HEALTHWAYS, INC (Form: 10-Q, Received: 05/06/2016 16:46:12)

1.50% Cash Convertible Senior Notes Due 2018

On July 16, 2013, we completed the issuance of $150.0 million aggregate principal amount of cash convertible senior notes due 2018 (the "Cash Convertible Notes"), which bear interest at a rate of 1.50% per year, payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2014. The Cash Convertible Notes will mature on July 1, 2018, unless earlier repurchased or converted into cash in accordance with their terms prior to such date. At the option of the holders, the Cash Convertible Notes are convertible into cash based on the conversion rate set forth below only upon occurrence of certain triggering events as defined in the Indenture dated as of July 8, 2013 by and between the Company and U.S. Bank National Association, none of which had occurred as of March 31, 2016. Accordingly, we have classified the Cash Convertible Notes as long-term debt at March 31, 2016 and December 31, 2015. The Cash Convertible Notes are not convertible into our common stock or any other securities under any circumstances. The initial cash conversion rate is approximately 51.38 shares of our common stock per $1,000 principal amount of Cash Convertible Notes (equivalent to an initial conversion price of approximately $19.46 per share of common stock). The Cash Convertible Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Cash Convertible Notes. As a result of this transaction, we recognized deferred loan costs of approximately $3.9 million, which are being amortized over the term of the Cash Convertible Notes using the effective interest method.

The cash conversion feature of the Cash Convertible Notes (the "Cash Conversion Derivative") requires bifurcation from the Cash Convertible Notes in accordance with FASB ASC Topic 815, "Derivatives and Hedging", and is recorded in other long-term liabilities as a derivative liability and carried at fair value. The fair value of the Cash Conversion Derivative at the time of issuance of the Cash Convertible Notes was $36.8 million, which was recorded as a debt discount for purposes of accounting for the debt component of the Cash Convertible Notes. The debt discount is being amortized over the term of the Cash Convertible Notes using the effective interest method. For the three months ended March 31, 2016, we recorded $1.8 million of interest expense related to the amortization of the debt discount based upon an effective interest rate of 5.7%. The net carrying amount of the Cash Convertible Notes at March 31, 2016 and December 31, 2015 was $132.1 million and $130.3 million, respectively, net of the unamortized discount of $17.9 million and $19.7 million, respectively.

In connection with the issuance of the Cash Convertible Notes, we entered into privately negotiated convertible note hedge transactions (the "Cash Convertible Notes Hedges"), which are cash-settled and are intended to reduce our exposure to potential cash payments that we would be required to make if holders elect to convert the Cash Convertible Notes at a time when our stock price exceeds the conversion price. The initial cost of the Cash Convertible Notes Hedges was $36.8 million. The Cash Convertible Notes Hedges are recorded in other assets as a derivative asset under FASB ASC Topic 815 and are carried at fair value. See Note 8 for additional information regarding the Cash Convertible Notes Hedges and the Cash Conversion Derivative and their fair values as of March 31, 2016.

In July 2013, we also sold separate privately negotiated warrants (the "Warrants") initially relating, in the aggregate, to a notional number of shares of our common stock underlying the Cash Convertible Notes Hedges. The Warrants have an initial strike price of approximately $25.95 per share, which effectively increases the conversion price of the Cash Convertible Notes to a 60% premium to our stock price on July 1, 2013. The Warrants will be net share settled by issuing a number of shares of our common stock per Warrant corresponding to the excess of the market price per share of our common stock (as measured on each warrant exercise date under the terms of the Warrants) over the applicable strike price of the Warrants. The Warrants meet the definition of derivatives under the guidance in ASC Topic 815; however, because these instruments have been determined to be indexed to our own stock and meet the criteria for equity classification under ASC Topic 815-40, the Warrants have been accounted for as an adjustment to our additional paid-in-capital.

If the market value per share of our common stock exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on net income per share, and the "treasury stock" method will be used in calculating the dilutive effect on earnings per share.

CareFirst Convertible Note

On October 1, 2013, we entered into an Investment Agreement (the "Investment Agreement") with CareFirst Holdings, LLC ("CareFirst"), which is in addition to certain existing commercial agreements between us and CareFirst relating to, among other things, disease management and care coordination services (the "Commercial Agreements"). Pursuant to the Investment Agreement, we issued to CareFirst a convertible subordinated promissory note in the aggregate original principal amount of $20 million (the "CareFirst Convertible Note") for a purchase price of $20 million. The CareFirst Convertible Note bears interest at a rate of 4.75% per year, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each calendar year, beginning on December 31, 2013. The CareFirst Convertible Note may be prepaid only under limited circumstances and upon the terms and conditions specified therein. If the CareFirst Convertible Note has not been fully converted or redeemed in accordance with its terms, it will mature on October 1, 2019. The CareFirst Convertible Note is subordinate in right of payment to the prior payment in full of (a) all of our indebtedness under the Fifth Amended Credit Agreement (as defined below) and (b) any other of our senior debt, which currently includes only the Cash Convertible Notes.

The CareFirst Convertible Note is convertible into shares of our common stock at the conversion rate determined by dividing (a) the sum of the portion of the principal to be converted and accrued and unpaid interest with respect to such principal by (b) the conversion price equal to $22.41 per share of our common stock. The conversion price is subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications and similar events.

CareFirst has an opportunity to earn warrants to purchase shares of our common stock ("CareFirst Warrants") based on achievement of certain quarterly thresholds (the "Revenue Thresholds") for revenue derived from both the Commercial Agreements and from new business to us from third parties as a result of an introduction or referral to us by CareFirst (collectively, the "Quarterly Revenue"). If the Quarterly Revenue is greater than or equal to the applicable Revenue Threshold for any quarter ending on or prior to September 30, 2017, then we will issue to CareFirst a certain number of warrants exercisable for the number of shares of our common stock ("CareFirst Warrant Shares") determined in accordance with the terms of the Investment Agreement unless (i) CareFirst elects to receive a cash payment in accordance with the terms of the Investment Agreement or (ii) there is a change of control. The aggregate number of CareFirst Warrant Shares in any single 12-month period beginning on October 1, 2013 cannot exceed 400,000, and the aggregate number of CareFirst Warrant Shares issuable pursuant to the Investment Agreement cannot exceed 1,600,000. As of March 31, 2016, we had issued CareFirst Warrant Shares totaling 590,683 at a weighted average exercise price of $15.83, none of which were issued in 2016. These CareFirst Warrants may have a dilutive effect on net income per share, and the "treasury stock" method is used in calculating the dilutive effect on earnings per share.

Also on October 1, 2013, in connection with the execution of the Investment Agreement, we entered into a Registration Rights Agreement with CareFirst, pursuant to which we agreed to use commercially reasonable efforts to cause any registration statement covering an underwritten offering of our common stock for our own account or for the account of any holder of our common stock (other than a registration statement on Form S-4 or Form S-8 or any successor thereto) to include those registrable common shares that any holder of such registrable common shares has requested to be registered.

The term of the Investment Agreement expires on the earlier of (a) December 31, 2017 and (b) the first date on which no Commercial Agreement is in effect.

Credit Facility

On June 8, 2012, we entered into the Fifth Amended and Restated Revolving Credit and Term Loan Agreement (as amended, the "Fifth Amended Credit Agreement") . As amended in October 2015 and further described below, the Fifth Amended Credit Agreement provides us with a $125.0 million revolving credit facility that expires on June 8, 2017 and includes a swingline sub facility of $20.0 million and a $75.0 million sub facility for letters of credit. The Fifth Amended Credit Agreement also provides a $200.0 million term loan facility that matures on June 8, 2017, $75.0 million of which remained outstanding at March 31, 2016, and an uncommitted incremental accordion facility of $100.0 million.

Borrowings under the Fifth Amended Credit Agreement generally bear interest at variable rates based on a margin or spread in excess of either (1) the one-month, two-month, three-month or six-month rate (or with the approval of affected lenders, nine-month or twelve-month rate) for Eurodollar deposits ("LIBOR") or (2) the greatest of (a) the SunTrust Bank prime lending rate, (b) the federal funds rate plus 0.50% and (c) one-month LIBOR plus 1.00% (the "Base Rate"), as selected by the Company. The LIBOR margin varies between 1.75% and 3.00%, and the Base Rate margin varies between 0.75% and 2.00%, depending on our leverage ratio. The Fifth Amended Credit Agreement also provides for an annual fee ranging between 0.30% and 0.50% of the unused commitments under the revolving credit facility. Extensions of credit under the Fifth Amended Credit Agreement are secured by guarantees from all of the Company's active domestic subsidiaries and by security interests in substantially all of the Company's and such subsidiaries' assets.

On July 1, 2013, we entered into an amendment to the Fifth Amended Credit Agreement, which provided for, among other things, the amendment of certain negative covenants to permit the issuance of and payments related to the Cash Convertible Notes described above as well as increases in the maximum required levels of total funded debt to EBITDA beginning with the quarter ended June 30, 2013. On April 14, 2014 and December 29, 2014, we entered into additional amendments to the Fifth Amended Credit Agreement, which, among other things, (1) amended the calculation of consolidated EBITDA to exclude the Blue Cross Blue Shield of Minnesota legal settlement in 2014 and, for any period that includes a fiscal quarter that ended on or before December 31, 2015, up to $5 million in the aggregate of accounting charges attributable to the settlement or other satisfaction of litigation liabilities and the incurrence of related expenses, (2) reduced the amount of the accordion facility from $200 million to $100 million, (3) provided that the net cash proceeds of an asset sale or recovery event be deposited with the administrative agent pending reinvestment or application to the payment of loans and (4) limited the aggregate consideration payable in respect of acquisitions consummated after December 29, 2014 to $150 million.

On October 27, 2015, we entered into a Seventh Amendment to the Fifth Amended Credit Agreement (the "Seventh Amendment"), which provides that the expense incurred by us in the following matters will be excluded from the calculation of consolidated EBITDA for purposes of the Fifth Amended Credit Agreement: (1) operational improvement and restructuring charges incurred from July 1, 2015 through March 31, 2017, not to exceed $27.5 million in the aggregate; (2) cash severance charges in connection with the departure of our former Chief Executive Officer during the quarter ended June 30, 2015 not to exceed $2.2 million in the aggregate; and (3) expense incurred in connection with the grant of certain cash inducement awards to our new Chief Executive Officer in an aggregate amount not to exceed approximately $1.3 million. The Seventh Amendment also reduced the amount available for borrowing under the revolving credit facility from $200.0 million to $125.0 million. As of March 31, 2016, availability under the revolving credit facility totaled $61.7 million as calculated under the most restrictive covenant.

We are required to repay outstanding revolving loans under the revolving credit facility in full on June 8, 2017. We are required to repay term loans in quarterly principal installments aggregating (1) 1.875% of the original aggregate principal amount of the term loans during each of the four quarters beginning with the quarter ending September 30, 2014, and (2) 2.500% of the original aggregate principal amount of the term loans during each of the remaining quarters prior to maturity on June 8, 2017, at which time the entire unpaid principal balance of the term loans is due and payable.

Exhibit 10.1

HEALTHWAYS, INC.

AMENDED AND RESTATED 2014 STOCK INCENTIVE PLAN

MARKET STOCK UNIT AWARD AGREEMENT

This MARKET STOCK UNIT AWARD AGREEMENT (the " Agreement "), dated GRANT DATE (the " Grant Date ") is by and between Healthways, Inc., a Delaware corporation (the " Company "), and PARTICIPANT NAME (the " Grantee "), under the Company's Amended and Restated 2014 Stock Incentive Plan (the " Plan "). Terms not otherwise defined herein shall have the meanings given to them in the Grantee's employment agreement with the Company (as may be amended from time to time, the " Employment Agreement "), or in the absence of an Employment Agreement or if not defined in the Employment Agreement, then the meanings given to them in the Plan.

Section 1. Market Stock Unit Award; Performance Goals . Subject to adjustment as set forth herein, the Grantee is hereby granted NUMBER OF UNITS restricted stock units (the " Target Award ") under the Plan, with the specific number of restricted stock units earned to be determined in accordance with Exhibit A hereto (the " Market Stock Units "). Each Market Stock Unit represents the right to receive one share of the Company's Common Stock, $.001 par value (the " Stock "), subject to the terms and conditions of this Agreement and the Plan. Except as otherwise provided in Section 3 or Section 5.2 , before the Market Stock Units will be earned and settled, the Committee must certify the level of achievement of the Performance Goals described in Exhibit A hereto which the Committee shall do as soon as practicable after the third anniversary of the Grant Date (the " End Date of the Performance Period ", and such period, the " Performance Period "). Any Market Stock Units that are not earned as a result of the level of achievement of the Performance Goals at the End Date of the Performance Period shall be immediately forfeited as of the End Date of the Performance Period.

Section 2. Vesting of the Award . Except as otherwise provided in Section 3 and Section 5.2 below, 100% of the Market Stock Units determined by the Committee to be earned pursuant to Section 1 hereof will vest on the End Date of the Performance Period (the " Vesting Date "), as long as the Grantee is serving as an employee of the Company on such date. The Company shall issue one share of the Stock to the Grantee in settlement of each earned and vested Market Stock Unit (in the aggregate, the " Distributed Shares ") at the time the Market Stock Unit vests pursuant to this Agreement. The Distributed Shares shall be represented by a certificate or by a book-entry.

Section 3. Forfeiture on Termination of Employment .

3.1. Termination by the Company for Cause . If the Grantee's employment with the Company is involuntarily terminated for Cause prior to the End Date of the Performance Period, then all Market Stock Units will be forfeited and the Grantee shall have no further rights with respect to such Market Stock Units.

3.2. Termination by the Company without Cause or by the Grantee for Good Reason . If Grantee's employment with the Company (a) is involuntarily terminated by the Company for any reason other than termination for Cause, or (b) is terminated by the Grantee for Good Reason, then, subject to Grantee's execution of any release of claims provided for in the Employment Agreement, if applicable, the Vesting Date shall be the effective date of Grantee's termination of employment, and the number of Market Stock Units that shall vest (the " Pro Rata Amount ") shall be the product of (i) a fraction, the numerator of which is the number of whole months during the Performance Period that the Grantee was employed by the Company, and the denominator of which is the number of months in the originally stated Performance Period, multiplied by (ii) the number of Market Stock Units that would vest pursuant to Exhibit A if the Performance Goals that had been achieved as of the Vesting Date were in fact achieved on the End Date of the Performance Period, as further described on Exhibit A . The Pro Rata Amount of Market Stock Units shall be settled in Stock issued to the Grantee as soon as practicable following the Vesting Date. For purposes of this Section 3.2 , the terms " Cause " and " Good Reason " shall have the meanings set forth in the Employment Agreement, or in the absence of an Employment Agreement, the term " Cause " shall have the meaning given to it in the Plan, and the term " Good Reason " shall mean (i) a material reduction in the Grantee's base salary (unless such reduction is part of an across the board reduction affecting all Company executives with a comparable title), or (ii) a requirement by the Company to relocate the Grantee to a location that is greater than 25 miles from the location of the office in which the Grantee performs his or her duties at the time of such relocation.

3.3. Termination by Death or Disability . If the Grantee's employment with the Company terminates by reason of death or Disability (as defined in the Plan), then the Vesting Date shall be the date of Grantee's death or the effective date of Grantee's termination of employment on account of Disability, and the number of Market Stock Units that shall vest shall be the product of (i) a fraction, the numerator of which is the number of whole months during the Performance Period that the Grantee was employed by the Company, and the denominator of which is the number of months in the originally stated Performance Period, multiplied by (ii) the Target Award. The Market Stock Units shall be settled in Stock issued to the Grantee (or Grantee's estate or personal representative, as applicable) as soon as practicable following the Vesting Date.

3.4 Termination by Reason of Retirement . If the Grantee's employment with the Company terminates by reason of Retirement (as defined in the Plan), the Market Stock Units granted hereunder shall not be forfeited but shall be settled in Stock to the Grantee in the manner as described in Section 2 (or otherwise) as if the Grantee had continued employment through the Vesting Date (or such other vesting event pursuant to Section 3.3 or Section 5.2 ) and based on actual performance of the Company as determined in accordance with Section 1 and Exhibit A hereto.

3.5. Other Termination . Subject to Section 5.2 , if the Grantee's employment with the Company terminates for any reason other than as described in Sections 3.1 through 3.4 above (or if Grantee fails to execute any release of claims pursuant to the Employment Agreement, if applicable), then all Market Stock Units that have not vested prior to the date of termination of Grantee's employment will be forfeited and the Grantee shall have no further rights with respect to such Market Stock Units.

Section 4. Voting Rights and Dividends . Prior to the Vesting Date, the Grantee shall be credited with cash dividend equivalents with respect to the Market Stock Units at the time of any payment of dividends to stockholders on shares of Common Stock in accordance with the terms set forth in the Plan, and such dividend equivalents shall be paid (in cash, without interest) to the Grantee when the Market Stock Units to which they relate are settled in accordance with this Agreement. The Grantee shall not have any voting rights with respect to the Stock underlying the Market Stock Units prior to the vesting of the Market Stock Units and the issuance of the Stock as set forth in Section 2 . A holder of Distributed Shares shall have full dividend and voting rights as a holder of Stock.

Section 5. Restrictions on Transfer; Change in Control .

5.1. General Restrictions . The Market Stock Units shall not be transferable by the Grantee (or his or her personal representative or estate) other than by will or by the laws of descent and distribution. The terms of this Agreement shall be binding on the executors, administrators, heirs and successors of the Grantee.

5.2. Change in Control .

(a) If in connection with a Change in Control, the acquiring corporation (or other successor to the Company in the Change in Control) does not assume the Market Stock Units, then a number of Market Stock Units shall vest and be settled in Stock issued to the Grantee immediately prior to the Change in Control equal to the greater of (A) the Target Award, or (B) the number of Market Stock Units that would vest pursuant to Exhibit A if the Performance Goals that had been achieved as of the date of the Change in Control had in fact been achieved as of the End Date of the Performance Period.

(b) If in connection with a Change in Control, the acquiring corporation (or other successor to the Company in the Change in Control) assumes the Market Stock Units, and if Grantee's employment with the Company (or its successor company) (i) is involuntarily terminated within 12 months following a Change in Control for any reason other than termination for Cause, or (ii) is terminated by the Grantee for Good Reason within 12 months following a Change in Control, then subject to Grantee's execution of any release of claims set forth in the Employment Agreement, if applicable, the Vesting Date shall be the date of the termination of employment described in this Section 5.2(b) , and a number of Market Stock Units shall vest and be settled in Stock issued to the Grantee on the Vesting Date equal to the greater of (A) the Target Award, or (B) the number of Market Stock Units that would vest pursuant to Exhibit A if the Performance Goals that had been achieved as of the Vesting Date were in fact achieved as of the End Date of the Performance Period. For purposes of this Section 5.2(b ), the terms " Cause " and " Good Reason " shall have the meanings set forth in Section 3.2 .

Section 6. Restrictive Agreement . As a condition to the receipt of any Distributed Shares, the Grantee (or his or her legal representative or estate or any third party transferee), if the Company so requests, will execute an agreement in form satisfactory to the Company in which the Grantee or such other recipient of the shares represents that he or she is purchasing the shares for investment purposes, and not with a view to resale or distribution.

Section 7. Market Stock Units Award Subject to Recoupment Policy . The award of Market Stock Units is subject to the Healthways, Inc. Compensation Recoupment Policy (the " Policy "). The award of Market Stock Units, or any amount traceable to the award of Market Stock Units, shall be subject to the recoupment obligations described in the Policy.

Section 8. Adjustment . In the event of any merger, reorganization, consolidation, recapitalization, extraordinary cash dividend, stock dividend, stock split or other change in corporate structure affecting the Stock, the number of Market Stock Units subject to this Agreement, as well as the performance criteria set forth on Exhibit A , shall be equitably and proportionately adjusted by the Committee in accordance with the Plan and the intent of this Agreement without duplication of Section 4 .

Section 9. Tax Withholding . The Company shall have the right to require the Grantee to remit to the Company an amount necessary to satisfy any federal, state and local withholding tax requirements attributable to the vesting and payment of the Market Stock Units prior to the delivery of the Distributed Shares, or may withhold from the Distributed Shares an amount of Stock having a Fair Market Value equal to such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

Section 10. Plan . This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan that do not conflict with this Agreement are also provisions of this Agreement. If there is a difference or conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of this Agreement will govern. By signing this Agreement, the Grantee confirms that he or she has received a copy of the Plan.

Section 11. Confidentiality, Non-Solicitation and Non-Compete. In the event Grantee breaches any of the confidentiality, non-solicitation or non-compete covenants set forth in the Employment Agreement, if applicable, the Market Stock Units shall immediately thereupon expire and be forfeited, and the Company shall be entitled to seek other appropriate remedies it may have available in connection with such breach.

Section 12. Miscellaneous .

12.1. Entire Agreement . This Agreement and the Plan contain the entire understanding and agreement between the Company and the Grantee concerning the Market Stock Units granted hereby, and supersede any prior or contemporaneous negotiations and understandings. The Company and the Grantee have made no promises, agreements, conditions, or understandings relating to the Market Stock Units, either orally or in writing, that are not included in this Agreement or the Plan.

12.2. Employment . By establishing the Plan, granting awards under the Plan, and entering into this Agreement, the Company does not give the Grantee any right to continue to be employed by the Company or to be entitled to any remuneration or benefits not set forth in this Agreement or the Plan.

12.3. Captions . The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit, construe, or describe the scope or intent of the provisions of this Agreement.

12.4. Counterparts . This Agreement may be executed in counterparts, each of which when signed by the Company and the Grantee will be deemed an original and all of which together will be deemed the same Agreement.

12.5. Notice . All notices required to be given under this Agreement shall be deemed to be received if delivered or mailed as provided for herein, to the parties at the following addresses, or to such other address as either party may provide in writing from time to time.

To the Company:	Healthways, Inc.
	701 Cool Springs Blvd
	Franklin, Tennessee 37067

To the Grantee:	PARTICIPANT NAME
(Grantee name and address)	Address on File
	at Healthways

12.6. Amendment . Subject to the restrictions contained in the Plan, the Committee may amend the terms of this Agreement, prospectively or retroactively, but, subject to Section 8 above, no such amendment shall impair the rights of the Grantee hereunder without the Grantee's consent.

12.7. Governing Law . This Agreement shall be governed and construed exclusively in accordance with the law of the State of Delaware applicable to agreements to be performed in the State of Delaware to the extent it may apply.

12.8. Validity; Severability . If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. If any court determines that any provision of this Agreement is unenforceable but has the power to reduce the scope or duration of such provision, as the case may be, such provision, in its reduced form, shall then be enforceable.

12.9. Interpretation; Resolution of Disputes; Section 409A .

(a) It is expressly understood that the Committee is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Grantee. Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Board. Any determination made hereunder shall be final, binding and conclusive on the Grantee and the Company for all purposes.

(b) Notwithstanding anything herein to the contrary, to the maximum extent permitted by applicable law, the settlement of the Market Stock Units (including any dividend equivalent rights) to be made to the Grantee pursuant to this Agreement is intended to qualify as a "short-term deferral" pursuant to Section 1.409A-1(b)(4) of the U.S. Treasury Regulations and this Agreement shall be interpreted consistently therewith. However, under certain circumstances, settlement of the Market Stock Units or any dividend equivalent rights may not so qualify, and in that case, the Committee shall administer the grant and settlement of such Market Stock Units and any dividend equivalent rights in strict compliance with Section 409A of the Code. Further, notwithstanding anything herein to the contrary, if at the time of a Participant's termination of employment with the Company, the Participant is a "specified employee" as defined in Section 409A of the Code, and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of service is necessary in order to prevent the imposition of any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Participant) to the minimum extent necessary to satisfy Section 409A of the Code until the date that is six months and one day following the Participant's termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code), if such payment or benefit is payable upon a termination of employment. Each payment of Market Stock Units (and related dividend equivalent rights) constitutes a "separate payment" for purposes of Section 409A of the Code.

12.10. Successors in Interest . This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Grantee's legal representative and permitted assignees. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee's heirs, executors, administrators, successors and assignees.

[remainder of page intentionally left blank; signature page follows]

IN WITNESS WHEREOF, the parties have caused the Market Stock Unit Award Agreement to be duly executed as of the day and year first written above.

		HEALTHWAYS, INC.
	By:	/s/ Alfred Lumsdaine
	Name:	Alfred Lumsdaine
	Title:	Chief Financial Officer

	GRANTEE:	PARTICIPANT NAME

		Online Grant Acceptance Satisfies
		Signature Requirement

EXHIBIT A

Performance Period: The three year period beginning on GRANT DATE .

Performance Goal :

Subject to the remaining provisions of this paragraph, the number of Market Stock Units earned shall be determined based on the compounded annual total shareholder return of the Company's Stock over the Performance Period. Compounded annual total shareholder return will be calculated using a beginning price equal to CLOSING STOCK PRICE ON THE GRANT DATE , and an ending price equal to the trading volume weighted average price of the Company's Stock over the period beginning ten (10) calendar days prior to the End Date of the Performance Period and ending on the End Date of the Performance Period, and accounting for immediate reinvestment (as of the ex-dividend date) of all cash dividends and other cash distributions (excluding cash distributions resulting from share repurchases or redemptions by the Company) over this period. In the event Grantee's employment terminates under the circumstances described in Section 3.2 or the Market Stock Units are settled pursuant to Section 5.2 , the ending price shall be equal to the trading volume weighted average price of the Company's Stock over the period beginning ten (10) calendar days prior to the termination of Grantee's employment (or Change in Control, if applicable), and the compounded annual total shareholder return shall be determined as if such ending price were the price on the End Date of the Performance Period (which, for the avoidance doubt, would remain the third anniversary of the Grant Date).

The Target Award set forth in Section 1 of this Agreement shall be multiplied by the applicable percentage set forth in the table below (rounded to the nearest full share), with earned amounts above the 15% and below the 30% thresholds listed below determined by the Committee using straight-line interpolation:

Compounded Annual Total Shareholder Return as of the End Date of the Performance Period	Percentage of Target Award Earned
Less than 15%	0%
15%	100%
30% or more	140%

Delaware		62-1117144
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Large accelerated filer ☐		Accelerated filer ☒

Non-accelerated filer ☐	(Do not check if a smaller reporting company)	Smaller reporting company ☐

			Page
Part I
	Item 1.	Financial Statements	3
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
	Item 4.	Controls and Procedures	37
Part II
	Item 1.	Legal Proceedings	37
	Item 1A.	Risk Factors	38
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
	Item 3.	Defaults Upon Senior Securities	39
	Item 4.	Mine Safety Disclosures	39
	Item 5.	Other Information	39
	Item 6.	Exhibits	39

	March 31, 2016			December 31, 2015
Current assets:
Cash and cash equivalents	$	3,094		$	1,870
Accounts receivable, net		101,233			108,195
Prepaid expenses		10,057			10,207
Other current assets		4,314			5,230
Income taxes receivable		1,293			1,076
Deferred tax asset		—			8,209
Total current assets		119,991			134,787

Property and equipment:
Leasehold improvements		37,627			37,565
Computer equipment and related software		317,918			315,890
Furniture and office equipment		19,812			19,776
Capital projects in process		16,939			13,676
		392,296			386,907
Less accumulated depreciation		(242,546	)		(230,907	)
		149,750			156,000

Other assets		17,255			23,846
Intangible assets, net		60,480			61,317
Goodwill, net		336,974			336,974

Total assets	$	684,450		$	712,924

	March 31, 2016			December 31, 2015
Current liabilities:
Accounts payable	$	44,703		$	41,035
Accrued salaries and benefits		21,268			21,620
Accrued liabilities		47,695			50,074
Deferred revenue		6,810			7,056
Contract billings in excess of earned revenue		13,967			12,893
Current portion of long-term debt		23,007			23,308
Current portion of long-term liabilities		6,722			6,204
Total current liabilities		164,172			162,190

Long-term debt		206,386			208,289
Long-term deferred tax liability		16,328			23,617
Other long-term liabilities		28,192			38,238

Stockholders' equity:
Preferred stock $.001 par value, 5,000,000 shares authorized, none outstanding		—			—
Common stock $.001 par value, 120,000,000 shares authorized, 36,137,666 and 36,079,446 shares outstanding, respectively		36			36
Additional paid-in capital		304,121			302,488
Retained earnings (deficit)		(4,550	)		9,659
Treasury stock, at cost, 2,254,953 shares in treasury		(28,182	)		(28,182	)
Accumulated other comprehensive loss		(3,139	)		(4,087	)
Total Healthways, Inc. stockholders' equity		268,286			279,914
Non-controlling interest		1,086			676
Total stockholders' equity		269,372			280,590

Total liabilities and stockholders' equity	$	684,450		$	712,924

	Three Months Ended March 31,
	2016			2015
Revenues	$	189,217		$	189,862
Cost of services (exclusive of depreciation and amortization of $10,418 and $9,526, respectively, included below)		164,002			161,453
Selling, general and administrative expenses		16,195			15,982
Depreciation and amortization		12,746			12,643
Restructuring and related charges		5,741			—

Operating loss		(9,467	)		(216	)
Interest expense		4,382			4,490
Equity in income from joint ventures		132			—

Loss before income taxes		(13,717	)		(4,706	)
Income tax expense (benefit)		180			(1,793	)

Net loss	$	(13,897	)	$	(2,913	)
Less: net income attributable to non-controlling interest		312			—
Net loss attributable to Healthways, Inc.	$	(14,209	)	$	(2,913	)

Loss per share attributable to Healthways, Inc.:
Basic	$	(0.39	)	$	(0.08	)

Diluted ⁽¹⁾	$	(0.39	)	$	(0.08	)

Comprehensive loss	$	(12,851	)	$	(4,590	)
Less: comprehensive income attributable to non-controlling interest		410			—
Comprehensive loss attributable to Healthways, Inc.	$	(13,261	)	$	(4,590	)

Weighted average common shares and equivalents:
Basic		36,109			35,595
Diluted ⁽¹⁾		36,109			35,595

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings (Deficit)			Treasury Stock			Accumulated Other Comprehensive Loss			Non-controlling interest		Total
Balance, December 31, 2015	$	—	$	36	$	302,488		$	9,659		$	(28,182	)	$	(4,087	)	$	676	$	280,590

Net loss attributable to Healthways, Inc.		—		—		—			(14,209	)		—			—			—		(14,209	)

Net income attributable to non-controlling interest		—		—		—			—			—			—			312		312

Other comprehensive income (loss), net of tax:

Net change in fair value of interest rate swaps, net of income tax benefit of $16		—		—		—			—			—			24			—		24

Foreign currency translation adjustment		—		—		—			—			—			924			98		1,022

Total other comprehensive income		—		—		—			—			—			948			98		1,046

Total comprehensive income (loss)		—		—		—			(14,209	)		—			948			410		(12,851	)

Tax effect of stock options and restricted stock units		—		—		(794	)		—			—			—			—		(794	)

Share-based employee compensation expense		—		—		2,427			—			—			—			—		2,427

Balance, March 31, 2016	$	—	$	36	$	304,121		$	(4,550	)	$	(28,182	)	$	(3,139	)	$	1,086	$	269,372

	Shares (000s)			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($000s)
Options
Outstanding at January 1, 2016		2,122		$	13.34
Granted		—			—
Exercised		—			—
Forfeited		(2	)		17.12
Expired		(96	)		21.63
Outstanding at March 31, 2016		2,024			12.95		5.38	$	985
Exercisable at March 31, 2016		1,629		$	13.02		5.09	$	869

	Restricted Stock and Restricted Stock Units
	Shares (000s)			Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2016		1,618		$	12.35
Granted		727			10.24
Vested		(81	)		10.24
Forfeited		(41	)		13.16
Nonvested at March 31, 2016		2,223		$	11.72

	Market Stock Units
	Shares (000s)		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2016		474	$	6.53
Granted		204		7.15
Vested		—		—
Forfeited		—		—
Nonvested at March 31, 2016		678	$	6.72

(In thousands)	March 31, 2016			December 31, 2015
Cash Convertible Notes, net of unamortized discount	$	132,121		$	130,296
CareFirst Convertible Note		20,000			20,000
Fifth Amended Credit Agreement:
Term Loan		75,000			80,000
Revolver		1,100			—
Capital lease obligations and other		4,691			5,374
		232,912			235,670
Less: deferred loan costs		(3,519	)		(4,073	)
		229,393			231,597
Less: current portion		(23,007	)		(23,308	)
	$	206,386		$	208,289

(In $000s) March 31, 2016	Level 2		Level 3		Gross Fair Value		Netting ⁽¹⁾			Net Fair Value
Assets:
Foreign currency exchange contracts	$	375	$	—	$	375	$	(213	)	$	162
Cash Convertible Notes Hedges		—		5,029		5,029		—			5,029
Liabilities:
Foreign currency exchange contracts	$	246	$	—	$	246	$	(213	)	$	33
Interest rate swap agreements		357		—		357		—			357
Cash Conversion Derivative		—		5,029		5,029		—			5,029
Gallup Derivative		—		5,589		5,589		—			5,589

(In $000s) December 31, 2015	Level 2		Level 3		Gross Fair Value		Netting ⁽¹⁾			Net Fair Value
Assets:
Foreign currency exchange contracts	$	284	$	—	$	284	$	(26	)	$	258
Cash Convertible Notes Hedges		—		12,632		12,632		—			12,632
Liabilities:
Foreign currency exchange contracts	$	48	$	—	$	48	$	(26	)	$	22
Interest rate swap agreements		397		—		397		—			397
Cash Conversion Derivative		—		12,632		12,632		—			12,632
Gallup Derivative		—		6,339		6,339		—			6,339

(In $000s)	Balance at December 31, 2015			Purchases of Level 3 Instruments		Settlements of Level 3 Instruments		Gains/(Losses) Included in Earnings			Balance at March 31, 2016
Cash Convertible Notes Hedges	$	12,632		$	—	$	—	$	(7,603	)	$	5,029
Cash Conversion Derivative		(12,632	)		—		—		7,603			(5,029	)
Gallup Derivative		(6,339	)		—		750		—			(5,589	)

(In $000s)	For the Three Months Ended
Derivatives in Cash Flow Hedging Relationships	March 31, 2016				March 31, 2015
Loss related to effective portion of derivatives recognized in accumulated OCI, gross of tax effect		$	92			$	201
Loss related to effective portion of derivatives reclassified from accumulated OCI to interest expense, gross of tax effect		$	(133	)		$	(98	)

(In $000s)	Three Months Ended March 31, 2016			Statements of Comprehensive Income (Loss) Classification
Cash Convertible Notes Hedges:
Net unrealized loss	$	(7,603	)	Selling, general and administrative expenses
Cash Conversion Derivative:
Net unrealized gain	$	7,603		Selling, general and administrative expenses
Gallup Derivative:
Net loss	$	—		Equity in income from joint ventures

(In 000s, except per share data)	Three Months Ended
	March 31,			March 31,
	2016			2015
Numerator:
Net loss attributable to Healthways, Inc. - numerator for basic loss per share	$	(14,209	)	$	(2,913	)

Denominator:
Shares used for basic loss per share		36,109			35,595
Effect of dilutive securities outstanding:
Non-qualified stock options ⁽¹⁾		—			—
Restricted stock units ⁽¹⁾		—			—
Market stock units ⁽¹⁾		—			—
Performance-based stock units ⁽¹⁾		—			—
CareFirst Warrants ⁽¹⁾		—			—
Shares used for diluted income per share ⁽¹⁾	$	36,109		$	35,595

Loss per share:
Basic	$	(0.39	)	$	(0.08	)
Diluted ⁽¹⁾	$	(0.39	)	$	(0.08	)

Dilutive securities outstanding not included in the computation of loss per share because their effect is antidilutive:
Non-qualified stock options		1,651			1,243
Restricted stock units		1,105			404
Market stock units		161			—
Performance-based stock units		—			98
Warrants related to Cash Convertible Notes		7,707			7,707
CareFirst Convertible Note		892			892
CareFirst Warrants		591			36

(In $000s)	Net Change in Fair Value of Interest Rate Swaps			Foreign Currency Translation Adjustments			Total
Accumulated OCI, net of tax, as of January 1, 2016	$	(239	)	$	(3,848	)	$	(4,087	)
Other comprehensive income (loss) before reclassifications, net of tax		(56	)		924			868
Amounts reclassified from accumulated OCI, net of tax		80			—			80
Net increase in other comprehensive income (loss), net of tax		24			924			948
Accumulated OCI, net of tax, as of March 31, 2016	$	(215	)	$	(2,924	)	$	(3,139	)

	Three Months Ended March 31,								Statement of Comprehensive
(In $000s)	2016				2015				Loss Classification
Interest rate swaps		$	133			$	98		Interest expense
			(53	)			(39	)	Income tax benefit
		$	80			$	59		Net of tax

(In $000s)	Severance and Other Employee-Related Costs			Consulting and Other Costs ⁽¹⁾			Total
Accrued restructuring and related charges liability as of January 1, 2016	$	7,093		$	2,900		$	9,993
2015 Restructuring Plan charges		3,073			2,668			5,741
Cash payments		(2,541	)		(2,428	)		(4,969	)
Non-cash charges ⁽²⁾		(127	)		—			(127	)
Accrued restructuring and related charges liability as of March 31, 2016	$	7,498		$	3,140		$	10,638

·	our ability to estimate the costs associated with, and to implement and realize the anticipated benefits of, the 2015 Restructuring Plan;
·	the effectiveness of management's strategies and decisions, including on-going strategic review;
·	the risks associated with recent changes to our senior management team;
·	our ability to sign and implement new contracts for our solutions;

·	our ability to accurately forecast the costs required to successfully implement new contracts;

·	our ability to renew and/or maintain contracts with our customers under existing terms or restructure these contracts on terms that would not have a material negative impact on our results of operations;

·	our ability to effectively compete against other entities, whose financial, research, staff and marketing resources may exceed our resources;

·	our ability to accurately forecast our revenues, margins, earnings and net income, as well as any potential charges that we may incur as a result of changes in our business and leadership;

·	our ability to accurately forecast performance and the timing of revenue recognition under the terms of our customer contracts ahead of data collection and reconciliation;

·	the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the "PPACA"), on our operations and/or the demand for our services;

·	our ability to anticipate, change and respond to emerging trends in the domestic and international markets for healthcare and the impact of the same on demand for our services;

·	the risks associated with deriving a significant concentration of our revenues from a limited number of customers;

·	the risks associated with foreign currency exchange rate fluctuations and our ability to hedge against such fluctuations;

·	our ability to achieve and reach mutual agreement with customers with respect to the contractually required performance metrics, cost savings and clinical outcomes improvements, or to achieve such metrics, savings and improvements within the timeframes contemplated by us;

·	our ability to achieve estimated annualized revenue in backlog in the manner and within the timeframe we expect, which is based on certain estimates regarding the implementation of our services;
·	our ability and/or the ability of our customers to enroll participants and to accurately forecast their level of enrollment and participation in our programs in a manner and within the timeframe anticipated by us;
·	the ability of our customers to provide timely and accurate data that is essential to the operation and measurement of our performance under the terms of our contracts;
·	our ability to favorably resolve contract billing and interpretation issues with our customers;
·	our ability to service our debt, make principal and interest payments as those payments become due and remain in compliance with our debt covenants;
·	the risks associated with changes in macroeconomic conditions, which may reduce the demand and/or the timing of purchases for our services from customers or potential customers, reduce the number of covered lives of our existing customers or restrict our ability to obtain additional financing;
·	counterparty risk associated with the Cash Convertible Notes Hedges, interest rate swap agreements and foreign currency exchange contracts;

·	the risks associated with valuation of the Cash Convertible Notes Hedges and the Cash Conversion Derivative, which may result in volatility to our consolidated statements of comprehensive income (loss) if these transactions do not completely offset one another;
·	the risks associated with certain derivatives carried at fair value, which may result in volatility to our consolidated statements of comprehensive income (loss);
·	our ability to integrate new or acquired businesses, services (including outsourced services) or technologies into our business and to accurately forecast the related costs;
·	our ability to anticipate and respond to strategic changes, opportunities and emerging trends in our industry and/or business and to accurately forecast the related impact on our revenues and earnings;
·	the impact of any impairment of our goodwill, intangible assets or other long-term assets;

·	our ability to develop new products and deliver and report outcomes on those products;
·	our ability to implement our integrated data and technology solutions platform within the required timeframe and expected cost estimates and to develop and enhance this platform and/or other technologies to meet evolving customer and market needs;
·	our ability to obtain adequate financing to provide the capital that may be necessary to support our operations and to support or guarantee our performance under new contracts;
·	unusual and unforeseen patterns of healthcare utilization by individuals with diseases or conditions for which we provide services;

·	the ability of our customers to maintain the number of covered lives enrolled in the plans during the terms of our agreements;
·	the risks associated with data privacy or security breaches, computer hacking, network penetration and other illegal intrusions of our information systems or those of third-party vendors or other service providers, which may result in unauthorized access by third parties to customer, employee or our information or patient health information and lead to enforcement actions, fines and other litigation against us;
·	the impact of any new or proposed legislation, regulations and interpretations relating to Medicare or Medicare Advantage;

·	the impact of future state, federal, and international legislation and regulations applicable to our business, including PPACA, on our ability to deliver our services and on the financial health of our customers and their willingness to purchase our services;

·	current geopolitical turmoil, the continuing threat of domestic or international terrorism, and the potential emergence of a health pandemic or infectious disease outbreak;

·	the impact of legal proceedings involving us and/or our subsidiaries; and

·	other risks detailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and our other filings with the Securities and Exchange Commission.

·	an increase in the number of members eligible to participate in our fitness solutions, primarily due to increased enrollment in Medicare Advantage resulting in growth in our customers' membership; and
·	an increase in average participation per member in our fitness solutions, primarily due to our initiatives to drive higher participation.

·	contract terminations that occurred in 2015;
·	an amendment to a long-term contract with a health plan customer in 2015 that resulted in lower contract revenues but largely unchanged contract profits; and
·	the sale of our Navvis consulting business in November 2015.

·	an increase in the level of short-term incentive compensation expense based on the Company's projected financial performance against established targets; and
·	certain staffing costs related to one contract that remained relatively fixed during the first quarter of 2016 in anticipation of ramping revenues.

●	a decrease in days sales outstanding in accounts receivable from 58 days at March 31, 2015 to 49 days at March 31, 2016; and
●	two legal settlement payments totaling $12.8 million during the three months ended March 31, 2015, both of which were reflected in the Company's results of operations for 2014.

10.1		Form of Market Stock Unit Award Agreement (for Executive Officers) under the Company's Amended and Restated 2014 Stock Incentive Plan (adopted in March 2016)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

			Healthways, Inc.
			(Registrant)

Date	May 6, 2016	By	/s/ Alfred Lumsdaine
			Alfred Lumsdaine
			Chief Financial Officer
			(Principal Financial Officer)