Exhibit 10.1


 


EMPLOYMENT AGREEMENT


 


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


 


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


 


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


 


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


 


STATEMENT OF AGREEMENT


 


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


 


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


 


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


 

















 


4.                                      Compensation.


 


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


 


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


 


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


 


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


 


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


 


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6.                                      Termination.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


Employee covenants and agrees as follows:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(b)                                 Non-Competition.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(d)                                 Six-Month Delay Rule.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(e)                                  Other Provisions.


 


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


 


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


 


12

















 


Employee’s beneficiaries.


 


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


 


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


 


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


 


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


 


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


 


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


 


              Employee’s
Initials


 


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


 


	
  To Employee:

  	
   

  	
  Name: Jonathan
  Rubin

  
	
   

  	
   

  	
  Address on file

  
	
   

  	
   

  	
   

  
	
  To Employer:

  	
   

  	
  Magellan Health
  Services, Inc.

  
	
   

  	
   

  	
  55 Nod Road

  
	
   

  	
   

  	
  Avon, CT 06001

  
	
   

  	
   

  	
  Attention:
  General Counsel

  



 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MAGELLAN
  HEALTH SERVICES, INC.

  
	
  “Employee”

  	
   

  	
  “Employer”

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Jonathan
  Rubin

  	
   

  	
  By:

  	
  /s/ René Lerer

  
	
   

  	
   

  	
  Name: René
  Lerer, M.D.

  
	
  Jonathan Rubin

  	
   

  	
  Title: President
  and Chief Executive Officer

  



 


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