Exhibit 10.4

 

Magellan Health, Inc.

2011 Management Incentive Plan

Notice of Terms of Performance-Based Restricted Stock Units

 

(Reference No. 2011-March 2016)

 

Name of Grantee:

 

«Name»

 

 

 

Date of Grant:

 

March 3, 2016

 

 

 

Type of Award:

 

Performance-Based Restricted Stock Units (“PSU”), each PSU representing the
right to receive on the terms and conditions of the Performance-Based Restricted
Stock Unit Agreement between you (as Grantee) and the Company referenced below
and the terms and conditions of this Notice, a share of Ordinary Common Stock,
par value $0.01 per share (“Share”), of Magellan Health, Inc. (the “Company”),
subject to adjustment thereto as provided in this Notice.

 

 

 

Number of Performance-Based Restricted Stock Units Awarded (“Target PSUs”):

 

                                   

 

 

 

Dividend Equivalent Rights:

 

None.

 

The terms and conditions of the award are as follows:

 

1.                                      Vesting Provisions

 

(a)                                 General.  Subject to your continued
employment or other service with the Company or its subsidiaries through
March 3, 2019 (the “Vesting Date”) (except as otherwise provided herein), the
Award shall become vested based upon the Company’s “Relative Total Shareholder
Return” in terms of percentile ranking as compared to the Peer Group (as defined
in Exhibit A) over the period beginning January 1, 2016 and ending December 31,
2018 (the “Measurement Period”) in accordance with the schedule below:

 

Relative Total Shareholder Return Ranking over Measurement Period
(“TSR Percentile”)

 

Payout % Level

 

75th Percentile or Higher

 

200

%

50th Percentile

 

100

%

25th Percentile

 

50

%

<25th Percentile

 

0

%

 

In the event of a payout percentage level above 100%, you will be awarded
additional PSUs so that the total number of PSUs that vest as of the Vesting
Date (excluding dividend equivalent PSUs if applicable) equals your Target PSUs
multiplied by the payout percentage level. For each percent above the 50th TSR
Percentile, the payout percentage will be increased four percent, up to

 

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but not exceeding the maximum payout percent level. In the event of a payout
percentage level below 100%, your Target PSUs will be forfeited to the extent
necessary to provide that the total number of PSUs that vest as of the Vesting
Date (excluding dividend equivalent PSUs if applicable) equals your Target PSUs
multiplied by the payout percentage level. For each percent below the 50th TSR
Percentile down to the 25th percentile, the payout percentage will be decreased
two percent.

 

(b)                                 Payout Limits.  In no event shall the number
of PSUs vested as of the Vesting Date exceed 200% of the Target PSUs, and if the
TSR Percentile achieved is less than the 25th percentile, all of your PSUs will
be forfeited.

 

2.                                      Termination of Employment.  In the event
your employment is terminated prior to vesting of the PSUs for any reason other
than as provided in paragraph 3 with regard to certain terminations following a
Change in Control of the Company, all PSUs granted hereunder shall immediately
be forfeited by you and canceled, except as otherwise provided in the Company’s
“Retirement Policy Applicable to Employee Equity Awards” or otherwise provided
in any employment agreement between you and the Company in effect at the date of
your termination.

 

3.                                      Change in Control. This Award shall
earlier vest immediately with respect to 100% of the Target PSUs in the even
that, after the date hereof, a Change in Control of the Company shall have
occurred and at the time of the change in Control or within the period of 18
months (or such other period as provided by your employment agreement, if any,
in effect at the time of the Change in Control) following occurrence of the
Change in Control, your service with the Company shall be terminated by the
Company without Cause (as defined below) or by you with Good Reason (as defined
below), provided that your service with the Company has not previously
terminated after the date hereof for any other reason. For purposes of this
Award, the terms “Change in Control,” “Cause” and “Good Reason” shall have the
same meanings as provided in any employment agreement between the Company and
you in effect at the time of the Change in Control (including any terms of
substantially comparable significance in any such employment agreement even if
not of identical wording) or, if no such employment agreement is in effect at
such time or no such meanings are provided in such employment agreement, shall
have the meanings ascribed thereto below:

 

(1)                                 A “Change in Control” of the Company shall
mean the first to occur after the date hereof of any of the following events:

 

a.              any “person,” as such term is used in Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
becomes a “beneficial owner,” as such term is used in Rule 13d-3 promulgated
under the Exchange Act, of 50% or more of the Voting Stock (as defined below) of
the Company;

 

b.              the majority of the Board of Directors of the Company consists
of individuals other than “Continuing Directors,” which shall mean the members
of the Board on the date hereof;

 

c.               the Board of Directors of the Company adopts and, if required
by law or the certificate of incorporation of the Corporation, the shareholders
approve the dissolution of the Company or a plan of liquidation or comparable
plan providing for the disposition of all or substantially all of the Company’s
assets;

 

d.              all or substantially all of the assets of the Company are
disposed of pursuant to a merger, consolidation, share exchange, reorganization
or other transaction unless the shareholders of the Company immediately prior to
such merger, consolidation, share exchange, reorganization or other transaction
beneficially own, directly or indirectly, in substantially the same proportion
as they previously owned the Voting Stock or other ownership interests of the
Company, a majority of the Voting Stock or other

 

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ownership interests of the entity or entities, if any, that succeed to the
business of the Company; or

 

e.               the Company merges or combines with another company and,
immediately after the merger or combination, the shareholders of the Company
immediately prior to the merger or combination own, directly or indirectly, 50%
or less of the Voting Stock of the successor company, provided that in making
such determination there shall being excluded from the number of shares of
Voting Stock held by such shareholders, but not from the Voting Stock of the
successor company, any shares owned by Affiliates of such other company who were
not also Affiliates of the Company prior to such merger or combination.

 

(2)                                 “Cause” shall mean:

 

a.              Grantee is convicted of (or pleads guilty or nolo contendere to)
a felony or a crime involving moral turpitude;

 

b.              Grantee’s commission of an act of fraud or dishonesty involving
his or her duties on behalf of the Company;

 

c.               Grantee’s willful failure or refusal to faithfully and
diligently perform duties lawfully assigned to Grantee as an officer or employee
of the Company or other willful breach of any material term of any employment
agreement at the time in effect between the Company and Grantee; or

 

d.              Grantee’s willful failure or refusal to abide by the Company’s
policies, rules, procedures or directives, including any material violation of
the Company’s Code of Ethics.

 

(3)                                 “Good Reason” shall mean:

 

a.              a material reduction in Grantee’s salary in effect at the time
of a Change in Control, unless such reduction is comparable in degree to the
reduction that takes place for all other employees of the Company of comparable
rank (for which purpose any person who is an executive officer of the Company
(as determined for purposes of the Exchange Act shall be considered of
comparable rank) or a material reduction in Grantee’s target bonus opportunity
for the year in which or any year after the year in which the Change of Control
occurs from Grantee’s target bonus opportunity for the year in which the Change
in Control occurs (if any) as established under any employment agreement Grantee
has with the Company or any bonus plan of the Company applicable to Grantee (or,
if no such target bonus opportunity has yet been established for Grantee under a
bonus plan applicable to Grantee for the year in which the Change of Control has
occurred, the target bonus opportunity so established for Grantee for the
immediately preceding year (if any)). For purposes of this provision, an action
or actions of the Company will be deemed “material” if, individually or in the
aggregate, the action or actions result(s) or potentially result(s) in a
reduction in compensation in the current year or a future year having a present
value to Grantee of at least one and one half percent (1.5%) of Grantee’s then
current base salary, provided that Grantee will have a legal right to claim
damages for a breach of contract for any action by the Company or event having
an effect described under those paragraphs that does not meet this objective
materiality test, and actions may be material in a given case at levels less
than the specified level.

 

b.              a material diminution in Grantee’s position, duties or
responsibilities as in effect at the time of a Change in Control or the
assignment to Grantee of duties which are materially inconsistent with such
position, duties and authority, unless in either case such change is made with
the consent of the Grantee; or

 

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c.               the relocation by more than 50 miles of the offices of the
Company which constitute at the time of the Change in Control Grantee’s
principal location for the performance of his or her services to the Company;

 

provided that, in each such case, Grantee provides notice to the Company within
90 days that such event or condition constituting Good Reason has arisen, and
such event or condition continues uncured for a period of more than 30 days
after Grantee gives notice thereof to the Company, and Grantee terminates
Service within eighteen months after such event or condition has arisen.

 

For purposes of the foregoing definitions, (A) “the Company” shall include any
entity that succeeds to all or substantially all of the business of the Company,
(B) “Affiliate” of a person or other entity shall mean a person or other entity
that directly or indirectly controls, is controlled by, or is under common
control with the person or other entity specified, and (C) “Voting Stock” shall
mean any capital stock of any class or classes having general voting power under
ordinary circumstances, in the absence of contingencies, to elect the directors
of a corporation and reference to a percentage of Voting Stock shall refer to
such percentage of the votes that all such Voting Stock is entitled to cast.

 

4.                                      Leave of Absence.  Unless otherwise
required by law, in the event you have an authorized leave of absence at any
time during the Measurement Period which absence extends beyond three full
calendar months (including any absence that began before the Grant Date), your
PSU payout will be prorated based on the number of full and partial months spent
on the active payroll (beginning with the first full calendar month after the
Grant Date). Payout for the award will be made at the same time as payment would
have been made without regard to any leave of absence, and will in all respects
be subject to the Company’s actual Relative Total Shareholder Return achievement
for the full Measurement Period.

 

5.                                      Settlement of Award.  Shares in
settlement of vested PSUs under this Award (or, at the Company’s election, cash
in lieu thereof) shall be delivered to you on the Vesting Date (the “Settlement
Date”) as further provided in your Performance Based Restricted Stock Unit
Agreement with the Company. Settlement and your retention of cash or Shares
issued in settlement or the proceeds of a sale of Shares or other benefits
resulting form this Award, are subject to the terms of the provisions of the
Performance Based Restricted Stock Unit Agreement (without regard to any
previous vesting of this Award).

 

6.                                      Transfer Restrictions.  Shares issued in
settlement of this Award shall not be subject to any additional transfer
restrictions, other than those provided by your Performance Based Restricted
Stock Unit Agreement.

 

By signing your name below, you acknowledge and agree that this Award is
governed by the terms and conditions of the Magellan Health, Inc. 2011
Management Incentive Plan (the “Plan”) and the Performance Based Restricted
Stock Unit Agreement, reference number 2011-March 3, 2016 (the “Agreement”),
both of which are hereby made a part of this document. Capitalized terms used
but not defined in this Notice of Performance Based Restricted Stock Units shall
have the meaning assigned to them in the Plan and Agreement.

 

10.4-4

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MAGELLAN HEALTH, INC.

 

 

 

 

 

 

 

 

Name:

Barry M. Smith

 

Title:

Chairman and Chief Executive Officer

 

 

GRANTEE:

 

 

 

 

 

 

 

 

 

Name:

 

 

 

 

 

Date:

 

 

 

10.4-5

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Magellan Health, Inc.

 

Performance Based Restricted Stock Unit

Exhibit A — Calculation of Relative Total Shareholder Return

 

·                  “Relative Total Shareholder Return” means the Company’s Total
Shareholder Return (“TSR”) relative to the TSR of the Peer Companies. Relative
TSR will be determined by ranking the Company and the Peer Companies from
highest to lowest according to their respective TSRs. After this ranking, the
percentile performance of the Company relative to the Peer Companies will be
determined as follows:

 

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where:  “P” represents the percentile performance which will be rounded, if
necessary, to the nearest whole percentile by application of regular rounding.

 

“N” represents the remaining number of Peer Companies, plus the Company.

 

“R” represents the Company’s ranking among the Peer Companies.

 

Example: If there are 24 Peer Companies, and the Company ranked 7th, the
performance would be at the 75th percentile: 1 – ((7-1)/(25-1)).

 

Relative TSR shall be determined by the Compensation Committee of the Board of
Directors of the Company based on the terms set forth in this Exhibit A and in
the Compensation Committee’s sole and absolute discretion, provided that in no
event shall the Compensation Committee take any action that would constitute
“positive discretion” with respect to awards intended to qualify as
“performance-based compensation” under Section 162(m) of the Internal Revenue
Code.

 

·                  “TSR” means, for each of the Company and the Peer Companies,
the company’s total shareholder return, expressed as a percentage, which will be
calculated by dividing (i) the Closing Average Share Value by (ii) the Opening
Average Share Value and subtracting one from the quotient.

 

·                  “Opening Average Share Value” means the average, over the
trading days in the Opening Average Period, of the closing price of a company’s
stock multiplied by the Accumulated Shares for each trading day during the
Opening Average Period.

 

·                  “Opening Average Period” means the 30 trading days beginning
as of January 1, 2016.

 

·                  “Accumulated Shares” means, for a given trading day, the sum
of (i) one (1) share and (ii) a cumulative number of shares of the company’s
common stock purchased with dividends declared on a company’s common stock,
assuming same day reinvestment of the dividends in the common stock of a company
at the closing price on the ex-dividend date, for ex-dividend dates during the
Opening Average Period or between the Grant Date and the Vesting Date, as
applicable.

 

·                  “Closing Average Share Value” means the average, over the
trading days in the Closing Average Period, of the closing price of the
company’s stock multiplied by the Accumulated Shares for each trading day during
the Closing Average Period.

 

·                  “Closing Average Period” means the 30 trading days
immediately preceding January 1, 2019.

 

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·                  “Peer Companies” means the S&P Health Care Services Industry
Index as of February 29, 2016 which includes the following companies:

 

Acadia Healthcare Co Inc

 

Ensign Group Inc

 

McKesson Corp

Aceto Corp

 

Envision Healthcare

 

MEDNAX Inc

Aetna Inc

 

ExamWorks Group Inc

 

Molina Healthcare Inc

Air Methods Corp

 

Express Scripts Holding Co

 

Owens & Minor Inc

Amedisys Inc

 

Hanger Inc

 

Patterson Cos Inc

AmerisourceBergen Corp

 

HCA Holdings Inc

 

PharMerica Corp

AMN Healthcare Services Inc

 

Health Equity Inc

 

Premier Inc

Amsurg Corp

 

Health Net Inc/CA

 

Providence Service Corp

Anthem Inc

 

HealthSouth Corp

 

Quest Diagnostics Inc

Brookdale Senior Living Inc

 

Healthways Inc

 

Select Medical Holdings Inc

Capital Senior Living Corp

 

Henry Schein Inc

 

Surgical Care Affilliates Inc

Cardinal Health Inc

 

Humana Inc

 

Team Health Holdings Inc

Centene Corp

 

Kindred Healthcare Inc

 

Tenet Healthcare Corp

Chemed Corp

 

Laboratory Corp of America

 

Triple-S Management Corp

CIGNA Corp

 

Landauer Inc

 

UnitedHealth Group Inc

Community Health Systems Inc

 

LHC Group Inc

 

Universal Health Services Inc

Cross Country Healthcare Inc

 

LifePoint Hospitals Inc

 

US Physical Therapy I

DaVita Healthcare Partners

 

Magellan Health, Inc

 

VCA Inc

Diplomat Pharmacy

 

 

 

WellCare Health Plans Inc

 

The Peer Companies may be changed as follows:

 

(i)                         In the event of a merger, acquisition or business
combination transaction of a Peer Company with or by another Peer Company, the
surviving entity shall remain a Peer Company.

 

(ii)                      In the event of a merger of a Peer Company with an
entity that is not a Peer Company, or the acquisition or business combination
transaction by or with a Peer Company, or with an entity that is not a Peer
Company, in each case where the Peer Company is the surviving entity and remains
publicly traded, the surviving entity shall remain a Peer Company.

 

(iii)                   In the event of a merger or acquisition or business
combination transaction of a Peer Company by or with an entity that is not a
Peer Company, a “going private” transaction involving a Peer Company or the
liquidation of a Peer Company, where the Peer Company is not the surviving
entity or is otherwise no longer publicly traded, the company shall no longer be
a Peer Company.

 

(iv)                  In the event of a bankruptcy of a Peer Company, such
company shall remain a Peer Company.

 

(v)                     In the event of a stock distribution from a Peer Company
consisting of the shares of a new publicly-traded company (a “spin-off”), the
Peer Company shall remain a Peer Company and the stock distribution shall be
treated as a dividend from the Peer Company based on the closing price of the
shares of the spun-off company on its first day of trading.  The performance of
the shares of the spun-off company shall not thereafter be tracked for purposes
of calculating TSR.

 

·                  For purposes of calculating TSR, the value of any Peer
Company shares traded on a foreign exchange will be converted to U.S. dollars.

 

10.4-7

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