CHANGE IN CONTROL SEVERANCE
AGREEMENT
THIS AMENDED AND
RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT made as of the ___
day of
, 2008, by and among Community Health Systems, Inc. (the “
Corporation ”), Community Health Systems Professional
Services Corporation (the “ Employer ”), and
(the “ Executive ”).
WHEREAS, the Board
of Directors of the Corporation and the Board of Directors of the
Employer (the “ Boards ”) recognize that the
possibility of a Change in Control (as hereinafter defined) exists
and that the threat or the occurrence of a Change in Control can
result in significant distraction of the Employer’s key
management personnel because of the uncertainties inherent in such
a situation;
WHEREAS, the
Boards have determined that it is essential and in the best
interest of the Employer, and the Corporation and its stockholders,
for the Employer to retain the services of the Executive in the
event of a threat or occurrence of a Change in Control and to
ensure the Executive’s continued dedication and efforts in
such event without undue concern for the Executive’s personal
financial and employment security;
WHEREAS, in order
to induce the Executive to remain in the employ of the Employer,
particularly in the event of a threat or the occurrence of a Change
in Control, the Employer desires to enter into this Agreement with
the Executive to provide the Executive with certain benefits in the
event the Executive’s employment is terminated as a result
of, or in connection with, a Change in Control;
WHEREAS, the
Corporation and the Executive previously entered into a change in
control severance agreement (the “ Prior Agreement
”); and
WHEREAS, the
Corporation and the Executive desire to amend and restate the Prior
Agreement to comply with Section 409A (“
Section 409A ”) of the Internal Revenue Code of
1986, as amended (“ Code ”), and the regulations
issued thereunder.
NOW, THEREFORE, in
consideration of the respective agreements of the parties contained
herein, it is agreed as follows:
1. Term
of Agreement . This Agreement shall commence as of
December 31, 2008, and shall continue in effect until
December 31, 2010 (the “ Term ”);
provided , however , that on December 31, 2009,
and on each December 31st thereafter, the Term shall
automatically be extended for one (1) year unless either the
Executive or the Employer shall have given written notice to the
other at least ninety (90) days prior thereto (i.e., on or
before October 1st immediately preceding) that the Term shall not
be so extended; provided, further, however, that following
the occurrence of a Change in Control, the Term shall not expire
prior to the expiration of thirty-six months
(36) months 1 after such occurrence.
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36 months
applies to CEO, CFO, and SVPs; change to 24 months for
VPs.
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2.
Termination of Employment . If the Executive’s
employment with the Employer and with all other Affiliates of the
Corporation shall be terminated, the Executive shall be entitled to
the following compensation and benefits:
(a) If
the Executive experiences a “separation from service”
(within the meaning of Section 409A(a)(2)(A)(i) of the Code) with
the Employer and all other Affiliates of the Corporation as a
result of (i) termination of Executive’s employment by
the Employer without Cause (other than by reason of the
Executive’s Disability) within thirty-six
(36) months 2 following a Change in Control, or (ii) by
the Executive’s termination of his or her employment for Good
Reason within twenty-four (24) months 3 following a Change of Control, the Executive
shall be entitled to the following:
(i) the
Employer shall pay the Executive the Executive’s Accrued
Compensation;
(ii) the
Employer shall pay the Executive, at the same time that the
Employer makes annual bonus payments under the Incentive Plan to
other senior Executives, a pro rata portion of the annual bonus
that would have been paid to the Executive under the Incentive Plan
in respect of the year in which the Termination Date occurred had
the Executive remained employed through the applicable payment date
under the Incentive Plan, calculated by multiplying such amount by
a fraction, the numerator of which is the number of days in the
year through the Termination Date and the denominator of which is
365 .
(iii) the
Employer shall pay the Executive as severance pay and in lieu of
any further compensation for periods subsequent to the Termination
Date, an amount determined by multiplying (A) three (3)
4 times the sum of (i) the Executive’s
Base Amount and (ii) the Executive’s Bonus
Amount;
(iv) (A) for
thirty-six (36) 5 months following the Termination Date (the
“ Continuation Period ”), the Employer shall
arrange, at its sole expense, to provide the Executive with health
and welfare benefits (other than long-term disability insurance
benefits) that are substantially similar to the better of (when
considered in the aggregate) (X) those health and welfare
benefits (other than long-term disability insurance benefits) that
the Executive was receiving or entitled to receive immediately
prior to the Change in Control, and (Y) those health and
welfare benefits (other than long-term disability insurance
benefits) that the Executive was receiving or entitled to receive
immediately prior to the Termination Date, and (B) such
Continuation Period will be considered service with the Employer
for the purpose of determining service credits under or in respect
of any health and welfare benefits applicable to the Executive or
the Executive’s dependents or beneficiaries; and
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2
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Change to
24 months for VPs.
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3
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Change to
12 months for VPs.
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4
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Severance for
CEO, EVP and SVPs. For VPs, severance shall be 24 months (or 2
times base and bonus).
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5
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Change to
24 months for VPs.
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(v) the
Employer shall reimburse the Executive for the costs, fees and
expenses of outplacement assistance services (not to exceed
twenty-five thousand dollars ($25,000)) provided by any bona fide
outplacement agency selected by the Executive.
(b) If
the Executive’s employment with the Employer and with all
Affiliates of the Corporation shall be terminated by the Employer
without Cause (other than by reason of the Executive’s
Disability) at any time prior to the date of a Change in Control
and such termination (A) occurred after the Corporation or the
Employer entered into a definitive agreement, the consummation of
which would constitute a Change in Control or (B) the
Executive reasonably demonstrates that such termination was at the
request of a third party who has indicated an intention or has
taken steps reasonably calculated to effect a Change in Control (a
“ Third Party ”), such termination shall be
deemed to have occurred after a Change in Control.
(c) If
the Executive’s employment with the Employer and with all
Affiliates of the Corporation shall be terminated for Cause, the
Employer shall pay to the Executive any unpaid portion of the
Executive’s base salary through the Termination Date at the
rate in effect at the time Notice of Termination is given and shall
pay any amounts required to be paid to the Executive pursuant to
any other compensation plans, programs or arrangements then in
effect, or which are required to be paid under applicable law, and
the Employer shall have no further obligations to the Executive
under this Agreement.
(d) The
amounts provided for in Sections 2(a) and 2(b)shall be subject to
the Executive’s execution, delivery and non-revocation of a
Waiver and Release of Claims substantially the form attached hereto
as Exhibit A (the “ Release ”) within forty
five (45) days after the Executive’s Termination Date
and the amounts provided for in Sections 2(a)(ii), 2(b)(i),
2(b)(ii) and 2(b)(iii) shall be paid in a single lump sum cash
payment on the forty fifth (45 th )
after the Executive’s Termination Date; provided
, however , that, notwithstanding the foregoing, if
the Executive is a “specified employee” for purposes of
Section 409A of Code and the regulations issued thereunder (a
“ Specified Employee ”), any payments required
to be made pursuant to Section 2(a)(ii), 2(b)(ii) and
2(b)(iii) shall not commence until one (1) day after the day
which is six (6) months after the Executives separation from
service (the “ Delay Period ”). In addition, if
the Executive is a Specified Employee, to the extent that benefits
to be provided to the Executive pursuant to Sections 2(b)(iv)
and 2(b)(v) of this Agreement are not “disability pay,”
“death benefit” plans or non-taxable medical benefits
within the meaning of Treasury
Regulation Section 1.409A-1(a)(5) or other benefits not
considered nonqualified deferred compensation within the meaning of
that regulation, such provision of benefits shall be delayed until
the end of the Delay Period, unless the Executive’s
termination occurs by reason of his death. Notwithstanding the
foregoing, to the extent that the previous sentence applies to the
provision of any ongoing benefits that would not be required to be
delayed if the premiums were paid by the Executive, the Executive
shall pay the full cost of the premiums for such benefits during
the Delay Period and the Corporation shall pay the Executive an
amount equal to the amount of such premiums paid by the Executive
during the Delay Period within ten (10) days after the end of
the Delay Period. To the extent that any benefits to be provided to
the Executive pursuant to this Agreement are considered
nonqualified deferred compensation and are reimbursements subject
to Treasury Regulation Section 1.409A-3(i)(1)(iv), then
(i) the reimbursement of eligible expenses related to such
benefits shall be made on or before the last day of the
Executive
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taxable year
following the Executive taxable year in which the expense was
incurred and (ii) notwithstanding anything to the contrary in
this Agreement or any plan providing for such benefits, the amount
of expenses eligible for reimbursements during any taxable year of
the Executive shall not affect the expenses eligible for
reimbursements in any other taxable year.
(e) The
Executive shall not be required to mitigate the amount of any
payment or benefit provided for in this Agreement by seeking other
employment or otherwise and no such payment or benefit shall be
offset or reduced by the amount of any compensation or benefits
provided to the Executive in any subsequent employment.
(f) The
severance pay and benefits provided for in this Section 2
shall be in lieu of any other severance pay to which the Executive
may be entitled under the Employer’s severance policy or any
other plan, agreement or arrangement of the Employer or any other
Affiliate of the Corporation.
(g) The
Executive’s entitlement to other compensation or benefits
pursuant to the Employer’s employee benefit plans and other
applicable programs and practices shall be determined in accordance
with the terms of those plans, programs and practices as in effect
from time to time.
(h) The
Employer’s and the Corporation’s obligations pursuant
to this Section 2 shall be conditioned upon the
Executive’s execution, delivery and non-revocation of the
Release.
(a) In
the event that it shall be determined that any payment or
distribution of any type to or for the benefit of the Executive, by
the Employer, the Corporation, any Affiliate, any Person (as
defined in Section 17.6(a) hereof) who acquires ownership or
effective control of the Corporation or ownership of a substantial
portion of the Corporation’s assets (within the meaning of
Section 280G of the Code and the regulations thereunder) or
any affiliate of such Person, whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or under any other plan, program, policy or arrangement
of the Corporation, the Employer or any of their Affiliates (the
“ Total Payments ”), is or will be subject to
the excise tax imposed by Section 4999 of the Code or any
interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are
collectively referred to as the “ Excise Tax ”),
then the Executive shall be entitled to receive an additional
payment (a “ Gross-Up Payment ”) in an amount
such that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Total Payments. Payments and
reimbursements to which the Executive is entitled under this
Section 3(a) shall be made not later than April 15 of the
taxable year of the Executive next following the taxable year of
the Executive in which the Executive receives amounts subject to
Section 4999.
Notwithstanding
the immediately preceding paragraph, in the event that a reduction
to the Total Payments in respect of the Executive of 10% or less
would cause no
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Excise Tax to
be payable, the Executive will not be entitled to a Gross-Up
Payment and the Total Payments shall be reduced to the extent
necessary so that the Total Payments shall not be subject to the
Excise Tax. Unless the Executive shall have given prior written
notice to the Employer specifying a different order by which to
effectuate the foregoing, the Employer shall reduce or eliminate
the Total Payments (x) by first reducing or eliminating the
portion of the Total Payments which are not payable in cash (other
than that portion of the Total Payments subject to clause
(z) hereof), (y) then by reducing or eliminating cash
payments (other than that portion of the Total Payments subject to
clause (z) hereof) and (z) then by reducing or
eliminating the portion of the Total Payments (whether payable in
cash or not payable in cash) to which Treasury
Regulation Section 1.280G-1 Q/A 24(c) (or successor thereto)
applies, in each case in reverse order beginning with payments or
benefits which are to be paid the farthest in time from the date of
the Change in Control. Any notice given by the Executive pursuant
to the preceding sentence shall take precedence over the provisions
of any other plan, arrangement or agreement governing the
Executive’s rights and entitlements to any benefits or
compensation.
(b)
Determination by Accountant . All mathematical
determinations, and all determinations as to whether any of the
Total Payments are “parachute payments” (within the
meaning of Section 280G of the Code), that are required to be
made under this Section 3, including determinations as to
whether a Gross-Up Payment is required, the amount of such Gross-Up
Payment and amounts relevant to the last sentence of this
Section 3(b), shall be made by an independent accounting firm
selected by the Executive from among the nationally recognized
accounting firms in the United States (the “ Accounting
Firm ”), which shall provide its determination (the
“ Determination ”), together with detailed
supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matter, both to the Employer and the
Executive by no later than ten (10) days following the
Termination Date, if applicable, or such earlier time as is
requested by the Employer or the Executive (if the Executive
reasonably believes that any of the Total Payments may be subject
to the Excise Tax). If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it shall furnish the
Executive and the Employer with a written statement that such
Accounting Firm has concluded that no Excise Tax is payable
(including the reasons therefor) and that the Executive has
substantial authority not to report any Excise Tax on the
Executive’s federal income tax return. If a Gross-Up Payment
is determined to be payable, it shall be paid to the Executive
within twenty (20) days after the Determination (and all
accompanying calculations and other material supporting the
Determination) is delivered to the Employer by the Accounting Firm.
Any determination by the Accounting Firm shall be binding upon the
Employer and the Executive, absent manifest error. As a result of
uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm
hereunder, it may be the case that Gross-Up Payments not made by
the Employer should have been made (“ Underpayment
”) or that Gross-Up Payments will have been made by the
Employer which should not have been made (“
Overpayments ”). In either such event, the Accounting
Firm shall determine the amount of the Underpayment or Overpayment
that has occurred. In the case of an Underpayment, the amount of
such Underpayment shall be promptly paid by the Employer to or for
the benefit of the Executive. In the case of an Overpayment, the
Executive shall, at the direction and expense of the Employer, take
such steps as are reasonably necessary (including the filing of
returns and claims for refund), follow reasonable instructions
from, and procedures established by, the Employer, and
otherwise
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reasonably
cooperate with the Employer to correct such Overpayment,
provided , however , that (i) the Executive
shall not in any event be obligated to return to the Employer an
amount greater than the net after-tax portion of the Overpayment
that the Executive has retained or has recovered as a refund from
the applicable taxing authorities and (ii) this provision
shall be interpreted in a manner consistent with the intent of
Section 3(a), which is to make the Executive whole, on an
after-tax basis, from the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in the
Executive repaying to the Employer an amount which is less than the
Overpayment.
(c)
Access; Binding Effect . The Corporation, the Employer and
the Executive shall each provide the Accounting Firm access to and
copies of any books, records and documents in the possession of the
Employer or the Executive, as the case may be, reasonably requested
by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the
determinations and calculations contemplated by this
Section 3. Any determination by the Accounting Firm as to the
amount of any Gross-Up Payment or Underpayment shall be binding
upon the Employer, its Affiliates and the Executive;
provided that if the Executive is ultimately required to pay
an Excise Tax by the Internal Revenue Service despite the opinion
of such Accounting Firm, then the Employer shall make the
appropriate Gross-Up Payment contemplated herein.
(d)
Income Tax Returns . The federal income returns filed by the
Executive shall be prepared and filed on a basis consistent with
the determination of the Accounting Firm with respect to the Excise
Tax payable by the Executive. The Executive shall make proper
payment of the amount of any Excise Tax that has not been withheld
by the Employer, and at the request of the Employer, provide to the
Employer true and correct copies (with any amendments) of the
Executive’s federal income tax return as filed with the
Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing
authority, and such other documents reasonably requested by the
Employer, evidencing the proper reporting of the Gross-Up Payment
and any Excise Tax due. If prior to the filing of the
Executive’s federal income tax return, or corresponding state
or local tax return, if relevant, the Accounting Firm determines
that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five (5) business days of such
determination pay to the Employer the amount of such
reduction.
(e)
Fees and Expenses . The fees and expenses of the Accounting
Firm for its services in connection with the determinations and
calculations contemplated by this Section 3 shall be borne by
the Employer. If such fees and expenses are initially paid by the
Executive, the Employer shall reimburse the Executive the full
amount of such fees and expenses within five (5) business days
after receipt from the Executive of a statement therefor and
reasonable evidence of the Executive’s payment
thereof.
(f)
Indemnification . The Executive shall notify the Employer in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Employer of a Gross-Up
Payment. Such notification shall be given as promptly as
practicable but no later than ten (10) business days after the
Executive actually receives notice of such claim and the Executive
shall further apprise the Employer of the nature of such claim and
the date on which
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such claim is
requested to be paid (in each case, to the extent known by the
Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the thirty (30)-day period
following the date on which the Executive gives such notice to the
Employer and (ii) the date that any payment of the amount with
respect to such claim is due. If the Employer notifies the
Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) provide
the Employer with any written records or documents in the
Executive’s possession relating to such claim reasonably
requested by the Employer;
(ii) take
such action in connection with contesting such claim as the
Employer shall reasonably request in writing from time to time,
including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Employer;
(iii) cooperate
with the Employer in good faith in order effectively to contest
such claim; and
(iv) permit
the Employer to participate in any proceedings relating to such
claim; provided, however, that the Employer shall bear and
pay directly all costs in a court of initial jurisdiction and in
one or more appellate courts, as the Employer shall determine; and
provided, further, however , that if the Employer directs
the Executive to pay the tax claimed and sue for a refund, the
Employer shall make such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income or
other tax, including interest or penalties with respect thereto,
imposed with respect to such payment; and provided ,
further , however , that any extension of the
statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which the contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Employer’s control of any such contested
claim shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service.
(g)
Refunds . If, after the receipt by the Executive of an
amount paid by the Employer pursuant to Section 3(f), the
Executive receives any refund with respect to such claim, the
Executive shall (subject to the Employer’s complying with the
requirements of Section 3(f) promptly pay to the Employer the
amount of such refund (together with any interest paid or credited
thereon after any taxes applicable thereto). If, after the receipt
by the Executive of an amount paid by the Employer pursuant to
Section 3(f) a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and the
Employer does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of thirty
(30) days after such determination, then such amount shall not
be required to be repaid and shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid by the Employer
to the Executive pursuant to this Section 3.
(h)
Confidentiality . Any information provided by the Executive
to the Employer under this Section 3 shall be treated
confidentially by the Employer and, except as
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required by
law, will not be provided by the Employer to any other person,
other than the Employer’s professional advisors, without
Executive’s prior written consent.
4. Notice
of Termination . Following a Change in Control, (i) any
intended termination of the Executive’s employment by the
Employer shall be communicated by a Notice of Termination from the
Employer to the Executive, and (ii) any intended termination
of the Executive’s employment by the Executive for Good
Reason shall be communicated by a Notice of Termination from the
Executive to the Employer within six (6) months of the
Executive becoming aware of the event or action constituting Good
Reason or, if later, within six (6) months after the date of
the Change in Control.
5. Fees
and Expenses . The Employer shall pay all legal fees and
related expenses (including the costs of experts, evidence and
counsel) incurred in good faith by the Executive as they become due
over the lifetime of the Executive as a result of (a) the
termination of the Executive’s employment by the Employer or
by the Executive for Good Reason (including all such
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