EXHIBIT
10.1
AMENDED AND
RESTATED
SEVERANCE PROTECTION AGREEMENT
THIS SEVERANCE PROTECTION AGREEMENT (this “
Agreement ”) dated as of September 23, 2004, is made
by and between Vanguard Health Systems, Inc., a Delaware
corporation (the “ Company” ), and Kent H.
Wallace (the “ Executive” ).
WHEREAS , the Company and the Executive executed a severance
protection agreement (the “ Existing Protection
Agreement ”) dated as of February 6, 2003;
WHEREAS , the Company has entered into an agreement and plan
of merger by and among VHS Holdings LLC, Health Systems Acquisition
Corp. and the Company, dated as of July 23, 2004 (the “
Merger Agreement ”) whereby the Health Systems Corp.
will merge into the Company with the Company as the surviving
corporation;
WHEREAS , the Company considers it essential to the best
interests of its shareholders to foster the continuous employment
of key management personnel;
WHEREAS , the Board of the Company (the “
Board” ) recognizes that the possibility of a Change
in Control (as defined in the last Section hereof) exists and that
such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction
of management personnel to the detriment of the Company and its
shareholders; and
WHEREAS , the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention
and dedication of members of the Company’s management,
including the Executive, to their assigned duties without
distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control.
NOW THEREFORE , in consideration of the promises and the
mutual covenants herein contained, the Company and the Executive
hereby agree as follows:
1. Defined
Terms. Except for those terms defined above, the
definition of capitalized terms used in this Agreement is provided
in the last Section hereof.
2. Term of
Agreement. This Agreement shall commence on the date
hereof and shall continue in effect through December
31, 2004; provided, however, that commencing on January 1,
2005 and each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not
later than September 30 of the preceding year, the Company shall
have given notice not to extend this Agreement; and provided,
further, however, that the Company agrees that it shall not
give such notice prior to September 23, 2007; and provided
further, however , that if a Change in Control shall have
occurred during the term of this Agreement, this Agreement shall
continue in effect for a period
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of not less than thirty-six (36) months beyond the month in
which such Change in Control occurred. Furthermore, if the
Executive’s employment with the Company shall be terminated
prior to a Change in Control, this Agreement shall automatically
expire.
3.
Company’s Covenants Summarized. In order to
induce the Executive to remain in the employ of the Company and in
consideration of the Executive’s covenants set forth in
Section 4 hereof, the Company agrees, under the conditions
described herein, to pay the Executive the Severance Payments
described in Section 6.1 hereof and the other payments and benefits
described herein in the event the Executive’s employment with
the Company is terminated following a Change in Control and during
the term of this Agreement. No amount or benefit shall be
payable under this Agreement unless there shall have been (or,
under the terms hereof, there shall be deemed to have been) a
termination of the Executive’s employment with the Company
following a Change in Control. This Agreement shall not be
construed as creating an express or implied contract of employment
and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be
retained in the employ of the Company.
4. The
Executive’s Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event
of a Potential Change in Control during the term of this Agreement,
the Executive will remain in the employ of the Company until the
earliest of (i) a date which is six (6) months from the date of
such Potential Change in Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the
Executive’s employment for Good Reason (determined by
treating the Potential Change in Control as a Change in Control in
applying the definition of Good Reason), or by reason of death,
Disability or Retirement, or (iv) the termination by the Company of
the Executive’s employment for any reason.
5. Compensation
Other Than Severance Payments.
5.1 Following a Change in
Control and during the term of this Agreement, during any period
that the Executive fails to perform the Executive’s full-time
duties with the Company as a result of incapacity due to physical
or mental illness, the Company shall pay the Executive’s full
salary to the Executive at the rate in effect at the commencement
of any such period, together with all compensation and benefits
payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company
during such period, until the Executive’s employment is
terminated by the Company for Disability.
5.2 If the Executive’s
employment shall be terminated for any reason following a Change in
Control and during the term of this Agreement, the Company shall
pay the Executive’s full salary to the Executive through the
Date of Termination at the rate in effect at the time the Notice of
Termination is given, together with all compensation and benefits
payable to the Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or arrangement
maintained by the Company during such period.
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5.3 If the Executive’s
employment shall be terminated for any reason following a Change in
Control and during the term of this Agreement, the Company shall
pay to the Executive a lump sum amount, in cash, equal to the sum
of (i) any incentive compensation which has been allocated or
awarded to the Executive for a completed fiscal year or other
measuring period preceding the Date of Termination under any
incentive plan but has not yet been paid (pursuant to Section 5.2
hereof or otherwise), and (ii) a pro rata portion to the Date of
Termination of the value of any contingent incentive compensation
award to the Executive for all uncompleted periods under the plan
for the year (or other measuring period) in which the Date of
Termination occurs calculated by multiplying the target amount the
Executive could have earned under such plan by a fraction, the
numerator of which is the number of full months the Executive was
employed by the Company during the fiscal year of the Company in
which the Date of Termination occurs and the denominator of which
is 12.
5.4 If the Executive’s
employment shall be terminated for any reason following a Change in
Control and during the term of this Agreement, the Company shall
pay the Executive’s normal post-termination compensation and
benefits to the Executive as such payments become due. Such
post-termination compensation and benefits shall be determined
under, and paid in accordance with the provisions of, the
Company’s compensation or benefit plans, programs and
arrangements.
6. Severance
Payments.
6.1 Subject to Section 6.2
hereof, the Company shall pay the Executive the payments described
in this Section 6.1 (the “ Severance Payments” )
upon the termination of the Executive’s employment following
a Change in Control and during the term of this Agreement, in
addition to the payments and benefits described in Section 5
hereof, unless such termination is (i) by the Company for Cause,
(ii) by reason of death, Disability or Retirement, or (iii) by the
Executive without Good Reason. The Executive’s
employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive
with Good Reason if the Executive’s employment is terminated
prior to a Change in Control without Cause at the direction of a
Person who (i) has entered into an agreement with the Company the
consummation of which will constitute a Change in Control or (ii)
has caused a Potential Change in Control to occur, or if the
Executive terminates his employment with Good Reason prior to a
Change in Control (determined by treating a Potential Change in
Control as a Change in Control in applying the definition of Good
Reason) if the circumstance or event which constitutes Good Reason
occurs at the direction of such Person.
(a) In lieu of any
further salary payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance benefit
otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to 250% of
the sum of (i) the higher of the Executive’s annual base
salary in effect immediately prior to the occurrence
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of the event or circumstance upon which the Notice of
Termination is based or in effect immediately prior to the Change
in Control, and (ii) the higher of the target amount which the
Executive could have earned under the Company’s annual
incentive plan in the year in which the Date of Termination occurs
or such target amount in the year in which the Change in Control
occurs.
(b) For an eighteen (18)
month period after the Date of Termination, the Company shall, at
its cost (provided that Executive shall continue to be responsible
to pay the standard employee portion of such cost), arrange to
provide the Executive with life, disability, accident, health and
dental insurance benefits substantially similar to those which the
Executive is receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such
benefits subsequent to a Change in Control which reduction
constitutes Good Reason). Benefits otherwise receivable by
the Executive pursuant to this Section 6.1(b) shall be reduced to
the extent comparable benefits are actually received by or made
available to the Executive by a new employer of the Executive
without cost during the eighteen (18) month period following the
Executive’s termination of employment (and any such benefits
actually received by the Executive shall be reported to the Company
by the Executive). If the benefits provided to the Executive
under this Section 6.1(b) shall result in a decrease, pursuant to
Section 6.2, in the Severance Payments and these Section 6.1(b)
benefits are thereafter reduced pursuant to the immediately
preceding sentence because of the receipt of comparable benefits,
the Company shall, at the time of such reduction, pay to the
Executive the lesser of (A) the amount of the decrease made in the
Severance Payments pursuant to Section 6.2, or (B) the maximum
amount which can be paid to the Executive without being, or causing
any other payment to be, nondeductible by reason of Section 280G of
the Code.
6.2 Notwithstanding any other
provisions of this Agreement (except the provisions of Section 6.5
below), in the event that any payment or benefit received or to be
received by the Executive in connection with a Change in Control or
the termination of the Executive’s employment (whether
pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the
Company or such Person) (all such payments and benefits, including
the Severance Payments, being hereinafter called “ Total
Payments” ) would not be deductible (in whole or part),
by the Company, an affiliate or any Person making such payment or
providing such benefit as a result of Section 280G of the Code,
then, to the extent necessary to make such portion of the Total
Payments deductible (and after taking into account any reduction in
the Total Payments provided by reason of Section 280G of the Code
in such other plan, arrangement or agreement), (A) the cash
Severance Payments shall first be reduced (if necessary, to zero),
and (B) all other non-cash Severance Payments shall next be reduced
(if necessary, to zero). For purposes of this limitation, (i)
no portion of the Total Payments the receipt or enjoyment of which
the Executive shall have effectively waived in writing prior to the
Date of Termination shall be taken into account, (ii) no portion of
the Total Payments
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shall be taken into account which in the opinion of tax counsel
selected by the Company’s independent auditors and reasonably
acceptable to the Executive does not constitute a “
parachute payment” within the meaning of Section
280G(b)(2) of the Code, including by reason of Section
280G(b)(4)(A) of the Code, (iii) the Severance Payments shall be
reduced only to the extent necessary so that the Total Payments
(other than those referred to in clauses (i) or (ii)) in their
entirety constitute reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4)(B) of the Code or
are otherwise not subject to disallowance as deductions, in the
opinion of the tax counsel referred to in clause (ii); and (iv) the
value of any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the
Company’s independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the
good faith of the Executive and the Company in applying the terms
of this Section 6.2, the aggregate “parachute payments”
paid to or for the Executive’s benefit are in an amount that
would result in any portion of such “parachute
payments” not being deductible by reason of Section 280G of
the Code, then the Executive shall have an obligation to pay the
Company upon demand an amount equal to the excess of the aggregate
“parachute payments” paid to or for the
Executive’s benefit over the aggregate “parachute
payments” that could have been paid to or for the
Executive’s benefit without any portion of such
“parachute payments” not being deductible by reason of
Section 280G of the Code.
6.3 The payments provided for
in Section 6.1 (other than Section 6.1(b)) hereof shall be made not
later than the fifth day following the Date of Termination,
provided, however, that if the amounts of such payments, and the
limitation on such payments set forth in Section 6.2 hereof, cannot
be finally determined on or before such day, the Company shall pay
to the Executive on such day an estimate, as determined in good
faith by the Company, of the minimum amount of such payments to
which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined but in no event later than the thirtieth (30th)
day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount determined by
the Company within six (6) months after payment to have been due,
such excess shall be paid by the Executive to the Company, no later
than the thirtieth (30th) business day after demand by the Company.
At the time that payments are made under this Section, the Company
shall provide the Executive with a written statement setting forth
the manner in which such payments were calculated and the basis for
such calculations including, without limitation, any opinions or
other advice the Company has received from outside counsel,
auditors or consultants (and any such opinions or advice which are
in writing shall be attached to the statement).
6.4 Following a Change in
Control (or a termination described in the second sentence of
Section 6.1), the Company also shall pay to the Executive all legal
fees and
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related expenses (including costs of experts, evidence and
counsel) incurred by the Executive as a result of any dispute in
connection with a termination of the Executive’s employment,
whether or not such dispute is resolved in the Executive’s
favor, but only if the dispute is pursued by the Executive in good
faith (including all such fees and expenses, if any, incurred in
respect of a dispute relating to any such termination or in the
Executive seeking in good faith to obtain or enforce any benefit or
right provided by this Agreement (or by any other plan or
arrangement
