Exhibit 10.2
SEPARATION AGREEMENT
SEPARATION AGREEMENT ("Agreement") made December 31, 2009 between Five Star
Quality Care, Inc. ("Company") and Francis R. Murphy III ("Murphy").
RECITAL
Murphy was an employee of the Company and has been its Treasurer and Chief
Financial Officer since May 1, 2008.
Murphy's employment with the Company and
its subsidiaries terminated on the date of this Agreement (the "Separation
Date") and Murphy has been replaced as the Company's Treasurer and Chief
Financial Officer as of January 1, 2010.
Murphy and the Company desire to set
forth certain understandings in connection with his termination.
NOW, THEREFORE, the parties agree as follows:
SECTION 1.
PAYMENTS; INSURANCE AND BENEFITS; RESTRICTED SHARE AGREEMENTS
(A)
ON THE SEPARATION DATE, THE COMPANY HAS PAID MURPHY HIS SALARY
PLUS ANY DAYS OF ACCRUED, BUT UNUSED, VACATION TIME THROUGH THE SEPARATION DATE.
(B)
IF THIS AGREEMENT BECOMES EFFECTIVE PURSUANT TO SECTION 14, THE
COMPANY WILL PAY MURPHY AGGREGATE SEVERANCE OF $200,000, WHICH WILL BE PAID ON
THE BUSINESS DAY AFTER THIS AGREEMENT BECOMES EFFECTIVE PURSUANT TO SECTION 14.
(C)
THE COMPANY HAS PROVIDED MURPHY WITH SEPARATE WRITTEN NOTIFICATION
OF HIS RIGHTS UNDER COBRA TO CONTINUE HIS PARTICIPATION IN THE COMPANY'S GROUP
HEALTH PLAN(S) AT MURPHY'S OWN EXPENSE AFTER THE SEPARATION DATE.
MURPHY'S
ELIGIBILITY TO PARTICIPATE IN ALL OTHER COMPANY BENEFIT PLANS AND ARRANGEMENTS
ENDED ON THE SEPARATION DATE.
(D)
IF, AND ON THE BUSINESS DAY FOLLOWING THE DATE, THIS AGREEMENT
BECOMES EFFECTIVE PURSUANT TO SECTION 14, THE COMPANY WILL ENTER INTO AN
ACCELERATED VESTING AGREEMENT IN THE FORM OF EXHIBIT A WITH RESPECT TO THE
RESTRICTED SHARE AGREEMENTS LISTED ON EXHIBIT B.
MURPHY AGREES THAT SO LONG AS
HE OWNS SHARES OF THE COMPANY, AT ANY MEETING OF THE SHAREHOLDERS OF THE
COMPANY, HE WILL VOTE ALL SHARES THEN OWNED BY HIM IN FAVOR OF ALL NOMINEES FOR
DIRECTOR AND ALL PROPOSALS RECOMMENDED BY THE BOARD OF DIRECTORS IN THE PROXY
STATEMENT FOR SUCH MEETING.
(E)
ALL PAYMENTS TO MURPHY UNDER SECTION 1(B) SHALL BE REDUCED BY
WITHHOLDINGS REQUIRED BY LAW, INCLUDING WITHHOLDINGS REQUIRED AS A RESULT OF THE
ACCELERATED VESTING AGREEMENT.
IF WITHHOLDING IS REQUIRED AT A TIME WHEN NO
PAYMENT UNDER SECTION 1(B) IS BEING MADE OR SUCH PAYMENT IS INSUFFICIENT TO
COVER ALL WITHHOLDING, MURPHY AGREES TO PAY TO THE COMPANY BY CHECK OR WIRE
TRANSFER OF IMMEDIATELY AVAILABLE FUNDS, AN AMOUNT EQUAL TO THE REQUIRED
WITHHOLDING (AS DETERMINED BY THE COMPANY) OR AT THE OPTION OF THE COMPANY, THE
COMPANY MAY DEDUCT SUCH AMOUNT FROM ANY OTHER CASH PAYMENT THEN BEING MADE OR
OTHERWISE OWING TO MURPHY FROM THE COMPANY OR ANY SUBSIDIARY.
SECTION 2.
COVENANTS.
MURPHY ACKNOWLEDGES THAT (I) THE COMPANY AND ITS
SUBSIDIARIES ARE ENGAGED IN THE BUSINESS OF OPERATING REHABILITATION HOSPITALS
AND SENIOR LIVING COMMUNITIES, INCLUDING INDEPENDENT LIVING AND CONGREGATE CARE
COMMUNITIES, ASSISTED LIVING COMMUNITIES AND NURSING HOMES (THE "COMPANY'S
BUSINESS"); (II) MURPHY'S WORK FOR THE COMPANY'S BUSINESS HAS GIVEN HIM, AND
WILL CONTINUE TO GIVE HIM, TRADE SECRETS OF, AND CONFIDENTIAL AND/OR PROPRIETARY
INFORMATION CONCERNING, THE