Exhibit 10.56


 


AMENDMENT
TO EMPLOYMENT AGREEMENT


(For
Compliance with Requirements of Code Section 409A)


 


This Amendment to
Employment Agreement between Magellan Health Services, Inc. (“Employer”)
and Jeffrey West (“Employee”) entered into as of this 1st day of December,
2008.


 


WHEREAS,
Employer and Employee desire to amend the terms of the Employment Agreement, as
amended, currently in effect between Employer and Employee (the “Employment
Agreement”).


 


NOW THEREFORE,
Employer or Employee agree that the Employment Agreement is hereby amended as
follows:


 


1.                                       Reorganization of Sections of Employment Agreement.  Section 10 of the Employment Agreement (“Governing
Law”) is moved to become the fifth to last Section of the Employment
Agreement, and renumbered accordingly, with the four final Sections renumbered
appropriately.


 


2.                                       New Section of Employment Agreement.  The following new text is inserted as Section 10
of the Employment Agreement:


 


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


 


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


 


(i)             Accrued
Payments at Termination.  Sections 6(a) — (d) of this
Employment Agreement and Section I.1(ii) of the Amendment to the
Employment Agreement relating to Change in Control ( the “CiC Amendment”) require
payment of amounts earned but unpaid, or accrued, at the date of Employee’s
termination.  Unless the amount is
payable under an applicable plan, program or arrangement on explicit terms
providing for a delay in payment compliant with Code Section 409A, these
amounts shall be payable at the date the amounts otherwise would have been
payable under the applicable plans, programs and arrangements in the absence of
termination but in no event more than thirty (30) days after Employee’s
termination of employment, subject to 10(d).


 


(ii)          Gross-Up. 
Gross-up payments payable under the CiC Amendment will be paid as
promptly as practicable after the excise tax is payable by Employee, 


 

















 


and
in any event must be paid no later than the end of Employee’s taxable year next
following the taxable year in which Employee remits the excise tax or related
taxes to the taxing authorities; provided, however, that any gross-up payment
will be subject to Section 10(d) if applicable under Section 409A.


 


(iii)       Expense
Reimbursements.  Any payment under Section 5 or otherwise
as an expense reimbursement hereunder must be paid no later than the end of
Employee’s taxable year next following the taxable year in which Employee
incurred the reimbursable expense.


 


(iv)      Other
Payments.  Any other payment or benefit required under this
Employment 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 (5) days after
the due date, subject to Section 10(b), (c) and (d) below.


 


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


 


(b)                                 Special Rules for Severance Payments.  In
the case of payments in the nature of continuation of payments under Section 4(a) required
under Section 6(c) (“Pre-CiC Severance Payments”) and severance
payable under Section I.1(iii) of the CiC Amendment (the “CiC
Severance Payments” and, with the Pre-CiC Severance Payment, the “Severance
Payments”), the following rules will apply:


 


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


 


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


 


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


 


2

















 


1.409A-1(b)(4);


 


(B)  Installments payable during the
period within six (6) months after termination, to the extent not covered
by Section 10(b)(ii)(A), shall, to the maximum extent possible, be deemed
to constitute amounts payable under the “two-year/two-times” exclusion from
being a deferral of compensation under Treasury Regulation §
1.409A-1(b)(9)(iii);


 


(C)  To the extent that the “two-year/two-times”
exclusion from being a deferral of compensation under Treasury Regulation §
1.409A-1(b)(9)(iii) has not been fully applied by virtue of Section 10(b)(ii)(B),
installments payable as Pre-CiC Severance Payments shall be excluded, to the maximum
extent possible, by such “two-years/two-times” exclusion (applied in the
reverse order of payment of the installments — that is, to the latest
installments first); and


 


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


 


The
portions of the CiC Severance Payments that correspond to the Pre-CiC Severance
Payments (that is, deemed to be the same payment for purposes of Section 409A)
shall be governed by Section 10(b)(ii)(A) — (D) above, provided
that amounts of the CiC Severance Payments corresponding to Pre-CiC Severance Payments
covered by Section 10(b)(ii)(A), (B), and (C) above shall be payable
as a lump sum within five (5) days after termination of employment.  The Separate Lump Sum shall be treated as
follows for purposes of Section 409A:


 


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


 


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


 


(G)  Any portion of the Separate Lump Sum not covered by Section 10(b)(ii)(E) and
(F) shall be paid within five (5) days after the qualifying
termination of employment in compliance with Section 409A, except that any
such payment shall be subject to the six-month delay rule and other
provisions of Section 10(d) and except to the extent that the
Separate Lump Sum is not deemed to be a valid separate payment from amounts
governed by Section 10(b)(ii)(D).


 


Any
portions of the CiC Severance Payments corresponding to Pre-CiC Severance
Payments governed by Section 10(b)(ii)(D) shall be payable, 


 


3

















 


subject
to Section 10(d), in a lump sum within five (5) days after the
qualifying termination of employment if such termination has occurred within
two years following a a change in the ownership of the Company, a change in
effective control of the Company, or a change in the ownership of a substantial
portion of the assets of the Company as defined in Treasury Regulation
§ 1.409A-3(i)(10) (a “409A Change in Control”), and in any other case
shall be payable at the applicable time under Section 10(b)(ii)(D).


 


(c)                                  Special Rules for Other Payments.  With
respect to amounts payable under Section I.1(ii) of the CiC Amendment
(relating to incentive awards), the following rules will apply:


 


(i)             Separate
Payments.  The amounts payable thereunder shall each be
deemed to be a separate payment for all purposes, including for purposes of Section 409A
(subject to any further designation of separate payments explicitly made in any
separately identifiable plan or arrangement for purposes of Section 409A).


 


(ii)          Payment
Timing Rules.  A payment referenced in Section 10(c)(i) shall
be payable as a lump-sum payment within five (5) days after termination of
employment if and to the extent that (A) the separate payment constitutes
short-term deferral under Treasury Regulation § 1.409A-1(b)(4), (B) the
amount of the separate payment not covered by Section 10(c)(ii)(A) can
be paid under the “two-year/two-times” exclusion from being a deferral of
compensation under Treasury Regulation § 1.409A-1(b)(9)(iii), after first
applying such exclusion under Section 10(b)(ii), (C) the separate
payment is covered by any other applicable exclusion or exemption under
Treasury Regulation § 1.409A-1(b)(9) (provided that the exclusion under
subsection (b)(9)(v)(D) shall be used only to the extent not relied upon
for other payments or benefits) and (D), the six-month delay rule in Section 10(d) does
not apply to the separate payment (except as otherwise provided in Section 10(c)(iii)).  Any other such separate payment (i.e.,
amounts subject to the six-month delay rule) shall be subject to the six-month
delay rule of Section 10(d), subject to Section 10(c)(iii).  Any delay in payment under the six-month
delay rule shall not limit Employee’s rights under this Employment
Agreement to not forfeit a specified item of compensation as a result of
Employee’s termination.


 


(iii)       Payments
of 409A Deferrals For a Termination Not Within Two Years After a 409A Change in
Control.  If a payment referenced in Section 10(c)(ii) is
a direct payment or a substitute or replacement for a right to payment (the “Original
Payment Right”) that constitutes a deferral of compensation under Section 409A,
and if either (A) the Change in Control does not involve a 409A Change in
Control, or (B) Employee’s termination triggering payments hereunder did
not occur within the two-year period following a 409A Change in Control, then
such payments (i.e., payments that constitute deferrals under 


 


4

















 


Section 409A)
must be paid at the times and in the form applicable to a separation from
service under the terms of the Original Payment Right, subject to Section 10(d).  If in no circumstances was such payment
payable upon a separation from service under the Original Payment Right, then
this Section 10(c)(iii) shall not apply.


 


(d)                                 Six-Month Delay Rule.


 


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


 


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


 


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


 


(C)  The payment or benefit in question is a deferral of compensation and
not excepted, exempted or excluded from being such by the short-term deferral
rule, or the “two-years/two-times” rule in Treasury Regulation
§ 1.409A-1(b)(9)(iii), or any other exception, exemption or exclusion;
provided, however, that the exclusion under Treasury Regulation
§ 1.409A-1(b)(9)(v)(D) shall apply only if and to the extent that it
is not necessary to apply to any other payment or benefit payable within six (6) months
after Employee’s termination.


 


(ii)          Effect
of Rule.  If it applies, the six-month delay rule will
delay a payment or benefit which otherwise would be payable under this
Employment Agreement within six (6) months after Employee’s separation
from service.


 


(A)  Any delayed payment or benefit shall be paid on the date six (6) months
after Employee’s separation from service.


 


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


 


(C)  Any payment that is not triggered by a termination, or is triggered by
a termination but would be made more than six (6) 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 


 


5

















 


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
Employment Agreement or other plan or arrangement or document relating to this
Employment Agreement or payments hereunder impose this six-month delay rule in
circumstances in which it is not required for compliance with Section 409A,
those terms shall not be given effect.


 


(e)                                  Other Provisions.


 


(i)             Good
Reason.  The definition of “Good Reason” under the
Employment Agreement, and related rules governing constructive termination
not for cause, is intended to qualify as an “involuntary separation” within the
meaning of Treasury Regulation § 1.409A-1(n)(2)(i), and shall be so construed
and interpreted.


 


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


 


(iii)       No
Acceleration.  The timing of payments and benefits under the
Employment 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 permitted under Code Section 409A
without Employee incurring a tax penalty.


 


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


 


6

















 


constructively
received and taxable income to Employee upon deposit (it may be constructively
received even in the absence of such deposit) but with distribution from such
escrow remaining subject to Employee’s execution and non-revocation of such
release or other document.


 


(v)         Definition
of Termination of Employment.  For purposes of this Employment Agreement,
the term “termination of employment” shall mean a separation from service 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 Employee 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),
then for that purpose the termination of employment date shall be the
designated termination date.


 


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


 


3.                                       Modification to Section 6.  The provisions of Section 6(c) are
hereby amended as follows:


 


·                                          After
the initial instance of clause (ii) in Section 6(c), before the
period, insert the following:


 


provided that, in such case, Employee shall have given
notice to the Company that the event or condition referred to in clause (i) or
(ii) has arisen within ninety (90) days after such event or condition has
arisen, and the event or condition has continued uncured for a period of more
than thirty (30) days after Employee has given such notice thereof to the
Company, and Employee has terminated employment for that reason within eighteen
(18) months after such uncured event or condition has arisen.


 


The provisions of Section I.2(C) of
the CiC Amendment setting forth the definition of “Good Reason” are hereby
amended as follows:


 


·                                          In
clause (i), the term “reduction in Employee’s salary” is replaced by the term “material
reduction in Employee’s salary”, and the term “reduction in Employee’s target
bonus opportunity” is replaced by the term “material reduction in Employee’s
target 


 


7

















 


bonus opportunity”, and
at the end of clause (i) before the semicolon the following text is
inserted:


 


provided, however, that a
reduction in salary and/or target bonus opportunity with an annualized value of
one and one half percent (1.5%) of Employee’s then current annual base pay or
more in the aggregate, taking into account any related effect a salary
reduction has on target bonus and other components of compensation, shall be
deemed material;


 


·                                          The
final proviso of Section I.2(C) of the CiC Amendment is deleted and
in its stead is inserted the following:


 


provided that, in each such case, Employee shall have
given notice to the Company that such event or condition has arisen within ninety
(90) days after such event or condition has arisen, and the event or condition
has continued uncured for a period of more than thirty (30) days after Employee
has given such notice thereof to the Company, and Employee has terminated
employment for Good Reason within eighteen (18) months after such uncured event
or condition has arisen.


 


4.                                       Other Amendments. 
Other provisions of the Employment Agreement are amended as follows:


 


·                                          A
new sentence is added as the second to last sentence of Section 1,
stating:


 


Non-renewal of this
Agreement by either party will in all cases result in termination of employment
at the non-renewal date.


 


·                                          A
new sentence is added at the end of Section 4(a), stating:


 


Annual bonus, if any,
will be determined and paid (unless validly deferred if then permitted by the
Company) between January 1 and March 15 of the year following the
performance year.


 


·                                          A
clause is inserted before the period at the end of Section 5, stating:


 


subject to Section 10(a)(iii).


 


·                                          In
the preamble to Section I.1 of the CiC Amendment, before the colon insert “,
in each case subject to Section 10”.


 


·                                          A
new sentence is added at the end of Section 4(b), as follows:


 


Any continued medical
coverage following termination of employment, to the extent provided under Section 6
or any other provision of this Agreement, if and to the extent such medical
coverage (or the Company’s contributions or 


 


8

















 


reimbursement of such
coverage) represents taxable income to Employee, is intended to qualify as
excluded from being a deferral of compensation under Treasury Regulation §
1.409A-1(b)(9)(v)(B), and the rights to such coverage shall be limited to the
extent necessary to qualify thereunder.


 


5.                                       Nothing
in this Amendment shall be construed to increase or enhance the compensation or
benefits payable under the Agreement. 
The sole purpose of this Amendment is to add limitations required under
Code Section 409A so that payments and benefits otherwise provided under
the Agreement are not subject to tax penalties and other adverse consequences
under Section 409A.


 


This amendment to
Employment Agreement is entered into by the parties as of the date first above
written.


 


 


	
  Magellan Health
  Services, Inc.

  	
   

  	
  Employee:

  
	
   

  	
   

  	
   

  
	
  By:

  	
  

  	
   

  	
  /s/ Jeffrey West

  
	
  Duly
  Authorized

  	
   

  	
    Jeffrey
  West

  
				



 


9