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

 

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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.

 

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   (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

 

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     (A) the Executive’s Target Bonus as in effect upon the Change in Control
Date or,

     (B) the Executive’s actual bonus under the Company’s “Annual Incentive
Plan” for the year prior to the Change in Control Date.

The payment shall be made in a single lump sum within ten days following the
Executive’s Termination of Employment.

   (b) Continuation of Benefits.

    (i) For the Benefit Period, the Executive shall be treated as if he or she
had continued to be an employee for all purposes under the Company’s Medical
Plan, Executive Medical Reimbursement Plan and Dental Plan. Following this
period, the Executive shall be entitled to receive continuation coverage under
Part Six of Title I of ERISA (“COBRA” Benefits) treating the end of this period
as a termination of the Executive’s employment (other than for gross
misconduct).

    (ii) The Company shall maintain in force, at its own expense, for the
remainder of the Executive’s life, the vested life insurance, if any, in effect
under the Company’s Executive Life Insurance Plan as of the Change in Control
Date or as of the date of Termination of Employment, whichever is greater.

   (c) Relocation Benefit. If within the Benefit Period after the Executive’s
Termination of Employment, the Executive gives the Company written notice that
he or she 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. This benefit shall include
only valid relocation expenses which are not reimbursed by a third party.

   (d) Executive SavingsPlus Plan. For the year of the Executive’s Termination
of Employment, the Company will make the contribution to its Executive
SavingsPlus Plan (the “SavingsPlus Plan”) that it would have made if the
Executive had not had a Termination of Employment, taking account of the
Executive’s annualized rate of “Compensation” (as defined in the SavingsPlus
Plan) and the percentage of such Compensation that the Executive is contributing
to the SavingsPlus Plan, as of the date of Termination of Employment, and the
Company’s matching contribution rate for such year. Payment shall be made when
the amount of the Company contribution has been determined, and when
contributions are made to all the other Plan participants.

   (e) 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.

   (f) Disability. For the Benefit Period, the Company shall provide long- term
disability insurance benefits coverage to Executive equivalent to the coverage
that the Executive would have had had he remained employed under the Company’s
Long-Term Disability Plan and Supplemental Long-Term Disability Plan applicable
to Executive on the date of Termination of

 

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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.

     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 or its consolidated subsidiaries.

   (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 Section 5 and in consideration of this Agreement,
this non-solicitation agreement has been separately negotiated and bargained
for, and constitutes a substantial portion of the consideration for this
Agreement.

     6. Waiver of Other Severance Benefits. The benefits payable pursuant to
this Agreement are in lieu of any other severance benefits which may otherwise
be payable to the Executive upon termination of employment with the Company,
whether or not in connection with a Change in Control (including without
limitation, any benefits to which Executive might otherwise have been entitled
under any employment, change in control or severance agreement or other
compensation or employee benefit plan to which the Company was a party or which
was assumed by the Company), except those benefits which are to be made
available to the Executive as required by applicable law.

 

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     7. 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 each party shall be responsible for their own attorney’s and
accountant’s fees in connection therewith.

     8. No Mitigation Obligation. Except for the provision of paragraph 4(c)
hereof, 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.

     9. 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 subsection 9(c) below; (h) any other information which Company has
reasonably determined to be confidential or proprietary; and (i) all written,
graphic, electronic and other material relating to any of the foregoing.
Information that is not novel or copyrighted or patented may nonetheless be
proprietary information. Proprietary information, however, shall not include any
information that is or becomes generally known to the industries in which
Company competes through sources independent of Company or Executive or through
authorized publication by Company to persons other than Company’s employees.

     (b) Confidentiality and Surrender of Records. Executive shall not during
the term of employment or at any time thereafter (irrespective of the
circumstances under which Executive’s employment terminates), except as required
by law, directly or indirectly give or disclose any “confidential records” (as
hereinafter defined) to, or permit any inspection or copying of confidential
records by, any individual or entity other than in the ordinary course and scope
of such individual’s or entity’s employment or retention by Company, nor shall
he use or retain any of the same following termination of his employment.
Executive shall promptly return to Company all

 

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“confidential records” upon the termination of Executive’s employment with
Company. For purposes hereof, “confidential records” means all correspondence,
memoranda, files, analyses, studies, reports, notes, documents, manuals, books,
lists, financial, operating or marketing records, computer software, magnetic
tape, or electronic or other media or equipment of any kind which may be in
Executive’s possession or under his control or accessible to him which contain
any proprietary information as defined in subsection 9(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.

     10. Successors; Binding Agreement.

     (a) This Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company or by any merger or consolidation where the Company
is not the surviving corporation, or upon any transfer of all or substantially
all of the Company’s assets, or any other Change in Control. The Company shall
require any purchaser, assign, surviving corporation, or successor (whether
direct or indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent the Company would be required to perform if no such
succession had taken place. This Agreement shall be binding upon and inure to
the benefit of the Company and any purchaser, assign, surviving corporation or
successor to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business and/or assets of
the Company whether by purchase, merger, consolidation, reorganization, transfer
of all or substantially all of the business or assets of the Company, or
otherwise (and such purchaser, assign, surviving corporation or successor shall
thereafter be deemed the “Company” for the purposes of this Agreement), but this
Agreement shall not otherwise be assignable, transferable or delegable by the
Company.

     (b) This Agreement shall inure to the benefit of and be enforceable by the
Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees and/or legatees.

     (c) This Agreement is personal in nature and neither of the parties hereto
shall, without the advance written consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in this Section 10. Without limiting the generality of the
foregoing, the Executive’s right to receive payments hereunder shall not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest or otherwise, or otherwise subject to anticipation, alienation, sale,
encumbrance, charge, hypothecation, or set-off in respect of any claim, debt, or
obligation, or to execution, attachment, levy or similar process, or assignment
by operation of law, other than by a transfer by his will or by the laws of
descent and

 

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distribution. Any attempt, voluntarily or involuntarily, to effect any action
prohibited by this Paragraph shall be null, void, and of no effect.

     11. Notices. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, or other similar
means of communication, as follows:

   (a) If to the Company, addressed to its principal executive offices to the
attention of its Secretary;

   (b) If to the Executive, to him or her 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.

     12. Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by the Executive and by a
duly authorized representative of the Company. By an instrument in writing
similarly executed, either party may waive compliance by the other party with
any provision of this Agreement that such other party was or is obligated to
comply with or perform; provided, however, that such waiver shall not operate as
a waiver of, or estoppel with respect to, any other or subsequent failure. No
failure to exercise and no delay in exercising any right, remedy, or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, or power provided
herein or by law or in equity.

     13. 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.

     14. 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.

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

     16. ERISA. This Agreement is pursuant to the Company’s Severance Plan for
Executives (the “Plan”) which is unfunded and maintained by the Company
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees. The Plan constitutes an employee
welfare benefit plan (“Welfare Plan”) within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Any
payments pursuant to this

 

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Agreement which could cause the Plan not to constitute a Welfare Plan shall be
deemed instead to be made pursuant to a separate “employee pension benefit plan”
within the meaning of Section 3(2) of ERISA as to which the applicable portions
of the document constituting the Plan shall be deemed to be incorporated by
reference. None of the benefits hereunder may be assigned in any way.

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

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

         
BEVERLY ENTERPRISES, INC.
  EXECUTIVE
 
       
By:
  /s/ DAVID R. BANKS

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David R. Banks
Chairman and Chief Executive Officer

  /s/ DAVID R. DEVEREAUX

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David R. Devereaux
2501 Greenridge Drive
Fort Smith, AR 72903
 
       
By:
  /s/ DOUGLAS J. BABB

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Douglas J. Babb
Executive Vice President,
General Counsel and Secretary
   
 
       

  One Thousand Beverly Way
Fort Smith, AR 72919
Attention: Secretary