Exhibit 10.1
MAGELLAN HEALTH SERVICES, INC.
------------------------------
2003 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 (an "OPTION AWARD
NOTICE"), 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) a number of shares of Ordinary Common Stock, $ 0.01 par value, of
the Company set forth in the Option Award Notice, subject to Section 7 below
(the "OPTION SHARES"). Each such Option Award Notice, 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 any of multiple Option Award Notices may be referred to herein as "the
Option Award Notice." This option is intended to be an Incentive Stock Option or
a Nonqualified Stock Option, as provided in the Option Award Notice.
(b) 2003 MANAGEMENT INCENTIVE PLAN AND DEFINED TERMS. This option is granted
under and subject to the terms of the Company's 2003 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.
(d) RESTORATION STOCK OPTION. If the Option Award Notice so provides, upon the
exercise of all or a portion of the option in accordance with paragraph (i) of
subsection 5(b) below, the Company shall grant an additional option to purchase
an equivalent number of Shares so purchased pursuant to the option, on the terms
and conditions set forth in such Option Award Notice and this Agreement (the
"RESTORATION STOCK OPTION"). In such event, references to the option in this
Agreement shall include references to the Restoration Stock Option. The Company
shall in such event issue an appropriate Option Award Notice in respect of such
Restoration Stock Option.
SECTION 2. RIGHT TO EXERCISE.
(a) EXERCISABILITY. Subject to the conditions set forth in this Agreement, all
or part of an option may be exercised to purchase Option Shares prior to its
expiration at the time or times 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.
(c) INJURIOUS CONDUCT. Except as otherwise specifically provided by an Option
Award Notice 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 (i) the option may not be exercised (even if fully vested), nor shall any
other Benefits accrue to the Optionee under the Agreement or the Plan (including
the lapse of any restrictions on transfer or other restrictions applicable to
Option Shares once issued), prior to settlement in full of all obligations of
the Optionee and the Company related to the option (including completion of the
issuance and delivery to the Optionee of Option Shares upon exercise of the
option and compliance by the Optionee with any restrictions that are applicable
to Optionee under the Plan or this Agreement or the Option Award Notice before
the lapse of any restrictions on transfer or other restrictions applicable to
Option Shares once issued), 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.
SECTION 3. TRANSFER OF OPTION.
(a) TRANSFERS GENERALLY PROHIBITED. Except as otherwise provided by the Option
Award Notice, this option shall be exercisable only during the Optionee's
lifetime and only by the Optionee. Except as otherwise provided in subsection
3(b) below, this option and the rights and privileges conferred hereby 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 Grantee's
death, by the laws of descent or distribution, (ii) by operation of law in
connection with a merger, consolidation, recapitalization, reclassification or
exchange of shares, reorganization or similar transaction involving the Company
affecting the Shares generally or (iii) with the approval of the Committee, to a
member of Grantee's family, or a trust primarily for the benefit thereof, or to
a corporation, partnership or other entity primarily for the benefit of such a
family member or trust or in another estate planning transaction; provided,
however, that the option so Transferred shall remain subject in the hands of the
Transferee to the restrictions on Transfer provided hereby.
(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
2
and/or the policies regarding transactions in the securities of the Company from
time to time adopted by the Company in connection therewith. Nothing contained
herein shall relieve Optionee of any restriction on sale or other Transfer of
Option Shares provided thereby and the restrictions provided herein shall be in
addition to and not in lieu of any such other restrictions.
(d) LAPSE OF TRANSFER RESTRICTIONS. Subject to subsection 3(c) above and unless
otherwise provided by the Option Award Notice, upon the acquisition of Option
Shares pursuant to the option Optionee shall be free to dispose of Option Shares
so acquired in any manner and at any time after expiration of the vesting period
provided by the Option Award Notice.
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 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, 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.
SECTION 5. PAYMENT FOR 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 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. 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
3
accept such Shares subject to a restriction or limitation. In such
cases, the 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 the applicable 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 expense (or additional compensation expense) with
respect to the option for financial reporting purposes that otherwise
would not have occurred.
(ii) Net Exercise. By reducing the number of Shares
otherwise deliverable upon the exercise of the option by the number
of Shares of having a Fair Market Value equal to the amount of the
Purchase Price and withholding required to be made by the Company in
connection with such exercise of the option.
(iii) Exercise/Sale. 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 Shares and to deliver all or
part of the sales proceeds to the Company or (B) to pledge Shares 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 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 Shares on or
4
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
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 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 Ordinary Common Stock of the Company, through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
reverse stock split, split up, spin-off, combination of shares, exchange of
shares for other securities, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to stockholders of
the Company, an adjustment shall be made to the option as determined by the
Committee so that the option shall thereafter be exercisable for such
securities, cash and/or other property as would have been received in respect of
the Common Stock subject to the option had such option been exercised in full
immediately prior to such change or distribution or, if to the extent the
Committee determines that such adjustment in the consideration to be received
upon exercise of the option is not practicable, the Committee shall equitably
modify the option as provided by subsection 7(b) below, and such an adjustment
shall be made successively each time any such change shall occur.
(b) MODIFICATION OF OPTION. In the event of any change or distribution described
in subsection 7(a) above, in order to prevent dilution or enlargement of the
Optionee's rights hereunder, the Committee may, in an equitable manner,
otherwise adjust the number and kind of Shares that may be issued under this
Agreement and/or adjust the Exercise Price applicable to the option and/or the
Fair Market Value of the Shares and other value determinations applicable to the
option. Appropriate adjustments may also be made by the Committee in other terms
of the option to reflect such changes or distributions and/or to modify any
other terms of the option, on an equitable basis, 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, and (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.
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 Shares subject to the option until the Optionee or his or
her personal representative or permitted Transferee becomes entitled to receive
5
such Shares by (i) filing a notice of exercise and (ii) paying the Purchase
Price as provided by this Agreement, and any such right shall be subject to
subsection 2(c) above of this Agreement.
(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 join herein and be
bound by the terms hereof.
(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.
6
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated thereunder.
(d) "COMMITTEE" shall mean the committee of the Board of Directors, as described
in Section 2 of the Plan.
(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
specified in the Option Award Notice, the later of (i) the date on which the
Board of Directors resolved to grant the option to Optionee or (ii) if later,
the first day of the Optionee's Service.
(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.
(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.
(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
7
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 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 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.
(r) "PLAN" shall mean the Magellan Health Services, Inc. 2003 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) "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).
(u) "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) and in respect of the option or the related Option Shares with such
adjustment thereto as provided in respect of adjustments in Benefits granted
under the Plan in accordance with subsection 7(b) above and Section 13 of the
Plan (if applicable).
8
(v) "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.
(w) "SUBSIDIARY" shall mean a "subsidiary corporation" as defined in Section
424(f) of the Code.
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:
9
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. 2003 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 Shares by delivery of a check payable to Magellan Health
Services, Inc. (the "Company") in the amount described below in full payment for
such 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. SHARES OF SHARES TO BE TYPE OF OPTION EXERCISE PRICE TOTAL
ACQUIRED
------------------------------ --------------------------------- -------------------------- ------------------------
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:
---------------------