MAGELLAN HEALTH SERVICES INC
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>mm02-2508_8ke101.txt
<TEXT>
                                                                    EXHIBIT 10.1
                                                                    ------------



                              EMPLOYMENT AGREEMENT

            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, 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.

            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


<PAGE>



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:

  % Achievement of Performance Targets          % of Target Bonus Earned
  ------------------------------------          ------------------------
                  100%                                    100%

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 31 of the year following the
year in which such bonus is earned (e.g., by March 31, 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



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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 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.

            (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.





                                       3
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            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: (i) any
earned but unpaid Base Salary through the date of termination, (ii) all vested
stock options shall remain exercisable until the later of (A) 90 days following
the date of termination or (B) the 45th day following the first day on or after
the date of termination on which Executive is not subject to a trading
"blackout" imposed by the Company and may sell the shares acquired upon option
exercise without violation of Rule 10b-5 under the Securities Exchange Act of
1934, (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.

            (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



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                        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 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: (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 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


                                       5
<PAGE>



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:

                  (i)   Base Salary through the end of the month in which
termination occurs;

                  (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;

                  (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 not be made if
Executive is eligible at the time of the termination of his employment for
long-term disability benefits under the Company's long-term disability program;

                  (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;

                  (v)   any other amounts earned, accrued or owing to Executive
but not yet paid; and

                  (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:

                  (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;

                  (iii) 2 times the sum of (a) Base Salary plus (b) Target
Bonus, payable in a single cash installment immediately after termination;





                                       6
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                  (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;

                  (v)   continued participation at the Company's expense in all
medical, dental and hospitalization coverages for Executive until the Executive
attains age sixty-five (65) and for Executive's wife until the Executive's wife
attains age sixty-five (65);

                  (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;

                 (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



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                        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;

                  (iv)  a change in the reporting structure so that Executive
                        reports to someone other than the Board;

                  (v)   requiring Executive to relocate, or the relocation of
                        the Offices, to a location that is more than 30 miles
                        from Avon, Connecticut;

                  (vi)  a breach by the Company of any material provision of
                        this Agreement;

                  (vii) the failure of the Company to obtain the assumption in
                        writing of its obligation to perform this Agreement by
                        any successor to all or substantially all of the assets
                        of the Company within 15 days after a merger,
                        consolidation, sale or similar transaction; or

                 (viii) for any reason by Executive during the 30-day period
                        immediately following the six-month anniversary of a
                        Change in Control (whether or not Executive consented to
                        such Change in Control);

provided that in the case of clauses (i) through (vii) (but not clause (viii))
such event continues uncured for fifteen (15) days after Executive gives the
Company notice thereof.

            (e)   Termination Without Cause By the Company or With Good Reason
By Executive In Connection With, Or Within Three Years After, A Change in
Control. If Employer terminates this Agreement and Executive's employment
without Cause, or if Executive terminates this Agreement and his employment with
Good Reason, in connection with a Change in Control (as defined below)(whether
before or at the time of such Change in Control) or within three years after a
Change in Control, Executive shall receive, in lieu of the amounts and benefits
described in Section 6(d):

                  (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;




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                  (iii) 3 times the sum of (a) Base Salary plus (b) Target
Bonus, payable in a single cash installment immediately after termination;

                  (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; provided that this clause (iv)
shall apply to stock options that vested upon the Change in Control as provided
in Section 7 below only if such options will receive more favorable treatment
under this clause;

                  (v)   continued participation at the Company's expense in all
medical, dental and hospitalization coverages for Executive until the Executive
attains age sixty-five (65) and for Executive's wife until the Executive's wife
attains age sixty-five (65);

                  (vi)  at his election, continuation of his life insurance
and/or long-term disability coverage by the Company for up to three 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;

                 (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 "Change in Control" shall mean the occurrence of
any one of the following events:

                  (i)   any "person," as such term is used in Sections 3(a)(9)
                        and 13(d) of the Securities Exchange Act of 1934,
                        becomes after the Operative Date a "beneficial owner,"
                        as such term is used in Rule 13d-3 promulgated under
                        that act, of 30% or more of the Voting Stock of the
                        Company;

                  (ii)  the majority of the Board consists of individuals other
                        than Incumbent Directors, which term means the members
                        of the Board on the Operative Date; provided that any
                        person becoming a director subsequent to the Operative
                        Date whose election or nomination for election was
                        supported by two-thirds of the directors who then
                        comprised the Incumbent Directors, shall be considered
                        to be an Incumbent Director;

                  (iii) the Company adopts any plan of liquidation providing for
                        the distribution of all or substantially all of the
                        Company's assets;





                                       9
<PAGE>



                  (iv)  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 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

                  (v)   the Company combines with another company and is the
                        surviving corporation but, immediately after the
                        combination, the shareholders of the Company immediately
                        prior to the combination hold, directly or indirectly,
                        50% or less of the Voting Stock of the combined company
                        (there being excluded from the number of shares held by
                        such shareholders, but not from the Voting Stock of the
                        combined company, any shares received by Affiliates of
                        such other company who were not Affiliates of the
                        Company prior to the relevant transaction in exchange
                        for stock of such other company).

For purposes of the Change in Control definition, (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 of such Voting Stock.

            (f)   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 the rights and obligations under the
last sentence of Section 1, this Section 6 and Sections 7, 8, 9 and 10; and all
procedural and remedial provisions of this Agreement.

            (g)   No Mitigation; No Offset. In the event of termination of
employment, Executive shall be under no obligation to seek other employment, and
there shall be no offset against any amounts due him under the Agreement on
account of any remuneration attributable to any subsequent employer or claims
asserted by the Company or any affiliate.

            7.    Change In Control Protection.

            (a)   Treatment of Equity. There shall be full vesting immediately
prior to a Change in Control that occurs prior to the termination of Executive's
employment for any reason of all outstanding equity awards (including, but not
limited to, stock options), with all vested stock options to remain exercisable
for the remainder of their terms; provided that options held by Executive shall


                                       10
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be cashed out in connection with a Change in Control if (i) required by the
terms of the Management Incentive Plan and (ii) all other options issued by the
Company are cashed out in connection with such Change in Control. Options that
are not exercisable because the applicable performance hurdle has not been
satisfied shall become exercisable immediately prior to a Change in Control that
occurs prior to the termination of Executive's employment for any reason.

            (b)   Tax Gross-Up. The following provisions shall apply with
respect to any excise tax imposed under Section 4999 of the Internal Revenue
Code as amended (the "Code"), (the "Excise Tax"):

                  (i)   If any of the payments or benefits received or to be
received by Executive in connection with a Change in Control or Executive's
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Change in Control of the Company or any person affiliated
with the Company or such person (the "Total Payments")) will be subject to the
Excise Tax, the Company shall pay to Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by Executive after payment
of (a) the Excise Tax, if any, on the Total Payments and (b) any Excise Tax and
income tax due in respect of the Gross-Up Payment, shall equal the Total
Payments. Such payment shall be made in a single lump sum within 10 days
following the date a determination that only such payment is required.

                  (ii)  For purposes of determining whether any of the Total
Payments will be subject to Excise Tax and the amount of such Excise Tax, (i)
any Total Payments shall be treated as "parachute payments" (within the meaning
of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel
selected by the Company and reasonably acceptable to Executive, such payments or
benefits (in whole or in part) should not constitute parachute payments,
including by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall
be treated as subject to the Excise Tax unless, in the opinion of such tax
counsel, such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code), or are otherwise not subject to the Excise
Tax, and (ii) the value of any noncash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in accordance
with the principles of Section 280G(d)(3) of the Code. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to pay
federal income and employment taxes at the highest marginal rate of federal
income and employment taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income and employment taxes at the
highest marginal rate of taxation in the state and locality of Executive's
residence on the date of termination of employment (or such other time as
hereinafter described), net of the maximum reduction in federal income or
employment taxes which could be obtained from deduction of such state and local
taxes.

            In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination of
Executive's employment (or such other time as is hereinafter described),
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction plus interest on the amount of such
repayment at the applicable federal rate, as defined in Section 1274(b)(2)(B) of



                                       11
<PAGE>



the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of Executive's
employment (or such other time as is hereinafter described) (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment
in respect of such excess (plus any interest at the applicable federal rate,
penalties or additions payable by Executive with respect to such excess) at the
time that the amount of such excess is finally determined. Executive and the
Company shall each reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.

            8.    Protection Of Confidential
Information/Non-Competition/Non-Solicitation.

            Executive covenants and agrees as follows:

            (a)   (i)   Confidential Information: During Employer's employment
of Executive and following the termination of Executive's employment for any
reason, Executive 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 Executive's employment or after receipt of the prior written
consent of Employer, any Confidential Information (as hereinafter defined) of
Employer or its controlled subsidiaries or affiliates, that comes into his
knowledge during his employment by Employer (the "Confidential Information").
The obligation not to use or disclose any Confidential Information will not
apply to any Confidential Information that (i) is or becomes public knowledge
through no fault of Executive, 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
or (ii) 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, Executive shall promptly
notify the Employer and shall provide the Employer with an opportunity (if then
available) to contest and cooperate with the Employer to contest, in each case,
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). 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.

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

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



                                       12
<PAGE>



            "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.

            "Trade Secret" means information including, but not limited to, any
technical or non-technical data, know-how, software, formula, pattern,
compilation, program, device, method, technique, plan, blueprint, 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.

                  (iv)  Interpretation. The restrictions stated in paragraphs
8(a)(i) and 8(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)   Executive covenants and agrees that for any period
                        during which Base Salary is continued (or in respect of
                        which it is paid in a lump sum), or for one year after
                        Executive's voluntary termination of employment without
                        Good Reason or his termination of employment for Cause
                        ("Non-Compete Period"), he will not directly or
                        indirectly engage in or invest in, own, manage, operate,
                        finance, control or participate in the ownership,
                        management, operation, financing or control of, be
                        employed by, associated with or in any manner connected
                        with, lend Executive's name or any similar name to, lend
                        Executive's credit to, or render services or advice to
                        any business similar to or competitive with any business
                        engaged in, or which provides goods or services similar
                        to or competitive with any goods and services provided
                        by Employer or its subsidiaries or affiliates at the
                        time of termination, in the United States or any other
                        geographic location in which Employer or a controlled
                        subsidiary or affiliate of Employer operates, other than
                        Internet Healthcare Group, Digital Insurance, and
                        Navimedix, unless waived in writing by Employer in its
                        sole discretion. Executive recognizes that the above
                        restriction is reasonable and necessary to protect the
                        interest of the Employer and its controlled subsidiaries
                        and affiliates.

                        The foregoing shall not be deemed to prohibit
                        Executive's association with a company if an immaterial
                        portion of such company's revenues is attributable to
                        operations directly competitive with the Company
                        (provided Executive is not employed within those



                                       13
<PAGE>



                        directly competitive operations). Further, nothing
                        contained in this Section 8(b)(i) shall restrict
                        Executive from making any investments in any corporation
                        or other business enterprise whose outstanding capital
                        stock or other equity interests are listed or admitted
                        to unlisted trading privileges on a national securities
                        exchange or included for quotation through an
                        inter-dealer quotation system of a registered national
                        securities association, provided that such investment
                        (i) represents less than five percent (5%) of the
                        aggregate outstanding capital stock or other equity
                        interests of such corporation, partnership or business
                        enterprise and (ii) does not otherwise provide Executive
                        or any affiliate of Executive with the right or power
                        (whether or not exercised) to influence, direct or cause
                        the direction of the management, policies and/or affairs
                        of any business or enterprise which is or might directly
                        or indirectly compete with any business operations or
                        activities of Company or any of its subsidiaries.

                  (ii)  During the period following Executive's termination from
                        his employment with Employer for which Executive is
                        subject to the restrictions set forth in Section
                        8(b)(i), Executive may submit a written request to
                        Employer outlining a proposed employment or other
                        employment opportunity that Executive is considering.
                        Employer will review such request and make a
                        determination, in its sole discretion, as to whether the
                        opportunity would constitute a breach of the
                        non-competition covenant.

            (c)   Non-Solicitation. To protect the goodwill of Employer and its
controlled subsidiaries and affiliates, or the customers of Employer and its
controlled subsidiaries and affiliates, Executive agrees that, during his
employment and for any period during which Base Salary is continued (or in
respect of which it is paid in a lump sum), or for one year after Executive's
voluntary termination of employment without Good Reason or his termination of
employment for Cause, he or she will not, without the prior written permission
of Employer, directly or indirectly, for himself or on behalf of any other
person or entity, solicit, divert away, take away or attempt to solicit or take
away any Customer of Employer for purposes of providing or selling services that
are offered by Employer or a controlled subsidiary or affiliate of Employer. For
purposes of this Section 8(c), "Customer" means any individual or entity to whom
Employer or its controlled subsidiaries or affiliates has provided, or
contracted to provide, services during the twelve months prior to the
termination of his employment.

            (d)   Solicitation of Employees. During Employer's employment of
Executive and for any period during which Base Salary is continued (or in
respect of which it is paid in a lump sum), or for one year after Executive's
voluntary termination of employment without Good Reason or his termination of
employment for Cause, Executive will not, and will not assist any other person
or entity to, directly or indirectly, solicit for employment or consultation any
employee of Employer or any of its controlled subsidiaries or affiliates who was
employed with Employer or its controlled subsidiaries or affiliates within the
one year period immediately prior to Executive's termination, or in any manner


                                       14
<PAGE>



knowingly induce or attempt to induce any such employee to terminate his or her
employment with Employer.

            9.    Work Made For Hire. Executive agrees that any written program
materials, protocols, research papers, other writings (including those in
electronic format), as well as improvements, inventions, new techniques,
programs or products (the "Work") made or developed by Executive within or after
normal working hours relating to the business or activities of Employer or any
of its subsidiaries, shall be deemed to have been made or developed by Executive
solely for the benefit of Employer and will be considered "work made for hire"
within the meaning of the United States Copyright Act, Title 17, United States
Code, which vests all copyright interest in and to the Work in the Employer. In
the event, however, that any court of competent jurisdiction finally declares
that the Work is not or was not a work made for hire as agreed, Executive agrees
to assign, convey, and transfer to the Employer all right, title and interest
Executive may presently have or may have or be deemed to have in and to any such
Work and in the copyright of such work, including but not limited to, all rights
of reproduction, distribution, publication, public performance, public display
and preparation of derivative works, and all rights of ownership and possession
of the original fixation of the Work and any and all copies, without payment of
any consideration by Employer, except as set forth in this Agreement.
Additionally, Executive agrees to execute any documents necessary for Employer
to record and/or perfect its ownership of the Work and the applicable copyright.

            10.   Property Of Employer. Executive agrees that, upon the
termination of Executive's employment with Employer, Executive will immediately
surrender to Employer all property, equipment, funds, lists, books, records and
other materials of Employer or its controlled subsidiaries or affiliates in the
possession of or provided to Executive.

            11.   Governing Law. This Agreement and all issues relating to the
validity, interpretation, and performance will be governed by, interpreted, and
enforced under the laws of the State of Connecticut.

            12.   Remedies. An actual or threatened violation by Executive of
the covenants and obligations set forth in Sections 8, 9 and 10 will cause
irreparable harm to Employer or its controlled subsidiaries or affiliates and
the remedy at law for any such violation will be inadequate. Executive agrees,
therefore, that Employer or its controlled subsidiaries or affiliates will be
entitled to appropriate equitable relief, including, but not limited to, a
temporary restraining order and a preliminary injunction, without the necessity
of posting a bond.

            13.   Arbitration. Except for an action for injunctive relief as
described in Section 12, any disputes or controversies arising under this
Agreement will be settled by arbitration in Hartford, Connecticut, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The determination and findings of such arbitrators will be final and binding on
all parties and may be enforced, if necessary, in any court of competent
jurisdiction. The costs and expenses of the arbitration shall be paid for by
Employer, but each party shall pay its own attorney's fees and other litigation
costs.

____________________
Executive's Initials



                                       15
<PAGE>




            14.   Notices. Any notice or request required or permitted to be
given to any party will be given in writing and, excepting personal delivery,
will be given at the address set forth below or at such other address as such
party may designate by written notice to the other party to this Agreement:

            To Executive:     Rene Lerer
                              29 Saint Andrews Drive
                              Avon, CT 06001
                              Tel:  (860) 673-8702

            To Employer:      Magellan Health Services, Inc.
                              55 Nod Road
                              Avon, CT 06001
                              Attention:   General Counsel

            Each notice given in accordance with this Section will be deemed to
have been given, if personally delivered, on the date personally delivered; if
delivered by facsimile transmission, when sent and confirmation of receipt is
received; or, if mailed, on the third day following the day on which it is
deposited in the United States mail, certified or registered mail, return
receipt requested, with postage prepaid, to the address last given in accordance
with this Section.

            15.   Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and should not be construed or
interpreted to restrict or modify any of the terms or provisions of this
Agreement.

            16.   Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Agreement, such provision will be fully severable and this
Agreement and each separate provision will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of this Agreement will remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. In addition, in
lieu of such illegal, invalid or unenforceable provision, there will be added
automatically, as a part of this Agreement, a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable, to the extent such reformation is allowable under
applicable law.

            17.   Binding Effect. This Agreement will be binding upon and shall
inure to the benefit of each party and each party's respective successors, heirs
and legal representatives. This Agreement may not be assigned by Executive to
any other person or entity but may be assigned by Employer to any subsidiary or
affiliate of Employer or to any successor to or transferee of all, or any part,
of the stock or assets of Employer.

            18.   Employer Policies, Regulations, And Guidelines For Employees.
Employer may issue policies, rules, regulations, guidelines, procedures or other
material, whether in the form of handbooks, memoranda, or otherwise, relating to
its Executives. These materials are general guidelines for Executive's



                                       16
<PAGE>




information and will not be construed to alter, modify, or amend this Agreement
for any purpose whatsoever.

            19.   Indemnification. The Company shall indemnify Executive to the
fullest extent permitted by the laws of State of Delaware and the Company shall
obtain and maintain directors and officers liability insurance in an amount not
less than $50 million.

            20.   Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties with respect to its subject matter and
supersedes all prior agreements and understandings, whether written or oral,
relating to its subject matter, unless expressly provided otherwise within this
Agreement. No amendment or modification of this Agreement, will be valid unless
made in writing and signed by each of the parties. No representations,
inducements, or agreements have been made to induce either Executive or Employer
to enter into this Agreement, which are not expressly set forth within this
Agreement. Executive and Employer acknowledge and agree that Employer's
controlled subsidiaries and affiliates are express third party beneficiaries of
this Agreement.



                               [signatures follow]




















                                       17
<PAGE>



            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the ____ day of February, 2008.

                                         MAGELLAN HEALTH SERVICES, INC.
"Executive"                              "Employer"

  /s/  Rene Lerer                        By:
----------------------------                 ----------------------------
Rene Lerer                               Name:
                                         Title:





































                                       18
</TEXT>
</DOCUMENT>
