UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
February 19, 2008
MAGELLAN HEALTH SERVICES, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 1-6639 58-1076937
(State or Other (Commission File (IRS Employer
Jurisdiction Number) Identification No.)
of Incorporation)
55 NOD ROAD
AVON, CONNECTICUT 06001
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (860) 507-1900
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 5.02. DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENT OF CERTAIN OFFICERS.
(b), (c) and (e)
On February 19, 2008, the Company's Board of Directors named Rene Lerer,
M.D., previously the Company's Chief Operating Officer, as Chief Executive
Officer and the service of Steven J. Shulman as Chief Executive Officer ended.
Mr. Shulman remains non-executive Chairman of the Board of Directors of the
Company. Mr. Lerer retains the title of President of the Company; the Board of
Directors determined not to fill the separate position of chief operating
officer at the present time. In connection with this change in executive roles,
the Company's Bylaws have been amended to reflect that the President of the
Company would be the chief executive officer of the Company (and not chief
operating officer) and the role of the Chairman of the Board would be a
non-executive role, as further discussed below. On February 25, 2008, the
Company issued a press release regarding the change in roles of Messrs. Lerer
and Shulman, as well as certain other executive appointments. A copy of the
Company's press release is attached as Exhibit 99.1 hereto, and is incorporated
by reference into this Item 5.02.
Rene Lerer, M.D, age 52, has served as President and Chief Operating
Officer of the Company since October 2003 and had been a member of the Board of
Directors since January 2004. He served as Chief Operating Officer of the
company since January 2003. Prior to joining the company, Dr. Lerer co-founded
IHCG, an early stage healthcare technology venture fund, and served as its
President from 1999 to 2002. Prior to IHCG, Dr. Lerer was employed by Prudential
Healthcare, Inc. as its Chief Operating Officer from 1997 to 1999. Dr. Lerer is
a member of the board of directors of IHCG and Digital Insurance, a private
employee benefits service company.
In connection with Dr. Lerer's election as Chief Executive Officer, the
Company and Dr. Lerer on February 19, 2008 entered into an Employment Agreement,
which replaced the employment agreement previously in effect with respect to Dr.
Lerer's service as Chief Operating Officer. This new employment agreement
provides for him to serve for three years as President and Chief Executive
Officer, and as a director, and is subject to automatic renewal for successive
12-month periods unless notice of non-renewal is given by the Company or Dr.
Lerer at least six months in advance of the renewal date. During his employment
under the agreement Dr. Lerer will be entitled to (i) an annual salary of
$900,000 per year (subject to increase upon annual review in the discretion of
the Board of Directors), (ii) the opportunity to receive an annual performance
bonus (provided he is employed on the last day of the year) based upon the
achievement of performance targets to be set by the Board of Directors in the
first quarter of the year using criteria provided by the Company's Management
Incentive Plan and on terms no less favorable than applicable to other
executives of the Company, in a targeted amount which will be not less than 100%
of his annual salary if the targets are 100% achieved and may in the discretion
of the Board range up to 200%, and any additional bonus payments determined in
the discretion of the Board to be appropriate, (iii) an annual equity grant to
be made in accordance with the Company's established policy for executive equity
grants and otherwise on terms to be determined by the Board based on performance
and compensation trends in the industry, which may include a mix of options,
restricted stock units and/or other equity-linked securities and performance
vesting requirements, but which for 2008 shall be in the amount of $3.7 million
(valued in accordance with Company policies) and (iv) such other employment
benefits as the Company may from time to time provide, on a basis no less
favorable to him than provided to other senior executive but including (A) in
the case of life insurance coverage a death benefit of not less than three times
his annual salary, (B) in the case of long-term disability coverage a benefit of
not less than 60% of his annual salary and (C) the use of a car leased by the
Company at an annual lease cost of no more than $25,000 per year.
The other terms of the agreement are, in general, substantially the same
as applicable with respect Dr. Lerer's service as Chief Operating Officer
pursuant the employment agreement entered into by him and the Company in 2005.
These terms include provision for certain benefits upon the termination of Dr.
Lerer's employment, including, if his employment is terminated by the Company
without cause or because the Company gives notice that the employment term shall
not automatically renew, a lump-sum severance payment equal to twice his annual
salary and his target bonus amount for the year of termination (three times if
the termination is in connection with a change in control of the Company),
vesting of all unvested equity awards and medical, dental and hospitalization
coverage for Dr. Lerer and his wife until they turn age 65. A copy of Dr.
Lerer's Employment Agreement with the Company is attached as an exhibit and
reference should be made thereto for more detailed information regarding the
provisions described above and the other terms and conditions.
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In connection with the change in Mr. Shulman's role with the Company, the
Company and Mr. Shulman entered into a Transition Agreement pursuant to which he
will serve as non-executive Chairman of the Board, providing such services as
are commonly associated with such position and are from time to time requested
by the Board of Directors or the Chief Executive Officer, for up to three years
(assuming he is re-elected to the Board throughout the period), provided that
the Company may elect to terminate Mr. Shulman's services at any time and Mr.
Shulman may elect to terminate his services starting February 19, 2009. At the
end of this three year period, Mr. Shulman would continue as a Board member for
the remainder of his term, or longer if re-nominated and re-elected to the
Board, and may continue as Chairman of the Board in the discretion of the Board.
For his services during the three year period, Mr. Shulman shall be entitled to
an annual fee of $1 million, of which 50% shall be paid in cash in quarterly
installments conforming with the schedule of payments made to other Board
members for directors fees and the other 50% shall be paid in Company securities
(of, if not paid in securities in cash in quarterly installments) in the same
proportion of Common Stock, options and whatever other equity-linked securities
the other Board members receive, valued in the same way the other Board members'
fees paid in equity-linked securities are valued and issued and vesting on the
same schedule as applicable to such equity-linked securities issued to other
Board members; provided that, if the Company terminates Mr. Shulman's services
before February 19, 2009, it shall nevertheless be required to pay him the
remaining fee applicable through such date. In addition, Mr. Shulman will be
entitled to use during the period of his service as Chairman of the Board the
automobile currently provided to him by the Company until the lease thereof by
the Company expires and, unless he otherwise is provided comparable coverage, to
coverage under the Company's medical, dental and hospitalization insurance for
himself and his spouse to the same extent as provided to senior executives of
the Company (or reimbursement of the cost of similar coverage) until Mr. Shulman
and his wife reach age 65. Pursuant to the Transition Agreement, Mr. Shulman
agreed until February 19, 2010 or, if later, one year after he ceases to provide
services under the agreement not to engage or participate directly or indirectly
in any business that competes with the Company in the lines of business in which
the Company currently engages or in which it comes to engage while he provides
services under such agreement.
As a result of his service as Chief Executive Officer ending, Mr. Shulman
has become entitled to certain payments and other benefits under the Employment
Agreement entered into by the Company and Mr. Shulman in 2004. Pursuant to the
Transition Agreement, Mr. Shulman and the Company agreed that these benefits
include, among other things, a lump-sum payment equal to twice his annual salary
and 2008 target bonus opportunity, plus a pro rata portion of his target bonus
opportunity for 2008 and the vesting of any unvested equity awards. Mr. Shulman
will also be paid the performance bonus earned for 2007 in accordance with the
Employment Agreement and the Company's executive bonus program. The cash
payments currently to be made to Mr. Shulman will total approximately $5.8
million. Further information regarding the terms of Mr. Shulman's Employment
Agreement is contained in the Company's April 12, 2007 Proxy Statement. A copy
of the Transition Agreement is attached as an exhibit and reference should be
made thereto for more detailed information regarding the provisions described
above and the other terms and conditions.
Item 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR.
In connection with the changes in executive roles described in Item 5.02
of this report, on February 25, 2008, the Board of Directors of the Company
amended Sections 2 and 3 of Article IV of the Company's Bylaws, effective
immediately, to provide that the President, instead of the Chairman of the
Board, would be Chief Executive Officer of the Company and that the position of
Chairman of the Board will be a non-executive position. As amended, the Bylaws
no longer mandate the appointment of a chief operating officer and the
establishment of such a position is in the discretion of the Board. A copy of
the amendment to the Sections of the Bylaws made as described above is attached
as an exhibit and reference should be made thereto for more detailed
information.
Item 9.01 FINANCIAL STATEMENTS AND EXHIBITS
Exhibit 3.2: Amendments to Sections 2 and 3 of Article IV of the Company's
Bylaws, adopted February 25, 2008.
Exhibit 10.1: Employment Agreement dated February 19, 2008 between the
Company and Rene Lerer, M.D.
Exhibit 10.2: Transition Agreement dated as of February 19, 2008 between the
Company and Steven J. Shulman.
Exhibit 99.1 Press Release, dated February 25, 2008, regarding the change
in roles of Messrs. Lerer and Shulman, as well as certain
other executive appointments.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MAGELLAN HEALTH SERVICES, INC.
By: /s/ Mark S. Demilio
-------------------------------
Date: February 25, 2008 Name: Mark S. Demilio
Title: Executive Vice President and
Chief Financial Officer
================================================================================
Exhibit Index
Exhibit 3.2: Amendments to Sections 2 and 3 of Article IV of the Company's
Bylaws, adopted February 25, 2008.
Exhibit 10.1: Employment Agreement dated February 19, 2008 between the
Company and Rene Lerer, M.D.
Exhibit 10.2: Transition Agreement dated as of February 19, 2008 between the
Company and Steven J. Shulman.
Exhibit 99.1 Press Release, dated February 25, 2008, regarding the change
in roles of Messrs. Lerer and Shulman, as well as certain
other executive appointments.
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