Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into by and between
Jonathan Rubin an individual (“Employee”), and, Magellan Health Services, Inc.
on behalf of itself and its subsidiaries and affiliates (collectively referred
to herein as “Employer”).

 

WHEREAS, Employer desires to obtain the services of Employee and Employee
desires to continue to render services to Employer; and

 

WHEREAS, Employer and Employee desire to set forth the terms and conditions of
Employee’s employment with Employer under this Agreement;

 

NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual
covenants and agreements contained in this Agreement and Amendment No. 1 to this
Agreement executed simultaneously herewith (hereinafter “Amendment No. 1”), the
parties agree as follows:

 

STATEMENT OF AGREEMENT

 

1.                                      Employment.  Employer agrees to employ
Employee, and Employee accepts such employment in accordance with the terms of
this Agreement, for a term of one year commencing on September 8, 2008 and,
unless terminated earlier in accordance with the terms of this Agreement, ending
on September 7, 2009.  Thereafter, this Agreement shall automatically renew for
twelve (12) month periods, unless sooner terminated as provided herein.  If
either party desires not to renew the Agreement, they must provide the other
party with written notice of their intent not to renew the Agreement at least
one hundred eighty (180) days prior to the next renewal date. Non-renewal of the
Agreement by either party will in all cases result in termination of employment
at the non-renewal date.  Employer’s notice of intent not to renew the Agreement
shall be deemed to be a termination without cause and the provisions of
Section 6(c) shall apply.

 

2.                                      Position and Duties of Employee. 
Employee will serve as Chief Financial Officer of Employer. Employee agrees to
serve in such position, or in such other positions as Employer determines from
time to time, and to perform the duties that Employer may assign from time to
time to Employee, at the same or greater base salary level and a similar
location, until the expiration of the term or such time as Employee’s employment
with Employer is terminated pursuant to this Agreement.

 

3.                                      Time Devoted.  Employee will devote his
or her full business time and energy to the business affairs and interests of
Employer, and will use his or her best efforts and abilities to promote
Employer’s interests.  Employee agrees that he or she will diligently endeavor
to perform services contemplated by this Agreement in a manner consistent with
his or her position and in accordance with the policies established by the
Employer.  Excluding charitable and civic organizations, Employee shall not
serve on any outside boards of directors of any organizations without the prior
approval of the Chief Executive Officer, except that he may continue to serve on
the board of the American School for the Deaf.

 

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4.                                      Compensation.

 

(a)                                  Base Salary.  Employer will pay Employee an
annual base salary in the amount of $400,000.00 which amount will be paid in
semi-monthly intervals less appropriate withholdings for federal and state taxes
and other deductions authorized by Employee.  Such salary will be subject to
review and adjustment by Employer not less than annually.

 

(b)                                 Annual Bonus.  Employee’s annual target
bonus opportunity will be 60% of Base Salary (“Target Bonus”) under the
Company’s Short-Term Incentive Plan (or successor annual incentive plan
applicable to similarly situated executive officers).   The actual payout to
will be based on Company and individual performance during the measurement
period.  Any such bonus payable to Employee shall be paid to Employee during the
period January 1 to March 15 of each year in respect of service in the preceding
year provided that Employee is still employed by Employer at the time the bonus
is paid. Subject to the conditions for payment of bonus stated above in this
paragraph, for the year 2008 Employee’s Target Bonus shall be 20% of Base Salary
(“2008 Target”).

 

(c)                                  Sign on Equity Grant.  Employee will
receive a grant of options to purchase that number of shares equal to
$1,000,000.00 divided by the Black Sholes value of an option to purchase a share
of stock of Employer as determined by Employer on the first business day of the
month following the month of commencement of his employment under this Agreement
(the “Grant Date”) at an exercise price equal to the closing price of the Common
Stock of Employer on NASDAQ on the Grant Date.  Such options shall be granted on
terms provided to other employees of Employer under the Employer’s 2008
Management Incentive Plan on the Grant Date and shall vest ratably in annual
installments over a period of three years from the Grant Date.

 

(d)                                 Benefits.  Employee will be eligible to
participate in Employer’s Benefit Plans commensurate with his or her position on
a basis at least as favorable as other similarly situated senior level
executives of Employer.  Employee will receive separate information detailing
the terms of such Benefit Plans and the terms of those plans will control. 
Employee also will be eligible to participate in any annual incentive plan and
stock option plan applicable to Employee by their terms respectively on terms at
least as favorable as other similarly situated senior level executives of
Employer.  Annual incentive payments, if any, will be determined and paid
(unless validly deferred if then permitted by the Company) between January 1 and
March 15 of the year following the performance year.  During the term of this
Agreement, Employee will be entitled to such other benefits of employment with
Employer as are now or may later be in effect for salaried employees of
Employer, and also will be eligible to participate in other benefits adopted for
employees at his or her level.

 

5.                                      Expenses.  During the term of this
Agreement, Employer will reimburse Employee promptly for all reasonable travel,
entertainment, parking, business meetings and similar expenditures in pursuance
and furtherance of Employer’s business upon receipt of reasonably supporting
documentation as required by Employer’s policies applicable to its employees
generally, subject to Section 10(a)(iii).

 

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6.                                      Termination.

 

(a)                                  Termination Due to Resignation.  Employee
may resign his or her employment at any time by giving 180 days written notice
of resignation to Employer.  Except as otherwise set forth in this Agreement,
Employee’s employment, and Employee’s right to receive compensation and benefits
from Employer, will terminate upon the effective date of Employee’s termination.

 

If Employee resigns pursuant to this Section 6(a), Employer’s only remaining
financial obligation to Employee under this Agreement will be to pay, subject to
Section 10: (i) any earned but unpaid Base Salary and accrued Paid Time Off
through the effective date of Employee’s termination; (ii) reimbursement of
expenses incurred by Employee through the effective date of termination which
are reimbursable pursuant to this Agreement; and (iii) the Employee’s vested
portion of any Magellan deferred compensation or other benefit plan.

 

(b)                                 Termination with Cause.  Except as otherwise
set forth in this Agreement, Employee’s employment, and Employee’s right to
receive compensation and benefits from Employer, will be terminated for cause at
the discretion of Employer under the following circumstances:

 

(i)                                    Employee’s commission of an act of fraud
or dishonesty involving his or her duties on behalf of Employer;

 

(ii)                                 Employee’s failure or refusal to faithfully
and diligently perform duties assigned to Employee or other breach of any
material term under this Agreement;

 

(iii)                              Employee’s failure or refusal to abide by
Employer’s policies, rules, procedures or directives; or

 

(iv)                              Employee’s conviction of a felony or a
misdemeanor involving moral turpitude.

 

If Employee is terminated pursuant to this Section 6(b), Employer’s only
remaining financial obligation to Employee under this Agreement will be to pay,
subject to Section 10: (i) any earned but unpaid Base Salary and accrued Paid
Time Off through the date of Employee’s termination; (ii) reimbursement of
expenses incurred by Employee through the date of termination which are
reimbursable pursuant to this Agreement; and (iii) the Employee’s vested portion
of any Magellan deferred compensation or other benefit plan.

 

For the events described in Sections 6(b)(ii) and (iii), Employer will give
Employee written notice of such deficiency and a reasonable opportunity to cure
such situation, but in no event more than thirty days.

 

(c)                                  Termination Without Cause.  Employer may
terminate this Agreement  for any reason without cause at any time.  “Without
cause” termination shall also include, but not be limited to (i) Employer’s
notice to Employee of its intent not to renew this Agreement in accordance with
the provisions of Section 1 hereof; (ii) Employer’s notice to Employee that his
or her position will be

 

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relocated to an office which is greater than 50 miles from Employee’s prior
office location; or (iii) Employer’s material reduction of Employee’s base
salary  to an amount less than the base salary identified in Section 4(a) of
this Agreement (a reduction with an annualized value of $10,000 or more, taking
into account any related effect of the reduction on annual incentive, shall be
deemed material); provided, however, that in the case of  the reasons stated in
(i), (ii) and (iii) above,  Employee must have given notice to Employer that an
event under clause (i), (ii) or (iii) has occurred, that the Employee objects to
such action by the Employer  and the circumstance must remain uncorrected by
Employer after the expiration of 30 days after receipt of such notice.  If
Employer terminates this Agreement without cause, Employer shall continue to
pay, subject to Section 10, Employee the compensation provided for in
Section 4(a) of this Agreement for a period of time equal to one year.  Such pay
continuation is contingent upon Employee executing Employer’s standard severance
agreement, which incorporates a general release, at the time of termination.  In
addition, Employee will receive (i) any earned but unpaid Base Salary and
accrued Paid Time Off through the date of Employee’s termination;
(ii) reimbursement of expenses incurred by Employee through the date of
termination which are reimbursable pursuant to this Agreement; and (iii) the
Employee’s vested portion of any Magellan Health Services. Inc.  deferred
compensation or other benefit plan, including but not limited to, any stock
option or restricted stock grant plans, in accordance with the terms of those
plans. If Employee participates in any bonus plan(s), including but not limited
to, any long term bonus plan(s), Employer may in its sole discretion pay
Employee, on a pro-rata basis, the amount of such plan(s) as Employee would have
earned if Employee had been employed for the full calendar year. The pro-ration
will be determined by the fraction of the number of months in the calendar year
in which the Employee worked (rounded to the nearest whole month) divided by 12
months. In determining whether a pro-rata bonus shall be paid to Employee, the
Employer may consider factors that include but are not limited to (i) the
Employee’s target bonus (percentage of base salary), (ii) the Company’s
financial performance and (iii) the Employee’s achievement of his or her
specific performance objectives. At the time of termination, Employer shall
determine the Employee’s bonus amount, if any. Notwithstanding the foregoing,
any payout of such bonus amount shall be at the Employer’s sole discretion and
shall be contingent upon the Company satisfying the financial targets
established by the Company’s Board of Directors. Payment of bonus, if any, shall
be made at the time of the annual bonus payout for all employees, subject to
Section 4(b). COBRA coverage may be elected to continue health, dental, and
vision insurance during the Severance Period and beyond. If COBRA coverage is
elected, Employee will pay only the employee contribution rate for the health
insurance portion of the COBRA coverage during the Severance Period.  Dental and
vision coverage under COBRA will be billed at the full COBRA rate.

 

(d)                                 Automatic Termination.  This Agreement will
terminate automatically upon the death or permanent disability of Employee. 
Employee will be deemed to be “Disabled” or to suffer from a “Disability” within
the meaning of this Agreement if, because of a physical or mental impairment,
Employee has been unable to perform the essential functions of his or her
position, with or without reasonable accommodation, for a period of 180
consecutive days, or if Employee can reasonably be expected to be unable to
perform the essential functions of his or her position for such period.  If
Employee is terminated pursuant to this Section 6(d), Employee  or his estate
will receive, subject to Section 10, (i) any earned but unpaid Base Salary and
accrued Paid Time Off through the date of Employee’s termination;
(ii) reimbursement of expenses incurred by Employee through the date of
termination which are reimbursable pursuant to this Agreement; and (iii) the
Employee’s

 

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vested portion of any Magellan Health Services retirement, deferred compensation
or other benefit plan, including but not limited to, any stock option or
restricted stock grant plans, in accordance with the terms of those plans. If
Employee participates in any bonus plan(s), including but not limited to, any
long term bonus plan(s), Employer may at its sole discretion pay Employee or his
estate, on a pro-rata basis, the amount of such plan(s) as Employee would have
earned if Employee had been employed for the full calendar year. The pro-ration
will be determined by the fraction of the number of months in the calendar year
in which the Employee worked (rounded to the nearest whole month) divided by 12
months.  In determining whether a pro-rata bonus shall be paid to Employee or
his estate, the Employer may consider factors that include but are not limited
to (i) the Employee’s target bonus (percentage of base salary); (ii) the
Company’s financial performance; and (iii) the Employee’s achievement of his or
her specific performance objectives. At the time of termination, Employer shall
determine the Employee’s bonus amount, if any. Notwithstanding the foregoing,
any payout of such bonus amount shall be at Employer’s sole discretion and shall
be contingent upon the Company satisfying the financial targets established by
the Company’s Board of Directors. Payment of bonus, if any, shall be made at the
time of the annual bonus payout for all employees, subject to Section 4(b).

 

(e)                                  Effect of Termination.  Except as otherwise
provided for in this Section 6, upon termination of this Agreement, all rights
and obligations under this Agreement will cease except for (i) the rights and
obligations under Sections 4 and 5 to the extent Employee has not been
compensated or reimbursed for services performed prior to termination (the
amount of compensation to be prorated for the portion of the pay period prior to
termination); (ii) the rights and obligations under Sections 7, 8 and 9; and
(iii) all procedural and remedial provisions of this Agreement.

 

7.                                      Protection of Confidential
Information/Non-Competition/Non-Solicitation.

 

Employee covenants and agrees as follows:

 

(a)(i)                       Confidential Information:  During Employer’s
employment of Employee and for a period of one year following the termination of
Employee’s employment for any reason, Employee will not use or disclose,
directly or indirectly, for any reason whatsoever or in any way, other than at
the direction of Employer during the course of Employee’s employment or after
receipt of the prior written consent of Employer, any confidential information
of Employer or its controlled subsidiaries or affiliates, that comes into his or
her knowledge during his or her employment by Employer (the “Confidential
Information” as hereinafter defined).  The obligation not to use or disclose any
Confidential Information will not apply to any Confidential Information that is
or becomes public knowledge through no fault of Employee, and that may be
utilized by the public without any direct or indirect obligation to Employer,
but the termination of the obligation for non-use or nondisclosure by reason of
such information becoming public will extend only from the date such information
becomes public knowledge.  The above will be without prejudice to any additional
rights or remedies of Employer under any state or federal law protecting trade
secrets or other information.

 

(a)(ii)                    Trade Secrets.  Employee shall hold in confidence all
Trade Secrets of Employer, its direct and indirect subsidiaries or affiliates,
and/or its customers that came into his or

 

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her knowledge during his or her employment by Employer and shall not disclose,
publish or make use of at any time after the date hereof such Trade Secrets,
other than at the direction of Employer, for as long as the information remains
a Trade Secret.

 

(a)(iii)               For purposes of this Agreement, the following definitions
apply:

 

“Confidential Information” means any data or information, other than Trade
Secrets, that is valuable to Employer and not generally known to the public or
to competitors of Employer.  It is understood that the term “Confidential
Information” does not mean and shall not include information which:

 

(a)                                  is or subsequently becomes publicly
available without the breach of any obligation owed to the Employer;

 

(b)                                 is disclosed with the prior written approval
of the Employer; or

 

(c)                                  is obligated to be produced under order of
a court of competent jurisdiction or a valid administrative, congressional, or
other  subpoena, civil investigative demand or similar process; provided,
however, that upon issuance of any such order, subpoena, demand or other
process, the Employee shall promptly notify the Employer and shall provide the
Employer with an opportunity (if then available) to contest, at the Employer’s
expense, the propriety of such order or subpoena (or to arrange for appropriate
safeguards against any further disclosure by the court or administrative or
congressional body seeking to compel disclosure of such Confidential
Information).

 

“Trade Secret” means information including, but not limited to, any technical or
non-technical data, formula, pattern, compilation, program, device, method,
technique, drawing, process, financial data, financial plan, product plan, list
of actual or potential customers or suppliers or other information similar to
any of the foregoing, which (i) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other persons who can derive economic value from its disclosure or
use; and (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.

 

(a)(iv)                Interpretation.  The restrictions stated in paragraphs
7(a)(i) and 7(a)(ii) are in addition to and not in lieu of protections afforded
to trade secrets and confidential information under applicable state law. 
Nothing in this Agreement is intended to or shall be interpreted as diminishing
or otherwise limiting Employer’s right under applicable state law to protect its
trade secrets and confidential information.

 

(b)                                 Non-Competition.

 

(i)                                    Employee covenants and agrees that during
the term of his or her employment with Employer and for a period of one year
immediately following the termination of said employment for any reason, he or
she will not, on his or her own behalf or as a partner, officer, director,

 

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employee, agent, or consultant of any other person or entity, directly or
indirectly, engage or attempt to engage in the business of providing or selling
services in the United States that  are services offered by Employer or any of
its subsidiaries and affiliates at the time of the termination of this
Agreement, unless waived in writing by Employer in its sole discretion. Employee
recognizes that the above restriction is reasonable and necessary to protect the
interest of the Employer and its subsidiaries and affiliates.

 

(ii)                                 During the one year period immediately
following Employee’s termination from his or her employment with Employer,
Employee may submit a written request to Employer outlining a proposed
employment or other employment opportunity that Employee is considering.
Employer will review such request, and make a determination within ten
(10) business days following receipt of such request, in its sole discretion, as
to whether the opportunity would constitute a breach of the non-competition
covenant.

 

(c)                                  Non-Solicitation.  To protect the goodwill
of Employer and its controlled subsidiaries and affiliates, or the customers of
Employer and its subsidiaries and affiliates, Employee agrees that, for a period
of one year immediately following the termination of his or her employment with
Employer, he or she will not, without the prior written permission of Employer,
directly or indirectly, for himself or herself or on behalf of any other person
or entity, solicit, divert away, take away or attempt to solicit or take away
any Customer of Employer for purposes of providing or selling services that are
offered by Employer, if Employer, or the particular subsidiary or affiliate of
Employer, is then still engaged in the sale or provision of such services at the
time of the solicitation.  For purposes of this Section 7(c), “Customer” means
any individual or entity to whom Employer or its controlled subsidiaries or
affiliates has provided, or contracted to provide, services and with whom
Employee had, alone or in conjunction with others, contact with or knowledge of,
during the twelve months prior to the termination of his or her employment.  For
purposes of this Section 7(c), Employee had contact with or knowledge of a
customer if (i) Employee had business dealings with the customer on behalf of
Employer or its subsidiaries or affiliates; (ii) Employee was responsible for
supervising or coordinating the dealings between the customer and Employer or
its subsidiaries or affiliates; or (iii) Employee obtained or had access to
trade secrets or confidential information about the customer as a result of
Employee’s association with Employer or its subsidiaries or affiliates.

 

(d)                                 Solicitation or Hiring of Employees.  During
Employer’s employment of Employee and for a period of one year following the
termination of Employee’s employment with Employer for any reason, Employee will
not, on his own behalf or on behalf of any other person or entity, solicit for
employment or hire , directly or indirectly, any employee of Employer or any of
its subsidiaries or affiliates who was employed with Employer or its
subsidiaries or affiliates within the one year period immediately prior to
Employee’s termination.

 

8.                                      Work Made for Hire.  Employee agrees
that any written program materials, protocols, research papers, other writings,
as well as improvements, inventions, new techniques,

 

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programs or products (the “Work”) made or developed by Employee within or after
normal working hours relating to the business or activities of Employer or any
of its subsidiaries, shall be deemed to have been made or developed by Employee
solely for the benefit of Employer and will be considered “work made for hire”
within the meaning of the United States Copyright Act, Title 17, United States
Code, which vests all copyright interest in and to the Work in the Employer.  In
the event, however, that any court of competent jurisdiction finally declares
that the Work is not or was not a work made for hire as agreed, Employee agrees
to assign, convey, and transfer to the Employer all right, title and interest
Employee may presently have or may have or be deemed to have in and to any such
Work and in the copyright of such work, including but not limited to, all rights
of reproduction, distribution, publication, public performance, public display
and preparation of derivative works, and all rights of ownership and possession
of the original fixation of the Work and any and all copies. Additionally,
Employee agrees to execute any documents necessary for Employer to record and/or
perfect its ownership of the Work and the applicable copyright.

 

9.                                      Property of Employer.  Employee agrees
that, upon the termination of Employee’s employment with Employer, Employee will
immediately surrender to Employer all property, equipment, funds, lists, books,
records and other materials of Employer or its controlled subsidiaries or
affiliates in the possession of or provided to Employee.

 

10.                               Special Rules for Compliance with Code
Section 409A.  This Section 10 serves to ensure compliance with applicable
requirements of Section 409A of the Internal Revenue Code (the “Code”).  Certain
provisions of this Section 10 modify other provisions of this Agreement.  If the
terms of this Section 10 conflict with other terms of the Agreement, the terms
of this Section 10 control.

 

(a)                                  Timing of Certain Payments.  Payments and
benefits specified under this Agreement shall be paid at the times specified as
follows:

 

(i)                    Accrued Payments at Termination.  Sections 6(a) – (d) of
this Agreement require payment of amounts earned but unpaid or accrued at the
date of Employee’s termination.  Unless the amount is payable under an
applicable plan, program or arrangement on explicit terms providing for a delay
in payment compliant with Code Section 409A, these amounts shall be payable at
the date the amounts otherwise would have been payable under the applicable
plans, programs and arrangements but in no event more than 30 days after
Employee’s termination of employment (subject to 10(d)).

 

(ii)                 Gross-Up.  Gross-up payments, if any,  payable under
Amendment No. 1 to this Agreement will be paid as promptly as practicable after
the excise tax is payable by Employee, and in any event must be paid no later
than the end of Employee’s taxable year next following the taxable year in which
Employee remits the excise tax or related taxes to the taxing authorities;
provided, however, that any gross-up payment will be subject to Section 10(d) if
applicable under Section 409A.

 

(iii)             Expense Reimbursements.  Any payment under Section 5 or
otherwise as an

 

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expense reimbursement hereunder must be paid no later than the end of Employee’s
taxable year next following the taxable year in which Employee incurred the
reimbursable expense.

 

(iv)            Other Payments.  Any other payment or benefit required under
this Agreement to be paid in a lump sum or otherwise to be paid promptly at or
following a date or event shall be paid within five days after the due date,
subject to Section 10(b), (c) and (d) below.

 

(v)                No Influence on Year of Payment.  In the case of any payment
under the Agreement payable during a specified period of time following a
termination or other event (including any payment for which the permitted
payment period begins in one calendar year and ends in a subsequent calendar
year), Employee shall have no right to elect in which year the payment will be
made, and the Company’s determination of when to make the payment shall not be
influenced in any way by Employee.

 

(b)                               Special Rules for Severance Payments.  In the
case of payments in the nature of continuation of payments under
Section 4(a) required under Section 6(c) (“Pre-CIC Severance Payments”) and
severance payable under Section I.1(iii) of Amendment No. 1 to this Agreement
(the “CIC Severance Payments” and, with the “Pre-CIC Severance Payment, the
“Severance Payments”), the following rules will apply:

 

(i)                   Separate Payments.  Each monthly installment of the
Pre-CIC Severance Payments shall be deemed to be a separate payment for all
purposes, including for purposes of Section 409A.  .  The portion of the CIC
Severance Payments that exceeds the Pre-CIC Severance Payments (or the present
value thereof, if such present valuing is required to comply with Section 409A),
including the part attributable to inclusion of Target Bonus in the calculation
of CIC Severance Payments as compared to Pre-CIC Severance Payments, shall be
deemed to be a separate payment for all purposes, including for purposes of
Section 409A (the “Separate Lump Sum”).

 

(ii)                Severance Payment Timing Rules.  Each installment of Pre-CIC
Severance Payments shall be treated as follows for purposes of Section 409A:

 

(A)      Installments payable during the year of termination and by March 15 of
the year following termination shall, to the maximum extent possible, be deemed
to constitute a short-term deferral under Treasury Regulation § 1.409A-1(b)(4);

 

(B)  Installments payable during the period within six months after termination,
to the extent not covered by Section 10(b)(ii)(A), shall, to the maximum extent
possible, be deemed to constitute amounts payable under the “two-year/two-times”
exclusion from being a deferral of compensation under Treasury Regulation §
1.409A-1(b)(9)(iii);

 

(C)  To the extent that the “two-year/two-times” exclusion from being a deferral
of compensation under Treasury Regulation § 1.409A-1(b)(9)(iii) has not been
fully applied by virtue of Section 10(b)(ii)(B), installments payable as Pre-CIC

 

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Severance Payments shall be excluded, to the maximum extent possible, by such
“two-years/two-times” exclusion (applied in the reverse order of payment of the
installments – that is, to the latest installments first); and

 

(D)  All installments of the Pre-CIC Severance Payment not covered by
Section 10(b)(ii)(A), (B) and (C) shall be paid at the applicable installment
payment date in compliance with Section 409A, except that any such payment shall
be subject to the six-month delay rule of Section 10(d).

 

The portions of the CIC Severance Payments that correspond to the Pre-CIC
Severance Payments (that is, deemed to be the same payment for purposes of
Section 409A) shall be governed by Section 10(b)(ii)(A) – (D) above, provided
that amounts of the CIC Severance Payments corresponding to Pre-CIC Severance
Payments covered by Section 10(b)(ii)(A), (b), and (C) above shall be payable as
a lump sum within five days after termination of employment.   The Separate Lump
Sum shall be treated as follows for purposes of Section 409A:

 

(E)  The Separate Lump Sum shall, to the maximum extent possible, be deemed to
constitute a short-term deferral under Treasury Regulation § 1.409A-1(b)(4);

 

(F)  To the extent that the “two-year/two-times” exclusion from being a deferral
of compensation under Treasury Regulation § 1.409A-1(b)(9)(iii) has not been
fully applied by virtue of Section 10(b)(ii)(B) and (C), the Separate Lump Sum,
to the extent not covered by Section 10(b)(ii)(E), shall, to the maximum extent
possible, be deemed to constitute amounts payable under the “two-year/two-times”
exclusion; and

 

(G)  Any portion of the Separate Lump Sum not covered by
Section 10(b)(ii)(E) and  (F) shall be paid within five days after the
qualifying termination of employment in compliance with Section 409A, except
that any such payment shall be subject to the six-month delay rule and other
provisions of Section 10(d) and except to the extent that the Separate Lump Sum
is not deemed to be a valid separate payment from amounts governed by
Section 10(b)(ii)(D).

 

Any portions of the CIC Severance Payments corresponding to Pre-CIC Severance
Payments governed by Section 10(b)(ii)(D) shall be payable in a lump sum within
five days after the qualifying termination of employment if such termination has
occurred within two years following a a change in the ownership of the Company,
a change in effective control of the Company, or a change in the ownership of a
substantial portion of the assets of the Company as defined in Treasury
Regulation § 1.409A-3(i)(10) (a “409A Change in Control”), and in any other case
shall be payable at the applicable time under Section 10(b)(ii)(D).

 

(c)                                  Special Rules for Other Payments.  With
respect to amounts payable under Section I.1(ii) of Amendment No. 1 to this
Agreement (incentive awards), the following rules will apply:

 

(i)                    Separate Payments.  The amount payable thereunder shall
each be deemed to be a

 

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separate payment for all purposes, including for purposes of Section 409A
(subject to any further designation of separate payments explicitly made in any
separately identifiable plan or arrangement for purposes of Section 409A).

 

(ii)                Payment Timing Rules.  A payment referenced in
Section 10(c)(i) shall be payable as a lump-sum payment within five days after
termination of employment if and to the extent that (A) the separate payment
constitutes short-term deferral under Treasury Regulation § 1.409A-1(b)(4),
(B) the amount of the separate payment  not covered by Section 10(c)(ii)(A) can
be paid under the “two-year/two-times” exclusion from being a deferral of
compensation under Treasury Regulation § 1.409A-1(b)(9)(iii), after first
applying such exclusion under Section 10(b)(ii), (C) the separate payment is
covered by any other applicable exclusion or exemption under Treasury Regulation
§ 1.409A-1(b)(9) (provided that the exclusion under subsection
(b)(9)(v)(D) shall be used only to the extent not relied upon for other payments
or benefits) and (D), the six-month delay rule in Section 10(d) does not apply
to the separate payment (except as otherwise provided in Section 10(c)(iii)). 
Any other such separate payment (i.e., amounts subject to the six-month delay
rule) shall be subject to the six-month delay rule of Section 10(d), subject to
Section 10(c)(iii).  Any delay in payment under the six-month delay rule shall
not limit Employee’s rights under this Agreement to not forfeit a specified item
of compensation as a result of Employee’s termination.

 

(iii)             Payments of 409A Deferrals For a termination Not Within Two
Years After a 409A Change in Control.  If a payment referenced in
Section 10(c)(ii) is a direct payment or a substitute or replacement for a right
to payment (the “Original Payment Right”) that constitutes a deferral of
compensation under Section 409A, and if either (A) the Change in Control does
not involve a 409A Change in Control, or (B) Employee’s termination triggering
payments hereunder did not occur within the two-year period following a 409A
Change in Control, then such payments (i.e., payments that constitute deferrals
under Section 409A) must be paid at the times and in the form applicable to a
separation from service under the terms of the Original Payment Right, subject
to Section 10(d).   If in no circumstances was such payment payable upon a
separation from service under the Original Payment Right, then this
Section 10(c)(iii) shall not apply.

 

(d)                                 Six-Month Delay Rule.

 

(i)                    General Rule.  The six-month delay rule will apply to
certain payments and benefits under the Agreement if all of the following
conditions are met:

 

(A)     Employee is a “key employee” (as defined in Code Section 416(i) without
regard to paragraph (10) thereof) for the year in which the termination occurs. 
The Company will determine status of “key employees” annually, under
administrative procedures applicable to all Section 409A plans and arrangements
and applied in accordance with Treasury Regulation § 1.409A-1(i).

 

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(B)        The Company’s stock is publicly traded on an established securities
market or otherwise.

 

(C)        The payment or benefit in question is a deferral of compensation and
not excepted, exempted or excluded from being such by the short-term deferral
rule, or the “two-years/two-times” rule in Treasury Regulation
§ 1.409A-1(b)(9)(iii), or any other exception, exemption or exclusion; provided,
however, that the exclusion under Treasury Regulation
§ 1.409A-1(b)(9)(v)(D) shall apply only if and to the extent that it is not
necessary to apply to any other payment or benefit payable within six months
after Employee’s termination.

 

(ii)                Effect of Rule.  If it applies, the six-month delay
rule will delay a payment or benefit which otherwise would be payable under this
Agreement within six months after Employee’s separation from service.

 

(A)     Any delayed payment or benefit shall be paid on the date six months
after Employee’s separation from service.

 

(B)       During the six-month delay period, accelerated payment will occur in
the event of the Employee’s death but not for any other reason (including no
acceleration upon a Change in Control), except for accelerations expressly
permitted under Treasury Regulation § 1.409A-1 – A-6.

 

(C)       Any payment that is not triggered by a termination, or is triggered by
a termination but would be made more than six months after the termination
(without applying this six-month delay rule), or would be payable at a fixed
date not tied to termination that is earlier than the expiration of the
six-month delay period, shall be unaffected by the six-month delay rule.

 

(iii)             Limit to Application of Six-Month Delay Rule.  If the terms of
this Agreement or other plan or arrangement or document relating to this
Agreement or payments hereunder impose this six-month delay rule in
circumstances in which it is not required for compliance with Section 409A,
those terms shall not be given effect.

 

(e)                                  Other Provisions.

 

(i)                   Good Reason.  The definition of “Good Reason” under
Amendment No. 1 to the Agreement, and related rules governing constructive
termination not for cause, is intended to qualify as an “involuntary separation”
within the meaning of Treasury Regulation § 1.409A-1(n)(2)(i), and shall be so
construed and interpreted.

 

(ii)                Non-transferability.  No right to any payment or benefit
under this Agreement shall be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment, or garnishment by
Employee’s creditors or of any of

 

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Employee’s beneficiaries.

 

(iii)             No Acceleration.  The timing of payments and benefits under
the Agreement may not be accelerated to occur before the time specified for
payment hereunder, except to the extent permitted under Treasury Regulation
§ 1.409A-3(j)(4) or as otherwise permitted under Code Section 409A without
Employee incurring a tax penalty.

 

(iv)       Timing Relating to Release.  Other provisions of this Agreement
(including this Section 10) notwithstanding, if Employee is obligated to execute
a release, non-competition, or other agreement as a condition to receipt of a
payment hereunder, the Company will supply to Employee a form of such release or
other document not later than the date of Employee’s termination, which must be
returned within the time period required by law and must not be revoked by
Employee within the applicable time period in order for Employee to satisfy any
such condition.  If any amount payable during a fixed period following
Employee’s termination is subject to such a requirement and the fixed period
would begin in one year and end in the next, the Company, in determining the
time of payment of any such amount, will not be influenced by the timing of any
action by Employee including execution of such a release or other document and
expiration of any revocation period.  In particular, the Company will be
entitled in its discretion to deposit any payment hereunder in escrow during
either year comprising such fixed period, so that such deposited amount is
constructively received and taxable income to Employee upon deposit but with
distribution from such escrow remaining subject to Employee’s execution and
non-revocation of such release or other document.

 

(v)               Definition of Termination of Employment.  For purposes of this
Agreement, the term “termination of employment” shall mean a separation from
service as defined in Treasury Regulation § 1.409A-1(h).

 

11.                               Remedies.  An actual or threatened violation
by Employee of the covenants and obligations set forth in Sections 7, 8 and 9
will cause irreparable harm to Employer or its controlled subsidiaries or
affiliates and that the remedy at law for any such violation will be inadequate.
Employee agrees, therefore, that Employer or its controlled subsidiaries or
affiliates will be entitled to appropriate equitable relief, including, but not
limited to, a temporary restraining order and a preliminary injunction, without
the necessity of posting a bond.  Employee will also be entitled to seek
equitable relief against Employer in connection with enforcement of the
covenants and obligations set forth in Sections 7, 8 and 9.  The provisions of
Sections 4, 5, 6, 7, 8 and 9 will survive the termination of this Agreement in
accordance with the terms set forth in each Section.

 

12.                               Arbitration.  Except for an action for
injunctive relief as described in Section 11, any disputes or controversies
arising under this Agreement will be settled by arbitration in Avon, Connecticut
in accordance with the rules of the American Arbitration Association relating to
the arbitration of employment disputes.  The determination and findings of such
arbitrators will be final and binding on all parties and may be enforced, if
necessary, in any court of competent jurisdiction. 

 

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The costs and expenses of the arbitration shall be paid for by Employer, but
each party shall pay its own attorney’s fees and other litigation costs.

 

              Employee’s Initials

 

13.                               Notices.  Any notice or request required or
permitted to be given to any party will be given in writing and, excepting
personal delivery, will be given at the address set forth below or at such other
address as such party may designate by written notice to the other party to this
Agreement:

 

To Employee:

 

Name: Jonathan Rubin

 

 

Address on file

 

 

 

To Employer:

 

Magellan Health Services, Inc.

 

 

55 Nod Road

 

 

Avon, CT 06001

 

 

Attention: General Counsel

 

Each notice given in accordance with this Section will be deemed to have been
given, if personally delivered, on the date personally delivered; if delivered
by facsimile transmission, when sent and confirmation of receipt is received;
or, if mailed, on the third day following the day on which it is deposited in
the United States mail, certified or registered mail, return receipt requested,
with postage prepaid, to the address last given in accordance with this Section.

 

14.                               Headings.  The headings of the sections of
this Agreement have been inserted for convenience of reference only and should
not be construed or interpreted to restrict or modify any of the terms or
provisions of this Agreement.

 

15.                               Severability.  If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Agreement, such provision will be
fully severable and this Agreement and each separate provision will be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Agreement, and the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.  In addition, in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically, as a part of this Agreement, a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable, to the extent
such reformation is allowable under applicable law.

 

16.                               Governing Law.  This Agreement and all issues
relating to the validity, interpretation, and performance will be governed by,
interpreted, and enforced under the laws of the State of Connecticut.

 

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17.                               Binding Effect.  This Agreement and Amendment
No. 1 hereto will be binding upon and shall inure to the benefit of each party
and each party’s respective successors, heirs and legal representatives.  This
Agreement may not be assigned by Employee to any other person or entity but may
be assigned by Employer to any subsidiary or affiliate of Employer or to any
successor to or transferee of all, or any part, of the stock or assets of
Employer.

 

18.                               Employer Policies, Regulations, and Guidelines
for Employees.  Employer may issue policies, rules, regulations, guidelines,
procedures or other material, whether in the form of handbooks, memoranda, or
otherwise, relating to its Employees.  These materials are general guidelines
for Employee’s information and will not be construed to alter, modify, or amend
this Agreement for any purpose whatsoever.

 

19.                                 Background Check, Drug Screening, Employment
Eligibility.  This Agreement  and Employee’s employment hereunder are subject to
and conditioned upon: (i) satisfactory completion of a background investigation
of Employee by Employer at Employer’s expense; (ii) Employee’s receipt of a drug
screening test conducted in accordance with Employer’s customary practice for
all new employees, with results acceptable to Employer in accordance with such
practice, to be arranged by Employer and Employer at Employer’s expense;
(iii) Employee shall complete an Officer’s Questionnaire containing answers
satisfactory to Employer, and (iv) Employee  shall provide Employer
documentation indicating his eligibility to work within the United States
pursuant to The Immigration Reform and Control Act of 1986.   Notwithstanding
anything herein to the contrary, the effective date of this Agreement shall be
the date on which the conditions contained in this Section 19 are fulfilled.

 

20.                               Entire Agreement.  This Agreement and
Amendment No. 1 embodies the entire agreement and understanding between the
parties with respect to its subject matter and supersedes all prior agreements
and understandings, whether written or oral, relating to its subject matter,
unless expressly provided otherwise within this Agreement.  No amendment or
modification of this Agreement, will be valid unless made in writing and signed
by each of the parties.  No representations, inducements, or agreements have
been made to induce either Employee or Employer to enter into this Agreement,
which are not expressly set forth within this Agreement.    Employee and
Employer acknowledge and agree that Employer’s controlled subsidiaries and
affiliates are express third party beneficiaries of this Agreement.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the    
day of  August, 2008 but shall not become effective until the conditions
contained in Section 19 have been fulfilled.

 

 

 

 

 

MAGELLAN HEALTH SERVICES, INC.

“Employee”

 

“Employer”

 

 

 

 

 

 

/s/ Jonathan Rubin

 

By:

/s/ René Lerer

 

 

Name: René Lerer, M.D.

Jonathan Rubin

 

Title: President and Chief Executive Officer

 

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