EMPLOYMENT AGREEMENT

 

4.                                      Compensation.

 

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

 

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

 

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

 

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

 

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

 

2

 

6.                                      Termination.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

4

 

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

 

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

 

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

 

Employee covenants and agrees as follows:

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(b)                                 Non-Competition.

 

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

 

6

 

employee, agent, or consultant of any other person or entity, directly or indirectly, engage or attempt to engage in the business of providing or sel