

                          Orthodontic Centers of America, Inc.
                          3850 N. Causeway Boulevard, Suite 1040
                          Metairie, LA  70002
                          Attention: Bartholomew F. Palmisano, Jr.

Notices to the Participant shall be hand delivered to the Participant on the
premises of OCA or its subsidiaries, or addressed to the latest address shown on
the records of OCA.

4. Information Confidential. As partial consideration for the Participant's
participation the Program, the Participant agrees that he or she will keep
confidential all information and knowledge that the Participant has relating to
the manner and amount of his or her participation in the Program; provided,
however, that such information may be disclosed as required by law and may be
given in confidence to the Participant's spouse, tax and financial advisors, or
to a financial institution to the extent that such information is necessary to
secure a loan.

5. Authorization. The Participant hereby represents and warrants to OCA that the
execution, delivery and performance of this Agreement by the Participant has
been duly authorized by all necessary laws, resolutions and corporate action,
and that this Agreement constitutes the valid and enforceable obligations of the
Participant in accordance with its terms.

6. No Assignment. The Participant may not assign or transfer this Agreement, any
of his or her rights hereunder, his or her participation in the Program nor,
except as provided in the Program, any of his or her rights, benefits or awards
under the Program.

7. Miscellaneous. This Agreement shall be construed and interpreted according to
the laws of the State of Louisiana, without regard to the principles of
conflicts of law thereof. This Agreement (together with the Program) contains
the entire and only agreement between the parties respecting the subject matter
hereof. The headings of the various sections of this Agreement are for
convenience of reference only, and shall not modify, define, limit or expand the
express provisions of this Agreement. This Agreement shall be binding upon and
inure to the benefit of any successor or successors of OCA. This Agreement may
be executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which when executed and delivered shall be deemed
an original effective for binding the parties hereto, but all of which shall
together constitute one and the same instrument.

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         IN WITNESS WHEREOF, OCA has caused this Agreement to be executed and
the Participant has set his hand hereto on the day and year first written above.

                                         ORTHODONTIC CENTERS OF AMERICA, INC.

                                         By:
                                            ------------------------------------
                                         Name:
                                         Title:

                                         "PARTICIPANT"

                                         ---------------------------------------
                                         Name:

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                                                                    EXHIBIT 10.1

                       EMPLOYMENT AND SEVERANCE AGREEMENT

                  AGREEMENT made as of February 15, 2001 between BEVERLY
ENTERPRISES, INC., a Delaware corporation (the "Company"), and WILLIAM A.
MATHIES (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 "Good Reason" to terminate his
employment 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, it is also the intent of the parties that, in
consideration for Executive's waiver of his rights under the Employment Contract
dated August 22, 1997 and the acceptance of benefits under this Agreement,
Executive shall receive execution of this Agreement 111,473 shares of the
Company's Common Stock under the Stock Grant Plan upon execution of this
Agreement in exchange for the equivalent number of shares of Restricted Stock
currently held by Executive, together with receiving payment of the federal and
state income taxes due Executive upon receipt of the shares of Common Stock; and

                  WHEREAS, it is further the intent of the parties that if the
Executive remains employed by the Company on or after the third anniversary of
the Effective Date of this Agreement and then has a Termination of Employment
for Specific Reason, has a Termination of Employment without Cause, has a
"Change in Control" as described in paragraph 1(e), or has a material reduction
in duties, responsibilities, and authority without Executive's consent giving
rise to Termination for Good Reason under paragraph 1(l) herein, he shall
receive the severance benefits under this Agreement upon the execution of a
Severance Agreement and Release of Claims; 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 of the Company or in such other capacity as the
Company's Chief Executive Officer elects; and

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

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                  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
for Good Reason under paragraph 1 (l) or a voluntary Termination of Employment
for Specific 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 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.

                           (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, after the Effective Date: (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 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

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         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 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.

                           (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 or research and development activities in
         which the Company is engaged on the Effective Date.

                           (i) "Effective Date" shall mean the date first shown
         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) "Specific Reason" shall mean the Termination of
         Employment at the end of the Term by Executive because of the transfer
         of Executive from the position of Executive Vice President and
         President of Beverly Health and Rehabilitation Services, Inc. to the
         new position of Executive Vice President - Innovative Services which
         occurred in January, 2001. The Company recognizes such transfer as an
         employment action which entitled Executive to receive the benefits
         described under the Employment Contract dated August 22, 1997 and for
         which Executive shall receive severance benefits under the terms of
         this Agreement.

                           (l) "Good Reason" shall mean the Termination of
         Employment by Executive because he has a "material reduction" in
         duties, responsibilities and authority without his consent. For
         purposes of this paragraph, "material reduction" shall mean a
         substantial diminution in Executive's duties, responsibilities and
         authority existing as of the date of this Agreement resulting in
         Executive no longer having senior executive duties, responsibilities
         and authority to the extent of other Executive Vice Presidents of the
         Company.

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                           (m) "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."

                           (n) "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.

                  2. Term. The term of this Agreement shall be for the period
commencing on the Effective Date and ending on the third anniversary of the
Effective Date.

                  3. Position and Duties. During the Term, the Executive shall
serve as an employee of the Company in the position of Executive Vice President
- Innovative Services, and shall have such duties, functions, responsibilities
and authority as determined by the Chief Executive Officer of the Company.

                  4. Compensation and Related Matters.

                             (a) Annual Base Salary. The Executive shall receive
         a Base Salary at a rate of $400,000 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 senior executives generally:

                                    (i) Participate in the Company's present and
                  future Long-Term Incentive Plan, Stock Grant 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) Participate in the Company's
                  Supplemental Executive Retirement Plan, pursuant to its terms;

                                    (vi) $300,000 of individual life insurance
                  coverage under the Company's Executive Split Dollar Life
                  Insurance Plan;

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                                    (vii) $401,000 (or such greater amount as
                  the Company may make available to its senior executives
                  generally) of group term life insurance coverage;

                                    (viii) $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;

                                    (ix) 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;

                                    (x) 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;

                                    (xi) 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;

                                    (xii) 4 weeks of paid vacation;

                                    (xiii) 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) Restricted Stock. Upon execution of this
         Agreement, Executive shall receive 111,473 shares of Common Stock of
         the Company, under the Stock Grant Plan, for the equivalent number of
         shares of Restricted Stock held by Executive as of February 15, 2001.
         As of the date of this Agreement, the Company has paid Executive's
         federal and state income taxes incurred by the Executive upon his
         receipt of the Common Stock of the Company under the Stock Grant Plan
         and this subparagraph. Both the amount of the tax liability paid by the
         Company and the methodology used to determine the tax liability are set
         forth in Appendix "A" to this Agreement.

                           (d) Annual Bonus. As additional compensation for
         services rendered, the Executive shall be eligible to receive an annual
         bonus in cash or stock pursuant to the terms of Company's Annual
         Incentive Plan or such other incentive compensation plan.

                           (e) 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.

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                           (f) 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 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 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 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

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         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, 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

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         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 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 by the Company without Cause, or for "Good
         Reason" under paragraph 1(l) herein, or at the end of the Term,
         Executive initiates his own Termination for Specific Reason under
         Section 1(k) hereof and subsection (b) does not apply; or

                           (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 (ii) the Executive
         has a Termination of Employment initiated by the Company without Cause
         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).

                           (c) during the Term there has been a Change in
         Control and during the thirty-one (31) day period commencing on the
         first day of the 13th calendar month following the Change in Control
         Date, the Executive has a Termination of Employment initiated by the
         Executive without Good Reason.

                  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. If the Executive's Termination of
         Employment arises 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,

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                                             (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. If the Executive's Termination of
         Employment arises 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, consistent with any plans under which such
                  Restricted Stock shall have been issued, and any unvested
                  stock options shall be fully vested on the date of Termination
                  of Employment; or

                                    (ii) In the event the Executive's
                  Termination of Benefit arises under Paragraph 7(b), the
                  Executive's interest under all of the Company's Long-Term
                  Incentive Plan(s) 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. If Executive's
         Termination of Employment arises under Paragraphs 7(a) or 7(b):

                                    (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

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                  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 date of Executive's Termination of Employment with the
         Company under Paragraphs 7(a) or (b), 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 under Paragraphs 7(a) or (b), 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.

                           (g) Executive Deferred Compensation Plan. For the
         year of the Executive's Termination of Employment under Paragraphs 7(a)
         or (b), 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 after the
         dates of Termination of Employment under Paragraphs 7(a) or (b), 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.

                                       10
<PAGE>   11

                           (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 8 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 Section 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 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.

                  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.
Except as otherwise provided herein, 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. Further, Executive agrees that
under the Stock Grant Plan the Company shall cancel 111,473 shares of Restricted
Stock and substitute an equivalent number of shares of Common Stock of the
Company without restrictions.

                  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

                                       11
<PAGE>   12

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 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),

                                       12
<PAGE>   13

         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 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 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

                                       13
<PAGE>   14

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 May 20, 1996 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. As a precondition to
obtaining 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.

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

<Table>
<S>                                                           <C>
BEVERLY ENTERPRISES, INC.                                     EXECUTIVE

By:      /s/ WILLIAM R. FLOYD                                 /s/ WILLIAM A. MATHIES
         -----------------------------------                  --------------------------------------------
         William R. Floyd                                     William A. Mathies
         President and Chief Executive Officer                2504 Athlone
                                                              Fort Smith, AR  72903

By:      /s/ DOUGLAS J. BABB
         -----------------------------------
         Douglas J. Babb
         Executive Vice President -
         Law and Government Relations,
         and Secretary
</Table>

One Thousand Beverly Way
Fort Smith, AR  72919

                                       14

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