Exhibit 10.1

 

EMPLOYMENT AGREEMENT
(As amended and restated December 10, 2012)

 

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into by and between
René Lerer (“Executive”) and Magellan Health Services, Inc. on behalf of itself
and its subsidiaries and affiliates (collectively referred to herein as the
“Company” or “Employer”).

 

WHEREAS, Executive and Employer are party to an Employment Agreement that was
amended and restated on December 16, 2008 and wish to further amend and restate
that agreement to provide for the Executive’s participation in the Company’s
transition to a new Chief Executive Officer; and

 

WHEREAS, Employer and Executive desire to set forth the terms and conditions of
Executive’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, the parties agree as
follows:

 

STATEMENT OF AGREEMENT

 

1.                                      Employment.  Employer agrees to employ
Executive, and Executive accepts such employment in accordance with the terms of
this Agreement from the date of the execution of this amended and restated
Agreement (the “Operative Date”) through December 31, 2014 (the “Term;” the
portion of the Term ending on December 31, 2013 is the “First Term” and the
remainder of the Term is the “Second Term”).  The Term (and the Second Term) may
be extended through December 31, 2015 by written agreement of Executive and
Employer.  Executive’s employment will terminate at the end of the Term, unless
previously terminated pursuant to Section 6.

 

2.                                      Position And Duties Of Executive. 
During the portion of the First Term before January 1, 2013 (the “Transition
Date”), the Executive will serve as Chairman and Chief Executive Officer. During
the portion of the First Term beginning on the Transition Date, Executive will
serve as Executive Chairman, subject to the authority of the board of directors
of the Company (“Board”) to designate from time to time that he serve instead as
(i) non-executive Chairman of the Board or (ii) consultant to the Chief
Executive Officer.  During the Second Term, Executive will serve as
non-executive Chairman of the Board, subject to the authority of the Board to
designate from time to time that he serve instead as consultant to the Chief
Executive Officer.  While serving as Chairman and Chief Executive Officer,
Executive shall (i) report, as Chairman and Chief Executive Officer, directly to
the Board and (ii) have such duties and responsibilities as are typical of, and
consistent with, the position of Chairman and Chief Executive Officer in a
public company the size and nature of the Company.  While serving as Executive
Chairman, Executive shall (i) continue to be a full-time employee of the
Company, and (ii) have such duties and responsibilities as are typical of, and
consistent with, the position of an Executive Chairman in a public company the
size and nature of the Company or as may be specified by the Board and shall
report directly to

 

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the Board.  While serving as non-executive Chairman of the Board, the Executive
shall have such duties and responsibilities as are typical of, and consistent
with, the position of Chairman of the Board in a public company the size and
nature of the Company.  While serving as a consultant to the Chief Executive
Officer, the Executive shall provide such advice, guidance and assistance to the
Chief Executive Officer as the Chief Executive Officer or the Board may from
time to time request. Executive shall resign from his position as a member of
the Board if requested to do so by the Board at a time that he is not serving as
Chairman and Chief Executive Offer or non-executive Chairman of the Board.

 

3.                                      Time Devoted.  While serving as Chairman
and Chief Executive Officer or as Executive Chairman, Executive will devote his
full business time and energy to the business affairs and interests of
Employer.  Executive agrees that he will use his best efforts and abilities to
promote Employer’s interests and will diligently endeavor to perform services
contemplated by this Agreement in a manner consistent with his position and in
accordance with the policies established by the Employer.  Notwithstanding the
foregoing, Executive shall be entitled to (i) serve on the boards of directors
of companies on which Executive serves as of the Operative Date, (ii) with the
prior approval of the Board, serve on the boards of directors of a reasonable
number of other companies, (iii) serve on civic or charitable boards and
(iv) manage his personal and family investments, to the extent such activities
do not materially interfere with the performance of his duties for the Company.

 

4.                                      Compensation.

 

(a)                                 Base Salary.  During the First Term,
Employer will pay Executive a base salary in the amount of $1,003,123 per year
and during the Second Term, Employer will pay Executive a base salary in the
amount of $1,000,000 per year (in either case, “Base Salary”), with annual
review for increase by the Board or a duly authorized committee thereof, it
being understood that any such increase shall be at the discretion of the Board
or a duly authorized committee thereof.  Base Salary will be paid in
semi-monthly intervals, less appropriate withholdings for federal and state
taxes and other deductions authorized by Executive, except that if Executive is
serving as non-Executive Chairman at the time non-employee directors receive
stock grants, his base salary for the calendar year in which such stocks grants
are paid will be paid one-half in cash and the other half in Company common
stock. This stock grant will be paid at the same time and in the same manner as
the stock portion of the compensation of non-employee directors (ie., on the
same grant date and using the same calculation to determine the number of shares
to be issued and the same vesting schedule).

 

(b)                                 Bonus.  During the First Term, Executive
shall be entitled to an annual target bonus opportunity of 100% of Base Salary
(“Target Bonus”) with the ability to earn up to 200% of Base Salary at the sole
discretion of the Board or a duly authorized committee thereof.  The applicable
performance targets for each year shall be fixed by the Board or a duly
authorized committee thereof during the first quarter of the year after
consultation with Executive (the “Performance Targets”); provided that the
Performance Targets established with respect to the Target Bonus shall not be
less favorable than the corporate performance targets applicable to other bonus
eligible

 

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executives of the Company.  The performance criteria upon which such Performance
Targets are based shall be one or more of the performance criteria set forth in
the Company’s Management Incentive Plan.  Executive shall earn the applicable
portion of the Target Bonus based on the achievement of the Performance Targets,
as follows:

 

% Achievement of Performance Targets

 

% of Target Bonus Earned

 

100

%

100

%

 

The Board or a duly authorized committee thereof may, in its sole discretion,
authorize the Company to pay Executive additional bonus amounts.  Payments of
any annual bonus shall be made no later than the March 15 of the year following
the year in which such bonus is earned (e.g., by March 15, 2013 for the bonus
earned for 2012).  The Target Bonus or applicable percentage thereof, if any,
for a given year shall be earned on December 31 of such year and, except as
specifically set forth in Sections 6(c)(ii) and 6(d)(ii), Executive shall not be
entitled to any payment of Target Bonus, or a percentage thereof, for a given
year if he is not employed on December 31 of such year.

 

The actual bonus payable for 2013 (“2013 Transition Bonus”) will, if the Company
achieves earnings per share for 2013 equal to at least 70% of the earnings per
share adopted by the Board or a duly authorized committee thereof as the target
to determine the vesting of restricted stock units for 2013 for other executives
under the Management Incentive Plan (“Target EPS”) be 150% of Target Bonus plus
an additional 5% of Target Bonus for every 1% the actual performance exceeds the
Performance Target, but shall not exceed 200% of Target Bonus.

 

(c)                                  Equity Award.  During the First Term, the
Company shall make annual equity grants to Executive (“Long Term
Compensation”).  The amount of Long Term Compensation will be determined
annually by the Board or a duly authorized committee thereof based on
performance and compensation trends in the industry, provided that the award
payable in March 2014 with respect to 2013 shall not be less than the award
payable in March 2013.  The mix of stock options, restricted stock units
(“RSUs”), cash and other equity-linked securities and the performance based
vesting schedule will be determined by the Board or a duly authorized committee
thereof on a basis at least as favorable as other senior-level executives of the
Company.

 

(d)                                 Benefits.  During the First Term, Executive
shall be entitled to participate in the employee welfare benefit programs of the
Company on a basis at least as favorable as other senior-level executives of the
Company; provided that (i) subject to the obligations set forth in clause
(ii) below, the Board may modify or terminate any employee welfare benefit
program established by the Company; provided that no such amendment or
termination may adversely affect any benefits accrued by Executive prior to the
date of such amendment or termination and (ii) in any event, the Company shall
provide at its cost life insurance benefits to Executive of no less than three
times Executive’s Base Salary, Executive shall be permitted to purchase at his
own expense additional life insurance coverage in an amount no less than three
times his Base Salary, and the Company shall provide long-term disability
coverage equal to no less than 60% of Executive’s Base Salary; provided, in all
cases Executive is insurable by an insurance

 

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company with respect to such coverage.  During the Second Term, Executive shall
be entitled to coverage for himself and his spouse under the Company’s medical,
dental and hospitalization plans on a basis at least as favorable as other
similarly situated senior-level executives of the Company.

 

(e)                                  Other Long Term Incentives.  During the
First Term, Executive shall be entitled to participate in the long-term
incentive programs of the Company including those contained in the Management
Incentive Plan, on a basis that are at least as favorable as awards to other
similarly-situated, senior-level executives of the Company, it being understood
that the Board may modify or terminate any long-term incentive plan established
by the Company; provided that no such amendment or termination may adversely
affect any outstanding long-term incentive awards of Executive.

 

(f)                                   Deferred Compensation Plan.  If the
Company sponsors a deferred compensation plan approved by the Board, during the
First Term Executive shall be entitled to participate in any such qualified or
non-qualified deferred compensation plan with the Company contributing an amount
not less than 11% of Executive’s Base Salary or, if greater, such amount as is
provided to the Chief Executive Officer, on terms no less favorable a basis than
is made available to other senior executives of the Company, it being understood
that the Board may modify or terminate any deferred compensation plan
established by the Company; provided that no such amendment or termination may
adversely affect any benefits accrued by Executive prior to the date of such
amendment or termination and the power to modify or terminate such a plan is
subject to limitations under Code Section 409A.  If no such plan is approved by
the Board for 2013, the Company shall provide Executive with a deferred
compensation arrangement for 2013 comparable to the plan in effect for 2012.

 

(g)                                  Perquisite.  During the First Term,
Executive shall be entitled to use of a car of his choosing leased by the
Company at an expense to the Company of no more than $25,000 per annum.

 

5.                                      Expenses.  During the Term, Employer
will reimburse Executive promptly for all reasonable and appropriate travel,
entertainment, parking, business meetings and similar expenditures in pursuance
and furtherance of Employer’s business and all licensing and professional
organization dues and fees and all other expenses reimbursable to employees
generally pursuant to the Company’s policies upon receipt of reasonably
supporting documentation as required by Employer’s policies applicable to its
employees generally.  Any reimbursement payment under Section 5, Section 4(d) or
(g) or otherwise as an 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 (but the obligation to pay promptly
generally will require payment in a much shorter period).

 

6.                                      Termination.

 

(a)                                 Termination Due to Resignation.  Executive
may resign his employment at any time by giving 90 days written notice of
resignation to Employer.

 

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Except as otherwise set forth in this Agreement, Executive’s employment, and
Executive’s right to receive compensation and benefits from Employer, will
terminate upon the effective date of Executive’s termination.  If Executive
resigns pursuant to this Section 6(a), Employer’s only remaining financial
obligation to Executive under this Agreement will be (subject to Section 11): 
(i) to pay any earned but unpaid Base Salary through the date of termination,
(ii) all vested stock options shall remain exercisable for six months following
the date of termination of Executive’s employment, and such six month period
shall be extended by the number of days in such period in which the Company has
advised Executive that it was inadvisable for him to buy or sell Company stock,
(iii) to pay any other amounts earned, accrued or owing to Executive but not yet
paid, and (iv) to pay other payments, entitlements or benefits, if any, that are
payable in accordance with applicable plans, programs, arrangements or other
agreements of the Company or any affiliate.

 

(b)                                 Termination with Cause.  Except as otherwise
set forth in this Section 6(b), Executive’s employment, and Executive’s right to
receive compensation and benefits from Employer, may be terminated for Cause at
the discretion of Employer under the following circumstances:

 

(i)                                     Executive is convicted of (or pleads
guilty or nolo contendere to) a felony;

 

(ii)                                  intentional fraud by Executive in the
performance of his duties for the Company or intentional misappropriation of
Company funds by Executive;

 

(iii)                               (A) material breach of Section 8(b), (c) or
(d) of this Agreement or (B) a willful and material breach of Section 8(a) of
this Agreement;

 

(iv)                              a willful and material violation by Executive
of the Company’s written policies and procedures that are legal and ethical and
have been made available to Executive and relate to the performance of his
duties for the Company (provided that the Company has not failed to terminate
other employees for comparable violations) or willful gross misconduct by
Executive relating to the performance of his duties for the Company; or

 

(v)                                 willful failure to comply with direction of
the Board or any duly authorized committee thereof (including any written
policies or procedures promulgated by those bodies), provided that (A) such
directions (or policies or procedures) are action of the Board or a duly
authorized committee thereof within the meaning of Section 141 of the General
Corporation Law of the State of Delaware (or any comparable provision of
applicable law), (B) the existence of such directions (or policies or
procedures) is known by Executive or such directions (or policies or procedures)
have been communicated to Executive, (C) such directions (or policies or
procedures) are consistent with the duties and role of a person holding the role
then held by Executive or a director of a company the nature and size of the
Company and (D) such directions (or policies or procedures) do not require
actions that are illegal or unethical.

 

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Each of clauses (i) through (v) are independent of others and the fact that
Executive may not be terminated for Cause under any one of such clauses shall
have no bearing on whether he may be terminated for Cause under any other such
clauses.  For purposes of clauses (iii) and (iv) (but not clause (v)), no act or
failure to act shall be deemed to be “willful” if Executive reasonably believed
in good faith that such act or failure to act was in, or not opposed to, the
best interests of the Company.  Anything to the contrary notwithstanding,
Executive’s employment shall not be terminated for “Cause,” within the meaning
of clauses (ii) through (v) above, unless Executive has been given written
notice by the Board stating the basis for such termination and, in the case of
clauses (iii) through (v) above, he is also given fifteen (15) days to cure the
neglect or conduct that is the basis of any such claim and, if he fails to cure
such conduct, or such conduct cannot be cured (and also for any purported
termination for Cause under clause (ii) above), Executive has an opportunity to
be heard before the Board and after such hearing, the Board gives Executive
written notice confirming that in the judgment of a majority of the members of
the Board that, for so long as the Company has or is required by law to have two
such directors, includes at least two directors who are independent for purposes
of the listing requirements of the principal securities exchange (including, for
this purpose, the Nasdaq Stock Market) on which the Company’s securities are
listed (or, in the event the Company’s securities are no longer listed on any
such securities exchange, the listing requirements of the last such exchange on
which the Company’s securities were listed) “Cause” for terminating Executive’s
employment on the basis set forth in the original notice exists.  Executive’s
communication to the Board of his disagreement with decisions made by the Board
and the reasons for that disagreement shall not constitute “Cause” provided that
he does not engage in conduct constituting Cause as set forth in clause
(v) above.  Any termination for Cause shall be subject to de novo review in
accordance with the arbitration provisions of this Agreement.  If an arbitrator
or arbitrators determine that the basis of Cause did not exist, then Executive’s
termination of employment shall be treated as a termination without Cause.

 

If Executive’s employment is terminated pursuant to this Section 6(b),
(A) Employer’s only remaining financial obligation to Executive under this
Agreement will be to pay (subject to Section 11):  (i) any earned but unpaid
Base Salary through the date of termination, (ii) any other amounts earned,
accrued or owing to Executive but not yet paid, and (iii) other payments,
entitlements or benefits, if any, that are payable in accordance with applicable
plans, programs, arrangements or other agreements of the Company or any
affiliate and (B) all stock options shall terminate immediately upon the date of
termination.

 

(c)                                  Automatic Termination.  This Agreement and
Executive’s employment hereunder will terminate automatically upon the death or
Disability of Executive.  “Disability” shall mean Executive’s inability, due to
physical or mental incapacity, to substantially perform his duties and
responsibilities for a period of 180 consecutive days as determined by a medical
doctor selected by the Company and Executive.  If the parties cannot agree on a
medical doctor, each party shall select a medical doctor and the two doctors
shall select a third doctor who shall be the approved medical doctor for this
purpose.  If Executive’s employment is terminated pursuant to

 

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this Section 6(c), Executive (or in the event of his death, his estate or other
legal representative) will receive (subject to Section 11):

 

(i)                                     Base Salary through the end of the Term
(payable entirely in cash, not common stock), payable when such amounts would
have been paid if Executive’s employment had continued (Section 11(a) may apply,
however);

 

(ii)                                  to the extent not yet paid, all amounts
that would have been payable pursuant to Section 4(b) (including the 2013
Transition Bonus) if the Executive’s employment had continued through the end of
the Term, payable when such amounts would have been paid;

 

(iii)                               except as otherwise provided in Section 7,
to the extent not yet paid, the equity awards to which Executive would have been
entitled with respect to the First Term pursuant to Section 4(c) if Executive’s
employment had continued through the end of the First Term, payable when such
awards would have been paid;  such awards, and all outstanding equity awards,
shall vest and be exercisable when they would have vested and been exercisable
if Executive had remained employed with the Company throughout the term of such
Awards.  (Section 11 may apply to equity awards constituting deferrals of
compensation under Code Section 409A, however);

 

(iv)                              continued health benefits for Executive and
his spouse in the event of Executive’s disability, and for Executive’s spouse in
the event of his death, as described in Section 6(d)(iv) below;

 

(v)                                 any other amounts earned, accrued or owing
to Executive but not yet paid (Section 11(b)(i) may apply, however); and

 

(vi)                              other payments, entitlements or benefits, if
any, that are payable in accordance with applicable plans, programs,
arrangements or other agreements of the Company or any affiliate.

 

(d)                                 Termination Without Cause By The Company or
With Good Reason By Executive.  Employer may terminate this Agreement and
Executive’s employment without Cause at any time.  If Employer terminates this
Agreement without Cause or if Executive terminates this Agreement and
Executive’s employment with Good Reason, Executive shall receive (subject to
Section 11):

 

(i)                                     Base Salary through the end of Term
(payable entirely in cash, not common stock), payable when such amounts would
have been paid if Executive’s employment had continued;

 

(ii)                                  to the extent not yet paid, all amounts
that would have been payable pursuant to Section 4(b) (including the 2013
Transition Bonus) if the Executive’s employment had continued through the end of
the Term, payable when such amounts would have been paid;

 

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(iii)                               except as otherwise provided in Section 7,
to the extent not yet paid, the equity awards to which Executive would have been
entitled with respect to the First Term pursuant to Section 4(c) if Executive’s
employment had continued through the end of the First Term, payable when such
awards would have been paid;  such awards, and all outstanding equity awards,
shall vest and be exercisable when they would have vested and been exercisable
if Executive had remained employed with the Company throughout the term of such
Awards.  (Section 11 may apply to equity awards constituting deferrals of
compensation under Code Section 409A, however);

 

(iv)                              health benefits as follows:  If and for so
long as Executive is eligible following termination of employment for continued
coverage under the Company’s medical, dental and hospitalization plans (the
“Health Plan”), the Company shall continue to provide such coverage to Executive
and his spouse until Executive shall attain age 65 and for his spouse until she
shall attain age 65.  If such continued insurance coverage under the Health Plan
is not available, and if Executive is eligible upon termination of employment
for COBRA continuation coverage under the Health Plan and elects such coverage,
Executive shall receive cash payments equal on an after-tax basis to the full
monthly premium cost to Executive to purchase such COBRA continuation coverage
for Executive and his spouse, with such payments to be made by the Company to
Executive on a monthly basis for the duration of Executive’s COBRA continuation
period and in accordance with Section 11, which payments shall be made in lieu
of any payments provided hereinabove that would otherwise be made during the
COBRA continuation period so that there is no duplication of payments during the
COBRA continuation period.  (Such right to reimbursement of the cost of COBRA
participation shall be deemed a separate payment right from other rights under
this Section 6(d)(iv).  If or when Executive is not eligible for such continued
coverage under the Health Plan, Executive shall instead receive cash payments
equal on an after-tax basis to the cost of an individual insurance policy which
the Company shall obtain to provide health coverage equivalent to that which
Executive would have received under the Health Plan had Executive and his spouse
qualified for such coverage under the Health Plan, with such payments to be made
by the Company to Executive on a monthly basis until Executive shall attain age
65 and for Executive’s spouse until she shall attain age 65 and in accordance
with Section 11 (it being understood that the Company payments to Executive
attributable to this coverage will be equal on an after-tax basis to the full
monthly premium cost to Executive to purchase such coverage independently).  If
no such insurance coverage can be purchased independently, the Company shall pay
for medical, dental and hospitalization expenses incurred by Executive and his
spouse (each until age 65) to the full extent such expenses would have been paid
under such coverage, with an additional payment of a gross-up for taxes on the
benefits received by Executive and his spouse (including the gross-up).  If
Executive enrolls in group health insurance coverage with another employer
following termination of his employment with the Company, the Company’s
obligations under this section shall be suspended for the period during which
such other health insurance is in effect.  Executive shall not be required to
enroll in any such coverage with a new employer, and if any such coverage
procured by Executive ceases for any reason before Executive and his wife reach
age 65, the obligations of the Company under this section shall arise again for
the remaining period until Executive and his wife each reach age 65.  If any
benefit under this Section 6(d)(iv) constitutes a deferral of compensation not
compliant with Code Section

 

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409A, the Company will pay to executive a gross-up so that the after tax cost of
the benefit, taking into account penalties and interest incurred under
Section 409A, to Executive and his spouse will be the same as if this benefit
were compliant with Section 409A;

 

(v)                                 at his election, continuation of his life
insurance and/or long-term disability coverage by the Company for up to two
years following termination (provided Executive reimburses the Company for such
premiums);

 

(vi)                              any other amounts earned, accrued or owing to
Executive but not yet paid (Section 11(b)(i) may apply, however);

 

(vii)                           other payments, entitlements or benefits, if
any, that are payable in accordance with applicable plans, programs,
arrangements or other agreements of the Company or any affiliate.

 

For purposes of this Agreement “Good Reason” shall mean termination by Executive
of his employment after written notice to the Company following the occurrence
of any of the following events without his consent:

 

(i)                                     a reduction in Executive’s then current
Base Salary, the then Target Bonus opportunity (if during the First Term) or, to
the extent as would constitute a breach of this Agreement, any other
compensation to which Executive is entitled under this Agreement, other than a
reduction contemplated in Section 4 or a reduction in the right to participate
in a deferred compensation plan if such reduction is applicable to all senior
executives;

 

(ii)                                  the assignment to Executive of duties
which are materially inconsistent with his duties or which materially impair
Executive’s ability to function in the applicable office specified in
Section 2(a);

 

(iii)                               a breach by the Company of any material
provision of this Agreement;

 

(iv)                              the failure of the Company to obtain the
assumption in writing of its obligation to perform this Agreement by any
successor to all or substantially all of the assets of the Company within 15
days after a merger, consolidation, sale or similar transaction; or

 

(v)                                 for any reason by Executive during the
30-day period immediately following the six-month anniversary of a Change in
Control (whether or not Executive consented to such Change in Control);

 

provided that in the case of clauses (i) through (iv) (but not clause (v)) such
event continues uncured for fifteen (15) days after Executive gives the Company
notice thereof.

 

The foregoing notwithstanding, solely with respect to payments made pursuant to
Section 6(d)(ii) and RSUs or other equity award that would qualify as a
short-term deferral but for Executive’s right to terminate for Good Reason under
the foregoing

 

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definition, for any such award granted before a Change in Control (as defined
below) the applicable definition of Good Reason shall be that set forth above
but modified such that (A) the reduction in compensation referenced in clause
(i) must be material (for this purpose, a reduction in Base Salary, Target Bonus
or other compensation with an annualized value, separately or in the aggregate,
of at least 1.5% of pre-reduction Base Salary shall be deemed material, but
other reductions may be material in the circumstances); (B), for avoidance of
doubt, the assignment of materially inconsistent duties under clause (ii) must
be materially adverse to Executive; (C) clause (v) shall not apply (because
Section 7 would apply earlier, upon the Change in Control, in any event); and
(D), in all cases, Executive shall have given notice to the Company that the
event or condition referred to any of the applicable clauses has arisen within
90 days after such event or condition has arisen, and the event or condition has
continued uncured for a period of more than 30 days after Executive has given
such notice thereof to the Company (in addition to any other right of the
Company to cure), and Executive has terminated employment for that reason within
18 months after such uncured event or condition has arisen.

 

(e)                                  Definition of Change in Control.

 

For purposes of this Agreement “Change in Control” shall mean the occurrence of
any one of the following events:

 

(i)                                     any “person,” as such term is used in
Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934, becomes after
the Operative Date a “beneficial owner,” as such term is used in Rule 13d-3
promulgated under that act, of 30% or more of the Voting Stock of the Company;

 

(ii)                                  the majority of the Board consists of
individuals other than Incumbent Directors, which term means the members of the
Board on the Operative Date; provided that any person becoming a director
subsequent to the Operative Date whose election or nomination for election was
supported by two-thirds of the directors who then comprised the Incumbent
Directors, shall be considered to be an Incumbent Director;

 

(iii)                               the Company adopts any plan of liquidation
providing for the distribution of all or substantially all of the Company’s
assets;

 

(iv)                              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 owned the Voting Stock or other ownership interests
of the Company, a majority of the Voting Stock or other ownership interests of
the entity or entities, if any, that succeed to the business of the Company; or

 

(v)                                 the Company combines with another company
and is the surviving corporation but, immediately after the combination, the
shareholders of the Company immediately prior to the combination hold, directly
or indirectly, 50% or less of the Voting Stock of the combined company (there
being excluded from the number of shares held by

 

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such shareholders, but not from the Voting Stock of the combined company, any
shares received by Affiliates of such other company who were not Affiliates of
the Company prior to the relevant transaction in exchange for stock of such
other company).

 

For purposes of the Change in Control definition, (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 of such Voting Stock.

 

(f)                                   If Executive’s employment terminates at
the end of the Term, Executive shall receive

 

(i)                                     Base Salary through the date of
termination,

 

(ii)                                  all outstanding equity awards shall vest
and be exercisable when they would have vested and been exercisable if Executive
had remained employed with Company throughout the term of such Awards
(Section 11 may apply to equity awards constituting deferrals of compensation
under Code Section 409A, however),

 

(iii)                               health benefits as provided in
Section 6(d)(iv),

 

(iv)                              any other amounts earned, accrued or owing to
Executive but not yet paid (Section 11(b)(i) may apply, however) and

 

(v)                                 other payments, entitlements or benefits, if
any, that are payable in accordance with applicable plans, programs,
arrangements or other agreements of the Company or any affiliate.

 

(g)                                  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 the rights and
obligations under this Section 6 and Sections 7, 8, 9 and 10; and all procedural
and remedial provisions of this Agreement.

 

(h)                                 No Mitigation; No Offset.  In the event of
termination of employment, Executive shall be under no obligation to seek other
employment, and there shall be no offset against any amounts due him under the
Agreement on account of any remuneration attributable to any subsequent employer
or claims asserted by the Company or any affiliate.

 

7.                                      Change In Control Protection.

 

(a)                                 Treatment of Equity.  The equity awards to
which Executive would have been entitled with respect to the First Term pursuant
to Section 4(c) if Executive’s employment had continued through the end of the
First Term shall be granted to

 

11

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Executive immediately prior to a Change in Control to the extent not yet granted
and if the Change of Control involves a transaction in which the Company’s
outstanding common stock is converted to cash, such equity award shall be paid
entirely in RSU’s (not a mix of RSU’s and options) or the cash into which the
RSU’s would have been converted in such transaction.  There shall be full
vesting immediately prior to a Change in Control of all outstanding equity
awards (including, but not limited to, stock options and all equity awards
referred to in the immediately preceding sentence), with all vested stock
options to remain exercisable for the remainder of their terms; provided that
options held by Executive shall be cashed out in connection with a Change in
Control if (i) required by the terms of the Management Incentive Plan and
(ii) all other options issued by the Company are cashed out in connection with
such Change in Control (the amount payable shall not exceed the difference
between the fair market value at the settlement date and the aggregate exercise
price of such stock options, such limit to be applied in conformity with Code
Section 409A).  Options that are not exercisable because the applicable
performance hurdle has not been satisfied shall become exercisable immediately
prior to a Change in Control.

 

(b)                                 Parachute Payments.  Notwithstanding any
provision of this Agreement, if any portion of the payments or benefits under
Section 6 of this Agreement, or under any other agreement with Executive or plan
of Employer or its affiliates (in the aggregate, “Total Payments”), would
constitute an “excess parachute payment” and would, but for this Section 7(b),
result in the imposition on Executive of an excise tax under Section 4999 of the
Code (the “Excise Tax”), then the Total Payments to be made to the Executive
shall either be (i) delivered in full or (ii) delivered in such amount so that
no portion of such Total Payments would be subject to the Excise Tax, whichever
of the foregoing results in the receipt by the Executive of the greatest benefit
of an after-tax basis (taking into account the applicable federal, state and
local income taxes and the Excise Tax).  The determination required by this
Section 7(b) shall be made by the Employer in its reasonable determination and
in reliance on its tax advisors.

 

8.                                      Protection Of Confidential
Information/Non-Competition/Non-Solicitation.

 

Executive covenants and agrees as follows:

 

(a)                                 (i) Confidential Information:  During
Employer’s employment of Executive and following the termination of Executive’s
employment for any reason, Executive 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 Executive’s employment or after receipt of the
prior written consent of Employer, any Confidential Information (as hereinafter
defined) of Employer or its controlled subsidiaries or affiliates, that comes
into his knowledge during his employment by Employer (the “Confidential
Information”).  The obligation not to use or disclose any Confidential
Information will not apply to any Confidential Information that (i) is or
becomes public knowledge through no fault of Executive, 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 or (ii) is obligated to be

 

12

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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, Executive shall promptly notify the Employer
and shall provide the Employer with an opportunity (if then available) to
contest and cooperate with the Employer to contest, in each case, 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).  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.

 

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

 

(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.

 

“Trade Secret” means information including, but not limited to, any technical or
non-technical data, know-how, software, formula, pattern, compilation, program,
device, method, technique, plan, blueprint, 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.

 

(iv)                              Interpretation.  The restrictions stated in
paragraphs 8(a)(i) and 8(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)                                     Executive covenants and agrees that
during the period from the Operative Date through the later of December 31, 2015
and three years after the last day he serves as Chairman and Chief Executive
Officer or Executive Chairman (“Non-Compete Period”), he will not directly or
indirectly engage in or invest in, own, manage, operate, finance, control or
participate in the ownership, management, operation, financing or control of, be
employed by, associated with or in any manner connected with, lend Executive’s
name or any similar name to, lend Executive’s credit to, or render services or

 

13

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advice to any business similar to or competitive with any business engaged in,
or which provides goods or services similar to or competitive with any goods and
services provided by Employer or its subsidiaries or affiliates at the time of
termination, in the United States or any other geographic location in which
Employer or a controlled subsidiary or affiliate of Employer operates, other
than Internet Healthcare Group, unless waived in writing by Employer in its sole
discretion.  Executive recognizes that the above restriction is reasonable and
necessary to protect the interest of the Employer and its controlled
subsidiaries and affiliates.

 

The foregoing shall not be deemed to prohibit Executive’s association with a
company if an immaterial portion of such company’s revenues is attributable to
operations directly competitive with the Company (provided Executive is not
employed within those directly competitive operations).  Further, nothing
contained in this Section 8(b)(i) shall restrict Executive from making any
investments in any corporation or other business enterprise whose outstanding
capital stock or other equity interests are listed or admitted to unlisted
trading privileges on a national securities exchange or included for quotation
through an inter-dealer quotation system of a registered national securities
association, provided that such investment (i) represents less than five percent
(5%) of the aggregate outstanding capital stock or other equity interests of
such corporation, partnership or business enterprise and (ii) does not otherwise
provide Executive or any affiliate of Executive with the right or power (whether
or not exercised) to influence, direct or cause the direction of the management,
policies and/or affairs of any business or enterprise which is or might directly
or indirectly compete with any business operations or activities of Company or
any of its subsidiaries.

 

(ii)                                  During the period following Executive’s
termination from his employment with Employer for which Executive is subject to
the restrictions set forth in Section 8(b)(i), Executive may submit a written
request to Employer outlining a proposed employment or other employment
opportunity that Executive is considering.  Employer will review such request
and make a determination, in its reasonable 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 controlled subsidiaries and affiliates, Executive agrees that,
during the Non-Compete Period, he will not, without the prior written permission
of Employer, directly or indirectly, for himself 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 or a controlled subsidiary or affiliate of Employer. 
For purposes of this Section 8(c), “Customer” means any individual or entity to
whom Employer or its controlled subsidiaries or affiliates has provided, or
contracted to provide, services during the twelve months prior to the
termination of his employment.

 

(d)                                 Solicitation of Employees.  During the
Non-Compete Period, Executive will not, and will not assist any other person or
entity to, directly or indirectly, solicit for employment or consultation any
employee of Employer or any of its controlled subsidiaries or affiliates who was
employed with Employer or its controlled

 

14

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subsidiaries or affiliates within the one year period immediately prior to
Executive’s termination, or in any manner knowingly induce or attempt to induce
any such employee to terminate his or her employment with Employer.

 

(e)                                  Remedies.  If, following termination of
Executive’s employment, there is (A) a material breach of Section 8(b), (c) or
(d) of this Agreement or (B) a willful and material breach of Section 8(a) of
this Agreement, then, in addition to any other remedy to which Employer may be
entitled for such breach and notwithstanding any other provision of this
Agreement, all stock options shall immediately terminate, all other equity
awards, to the extent not vested, shall be forfeited and all health benefits and
payments provided by Section 6(c)(iv), 6(d)(iv) or 6(f)(iii) shall immediately
terminate.

 

9.                                      Work Made For Hire.  Executive agrees
that any written program materials, protocols, research papers, other writings
(including those in electronic format), as well as improvements, inventions, new
techniques, programs or products (the “Work”) made or developed by Executive
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 Executive 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, Executive agrees to assign, convey, and transfer to the Employer
all right, title and interest Executive 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, without payment of any consideration by
Employer, except as set forth in this Agreement.  Additionally, Executive agrees
to execute any documents necessary for Employer to record and/or perfect its
ownership of the Work and the applicable copyright.

 

10.                               Property Of Employer.  Executive agrees that,
upon the termination of Executive’s employment with Employer, Executive 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 Executive.

 

11.                               Special Rules for Compliance with Code
Section 409A.  This Section 11 serves to ensure compliance with applicable
requirements of Code Section 409A.  Certain provisions of this Section 11 modify
other provisions of this Agreement.  If the terms of this Section 11 conflict
with other terms of the Agreement, the terms of this Section 11 control.

 

(a)                                 Definition of Termination of Employment;
Timing Rule Where Separation from Service Precedes Designated Termination Date. 
For purposes of this Agreement, the term “termination of employment” shall mean
a separation from service

 

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as defined in Treasury Regulation § 1.409A-1(h); provided, however, that if a
date for termination of employment is designated by the Company but Executive
has a separation from service prior to such designated date, the designated
termination date shall be deemed the date of termination for any compensation
payable under this Agreement that would fully qualify for the short-term
deferral exception under Treasury Regulation § 1.409A-1(b)(4) and/or the
“two-year/two-times” exclusion from being a deferral of compensation under
Treasury Regulation § 1.409A-1(b)(9)(iii) under both circumstances (i.e.,
assuming the separation from service date was the termination date hereunder or
that the designated termination of employment date was the termination date
hereunder); in such case, the termination date may not be designated so as to
cause such compensation to be a deferral of compensation under Section 409A.  If
Executive has a separation from service in connection with a resignation under
Section 6(a) or other circumstance but remains entitled to payments of salary or
other amounts under this Agreement through the designated termination date or
until the end of the month in which the designated termination date occurs, if
such payments constitute a deferral of compensation they shall be subject to
Section 11(d).

 

(b)                                 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.  In the
case of any amount that is earned but unpaid at the time of Executive’s
termination of employment, 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 in the absence of termination but in no event more than 30 days
after Executive’s termination of employment, subject to Section 11(d).

 

(ii)                                  Intentionally Omitted.

 

(iii)                               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 11((c) and (d) below.

 

(iv)                              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), Executive 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 Executive.

 

16

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(c)                                  Special Rules for Termination Payments. 
With respect to severance amounts and bonus payments for the year of termination
payable under this Agreement, the following rules will apply:

 

(i)                                     Separate Payments.  Amounts payable
under this Agreement shall be deemed separate payments for purposes of Code
Section 409A as follows (each clause constituting a separate payment to the
extent permitted under Section 409A):

 

(A)                               The amount specified under Section 6(d)(ii);

 

(B)                               The amount specified in Sections 4(b),
6(c)(ii).

 

Amounts may be further designated as separate payments in any separately
identifiable plan or arrangement for purposes of Section 409A.

 

(ii)                                  Payment Timing Rules.  A payment
referenced in Section 11(c)(i) shall be payable without regard to the Six-Month
Delay Rule 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 11(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 11(c)(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 not be used for this purpose) and (D), the six-month delay rule in
Section 11(d) does not apply to the separate payment.  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 11(d).  Any delay in payment under the
six-month delay rule shall not limit Executive’s rights under this Agreement to
not forfeit a specified item of compensation as a result of Executive’s
termination.

 

(d)                                 Six-Month Delay Rule.

 

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

 

(A)                               Executive 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

 

17

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plans and arrangements and applied in accordance with Treasury Regulation §
1.409A-1(i).

 

(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 under Treasury Regulation § 1.409A-1(b)(4), 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 not be applied to severance payments or pro-rata
bonus payments.

 

(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 Executive’s termination of
employment.

 

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

 

(B)                               During the six-month delay period, accelerated
payment will occur in the event of the Executive’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.

 

18

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(e)                                  Other Provisions.

 

(i)                                     Reimbursements and In-Kind Benefits. 
Any reimbursements made or in-kind benefits provided under this Agreement shall
be subject to the following conditions:

 

(A)                               The amount of expenses eligible for
reimbursement or in-kind benefits provided in any one taxable year of Executive
shall not affect the amount of expenses eligible for reimbursement or in-kind
benefits provided in any other taxable year of Executive;

 

(B)                               The reimbursement of any expense shall be made
each calendar quarter and not later than the last day of Executive’s taxable
year following Executive’s taxable year in which the expense was incurred
(unless this Agreement specifically provides for reimbursement by an earlier
date);

 

(C)                               The right to reimbursement of an expense or
payment of an in-kind benefit shall not be subject to liquidation or exchange
for another benefit (this provision does not override express terms of
Section 6(d)(iv), however).

 

In addition, with respect to any reimbursement made under Section 6(d)(iv) for
expenses for medical coverage paid for by Executive, any such reimbursements
made during the period of time Executive would be entitled (or would, but for
such reimbursement, be entitled) to continuation coverage under the Company
Health Plan pursuant to COBRA if Executive had elected such coverage and paid
the applicable premiums shall be exempt from Section 409A of the Code and the
six-month delay in payment described in this Section 11 pursuant to
Section 1.409A-1(b)(9)(v)(B) of the Regulations.

 

Executive’s right to reimbursements and in-kind benefits under this Agreement
shall be treated as a right to a series of separate payments under
Section 1.409A-2(b)(2)(iii) of the Regulations.

 

(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 Executive’s creditors or of any of Executive’s beneficiaries.

 

(iii)                               No Acceleration.  The timing of payments and
benefits under the Agreement which constitute a deferral of compensation under
Code Section 409A 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

 

19

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permitted under Code Section 409A without Executive incurring a tax penalty.

 

(iv)                              References to Other Plans.  References in the
Agreement to the obligation of the Company to pay amounts under other plans,
including Executive’s vested portion of any Company deferred compensation or
other benefit plan, shall not be construed to modify the timing of payment,
which shall be governed by such other plans.

 

12.                               Remedies.  An actual or threatened violation
by Executive of the covenants and obligations set forth in Sections 8, 9 and 10
will cause irreparable harm to Employer or its controlled subsidiaries or
affiliates and the remedy at law for any such violation will be inadequate. 
Executive 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.

 

13.                               Arbitration.  Except for an action for
injunctive relief as described in Section 12, any disputes or controversies
arising under this Agreement will be settled by arbitration in Hartford,
Connecticut, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.  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.  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.

 

/s/ RL Executive’s Initials

 

14.                               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 Executive:  Address on file with Employer.

 

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.

 

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15.                               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.

 

16.                               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.

 

17.                               Binding Effect.  This Agreement will be
binding upon and shall inure to the benefit of each party and each party’s
respective successors, heirs and legal representatives and the Company’s
obligation to provide the payments and other benefits provided herein shall be
binding upon any successor to the Company.  This Agreement may not be assigned
by Executive 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 Executives.  These materials are general guidelines
for Executive’s information and will not be construed to alter, modify, or amend
this Agreement for any purpose whatsoever.

 

19.                               Indemnification.  The Company shall indemnify
Executive to the fullest extent permitted by the laws of State of Delaware and
the Company shall obtain and maintain directors and officers liability insurance
in an amount not less than $50 million.

 

20.                               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.

 

21.                               Entire Agreement.  This Agreement 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 Executive or Employer to enter into this Agreement, which are not
expressly set forth within this Agreement.  Executive and Employer acknowledge
and

 

21

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agree that Employer’s controlled subsidiaries and affiliates are express third
party beneficiaries of this Agreement.

 

[signatures follow]

 

22

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IN WITNESS WHEREOF, the parties hereto have executed this amended and restated
Agreement on the 10th day of December, 2012.

 

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“Executive”

“Employer”

 

 

 

Magellan Health Services, Inc.

 

 

 

 

/s/ René Lerer

 

By:

/s/ Michael Diament

René Lerer

Name: Michael Diament

 

Title: Chairman, Compensation Committee

 

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