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CHANGE IN CONTROL SEVERANCE AGREEMENT

Change of Control Agreement

CHANGE IN CONTROL SEVERANCE AGREEMENT | Document Parties: Community Health Systems, Inc You are currently viewing:
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Community Health Systems, Inc

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Title: CHANGE IN CONTROL SEVERANCE AGREEMENT
Governing Law: Delaware     Date: 3/2/2007
Industry: Healthcare Facilities     Sector: Healthcare

CHANGE IN CONTROL SEVERANCE AGREEMENT, Parties: community health systems  inc
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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.
 
1   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
 
2   Change to 24 months for VPs.
 
3   Change to 12 months for VPs.
 
4   Severance for CEO, EVP and SVPs. For VPs, severance shall be 24 months (or 2 times base and bonus).
 
5   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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