Document:

Exhibit 10.1

MAGELLAN HEALTH SERVICES, INC.

2006 MANAGEMENT INCENTIVE PLAN

STOCK OPTION AGREEMENT

Reference No. 200 -    (           )

As of          ,
  , 200  

SECTION 1.           GRANT
OF OPTION.

(a)           OPTION.
On the terms and conditions set forth in this Agreement and each Notice of
Stock Option Award referencing this Agreement, Magellan Health Services Inc.
(the “COMPANY” as further defined below) grants to the Optionee referred to on
the signature page hereof, as of the Date of Grant (as defined below), an
option to purchase at the Exercise Price (as defined below) the number of
shares of Ordinary Common Stock, $ 0.01 par value per share, of the Company set
forth in such Notice of Stock Option Award, subject to adjustment thereto on
account of any change in respect of the shares of Ordinary Common Stock that
may be made as provided by Section 7 below (the “OPTION SHARES”). Each
such Notice of Stock Option Award, together with this referenced Agreement,
shall be a separate option governed by the terms of this Agreement and any such
separate option may be referred to herein as “THE OPTION” and, as pertinent,
any of multiple Notices of Stock Option Award referencing this Agreement may be
referred to herein as “THE OPTION AWARD NOTICE.”  The option is intended to be an Incentive
Stock Option (as defined below) or a Nonqualified Stock Option (as defined
below), as provided in the Option Award Notice.

(b)           2006
MANAGEMENT INCENTIVE PLAN AND DEFINED TERMS. The option is granted under and
subject to the terms of the Company’s 2006 Management Incentive Plan, as
amended and supplemented from time to time (the “PLAN”), which is incorporated
herein by this reference. Certain capitalized terms used herein are defined in Section 9
below but terms used herein, if not defined herein, shall have the same meaning
for purposes hereof as provided by the Plan.

(c)           SCOPE
OF THIS AGREEMENT. This Agreement shall apply both to the option and to the
Option Shares acquired upon the exercise of the option.

SECTION 2.           RIGHT
TO EXERCISE.

(a)           EXERCISABILITY.
Subject to the conditions set forth in this Agreement and the Plan, all or part
of the option may be exercised to purchase Option Shares prior to expiration of
the option at the time or times, and subject to satisfaction of the conditions,
set forth in the vesting and exercise provisions of the Option Award Notice.

(b)           $100,000 LIMITATION. If the option is designated as
an Incentive Stock Option in the Option Award Notice, then the Optionee’s right
to exercise the option shall be deferred to the extent (and only to the extent)
that the option would not be treated as an Incentive Stock Option solely by
reason of the $100,000 annual limitation under Section 422(d) of the
Code, except that the Optionee need not defer his or her right to exercise the
option if (i) the Company is subject to an Extraordinary Business
Combination Event before the Optionee’s Service terminates, (ii) the
Company, or any surviving corporation of any business combination involving the
Company or its parent (a “SURVIVING COMPANY”) does not continue the option, and
(iii) any Surviving Company does not assume the option or does not
substitute an option with substantially the same terms for the option. The
failure to defer exercise of the option in order to comply with this $100,000
limitation as permitted by the foregoing provisions may, however, result in the
option no longer being considered an Incentive Stock Option. Additional
limitations with regard to Incentive Stock Options are set forth in the Plan.

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(c)           INJURIOUS
CONDUCT. Except as otherwise specifically provided by the Option Award Notice
or other Award document or by an agreement executed by the Company with the
approval of the Committee, in the event the Optionee has engaged in Injurious
Conduct as defined in, and as determined to have occurred in accordance with, Section 12
of the Plan during Optionee’s Service or during the year following termination
of Optionee’s Service, then (i) no option issued to Optionee under the
Plan may be exercised after such determination (even if fully vested) nor shall
any other benefit of any Award thereafter accrue to the Optionee under the
Agreement or the Plan (including by reason of the lapse of any restriction on
transfer or other restriction applicable to Option Shares that have been issued),
and the Company shall not complete the settlement of any such option (including
completion of the issuance and delivery to the Optionee of Option Shares upon a
previous exercise of the option) or the settlement of any other Award
(including the removal of any restriction on transfer or other restriction
applicable to any Option Shares that have been issued, even upon lapse of or
compliance by the Optionee with any other restrictions thereon that are
otherwise applicable to Optionee), and (ii) any such unsettled option
shall be forfeited and shall terminate and any such Option Shares subject to
any such restrictions shall be forfeited (provided, however, that
the foregoing shall not excuse the Company from settling, completing delivery
of or removing any legend restricting the transfer of (A) any Restricted
Stock Award or (B) Stock Units and any related Dividend Equivalent Rights
the settlement of which have been deferred at the election of the Optionee, if
such Restricted Stock Award or Stock Units were fully vested before the date
such Injurious Conduct occurred (as so determined)). In addition, except as
otherwise specifically provided by an Option Award Notice or other Award
document or by an agreement executed by the Company with the approval of the
Committee, in the event the Optionee has engaged in Injurious Conduct as
defined in, and as determined to have occurred in accordance with, Section 12
of the Plan during Optionee’s Service or during the year following termination
of Optionee’s Service, any benefits realized by Optionee as a result of any
Award under the Plan at any time after such Injurious Conduct occurred (as so
determined), whether upon vesting or exercise of an Option, lapse of
restrictions on Option Shares, vesting of Restricted Stock Awards or Stock
Units or related Dividend Equivalent Rights, or the lapse of any restrictions
on Shares issued as a result thereof, or as a result of any other settlement of
an Award, shall be forfeited by Optionee and Optionee shall pay over to the Company
in cash the amount of any benefits so received by Optionee or deliver to the
Company any Shares so received by Optionee and still owned by Optionee (provided,
however, that the foregoing shall not excuse the Company from settling,
completing delivery of or removing any legend restricting the transfer of (i) any
Restricted Stock Award or (ii) Stock Units and any related Dividend
Equivalent Rights the settlement of which have been deferred at the election of
the Optionee, if such Restricted Stock Award or Stock Units were fully vested
before the date such Injurious Conduct occurred (as so determined)). A
forfeiture of benefits as provided hereby upon the Committee determining that
Optionee has engaged in Injurious Conduct during Optionee’s Service or during
the year following termination of Optionee’s Service, shall not relieve
Optionee of any other liability he or she may have to the Company, any
Subsidiary or any Parent as a result of engaging in the Injurious Conduct.

(d)           TRANSFER
RESTRICTIONS ON OPTION SHARES. Subject to subsection 2(c) above and
subsection 3(c) below, unless otherwise provided by the Option Award
Notice, upon the acquisition of Option Shares pursuant to the exercise of an
option after expiration of the vesting period and satisfaction of any vesting
and exercise conditions provided by the Option Award Notice, Optionee shall be
free to dispose of Option Shares so acquired in any manner and at any time.

SECTION 3.           TRANSFER
OF OPTION.

(a)           TRANSFERS
GENERALLY PROHIBITED. Except as otherwise provided by the Option Award Notice
or otherwise permitted by the Plan or in the case of a transfer permitted by
subsection 3(b) below, the option shall be exercisable only during the
Optionee’s lifetime and only by the Optionee. Except as otherwise provided in
subsection 3(b) below, the option and the rights and privileges conferred
by the option shall not be sold or otherwise Transferred.

(b)           CERTAIN
TRANSFERS PERMITTED. Notwithstanding the foregoing provisions of this Section 3,
this option may be Transferred (i) in the event of the Optionee’s death,
by will

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or the laws of descent and distribution or by a
written beneficiary designation accepted by the Company, (ii) by operation
of law in connection with a merger, consolidation, recapitalization, reclassification
or exchange of Shares, reorganization or similar transaction involving the
Company and affecting the Shares generally or (iii) with the approval of
the Committee, to a member of Optionee’s family, or a trust primarily for the
benefit of Optionee and/or one or more members of Optionee’s family, or to a
corporation, partnership or other entity primarily for the benefit of Optionee
and/or one or more such family members and/or trusts or (iv) with the
approval of the Committee, in another estate or personal financial planning
transaction; provided, however, that in any
such case the option so Transferred shall remain subject in the hands of the
Transferee to the restrictions on Transfer provided hereby and all other terms
hereof, including the terms of subsection 2(c) above.

(c)           FIDUCIARY
AND SECURITIES LAW RESTRICTIONS. As a employee, officer and/or director of the
Company, Optionee may be subject to restrictions on his or her ability to sell
or otherwise Transfer Option Shares by reason of being a fiduciary for the
Company or by reason of federal or state securities laws and/or the policies
regarding transactions in securities of the Company from time to time adopted
by the Company and applicable to Optionee in connection therewith. Nothing
contained herein shall relieve Optionee of any restriction on sale or other
Transfer of Option Shares provided thereby and any other restrictions of sale
or other Transfer of Option Shares provided herein (including in an Option
Award Agreement or in the Plan) shall be in addition to and not in lieu of any
other restrictions provided thereby.

SECTION 4.           EXERCISE
PROCEDURES.

(a)           NOTICE
OF EXERCISE. The Optionee (or the Optionee’s personal representative or
permitted Transferee) may exercise the option by giving written notice to the
Company specifying the election to exercise the option, the number of Option
Shares for which it is being exercised and the form of payment. Exhibit A
is an example of a “Notice of Exercise.” 
The Notice of Exercise shall be signed by the person exercising the
option. In the event that the option is being exercised by the Optionee’s
personal representative or permitted Transferee, the notice shall be
accompanied by proof (satisfactory to the Company) of the representative’s
right to exercise the option. The Optionee or the Optionee’s representative or
permitted Transferee shall deliver to the Company, at the time of giving the
notice, payment in a form permissible under Section 5 below for the full
amount of the Purchase Price.

(b)           ISSUANCE OF COMMON STOCK. Subject to subsection 2(c) above
and subsection 4(d) below, after receiving a proper notice of exercise and
payment for the Option Shares for which the option was exercised, the Company
shall cause to be issued a certificate or certificates for the Option Shares as
to which this option has been exercised, registered in the name of the person
exercising the option (or, at the direction of the Optionee, in the names of
such person and his or her spouse as community property or as joint tenants with
right of survivorship or as tenants in the entirety).

(c)           WITHHOLDING
REQUIREMENTS. The Company may withhold any tax (or other governmental
obligation) as a result of the exercise of the option, as a condition to the
exercise of the option, and the Optionee shall make arrangements satisfactory
to the Company to enable it to satisfy all such withholding requirements. The
Optionee shall also make arrangements satisfactory to the Company to enable it
to satisfy any withholding requirements that may arise in connection with the
vesting or disposition of Option Shares purchased by exercising of the option.

(d)           SECURITIES LAW RESTRICTIONS ON
EXERCISE. Unless a registration statement under the Securities Act permitting
the sale and delivery of Option Shares upon exercise of the option is in effect
at the date of exercise, the Company shall not be required to issue Option
Shares upon such exercise, except as otherwise provided in this subsection. The
Company shall use its commercially reasonable efforts to register under the
Securities Act sufficient Option Shares to permit the sale and delivery to
Optionee of all Option Shares that may be acquired by Optionee upon the
exercise of the option; provided, however, that the Company shall
only be so required to register the Option Shares on Form S-8 

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under the Securities Act (or any successor form). Notwithstanding
the foregoing, the Company shall, if Optionee has given the Company at least 90
days’ notice requesting the Company to register the Option Shares that may then
be acquired by Optionee upon exercise of the option in accordance with the
foregoing provisions of this subsection and the Company has failed to do so,
issue Option Shares to Optionee upon exercise of the option without
registration thereof under the Securities Act if (i) Optionee represents,
effective on the date of such issuance, in writing in a form acceptable to the
Company (A) that such Option Shares are being acquired for investment and
not with a present view to distribution, (B) Optionee understands that the
Option Shares have not been registered under the Securities Act and cannot be
sold or otherwise Transferred unless a registration statement under the
Securities Act is in effect with respect thereto or the Company has received an
opinion of counsel, satisfactory to it, to the effect that such registration is
not required, (C) that Optionee has, alone or together with any qualified
advisor, such knowledge and experience in financial and business matters as is
necessary to evaluate the risks of an investment in the Option Shares, is
purchasing the Option Shares based on an independent evaluation of the
long-term prospects of an investment in the Option Shares and has been
furnished with such financial and other information regarding the Company as
the Optionee has requested for purposes of making such evaluation , and (D) Optionee
is able to bear the economic risk of an investment in the Option Shares subject
to such restrictions on Transfer and (ii) if the Company determines that
under the circumstances issuing the Option Shares pursuant to such exercise of
the option is lawful; provided, however, that the Company may require, as a condition of
such issuance of Option Shares, that Optionee execute and deliver to it such
other certificates, agreements and other instruments as in the judgment of the
Company, upon advice of counsel, are necessary or appropriate to assure that
the Option Shares are issued to Optionee in accordance with the Securities Act
and any other applicable securities law and may require that any certificates
representing Option Shares so issued bear any restrictive legend appropriate
for such purpose. In addition, even if a registration statement under the
Securities Act permitting the sale and delivery of Option Shares upon exercise
of the option is in effect at the date of exercise, the Company may suspend the
issuance of Option Shares pursuant to the exercise of all options issued under
the Plan for such period of time as in the judgment of the Company, upon advice
of counsel, is necessary in order for the Company to come into compliance with
all the reporting requirements applicable to the Company pursuant to Section 13(a) of
the Exchange Act or to otherwise avoid in connection with the issuance of the
Option Shares under such registration statement a violation of Sections 10, 11
or 12 of the Securities Act. If the Company suspends the issuance of Option
Shares pursuant to the exercise of options issued under the Plan, the Company
shall give prompt written notice thereof to the Optionee (but the failure of
the Company to give such notice shall not prevent the Company from suspending
the issuance of Option Shares as permitted hereby) and, at such time as such
period of suspension ends, shall give prompt written notice thereof to Optionee.

SECTION 5.           PAYMENT
FOR OPTION SHARES.

(a)           CASH OR CHECK. All or part of the Purchase Price
may be paid in cash or by good
check.

(b)           ALTERNATIVE
METHODS OF PAYMENT. Subject to any provision pertaining thereto in the Option
Award Agreement, at the sole discretion of the Committee, all or any part of
the Purchase Price and any applicable withholding requirements may be paid by
one or more of the following alternative methods:

(i)            Surrender of Stock. Payment may be
made by surrendering ownership of Shares that are already owned by the Optionee
free and clear of any restriction or limitation, unless the Company
specifically agrees to accept such Shares subject to a restriction or
limitation. In such cases, such Shares shall be surrendered to the Company in
good form for transfer and shall be valued at their Fair Market Value on the
date of exercise of the option. Without the specific approval of the Committee,
the Optionee shall not be permitted to surrender ownership of Shares in payment
of the Purchase Price (or withholding) if such action would cause the Company
to recognize compensation 

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expense (or additional
compensation expense) with respect to the option for financial reporting
purposes that otherwise would not have occurred.

(ii)           Net Exercise. Payment may be made in
the case of Nonqualified Stock Options by reducing the number of Option Shares
otherwise deliverable upon the exercise of the option by the number of Shares
having a Fair Market Value equal to the amount of the Purchase Price and the withholding
required to be made by the Company in connection with such exercise of the
option.

(iii)          Exercise/Sale.
Payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction (A) to a securities broker approved by the Company
to sell Option Shares (or other Shares owned by Optionee) and to deliver all or
part of the sales proceeds to the Company or (B) to pledge Option Shares
(and/or other Shares owned by Optionee) to a securities broker or lender
approved by the Company as security for a loan, and to deliver all or part of
the loan proceeds to the Company.

Should the Committee exercise its discretion to permit
the Optionee to exercise the option in whole or in part in accordance with
subsection 5(b) above, it shall have no obligation to permit such
alternative exercise with respect to the remainder of the option or with
respect to any other option to purchase Shares held by the Optionee.

SECTION 6.           TERM
AND EXPIRATION.

(a)           BASIC TERM. Subject to earlier termination in
accordance with subsection 6(b) below, the exercise period of this option
shall expire ten (10) years after the date it is granted.

(b)           TERMINATION OF SERVICE. If the Optionee’s Service
terminates, then the exercise period for this option shall expire (except as
otherwise set forth in the Option Award Notice) on the earliest of the
following occasions (or such later date as the Committee in a specific instance
may determine), but in no event after the expiration of the ten year period
referred to in subsection 6(a) above:

(i)            the date six (6) months after
the termination of the Optionee’s Service for any reason other than death,
normal retirement or Disability;

(ii)           the date twelve (12) months after the
termination of the Optionee’s Service by reason of Disability or retirement at
or after the normal date for retirement under any retirement plan of the
Company in which Optionee participates or as otherwise determined pursuant to
any then current formal retirement policy of the Company; or

(iii)          the date twelve
(12) months after the Optionee’s death.

The Optionee (or in the case of the Optionee’s death
or disability, the Optionee’s personal representative) may exercise all or part
of the option at any time before its expiration under the preceding provisions
of this Section 6, but only to the extent that the option had become
exercisable for Option Shares on or before the date the Optionee’s Service
terminates. When the Optionee’s Service terminates, this option shall expire
immediately with respect to the number of Option Shares of for which this
option is not yet become exercisable.

(c)           NOTICE
CONCERNING INCENTIVE STOCK OPTION TREATMENT. If this option is designated as an
Incentive Stock Option in the Option Award Notice, it ceases to qualify for
favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (i) more than three (3) months after the date the Optionee
ceases to be an Employee for any reason other than death or permanent

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and total disability (as defined in Section 22(e)(3) of
the Code), (ii) more than twelve (12) months after the date the Optionee
ceases to be an Employee by reason of such permanent and total disability or (iii) after
the Optionee has been on a leave of absence for more than ninety (90) days,
unless the Optionee’s reemployment rights are guaranteed by statute or by
contract.

SECTION 7.           ADJUSTMENT
OF SHARES.

(a)           ADJUSTMENT
GENERALLY. If while the option remains in effect there shall be any change in
the outstanding Shares of the class which may be purchased upon exercise of the
option, through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, combination of shares, exchange of
shares for other securities or other like change in the outstanding Shares, or
any spin-off, split-off, dividend in kind or other extraordinary dividend or
other distribution in respect of such outstanding Shares or other extraordinary
change in the capital structure of the Company, an adjustment shall be made to
the terms of the option so that the option shall thereafter be exercisable,
otherwise on the same terms and conditions as provided by the Option Award
Notice, this Agreement and the Plan, for such securities, cash and/or other
property as would have been received in respect of the Shares that would have
been issued upon exercise of the option had the option been exercised in full
immediately prior to such change or distribution (whether or not the option was
then exercisable in full) or, if and to the extent the Committee determines
that so adjusting the consideration to be received upon exercise of the option,
in whole or in part, is not practicable, the Committee shall equitably modify
the consideration to be received in respect of the exercise of the option or
the Exercise Price or other pertinent terms and conditions of the option as
provided by subsection 7(b) below. Such an adjustment shall be made
successively each time any such change in the outstanding Shares of the class
which may be purchased upon exercise of the option or extraordinary
distribution in respect of such outstanding Shares or extraordinary change in
the capital structure of the Company shall occur.

(b)           MODIFICATION OF OPTION. In the event any change in
the outstanding Shares of the class which may be purchased upon exercise of the
option or extraordinary distribution in respect of such outstanding Shares or
extraordinary change in the capital structure of the Company described in
subsection 7(a) above occurs, or in the event of any change in applicable
laws or any change in circumstances which results in or would result in any
substantial dilution or enlargement of the rights granted to, or available for,
Optionee as a participant in the Plan or which otherwise warrants equitable
adjustment to the terms and conditions of the option because such event or
circumstances interferes with the intended operation of the Plan (including the
intended tax consequences of Awards) occurs, then the Committee may, and shall
where required by subsection 7(a) above, adjust the number and kind of
Shares and/or other securities and/or cash or other property that may be issued
or delivered upon the exercise of the option and/or adjust the Exercise Price
and/or other terms and conditions of the option as the Committee in its discretion
determines to be equitable in order to prevent dilution or enlargement of the
Optionee’s rights in respect of the option as such existed before such event. Appropriate
adjustments may likewise be made by the Committee in other terms and conditions
of the option to reflect equitably such changes in circumstances, including
modifications of performance targets and changes in the length of performance
periods relating to the vesting of the option or any restrictions on Option
Shares. Notwithstanding the foregoing, (i) each such adjustment with
respect to an Incentive Stock Option shall comply with the rules of Section 424(a) of
the Code, (ii) in no event shall any adjustment be made which would render
any Incentive Stock Option granted hereunder other than an “incentive stock
option” for purposes of Section 422 of the Code without the consent of the
Optionee and (iii) no adjustment shall be made which is prohibited by Section 13
of the Plan.

(c)           MODIFICATIONS
TO COMPLY WITH SECTION 409A. To the extent applicable, this Agreement
shall be interpreted in accordance with Section 409A of Code and
Department of Treasury regulations and other interpretive guidance issued
thereunder, including without limitation any such regulations or guidance that
may be issued after the Date of Grant. Without limiting the authority of the
Committee under subsection 7(b) above to make modifications to the option
by reason of changes in law or circumstances that would result in any
substantial dilution or enlargement of the rights granted to, or 

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available for, Optionee as a participant in the Plan
or which otherwise warrants equitable adjustment to the terms and conditions of
the option because such event interferes with the operation of the Plan, and
notwithstanding any provision of the Agreement to the contrary, in the event
that the Committee or an authorized officer of the Company determines that any
amounts will be immediately taxable to the Participant under Section 409A
of the Code and related Department of Treasury guidance (or subject the
Optionee to a penalty tax) in connection with the grant or vesting of the
option or any other provision of the Option Award Notice or this Agreement or
the Plan, the Company may (a) adopt such amendments to the option,
including amendments to this Agreement (having prospective or retroactive
effect), that the Committee or authorized officer determines to be necessary or
appropriate to preserve the intended tax treatment of the option and/or (b) take
such other actions as the Committee or authorized officer determines to be
necessary or appropriate to comply with the requirements of Section 409A
of the Code and related Department of Treasury guidance, including such
Department of Treasury guidance and other interpretive materials as may be issued
after the Date of Grant.

SECTION 8.           MISCELLANEOUS
PROVISIONS.

(a)           RIGHTS
AS A SHAREHOLDER. Neither the Optionee nor the Optionee’s personal
representative or permitted Transferee shall have any rights as a shareholder
with respect to any Option Shares until the Optionee or his or her personal
representative or permitted Transferee becomes entitled to receive such Option
Shares by (i) filing a notice of exercise and (ii) paying the
Purchase Price as provided by this Agreement, and any such right shall also be
subject to subsections 2(c) and 4(d) above.

(b)           TENURE. Nothing in the Option Award Notice, this
Agreement or the Plan shall confer upon the Optionee any right to continue in
the Company’s Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Company (or any Parent or
Subsidiary employing or retaining the Optionee) or of the Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service
at any time and for any reason, with or without cause.

(c)           NOTIFICATION.
Any notification required by the terms of this Agreement shall be given in
writing and shall be deemed effective upon personal delivery to the President,
Treasurer, General Counsel, Secretary or any Assistant Secretary of the Company
or five Business Days upon deposit with the United States Postal Service, by
registered or certified mail, with postage and fees prepaid addressed to the
Company. A notice shall be addressed to the Company at its principal executive
office, marked to the attention of the Corporate Secretary, and to the Optionee
at the address that he or she most recently provided to the Company.

(d)           ENTIRE
AGREEMENT. This Agreement, any related Option Award Notice and the Plan
constitute the entire contract between the parties hereto with regard to the
subject matter hereof and supersede any other agreements, representations or
understandings (whether oral or written and whether express or implied) which
relate to the subject matter hereof; it being understood, however, that, if
this Agreement is being entered into by the Company in the performance of
obligations under an employment agreement between the Company and Optionee, the
Company and Optionee shall also have those separate obligations, if any,
relating to the granting of options provided thereby.

(e)           WAIVER.
No waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition whether of like or
different nature.

(f)            SUCCESSORS
AND ASSIGNS. The provisions of this Agreement shall inure to the benefit of,
and be binding upon, the Company and its successors and assigns and upon the
Optionee, the Optionee’s personal representatives, heirs, legatees and other
permitted Transferees, whether or not any such person shall have become a party
to this Agreement and have agreed in writing to be joined herein and be bound
by the terms hereof.

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(g)           CHOICE
OF LAW. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware, as such laws are applied to contracts
entered into and performed in such State.

SECTION 9.           DEFINITIONS.

(a)           “AGREEMENT”
shall mean this Stock Option Agreement.

(b)           “BOARD
OF DIRECTORS” shall mean the Board of Directors of the Company, as constituted
from time to time.

(c)           “CODE”
shall mean the Internal Revenue Code of 1986, as amended and as the same may be
amended from time to time, and the regulations promulgated thereunder.

(d)           “COMMITTEE”
shall mean the committee of the Board of Directors described in Section 2
of the Plan and (without limitation of the Committee’s authority to otherwise
delegate any of its powers or responsibilities as permitted by law) shall
include any officer of the Company to whom such committee has specifically
delegated by resolution adopted by the Committee authority to approve payment
for Option Shares by an alternative method of payment referred to in subsection
5(b) above.

(e)           “COMPANY”
shall mean Magellan Health Services, Inc, a Delaware corporation, and any
successor thereto.

(f)            “DATE
OF GRANT” in respect of an option shall mean, unless otherwise approved by the
Board of Directors or the Committee, (i) the date on which the Board of
Directors or the Committee resolved to grant the option to Optionee or (ii) either
(A) the date on which the Board of Directors or the Committee resolved to
authorize the grant of the option to Optionee, as part of grants of options to
be made to Employees to be selected by an authorized officer of the Company
pursuant to authority delegated by the Board or Committee, if such date was set
as the date of grant by the Board of Directors or Committee in providing such
authorization or (B) the date on which an authorized officer of the
Company determined, as evidenced by a writing, to grant the option to Optionee
pursuant to authority delegated to such officer as permitted by applicable law
by a resolution adopted by the Board of Directors or the Committee, where such
authorizing resolution did not itself provide that the date of authorization
should be the date of grant (which date determined by such officer shall in no
event be earlier than the date of such authorizing resolution of the Board of
Directors or the Committee) and (iii) such later date, after the
resolution of the Board of Directors or Committee referred to in clauses (i) or
(ii)(A) of this sentence or the determination of the officer referred to
in clause (ii)(B) of this sentence), on which Optionee’s Service
commenced.

(g)           “DISABILITY”
shall mean that the Optionee is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
as determined by the Committee in its sole discretion.

(h)           “EMPLOYEE”
shall mean any individual who is a common-law employee of the Company, a Parent
or a Subsidiary.

(i)            “EXCHANGE
ACT” shall mean the Securities Exchange Act of 1934, as amended and as the same
may be amended from time to time, and any successor statute, and the rules and
regulations promulgated thereunder.

(j)            “EXERCISE
PRICE” shall mean the amount for which one Option Share may be purchased upon
exercise of the option, as specified in the Option Award Notice.

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(k)           “EXTRAORDINARY
BUSINESS COMBINATION EVENT” shall be deemed to have occurred upon any of the
following events:

(i)            any person (as such term is used in Section 13(d) of
the Exchange Act) becomes the “beneficial owner” (as determined pursuant to Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power in the
election of directors of the Company’s then outstanding securities, except
that, in the case of a person who beneficially owned 50% of such combined
voting power on the date of the Option Award Notice, such person become the
beneficial owner (as so defined) of securities of the Company representing
sixty percent (60%) of more of such combined voting power; or

(ii)           during any period of two (2) consecutive
years (not including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the members of the
Board of Directors and any new director, whose election to the Board of
Directors or nomination for election to the Board of Directors by the Company’s
stockholders was approved by a vote of at least a majority of the directors
then still in office who either were directors at the beginning of the period
or whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority of the Board of Directors; or

(iii)          the Company shall merge with or
consolidate into any other corporation, other than a merger or consolidation
which would result in the holders of the voting securities of the Company
outstanding immediately prior thereto holding immediately thereafter securities
representing more than fifty percent (50%) of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or

(iv)          the stockholders of the Company
approve and effect a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all of the Company’s assets.

(l)            “FAIR
MARKET VALUE” of a Share as of any day shall mean the average of the opening
price and the closing price of the Shares on such day (or on the last preceding
trading date if the Shares were not traded on such day) if the Shares are
readily tradeable on a national securities exchange or the Nasdaq Stock Market
(or other established market system involving current interdealer quotations),
and, if the Shares are not readily tradeable, “Fair Market Value” shall mean
the amount determined in good faith by the Committee (or in accordance with
procedures approved by the Committee) as the fair market value of the Shares,
which determination shall be final and binding on all persons.

(m)          “INCENTIVE
STOCK OPTION” shall mean an employee incentive stock option described in Section 422(b) of
the Code.

(n)           “NONQUALIFIED
STOCK OPTION” shall mean a stock option not described in Sections 422(b) or
423(b) of the Code.

(o)           “OPTION AWARD NOTICE” shall have the meaning
provided by Section 1 of this Agreement.

(p)           “OPTIONEE”
shall mean the person signing this Agreement as such.

(q)           “PARENT” shall mean a “parent corporation” as
defined in Section 424(e) of the Code.

 9
 

 

(r)            “PLAN”
shall mean the Magellan Health Services, Inc. 2006 Management Incentive Plan.

(s)           “PURCHASE
PRICE” shall mean the Exercise Price multiplied by the number of Option Shares
with respect to which this option is being exercised.

(t)            “SECURITIES
ACT” shall mean the Securities Act of 1933, as amended and as the same may be
amended from time to time, and any successor statute, and the rules and
regulations promulgated thereunder.

(u)           “SERVICE”
shall mean service as an Employee. For any purpose under this Agreement,
Service shall be deemed to continue while the Optionee is on a bona fide leave
of absence, if such leave was approved by the Company in writing or if
continued crediting of Service for such purpose is expressly permitted by the
terms of such leave or required by applicable law (as determined by the
Company).

(v)           “SHARE” shall mean a share of Ordinary Common Stock
of the Company, as the same may generally be exchanged for or changed into any
other share of capital stock or other security of the Company or any other
company in connection with a transaction referred to in subsection 7(a) above
(and in the event of any such exchange or change, any security resulting from
any such successive exchange or change).

(w)          “TRANSFER”
shall mean, with respect to the option or Option Share, any sale, assignment,
transfer, alienation, conveyance, gift, bequest by will or under intestacy
laws, pledge, lien encumbrance or other disposition, with or without
consideration, of all or part of such Share, or of any beneficial interest
therein, now or hereafter owned by the Optionee, including by execution,
attachment, levy or similar process.

(x)            “SUBSIDIARY” shall mean a “subsidiary corporation”
as defined in Section 424(f) of
the Code.

 10
 

 

In consideration of the
foregoing and intending to be legally bound hereby, the Company and the
Optionee named below have executed this Agreement as of the date first above
written.

MAGELLAN
HEALTH SERVICES, INC.

By:                                                                            

Name:

Title:

OPTIONEE:

                                                

Name:

Address for Notice:

Social Security Number:

 11
 

 

EXHIBIT A

SAMPLE NOTICE OF EXERCISE

Magellan Health Services, Inc.

[ADDRESS]
Attn:  Corporate Secretary

Re:
Exercise of Option, Option Award Notice Reference No.      .

I hereby exercise my
stock option identified above granted under the Magellan Health Services, Inc.
2006 Management Incentive Plan (the “Plan”) and notify you of my desire to
purchase the Option Shares of that have been offered pursuant to the Plan and
related Option Agreement as described below.

Except as otherwise
agreed with the Company as provided by the Option Agreement, I shall pay for
the Option Shares by delivery of a check payable to Magellan Health Services, Inc.
(the “Company”) in the amount described below in full payment for such Option
Shares plus all amounts required to be withheld by the Company under state,
federal or local law as a result of such exercise or shall provide such
documentation as is satisfactory to the Company demonstrating that I am exempt
from any withholding requirement.

This notice of exercise
is delivered this        day of                   ,
20   .

	
  No. of Option Shares

  to be Acquired

  	
   

  	
  Type of Option

  	
   

  	
  Exercise Price

  	
   

  	
  Total

  
	
   

  	
   

  	
  Nonqualified Stock Option

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Incentive Stock Option

  	
   

  	
   

  	
   

  	
   

  
	
  Estimated Withholding

  	
   

  	
  Nonqualified only

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Amount Paid

  	
   

  	
   

  

 

	
  

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature of Optionee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Optionee’s Name and Mailing Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Optionee’s Social Security Number:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 12Exhibit 10.2

MAGELLAN HEALTH SERVICES,
INC.

2006
MANAGEMENT INCENTIVE PLAN

NOTICE OF
STOCK OPTION GRANT

(REFERENCE
NO. 20   -  -   )

	
  Name of
  Optionee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Shares Subject to Option:

  	
   

  	
          shares
  of Ordinary Common Stock of Magellan Health Services, Inc. (the
  “Shares”)

  
	
   

  	
   

  	
   

  
	
  Type of Option:

  	
   

  	
       Nonqualified                                   Incentive

  
	
   

  	
   

  	
   

  
	
  Exercise Price per Share:

  	
   

  	
  $         

  
	
   

  	
   

  	
   

  
	
  Date of Grant:

  	
   

  	
                ,
  20  

  
	
   

  	
   

  	
   

  
	
  Date Exercisable and Other Conditions of
  Exercise:

  	
   

  	
  This option shall be exercisable, in whole or in
  part, until its Expiration Date only to the extent it is vested and while the
  Optionee’s Service with the Company, a Subsidiary or a Parent company
  continues. In addition, this option, to the extent vested on the date of
  termination of the Optionee’s Service, shall be exercisable for the period
  after the termination of the Optionee’s Service provided by Optionee’s Option
  Agreement, unless a different period is specified in Optionee’s employment
  agreement with the Company, a Subsidiary or a parent company, in which case
  this option shall be exercisable for such different period after termination
  of Optionee’s Service (but in no event on or after the Expiration Date). 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [In addition, with respect to          
  of the Shares subject to this option (a ratable potion of which shall vest on
  each of the vesting dates of this option), the following provisions shall
  apply to the exercise of this option: Prior to the fifth anniversary of the
  Date of Grant, this option shall be exercisable, for all or part of such
  Shares as to which this option has vested, only if on or after the date on
  which such Shares have vested the Trading Price (as defined below) exceeds
  the Target Price (as defined below) applicable on any date. After the fifth
  anniversary of the Date of Grant, this option shall be exercisable without
  regard to the Trading Price as of the last date of vesting.] 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  In addition, this option may be exercised, to the
  extent vested, only when exercise is otherwise permitted in accordance with
  the terms of the 2006 Management Incentive Plan and the Option Agreement to
  which this notice of grant relates (including the provisions thereof
  applicable in the event of Injurious Conduct). 

  
	
   

  	
   

  	
   

  

 1
 

 

 

	
  

  	
   

  	
  [The “Trading Price” as of any date shall be the
  average of the Fair Market Value of a share of Ordinary Common Stock of the
  Company (or any successor security) over the 20 consecutive trading days
  ending on the trading day immediately preceding such date. The “Target Price”
  as of the vesting dates of this option shall be as provided on Attachment A
  hereto.]

  
	
   

  	
   

  	
   

  
	
  Vesting:

  	
   

  	
  This option shall vest with respect to the Shares
  subject hereto as to one-third of such Shares on each of the first, second
  and third anniversaries of the Date of Grant, provided that in each case the
  Optionee’s Service has not terminated prior to such date. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notwithstanding the preceding paragraph, this Option
  shall earlier vest immediately with respect to 100% of the Shares subject
  hereto in the event, after the date hereof, a Change in Control of the
  Company (as defined below) shall have occurred and within the period of
  eighteen months (or such other period as is provided by Optionee’s employment
  agreement, if any, in effect at the time of the Change of Control) following
  occurrence of the Change in Control, Optionee’s Service with the Company
  shall be terminated by the Company without Cause (as defined below) or by the
  Optionee with Good Reason (as defined below), provided that the Optionee’s
  Service with the Company has not previously terminated after the date hereof
  for any other reason, and upon such accelerated vesting this Option shall
  continue to be exercisable for the same period after such termination of
  Optionee’s Service as provided above. For purposes of this Option, the terms
  “Change in Control,” “Cause” and “Good Reason” shall have the same meanings
  as provided in any employment agreement between the Company and Optionee in
  effect at the time of the Change in Control (including any terms of
  substantially comparable significance in any such employment agreement even
  if not of identical wording) or, if no such employment agreement is in effect
  at such time or no such meanings are provided in such employment agreement,
  shall have the meanings ascribed thereto below:

  

 

	
  

  	
  (1)

  	
   A “Change in
  Control” of the Company shall mean the first to occur after the date hereof
  of any of the following events:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  a.

  	
  any “person,” as such term is used in Sections
  3(a)(9) and 13(d) of the Securities Exchange Act of 1934, as
  amended (the “Exchange Act”), becomes a “beneficial owner,” as such term is
  used in Rule 13d-3 promulgated under the Exchange Act, of 30% or
  more of the Voting Stock (as defined below) of the Company;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b.

  	
  the majority of the Board of Directors of the
  Company consists of individuals other than “Continuing Directors,” which
  shall mean the members of the Board on the date hereof;

  

 2
 

 

 

	
  

  	
   

  	
  c.

  	
  the Board of Directors of the Company adopts and, if
  required by law or the certificate of incorporation of the Corporation, the
  shareholders approve the dissolution of the Company or a plan of liquidation
  or comparable plan providing for the disposition of all or substantially all
  of the Company’s assets;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  d.

  	
  all or substantially all of the assets of the
  Company are disposed of pursuant to a merger, consolidation, share exchange,
  reorganization or other transaction unless the shareholders of the Company
  immediately prior to such merger, consolidation, share exchange,
  reorganization or other transaction beneficially own, directly or indirectly,
  in substantially the same proportion as they previously owned the Voting
  Stock or other ownership interests of the Company, a majority of the Voting
  Stock or other ownership interests of the entity or entities, if any, that
  succeed to the business of the Company; or

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  e.

  	
  the Company merges or combines with another company
  and, immediately after the merger or combination, the shareholders of the
  Company immediately prior to the merger or combination own, directly or
  indirectly, 50% or less of the Voting Stock of the successor company,
  provided that in making such determination there shall being excluded from
  the number of shares of Voting Stock held by such shareholders, but not from
  the Voting Stock of the successor company, any shares owned by Affiliates of
  such other company who were not also Affiliates of the Company prior to such
  merger or combination.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (2)

  	
  “Cause” shall mean:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  a.

  	
  Optionee is convicted of (or pleads guilty or nolo
  contendere to) a felony or a crime involving moral turpitude;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b.

  	
  Optionee’s commission of an act of fraud or
  dishonesty involving his or her duties on behalf of the Company;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c.

  	
  Optionee’s willful failure or refusal to faithfully
  and diligently perform duties lawfully assigned to Optionee as an officer or
  employee of the Company or other willful breach of any material term of any
  employment agreement at the time in effect between the Company and Optionee;
  or

  

 3
 

 

 

	
  

  	
   

  	
  d.

  	
  Optionee’s willful failure or refusal to abide by
  the Company’s policies, rules, procedures or directives, including any
  material violation of the Company’s Code of Ethics.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (3)

  	
  “Good Reason” shall mean:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  a.

  	
  a reduction in Optionee’s salary in effect at the
  time of a Change in Control, unless such reduction is comparable in degree to
  the reduction that takes place for all other employees of the Company of
  comparable rank (for which purpose any person who is an executive officer of
  the Company (as determined for purposes of the Exchange Act shall be
  considered of comparable rank) or a reduction in Optionee’s bonus for the
  year in which or any year after the year in which the Change of Control occurs
  from Optionee’s maximum bonus opportunity for the year in which the Change in
  Control occurs (if any) as established under any employment agreement
  Optionee has with the Company or any bonus plan of the Company applicable to
  Optionee (or, if no such maximum bonus opportunity has yet been established
  for Optionee under a bonus plan applicable to Optionee for the year in which
  the Change of Control has occurred, the maximum bonus opportunity so
  established for Optionee for the immediately preceding year (if any));

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b.

  	
  a material diminution in Optionee’s position, duties
  or responsibilities as in effect at the time of a Change in Control or the
  assignment to Optionee of duties which are materially inconsistent with such
  position, duties and authority, unless in either case such change is made
  with the consent of the Optionee; or

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c.

  	
  the relocation by more than 50 miles of the offices
  of the Company which constitute at the time of the Change in Control
  Optionee’s principal location for the performance of his or her services to
  the Company;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  provided that, in each such case, such event or
  condition continues uncured for a period of more than 15 days after Optionee
  gives notice thereof to the Company.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  For purposes of the foregoing definitions,
  (A) “the Company” shall include any entity that succeeds to all or
  substantially all of the business of the Company, (B) “Affiliate” of a
  person or other entity shall mean a person or other entity that directly or
  indirectly controls, is controlled by, or is under common control with the
  person or other entity specified, and (C) “Voting Stock” shall mean any
  capital stock of any class or classes having general voting power under
  ordinary circumstances, in the absence of contingencies, to elect the
  directors of a corporation and reference to a percentage of Voting Stock
  shall refer to such percentage of the votes that all such Voting Stock is
  entitled to cast.

  
	
   

  	
   

  	
   

  	
   

  
	
  Other Terms (if any):

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Expiration Date:

  	
               ,
  20   

  
	
   

  	
   

  	
   

  	
   

  

 

 4
 

 

By signing your name
below, you accept this award and acknowledge and agree that this award is
granted under and governed by the terms and conditions of Magellan Health
Services, Inc. 2006 Management Incentive Plan and the related Stock Option
Agreement, reference number 2006-  , both of which are hereby
made a part of this document.

	
  Optionee:

  	
   

  	
  MAGELLAN HEALTH SERVICES, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 

 5

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