Document:

ex10-2_010611.htm

Exhibit 10.2

 

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT dated as of December 31, 2010 (the “Agreement”), is by and between Healthways, Inc., a Delaware corporation (the “Company”), and Alfred Lumsdaine (the “Executive”). This Agreement replaces and supersedes any other agreement between the Company and Executive.

WHEREAS, the Company desires that the Executive serve or continue to serve as Vice President and Chief Financial Officer (“CFO”) and the Executive desires to hold such position under the terms and conditions of this Agreement; and

 

 

WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company.

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

	
I.

	
EMPLOYMENT. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein.

	
II.

	
TERM. Subject to termination as stated in Section VI, the term of employment of the Executive pursuant to this Agreement (as the same may be extended, the “Term”) shall commence on January 1, 2011 (the “Effective Date”), and shall have a continuous term of sixteen (16) months thereafter.

	
III.

	
POSITION. During the Term, the Executive shall serve as CFO of the Company performing duties commensurate with the position and such additional duties as the Company shall determine. If asked, the Executive agrees to serve, without any additional compensation, as a director on the Board of Directors of the Company (the “Board”) and/or the board of directors of any subsidiary of the Company, and/or in one or more officer positions with the Company and/or any subsidiary of the Company. If the Executive’s employment is terminated for any reason, whether such termination is voluntary or involuntary, the Executive shall resign as a director and officer of the Company (and any of its subsidiaries), such resignation to be effective no later than the date of termination of the Executive’s employment with the Company.

	
IV.

	
DUTIES. During the Term, the Executive shall devote his full time and attention during normal business hours to the business and affairs of the Company; provided, however, that it shall not be a violation of this Agreement for the Executive with the approval of the Company to devote reasonable periods of time to charitable and community activities and industry or professional activities, and/or to manage personal investments, so long as such activities do not interfere with the performance of the Executive’s responsibilities under this Agreement.

  

  

  

V.           COMPENSATION

	
  

	
A.

	
Base Salary. The Executive’s initial base salary as of the Effective Date is $325,000. Effective January 1 of each calendar year after the Effective Date during the Term of this Agreement, upon the recommendation of the Chief Executive Officer (“CEO”), the Board (or a committee of the Board) shall review the Executive’s base salary and may increase such amount if and as it may deem advisable. Such initial base salary, as it may be increased during the Term, is defined as the “Base Salary.” The Base Salary shall be payable in substantially equal installments in accordance with the Company’s normal payroll practices, and is subject to all proper taxes and withholding. The Base Salary rate at which the Executive is being compensated on the Date of Termination (as defined below) shall be the Base Salary rate used in determining all severance amounts payable to the Executive hereunder.

	
  

	
B.

	
Bonus Plan. Such bonus, if any, as shall be determined upon the recommendation of the CEO by the Board (or any designated Committee of the Board comprised solely of independent directors), shall be paid in accordance with the terms and conditions of the bonus plan established for the Company (“Bonus Plan”).

	
  

	
C.

	
Long Term Incentive Awards. During the Term, upon the recommendation of the CEO, the Board (or any designated committee of the Board comprised solely of independent directors) will consider, in its sole discretion, long term incentive awards to the Executive pursuant to the Company’s equity incentive plans.

	
  

	
D.

	
Other Benefits. In addition to the benefits specifically provided for herein, during the Term the Executive shall be entitled to participate in all benefit plans maintained by the Company for officers generally according to the terms of such plans.

	
VI.

	
TERMINATION OF AGREEMENT. The Executive’s employment under this Agreement shall not be terminated except as set forth in this Section. Any reference to the date of delivery of a notice of termination or resignation by either the Company or the Executive in this Section VI shall constitute the “Date of Termination,” unless otherwise set forth herein.  For purposes of this Agreement, the Executive will be deemed to have terminated employment when the Executive has a “separation from service” from the Company as determined in accordance with Treasury Regulation 1.409A-1(h).

	
  

	
A.

	
By Mutual Consent. The Executive’s employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive upon such terms as are agreed upon between the parties.

	
  

	
B.

	
Death. If Executive dies during the Term of this Agreement, the Company shall pay his Base Salary due through the date of his death to the Executive’s designated beneficiary plus a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the time of his death, which Bonus Plan amount will be determined and paid after the end of the fiscal year for which the Bonus Plan was in place.  The amount of Base Salary due through the date of the Executive’s death shall be paid to his designated beneficiary within thirty (30) days of the Executive’s death, with the date of such payment chosen by the Company in its sole discretion. Any bonus shall be paid at such time designated in the Bonus Plan. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties at the time of his death. In addition, all amounts contributed by the Company to the Capital Accumulation Plan (“CAP”) for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect at the time of the Executive’s death. The Company shall then have no further obligations to the Executive or any representative of his estate or his heirs except that Executive’s estate or beneficiaries, as the case may be, shall be paid such amounts as may be payable under the Company’s life insurance policies and other plans as they relate to benefits following death then in effect.

  

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C.

	
Disability

	
  

	
1.

	
The Executive’s employment may be terminated by written notice by either party to the other party, when:

	
  

	
a.

	
the Executive suffers a physical or mental disability entitling the Executive to long-term disability benefits under the Company’s long-term disability plan, if any, or

	
  

	
b.

	
in the absence of a Company long-term disability plan, the Executive is unable, as determined by the Board (or any designated Committee of the Board), to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months.

	
  

	
2.

	
If the Executive’s employment is terminated under this Section (C), the Executive shall be entitled to receive:

	
  

	
a.

	
all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;

  

3

  

	
  

	
b.

	
an amount equal to the Executive’s Base Salary for a total of eighteen (18) months following the Date of Termination; and

 

	
  

	
c.

	
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 two (2) years after the Date of Termination; provided, that if the Executive instead elects continuation of group benefits under COBRA, the Company shall pay the full cost of the premiums for two (2) years following the Date of Termination.  The costs of the Company’s portion of any premiums due under this clause (c) shall be included in the Executive’s gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”).

	
  

	
3.

	
The amounts in clause 2(b) above shall be reduced by any disability insurance payments the Executive receives as a result of his disability, and shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company.  Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.

	
  

	
D.

	
By the Company for Cause

	
  

	
1.

	
The Executive’s employment may be terminated by the Board upon recommendation of the CEO, both 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):

	
  

	
a.

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

  

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b.

	
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 duties;

	
  

	
c.

	
theft or dishonesty by the Executive;

	
  

	
d.

	
intoxication while on duty; or

	
  

	
e.

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

	
  

	
2.

	
If the Executive’s employment is terminated under this Section (D), the Executive shall be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, and no more.

	
  

	
3.

	
In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, 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 award 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. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive that have vested shall be paid out in accordance 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.

	
  

	
E.

	
By the Company Without Cause

	
  

	
1.

	
The Executive’s employment may be terminated by the Board upon recommendation of the CEO at any time without Cause by delivery of a written notice of termination to the Executive. If the Executive’s employment is terminated under this Section (E), the Executive shall be entitled to receive:

	
  

	
a.

	
all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;

  

5

  

	
  

	
b.

	
an amount equal to the Executive’s Base Salary for a total of eighteen (18) months following the Date of Termination; and

	
  

	
c.

	
group medical benefits for eighteen (18) months after the Date of Termination. The costs of the Company’s portion of any premiums due under this clause (c) shall be included in the Executive’s gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”).

	
  

	
2.

	
The amount in clause 1(b) above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof.  In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.

	
  

	
F.

	
By the Executive for Good Reason

	
  

	
1.

	
The Executive’s employment may be terminated by the Executive by written notice of his resignation delivered within sixty (60) days after the occurrence of any of the following events, each of which shall constitute “Good Reason” for resignation:

	
  

	
a.

	
a material 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);

	
  

	
b.

	
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 duties hereunder at the time of such relocation;

  

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c.

	
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 substantially similar to this Agreement or otherwise satisfactory to the Executive and which is executed by the Executive; or

	
  

	
d.

	
a material 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.

	
  

	
2.

	
The Executive shall give the Company written notice of his intention to resign for Good Reason (stating the reason therefor) within sixty (60) days after the occurrence of one of the events stated in subparagraphs (a), (b), (c) or (d) above (the “Good Reason Events”) and the Company shall have sixty (60) days (the “Cure Period”) thereafter to rescind the Good Reason Event(s), in which event the Executive no longer shall have the right to resign for Good Reason. If the Company fails to rescind the Good Reason Event(s) before the expiration of the Cure Period, then the Executive may resign for Good Reason and receive the benefits described below so long as the resignation for Good Reason occurs within thirty (30) days following the expiration of the Cure Period, otherwise the right to resign on the basis of that Good Reason Event(s) shall be deemed to have been waived.   If the Executive resigns for Good Reason as defined in this Section (F), the Executive shall be entitled to receive:

	
  

	
a.

	
all Base Salary and benefits due to the Executive under this Agreement through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;

	
  

	
b.

	
an amount equal to Executive’s Base Salary for a total of eighteen (18) months following the Date of Termination; and

	
  

	
c.

	
group medical benefits for eighteen (18) months after the Date of Termination.  The costs of the Company’s portion of any premiums due under this clause (c) shall be included in the Executive’s gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”).

  

7

  

	
  

	
3.

	
The amount in clause 2(b) above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company.  Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.

	
  

	
G.

	
By the Executive Without Good Reason

	
  

	
1.

	
The Executive may terminate his employment at any time by delivery of a written notice of resignation to the Company no less than sixty (60) days and no more than ninety (90) days prior to the effective date of the Executive’s resignation. The Executive shall receive all Base Salary and benefits due under this Agreement through the next payroll date following the Date of Termination, and no more.

	
  

	
2.

	
Although the Executive is not entitled to any severance amount in the event of termination pursuant to this Section (G), the Executive may reduce the term of the non-compete and non-solicitation covenants in Section IX hereof, from twenty-four (24) months to eighteen (18) months, upon execution of a full release of claims in favor of the Company. Furthermore, 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 award 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. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive that have vested shall be paid out in accordance 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.

	
  

	
H.

	
Following a Change in Control

  

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1.

	
If the Executive’s termination of employment without Cause (pursuant to Section VI(E)) or for Good Reason (pursuant to Section VI(F)) occurs within twelve (12) months following a Change in Control, then the amounts payable pursuant to Section VI(E) or Section VI(F) above, as the case may be, shall be referred to as the “Change in Control Severance Amount,” and shall be paid to Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion.  In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll dates) upon his or her execution of a full release of claims in favor of the Company. Payments pursuant to this Section VI(H) shall be made in lieu of, but not in addition to, any payment under any other paragraph of this Section VI. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.

	
  

	
2.

	
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);

	
  

	
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

  

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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 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, 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 Code, 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 Code on the entire amount of the Excess Parachute Payments (excluding any payment pursuant to this Section VI(H)(3)) (the “Gross-up Amount”).  The payment of the "Gross-up Amount" due to the Executive under this Section VI(H)(3) shall be paid as soon as reasonably possible following demand of payment by the Executive, but in no event later than December 31 of the year following the year (A) any tax is paid to the Internal Revenue Service regarding this Section VI(H)(3) or (B) any tax audit or litigation brought by the Internal Revenue Service or other relevant taxing authority related to this Section VI(H)(3) is completed or resolved.

 

	
  

	
I.

	
Delay of Payments Pursuant to Section 409A.  It is intended that (1) each installment of the payments provided under this Agreement is a separate “payment” for purposes of Section 409A of the Code and (2) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(9)(iii), and 1.409A-1(b)(9)(v).  Notwithstanding anything to the contrary in this Agreement, if the Company determines (i) that on the date the Executive’s employment with the Company terminates or at such other time that the Company determines to be relevant, the Executive is a “specified employee” (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Company and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement then such payments shall be delayed until the date that is six months after the date of the Executive’s “separation from service” (as such term is defined under Treasury Regulation 1.409A-1(h)) with the Company, or, if earlier, the date of the Executive’s death.  Any payments delayed pursuant to this Section VI(I) shall be made in a lump sum on the first day of the seventh month following the Executive’s “separation from service” (as such term is defined under Treasury Regulation 1.409A-1(h)), or, if earlier, the date of the Executive’s death. In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which the Executive participates during the term of Executive’s employment under this Agreement or thereafter provides for a "deferral of compensation" within the meaning of Section 409A of the Code, (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), and (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred.

  

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VII.

	
REPRESENTATIONS. The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement.

	
VIII.

	
ASSIGNMENT, BINDING AGREEMENT. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his 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 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 devisee, legatee or other designee or, if there is no such designee, to his estate.

IX.           CONFIDENTIALITY, NON-COMPETITION, NON-SOLICITATION

	
  

	
A.

	
The Executive acknowledges that:

	
  

	
1.

	
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;

  

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2.

	
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

	
  

	
3.

	
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 duties, 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 eighteen (18) months after the Date of Termination if the Executive’s employment is terminated under Sections VI(C), (D), (E), (F) or (H), and for a period of twenty-four (24) months after the Date of Termination if the Executive’s employment is terminated under Section VI(G), the Executive shall not:

	
  

	
1.

	
engage in Competition, as defined below, with the Company or its subsidiaries within any market where the Company is conducting the Business at the time of termination of the Executive’s employment hereunder. 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 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 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

	
  

	
2.

	
The Executive further agrees that he will not, directly or indirectly, for his 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 eighteen (18) months prior to the Executive’s termination; or

  

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c.

	
recruit or solicit the employment or services of any person who was employed by the Company upon termination of the Executive’s employment and is employed by the Company at the time of such recruitment or solicitation.

	
  

	
3.

	
The Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character, which causes this Agreement to be of significant value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by him 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 such violation or threatened violations. The Executive acknowledges that the terms of this Section IX and its obligations are reasonable and will not prohibit him from being employed or employable in the health care industry.

	
  

	
C.

	
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.

	
X.

	
ENTIRE AGREEMENT. This Agreement, together with Exhibit A attached hereto, 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 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 choosing.

	
XI.

	
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 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.

  

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XII.

	
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:

Alfred Lumsdaine                                                                             Chief Executive Officer

                                                                                                            Healthways, Inc.

                                                                                                                            701 Cool Springs Boulevard

                                                    Franklin, TN 37067

	 	
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.

	
XIII.

	
SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law.

	
XIV.

	
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.

	
XV.

	
GOVERNING LAW; VENUE. 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, and venue shall be the United States District Court for the Middle District of Tennessee.

	
XVI.

	
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.

	
XVII.

	
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 Employment Agreement effective as of date set forth above.

                                                                                                HEALTHWAYS, INC.

By:  /s/ Ben R. Leedle, Jr.                      

Name:  Ben R. Leedle, Jr.                       

Title:   CEO                                               

 

Date:  12/31/2010                                    

EXECUTIVE

/s/ Alfred Lumsdaine                     

                           Alfred Lumsdaine

 

 

  

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EXHIBIT A

Exceptions

Notwithstanding anything in the Agreement to the contrary, the following terms are also part of the Agreement and supersede any contradictory term contained therein:

  

16form8k2011ex101employagree.htm

Exhibit 10.1

EMPLOYMENT AGREEMENT

This sets forth the terms of the Employment Agreement executed on January 3, 2011 between (i) COMMUNITY BANK SYSTEM, INC., a Delaware corporation and registered bank holding company (“CBSI”), and COMMUNITY BANK, N.A., a national banking association (“CBNA”), both having offices located in Dewitt, New York (collectively, the "Employer"), and (ii) SCOTT A. KINGSLEY, an individual currently residing at Manlius, New York ("Employee").  This Agreement is effective as of January 1, 2011 and supersedes the Employment Agreement between the parties dated April 4, 2008.

W I T N E S S E T H

IN CONSIDERATION of the promises and mutual agreements and covenants contained herein, and other good and valuable consideration, the parties agree as follows:

1.           Employment.

(a)           Term.  Employer shall continue to employ Employee, and Employee shall continue to serve, as Executive Vice President and Chief Financial Officer, for CBSI and CBNA for a term commencing on January 1, 2011 and ending on December 31, 2013 ("Period of Employment"), subject to termination as provided in paragraph 3 hereof.

(b)           Salary.  During the Period of Employment, Employer shall pay Employee a base salary at the annual rate of not less than $330,000.00 ("Base Salary").  Employee's Base Salary for calendar years after 2011 shall be reviewed and adjusted annually in accordance with Employer's regular practice for executive employees. Employee’s Base Salary is payable in accordance with Employer’s regular payroll practices for executive employees.

 

  

  

  

 

(c)           Incentive Compensation.  During the Period of Employment, Employee shall be entitled to annual incentive compensation as a Tier 2 Executive of the Employer pursuant to the terms of the Management Incentive Plan, which has been approved by the Board of Directors of Employer to cover Employee and other key personnel of Employer, as well as other incentive plans that may be established by Employer and that are applicable to Employer’s executives of similar salary tier to Employee. Upon termination of Employee's employment pursuant to subparagraph 3(a), 3(b), 3(c) or 6, Employee shall be entitled to a pro rata portion (based on Employee's complete months of employment in the applicable year) of the annual incentive awards that are payable with respect to the year during which the termination occurs or, if the annual awards for such year are not determinable at the termination date, then the immediately prior year’s awards shall be used to determine such pro rata portion.

2.           Duties during the Period of Employment.  As Employer’s Executive Vice President and Chief Financial Officer, Employee shall have full responsibility, subject to the control of Employer's President and Chief Executive Officer and/or the authorized designee of Employer’s Board of Directors, for the supervision of all assigned aspects of Employer's business and operations including all matters related to finance, accounting, investor relations, and financial services subsidiaries, and the discharge of such other duties and responsibilities to Employer, not inconsistent with such position, as may from time to time be reasonably assigned to Employee by Employer's President and Chief Executive Officer, or the authorized designee of Employer’s Board of Directors.  Employee shall report to the Employer’s President and Chief Executive Officer.  Employee shall devote Employee's best efforts to the affairs of Employer, serve faithfully and to the best of Employee's ability and devote all of Employee's working time and attention, knowledge, experience and skill to the business of Employer, except that Employee may affiliate with professional associations, and business, civic and charitable organizations, provided that such services and affiliations do not unreasonably interfere with the performance of Employee’s duties under this Agreement.  Employee shall serve on the Board of Directors of, or as an officer of Employer’s affiliates, without additional compensation if requested to do so by the Board of Directors of Employer. Employee shall receive only the compensation and other benefits described in this Agreement for Employee’s services to affiliates of Employer.

 

  

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3.           Termination.  Employee's employment by Employer shall be subject to termination as follows:

(a)           Expiration of the Term.  This Agreement shall terminate automatically at the expiration of the Period of Employment unless the parties enter into a written agreement extending Employee's employment, except for the continuing obligations of the parties as specified hereunder.

(b)           Termination Upon Death.  This Agreement shall terminate upon Employee's death.  In the event this Agreement is terminated as a result of Employee's death, Employer shall continue payments of Employee's Base Salary for a period of 90 days following Employee's death to the beneficiary designated by Employee on the "Beneficiary Designation Form" attached to this Agreement as Appendix A.  Any restrictions on shares of CBSI stock previously granted to Employee shall be waived as of the date of death and Employee’s beneficiary shall be free to dispose of any restricted stock previously granted to Employee by Employer. Additionally, Employer shall treat as immediately exercisable all unexpired stock options issued by Employer and held by Employee that are not exercisable or that have not been exercised, so as to permit the Beneficiary to purchase the balance of CBSI stock not yet purchased pursuant to said options until the end of the full exercise period provided in the original grant of the option right, determined without regard to Employee’s death or termination of employment.

 

  

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(c)           Termination Upon Disability.  Employer may terminate this Agreement upon Employee's disability.  For the purpose of this Agreement, Employee's inability to perform substantially all of Employee's duties under this Agreement by reason of physical or mental illness or injury for a period of 26 successive weeks (the "Disability Period") shall constitute disability.  The determination of disability shall be made by a physician selected by Employer and a physician selected by Employee; provided, however, that if the two physicians so selected shall disagree, the determination of disability shall be submitted to arbitration in accordance with the rules of the American Arbitration Association and the decision of the arbitrator shall be binding and conclusive on Employee and Employer.  During the Disability Period, Employee shall be entitled to 100% of Employee's Base Salary otherwise payable during that period, reduced by all other Employer-provided income replacement benefits to which Employee may be entitled for the Disability Period on account of such disability (including, but not limited to, benefits provided under any disability insurance policy or program, workers' compensation law, or any other benefit program or arrangement).  Upon termination pursuant to this disability provision, any restrictions on shares of CBSI stock previously granted to Employee shall be waived and Employee shall be free to dispose of any restricted stock granted to Employee.  Additionally, Employer shall treat as immediately exercisable all unexpired stock options issued by Employer and held by Employee that are not exercisable or that have not been exercised, so as to permit the Employee to purchase the balance of CBSI Stock not yet purchased pursuant to said options until the end of the full exercise period provided in the original grant of the option right, determined without regard to Employee’s disability or termination of employment.

 

  

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(d)           Termination for Cause.  Employer may terminate Employee's employment immediately for "cause" by written notice to Employee.  For purposes of this Agreement, a termination shall be for "cause" if the termination results from any of the following events:

(i)           Employee’s willful breach of any material provision of this Agreement, which breach Employee shall have failed to cure within thirty (30) days following Employer’s written notice to Employee specifying the nature of the breach;

(ii)           Any documented misconduct by Employee as an executive or director of Employer, or any subsidiary or affiliate of Employer for which Employee is performing services hereunder, which is material and adverse to the interests, monetary or otherwise, of Employer or any subsidiary or affiliate of Employer;

(iii)           Unreasonable neglect or refusal to perform the duties assigned to Employee under or pursuant to this Agreement, unless cured within thirty (30) days following Employer’s written notice to Employee specifying the nature of the neglect or refusal;

(iv)           Conviction of a crime involving any act of dishonesty, acts of moral turpitude, or the commission of a felony;

(v)           Adjudication as a bankrupt, which adjudication has not been contested in good faith, unless bankruptcy is caused directly by Employer's unexcused failure to perform its obligations under this Agreement;

 

  

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(vi)           Documented failure to follow the reasonable, written instructions of the Board of Directors of Employer or Employer’s President and Chief Executive Officer, provided that the instructions do not require Employee to engage in unlawful conduct; or

(vii)           A willful violation of a material rule or regulation of the Office of the Comptroller of the Currency or of any other regulatory agency governing Employer or any subsidiary or affiliate of Employer.

Notwithstanding any other term or provision of this Agreement to the contrary, if Employee's employment is terminated for cause, Employee shall forfeit all rights to payments and benefits otherwise provided pursuant to this Agreement; provided, however, that Base Salary shall be paid through the date of termination.

(e)           Termination For Reasons Other Than Cause.  In the event Employer terminates Employee’s employment during the Period of Employment or within 24 months following the expiration of the Period of Employment, for reasons other than “cause” (as defined in paragraph 3(d)), then Employee shall be entitled to a severance benefit equal to the greater of (i) 175 percent of the sum of Employee’s annual Base Salary in effect at the time of termination and the aggregate sum of all payments made to Employee during the 12 months preceding Employee’s termination pursuant to the Management Incentive Plan (or equivalent successor plan), or (ii) amounts of Base Salary and expected Management Incentive Plan (or equivalent successor plan) payments that otherwise would have been payable through the balance of the unexpired term of this Agreement. Unless Employee is a “specified employee” (as determined in accordance with Internal Revenue Code Section 409A), the benefit payable pursuant to this paragraph 3(e) shall be payable in equal biweekly installments over the 12 month period that begins on the first day of the month following Employee’s termination.  If Employee is a ”specified employee” (as determined in accordance with Internal Revenue Code Section 409A), then installment payments during the first six months of the 12 month installment period shall be limited to the extent required by Internal Revenue Code Section 409A, any unpaid installment amounts shall be paid immediately after such six-month period and installment payments due during the remaining six months shall be paid as scheduled.

 

  

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In addition to the cash benefit described in the foregoing of this paragraph 3(e), Employer shall: (iii) waive all restrictions on all CBSI stock previously granted to Employee and permit Employee to dispose of any restricted stock; and (iv) treat as immediately exercisable all unexpired stock options held by Employee that are not exercisable or that have not been exercised, so as to permit Employee to purchase the balance of CBSI stock not yet purchased pursuant to said options until the end of the full exercise period provided in the original grant of the option right determined without regard to Employee’s termination of employment.

Notwithstanding the foregoing, amounts payable under clauses (i) or (ii) of this paragraph 3(e) shall be reduced by any payments made to Employee under paragraphs 6(a)(i) and (ii) of this Agreement and any payments made to Employee under any severance or similar plan, policy or program maintained by Employer.

(f)           Employer shall have the right of first refusal to purchase from Employee or Employee’s estate, shares of CBSI stock acquired pursuant to the exercise of stock options after the date of Employee’s termination of employment for any reason, in the event Employee or Employee’s estate elects to dispose or transfer such acquired shares. Such right of first refusal shall expire ten years from the date of termination.  Employee (or Employee’s estate, as the case may be) shall provide Employer with not less than 30 days’ advance written notice of any disposition or transfer.  If Employer chooses to exercise its right of first refusal, it shall do so by written notice within 15 days of receipt of notice of disposition or transfer.  The purchase price per share to be paid by Employer upon any such exercise shall equal the closing price per share of shares of CBSI stock on the trading day that immediately precedes the date of exercise.

 

  

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4.           Fringe Benefits.

(a)           Benefit Plans.  During the Period of Employment, Employee shall be eligible to participate in any employee pension benefit plans (as that term is defined under Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended), Employer-paid group life insurance plans, medical plans, dental plans, long-term disability plans, business travel insurance programs and other fringe benefit programs maintained by Employer for the benefit of (or which are applicable to) its executive employees.  Participation in any of Employer's benefit plans and programs shall be based on, and subject to satisfaction of, the eligibility requirements and other conditions of such plans and programs.  Employer may require Employee to submit to an annual physical, to be performed by a physician of his own choosing.  Employee shall be reimbursed for related expenses not covered by Employer's health insurance plan, or any other plan in which Employee is enrolled.  Employee shall not be eligible to participate in Employer's Severance Pay Plan maintained for employees not covered by employment agreements.

(b)           Expenses.  Upon submission to Employer of vouchers or other required documentation, Employee shall be reimbursed for (or Employer shall pay directly) Employee's actual out-of-pocket travel and other expenses reasonably incurred and paid by Employee in connection with Employee's duties hereunder.  Reimbursable expenses must be submitted to the President and Chief Executive Officer of Employer, or the President and Chief Executive Officer’s designee, for review on no less than a quarterly basis.

 

  

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(c)           Other Benefits.  During the Period of Employment, Employee also shall be entitled to receive the following benefits:

(i)           Paid time-off of twenty-one (21) days each calendar year (with no carry over of unused time to a subsequent year) and any holidays that may be provided to all employees of Employer in accordance with Employer's holiday policy;

(ii)           Reasonable sick leave;

(iii)           Reimbursement of membership fees and dues (but not personal expenses) for up to two club memberships and other appropriate professional associations, subject to the approval of the President and Chief Executive Officer of Employer, the primary purpose of which memberships shall be the promotion of Employer’s business interests.  Reimbursements shall be made on or before the last day of Employee’s taxable year following the taxable year in which the expense was incurred;

(iv)           The use of an Employer-owned mobile telephone and all Employer related business charges incurred in connection with the use of such telephone; and

(v)           The use of an Employer-owned or Employer-leased late model automobile, the selection and replacement of which shall be subject to the approval of the President and Chief Executive Officer of Employer.

(d)           Supplemental Retirement Benefits.  The terms and conditions for the payment of supplemental retirement benefits are set forth in a separate written agreement between the parties.

 

  

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5.           Restricted Stock and Stock Options.  Employer shall cause the Compensation Committee of the Board of Directors of Employer to review whether Employee should be granted shares of restricted stock and/or options to purchase shares of common stock of CBSI.  Such review may be conducted pursuant to the terms of the Community Bank System, Inc. 2004 Long-Term Incentive Compensation Program, a successor plan, or independently, as the Compensation Committee shall determine.  Reviews shall be conducted no less frequently than annually.

6.           Change of Control.

(a)           If Employee's employment with Employer (as an employee) shall cease for any reason, including Employee's voluntary termination for “good reason” (as defined in paragraph 6(d) below), but not including Employee's termination for “cause”(as described in paragraph 3 (d)) or Employee’s voluntary termination without “good reason”, within two (2) years following a "Change of Control" that occurs during the Period of Employment, then:

(i)           Employer shall pay to the Employee the greater of (A) 300 percent of the sum of the annual Base Salary in effect at the time of termination and the aggregate sum of all payments made to Employee during the 12 months preceding Employee’s termination pursuant to the Management Incentive Plan (or equivalent successor plan), or (B) amounts of Base Salary and expected payments under the Management Incentive Plan (or equivalent successor plan) that otherwise would have been payable through the balance of the unexpired term of this Agreement.  Unless Employee is a “specified employee” (as determined in accordance with Internal Revenue Code Section 409A), the amount determined pursuant to this paragraph 6(a)(i) shall be payable in equal biweekly installments over the 12-month period that begins on the first day of the month following Employee’s termination.  If Employee is a “specified employee” (as determined in accordance with Internal Revenue Code Section 409A), then installment payments during the first six months of the 12-month installment period shall be limited to the extent required by Internal Revenue Code Section 409A, any unpaid installment amounts shall be paid immediately after such six-month period and installment payments due during the remaining six months shall be paid as scheduled.

 

  

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(ii)           Subject to the applicable limitations of Internal Revenue Code Section 409A that apply if Employee is a “specified employee” (as determined in accordance with Internal Revenue Code Section 409A), Employer shall provide Employee with fringe benefits, or the cash equivalents of such benefits, identical to those described in paragraph 4(a) for a period of thirty-six (36) months following Employee’s termination.  To the extent the benefits provided to Employee in this paragraph 6(a)(ii) are deemed taxable benefits, Employer shall reimburse Employee for taxes owed by Employee on the benefits and tax reimbursement. The reimbursement shall be made by the end of Employee’s taxable year next following the taxable year in which Employee remits the related taxes.

(iii)           Employer shall treat as immediately exercisable all unexpired stock options issued by Employer and held by Employee that are not otherwise exercisable or that have not been exercised so as to permit Employee to purchase the balance of CBSI Stock not yet purchased pursuant to said options until the end of the full exercise period provided in the original grant of the option right, determined without regard to Employee’s termination of employment.

(iv)           Employer shall waive all restrictions on any shares of CBSI stock granted to Employee and permit Employee to dispose of such stock.

 

  

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(b)           Notwithstanding any provision of this Agreement to the contrary, and except as provided in the last sentence of this paragraph 6(b), in the event that any payment or benefit received or to be received by the Employee in connection with a Change of Control (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement)(all such payments and benefits being hereinafter called “Total Benefits”) would be subject (in whole or in part) to the excise tax imposed pursuant to Internal Revenue Code Section 4999, then the cash severance payments provided in this Agreement shall first be reduced, and the other payments and benefits hereunder shall thereafter be reduced, to the extent necessary so that no portion of the Total Benefits will be subject to such excise tax, but only if (i) is greater than or equal to (ii), where (i) equals the reduced amount of such Total Benefits minus the aggregate amount of federal, state and local income taxes on such reduced Total Benefits, and (ii) equals the unreduced amount of such Total Benefits minus the sum of (A) the aggregate amount of federal, state  and local income taxes on such Total Benefits, and (B) the amount of excise tax to which the Employee would be subject in respect of such unreduced Total Benefits. Notwithstanding the foregoing, and although Employee shall not have a legally binding right to any such payment, the Board of Directors of Employer shall have the sole discretion to waive the limitations described in this paragraph 6(b) and/or to increase the amounts payable pursuant to this paragraph 6 to help cover some or all of the taxes payable by Employee as a result of the receipt of unreduced payments and benefits pursuant to this Agreement.

(c)           For purposes of this paragraph 6, a "Change of Control" shall be deemed to have occurred if:

(i)           any "person," including a "group" as determined in accordance with the Section 13(d)(3) of the Securities Exchange Act of 1934 ("Exchange Act"), is or becomes the beneficial owner, directly or indirectly, of securities of Employer representing 30% or more of the combined voting power of Employer's then outstanding securities;

 

  

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(ii)           as a result of, or in connection with, any tender offer or exchange offer, merger or other business combination (a "Transaction"), the persons who were directors of Employer before the Transaction shall cease to constitute a majority of the Board of Directors of Employer or any successor to Employer;

(iii)           Employer is merged or consolidated with another corporation and as a result of the merger or consolidation less than 70% of the outstanding voting securities of the surviving or resulting corporation shall then be owned in the aggregate by the former stockholders of Employer, other than (A) affiliates within the meaning of the Exchange Act, or (B) any party to the merger or consolidation;

(iv)           a tender offer or exchange offer is made and consummated for the ownership of securities of Employer representing 30% or more of the combined voting power of Employer's then outstanding voting securities; or

(v)           Employer transfers substantially all of its assets to another corporation, which is not controlled by Employer.

(d)           For purposes of this paragraph 6, “good reason” shall mean action taken by Employer that results in:

(i)           An involuntary and material adverse change in Employee’s authority, duties, responsibilities, or base compensation;

(ii)          An involuntary relocation of the office from which Employee is expected to perform his duties; or

(iii)         A material breach of this Agreement

 

  

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Employee must provide notice to Employer of the existence of a condition described in (i), (ii) or (iii) above within thirty (30) days of the initial existence of the condition, upon the notice of which Employer shall have thirty (30) days thereafter in which to remedy the condition.

7.           Withholding.  Employer shall deduct and withhold from compensation and benefits provided under this Agreement all required income and employment taxes and any other similar sums required by law to be withheld.

8.           Covenants.

(a)           Confidentiality.  Employee shall not, without the prior written consent of Employer, disclose or use in any way, either during his employment by Employer or thereafter, except as required in the course of his employment by Employer, any confidential business or technical information or trade secret acquired in the course of Employee's employment by Employer. Employee acknowledges and agrees that it would be difficult to fully compensate Employer for damages resulting from the breach or threatened breach of the foregoing provision and, accordingly, that Employer shall be entitled to temporary preliminary injunctions and permanent injunctions to enforce such provision.  This provision with respect to injunctive relief shall not, however, diminish Employer's right to claim and recover damages.  Employee covenants to use his best efforts to prevent the publication or disclosure of any trade secret or any confidential information that is not in the public domain concerning the business or finances of Employer or Employer's affiliates, or any of its or their dealings, transactions or affairs which may come to Employee's knowledge in the pursuance of his duties or employment.

 

  

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(b)           No Competition.  Employee's employment is subject to the condition that during the term of his employment hereunder and for the period specified in paragraph 8(c) below, Employee shall not, directly or indirectly, own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director, individual proprietor, lender, consultant or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any entity or business (a “Competitive Operation”) which competes in the banking industry or with any other business conducted by Employer or by any group, affiliate, division or subsidiary of Employer, in the same counties of New York, Pennsylvania or any other state in which the Employer or any such group, affiliate, division or subsidiary conducts business.  Employee shall keep Employer fully advised as to any activity, interest, or investment Employee may have in any way related to the banking industry.  It is understood and agreed that, for the purposes of the foregoing provisions of this paragraph, (i) no business shall be deemed to be a business conducted by Employer or any group, division, affiliate or subsidiary of Employer unless 5% or more of Employer's consolidated gross sales or operating revenues is derived from, or 5% or more of Employer's consolidated assets are devoted to, such business; (ii) no business conducted by any entity by which Employee is employed or in which he is interested or with which he is connected or associated shall be deemed competitive with any business conducted by Employer or any group, division, affiliate or subsidiary of Employer unless it is one from which 2% or more of its consolidated gross sales or operating revenues is derived, or to which 2% or more of its consolidated assets are devoted; and (iii) no business which is conducted by Employer on the date of Employee’s termination and which subsequently is sold by Employer shall, after such sale, be deemed to be a Competitive Operation within the meaning of this paragraph.  Ownership of not more than 5% of the voting stock of any publicly held corporation shall not constitute a violation of this paragraph.

 

  

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(c)           Non-Competition Period.  The "non-competition period" shall begin on January 1, 2011 and shall end twelve (12) months after the Employee’s termination of employment; provided, however, that the “non-competition period” shall end on the date Employee’s employment ends in the event of Employee’s termination for “good reason” (as defined in paragraph 6(d)), or Employee’s termination without “cause” (as defined in paragraph 3(d)).

(d)           Non-Solicitation.  While Employee is employed by Employer, and for a period of two years after Employee's employment with Employer ends for any reason, Employee shall not directly or indirectly solicit (other than on behalf of Employer) business or contracts for any products or services of the type provided, developed or under development by Employer during Employee’s employment by Employer, from or with (x) any person or entity which was a customer of Employer for such products or services as of, or within 12 months prior to, the date of Employee’s termination of employment with Employer, or (y) any prospective customer which Employer was soliciting as of, or within 12 months prior to, Employee’s termination.  Additionally, while Employee is employed by Employer, and for two years after Employee’s employment with the Employer ends for any reason, Employee will not directly or indirectly contract with any such customer or prospective customer for any product or service of the type provided, developed or which was under development by Employer during Employee’s employment with Employer.  Employee will not at any time knowingly interfere or attempt to interfere with any transaction, agreement or business relationship in which Employer was involved or was contemplating during Employee’s employment with Employer, including but not limited to relationships with customers, prospective customers, agents, contractors, vendors, service providers, and suppliers.

 

  

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(e)           Non-Recruitment.  While Employee is employed by Employer, and for a period of two years after Employee’s employment with Employer ends for any reason, Employee shall not, directly or indirectly, solicit, recruit, or hire, or in any manner assist in the hiring, solicitation or recruitment of any of individual who is or was an employee of Employer, or who otherwise provided services to Employer, within 12 months prior to the termination of Employee’s employment with Employer.

(f)           Termination of Payments.  Upon the breach by Employee of any covenant under this paragraph 8, Employer shall cease all payments to Employee and may offset and/or recover from Employee immediately any and all amounts payable to Employee under this Agreement against any damages to which Employer is legally entitled in addition to any and all other remedies available to Employer under the law or in equity.

9.           Notices.  Any notice which may be given hereunder shall be sufficient if in writing and mailed by overnight mail, or by certified mail, return receipt requested, to Employee at his residence and to Employer at 5790 Widewaters Parkway, Dewitt, New York 13214, or at such other addresses as either Employee or Employer may, by similar notice, designate.

10.           Rules, Regulations and Policies.  Employee shall abide by and comply in all material respects with all of the rules, regulations, and policies of Employer that may be in effect and amended from time to time, including without limitation (i) Employer's policy of strict adherence to, and compliance with, any and all requirements of the banking, securities, and antitrust laws and regulations, and (ii) Employer’s human resources, personnel and benefits policies.

 

  

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11.           No Prior Restrictions.  Employee affirms and represents that Employee is under no obligations to any former employer or other third party which is in any way inconsistent with, or which imposes any restriction upon, the employment of Employee by Employer, or Employee's undertakings under this Agreement.

12.           Return of Employer's Property.  After Employee has received notice of termination, Employee shall promptly return to Employer all documents and other property in his possession belonging to Employer.

13.           Construction and Severability.  The invalidity of any one or more provisions of this Agreement or any part thereof, all of which are inserted conditionally upon their being valid in law, shall not affect the validity of any other provisions to this Agreement; and in the event that one or more provisions contained herein shall be invalid, as determined by a court of competent jurisdiction, the court shall have authority to modify such provision in a manner that most closely reflects the intent of the parties and is valid. This Agreement shall be interpreted and applied in all circumstances in a manner that is consistent with the intent of the parties that amounts earned and payable pursuant to this Agreement shall not be subject to the premature income recognition or adverse tax provisions of Internal Revenue Code Section 409A. Accordingly, by way of example and not limitation, (a) distributions of benefits payable following Employee’s termination of employment shall commence as of the date required by this Agreement or, if later, the earliest date permitted by Internal Revenue Code Section 409A, (generally six months after termination, if Employee is a “specified employee” within the meaning of Internal Revenue Code Section 409A), and (b) the phrase “termination of employment” (and similar terms and phrases) shall be construed to mean “separation from service” within the meaning of Internal Revenue Code Section 409A.

 

  

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14.           Governing Law.  This Agreement was executed and delivered in New York and shall be construed and governed in accordance with the laws of the State of New York.

15.           Assignability and Successors.  This Agreement may not be assigned by Employee or Employer, except that this Agreement shall be binding upon and shall inure to the benefit of the successor of Employer through merger or corporate reorganization.  Any attempted assignment in violation of this paragraph 15 shall be null and void and of no effect,

16.           Miscellaneous

            (a)           This Agreement constitutes the entire understanding and agreement between the parties with respect to the subject matter hereof and shall supersede all prior understandings and agreements including the April 4, 2008 Employment Agreement between the parties.

(b)           This Agreement cannot be amended, modified, or supplemented in any respect, except by a subsequent written agreement entered into by the parties hereto.

(c)           The services to be performed by Employee are special and unique; it is agreed that any breach of this Agreement by Employee shall entitle Employer (or any successor or assigns of Employer), in addition to any other legal remedies available to it, to apply to any court of competent jurisdiction to enjoin such breach.

(d)           The provisions of paragraphs 3(e), 6 and 8 hereof shall survive the termination of this Agreement.

17.           Counterparts.  This Agreement may be executed in counterparts (each of which need not be executed by each of the parties), which together shall constitute one and the same instrument.

 

  

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18.           Jurisdiction, Venue and Fees.  The jurisdiction of any proceeding between the parties arising out of, or with respect to, this Agreement shall be in a court of competent jurisdiction in New York State, and venue shall be in Onondaga County.  Each party shall be subject to the personal jurisdiction of the courts of New York State.  If Employee is the prevailing party in a proceeding to collect payments due pursuant to this Agreement, Employer shall reimburse Employee for reasonable attorneys' fees incurred by Employee in connection with such proceeding. Reimbursement shall be made on or before the last day of Employee’s taxable year following the taxable year in which the expense was incurred.  The foregoing right of reimbursement shall expire on the fifth anniversary of Employee’s separation of employment with Employer.

The foregoing is established by the following signatures of the parties.

 

	 	 COMMUNITY BANK SYSTEM, INC.
	 	 	 
	 	 	 
	 	 By:	 /s/ Mark E. Tryniski
	 	 	 Mark E. Tryniski
	 	 	 President and Chief Executive Officer
	 	 	 
	 	 	 
	 	 COMMUNITY BANK, N.A.
	 	 	 
	 	 	 
	 	 By:	 /s/ Bernadette R. Barber
	 	 	 Bernadette R. Barber
	 	 	 Senior Vice President and Chief HR Officer
	 	 	 
	 	 	 
	 	 	 
	 	 	 /s/ Scott A. Kingsley
	 	 	 Scott A. Kingsley
	 	 	 

  

20

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