EXHIBIT 20
FORM OF SEVERANCE AGREEMENT
THIS AGREEMENT, dated June__ , 1997, is made by and between
Healthsource, Inc., a New Hampshire corporation (the "Company"),
and _______________ (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to xxxxxx the continued employment
of key management personnel; and
WHEREAS, the Company has entered into an Agreement and Plan
of Merger (the "Merger Agreement"), dated as of February 27,
1997, by and among the Company, CIGNA Corporation, a Delaware
corporation and CHC Acquisition Corp., a New Hampshire
corporation; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management,
including the Executive, to their assigned duties without
distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive
hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms
used in this Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall
commence on the date hereof and shall continue in effect until
the second anniversary of the consummation of the Offer.
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company, the Company
agrees, under the conditions described herein, to pay the
Executive the Severance Payments and the other payments and
benefits described herein. Except as provided in Section 8.1
hereof, no Severance Payments shall be payable under this
Agreement unless there shall have been a termination of the
Executive's employment with the Company following a Change in
Control and during the Term. This Agreement shall not be
construed as creating an express or implied contract of
employment and, except as otherwise agreed in writing between the
Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. Compensation Other Than Severance Payments.
4.1 If the Executive's employment shall be
terminated for any reason following a Change in Control and
during the Term, the Company shall pay the Executive's full
salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or,
if higher, the rate in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason,
together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of the
Company's compensation and benefit plans, programs or
arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or
circumstance constituting Good Reason.
4.2 If the Executive's employment shall be
terminated for any reason following a Change in Control and
during the Term, the Company shall pay to the Executive the
Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with,
the Company's retirement, insurance and other compensation or
benefit plans, programs and arrangements as in effect immediately
prior to the Date of Termination or, if more favorable to the
Executive, as in effect immediately prior to the occurrence of
the first event or circumstance constituting Good Reason.
5. Severance Payments.
5.1 If the Executive's employment is terminated following a
Change in Control and during the Term, other than (A) by the
Company for Cause, (B) by reason of death or Disability, or (C)
by the Executive without Good Reason, then in either such case,
the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 5.1 ("Severance
Payments") and Section 5.2, in addition to any payments and
benefits to which the Executive is entitled under Section 4
hereof.
(A) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination
(or the consummation of the Offer, as the case may be) and
in lieu of any severance benefit otherwise payable to the
Executive under any severance plan or program maintained by
the Company, the Company shall pay to the Executive a lump
sum severance payment, in cash, equal to three (3) times the
sum of (i) the Executive's base salary as in effect
immediately prior to the Date of Termination (or the
consummation of the Offer, as the case may be) or, if
higher, in effect immediately prior to the first occurrence
of an event or circumstance constituting Good Reason, and
(ii) the maximum amount of annual bonus that could be earned
by the Executive pursuant to any annual bonus or incentive
plan maintained by the Company in respect of the fiscal year
in which occurs the Date of Termination (or the consummation
of the Offer, as the case may be) or, if higher, in respect
of the fiscal year in which occurs the first event or
circumstance constituting Good Reason; provided, however,
that in no event shall the amount paid to the Executive
pursuant to this Section 5.1(A) exceed $_____ million. As
of the date hereof, the Executive's base salary is $_______
and the Executive's maximum annual bonus is _____% of such
base salary.
(B) For the three (3) year period immediately
following the Date of Termination (or the consummation of
the Offer, as the case may be), the Company shall arrange to
provide the Executive and his dependents life, disability,
accident and health insurance benefits substantially similar
to those provided to the Executive and his dependents
immediately prior to the Date of Termination (or the
consummation of the Offer, as the case may be) or, if more
favorable to the Executive, those provided to the Executive
and his dependents immediately prior to the first occurrence
of an event or circumstance constituting Good Reason, at no
greater cost to the Executive than had the Executive
remained employed by the Company during such period.
Benefits otherwise receivable by the Executive pursuant to
this Section 5.1(B) shall be reduced to the extent benefits
of the same type are received by or made available to the
Executive by a subsequent employer during the three (3) year
period following the Executive's termination of employment
(and any such benefits received by or made available to the
Executive shall be reported to the Company by the
Executive); provided, however, that the Company shall
reimburse the Executive for the excess, if any, of the cost
of such benefits to the Executive over the cost the
Executive would have incurred for such benefits had the
Executive remained employed by the Company during such
period.
(C) Notwithstanding any provision of any annual
incentive plan to the contrary, the Company shall pay to the
Executive a lump sum amount, in cash, equal to a pro rata
portion to the Date of Termination (or the consummation of
the Offer, as the case may be) of the aggregate value of the
bonus payment the Executive would have received for the year
including the Date of Termination (or the consummation of
the Offer, as the case may be), calculated by multiplying
the bonus that the Executive would have earned for such
year, assuming the achievement, at the level that would
produce an award equal to % of the Executive's base
salary as in effect immediately prior to the Date of
Termination (or the consummation of the Offer, as the case
may be) or, if higher, in effect immediately prior to the
first occurrence of an event or circumstance constituting
Good Reason, of the individual and corporate performance
goals established with respect to such bonus, by the
fraction obtained by dividing the number of full months and
any fractional portion of a month during such year through
the Date of Termination (or the consummation of the Offer,
as the case may be) by twelve.
(D) The Company shall (i) reimburse the Executive for
outplacement services suitable to the Executive's position
for a period of one year or, if earlier, until the first
acceptance by the Executive of an offer of employment, (ii)
reimburse the Executive for financial planning services for
a period of one year and (iii) provide the Executive with
reasonable office space and secretarial services for a
period of three (3) years. The outplacement services
referred to under clause (i) above shall be no less
favorable to the Executive than the outplacement services
provided under any plan, program or arrangement by CIGNA
Corporation to any of its senior executive officers.
5.2 (A) If the Executive becomes entitled to the
Severance Payments and, if any of the payments or benefits
received or to be received by the Executive in connection
with a Change in Control or the Executive's termination of
employment (whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the
Company, CIGNA Corporation or any Person affiliated with the
Company or CIGNA Corporation) (such payments or benefits,
excluding the Gross-Up Payment, being hereinafter referred
to as the "Total Payments") will be subject to the Excise
Tax, the Company shall pay to the Executive an additional
amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax
on the Total Payments and any federal, state and local
income and employment taxes and Excise Tax upon the Gross-Up
Payment (but not taking into account any federal, state or
local income or employment tax otherwise payable with
respect to the Total Payments), shall be equal to the Total
Payments.
(B) Subject to the provisions of Section 5.2(C),
all determinations required to be made under this Section
5.2, including whether a Gross-Up Payment is required and
the amount of the Gross-Up Payment, shall be made by a
nationally recognized accounting firm designated by the
Company, which is not and was not immediately prior to the
Change in Control serving as accountant or auditor for CIGNA
Corporation or the Company (the "Accounting Firm"). The
Accounting Firm shall provide detailed supporting
calculations both to the Company and to the Executive within
thirty (30) days of the Date of Termination or such earlier
date as may be requested by the Company; provided, however
that if, pursuant to Section 5.3, the payment of amounts due
under Sections 5.1(A) and/or (C) is delayed due to the
inability to finally determine such amounts within the
specified period, the time for the Accounting Firm to
provide such supporting calculations may be similarly
extended. Any Gross-Up Payment, as determined pursuant to
this Section 5.2, shall be paid to the Executive within ten
(10) business days of the Accounting Firm's determination.
The Accounting Firm shall furnish the Executive with its
opinion that the filing by the Executive of the Executive's
federal income tax return in accordance with the Accounting
Firm's determination (or redetermination in accordance with
Section 5.2(C) below) will not result in the imposition of a
negligence or similar penalty on the Executive; provided,
however, that if the opinion of the Accounting Firm cannot
be obtained using reasonable efforts and at a reasonable
cost the Company shall provide the Executive such other
written advice of the Accounting Firm as shall be reasonably
obtainable. Any determination by the Accounting Firm shall
be binding on the Executive and the Company. For purposes
of determining the amount of the Gross-Up Payment, unless
the facts clearly indicate otherwise, the Executive shall be
deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the Date
of Termination (or if there is no Date of Termination, then
the date on which the Gross-Up Payment is calculated for
purposes of this Section 5.2), net of the maximum reduction
in federal income taxes which could be obtained from
deduction of such state and local taxes.
(C) In the event that the Excise Tax is Finally
Determined (as defined below) to be less than the amount
taken into account hereunder in calculating the Gross-Up
Payment, the Executive shall repay to the Company, within
ten (10) business days following the time that the amount of
such reduction in the Excise Tax is Finally Determined, the
portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local
income and employment taxes imposed on the Gross-Up Payment
being repaid by the Executive, to the extent that such
repayment results in a reduction in the Excise Tax and a
dollar-for-dollar reduction in the Executive's taxable
income and wages for purposes of federal, state and local
income and employment taxes), plus interest on the amount of
such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax
is Finally Determined to exceed the amount taken into
account hereunder in calculating the Gross-Up Payment
(including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect
to such excess) within ten (10) business days following the
time that the amount of such excess is Finally Determined.
The Executive and the Company shall each reasonably
cooperate with the other in connection with any
administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect
to the Total Payments. The Executive shall provide the
Company with prompt notice of any claims by the Internal
Revenue Service (the "Service") that, if successful, would
require payment of an additional Gross-Up Payment, shall
permit the Company to determine whether to contest such
claims (at the Company's own expense, holding the Executive
harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of such representation and
payment of costs and expenses), shall permit the Company to
participate in any proceedings relating to such claims, and
shall take such actions and provide such information in
connection with such claims as the Company shall reasonably
direct and request. For purposes of this Section 5.2(C),
"Finally Determined" means, with respect to any change in
the amount of the Excise Tax taken into account in
calculating the Gross-Up Payment, (i) when the change
originates with a claim by the Service, a determination by
the final administrative or judicial tribunal to which the
matter is appealed; or (ii) in all other cases, when
circumstances so require, a redetermination of the amount of
the Excise Tax by the Accounting Firm.
5.3 The payments provided in subsections (A) and (C) of
Section 5.1 hereof shall be made on the date upon which the Offer
is consummated; provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, the
Company shall pay to the Executive on such day an estimate of the
minimum amount of such payments to which the Executive is clearly
entitled and shall pay the remainder of such payments (together
with interest on the unpaid remainder (or on all such payments to
the extent the Company fails to make such payments when due) at
120% of the rate provided in section 1274(b)(2)(B) of the Code)
as soon as the amount thereof can be determined but in no event
later than the sixtieth (60th) day after the Date of Termination
(or the consummation of the Offer, as the case may be). In the
event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable
on the tenth (10th) business day after demand by the Company
(together with interest at 120% of the rate provided in section
1274(b)(2)(B) of the Code). At or within a reasonable time after
the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting
forth the manner in which such payments were calculated and the
basis for such calculations including, without limitation, any
opinions or other advice the Company has received from the
Accounting Firm or other advisors or consultants (and any such
opinions or advice which are in writing, to the extent not
subject to a valid claim of privilege by the Company, shall be
attached to the statement).
5.4 The Company also shall pay to the Executive all
legal and accounting fees and expenses incurred by the Executive
in seeking to obtain or enforce any benefit or right provided by
this Agreement or in connection with any tax audit or proceeding
to the extent attributable to the application of section 4999 of
the Code to any payment or benefit provided hereunder. Such
payments shall be made within ten (10) business days after
receipt by the Company of the Executive's written requests for
payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
6. Termination Procedures and Compensation During
Dispute.
6.1 Notice of Termination. The Executive's employment
shall terminate upon the consummation of the Offer, without any
notice from either the Executive or the Company to the other
party. For all purposes under this Agreement, such termination
shall be treated as a termination by the Executive for Good
Reason.
6.2 Date of Termination. "Date of Termination" shall
mean the date of consummation of the Offer.
7. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the
Term, the Executive is not required to seek other employment or
to attempt in any way to reduce any amounts payable to the
Executive by the Company pursuant to Section 5 hereof. Further,
the amount of any payment or benefit provided for in this
Agreement (except as specifically provided in Section 5.1(B)
hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
8. Successors; Binding Agreement.
8.1 In addition to any obligations imposed by law upon
any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason after a Change in Control,
except that, for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed
the Date of Termination.
8.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any
amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors,
personal representatives or administrators of the Executive's
estate.
9. Notices. For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall
be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's
signature on the final page hereof and, if to the Company, to the
address set forth below, or to such other address as either party
may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be
effective only upon actual receipt:
To the Company:
Healthsource, Inc.
Xxx Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, Xxx Xxxxxxxxx 00000
Attention: President
10. Miscellaneous. No provision of this Agreement may
be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by
the Executive and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or of any lack of
compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof which have
been made by either party; provided, however, that this Agreement
shall supersede any agreement setting forth the terms and
conditions of the Executive's employment with the Company only in
the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company
other than for Cause or by the Executive for Good Reason; and
provided further, that this Agreement shall not supersede any
confidentiality, noncompete or nonsolicitation agreement. The
validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New
Hampshire without giving effect to the principles of conflicts of
law thereof. All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder
shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company
and the Executive under this Agreement which by their nature may
require either partial or total performance after the expiration
of the Term (including, without limitation, those under Sections
5 and 6 hereof) shall survive such expiration.
11. Validity. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
12. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but both of which together will constitute one and the
same instrument.
13. Settlement of Disputes; Arbitration.
13.1 All claims by the Executive for benefits under
this Agreement shall be directed to and determined by the
Committee and shall be in writing. Any denial by the Committee
of a claim for benefits under this Agreement shall be delivered
to the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of this
Agreement relied upon. The Committee shall afford a reasonable
opportunity to the Executive for a review of the decision denying
a claim and shall further allow the Executive to appeal to the
Committee a decision of the Committee within sixty (60) days
after notification by the Committee that the Executive's claim
has been denied.
13.2 Any further dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration in Manchester, New Hampshire in accordance with
the rules of the American Arbitration Association then in effect;
provided, however, that the evidentiary standards set forth in
this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
Notwithstanding any provision of this Agreement to the contrary,
the Executive shall be entitled to seek specific performance from
a court of competent jurisdiction of the Executive's right to be
paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this
Agreement.
13.3 This Agreement shall be subject to Chapter 542 of
New Hampshire Revised Statutes Annotated.
14. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(A) "Accounting Firm" shall have the meaning set forth
in Section 5.2(B) hereof.
(B) "Board" shall mean the Board of Directors of the
Company.
(C) "Cause" for termination by the Company of the
Executive's employment shall mean (i) the Executive's
commission of any fraud or embezzlement against the Company,
(ii) the willful and continued refusal by the Executive to
perform the Executive's duties with the Company or the
willful and continued refusal by the Executive to comply
with the directives of superiors (other than any such
refusal resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination for
Good Reason by the Executive pursuant to Section 6.1 hereof)
in each case after (A) a written demand for performance is
delivered to the Executive by the Company, which demand
specifically identifies the manner in which the Company
believes that the Executive has not complied with the
directives of superiors or has not performed the Executive's
duties and (B) the failure by the Executive to cure such
conduct within 10 days after the Executive's receipt of such
written demand, (iii) the Executive's conviction of a felony
or (iv) the execution of an order by, or an agreement by the
Executive with, an appropriate governmental health care
regulatory agency removing or otherwise disqualifying the
Executive from employment with the Company or any of its
affiliates. For purposes of clause (ii) of this definition,
no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief
that the Executive's act, or failure to act, was in the best
interest of the Company. In the event of a dispute
concerning the application of this provision, no claim by
the Company that Cause exists shall be given effect unless
the Company establishes to the Committee by clear and
convincing evidence that Cause exists.
(D) A "Change in Control" shall mean the consummation
of the Offer.
(E) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(F) "Committee" shall mean three individuals selected
by the President of CIGNA Corporation's Healthcare Division
with the concurrence of CIGNA Corporation's senior human
resources officer.
(G) "Company" shall mean Healthsource, Inc. and shall
include (i) any successor to its business and/or assets
which assumes and agrees to perform this Agreement by
operation of law, or otherwise and (ii) where applicable,
any subsidiary of Healthsource, Inc. by which the Executive
is employed.
(H) "Date of Termination" shall have the meaning set
forth in Section 6.2 hereof.
(I) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment,
if, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's
duties with the Company for a period of six (6) consecutive
months, the Company shall have given the Executive a Notice
of Termination for Disability, and, within thirty (30) days
after such Notice of Termination is given, the Executive
shall not have returned to the full-time performance of the
Executive's duties.
(J) "Excise Tax" shall mean any excise tax imposed
under section 4999 of the Code.
(K) "Executive" shall mean the individual named in the
first paragraph of this Agreement.
(L) "Existing Agreement" shall have the meaning set
forth in Section 5.1(A) hereof.
(M) "Finally Determined" shall have the meaning set
forth in Section 5.2(C) hereof.
(N) "Good Reason" for termination by the Executive of
the Executive's employment shall mean the occurrence of a
Change in Control.
(O) "Gross-Up Payment" shall have the meaning set forth
in Section 5.2 hereof.
(P) "Merger Agreement" shall have the meaning set forth
in the second WHEREAS clause of this Agreement.
(Q) "Offer" shall have the meaning set forth in the
Merger Agreement.
(R) "Service" shall have the meaning set forth in
Section 5.2(C) hereof.
(S) "Severance Payments" shall have the meaning set
forth in Section 5.1 hereof.
(T) "Term" shall mean the period of time described in
Section 2 hereof.
(U) "Total Payments" shall mean those payments so
described in Section 5.2(A) hereof.
Healthsource, Inc.
By:______________________
Name:
Title:
________________________
Executive
Address:
________________________
________________________
________________________
