Exhibit 10.1


 


MAGELLAN HEALTH SERVICES, INC.


 


2008 MANAGEMENT INCENTIVE PLAN


 


STOCK OPTION AGREEMENT


 


Reference No. 2008-March 5, 2008


 


SECTION 1.                          GRANT OF OPTION.


 


(a)                                  OPTION.  On the terms and conditions set forth in this
Agreement and each Notice of Stock Option Grant referencing this Agreement,
Magellan Health Services Inc. (the “COMPANY” as further defined below) grants
to the Optionee referred to on the signature page hereof, as of the Date
of Grant (as defined below), an option to purchase at the Exercise Price (as
defined below) the number of shares of Ordinary Common Stock, $ 0.01 par value
per share, of the Company set forth in such Notice of Stock Option Grant,
subject to adjustment thereto on account of any change in respect of the shares
of Ordinary Common Stock that may be made as provided by Section 7 below
(the “OPTION SHARES”).  Each such Notice
of Stock Option Grant, together with this referenced Agreement, shall be a
separate option governed by the terms of this Agreement and any such separate
option may be referred to herein as “THE OPTION” and, as pertinent, any of
multiple Notices of Stock Option Grant referencing this Agreement may be
referred to herein as “THE OPTION AWARD NOTICE.”  The option is intended to be an Incentive
Stock Option (as defined below) or a Nonqualified Stock Option (as defined
below), as provided in the Option Award Notice.


 


(b)                                 2008
MANAGEMENT INCENTIVE PLAN AND DEFINED TERMS. 
The option is granted under and subject to the terms of the Company’s
2008 Management Incentive Plan, as amended and supplemented from time to time
(the “PLAN”), which is incorporated herein by this reference.  Certain capitalized terms used herein are
defined in Section 9 below but terms used herein, if not defined herein,
shall have the same meaning for purposes hereof as provided by the Plan.


 


(c)                                  SCOPE
OF THIS AGREEMENT.  This Agreement shall
apply both to the option and to the Option Shares acquired upon the exercise of
the option.


 


SECTION 2.                          RIGHT TO EXERCISE.


 


(a)                                  EXERCISABILITY.  Subject to the conditions set forth in this
Agreement and the Plan, all or part of the option may be exercised to purchase
Option Shares prior to expiration of the option at the time or times, and
subject to satisfaction of the conditions, set forth in the vesting and
exercise provisions of the Option Award Notice.


 


(b)                                 $100,000
LIMITATION.  If the option is designated
as an Incentive Stock Option in the Option Award Notice, then the Optionee’s
right to exercise the option shall be deferred to the extent (and only to the
extent) that the option would not be treated as an Incentive Stock Option
solely by reason of the $100,000 annual limitation under Section 422(d) of
the Code, except that the Optionee need not defer his or her right to exercise
the option if (i) the Company is subject to an Extraordinary Business
Combination Event before the Optionee’s Service terminates, (ii) the
Company, or any surviving corporation of any business combination involving the
Company or its parent (a “SURVIVING COMPANY”) does not continue the option, and
(iii) any Surviving Company does not assume the option or does not
substitute an option with substantially the same terms for the option.  The failure to defer exercise of the option
in order to comply with this $100,000 limitation as permitted by the foregoing
provisions may, however, result in the option no longer being considered an
Incentive Stock Option.  Additional
limitations with regard to Incentive Stock Options are set forth in the Plan.


 

















 


(c)                                  INJURIOUS
CONDUCT.  Except as otherwise
specifically provided by the Option Award Notice or other Award document or by
an agreement executed by the Company with the approval of the Committee, in the
event the Optionee has engaged in Injurious Conduct as defined in, and as
determined to have occurred in accordance with, Section 12 of the Plan
during Optionee’s Service or during the year following termination of Optionee’s
Service, then (i) no option issued to Optionee under the Plan may be
exercised after such determination (even if fully vested) nor shall any other
benefit of any Award thereafter accrue to the Optionee under the Agreement or
the Plan (including by reason of the lapse of any restriction on transfer or
other restriction applicable to Option Shares that have been issued), and the
Company shall not complete the settlement of any such option (including
completion of the issuance and delivery to the Optionee of Option Shares upon a
previous exercise of the option) or the settlement of any other Award
(including the removal of any restriction on transfer or other restriction
applicable to any Option Shares that have been issued, even upon lapse of or
compliance by the Optionee with any other restrictions thereon that are
otherwise applicable to Optionee), and (ii) any such unsettled option
shall be forfeited and shall terminate and any such Option Shares subject to
any such restrictions shall be forfeited (provided, however, that
the foregoing shall not excuse the Company from settling, completing delivery
of or removing any legend restricting the transfer of (A) any Restricted
Stock Award or (B) Stock Units and any related Dividend Equivalent Rights
the settlement of which have been deferred at the election of the Optionee, if
such Restricted Stock Award or Stock Units were fully vested before the date
such Injurious Conduct occurred (as so determined)).  In addition, except as otherwise specifically
provided by an Option Award Notice or other Award document or by an agreement
executed by the Company with the approval of the Committee, in the event the
Optionee has engaged in Injurious Conduct as defined in, and as determined to
have occurred in accordance with, Section 12 of the Plan during Optionee’s
Service or during the year following termination of Optionee’s Service, any benefits
realized by Optionee as a result of any Award under the Plan at any time after
such Injurious Conduct occurred (as so determined), whether upon vesting or
exercise of an Option, lapse of restrictions on Option Shares, vesting of
Restricted Stock Awards or Stock Units or related Dividend Equivalent Rights,
or the lapse of any restrictions on Shares issued as a result thereof, or as a
result of any other settlement of an Award, shall be forfeited by Optionee and
Optionee shall pay over to the Company in cash the amount of any benefits so
received by Optionee or deliver to the Company any Shares so received by
Optionee and still owned by Optionee (provided, however, that the
foregoing shall not excuse the Company from settling, completing delivery of or
removing any legend restricting the transfer of (i) any Restricted Stock
Award or (ii) Stock Units and any related Dividend Equivalent Rights the
settlement of which have been deferred at the election of the Optionee, if such
Restricted Stock Award or Stock Units were fully vested before the date such
Injurious Conduct occurred (as so determined)). 
A forfeiture of benefits as provided hereby upon the Committee
determining that Optionee has engaged in Injurious Conduct during Optionee’s
Service or during the year following termination of Optionee’s Service, shall
not relieve Optionee of any other liability he or she may have to the Company,
any Subsidiary or any Parent as a result of engaging in the Injurious Conduct.


 


(d)                                 TRANSFER
RESTRICTIONS ON OPTION SHARES.  Subject
to subsection 2(c) above and subsection 3(c) below, unless otherwise provided
by the Option Award Notice, upon the acquisition of Option Shares pursuant to
the exercise of an option after expiration of the vesting period and
satisfaction of any vesting and exercise conditions provided by the Option
Award Notice, Optionee shall be free to dispose of Option Shares so acquired in
any manner and at any time.


 


SECTION 3.                          TRANSFER OF OPTION.


 


(a)                                  TRANSFERS
GENERALLY PROHIBITED.  Except as
otherwise provided by the Option Award Notice or otherwise permitted by the
Plan or in the case of a transfer permitted by subsection 3(b) below, the
option shall be exercisable only during the Optionee’s lifetime and only by the
Optionee.  Except as otherwise provided
in subsection 3(b) below, the option and the rights and privileges
conferred by the option shall not be sold or otherwise Transferred.


 


(b)                                 CERTAIN
TRANSFERS PERMITTED.  Notwithstanding the
foregoing provisions of this Section 3, this option may be Transferred (i) in
the event of the Optionee’s death, by will 


 


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or
the laws of descent and distribution or by a written beneficiary designation
accepted by the Company, (ii) by operation of law in connection with a
merger, consolidation, recapitalization, reclassification or exchange of Shares,
reorganization or similar transaction involving the Company and affecting the
Shares generally or (iii) with the approval of the Committee, to a member
of Optionee’s family, or a trust primarily for the benefit of Optionee and/or
one or more members of Optionee’s family, or to a corporation, partnership or
other entity primarily for the benefit of Optionee and/or one or more such
family members and/or trusts or (iv) with the approval of the Committee,
in another estate or personal financial planning transaction; provided,
however, that in any such case the option so Transferred shall remain
subject in the hands of the Transferee to the restrictions on Transfer provided
hereby and all other terms hereof, including the terms of subsection 2(c) above.


 


(c)                                  FIDUCIARY
AND SECURITIES LAW RESTRICTIONS.  As a
employee, officer and/or director of the Company, Optionee may be subject to
restrictions on his or her ability to sell or otherwise Transfer Option Shares
by reason of being a fiduciary for the Company or by reason of federal or state
securities laws and/or the policies regarding transactions in securities of the
Company from time to time adopted by the Company and applicable to Optionee in
connection therewith.  Nothing contained
herein shall relieve Optionee of any restriction on sale or other Transfer of
Option Shares provided thereby and any other restrictions of sale or other Transfer
of Option Shares provided herein (including in an Option Award Agreement or in
the Plan) shall be in addition to and not in lieu of any other restrictions
provided thereby.


 


SECTION 4.                          EXERCISE PROCEDURES.


 


(a)                                  NOTICE
OF EXERCISE.  The Optionee (or the
Optionee’s personal representative or permitted Transferee) may exercise the
option by giving written notice to the Company specifying the election to
exercise the option, the number of Option Shares for which it is being
exercised and the form of payment.  Exhibit A
is an example of a “Notice of Exercise.” 
The Notice of Exercise shall be signed by the person exercising the
option.  In the event that the option is
being exercised by the Optionee’s personal representative or permitted
Transferee, the notice shall be accompanied by proof (satisfactory to the
Company) of the representative’s right to exercise the option.  The Optionee or the Optionee’s representative
or permitted Transferee shall deliver to the Company, at the time of giving the
notice, payment in a form permissible under Section 5 below for the full
amount of the Purchase Price.


 


(b)                                 ISSUANCE
OF COMMON STOCK.  Subject to subsection 2(c) above
and subsection 4(d) below, after receiving a proper notice of exercise and
payment for the Option Shares for which the option was exercised, the Company
shall cause to be issued a certificate or certificates for the Option Shares as
to which this option has been exercised, registered in the name of the person
exercising the option (or, at the direction of the Optionee, in the names of
such person and his or her spouse as community property or as joint tenants
with right of survivorship or as tenants in the entirety).


 


(c)                                  WITHHOLDING
REQUIREMENTS.  The Company may withhold
any tax (or other governmental obligation) as a result of the exercise of the
option, as a condition to the exercise of the option, and the Optionee shall
make arrangements satisfactory to the Company to enable it to satisfy all such
withholding requirements.  The Optionee
shall also make arrangements satisfactory to the Company to enable it to
satisfy any withholding requirements that may arise in connection with the
vesting or disposition of Option Shares purchased by exercising of the option.


 


(d)                                 SECURITIES
LAW RESTRICTIONS ON EXERCISE.  Unless a
registration statement under the Securities Act permitting the sale and
delivery of Option Shares upon exercise of the option is in effect at the date
of exercise, the Company shall not be required to issue Option Shares upon such
exercise, except as otherwise provided in this subsection.  The Company shall use its commercially
reasonable efforts to register under the Securities Act sufficient Option
Shares to permit the sale and delivery to Optionee of all Option Shares that
may be acquired by Optionee upon the exercise of the option; provided, however,
that the Company shall only be so required to register the Option Shares on Form S-8



 


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under the Securities Act (or any successor form).  Notwithstanding the foregoing, the Company shall,
if Optionee has given the Company at least 90 days’ notice requesting the
Company to register the Option Shares that may then be acquired by Optionee
upon exercise of the option in accordance with the foregoing provisions of this
subsection and the Company has failed to do so, issue Option Shares to Optionee
upon exercise of the option without registration thereof under the Securities
Act if (i) Optionee represents, effective on the date of such issuance, in
writing in a form acceptable to the Company (A) that such Option Shares
are being acquired for investment and not with a present view to distribution, (B) Optionee
understands that the Option Shares have not been registered under the
Securities Act and cannot be sold or otherwise Transferred unless a
registration statement under the Securities Act is in effect with respect
thereto or the Company has received an opinion of counsel, satisfactory to it,
to the effect that such registration is not required, (C) that Optionee
has, alone or together with any qualified advisor, such knowledge and
experience in financial and business matters as is necessary to evaluate the
risks of an investment in the Option Shares, is purchasing the Option Shares
based on an independent evaluation of the long-term prospects of an investment
in the Option Shares and has been furnished with such financial and other
information regarding the Company as the Optionee has requested for purposes of
making such evaluation , and (D) Optionee is able to bear the economic
risk of an investment in the Option Shares subject to such restrictions on
Transfer and (ii) if the Company determines that under the circumstances
issuing the Option Shares pursuant to such exercise of the option is lawful; provided,
however, that the Company may require, as a condition of such issuance
of Option Shares, that Optionee execute and deliver to it such other
certificates, agreements and other instruments as in the judgment of the
Company, upon advice of counsel, are necessary or appropriate to assure that
the Option Shares are issued to Optionee in accordance with the Securities Act
and any other applicable securities law and may require that any certificates
representing Option Shares so issued bear any restrictive legend appropriate
for such purpose.  In addition, even if a
registration statement under the Securities Act permitting the sale and
delivery of Option Shares upon exercise of the option is in effect at the date
of exercise, the Company may suspend the issuance of Option Shares pursuant to
the exercise of all options issued under the Plan for such period of time as in
the judgment of the Company, upon advice of counsel, is necessary in order for
the Company to come into compliance with all the reporting requirements
applicable to the Company pursuant to Section 13(a) of the Exchange
Act or to otherwise avoid in connection with the issuance of the Option Shares
under such registration statement a violation of Sections 10, 11 or 12 of the
Securities Act.  If the Company suspends
the issuance of Option Shares pursuant to the exercise of options issued under
the Plan, the Company shall give prompt written notice thereof to the Optionee
(but the failure of the Company to give such notice shall not prevent the
Company from suspending the issuance of Option Shares as permitted hereby) and,
at such time as such period of suspension ends, shall give prompt written
notice thereof to Optionee.


 


SECTION 5.                          PAYMENT FOR OPTION SHARES.


 


(a)                                  CASH
OR CHECK.  All or part of the Purchase
Price may be paid in cash or by good
check.


 


(b)                                 ALTERNATIVE
METHODS OF PAYMENT.  Subject to any
provision pertaining thereto in the Option Award Agreement, at the sole
discretion of the Committee, all or any part of the Purchase Price and any
applicable withholding requirements may be paid by one or more of the following
alternative methods:


 


(i)                                     Surrender
of Stock.  Payment may be made by
surrendering ownership of Shares that are already owned by the Optionee free
and clear of any restriction or limitation, unless the Company specifically
agrees to accept such Shares subject to a restriction or limitation.  In such cases, such Shares shall be
surrendered to the Company in good form for transfer and shall be valued at
their Fair Market Value on the date of exercise of the option.  Without the specific approval of the
Committee, the Optionee shall not be permitted to surrender ownership of Shares
in payment of the Purchase Price (or withholding) if such action would cause
the Company to recognize compensation 


 


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expense (or additional compensation expense) with
respect to the option for financial reporting purposes that otherwise would not
have occurred.


 


(ii)                                  Net
Exercise.  Payment may be made in the
case of Nonqualified Stock Options by reducing the number of Option Shares
otherwise deliverable upon the exercise of the option by the number of Shares
having a Fair Market Value equal to the amount of the Purchase Price and the
withholding required to be made by the Company in connection with such exercise
of the option.


 


(iii)                               Exercise/Sale.  Payment may be made by the delivery (on a
form prescribed by the Company) of an irrevocable direction (A) to a
securities broker approved by the Company to sell Option Shares (or other
Shares owned by Optionee) and to deliver all or part of the sales proceeds to
the Company or (B) to pledge Option Shares (and/or other Shares owned by
Optionee) to a securities broker or lender approved by the Company as security
for a loan, and to deliver all or part of the loan proceeds to the Company.


 


Should the Committee exercise its discretion to permit
the Optionee to exercise the option in whole or in part in accordance with
subsection 5(b) above, it shall have no obligation to permit such
alternative exercise with respect to the remainder of the option or with
respect to any other option to purchase Shares held by the Optionee.


 


SECTION 6.                          TERM AND EXPIRATION.


 


(a)                                  BASIC
TERM.  Subject to earlier termination in
accordance with subsection 6(b) below, the exercise period of this option
shall expire ten (10) years after the
date it is granted.


 


(b)                                 TERMINATION
OF SERVICE.  If the Optionee’s Service
terminates, then the exercise period for this option shall expire (except as
otherwise set forth in the Option Award Notice) on the earliest of the
following occasions (or such later date as the Committee in a specific instance
may determine), but in no event after the expiration of the ten year period
referred to in subsection 6(a) above:


 


(i)                                     the
date six (6) months after the termination of the Optionee’s Service for
any reason other than death, normal retirement or Disability;


 


(ii)                                  the
date twelve (12) months after the termination of the Optionee’s Service by
reason of Disability or retirement at or after the normal date for retirement
under any retirement plan of the Company in which Optionee participates or as
otherwise determined pursuant to any then current formal retirement policy of
the Company; or


 


(iii)                               the
date twelve (12) months after the Optionee’s death.


 


The Optionee (or in the case of the Optionee’s death
or disability, the Optionee’s personal representative) may exercise all or part
of the option at any time before its expiration under the preceding provisions
of this Section 6, but only to the extent that the option had become
exercisable for Option Shares on or before the date the Optionee’s Service
terminates.  When the Optionee’s Service
terminates, this option shall expire immediately with respect to the number of Option
Shares of for which this option is not yet become exercisable.


 


(c)                                  NOTICE
CONCERNING INCENTIVE STOCK OPTION TREATMENT. 
If this option is designated as an Incentive Stock Option in the Option
Award Notice, it ceases to qualify for favorable tax treatment as an Incentive
Stock Option to the extent it is exercised (i) more than three (3) months
after the date the Optionee ceases to be an Employee for any reason other than
death or permanent 


 


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and
total disability (as defined in Section 22(e)(3) of the Code), (ii) more
than twelve (12) months after the date the Optionee ceases to be an Employee by
reason of such permanent and total disability or (iii) after the Optionee
has been on a leave of absence for more than ninety (90) days, unless the Optionee’s
reemployment rights are guaranteed by statute or by contract.


 


SECTION 7.                          ADJUSTMENT OF SHARES.


 


(a)                                  ADJUSTMENT
GENERALLY.  If while the option remains
in effect there shall be any change in the outstanding Shares of the class which
may be purchased upon exercise of the option, through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, reverse stock
split, combination of shares, exchange of shares for other securities or other
like change in the outstanding Shares, or any spin-off, split-off, dividend in
kind or other extraordinary dividend or other distribution in respect of such
outstanding Shares or other extraordinary change in the capital structure of
the Company, an adjustment shall be made to the terms of the option so that the
option shall thereafter be exercisable, otherwise on the same terms and
conditions as provided by the Option Award Notice, this Agreement and the Plan,
for such securities, cash and/or other property as would have been received in
respect of the Shares that would have been issued upon exercise of the option
had the option been exercised in full immediately prior to such change or
distribution (whether or not the option was then exercisable in full) or, if
and to the extent the Committee determines that so adjusting the consideration
to be received upon exercise of the option, in whole or in part, is not
practicable, the Committee shall equitably modify the consideration to be
received in respect of the exercise of the option or the Exercise Price or
other pertinent terms and conditions of the option as provided by subsection 7(b) below.  Such an adjustment shall be made successively
each time any such change in the outstanding Shares of the class which may be
purchased upon exercise of the option or extraordinary distribution in respect
of such outstanding Shares or extraordinary change in the capital structure of
the Company shall occur.


 


(b)                                 MODIFICATION
OF OPTION.  In the event any change in
the outstanding Shares of the class which may be purchased upon exercise of the
option or extraordinary distribution in respect of such outstanding Shares or
extraordinary change in the capital structure of the Company described in
subsection 7(a) above occurs, or in the event of any change in applicable
laws or any change in circumstances which results in or would result in any
substantial dilution or enlargement of the rights granted to, or available for,
Optionee as a participant in the Plan or which otherwise warrants equitable
adjustment to the terms and conditions of the option because such event or
circumstances interferes with the intended operation of the Plan (including the
intended tax consequences of Awards) occurs, then the Committee may, and shall
where required by subsection 7(a) above, adjust the number and kind of
Shares and/or other securities and/or cash or other property that may be issued
or delivered upon the exercise of the option and/or adjust the Exercise Price
and/or other terms and conditions of the option as the Committee in its
discretion determines to be equitable in order to prevent dilution or
enlargement of the Optionee’s rights in respect of the option as such existed
before such event.  Appropriate
adjustments may likewise be made by the Committee in other terms and conditions
of the option to reflect equitably such changes in circumstances, including
modifications of performance targets and changes in the length of performance
periods relating to the vesting of the option or any restrictions on Option
Shares.  Notwithstanding the foregoing, (i) each
such adjustment with respect to an Incentive Stock Option shall comply with the
rules of Section 424(a) of the Code, (ii) in no event shall
any adjustment be made which would render any Incentive Stock Option granted
hereunder other than an “incentive stock option” for purposes of Section 422
of the Code without the consent of the Optionee and (iii) no adjustment
shall be made which is prohibited by Section 13 of the Plan.


 


(c)                                  MODIFICATIONS
TO COMPLY WITH SECTION 409A.  To the
extent applicable, this Agreement shall be interpreted in accordance with Section 409A
of Code and Department of Treasury regulations and other interpretive guidance
issued there under, including without limitation any such regulations or
guidance that may be issued after the Date of Grant.  Without limiting the authority of the
Committee under subsection 7(b) above to make modifications to the option
by reason of changes in law or circumstances that would result in any
substantial dilution or enlargement of the rights granted to, or 


 


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available
for, Optionee as a participant in the Plan or which otherwise warrants
equitable adjustment to the terms and conditions of the option because such
event interferes with the operation of the Plan, and notwithstanding any
provision of the Agreement to the contrary, in the event that the Committee or
an authorized officer of the Company determines that any amounts will be
immediately taxable to the Participant under Section 409A of the Code and
related Department of Treasury guidance (or subject the Optionee to a penalty
tax) in connection with the grant or vesting of the option or any other
provision of the Option Award Notice or this Agreement or the Plan, the Company
may (a) adopt such amendments to the option, including amendments to this Agreement
(having prospective or retroactive effect), that the Committee or authorized
officer determines to be necessary or appropriate to preserve the intended tax
treatment of the option and/or (b) take such other actions as the
Committee or authorized officer determines to be necessary or appropriate to
comply with the requirements of Section 409A of the Code and related
Department of Treasury guidance, including such Department of Treasury guidance
and other interpretive materials as may be issued after the Date of Grant, to
the extent permitted under Section 409A and regulations and guidance
thereunder.. Adjustments to the Option under this Section 7 shall be
authorized and made only to the extent such adjustment does not cause the
Option to fail to qualify for the exemption under Treasury Regulation §
1.409A-1(b)(5) for stock rights not providing for the deferral of
compensation.


 


SECTION 8.                          MISCELLANEOUS PROVISIONS.


 


(a)                                  RIGHTS
AS A SHAREHOLDER.  Neither the Optionee
nor the Optionee’s personal representative or permitted Transferee shall have
any rights as a shareholder with respect to any Option Shares until the
Optionee or his or her personal representative or permitted Transferee becomes
entitled to receive such Option Shares by (i) filing a notice of exercise
and (ii) paying the Purchase Price as provided by this Agreement, and any
such right shall also be subject to subsections 2(c) and 4(d) above.


 


(b)                                 TENURE.  Nothing in the Option Award Notice, this
Agreement or the Plan shall confer upon the Optionee any right to continue in
the Company’s Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Company (or any Parent or
Subsidiary employing or retaining the Optionee) or of the Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service
at any time and for any reason, with or without
cause.


 


(c)                                  NOTIFICATION.  Any notification required by the terms of
this Agreement shall be given in writing and shall be deemed effective upon
personal delivery to the President, Treasurer, General Counsel, Secretary or
any Assistant Secretary of the Company or five Business Days upon deposit with
the United States Postal Service, by registered or certified mail, with postage
and fees prepaid addressed to the Company. 
A notice shall be addressed to the Company at its principal executive
office, marked to the attention of the Corporate Secretary, and to the Optionee
at the address that he or she most recently provided to the Company.


 


(d)                                 ENTIRE
AGREEMENT.  This Agreement, any related
Option Award Notice and the Plan constitute the entire contract between the
parties hereto with regard to the subject matter hereof and supersede any other
agreements, representations or understandings (whether oral or written and
whether express or implied) which relate to the subject matter hereof; it being
understood, however, that, if this Agreement is being entered into by the
Company in the performance of obligations under an employment agreement between
the Company and Optionee, the Company and Optionee shall also have those
separate obligations, if any, relating to the granting of options provided
thereby.


 


(e)                                  WAIVER.  No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition whether of like or different nature.


 


(f)                                    SUCCESSORS
AND ASSIGNS.  The provisions of this
Agreement shall inure to the benefit of, and be binding upon, the Company and
its successors and assigns and upon the Optionee, the Optionee’s personal
representatives, heirs, legatees and other permitted Transferees, whether or
not any 


 


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such
person shall have become a party to this Agreement and have agreed in writing
to be joined herein and be bound by the terms hereof.


 


(g)                                 CHOICE
OF LAW.  This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware, as
such laws are applied to contracts entered into and performed in such State.


 


SECTION 9.                                DEFINITIONS.


 


(a)                                  “AGREEMENT”
shall mean this Stock Option Agreement.


 


(b)                                 “BOARD
OF DIRECTORS” shall mean the Board of Directors of the Company, as constituted
from time to time.


 


(c)                                  “CODE”
shall mean the Internal Revenue Code of 1986, as amended and as the same may be
amended from time to time, and the regulations promulgated there under.


 


(d)                                 “COMMITTEE”
shall mean the committee of the Board of Directors described in Section 2
of the Plan and (without limitation of the Committee’s authority to otherwise
delegate any of its powers or responsibilities as permitted by law) shall
include any officer of the Company to whom such committee has specifically
delegated by resolution adopted by the Committee authority to approve payment
for Option Shares by an alternative method of payment referred to in subsection
5(b) above.


 


(e)                                  “COMPANY”
shall mean Magellan Health Services, Inc, a Delaware corporation and any successor
thereto.


 


(f)                                    “DATE
OF GRANT” in respect of an option shall mean, unless otherwise approved by the
Board of Directors or the Committee, (i) the date on which the Board of
Directors or the Committee resolved to grant the option to Optionee or (ii) either
(A) the date on which the Board of Directors or the Committee resolved to
authorize the grant of the option to Optionee, as part of grants of options to
be made to Employees to be selected by an authorized officer of the Company
pursuant to authority delegated by the Board or Committee, if such date was set
as the date of grant by the Board of Directors or Committee in providing such
authorization or (B) the date on which an authorized officer of the
Company determined, as evidenced by a writing, to grant the option to Optionee
pursuant to authority delegated to such officer as permitted by applicable law
by a resolution adopted by the Board of Directors or the Committee, where such
authorizing resolution did not itself provide that the date of authorization
should be the date of grant (which date determined by such officer shall in no
event be earlier than the date of such authorizing resolution of the Board of
Directors or the Committee) and (iii) such later date, after the
resolution of the Board of Directors or Committee referred to in clauses (i) or
(ii)(A) of this sentence or the determination of the officer referred to
in clause (ii)(B) of this sentence), on which Optionee’s Service
commenced.


 


(g)                                 “DISABILITY”
shall mean that the Optionee is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
as determined by the Committee in its sole discretion.


 


(h)                                 “EMPLOYEE”
shall mean any individual who is a common-law employee of the Company, a Parent
or a Subsidiary.


 


(i)                                     “EXCHANGE
ACT” shall mean the Securities Exchange Act of 1934, as amended and as the same
may be amended from time to time, and any successor statute, and the rules and
regulations promulgated there under.


 


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(j)                                     “EXERCISE
PRICE” shall mean the amount for which one Option Share may be purchased upon
exercise of the option, as specified in the Option Award Notice.


 


(k)                                  “EXTRAORDINARY
BUSINESS COMBINATION EVENT” shall be deemed to have occurred upon any of the
following events:


 


(i)                                     any
person (as such term is used in Section 13(d) of the Exchange Act)
becomes the “beneficial owner” (as determined pursuant to Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power in the
election of directors of the Company’s then outstanding securities, except
that, in the case of a person who beneficially owned 50% of such combined
voting power on the date of the Option Award Notice, such person become the
beneficial owner (as so defined) of securities of the Company representing
sixty percent (60%) of more of such combined voting power; or


 


(ii)                                  during
any period of two (2) consecutive years (not including any period prior to
the execution of this Agreement), individuals who at the beginning of such
period constitute the members of the Board of Directors and any new director,
whose election to the Board of Directors or nomination for election to the
Board of Directors by the Company’s stockholders was approved by a vote of at
least a majority of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board of Directors; or


 


(iii)                               the Company shall merge
with or consolidate into any other corporation, other than a merger or
consolidation which would result in the holders of the voting securities of the
Company outstanding immediately prior thereto holding immediately thereafter
securities representing more than fifty percent (50%) of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or


 


(iv)                              the
stockholders of the Company approve and effect a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of
all or substantially all of the Company’s assets.


 


(l)                                     “FAIR
MARKET VALUE” of a Share as of any day shall mean the closing price of the
Shares on such day (or on the last preceding trading date if the Shares were
not traded on such day) if the Shares are readily tradable on a national
securities exchange or the NASDAQ Stock Market (or other established market
system involving current interdealer quotations), and, if the Shares are not
readily tradable, “Fair Market Value” shall mean the amount determined in good
faith by the Committee (or in accordance with procedures approved by the
Committee) as the fair market value of the Shares, which determination shall be
final and binding on all persons.


 


(m)                               “INCENTIVE
STOCK OPTION” shall mean an employee incentive stock option described in Section 422(b) of
the Code.


 


(n)                                 “NONQUALIFIED
STOCK OPTION” shall mean a stock option not described in Sections 422(b) or
423(b) of the Code.


 


(o)                                 “OPTION
AWARD NOTICE” shall have the meaning provided by Section 1 of this Agreement.


 


(p)                                 “OPTIONEE”
shall mean the person signing this Agreement as such.


 


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(q)                                 “PARENT”
shall mean a “parent corporation” as defined in Section 424(e) of the Code.


 


(r)                                    “PLAN”
shall mean the Magellan Health Services, Inc. 2008 Management Incentive Plan.


 


(s)                                  “PURCHASE
PRICE” shall mean the Exercise Price multiplied by the number of Option Shares
with respect to which this option is being exercised.


 


(t)                                    “SECURITIES
ACT” shall mean the Securities Act of 1933, as amended and as the same may be
amended from time to time, and any successor statute, and the rules and
regulations promulgated there under.


 


(u)                                 “SERVICE”
shall mean service as an Employee.  For
any purpose under this Agreement, Service shall be deemed to continue while the
Optionee is on a bona fide leave of absence, if such leave was approved by the
Company in writing or if continued crediting of Service for such purpose is
expressly permitted by the terms of such leave or required by applicable law
(as determined by the Company).


 


(v)                                 “SHARE”
shall mean a share of Ordinary Common Stock of the Company, as the same may
generally be exchanged for or changed into any other share of capital stock or
other security of the Company or any other company in connection with a
transaction referred to in subsection 7(a) above (and in the event of any
such exchange or change, any security resulting from any such successive
exchange or change).


 


(w)                               “TRANSFER”
shall mean, with respect to the option or Option Share, any sale, assignment,
transfer, alienation, conveyance, gift, bequest by will or under intestacy
laws, pledge, lien encumbrance or other disposition, with or without
consideration, of all or part of such Share, or of any beneficial interest
therein, now or hereafter owned by the Optionee, including by execution,
attachment, levy or similar process.


 


(x)                                   “SUBSIDIARY”
shall mean a “subsidiary corporation” as defined in Section 424(f) of the Code.


 


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In consideration of the
foregoing and intending to be legally bound hereby, the Company and the
Optionee named below have executed this Agreement as of the date first above
written.


 


	
   

  	
  MAGELLAN HEALTH SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Name: Rene Lerer

  
	
   

  	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  
	
  OPTIONEE:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
   

  	
   

  
	
  Address for Notice:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Social Security Number:

  	
   

  
				



 


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EXHIBIT A


 


SAMPLE NOTICE OF EXERCISE


 


Magellan Health Services, Inc.

[ADDRESS]
 Attn:  Corporate Secretary


 


Re: Exercise of Option,
Option Award Notice Reference No.         .


 


I hereby exercise my
stock option identified above granted under the Magellan Health Services, Inc.
2008 Management Incentive Plan (the “Plan”) and notify you of my desire to
purchase the Option Shares of that have been offered pursuant to the Plan and
related Option Agreement as described below.


 


Except as otherwise
agreed with the Company as provided by the Option Agreement, I shall pay for
the Option Shares by delivery of a check payable to Magellan Health Services, Inc.
(the “Company”) in the amount described below in full payment for such Option Shares
plus all amounts required to be withheld by the Company under state, federal or
local law as a result of such exercise or shall provide such documentation as is
satisfactory to the Company demonstrating that I am exempt from any withholding
requirement.


 


This notice of exercise
is delivered this        day of                             ,
20    .


 


	
  No. of Option Shares

  to be Acquired

  	
   

  	
  Type of Option

  	
   

  	
  Exercise Price

  	
   

  	
  Total

  
	
   

  	
   

  	
  Nonqualified Stock
  Option

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Incentive Stock Option

  	
   

  	
   

  	
   

  	
   

  
	
  Estimated Withholding

  	
   

  	
  Nonqualified only

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Amount
  Paid

  	
   

  	
   

  



 


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature of Optionee

  
	
   

  	
   

  
	
   

  	
  Optionee’s Name and Mailing Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Optionee’s Social Security Number:

  
	
   

  	
   

  



 


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