Exhibit 10.5


 


EMPLOYMENT AGREEMENT


 


THIS EMPLOYMENT AGREEMENT
(“Agreement”) is made and entered into by and between Jeff D. Emerson, 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 continue 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, 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 5, 2003 and, unless
terminated earlier in accordance with the terms of this Agreement, ending on September
4, 2004.  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 fifteen
(15) days prior to the next 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 Information 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 a similar salary level and 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.


 


4.             Compensation.


 


(a)           Base
Salary.  Employer will pay Employee a
base salary in the amount of Three Hundred
Thousand Dollars per year, which amount will be paid in semi-monthly
intervals less appropriate withholdings for federal and state taxes and other
deductions authorized by


 





















 


Employment Agreement


Jeff D. Emerson


August 12, 2003


 


Employee.  Such salary will be
subject to review and adjustment by Employer not less than annually.


 


(b)           Benefits.  Employee will be eligible to participate in
Employer’s Benefit Plans commensurate with his or her position.  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. 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.


 


6.             Termination.


 


(a)           Termination
Due to Resignation.  Employee may
resign his or her employment at any time by giving 30 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: (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;


 


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(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: (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 without cause at any time.  “Without cause” termination shall 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; and
(ii) Employer’s notice to Employee that his or her position will be relocated
to an office which is greater than 35 miles from Employee’s prior office
location.  If Employer terminates this
Agreement without cause, Employer shall continue to pay Employee the
compensation provided for in Section 4(a) of this Agreement for a period of
time equal to 12 months.  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 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 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 contingent upon the Company satisfying the
financial targets established by the Company’s Board of Directors. Payment of
any bonus shall be made at the time of the annual bonus payout for all
employees. COBRA
coverage may be elected to continue health, dental, and vision insurance during
the Severance Period and


 


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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 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 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 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
contingent upon the Company satisfying the financial targets established by the
Company’s Board of Directors. Payment of any bonus shall be made at the time of
the annual bonus payout for all employees.


 


(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 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); the rights and obligations under Sections 7, 8 and 9; and 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


 


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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,
and/or its customers that came into his or 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


 


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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, 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, 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 controlled
subsidiaries and affiliates, which are engaged in the provision, or sale of
behavioral managed care services on a national basis.


 


(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, 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 controlled 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 controlled subsidiary or affiliate of Employer, is then still
engaged in


 


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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 controlled subsidiaries or affiliates; (ii) Employee was responsible for
supervising or coordinating the dealings between the customer and Employer or
its controlled 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 controlled subsidiaries
or affiliates.


 


(d)           Solicitation
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 solicit for employment, directly or indirectly, any
employee of Employer or any of its controlled subsidiaries or affiliates who
was employed with Employer or its controlled 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, 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.          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 Maryland.


 


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


 


	
  /s/ JDE

  	
   

  
	
  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:

  	
   

  	
  Jeff D. Emerson

  
	
   

  	
   

  	
  7608 Curtis Street

  
	
   

  	
   

  	
  Chevy Chase, MD 20815

  
	
   

  	
   

  	
  (301) 654-1966

  
	
   

  	
   

  	
   

  
	
  To Employer:

  	
   

  	
  Magellan Health Services, Inc.

  
	
   

  	
   

  	
  6950 Columbia Gateway Drive

  
	
   

  	
   

  	
  Columbia, Maryland 21046

  
	
   

  	
   

  	
  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,


 


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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.          Binding
Effect.  This Agreement will be
binding upon and shall inure to the benefit of each party and each party’s
respective successors, heirs and legal representatives.  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.


 


17.          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.


 


18.          Entire
Agreement.  This Agreement
embodies the entire agreement and understanding between the parties with
respect to its subject matter and supersedes all prior agreements and
understandings, whether written or oral, relating to its subject matter, unless
expressly provided otherwise within this Agreement.  No amendment or modification of this
Agreement, will be valid unless made in writing and signed by each of the
parties.  No representations,
inducements, or agreements have been made to induce either 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.


 


[signatures follow]


 


IN WITNESS WHEREOF,
the parties hereto have executed this Agreement on the 5th day of September,
2003.


 


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  MAGELLAN HEALTH SERVICES, INC.

  
	
  “Employee”

  	
  “Employer”

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Jeff D. Emerson

  	
   

  	
  By:

  	
  /s/ René Lerer

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  René Lerer

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Operating Officer

  	
   

  
									



 


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