Exhibit 10.2
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE
AGREEMENT made as of the 28th day of February, 2007, 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; and
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.
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 March 1, 2007, and shall
continue in effect until February 28, 2009 (the
“Term”); provided , however , that on
March 1, 2008, and on each March 1st 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 December 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.
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’s employment with the Employer and with all
other Affiliates of the Corporation shall be terminated for any
reason other than for Cause, the Employer shall pay to the
Executive the Executive’s Accrued Compensation.
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36 months applies to CEO, CFO, and SVPs; change to
24 months for VPs. |
(b) If
the Executive’s employment with the Employer and with all
other Affiliates of the Corporation shall be terminated (i) 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 for
Good Reason within twenty-four (24) months 3 following a
Change of Control, the Executive shall be entitled to the
following:
(1) the
Employer shall pay the Executive the Executive’s Accrued
Compensation;
(2) 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;
(3) (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. If
and to the extent that any health or welfare benefit described in
subsection (A) or (B) of this Section 2(b)(3) cannot
be paid or provided under any applicable law or regulation,
including without limitation Section 409A of the Code, or
under the terms of any policy, plan, program or arrangement of the
Employer, then the Employer will take all action necessary to
ensure that such benefit is provided through other means to the
Executive or the Executive’s dependents or beneficiaries, as
applicable, or the Employer shall timely pay to the Executive a
lump sum amount in cash equal to the fair market value of such
foregone benefit. The Employer shall make any payment that may be
necessary to ensure that the Executive’s after tax position
with respect to any health and welfare benefits received pursuant
to this Section 2(b)(3) is not worse than the
Executive’s after-tax position in the event such benefits had
been provided to the Executive while the Executive was employed by
the Employer; and
(4) the
Employer shall pay or 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.
(c) If
the Executive’s employment with the Employer and with all
other Affiliates of the Corporation shall be terminated by the
Employer without Cause (other than by
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Change to 24 months for VPs. |
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Change to 12 months for VPs. |
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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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Change to 24 months for VPs. |
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reason
of the Executive’s Disability) (1) within twelve
(12) months prior to a Change in Control or (2) any time
prior to the date of a Change in Control but the Executive
reasonably demonstrates that such termination (A) was at the
request of a third party who has indicated an intention or taken
steps reasonably calculated to effect a Change in Control (a
“Third Party”) and who effectuates a Change in Control
or (B) otherwise arose in connection with, or in anticipation
of, a Change in Control which has been threatened or proposed, such
termination shall be deemed to have occurred after a Change in
Control, provided a Change in Control shall actually have
occurred.
(d) If
the Executive’s employment with the Employer and with all
other 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.
(e) The
amounts provided for in Sections 2(a) and 2(b)(1), (2) and
(4) shall be paid in a single lump sum cash payment within ten
(10) business days after the date a Waiver and Release of
Claims substantially the form attached hereto as Exhibit A
(the “Release”) becomes effective; provided,
however , that, notwithstanding the foregoing, if (i) the
Executive is a “specified employee” for purposes of
Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”), and the regulations thereunder and
(ii) Section 409A of the Code and the regulations
thereunder require that the payment or any portion thereof be
deferred in order to avoid application of the excise tax provided
by Section 409A(a)(1)(B) of the Code, then any such payment
shall be deferred for six months from the Termination Date (or such
later date necessary to avoid such excise tax).
(f) 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.
(g) 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.
(h) 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.
(i) 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.
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3. Gross-Up Payment
.
(a) In
the event 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.
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 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
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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 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
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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 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
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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 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 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
fees and expenses, if any, incurred in contesting, defending or
disputing the basis for any such termination of employment),
(b) the Executive’s hearing before the Board of
Directors of the Corporation as contemplated in Section 17.5 of
this Agreement or (c) the Executive seeking to obtain or
enforce any right or benefit provided by this Agreement or by any
other plan or arrangement maintained by the Employer under which
the Executive is or may be entitled to receive benefits.
6. Transfer of
Employment . Notwithstanding any other provision herein to the
contrary, the Employer shall cease to have any further obligation
or liability to the Executive under this Agreement if (a) the
Executive’s employment with the Employer terminates as a
result of the transfer of the Executive’s employment to any
other Affiliate of the Corporation, (b) this Agreement is
assigned to such other Affiliate, and (c) such other Affiliate
expressly assumes and agrees to perform this Agreement in the same
manner and to the same extent that the Employer would be required
to perform it if no assignment had taken place. Any Affiliate to
which this Agreement is so assigned shall be treated as the
“Employer” for all purposes of this Agreement
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on or
after the date as of which such assignment to the Affiliate, and
the Affiliate’s assumption and agreement to so perform this
Agreement, becomes effective.
7. Corporation’s
Obligation . The Corporation agrees that it will take such
steps as may be necessary to cause the Employer (or any Affiliate
that has become the “Employer” pursuant to
Section 6
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