Exhibit
10.3


MAGELLAN HEALTH SERVICES, INC.


2006 EMPLOYEE STOCK PURCHASE PLAN


1.    PURPOSE.   The purpose of the Magellan
Health Services, Inc. 2006 Employee Stock Purchase Plan (the “Plan”), is
to provide employees of Magellan Health Services, Inc. (the “Company”) and
its subsidiary companies with an opportunity to be compensated through the
benefits of stock ownership and to acquire an interest in the Company through
the purchase of Common Stock of the Company. It is the intention of the Company
to have the Plan qualify as an “employee stock purchase plan” under
Section 423 of the Internal Revenue Code of 1986 (the “Code”). The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that
section of the Code.


2.    DEFINITIONS.


(a)          “Base Pay” means the compensation
payable to an employee by the Company or a designated subsidiary (as defined in
Code Section 424(f)) (a “subsidiary”), calculated at that employee’s base
salary or standard hourly rate of compensation, but excluding overtime,
commissions, shift differential, incentive bonus compensation and compensation
payable under any deferred compensation or other fringe benefit plan.


(b)         “Employee” means for each Offering
Period (as defined in Section 4) any person who is employed by the Company
or by any subsidiary of the Company designated from time to time by the
Committee (as defined in Section 13) to participate in such Offering
Period.


3.    ELIGIBILITY.


(a)           Any
Employee who shall be employed on the 60th day preceding the Offering Date of
an Offering Period shall be eligible to participate in the Plan for such
Offering Period. Notwithstanding the foregoing, the Committee, in its sole
discretion, may credit the employment service of persons employed by a business
acquired by the Company or by any subsidiary thereof for the purpose of
satisfying the 60-day rule herein.


(b)           Any provision of the Plan to
the contrary notwithstanding, no Employee shall be granted an option:


(i)              If, immediately after the grant
such Employee would own shares, and/or hold outstanding options to purchase
stock, possessing 5% or more of the total combined voting power or value of all
classes of shares of the Company or of any subsidiary of the Company; or


(ii)             Which permits his rights to
purchase shares under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds $25,000 of the fair market value
of the shares (determined at the time such option is granted) for each calendar
year in which such stock option is outstanding at any time.


4.    OFFERING PERIODS.   The Committee shall
establish the Offering Periods under the Plan which shall be of not less than
three months nor more than twelve months duration each, the first of which
shall not begin before this Plan is approved by the shareholders of the
Company, and the last of which shall end not later than December 31, 2010.
The beginning date (the “Offering Date”) and the ending date (the “Termination
Date”) of each Offering Period shall be set in advance of each Offering Period
by the Committee.



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5.    PARTICIPATION.   An eligible Employee
may become a participant only by completing an election notice provided by the
Company and filing it with the designated representative of the Company no
later than the date specified by the Company in the election notice form.


Unless otherwise adjusted
in accordance with rules established by the Committee in its sole
discretion, payroll deductions for a participant with respect to an Offering
Period shall commence with the first pay date beginning on or after the
Offering Date, and shall end with the last pay date ending on or before the
Termination Date, unless sooner terminated by the participant as provided in
Section 10. All Employees granted options under the Plan shall have the
same rights and privileges, except that the amount of stock which may be
purchased under such option may vary in a uniform manner as described in
Section 7.


6.    METHOD OF PAYMENT.   Payments for shares
under the Plan may be made only by payroll deductions, as follows:


(a)           If
a participant wishes to participate in the Plan, then at the time he files his
election notice, he shall elect to have deductions made from his Base Pay at a
rate, expressed as a percentage, not to exceed 10% of his annualized Base Pay
as of the Offering Date. Any or all amounts withheld during the one-month
period immediately preceding the Termination Date in any Offering Period may be
applied to the purchase of shares on the Termination Date or to the purchase of
shares offered for the next subsequent Offering Period in a manner as may be determined
by the Committee, in its sole discretion, but only if such application is
administered consistently among all participants during such Offering Period.


(b)           All
payroll deductions made for a participant shall be credited to his account
under the Plan. A participant may not make any separate cash payment into such
account. A participant’s account shall be no more than a bookkeeping account
maintained by the Company, and neither the Company nor any subsidiary shall be
obligated to segregate or hold in trust or escrow any funds in a participant’s
account.


(c)           A
participant’s election to have deductions made from his Base Pay shall be
effective for all pay dates occurring during the Offering Period which
commences immediately following the filing, in accordance with Section 5,
of the participant’s election notice and for each subsequent Offering Period
until such election is modified or revoked by the participant or until such
participant no longer meets the eligibility requirements of Section 3(a).
A participant may discontinue his participation in the Plan as provided in
Section 10.


A participant may elect
to change the rate of payroll deductions at such times and in accordance with
such rules as may be prescribed by the Committee; any such change in the
rate of payroll deductions shall be applicable only with respect to Offering
Periods commencing after a participant files with the Committee an election
notice requesting such change.


7.    GRANTING OF OPTION.


(a)           Subject
to any adjustment under Sections 12 or 17, on the Offering Date for each
Offering Period, a participant shall be granted an option to purchase a number
of whole shares determined by dividing the amount to be withheld for
participation in the Plan and applied to such Offering Period by the option
price per share of Common Stock determined in accordance with
Section 7(b).


(b)           The
option price per share of shares purchased with payroll deductions for a
participant will be equal to the 95% of the closing price of the Common Stock
on the Association of Securities Dealers Automatic Quotation System (NASDAQ) on
the Termination Date. If no shares are traded on any such exchange (or any
other national exchange) on either such date, such price shall be determined on
the last trading date for such shares immediately preceding the Offering Date
or the



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Termination Date, as applicable. The closing price
shall be determined at the end of the regular trading session and not any
extended-hours or after-hours trading sessions.


8.    EXERCISE OF OPTION.   Unless a
participant gives written notice of withdrawal pursuant to
Section 10(a) or such participant’s payroll deductions are returned
in accordance with Section 10(c), his option for the purchase of shares
during an Offering Period with payroll deductions will be exercised
automatically for him on the Termination Date of that Offering Period. The
automatic exercise shall, subject to Sections 12 and 17, be for the purchase of
the maximum number of full shares subject to his option which the sum of payroll
deductions credited to the participant’s account (without interest) on the
Termination Date can purchase at the option price.


9.    DELIVERY.   As promptly as practicable
after the end of an Offering Period, the Company will deliver the shares
purchased upon the exercise of the option to a designated broker selected by
the Company to administer and hold shares in individual accounts established for
the benefit of each participant. The Committee, in its sole discretion, may
establish procedures to permit a participant to receive such shares directly.
Amounts credited to the participant’s account in excess of the amount necessary
to pay the option price for the maximum number of full shares subject to his
option shall either be refunded to the participant or credited to the
participant’s account for the next subsequent Offering Period as may be
determined by the Committee, in its sole discretion.


10.  WITHDRAWAL.


(a)          A participant may withdraw payroll
deductions credited to his account under the Plan by giving written notice to
the representative of the Company designated on the election notice form. A
participant may withdraw amounts credited to his account at any time prior to
the first day of the calendar month that includes the Termination Date or such
later date as may be established by the Committee in its sole discretion. All
of the participant’s payroll deductions credited to his account will be paid to
him (without interest) promptly after receipt of his notice of withdrawal, and
no further deductions will be made from his pay during that Offering Period.


(b)         A participant’s withdrawal will not
limit his eligibility to participate in any similar plan which may hereafter be
adopted by the Company or in any subsequent Offering Period.


(c)          Upon termination of the participant’s
employment during an Offering Period for any reason, including death or
retirement, the payroll deductions credited to his account for such period
(without interest) will be returned to him or, in the case of his death, to the
person or persons entitled thereto under Section 14. Notwithstanding the
foregoing, the payroll deductions credited to the account of any participant
whose employment is terminated during the calendar month that includes the
Termination Date shall not be returned but shall instead be used to purchase
shares in accordance with Section 8.


11.    NO
INTEREST.   No interest shall be accrued or payable with respect to amounts
in a participant’s account.


12.    STOCK.


(a) The
shares of Common Stock to be sold to participants under the Plan may, at the
election of the Company, be either treasury shares or shares originally issued
for such purpose. The maximum number of shares which shall be made available
for sale under the Plan shall be 100,000 shares and the maximum number of
shares available for sale in each Offering Period shall be determined by the
Committee in its sole discretion, subject in each case to adjustment upon
changes in capitalization of the Company as provided in Section 17. If the
total number of shares for which options are to be exercised for an Offering
Period in accordance with Section 8 exceeds the number of shares then
available under the Plan for such Offering Period, the Company shall make a pro
rata allocation of



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the shares available based on a fraction, the
numerator of which shall be the number of shares with respect to which a
participant has an option to purchase for an Offering Period and the
denominator of which shall be the number of shares available for purchase, with
rounding down for each participant to the nearest whole number.


(b)         A participant will have no interest in
shares covered by an option until such option has been exercised.


13.  ADMINISTRATION.   The Plan shall be
administered by a Committee (the “Committee”) consisting of not less than three
members who shall be appointed by the Chief Executive Officer of the Company.
Each member of the Committee shall be either a director, an officer, or an
employee of the Company or of a subsidiary thereof. The Committee shall be
vested with full authority to make, administer, and interpret such
rules and regulations as it deems necessary to administer the Plan, and
any determination, decision, or action of the Committee in connection with the
construction, interpretation, administration, or application of the Plan shall
be final, conclusive, and binding upon all participants and all persons
claiming under or through any participant.


14.  DESIGNATION OF BENEFICIARY.   A
participant may file a written designation of a beneficiary who is to receive
any shares or cash to the participant’s credit under the Plan in the event of
such participant’s death before, on, or after the Termination Date but prior to
the delivery of shares and, if applicable, cash. Such designation of
beneficiary may be changed by the participant at any time by written notice.
Upon the death of a participant and upon receipt by the Company of proof of the
identity and existence at the participant’s death of a beneficiary validly
designated by him under the Plan, the Company shall deliver such shares or cash
to the account of such beneficiary. In the event of the death of a participant
and in the absence of a beneficiary validly designated under the Plan who is
living at the time of such participant’s death, the Company shall deliver such
shares or cash to the account of the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company) the Company, in its discretion, may deliver such
shares or cash to the account of the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent, or relative is known
to the Company, then to the account of such other person as the Company may
designate. No designated beneficiary shall, prior to the death of the
participant by whom he has been designated, acquire any interest in the shares
or cash credited to the participant under the Plan.


15.  TRANSFERABILITY.   Neither payroll
deductions credited to a participant’s account nor any rights with regard to
the exercise of an option or to receive shares under the Plan may be assigned,
transferred, pledged, or otherwise disposed of in any way by the participant.
Any such attempted assignment, transfer, pledge, or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with Section 10.


16.  USE OF FUNDS.   All payroll deductions
received or held by the Company under the Plan may be used by the Company for
any corporate purpose.


17.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.   In
the event that the outstanding shares of Common Stock of the Company are
hereafter increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company by reason of a
recapitalization, reclassification, stock split, combination of shares, or
dividend payable in shares of Common Stock, an appropriate adjustment shall be
made by the Committee to the number and kind of shares as to which outstanding
options shall be exercisable and to the option price. No fractional shares
shall be issued or optioned in making the foregoing adjustments. All
adjustments made by the Committee under this paragraph shall be conclusive and
binding on all participants and all persons claiming under or through any
participant.



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Subject to any required
action by the stockholders, if the Company shall be a party to any
reorganization involving a merger, consolidation, acquisition of the stock or
acquisition of the assets of the Company, the Committee in its discretion may
declare (a) that all options granted hereunder are to be terminated after
giving at least ten days’ notice to holders of outstanding options, or
(b) that any option granted hereunder shall pertain to and apply with
appropriate adjustment as determined by the Committee to the securities of the
resulting corporation to which a holder of the number of shares of Common Stock
subject to the option would have been entitled. The adoption of a plan of
dissolution or liquidation by the Board of Directors and stockholders of the
Company shall cause every option outstanding hereunder to terminate on the
fifteenth day thereafter, except that, in the event of the adoption of a plan
of dissolution or liquidation in connection with a reorganization as provided
in the preceding sentence, options outstanding hereunder shall be governed by
and shall be subject to the provisions of the preceding sentence.


Any issue by the Company
of stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to any
option, except as specifically provided otherwise in this Section 17. The
grant of an option pursuant to the Plan shall not affect in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge or to consolidate
or to dissolve, liquidate or sell, or transfer all or any part of its business
or assets.


18.  AMENDMENT OR TERMINATION.   The Board of
Directors of the Company may at any time terminate or amend the Plan. No such
termination can affect options previously granted and no amendment can make any
change in any option theretofore granted which would adversely affect the
rights of any participant. No amendment can be made without prior approval of
the stockholders of the Company if such amendment would:


(a)          Require the sale of more shares than
are authorized under Section 12; or


(b)         Permit payroll deductions or cash
payments at a rate in excess of 10% of a participant’s Base Pay.


19.   
NOTICES.   All notices or other communications by a participant to
the Company under or in connection with the Plan shall not be deemed to have
been duly given until actually received by the representative of the Company
designated on the election notice form provided in accordance with
Section 5.


20.  PAYEE.   If (i) the Company utilizes
a designated broker to administer and hold in individual accounts the shares
purchased by the participants, (ii) the Company subsequently cannot
ascertain the whereabouts of a participant whose account is held with the
designated broker, (iii) after three years from the date of the last
purchase by such participant, a notice of such account balance and pending
action under this section is mailed to the last known address of such person,
as shown on the records of the designated broker or the Company, and
(iv) within three months after such mailing, such person has not made
written claim therefor, then the Committee may direct that such account balance
(including both shares and withholdings) otherwise due to such person be
canceled and returned to the Company. Upon such cancellation, the Company or
the designated broker shall have no further liability therefor, except that, in
the event such person, within one year of the date of the notice referred to in
(iii) above, notifies the Company or the broker of his whereabouts and
requests the amounts due to him under the Plan, the number of shares (as may be
adjusted to reflect any extraordinary corporate event or recapitalization)
together with any dividends or other accretions thereon and the amount of withholdings
contained in such account so canceled shall be delivered to him as provided
herein by the Plan.



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