CHANGE OF CONTROL AGREEMENT

THIS CHANGE OF CONTROL AGREEMENT (this “Agreement”), dated as of July 27, 2006
(the “Agreement”), is by and between Healthways, Inc., a Delaware corporation
(the “Company”), and Alfred Lumsdaine (the “Executive”).

WHEREAS, the Executive currently serves as an Officer of the Company in the
position of Senior Vice President; and

WHEREAS, the Company has determined that it is in the best interests of the
Company and its stockholders to secure the Executive’s continued services as an
Officer of the Company and to ensure the Executive’s continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change in Control of
the Company, without concern as to whether the Executive might be hindered or
distracted by personal uncertainties and risks created by any such possible or
actual Change in Control, and to encourage the Executive’s full attention and
dedication to the Company.

THEREFORE, intending to be legally bound, the parties agree as follows:

1.            Term. Subject to termination pursuant to Sections 4, 5 and 8
herein, the term of this Agreement (the “Term”) shall be for the period in which
the Executive serves as an Officer of the Company.

2.            Change of Control. For the purposes of this Agreement, a “Change
in Control” shall mean any of the following events:

(a)         any person or entity, including a “group” as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), other than the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its subsidiaries, becomes the
beneficial owner of the Company’s securities having 35% or more of the combined
voting power of the then outstanding securities of the Company that may be cast
for the election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course of
business); or

 

(b)         as the result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sales of assets or contested
election, or any combination of the foregoing transactions, less than a majority
of the combined voting power of the then outstanding securities of the Company
or any successor corporation or entity entitled to vote generally in the
election of the directors of the Company or such other corporation or entity
after such transaction are held in the aggregate by the holders of the Company’s
securities entitled to vote generally in the election of directors of the
Company immediately prior to such transaction; or

 

(c)         during any period of two (2) consecutive years, individuals who at
the beginning of any such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company’s

 

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stockholders, of each director of the Company first elected during such period
was approved by a vote of at least two-thirds of the directors of the Company
then still in office who were directors of the Company at the beginning of any
such period.

 

3.            Excise Tax Payment. If, in connection with a Change in Control, as
defined by Section 2 herein, the Internal Revenue Service asserts, or if the
Executive or the Company is advised in writing by an established accounting
firm, that any payment in the nature of compensation to, or for the benefit of,
the Executive from the Company (or any successor in interest) constitutes an
“excess parachute payment” under section 280G of the Internal Revenue Code
(“IRC”), whether paid pursuant to this Agreement or any other agreement, and
including property transfers pursuant to securities and other employee benefits
that vest upon a Change in Control (collectively, the “Excess Parachute
Payments”) the Company shall pay to the Executive, on demand, a cash sum equal
to the amount of excise tax due under section 4999 of the IRC on the entire
amount of the Excess Parachute Payments (excluding any payment pursuant to this
Section 5).

4.            Termination of Agreement. This Agreement shall terminate
immediately at such time as the Executive no longer serves as an Officer of the
Company.

5.             Benefits Pursuant to Change of Control. If, due to a Change of
Control, the Executive’s employment is terminated by the Company or Executive is
demoted or his/her officer title is reduced within twelve (12) months of the
Change of Control for any reason other than for cause, as defined herein, or, if
within twelve (12) months of a Change of Control the Executive Resigns for Good
Reason, as defined herein, the Executive shall be entitled to receive:

(a)          An amount equal to the Executive’s Monthly Base Salary (as of the
Notice of Termination) for a total of twelve (12) months following the Date of
Termination (herein defined as the date designated by the Company).

(b)          If permitted under the Company’s group medical insurance, group
medical benefits at the same rate as then in effect for the Company’s employees
for sixteen (16) months after the Date of Termination.

(c)          In the event the receipt of amounts payable pursuant to this
Section 5 within six (6) months of the Date of Termination would cause the
Executive to incur any penalty under Section 409A of the IRC, then payment of
such amounts shall be delayed until the date that is six (6) months following
the Date of Termination.

(d)          All outstanding stock options, restricted stock, restricted stock
units and any other vested equity incentives shall remain exercisable solely in
accordance with the terms of the stock option agreements or restricted stock
agreements to which the Company and the Executive are parties on the Date of
Termination. All unvested equity incentives shall terminate on the Date of
Termination.

(e)          All amounts contributed by the Company to the Capital Accumulation
Plan (“CAP”) for the benefit of the Executive that have vested shall be paid out
in accordance

 

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with the terms of the CAP as in effect on the Date of Termination. The Executive
shall not be entitled to receive any unvested Company contributions to the CAP.

(f)           In addition to the benefits listed above, the Executive may elect
to receive an enhanced benefit of four (4) months of the Executive’s Monthly
Base Salary, upon execution of a full release of claims in favor of the Company.
Such payment shall be made to the Executive periodically at the regular payroll
dates commencing as of the Date of Termination.

6.             Assignment; Binding Agreement . This Agreement shall inure to the
benefit of and be enforceable by the Executive and his/her personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him/her hereunder had the Executive continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to his/her devisee, legatee or other designee or, if
there is no such designee, to his/her estate.

7.             Confidentiality; Non-Competition; Non-Solicitation.

(a)          The Executive acknowledges that: (i) the business of providing care
support services and health support services in which the Company is engaged
(the “Business”) is intensely competitive and that the Executive’s employment by
the Company will require that the Executive have access to and knowledge of
confidential information of the Company relating to its business plans,
financial data, marketing programs, client information, contracts and other
trade secrets, in each case other than as and to the extent such information is
generally known or publicly available through no violation of this Agreement by
the Executive, (ii) the use or disclosure of such information other than in
furtherance of the Business may place the Company at a competitive disadvantage
and may do damage, monetary or otherwise, to the Business; and (iii) the
engaging by the Executive in any of the activities prohibited by this Section
shall constitute improper appropriation and/or use of such information. The
Executive expressly acknowledges the trade secret status of the Company’s
confidential information and that the confidential information constitutes a
protectable business interest of the Company. Other than as may be required in
the performance of his/her duties, the Executive expressly agrees not to divulge
such confidential information to anyone outside the Company without prior
permission.

(b)          The “Company” (which shall be construed to include the Company, its
subsidiaries and their respective affiliates) and the Executive agree that for a
period of sixteen (16) months after the Date of Termination if the Executive’s
employment is terminated due to a Change of Control pursuant to Section 2 of
this Agreement, the Executive shall not:

(i)           engage in Competition, as defined below, with the Company or its
subsidiaries within any market where the Company is conducting the Business as
of termination of the Executive’s employment. For purposes of this Agreement,
“Competition” by the Executive shall mean the Executive’s being employed by or
acting as a consultant or lender to, or being a director, officer, employee,
principal, agent, stockholder, member, owner or partner of, or permitting
his/her name to be used in connection with the activities of any entity engaged
in the Business, provided that, it shall not be a violation of this
sub-paragraph for the Executive to become the registered or

 

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beneficial owner of less than five percent (5%) of any class of the capital
stock of any one or more competing corporations registered under the 1934 Act,
provided that, the Executive does not participate in the business of such
corporation until such time as this covenant expires; and

(ii)         Executive further agrees that he/she will not, directly or
indirectly, for his/her benefit or for the benefit of any other person or
entity, do any of the following:

(A)         solicit from any customer doing business with the Company as of the
Executive’s termination, business of the same or of a similar nature to the
Business of the Company with such customer; (B) solicit from any known potential
customer of the Company business of the same or of a similar nature to that
which, to the knowledge of the Executive, has been the subject of a written or
oral bid, offer or proposal by the Company, or of substantial preparation with a
view to making such a bid, proposal or offer, within sixteen (16) months prior
to the Date of Termination; or (C) recruit or solicit the employment or services
of any person who was employed by the Company on the Date of Termination of the
Executive’s employment and is employed by the Company at the time of such
recruitment or solicitation.

(c)          The Executive acknowledges that a breach or threatened breach of
any part of this Section 7 could cause a loss of significant value to the
Company, which loss may not be reasonably or adequately compensated for by
damages in an action at law, and that a breach or threatened breach by Executive
of any of the provisions contained in this Section will cause the Company
irreparable injury. The Executive therefore agrees that the Company will be
entitled, in addition to any other right or remedy, to a temporary, preliminary
and permanent injunction, without the necessity of proving the inadequacy of
monetary damages or the posting of any bond or security, enjoining or
restraining the Executive from any violation or threatened violations. The
Executive acknowledges that the terms of this Section and its obligations are
reasonable and will not prohibit Executive from being employed or employable in
the health care industry.

(d)          If any one or more of the provisions contained in this Agreement
shall be held to be excessively broad as to duration, activity or subject, such
provisions shall be construed by limiting and reducing them so as to be
enforceable to the fullest extent permitted by law.

8.             Termination for Cause; Termination by Executive for Good Reason

(a)          The Executive’s employment may be terminated by the CEO, acting in
good faith, by written notice to the Executive specifying the event(s) relied
upon for such termination upon the occurrence of any of the following events
(each of which shall constitute “Cause” for termination):

(i)           the continued failure by the Executive to substantially perform
his/her duties after written notice and failure to cure within sixty (60) days;

 

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(ii)          conviction of a felony or engaging in misconduct which is
materially injurious to the Company, monetarily or to its reputation or
otherwise, or which would damage Executive’s ability to effectively perform
his/her duties;

(iii)           theft or dishonesty by the Executive;

(iv)           intoxication while on duty; or

(v)          willful violation of Company policies or procedures after written
notice and failure to cure within thirty (30) days.

(b)          Within twelve (12) months of a Change of Control, the Executive’s
employment may be terminated by the Executive by written notice of his/her
resignation delivered within sixty (60) days after the occurrence of any of the
following events, each of which shall constitute “Good Reason” for resignation:

(i)           a reduction in the Executive’s Base Salary (unless such reduction
is part of an across the board reduction affecting all Company executives with a
comparable title);

(ii)          a requirement by the Company to relocate the Executive to a
location that is greater than twenty-five (25) miles from the location of the
office in which the Executive performs his/her duties at the time of such
relocation;

(iii)         a reduction in the Executive’s title, or a material and adverse
change in Executive’s status and responsibilities, or the assignment to
Executive of duties or responsibilities which are materially inconsistent with
Executive’s status and responsibilities; or

(iv)         in connection with a Change in Control, a failure by the successor
person or entity, or the Board, either to honor this Agreement or to present the
Executive with an employment agreement containing provisions satisfactory to the
Executive and which is executed by the Executive.

9.            Entire Agreement. This Agreement contains all the understandings
between the parties pertaining to the matters referred to herein, and supersedes
any other undertakings and agreements, whether oral or written, previously
entered into by them with respect thereto. The Executive represents that, in
executing this Agreement, he/she does not rely and has not relied upon any
representation or statement not set forth herein made by the Company with regard
to the subject matter or effect of this Agreement or otherwise and that
Executive has had the opportunity to be represented by counsel of his/her
choosing. In the event any of the provisions of this Agreement conflict with or
are inconsistent with the provisions of an employment agreement, if any, between
the Executive and the Company in force as of a Change of Control, such
employment agreement controls.

10.          Amendment or Modification; Waiver. No provision of this Agreement
may be amended or waived, unless such amendment or waiver is agreed to in
writing, signed by the Executive and by a duly authorized officer of the
Company. No waiver by any party hereto of

 

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any breach by another party hereto of any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same time, any prior time or
any subsequent time.

11.          Notices. Any notice to be given hereunder shall be in writing and
shall be deemed given when delivered personally, sent by courier, facsimile or
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice in writing:

To the Executive at:

To the Company at:

Mr. Chris Cigarran
Senior Vice President of Human Resources
Healthways, Inc.
3841 Green Hills Village Drive
Nashville, Tennessee 37215

 

Any notice delivered personally or by courier shall be deemed given on the date
delivered. Any notice sent by facsimile, registered or certified mail, postage
prepaid, return receipt requested, shall be deemed given on the date transmitted
by facsimile or mailed.

 

12.          Severability. If any provision of this Agreement or the application
of any such provision to any party or circumstances shall be determined by any
unenforceable, shall not be affected thereby, and each provision hereof shall be
validated and shall be enforced to the fullest extent permitted by law.

13.          Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. However,
nothing in this Agreement is intended to obligate the Company to employ or
continue to employ Executive for any set period of time or otherwise to create
an employment contract.

14.          Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Tennessee, without regard to the
principles of conflicts of law thereof.

15.          Headings. All descriptive headings of sections and paragraphs in
this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.

16.          Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

 

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                IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of date set forth above.

 

                

 

HEALTHWAYS, INC.

 

 

 

By: /s/ Chris Cigarran                          

 

 

Name:   Chris Cigarran                                                 

 

 

Title: Senior Vice President of Human Resources      

 

 

 

 

EXECUTIVE

 

/s/ Alfred Lumsdaine                

Alfred Lumsdaine

 

 

 

 

 

 

 

 

 

 

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