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Severance Agreement

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Sectors: Health Products and Services
Governing Law: Arkansas, View Arkansas State Laws
Effective Date: October 05, 2000
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EXHIBIT 10.2

SEVERANCE AGREEMENT

AGREEMENT made as of October 5, 2000 (the " Effective Date" ) between BEVERLY ENTERPRISES, INC., a Delaware corporation (the " Company" ), and DAVID R. DEVEREAUX (the " Executive" ).

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

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

1. Definitions .

(a) " Base Salary" shall mean the Executive' s regular annual rate of base pay as of the date in question.

(b) The " Benefit Multiplier" shall be equal to 1.0 except that if Executive' s Termination of Employment is pursuant to paragraph 3(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, 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 such notices and cure periods as are provided for by the Company' s disciplinary process.

(e) A " Change in Control" shall be deemed to have taken place if: (i) any person, corporation, or other entity or group, including any " group" as defined in Section l3(d)(3) of the Securities Exchange Act of 1934, other than any employee benefit plan then maintained by the Company, becomes the beneficial owner of shares of the Company having 30 percent or more of the total number of votes that may be cast for the election of Directors of the Company; (ii) as the result of, or in connection with, any contested election for the Board of Directors of the Company, or any tender or exchange offer, merger or other business combination or sale of assets, or any combination of the foregoing (a " Transaction" ), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company or its assets, or (iii) at any time (a) the Company shall consolidate with, or


merge with, any other Person and the Company shall not be the continuing or surviving corporation, (b) any Person shall consolidate with, or merge with the Company, and the Company shall be the continuing or surviving corporation and in connection therewith, all or part of the outstanding Company stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, (c) the Company shall be a party to a statutory share exchange with any other Person after which the Company is a subsidiary of any other Person, or (d) the Company shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and its subsidiaries (taken as a whole) to any Person or Persons; provided, however, that notwithstanding anything to the contrary herein, a Change in Control shall not include either any transfer to a consolidated subsidiary, reorganization, spin-off, split-up, distribution, or other similar or related transaction(s) or any combination of the foregoing in which the core business and assets of the Company and its subsidiaries (taken as a whole) are transferred to another entity (" Controlled" ) with respect to which (1) the majority of the Board of Directors of the Company (as constituted immediately prior to such transaction(s)) also serve as directors of Controlled and immediately after such transaction(s) constitute a majority of Controlled' s board of directors, and (2) more than 70% of the shareholders of the Company (immediately prior to such transaction(s)) become shareholders or other owners of Controlled and immediately after the transaction(s) control more than 70% of the ownership and voting rights of Controlled.

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

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

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

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


(j) " Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d) and 14(d) thereof, including a " group" as defined in Section 13(d).

(k) " Target Bonus" shall mean the target bonus (100% level) established for the Executive for the year in question under the Company' s " Annual Incentive Plan."

(l) " Termination of Employment" shall mean the termination of the Executive' s employment by the Company other than such a termination in connection with an offer of immediate reemployment by a successor or assign of the Company or purchaser of the Company or its assets under terms and conditions which would not permit the Executive to terminate his employment for Good Reason.

2. Term . The initial term of this Agreement shall be for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date. The Term shall be automatically extended by one additional day for each day beyond the Effective Date of this Agreement that the Executive remains employed by the Company until such time as the Company elects to cease such extension by giving written notice of such to the Executive. (In such event, the Agreement shall thus terminate on the third anniversary of the effective date of such notice.)

3. Eligibility for Severance Benefits . The Executive shall be eligible for the benefits described in Paragraph 4 (the " Severance Benefits" ) if, (a) during the Term, the Executive has a Termination of Employment initiated (i) by the Company without Cause, or (ii) by the Executive for Good Reason, and, in either case, subsection (b) does not apply; or (b) during the Term (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 initiated by the Company without Cause or by the Executive for Good Reason, or (ii) the Executive has a Termination of Employment initiated by the Company without Cause or by the Executive for Good Reason following the commencement of any discussion with a third person that ultimately results in a Change in Control with such third person within 12 months of the commencement of such discussions (in which case, the date of such discussion shall be substituted for the Change in Control Date wherever appropriate, including the definition of " Good Reason" and in Paragraph 4 hereof).

4. Severance Benefit . Upon satisfaction of the requirements set forth in Paragraph 3, and subject to Paragraphs 5 and 9, the Executive shall be entitled to the following Severance Benefits:

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

(i) the sum of the Executive' s Base Salary as in effect upon the Termination of Employment, and the greater of

(A) the Executive' s Target Bonus as in effect upon the Termination of Employment or,

(B) the Executive' s actual bonus under the Company' s " Annual Incentive Plan" for the year prior to the year of the Executive' s Termination of Employment; or

(ii) the sum of the Executive' s Base Salary as in effect on the Change in Control Date, and the greater of


(A) the Executive' s Target
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