Exhibit 10.65
EMPLOYMENT
AGREEMENT
(As amended and restated December 16,
2008)
THIS EMPLOYMENT AGREEMENT
(“Agreement”) is made and entered into by and between
Rene Lerer (“Executive”) and Magellan Health
Services, Inc. on behalf of itself and its subsidiaries and
affiliates (collectively referred to herein as the
“Company” or “Employer”).
WHEREAS, Employer desires to
continue to obtain the services of Executive and Executive desires
to continue to render services to Employer; and
WHEREAS, Employer and Executive
desire to set forth the terms and conditions of Executive’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 Executive, and Executive accepts such employment in
accordance with the terms of this Agreement (provided, however,
that the payments to be made under Section 4(b) and
4(c)(iii) intended to be exempt from
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the “Code”), are subject to approval by the
Company’s shareholders), for a term of three years from the
date of the execution of this Agreement (the “Operative
Date”). 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 six (6) months prior to
the next renewal date. Employer’s notice of intent not
to renew the Agreement shall be deemed to be a termination without
Cause (as defined below) occurring immediately prior to the
expiration of the term of this Agreement and the provisions of
Section 6(d) or 6(e), as applicable, shall apply.
Non-renewal of this Agreement by either party will in all
cases result in termination of employment at the non-renewal
date.
2. Position And Duties Of
Executive; Location Of Employment.
(a) Executive will serve as
President and Chief Executive Officer and member of the board of
directors of the Company (as constituted following the Operative
Date) (the “Board”). Executive shall (i) report,
as President and Chief Executive Officer, directly to the Board and
(ii) have such duties and responsibilities typical of, and
consistent with, the position of President and Chief Executive
Officer in a public company the size and nature of the Company.
Executive agrees to serve in such position, until the expiration of
the term or such time as Executive’s employment with Employer
is terminated pursuant to this Agreement.
(b) Executive shall perform his
duties at the Company’s principal executive offices located
in Avon, Connecticut (the “Offices”).
3. Time Devoted. Executive
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. Executive
agrees that he or she 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. Notwithstanding the foregoing, Executive shall be
entitled to (i) serve on the boards of directors of companies
on which Executive serves as of the Operative Date, (ii) with
the prior approval of the Board, serve on the boards of directors
of a reasonable number of other
companies, (iii) serve on civic or
charitable boards and (iv) manage his personal and family
investments, to the extent such activities do not materially
interfere with the performance of his duties for the
Company.
4. Compensation.
(a) Base Salary. Employer will
pay Executive a base salary in the amount of $900,000 per year
(“Base Salary”), with annual review for increase by the
Board or a duly authorized committee thereof, it being understood
that any such increase shall be at the discretion of the Board or a
duly authorized committee thereof, which amount will be paid in
semi-monthly intervals, less appropriate withholdings for federal
and state taxes and other deductions authorized by
Executive.
(b) Bonus. Executive shall be
entitled to an annual target bonus opportunity of 100% of Base
Salary (“Target Bonus”) with the ability to earn up to
200% of Base Salary at the sole discretion of the Board or a duly
authorized committee thereof. The applicable performance targets
for each year shall be fixed by the Board or a duly authorized
committee thereof during the first quarter of the year after
consultation with Executive (the “Performance
Targets”); provided that the Performance Targets established
with respect to the Target Bonus shall not be less favorable than
the corporate performance targets applicable to other bonus
eligible executives of the Company. The performance criteria upon
which such Performance Targets are based shall be one or more of
the performance criteria set forth in the Company’s
Management Incentive Plan. Executive shall earn the applicable
portion of the Target Bonus based on the achievement of the
Performance Targets, as follows:
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% Achievement of Performance Targets
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% of Target Bonus Earned
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100%
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100
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%
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The Board or a duly authorized committee thereof
may, in its sole discretion, authorize the Company to pay Executive
additional bonus amounts. Payments of any annual bonus shall be
made no later than the March 15 of the year following the year
in which such bonus is earned (e.g., by March 15, 2009 for the
bonus earned for 2008). The Target Bonus or applicable percentage
thereof, if any, for a given year shall be earned on
December 31 of such year and, except as specifically set forth
in Sections 6(c)(ii) and (iii), 6(d)(ii) and
(iii) and 6(e)(ii) and (iii), Executive shall not be
entitled to any payment of Target Bonus, or a percentage thereof,
for a given year if he is not employed on December 31 of such
year.
(c) Equity Award. The Company
shall make an annual equity grant to Executive (“Long Term
Compensation”). The amount of Long Term Compensation will be
determined annually by the Board or a duly authorized committee
thereof based on performance and compensation trends in the
industry. The initial Long Term Compensation to be issued in the
first quarter of 2008 in accordance with the Company’s Policy
Regarding Awards of Equity-Based Incentive Arrangements to
Executive Officers and Other Employees, which deals with the terms,
timing and pricing of equity awards will be in the amount of $3.7
million. The mix of stock options, restricted stock units
(“RSUs”), and other equity-linked securities, which in
2008 will aggregate to $3.7 million, and the performance based
vesting schedule will be determined by the Board or a duly
authorized committee thereof.
(d) Benefits. Executive shall
be entitled to participate in the employee welfare benefit programs
of the Company on a basis at least as favorable as other
similarly-situated, senior-level executives of the Company;
provided that (i) subject to the obligations set forth in
clause (ii) below, the Board may modify or terminate any
employee welfare benefit program established by the Company;
provided that no such amendment or termination may adversely affect
any benefits accrued by Executive prior to the date of such
amendment or termination and (iii) in any event, the
Company
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shall provide at its cost life insurance
benefits to Executive of no less than three times Executive’s
Base Salary, Executive shall be permitted to purchase at his own
expense additional life insurance coverage in an amount no less
than three times his Base Salary, and the Company shall provide
long-term disability coverage equal to no less than 60% of
Executive’s Base Salary; provided, in all cases Executive is
insurable by an insurance company with respect to such
coverage.
(e) Other Long Term Incentives.
Executive shall be entitled to participate in the long-term
incentive programs of the Company including those contained in the
Management Incentive Plan, on a basis that are at least as
favorable as awards to other similarly-situated, senior-level
executives of the Company, it being understood that the Board may
modify or terminate any long-term incentive plan established by the
Company; provided that no such amendment or termination may
adversely affect any outstanding long-term incentive awards of
Executive.
(f) Deferred Compensation Plan.
For so long as the Company sponsors a deferred compensation plan
approved by the Board on or after the Operative Date, Executive
shall be entitled to participate in any such qualified or
non-qualified deferred compensation plan with the Company
contributing an amount equal to 11% of Executive’s Base
Salary or, if greater, such amount as is provided to other senior
executives, on terms no less favorable a basis than is made
available to other senior executives of the Company, it being
understood that the Board may modify or terminate any deferred
compensation plan established by the Company; provided that no such
amendment or termination may adversely affect any benefits accrued
by Executive prior to the date of such amendment or termination and
the power to modify or terminate such a plan is subject to
limitations under Code Section 409A.
(g) Perquisite. Executive shall
be entitled to use of a car of his choosing leased by the Company
at an expense to the Company of no more than $25,000 per
annum.
5. Expenses. During the term
of this Agreement, Employer will reimburse Executive promptly for
all reasonable and appropriate travel, entertainment, parking,
business meetings and similar expenditures in pursuance and
furtherance of Employer’s business and all licensing and
professional organization dues and fees and all other expenses
reimbursable to employees generally pursuant to the Company’s
policies upon receipt of reasonably supporting documentation as
required by Employer’s policies applicable to its employees
generally. Any reimbursement payment under Section 5,
Section 4(d) or (g) or otherwise as an expense
reimbursement hereunder must be paid no later than the end of
Employee’s taxable year next following the taxable year in
which Employee incurred the reimbursable expense (but the
obligation to pay promptly generally will require payment in a much
shorter period).
6. Termination.
(a) Termination Due to
Resignation. Executive may resign his employment at any time by
giving 90 days written notice of resignation to Employer. Except as
otherwise set forth in this Agreement, Executive’s
employment, and Executive’s right to receive compensation and
benefits from Employer, will terminate upon the effective date of
Executive’s termination. If Executive resigns pursuant to
this Section 6(a), Employer’s only remaining financial
obligation to Executive under this Agreement will be to pay
(subject to Section 11): (i) any earned but unpaid Base
Salary through the date of termination, (ii) all vested stock
options shall remain exercisable for six months following the date
of termination of Executive’s employment, (iii) any
other amounts earned, accrued or owing to Executive but not yet
paid, and (iv) other payments, entitlements or benefits, if
any, that are payable in accordance with applicable plans,
programs, arrangements or other agreements of the Company or any
affiliate.
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(b) Termination with Cause.
Except as otherwise set forth in this Section 6(b),
Executive’s employment, and Executive’s right to
receive compensation and benefits from Employer, may be terminated
for Cause at the discretion of Employer under the following
circumstances:
(i) Executive is convicted of
(or pleads guilty or nolo contendere to) a felony;
(ii) intentional fraud by
Executive in the performance of his duties for the Company or
intentional misappropriation of Company funds by
Executive;
(iii) (A) material breach
of Section 8(b), (c) or (d) of this Agreement or
(B) a willful and material breach of Section 8(a) of
this Agreement;
(iv) a willful and material
violation by Executive of the Company’s written policies and
procedures that are legal and ethical and have been made available
to Executive and relate to the performance of his duties for the
Company (provided that the Company has not failed to terminate
other employees for comparable violations) or willful gross
misconduct by Executive relating to the performance of his duties
for the Company; or
(v) willful failure to comply
with direction of the Board or any duly authorized committee
thereof (including any written policies or procedures promulgated
by those bodies), provided that (A) such directions (or
policies or procedures) are action of the Board or a duly
authorized committee thereof within the meaning of Section 141
of the General Corporation Law of the State of Delaware (or any
comparable provision of applicable law), (B) the existence of
such directions (or policies or procedures) is known by Executive
or such directions (or policies or procedures) have been
communicated to Executive, (C) such directions (or policies or
procedures) are consistent with the duties and role of a Chief
Executive Officer or a director of a company the nature and size of
the Company and (D) such directions (or policies or
procedures) do not require actions that are illegal or
unethical.
Each of clauses (i) through (v) are
independent of others and the fact that Executive may not be
terminated for Cause under any one of such clauses shall have no
bearing on whether he may be terminated for Cause under any other
such clauses. For purposes of clauses (iii) and (iv)(but not
clause (v)), no act or failure to act shall be deemed to be
“willful” if Executive reasonably believed in good
faith that such act or failure to act was in, or not opposed to,
the best interests of the Company. Anything to the contrary
notwithstanding, Executive’s employment shall not be
terminated for “Cause,” within the meaning of clauses
(ii) through (v) above, unless Executive has been given
written notice by the Board stating the basis for such termination
and, in the case of clauses (iii) through (v) above, he
is also given fifteen (15) days to cure the neglect or conduct that
is the basis of any such claim and, if he fails to cure such
conduct, or such conduct cannot be cured (and also for any
purported termination for Cause under clause (ii) above),
Executive has an opportunity to be heard before the Board and after
such hearing, the Board gives Executive written notice confirming
that in the judgment of a majority of the members of the Board
that, for so long as the Company has or is required by law to have
two such directors, includes at least two directors who are
independent for purposes of the listing requirements of the
principal securities exchange (including, for this purpose, the
Nasdaq Stock Market) on which the Company’s securities are
listed (or, in the event the Company’s securities are no
longer listed on any such securities exchange, the listing
requirements of the last such exchange on which the Company’s
securities were listed) “Cause” for terminating
Executive’s employment on the basis set forth in the original
notice exists. Executive’s communication to the Board of his
disagreement with decisions made by the Board and the reasons for
that disagreement shall not constitute “Cause” provided
that he does not engage in conduct constituting Cause as set forth
in clause (v) above. Any termination for Cause shall be
subject to de novo review in accordance with the arbitration
provisions of this Agreement. If an arbitrator or arbitrators
determine
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that the basis of Cause did not exist, then
Executive’s termination of employment shall be treated as a
termination without Cause.
If Executive’s employment is terminated
pursuant to this Section 6(b), (A) Employer’s only
remaining financial obligation to Executive under this Agreement
will be to pay (subject to Section 11): (i) any earned
but unpaid Base Salary through the date of termination,
(ii) any other amounts earned, accrued or owing to Executive
but not yet paid, and (iii) other payments, entitlements or
benefits, if any, that are payable in accordance with applicable
plans, programs, arrangements or other agreements of the Company or
any affiliate and (B) all stock options shall terminate
immediately upon the date of termination.
(c) Automatic Termination. This
Agreement and Executive’s employment hereunder will terminate
automatically upon the death or Disability of Executive.
“Disability” shall mean Executive’s inability,
due to physical or mental incapacity, to substantially perform his
duties and responsibilities for a period of 180 consecutive days as
determined by a medical doctor selected by the Company and
Executive. If the parties cannot agree on a medical doctor, each
party shall select a medical doctor and the two doctors shall
select a third doctor who shall be the approved medical doctor for
this purpose. If Executive’s employment is terminated
pursuant to this Section 6(c), Executive (or in the event of
his death, his estate or other legal representative) will receive
(subject to Section 11):
(i) Base Salary through the end
of the month in which termination occurs
(Section 11(a) may apply, however);
(ii) An amount equal to the
product of the Target Bonus for the year in which termination
occurs and a fraction, the numerator of which is the number of
elapsed days in such year of termination up to and including the
date of termination and the denominator of which is 365 (366 in the
case of a leap year)(“pro rata Target Bonus”), payable
in a single installment immediately after termination (the
six-month delay rule of Section 11(d) may apply,
however);
(iii) in the case of a
termination due to Executive’s Disability, a lump-sum cash
payment equal to two times the sum of (a) Base Salary plus
(b) Target Bonus; provided that this payment shall be made
only if Executive’s circumstances constituting Disability are
not covered by the Company’s long-term disability program so
that Executive will not receive long-term disability benefits under
such program as in effect on December 31, 2008. The
Company will not reduce the long-term disability coverage (in scope
or amount) of Executive after December 31, 2008, and any
broadening of the scope of disability coverage under such program
will not apply to Executive unless payments under such broadened
coverage would be in the same form and at the same times as under
the Section 6(c)(iii). Amounts due to Executive under
this Section 6(c)(iii) will be payable in a single
installment immediately after termination (the six-month delay
rule of Section 11(d) may apply,
however);
(iv) accelerated vesting of
all outstanding equity awards not yet vested, with all vested
options remaining exercisable for two years following termination
(but not beyond the original term of such options); options that
are not exercisable as of the date of termination because the
applicable performance hurdle has not been satisfied as of such
date shall not become exercisable until and unless the applicable
conditions for exercisability are satisfied during this two-year
post-termination exercise period (Section 11 may apply to
equity awards constituting deferrals of compensation under Code
Section 409A, however);
(v) continued health benefits
for Executive and his spouse in the event of Executive’s
disability, and for Executive’s spouse in the event of his
death, as described in Section 6
(d) (v) below;
(vi) any other amounts earned,
accrued or owing to Executive but not yet paid
(Section 11(b)(i) may apply, however); and
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(vi) other payments,
entitlements or benefits, if any, that are payable in accordance
with applicable plans, programs, arrangements or other agreements
of the Company or any affiliate.
(d) Termination Without Cause
By The Company or With Good Reason By Executive. Employer may
terminate this Agreement and Executive’s employment without
Cause at any time. If Employer terminates this Agreement without
Cause or if Executive terminates this Agreement and
Executive’s employment with Good Reason, Executive shall
(unless Section 6(e) is applicable) receive (subject to
Section 11):
(i) Base Salary through the
date of termination;
(ii) pro-rata Target Bonus for
the year in which termination occurs, payable in a single
installment immediately after termination (the six-month delay
rule of Section 11(d) may apply,
however);
(iii) 2 times the sum of
(a) Base Salary plus (b) Target Bonus, payable in a
single cash installment immediately after termination (the
six-month delay rule of Section 11(d) may apply,
however);
(iv) accelerated vesting of
all outstanding equity awards not yet vested, with all vested
options remaining exercisable for two years after termination (but
not beyond the original term of such options); options that are not
exercisable as of the date of termination because the applicable
performance hurdle has not been satisfied as of such date shall not
become exercisable until and unless the applicable conditions for
exercisability are satisfied during this two-year post-termination
exercise period (Section 11 may apply to equity awards
constituting deferrals of compensation under Code
Section 409A, however);
(v) health benefits as
follows: If and for so long as Executive is eligible
following termination of employment for continued coverage under
the Company’s medical, dental and hospitalization plans (the
“Health Plan”), the Company shall continue to provide
such coverage to Executive and his spouse until Executive shall
attain age 65 and for his spouse until she shall attain age 65. If
such continued insurance coverage under the Health Plan is not
available, and if Executive is eligible upon termination of
employment for COBRA continuation coverage under the Health Plan
and elects such coverage, Executive shall receive cash payments
equal on an after-tax basis to the full monthly premium cost to
Executive to purchase such COBRA continuation coverage for
Executive and his spouse, with such payments to be made by the
Company to Executive on a monthly basis for the duration of
Executive’s COBRA continuation period and in accordance with
Section 11, which payments shall be made in lieu of any
payments provided hereinabove that would otherwise be made during
the COBRA continuation period so that there is no duplication of
payments during the COBRA continuation period. (Such right to
reimbursement of the cost of COBRA participation shall be deemed a
separate payment right from other rights under this
Section 6(d)(v). If or when Executive is not eligible for such
continued coverage under the Health Plan, Executive shall instead
receive cash payments equal on an after-tax basis to the cost of an
individual insurance policy which the Company shall obtain to
provide health coverage equivalent to that which Executive would
have received under the Health Plan had Executive and his spouse
qualified for such coverage under the Health Plan, with such
payments to be made by the Company to Executive on a monthly basis
until Executive shall attain age 65 and for Executive’s
spouse until she shall attain age 65 and in accordance with
Section 11 (it being understood that the Company payments to
Executive attributable to this coverage will be equal on an
after-tax basis to the full monthly premium cost to Executive to
purchase such coverage independently). If no such insurance
coverage can be purchased independently, the Company shall pay for
medical, dental and hospitalization expenses incurred by Executive
and his spouse (each until
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age 65) to the full extent such expenses would
have been paid under such coverage, with an additional payment of a
gross-up for taxes on the benefits received by Executive and his
spouse (including the gross-up). If Executive enrolls in
group health insurance coverage with another employer following
termination of his employment with the Company, the Company’s
obligations under this section shall be suspended for the period
during which such other health insurance is in effect.
Executive shall not be required to enroll in any such coverage with
a new employer, and if any such coverage procured by Executive
ceases for any reason before Executive and his wife reach age 65,
the obligations of the Company under this section shall arise again
for the remaining period until Executive and his wife each reach
age 65. If any benefit under this
Section 6(d)(v) constitutes a deferral of compensation
not compliant with Code Section 409A, the Company will pay to
executive a gross-up so that the after tax cost of the benefit,
taking into account penalties and interest incurred under
Section 409A, to Executive and his spouse will be the same as
if this benefit were compliant with Section 409A;
(vi) at his election,
continuation of his life insurance and/or long-term disability
coverage by the Company for up to two years following termination
(provided Executive reimburses the Company for such
premiums);
(vii) any other amounts earned,
accrued or owing to Executive but not yet paid
(Section 11(b)(i) may apply, however);
(viii) other payments,
entitlements or benefits, if any, that are payable in accordance
with applicable plans, programs, arrangements or other agreements
of the Company or any affiliate.
For purposes of this Agreement “Good
Reason” shall mean termination by Executive of his employment
after written notice to the Company following the occurrence of any
of the following events without his consent:
(i) a reduction in
Executive’s then current Base Salary, the then Target Bonus
opportunity (i.e., 100% of Base Salary) or, to the extent as would
constitute a breach of this Agreement, any other compensation to
which Executive is entitled under this Agreement, other than a
reduction in the right to participate in a deferred compensation
plan if such reduction is applicable to all senior
executives;
(ii) a material diminution in
Executive’s positions, duties or authorities (including any
removal of Executive from any position set forth in Section 2
above, or any failure to elect or re-elect the Executive as a
member of the Board) or interference with Executive’s
carrying out his duties or exercising his authority so that he is
unable to carry out his duties or exercise his authority as Chief
Executive Officer or director (including any action by the Board or
one or more members thereof to give direction to other employees of
the Company with the intent of undermining, or in a manner that, by
itself or in combination with other actions described in this
parenthetical in clause (ii), could reasonably be expected to
materially undermine Executive’s authority, provided that no
action taken by (A) the Board or one or more members thereof
in accordance with any requirement of law or regulation or the
listing standards of NASDAQ or other securities exchange on which
the Company’s securities are listed or (B) the Board as
a whole or a duly authorized committee of the Board as a whole, in
accordance with generally accepted principles of sound corporate
governance for public companies of the size and nature of the
Company, shall constitute “Good Reason”);
(iii) the assignment to
Executive of duties which are materially inconsistent with his
duties or which materially impair Executive’s ability to
function as President and Chief Executive Officer of the Company or
as director;
(i
