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Exhibit 10(ak)    
  

 
 

EMPLOYMENT AGREEMENT    
  

        THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into by and between Henry T. Harbin, M.D., an
individual ("Dr. Harbin"), and Magellan Health Services, Inc., a Delaware corporation ("Employer"). 

        WHEREAS, Dr. Harbin has been employed as Employer's Chairman of the Board of Directors ("Chairman") pursuant to an employment
agreement dated March 2, 2001, which expires March 17, 2003; and 

        WHEREAS, Employer desires to retain the services of Dr. Harbin as Executive Chairman of the Board of Directors ("Executive
Chairman"), and Dr. Harbin desires to render such services to Employer; and 

        WHEREAS, Dr. Harbin and Employer enter into this Agreement for purposes of, among other things, documenting the terms of
Dr. Harbin's continued employment with Employer; 

        NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties agree as follows: 

STATEMENT OF AGREEMENT  

	1.
	Employment. Employer agrees to employ Dr. Harbin, and Dr. Harbin accepts such employment in accordance with the terms of
this Agreement, commencing as of October 1, 2002 and ending, unless terminated earlier in accordance with the provisions of this Agreement, on March 17, 2004.

	2.
	Position and Duties of Dr. Harbin. Dr. Harbin will serve as Executive Chairman of Employer under and subject to the
provisions and conditions herein. The parties agree that as Executive Chairman, Dr. Harbin will perform and be responsible for the usual and customary duties of a Chairman of the Board. In
addition, Dr. Harbin's full-time responsibilities will include a broad coordination role in order to assist the Board and senior management in the company's restructuring activities
as well as to provide support to the ongoing operations of the company. Dr. Harbin also will be responsible for working with senior management to handle customer issues and concerns, as well as
other key strategic issues that may arise during the restructuring efforts. However, if at any time during the term of this Agreement, Dr. Harbin or Employer may determine in writing that
Dr. Harbin will relinquish the position of Executive Chairman. In that case, Dr. Harbin will thereafter hold only the position of Chairman of the Board, an executive position, and such
change shall not be deemed a breach of this Agreement by either party and shall not be deemed an alteration of Dr. Harbin's status under Section 6(d)(i). If the shareholders do not elect
Dr. Harbin as a director at the next annual meeting at which Dr. Harbin will be considered for reelection to the Board, Dr. Harbin's resulting inability to serve as Executive
Chairman or Chairman of the Board shall not be deemed a breach of this Agreement by either party and shall not be deemed an alteration of Dr. Harbin's status under Section 6(d)(i).

	3.
	Time Devoted and Location of Dr. Harbin.

	(a)
	As
Executive Chairman, Dr. Harbin will devote his full business time and energy to the business affairs and interests of Employer and will use his best efforts and abilities to
promote Employer's interests; provided, however, that if Employer or Dr. Harbin determines under Section 2 of this Agreement that Dr. Harbin will relinquish the position of
Executive Chairman, Dr. Harbin will be required to devote only such time as is appropriate to his role as Chairman of the Board or as his part-time employment dictates.
Dr. Harbin agrees that he will diligently endeavor to perform services contemplated by this Agreement in a manner 

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consistent
with his position(s) and in accordance with the policies and directives established by the Board and officers of the corporation. 

	(b)
	Dr. Harbin's
primary business office will be located in Columbia, Maryland.

	(c)
	Dr. Harbin
may serve as an officer, director, agent or employee of any direct or indirect subsidiary or other affiliate of Employer but may not serve as an officer, director,
agent or employee of any other business enterprise without the written approval of the Board; provided that Dr. Harbin may make and manage personal business investments of his choice (and, in
so doing, may serve as an officer, director, agent or employee of entities and business enterprises that are related to such personal business
investments) and serve in any capacity with any civic, educational or charitable organization, or any governmental entity or trade association, without seeking or obtaining such written approval of
the Board if such activities and services do not significantly interfere or conflict with the performance of his duties under this Agreement. However, if Employer or Dr. Harbin determines under
Section 2 of this Agreement that Dr. Harbin will relinquish the position of Executive Chairman, or is not elected to the Board of Directors, Dr. Harbin may serve as an outside
director of another business enterprise without the written approval of the Board, as long as holding such director position does not violate Section 8(b) of this Agreement. 

	4.
	Compensation.

	(a)
	Base Salary. Employer will pay Dr. Harbin a base salary in the amount of Six Hundred Thousand Dollars per year, subject to any
adjustments set forth below. Dr. Harbin's base salary under this Section will be paid in semi-monthly intervals less appropriate withholdings for federal and state taxes and other
deductions authorized by Dr. Harbin. Such salary will be subject to review and adjustment by the Board, or its Compensation Committee, from time to time consistent with prevailing practices of
Employer.

	(i)
	If
either party requests that Dr. Harbin relinquish the position of Executive Chairman and assume the role of Chairman, Dr. Harbin's annual compensation will be reduced
to $400,000; such salary will continue through March 17, 2004. Notwithstanding the foregoing, if Dr. Harbin voluntarily steps down from Executive Chairman to Chairman before the earlier
of (i) March 17, 2003, or (ii) completion of a Restructuring Event (as defined below), his compensation will be adjusted to $400,000 and this Agreement will terminate on
March 17, 2003. If the Board requests that Dr. Harbin step down from Executive Chairman to Chairman prior to March 17, 2003, Dr. Harbin's annual salary will remain at
$600,000 through March 17, 2003, at which time it will be reduced to $400,000 and continue through March 17, 2004. The term "Restructuring Event" is defined as 30 days following
the completion of any and all restructurings, recapitalizations, renegotiations or other activities to recapitalize the company, including, without limitation, (a) material modifications of any
debt securities already issued by the Company or exchange of such debt securities for new securities or other property; and/or (b) activities associated with the preparation for a filing
pursuant to or under provisions of the United States Bankruptcy Code.

	(ii)
	Shareholders Election of Directors. If Dr. Harbin is not re-elected to the Employer's Board of Directors at the
Corporation's next annual meeting (the date of which has not yet been determined), Dr. Harbin and the Board may agree to continue his employment with Employer as a part time employee
(20 hours per week), at an annual salary of $400,000. In this part time role, Dr. Harbin's primary responsibilities would include providing advice and counsel to the Board and the
Company on the restructuring activities, ongoing operational issues and customer and other key strategic issues. If the parties do not agree that Dr. Harbin should continue as a part time
employee as set forth above, Dr. Harbin 

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will
be paid an annual salary of $400,000 for 12 months from the date of the Shareholders meeting or through March 17, 2004, whichever is earlier. 

	(b)
	Executive Benefits. Dr. Harbin will be eligible to participate in Employer's Executive Benefit Plan commensurate with his
position. Dr. Harbin will receive separate information detailing the terms of the Executive Benefit Plan and the terms of that plan will control. Dr. Harbin also will be eligible to
participate in any applicable annual incentive plan and stock option plan. Dr. Harbin will be entitled, during the term of this Agreement, to such other benefits of employment with Employer as
are now or may later be in effect for the most senior salaried officers of Employer. Dr. Harbin will devote sufficient time to his position to remain eligible to receive executive benefits
under the terms and conditions of the applicable plans and programs. Otherwise, Dr. Harbin's rights to receive such benefits under this Section shall be waived.

	(c)
	Vesting of Stock Options. If Dr. Harbin remains employed by Employer (either as Executive Chairman or as Chairman of the Board
only) through March 17, 2004, all stock options granted to Dr. Harbin under Employer's Stock Option Plan which have not vested as of such date shall immediately vest on such date. All
other terms and conditions with respect to such options shall be governed by any applicable stock option agreement between Dr. Harbin and Employer and Employer's Stock Option Plan. If this
Agreement is terminated for any reason prior to March 17, 2004, no immediate vesting of Dr. Harbin's options shall occur pursuant to this Agreement, and vesting and all other terms and
conditions for any options shall be governed by any applicable stock option agreement between Dr. Harbin and Employer and Employer's Stock Option Plan. 

	5.
	Expenses. During the term of this Agreement, Employer will reimburse Dr. Harbin promptly for all reasonable travel,
entertainment, parking, business meetings and similar expenditures incurred in pursuance and furtherance of Employers business upon receipt of reasonable supporting documentation as required by
Employer's policies applicable to its executive officers generally.

	6.
	Termination.

	(a)
	Termination Due to Resignation. Except as otherwise set forth in this Agreement, Dr. Harbin's employment, and all of
Dr. Harbin's rights to receive compensation and benefits from Employer, will terminate upon the effective date of Dr. Harbin's resignation without good reason. In the event
Dr. Harbin voluntarily steps down from Executive Chairman to Chairman before the earlier of (i) March 17, 2003; or (ii) completion of the Restructuring Event, his annual
salary will be adjusted to $400,000 on the effective date of the transition and this Agreement will terminate on March 17, 2003.

	(b)
	Termination for Cause. Except as otherwise set forth in this Agreement, Dr. Harbin's employment and all of Dr. Harbin's
rights to receive compensation and benefits from Employer, will terminate upon the termination for cause at the discretion of Employer under the following circumstances:

	(i)
	The
death of Dr. Harbin;

	(ii)
	The
disability of Dr. Harbin as defined in Section 6(e);

	(iii)
	The
deliberate and intentional refusal to perform Dr. Harbin's duties for Employer as provided in Sections 2 or 3. If Employer determines that Dr. Harbin has
deliberately or intentionally failed to perform his duties for Employer as provided in Sections 2 or 3, Employer will notify Dr. Harbin in writing of the reasons for its determination and will
provide Dr. Harbin a reasonable period in which to either contest the determination or to correct the defects in performance, but in no event more than thirty days; 

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	(iv)
	Dr. Harbin
has breached or otherwise failed to comply with the provisions of Section 8; or

	(v)
	Dr. Harbin
has committed an act of dishonesty, fraud, misrepresentation or other acts of moral turpitude which in the reasonable opinion of the Board causes it to conclude that
the continuation of employment is not in the best interest of Employer. 

	(c)
	Termination Without Cause. Employer may terminate this Agreement without cause at any time by giving thirty days' prior written notice
to Dr. Harbin. If Employer terminates this Agreement without cause, Employer may direct Dr. Harbin to immediately cease providing services.

	(i)
	If
Employer terminates this Agreement without cause Dr. Harbin will continue to receive an annual salary of $400,000 through March 17, 2004. Notwithstanding the
foregoing, if the Board terminates the Agreement without cause before March 17, 2003, Dr. Harbin will receive an annual salary of $600,000 through March 17, 2003. Effective
March 18, 2003, Dr. Harbin's annual salary will be reduced to $400,000 and will continue at that level through March 17, 2004.

	(ii)
	In
addition to any severance under this Section 6(c), any stock option or other stock-based compensation plan will be governed by the terms of such plans (and any related
stock option or similar agreements).

	(iii)
	If
Dr. Harbin dies after Employer has terminated this Agreement without cause, but before Employer has made all of the payments required under this Section, Employer shall
make all such remaining payments under this Section to Dr. Harbin's estate pursuant to the schedule for such payments set forth in this Section. 

	(d)
	Termination by Dr. Harbin for Good Reason. Dr. Harbin may terminate this Agreement, and his employment with Employer, for
"good reason" upon the occurrence of any of the following:

	(i)
	the
assignment to Dr. Harbin of any duties inconsistent with the status of his positions from time to time under Section 2, or a substantial alteration in the nature or
status of his responsibilities from those in effect from time to time under Section 2;

	(ii)
	a
reduction by Employer of Dr. Harbin's annual base salary as in effect from time to time during the term of this Agreement;

	(iii)
	the
failure of Employer to comply with Section 4;

	(iv)
	any
material breach of this Agreement by Employer; 

Prior
to terminating this Agreement pursuant to this Section, Dr. Harbin will give to Employer written notice of his "good reason" for terminating this Agreement and provide Employer with a
reasonable period in which to contest or correct the "good reason", but in no event less than thirty days. In the event of a termination for "good reason" pursuant to any subsection of this
Section 6(d), Dr. Harbin will be entitled to receive all compensation and benefits provided for in this Agreement as though Employer had terminated this Agreement on such date without
cause under Section 6(c). 

	(e)
	Disability. Dr. Harbin will be deemed to be "disabled" or to suffer from a "disability" within the meaning of
Section 6(b)(ii) if, because of a physical or mental impairment, Dr. Harbin has been unable to perform the essential functions of his position (even with reasonable accommodation)
for a period of 180 days within a one-year period, or if Dr. Harbin reasonably can be expected to be unable to perform the essential functions of his position (even with
reasonable accommodation) for such period. "Essential duties" include, without limitation, travel to company meetings and functions, and all other duties customarily 

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performed
by corporate executives generally occupying similar positions as Dr. Harbin. Upon termination of Dr. Harbin's employment pursuant to Section 6(b)(ii), Dr. Harbin
will be entitled to receive from Employer an amount equal to sixty percent of Dr. Harbin's base salary payable over the greater of the two years immediately following Dr. Harbin's
termination or the remainder of the term of this Agreement, reduced by payment received by Dr. Harbin from Employer's long-term disability plan. 

	(f)
	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 Dr. Harbin has not been compensated or reimbursed for services performed
prior to termination (the amount to be prorated for the portion of the pay period prior to termination); the rights and obligations under Sections 7, 8, 9, and 10; and all procedural and remedial
provisions of this Agreement. A termination of this Agreement will constitute a termination of Dr. Harbin's employment with Employer.

	(g)
	Termination Upon a Change of Control. Dr. Harbin will be entitled to terminate this Agreement upon (i) the occurrence of
a change of control (as defined herein); and (ii) the occurrence one of the events outlined in Section 6(d). Upon termination of the Agreement, Dr. Harbin will be entitled to all
of the salary, benefits and other rights provided in this Agreement as though the termination had been initiated by Employer on such date without cause under Section 6(c). For purposes of this
Agreement, a change of control will take place upon the occurrence of any of the following events: (a) the acquisition after the beginning of the term of this Agreement in one or more
transactions of beneficial ownership (within the meaning of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by any person or entity
(other than Dr. Harbin) or any group of persons or entities (other than Dr. Harbin) who constitute a group (within the meaning of Rule 13d-5 of the Exchange Act) of
any securities of Employer such that as a result of such acquisition such person or entity or group beneficially owns (within the meaning of Rule 13d-3(a)(1) under the Exchange Act)
more than fifty percent of Employer's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board; or (b) the sale of all or substantially all of the
assets of Employer (including, without limitation, by way of merger, consolidation, lease or transfer) in a transaction (except for a sale-leaseback transaction) where Employer or the
holders of common stock of Employer do not receive (i) voting securities representing a majority of the voting power entitled to vote on a regular basis for the Board of Directors of the
acquiring entity or of an affiliate which controls the acquiring entity, or (ii) securities representing a majority of the equity interest in the acquiring entity or of an affiliate that
controls the acquiring entity, if other than a corporation. 

	7.
	Certain Additional Payments by Employer in the event of a Change of Control.

	(a)
	Anything
in this Agreement to the contrary notwithstanding and except as set forth below, in the event a Change of Control shall occur and it shall be determined that any payment or
distribution by Employer to or for the benefit of Dr. Harbin (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of a 1986,
as amended (the "Code") or any interest or penalties are incurred by Dr. Harbin with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively
referred to as the "Excise Tax"), then Dr. Harbin shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Dr. Harbin
of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and 

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penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Dr. Harbin retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. 

	(b)
	Subject
to the provisions of Section 7(c), all determinations required to be made under this Section 7, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Employer's regular independent accounting firm or,
at the election of Dr. Harbin, another nationally recognized independent accounting firm (the "Accounting Firm") which shall provide detailed supporting
calculations both to Employer and Dr. Harbin within 15 business days of the receipt of notice from Dr. Harbin that there has been a Payment, or such earlier time as is requested by
Employer. All fees and expenses of the Accounting Firm shall be borne solely by Employer. Any determination by the Accounting Firm shall be binding upon Employer and Dr. Harbin. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm under this Section, it is possible that Gross-Up
Payments which will not have been made by Employer should have been made ("Underpayment"), consistent with the calculations required to be made under this Section. If Employer exhausts its remedies
pursuant to Section 7(c) and Dr. Harbin thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount, of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by Employer to or for the benefit of Dr. Harbin, together with interest, from the time of payment by Dr. Harbin of such Excise Tax, at
the applicable federal rate provided for in Section 7872(f)(2) of the Code.

	(c)
	Dr. Harbin
shall notify Employer in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by Employer of the Gross-Up
Payment. Such notification shall be given, as soon as practicable but no later than ten business days after Dr. Harbin is informed in writing of such claim and shall apprise Employer of the
nature of such claim and the date on which such claim is requested to be paid. Dr. Harbin shall not pay such claim prior to the expiration of the 30-day period following the date on
which it gives such notice to Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If Employer notifies Dr. Harbin in writing prior
to the expiration of such period that it desires to contest such claim, Dr. Harbin shall:

	(i)
	give
Employer any information reasonably requested, by Employer relating to such claim,

	(ii)
	take
such action in connection with contesting such claim as Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by Employer, and designating such attorney as authorized to act on Dr. Harbin's behalf with respect to such
examination, if necessary, through a power of attorney,

	(iii)
	cooperate
with Employer in good faith in order effectively to contest such claim, and

	(iv)
	permit
Employer to participate in any proceedings relating to such claim; 

provided,
however, that Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold
Dr. Harbin harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions of this Section 7(c), Employer shall control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and 

6

 

may, at its sole option, either direct Dr. Harbin to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Dr. Harbin agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Employer shall determine; provided, however, that if Employer
directs Dr. Harbin to pay such claim and sue for a refund, Employer shall advance the amount of such payment to Dr. Harbin, on an interest-free basis and shall indemnify and
hold Dr. Harbin harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of
Dr. Harbin with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, Employer's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable under this Agreement and Dr. Harbin shall be entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority. 

	(d)
	If,
after the receipt by Dr. Harbin of an amount advanced by Employer pursuant to Section 7(c), Dr. Harbin becomes entitled to receive any refund with respect to
such claim, Dr. Harbin shall (subject to Employer's complying with the requirements of Section 7(c)) promptly pay to Employer the amount, of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt by Dr. Harbin of an amount advanced by Employer pursuant to Section 7(c), a determination is made that
Dr. Harbin shall not be entitled to any refund with respect to such claim and Employer does not notify Dr. Harbin in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent of such
advance, the amount of Gross-Up Payment required to be paid. 

	8.
	Protection of Confidential Information/Non-Competition/Non-Solicitation. 

        Dr. Harbin
covenants and agrees as follows: 

	(a)
	During
the term of this Agreement and continuing for a period of five years after the expiration or termination of this Agreement for any reason, Dr. Harbin 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 Dr. Harbin's employment or, thereafter, upon receipt of
the prior written consent of Employer, any confidential business information, information that derives economic value from not being generally known to the public, or trade secrets of Employer or any
corporate affiliate or subsidiary, including, but not limited to: lists of past, current or potential customers; all systems, manuals, materials, processes and other intellectual property of any type
used in connection with business operations; financial statements, cost reports and other financial information; contract proposals and bidding information; rate and fee structures; policies and
procedures developed as part of a confidential business plan; and management systems and procedures, including manuals and supplements ("Confidential Information"). The obligation not to use or
disclose any of the Confidential Information will not apply, to: (i) any Confidential Information known by Dr. Harbin before commencing employment with Employer and any
predecessor or affiliated entities of Employer, or (ii) as to times following the termination of the employment of Dr. Harbin with Employer, any information that is or becomes public
knowledge, through no unauthorized action or inaction of Dr. Harbin, 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 knowledge will run only from the date such information becomes public knowledge. The provisions above
will be 

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without
prejudice to any rights or remedies of Employer under any state or federal law protecting trade secrets or confidential information. 

	(b)
	During
the term of this Agreement and continuing for a period of two years after the expiration or termination of this Agreement for any reason, Dr. Harbin will not, within a
radius of fifty miles of any operation of Employer or a corporate affiliate or subsidiary of Employer involved in the same business as Employer, engage, directly or indirectly, as a manager,
consultant, salesperson, Dr. Harbin, director or in any other role involving customer relations or senior management duties, in the business of behavioral managed care services. This
prohibition will relate only to sites of operations of Employer or its corporate affiliates or subsidiaries existing as of the date of the making of this Agreement. The parties agree, however, that in
consideration of the covenants made by Dr. Harbin in this Agreement, Dr. Harbin will be entitled to an updated list on an annual basis of sites of operations of Employer and its
corporate affiliates and subsidiaries which updated list will then constitute the pertinent sites for interpreting the geographic scope of the restrictions set forth in this Section. No failure to
provide such a list, however, will establish a waiver or prejudice Employer's right to provide a list at a later time.

	(c)
	During
the term of this Agreement and continuing for a period of two years after the expiration or termination of this Agreement for any reason, Dr. Harbin will not solicit, or
attempt to solicit, any current or prospective customer of Employer or of any corporate affiliate or subsidiary of Employer involved in the same business as Employer for the purpose of promoting the
delivery of behavioral managed care services by an entity or person(s) other than Employer or a corporate affiliate or subsidiary of Employer. For purposes of this Section, the term "current customer"
is defined as any entity or person(s) with whom Employer or its corporate affiliates or subsidiaries has provided, or has contracted to provide, behavioral or other specialty health managed care
services during the year preceding the expiration or termination of Dr. Harbin's employment with Employer provided Dr. Harbin either has had personal contact with such customer or
received confidential business information about such customer. For purposes of this Section, the term "prospective customer" is defined as (i) any entity or person(s) with whom Employer or its
corporate affiliates or subsidiaries have actively solicited or made presentations or proposals to, or negotiated with, to provide behavioral or other specialty health managed care services during the
year preceding the expiration or termination of Dr. Harbin's employment with Employer provided Dr. Harbin had personal contact with such prospective customer or received confidential
business information about such prospective customer, or (ii) any entity or person(s) with respect to which Dr. Harbin was actively engaged in the planning or targeting of such entity or
person(s) for purposes of soliciting behavioral or other specialty health managed care services during the year preceding the expiration or termination of Dr. Harbin's employment with Employer.

	(d)
	During
the term of this Agreement and continuing for a period of one year after the expiration or termination of this Agreement for any reason, Dr. Harbin will not, by himself
or in conjunction with or on behalf of any other person or entity, directly or indirectly, solicit or induce any employee of
Employer or any of its corporate affiliates or subsidiaries to terminate his or her employment with Employer or any of its corporate affiliates or subsidiaries. This prohibition will apply only to
persons employed by Employer or any of its corporate affiliates or subsidiaries during the one year immediately prior to the expiration or termination of this Agreement.

	(e)
	Notwithstanding
anything else set forth in this Agreement, Dr. Harbin's compliance with the terms of this Section 8 is an express condition precedent to
Dr. Harbin's entitlement to any of the compensation and benefits set forth in this Agreement. Absent such compliance, Dr. Harbin will gain no ownership or rights to said compensation and
benefits. 

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	9.
	Work Made for Hire. Dr. Harbin agrees that any written program materials, protocols, research papers and all other writings (the
"Work"), which Dr. Harbin develops for the use of Employer or a corporate affiliate or subsidiary during the term of this Agreement, 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 Employer. If, however, any court of competent jurisdiction finally declares
that the Work is not or was not a work made for hire as agreed, Dr. Harbin agrees to assign, convey, and transfer to the Employer all right, title and interest Dr. Harbin 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, Dr. Harbin
agrees to execute any documents necessary for Employer to record and/or perfect its ownership of the Work and the applicable copyright. Notwithstanding anything to the contrary in this
Section 9, Section 9 will not apply to any writings Dr. Harbin develops which are not for the use of Employer or a corporate affiliate or subsidiary or are in each instance
specifically excluded in advance of publication from the coverage of the foregoing by the Board.

	10.
	Property of Employer. Dr. Harbin agrees that, upon the termination of this Agreement, Dr. Harbin will immediately
surrender to Employer all property, equipment, funds, lists, books, records and other materials of Employer or any corporate affiliate or subsidiary in Dr. Harbin's possession or control.

	11.
	Governing Law. This Agreement and all issues relating to the validity, interpretation and enforcement of this Agreement will be
governed by and interpreted under the laws of the State of Maryland.

	12.
	Remedies. Employer and Dr. Harbin agree that an actual or threatened violation by Dr. Harbin of the covenants and
obligations set forth in Section 8, 9 and 10 would cause irreparable harm to Employer and that the remedy at law for any such violation will be inadequate. Dr. Harbin agrees, therefore,
that Employer 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. The
provisions
of Sections 7, 8, 9, and 10 will survive the termination of this Agreement in accordance with the terms set forth in each Section.

	13.
	Arbitration. Except for an action for injunctive relief as described in Section 12, any disputes or controversies arising under
this Agreement will be settled by arbitration in Columbia, Maryland, through the use of and in accordance with the applicable rules of the American Arbitration Association relating to arbitration of
commercial disputes and pursuant to the Federal Arbitration Act. The determination and findings of such arbitrator(s) will be binding on all parties and may be enforced, if necessary, in any court of
competent jurisdiction. 

Dr. Harbin's
Initials 

	14.
	Notices. Any notice or other communication required to be given to any party under this Agreement will be given in writing and will be
deemed to have been fully given (a) if mailed, first class mail, postage prepaid, five days after it is sent, (b) if sent by a nationally recognized next day delivery service that
obtains a receipt on delivery, the day after it is sent, and (c) in any other case, when actually received. In each case, notice will be sent to the following address (or such other 

9

 

addresses
as will be given in writing pursuant to this notice provision by any party to the other parties): 

	        To Dr. Harbin:	 	Henry T. Harbin, M.D.

2002 Sulgrave Avenue

Baltimore, Maryland 21209
	

        To Employer:	
 	

Magellan Health Services, Inc.

6950 Columbia Gateway Drive

Suite 400

Columbia, MD 21046

Attention: Executive Vice President — Administration
	

        With a copy to:	
 	

Magellan Health Services, Inc.

6950 Columbia Gateway Drive

Suite 400

Columbia, MD 21046

Attention: General Counsel

	15.
	Headings. The headings of the Sections of this Agreement have been inserted for convenience of reference only and will not be construed
or interpreted to restrict or modify any of the terms or provisions of this Agreement.

	16.
	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, if such reformation is allowable under applicable law.

	17.
	Binding Effect. This Agreement will be binding upon and will inure to the benefit of Employer's successors and assigns. This Agreement
may not be assigned by Dr. Harbin 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 Officers. Employer may issue policies, rules, regulations, guidelines, procedures or
other informational material, whether in the form of handbooks, memoranda, or otherwise, relating to its Officers. These materials are general guidelines for
Dr. Harbin's information and should not be construed to alter, modify or amend this Agreement for any purpose whatsoever.

	19.
	Negotiated Document. The parties acknowledge and agree that this Agreement has been arrived at through a process of negotiation and no
one party should be deemed to be the drafter of this Agreement.

	20.
	Best Efforts. Employer acknowledges that the responsibilities placed on Dr. Harbin in this Agreement exceed the responsibilities
of prior agreements. However, Dr. Harbin has agreed to these responsibilities for Employer's benefit. As a result, Employer assures Dr. Harbin that, in the event of its voluntary or
involuntary bankruptcy, Employer will use its best efforts to keep this Agreement in force at the compensation levels indicated herein. 

10

 
	21.
	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 the same subject matter unless expressly provided otherwise within this Agreement. Dr. Harbin
acknowledges and agrees that this Agreement supersedes and extinguishes all obligations owed to Dr. Harbin under any prior agreement with Employer and/or any other corporate affiliate or
subsidiary of Employer. Dr. Harbin and Employer acknowledge and agree that Employer's corporate affiliates and subsidiaries are express third party beneficiaries of this Agreement. Without
limitation, this Agreement supersedes those agreements referenced-in the first Whereas clause of this Agreement. No amendment or modification of this Agreement will be valid unless made in
writing and signed by each of the parties whose rights, duties or obligations would in any way be affected by an amendment or modification. No representations, inducements or agreements have been made
to induce either Dr. Harbin or Employer to enter into this Agreement other than those expressly set forth within this Agreement. Except as expressly set forth herein, this Agreement is the sole
source of rights and duties as between Employer and Dr. Harbin relating to the subject matter of this Agreement.

	22.
	This
Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, each of which when executed shall be deemed to be an original but all
of which taken together shall constitute one and the same document. 

IN
WITNESS WHEREOF, the parties have executed this Agreement on the 1st day of October, 2002. 

	 	 	 	MAGELLAN HEALTH SERVICES, INC.
	

 	
 	

 	

 
	By:
 Henry T. Harbin, M.D.	 	 	
 Robert Miller
 Chairman, Audit Committee

of the Magellan Health Services, Inc.

Board of Directors
 

11

QuickLinks

Exhibit 10(ak)

EMPLOYMENT AGREEMENTQuickLinks
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Exhibit 10(am)    
  

 
  EMPLOYMENT AGREEMENT    
  

        THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into by and between JAY LEVIN, 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 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 two (2) years commencing on April 8, 2002 and, unless terminated earlier in accordance with the terms of this Agreement, ending on April 7, 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 ninety (90) days prior to the next renewal date ("Non-Renewal Notice"). Employer's notice of
intent not to renew the Agreement shall be deemed to be a termination without cause and the provisions of Section 7(b) shall apply.

	2.
	Position and Duties of Employee. Employee will serve as Executive Vice President and Chief Operating Officer, of Employer. Employee
agrees to perform the duties commensurate with Employee's position that Employer may reasonably assign from time to time to Employee until the expiration of the term or such time as Employee's
employment with Employer is terminated pursuant to this Agreement. Employer may not materially decrease Employee's duties hereunder without his written consent. Breach of the foregoing sentence shall
be deemed a termination by Employer of Employee's employment without cause. 

Employee's
primary business office will be located in Michigan, provided, however, that Employee may, at his sole discretion, relocate his primary business office and primary residence to the
Columbia, Maryland area. If Employee elects to relocate to the Columbia, Maryland area, Employer will provide relocation assistance to Employee as set forth in Employer's Tier 2 Relocation Policy in
effect as of the date of execution hereof. 

	3.
	Time Devoted. Employee will devote his full business time and energy to the business affairs and interests of Employer. Employee agrees
that he will diligently endeavor to perform services contemplated by this Agreement in a manner consistent with his position and in accordance with the policies established by the Employer for all
employees, which shall not conflict with the terms of this Agreement.

	4.
	Compensation.
	(a)
	Base Salary. Employer will pay Employee a base salary in the amount of Four Hundred Thousand ($400,000.00) dollars per year ("Base
Salary"), which amount will be paid in semi-monthly intervals less appropriate withholdings for federal and state taxes and other deductions authorized by Employee. Such Base Salary will
be subject to review and upward adjustment by Employer from time to time. 

1

 

	(b)
	Bonus. Employer shall be covered by and eligible for a bonus pursuant to the Magellan Health Services Incentive Plan effective as
October 1, 2001. ("Bonus Plan"). Notwithstanding anything contained in the Bonus Plan to the contrary, for the period commencing with commencement date of this Agreement and ending on
September 30, 2002. Employee shall be eligible for a non-prorated bonus irrespective of the actual start date of Employee's employment hereunder. (i.e.—Employee shall be
eligible for one hundred percent (100%) of the potential bonus) and shall be based on a Base Salary of Four Hundred Thousand ($400,000.00) Dollars, irrespective of the amount actually earned by
Employee
on or prior to September 30, 2002. For each year of performance thereafter (including any renewal periods of this Agreement), Employee shall be eligible for a bonus under any other then current
incentive, bonus or deferred compensation plans covering the executive officers of the Employer, which may from time to time exist. Any such bonuses shall be paid simultaneously with other senior
executives of Employer.

	(c)
	Grant of Stock Options. Employer shall grant to Employee an option to purchase Three Hundred Twenty Five Thousand (325,000) shares of
the Corporation's common stock at a purchase price equal to the closing price of the Corporation's common stock on April 8, 2002. Employer represents and warrants to Employee that the shares of
common stock underlying such options have been registered with the Securities and Exchange Commission. The options will be governed by the terms and conditions of Employer's 2000 Long-term
Incentive Compensation Plan (the "Plan") and the Stock Option Agreement attached hereto as Exhibit A. 

If,
during the term of Employee's employment with Employer, Employee's employment is terminated by Employer without cause, then, to the extent such number of options shall not previously have vested,
Employer shall cause fifty percent (50%) of Employee's options granted pursuant hereto to immediately vest and become exercisable in full. Employee will be eligible for additional options grants from
time to time based upon performance in Employer's discretion. 

	(d)
	Benefits. Employee will be eligible to participate in Employer's Benefit Plans commensurate with his 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 its terms. Employee will be entitled during the term of this Agreement 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 level.

	(e)
	Vehicle. Employer shall provide to Employee a monthly vehicle stipend of Five Hundred ($500.00) Dollars per month.

	(f)
	Paid Time Off. Employee shall be eligible for twenty-three (23) vacation days per year of employment, in addition to Company
holidays and two floating holidays of Employee's choice. ("Paid Time Off" or "PTO") 

	5.
	Expenses. During the term of this Agreement, Employer will reimburse Employee promptly for all reasonable travel (including all weekly
travel to Maryland), living expenses for maintaining an apartment or hotel room in the State of Maryland, entertainment, parking, cellular telephone, 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. 

2

 
	6.
	Indemnification. Employer will indemnify Employee for claims brought against Employee personally in connection with his employment if
the claims fall within the scope of the indemnification set forth in Employer's corporate by-laws as in effect as of April 8, 2002. 

For
such indemnification to apply, Employee shall immediately notify Employer's Legal Department as soon as practicable after receiving knowledge of any claim or litigation. Failure to give such
notice shall not negate a right to indemnification hereunder, provided, however, Employee shall bear any amount of loss resulting directly from a failure to give a timely notice. Employee must permit
attorneys and personnel authorized by Employer, at Employer's sole discretion and cost, to handle and control the defense of such claims or lawsuits. Employee agrees to cooperate fully and aid in such
defense. Employee shall not settle any such claims or lawsuits without prior written consent of Employer. 

	7.
	Termination.
	(a)
	Termination Due to Resignation and 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 terminate upon the occurrence of any of the following events:

	(i)
	the
effective date of Employee's resignation (pursuant to paragraph 7(b)), or

	(ii)
	termination
for cause at the discretion of Employer under the following circumstances:

	a.
	Employee's
commission of an act of fraud or dishonesty involving his duties on behalf of Employer;

	b.
	Employee's
failure or refusal to faithfully and diligently perform duties assigned to Employee or other breach of any material term under this Agreement, after written notice
specifying the failure or refusal to perform duties and specifying Employer's intent to terminate Employee's employment hereunder if same is not remedied is delivered to Employee and Employee fails to
cure such deficiency or failure to perform within thirty (30) days of receipt of such notice or such longer period if the specified failure or deficiency cannot reasonably be remedied within
such 30 day period and Employee commences reasonable steps within such 30 day period to remedy such failure or deficiency and diligently continues such steps thereafter until a remedy is
effected; or;

	c.
	Employee's
conviction of a felony or a misdemeanor involving moral turpitude. 

If
Employee is terminated pursuant to this Section 7(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 date of Employee's termination; (ii) reimbursement of expenses incurred by Employee through the date of termination which are reimbursable pursuant
to this Agreement; (iii) the Employee's vested portion of the Magellan Health Services Supplemental Accumulation Plan, Employer's 401(k) plan and any other retirement, deferred compensation or
other benefit plan; (iv) any other sums due and owing to Employee as of the date of termination hereof, including any declared but unpaid bonus or travel expenses; and (v) any financial
obligation of indemnification pursuant to the terms of this Agreement. For purposes of this Agreement, a bonus shall be deemed to be declared if the Compensation Committee of the Employer's Board of
Directors has approved such bonus for Employee. 

For
the events described in Sections 7(a)(ii) (c), 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. 

3

 

	(b)
	Termination Without Cause. Employee may terminate his employment without cause at any time by giving thirty (30) days written
notice of resignation to Employer. Employer may terminate this Agreement without cause at any time by giving thirty (30) days prior written notice to Employee. "Without cause" termination shall
include Employer's notice to Employee of its intent not to renew this Agreement in accordance with the provisions of Section 1 hereof. If Employer terminates this Agreement without cause,
Employer may direct Employee to immediately cease providing services. If Employer terminates this Agreement without cause, Employer shall pay to Employee, within ten (10) days after the
termination of Employee's employment, a lump sum cash amount equal to two (2) times Employee's then current annual Base Salary (provided that the total amount payable to Employee shall not be
less than Eight Hundred Thousand Dollars ($800,000.00). In addition, Employee shall be entitled to payment for all accrued Paid Time Off, declared but unpaid bonuses (as defined in
Section 7(a)), and unreimbursed expenses in accordance with this Agreement. Such payment(s)are contingent upon Employee executing a severance agreement materially in the form attached hereto as
Exhibit B. No other cash will be paid to Employee if he is terminated pursuant to this Section 7(b), unless otherwise provided for in this Agreement or in the terms of the applicable
plan or benefit.

	(c)
	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 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 position for such period. If Employee is terminated pursuant to this Section 7(c), Employer's only remaining financial obligation to Employee under this Agreement, in addition to
obligations, if any, under any applicable benefit plans, will be to pay: (i) any
earned but unpaid Base Salary through the date of Employee's termination, all accrued Paid Time Off and unreimbursed expenses in accordance with this Agreement; (ii) reimbursement of expenses
incurred by Employee through the date of termination which are reimbursable pursuant to this Agreement; (iii) the Employee's vested portion of the Magellan Health Services Supplemental
Accumulation Plan, Employer's 401(k) plan and any other retirement, deferred compensation or other benefit plan; (iv) any other sums due and owing to Employee as of the date of termination
hereof, including any declared but unpaid bonus (as defined in Section 7(a)) or travel expenses; and (v) any financial obligation of indemnification pursuant to the terms of this
Agreement.

	(d)
	Effect of Termination. Except as otherwise provided for in this Section 7, 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 6, 8, 9 and 10; and all procedural and
remedial provisions of this Agreement.

	(e)
	Termination Upon a Change of Control. Employee, for a period of ninety (90) days following a change in control, will be entitled
to: (i) terminate this Agreement upon a change of control and will be entitled to the compensation and payments provided in Section 7(b) of this Agreement as if Employer had terminated
Employee's employment hereunder without cause; and (ii) the vesting of Employee's stock options as set forth in Section 4(c) above. If Employer terminates this Agreement without cause
following a change in control, Employee will be entitled to the compensation and payments provided for in Section 7(b) of this 

4

 

Agreement,
as if Employer had terminated Employee's employment hereunder without cause; and (ii) the vesting of Employee's stock options as set forth in Exhibit A. For purposes of this
Agreement, a "change of control" will take place upon the occurrence of any of the following events: (a) the acquisition after the beginning of the term in one or more transactions of
beneficial ownership (within the meaning of Rule 13d-3 (a)(1) under the Securities Exchange Act of 1934, as amended [the "Exchange Act"]) by any person or
entity (other than Employee) who constitute a group (within the meaning of Rule 13d-5 of the Exchange Act) of any securities of Employer so that as a result of such acquisition such
person or entity or group beneficially owns (within the meaning of Rule 13d-3 (a)(i) under the Exchange Act) more than 50% of Employer's then outstanding voting securities
entitled to vote on a regular basis for a majority of the Board of Directors of Employer; or (b) the sale of all or substantially all of the assets of Employer (including, without limitation,
by way of merger, consolidation, lease or transfer) in a transaction where Employer or the holders of common stock of Employer do not receive (i) voting securities representing a majority of
the voting power entitled to vote on a regular basis for the Board of Directors of the acquiring entity or of an affiliate which controls the acquiring entity, or (ii) securities representing a
majority of the equity interest in the acquiring entity or of an affiliate that controls the acquiring entity, if other than a corporation; provided, that if Employee becomes entitled to any payments
(whether hereunder or otherwise) by reason of an event described in Internal Revenue Code Section 280G (a "Parachute Event") that would constitute "excess parachute payments" (as defined in
Internal Revenue Code Section 280G) if paid, then Employee's entitled to such payments will be reduced by such amount as will cause none of such payments to constitute excess parachute
payments, if and only if, the net amount received by Employee by reason of the Parachute Event, after imposition of all applicable taxes (including taxes under Internal Revenue Code
Section 4099), would be greater after such reduction than if such reduction were not made. 

	8.
	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 two (2) years 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 knowledge during his 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, is required to be disclosed pursuant to subpoena, court order or other legally compelled disclosure 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. Except as may be required to be disclosed pursuant to subpoena, court order or other legally compelled disclosure,
Employee shall hold in confidence all Trade Secrets of Employer, its direct and indirect subsidiaries, and/or its customers that came into his knowledge during his 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, 

5

 

or
as may be required in the ordinary course of Employee's duties assigned by 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. 

"Trade
Secret" means information including, but not limited to, any technical or nontechnical 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. Employee covenants and agrees that during the term of his employment with Employer and for a period of two
(2) years immediately following the termination of said employment for any reason, he will not, on his 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 behavioral managed care services in the United States. Notwithstanding anything to the
contrary contained herein, nothing herein shall be construed to limit Employee's right to engage in, consult with, act as an officer, employee or director of, or have an equity or other interest in a
diversified managed health care network, which does not earn more than twenty percent (20%) of its revenues from behavioral managed care services in the United States, including without limitation a
health maintenance organization or preferred provider organization. ("Exempt Entity"). 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.

	(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 two (2) years immediately following the termination of his employment with Employer, he will not,
without the prior written permission of Employer, directly or indirectly, for himself 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 behavioral managed care services if Employer, or the particular controlled 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 8(c), "Customer" means any individual or entity to whom Employer or its controlled subsidiaries
or affiliates has provided, or contracted to provide, behavioral managed care services and with whom Employee had, alone or in conjunction with others, Material Contact during the twelve
(12) months prior to the termination of his employment. For purposes of this Section 8 (c), Employee had "Material Contact" with 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 trade secrets or 

6

 

confidential
information about the customer as a result of Employee's association with Employer or its controlled subsidiaries or affiliates. Notwithstanding anything to the contrary contained
herein, nothing shall be construed to limit Employee's right to solicit Customers for or on behalf of an Exempt Entity, to the extent that (i) such solicitation involves diversified health
benefits; and (ii) the behavioral managed care services portion of the potential business sought does not exceed twenty percent (20%) of the total value of such proposal. 

	(d)
	Solicitation of Employees. During Employer's employment of Employee and for a period of two (2) years 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 (1) year period immediately prior to Employee's termination 

	9.
	Work Made for Hire. Employee agrees that any written program materials, protocols, research papers and all other writings (the "Work"),
which Employee develops for Employer's use, or for use by Employer's controlled subsidiaries or affiliates, during the term of this Agreement, 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. The foregoing will not apply to any writings Employee develops which
are not for Employer's use or are in each instance specifically excluded in advance of publication from the coverage of the foregoing by Employer's Board of Directors.

	10.
	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.

	11.
	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.

	12.
	Remedies. An actual or threatened violation by Employee of the covenants and obligations set forth in Sections 8, 9 and 10 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 8, 9, and 10. The
provisions of Sections 8, 9. and 10 will survive the termination of this Agreement in accordance with the terms set forth in each Section.

	13.
	Arbitration. Except for an action for injunctive relief as described in Section 12, 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 

7

 

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. 

Employee's
Initials 

	14.
	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:	 	Mr. Jay Levin

5516 Putnam Drive

West Bloomfield, MI 48323
	

        To Employer:	
 	

Magellan Health Services, Inc.

6950 Columbia Gateway Drive

Columbia, Maryland 21046

Attention: President and CEO

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. 

	15.
	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.

	16.
	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.

	17.
	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.

	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.
	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, 

8

 

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. 

THIS AGREEMENT IS CONTINGENT UPON APPROVAL OF THE COMPENSATION COMMITTEE OF THE EMPLOYER'S BOARD OF DIRECTORS, WITH SUCH APPROVAL TO OCCUR NO LATER THAN JUNE 15,
2002.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 15th day of April, 2002. 

	

"Employee"	 	 	MAGELLAN HEALTH SERVICES, INC.

"Employer"
	

 	
 	

 	

 
	    
 Jay Levin	 	 	By:
 Name: Daniel S. Messina

Title: President & CEO
 

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QuickLinks

Exhibit 10(am)

EMPLOYMENT AGREEMENT

STATEMENT OF AGREEMENT

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