Exhibit 2.11
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into by
and between Xxxxxx X. Xxxxxxx ("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 Company's emergence from bankruptcy
(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 Chairman 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 Chief Executive Officer, directly
to the Board and (ii) have such duties and responsibilities typical of, and
consistent with, the positions of Chairman and Chief Executive Officer in a
public company the size and nature of the Company. The non-employee members of
the Board will appoint a lead director who will meet regularly with the
Chairman/Chief Executive Officer regarding major corporate strategies and
policies, chair Board meetings in the absence of the Chairman, arrange for and
chair meetings of non-management directors and perform such other functions as
may from time to time be performed generally by lead directors of public
companies 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 to be located in Avon, Connecticut, or within 30 miles
thereof, at which shall be based Executive, each of the executives reporting
directly to Executive and certain other employees of the Company (subject to
existing arrangements with Xxxx Xxxxxxx) (the "Offices").
3. TIME DEVOTED. Executive will devote his or her full business time
and energy to the business affairs and interests of Employer, and will use his
or her best efforts and abilities to promote Employer's interests. Executive
agrees that he or she will diligently endeavor to perform services contemplated
by this Agreement in a manner consistent with his or her position and in
accordance with the policies established by the Employer. Notwithstanding the
foregoing, Executive shall be entitled to serve as a member of the board of
directors of a reasonable number of companies in which Internet Healthcare Group
has invested and 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 $1,000,000 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"). 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 (i) 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 and (ii) the other terms and conditions applicable to the Target
Bonus shall not be less favorable than those established for 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 % of
Performance Targets Target Bonus Earned
------------------- -------------------
80% 0%
100% 100%
120% 200%
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The Board or a duly authorized committee thereof may, in its sole discretion,
authorize the Company to pay to Executive additional bonus amounts. The portion
of Target Bonus earned by Executive shall be determined on a straight line
interpolated basis for Performance Target achievement between the percentages
set forth above. 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, 2005 for the bonus earned for 2004). 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) Sign-On Arrangements
(i) Stock Grant. The Company shall grant to Executive on the
Operative Date 83,752 shares of common stock (the "Signing Bonus Shares"). The
Signing Bonus Shares shall be fully vested on the Operative Date, but may not be
transferred until the earlier of (i) the first anniversary of the Operative Date
and (ii) Executive's termination of employment. The Company shall make a cash
payment to Executive within 10 business days of the Operative Date in an amount
such that after payment of all federal, state or local taxes on such amount
(based upon the highest applicable marginal rate for Connecticut residents
performing services in that state and net of the maximum reduction in federal
income taxes attributable to the deduction of such state and local taxes),
Executive is left with an amount equal to (i) the aggregate federal, state and
local taxes on the Signing Bonus Shares less (ii) an amount equal to the product
of (A) 15% plus the highest marginal long-term capital gains rate in Connecticut
for residents performing services in that state times (B) the difference between
the closing price of common stock on the Operative Date over $11.94 times (C)
the number of Signing Bonus Shares (such amount in clause (ii), the "Signing
Bonus Shares Capital Gains Amount"). In the event that the federal, state and
local taxes (net of any reduction in federal income taxes attributable to the
deduction of such state and local taxes) actually paid by Executive in excess of
the Signing Bonus Shares Capital Gains Amount resulting from any payment under
this Section 4(c)(i) exceed the amount paid to him by the Company in accordance
with the third sentence of this Section 4(c)(i) at the time of the grant, the
Company shall make an additional payment to the Executive such that Executive is
left with an amount, together with the amount paid to him in accordance with the
third sentence of this Section 4(c)(i), equal to the aggregate federal, state
and local taxes actually paid by the Executive as a result of the receipt of the
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Signing Bonus Shares, less the Signing Bonus Shares Capital Gains Amount. In the
event that the federal, state and local taxes (net of any reduction in federal
income taxes attributable to the deduction of such state and local taxes)
actually paid by Executive in excess of the Signing Bonus Shares Capital Gains
Amount resulting from any payment under this Section 4(c)(i) are less than the
amount paid to him by the Company in accordance with the third sentence of this
Section 4(c)(i) at the time of the grant, the Executive shall pay to the Company
an amount such that the Executive is left with an amount equal to the aggregate
federal, state and local taxes actually paid by the Executive as a result of
receipt of the Signing Bonus Shares, less the Signing Bonus Shares Capital Gains
Amount.
(ii) Stock Purchase. Executive shall purchase on the Operative Date
for $1,000,000 in cash 83,752 shares of common stock (the "Purchased Shares").
The Purchased Shares shall be fully vested on the Operative Date, but may not be
transferred until the earlier of (i) the first anniversary of the Operative Date
and (ii) Executive's termination of employment. The Company shall make a cash
payment to Executive within 10 business days of the Operative Date in an amount
such that after payment of all federal, state or local taxes on such amount
(based upon the highest applicable marginal rate for Connecticut residents
performing services in that state and net of the maximum reduction in federal
income taxes attributable to the deduction of such state and local taxes),
Executive is left with an amount equal to (i) the aggregate federal, state and
local taxes on the Purchased Shares less (ii) an amount equal to the product of
(A) 15% plus the highest marginal long-term capital gains rate in Connecticut
for residents performing services in that state times (B) the difference between
the closing price of common stock on the Operative Date over $11.94 times (C)
the number of Purchased Shares (such amount in clause (ii), the "Purchased
Shares Capital Gains Amount"). In the event that the federal, state and local
taxes (net of any reduction in federal income taxes attributable to the
deduction of such state and local taxes) actually paid by Executive in excess of
the Purchased Shares Capital Gains Amount resulting from any payment under this
Section 4(c)(i) exceed the amount paid to him by the Company in accordance with
the third sentence of this Section 4(c)(i) at the time of the grant, the Company
shall make an additional payment to the Executive such that Executive is left
with an amount, together with the amount paid to him in accordance with the
third sentence of this Section 4(c)(i), equal to the aggregate federal, state
and local taxes actually paid by the Executive as a result of the receipt of the
Purchased Shares, less the Purchased Shares Capital Gains Amount. In the event
that the federal, state and local taxes (net of any reduction in federal income
taxes attributable to the deduction of such state and local taxes) actually paid
by Executive in excess of the Purchased Shares Capital Gains Amount resulting
from any payment under this Section 4(c)(i) are less than the amount paid to him
by the Company in accordance with the third sentence of this Section 4(c)(i) at
the time of the grant, the Executive shall pay to the Company an amount such
that the Executive is left with an amount equal to the aggregate federal, state
and local taxes actually paid by the Executive as a result of receipt of the
Purchased Shares, less the Purchased Shares Capital Gains Amount.
(iii) Stock Options. The Company shall grant to Executive on the
Operative Date options to purchase Magellan's common stock covering 1,445,511
shares with a ten-year term as follows:
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(A) A tranche of options for 413,002 shares with an exercise
price equal to $11.94 per share shall become vested as to one third of
the shares on each of the first three anniversaries of the Operative
Date (each, a "Vesting Date"). Options that have become vested on a
Vesting Date shall become exercisable only if the market price of the
Company's Common Stock has increased from the Operative Date through
the determination date at a cumulative rate of 16% per annum, with
daily compounding, over $11.94 per share. The determination of whether
these options have become exercisable shall be determined on each
trading day occurring on or after a Vesting Date and shall be based on
the average closing prices of the Company's Common Stock for each of
the 20 consecutive trading days ending on each such determination
date. In all events, subject to the provisions of this Agreement
regarding termination of employment such options shall become fully
vested and exercisable on the seventh anniversary of the Operative
Date.
(B) Another tranche of options for 619,505 shares with an
exercise price of $10.43 per share shall become vested as to one third
of the shares on each Vesting Date. Options that have become vested on
a Vesting Date shall become exercisable only if the market price of
the Company's Common Stock has increased from the Operative Date
through the determination date at a cumulative rate of 10% per annum,
with daily compounding, over $11.94 per share. The determination of
whether these options have become exercisable shall be determined on
each trading day occurring on or after a Vesting Date and shall be
based on the average closing prices of the Company's Common Stock for
each of the 20 consecutive trading days ending on each such
determination date. In all events, subject to the provisions of this
Agreement regarding termination of employment, such options shall
become fully vested and exercisable on the seventh anniversary of the
Operative Date. Shares acquired upon exercise of the options described
in this paragraph shall not be transferable until the earlier of (i)
the third anniversary of the Operative Date or (ii) Executive's
termination of employment.
(C) Another tranche of options for 413,004 shares with an
exercise price equal to $11.94 per share shall become vested and
exercisable as to one third of the shares on each Vesting Date.
The Company shall register the shares acquired by Executive for
resale no later than the date such shares are not subject to any restriction on
transfer imposed under this Agreement.
(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
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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 (ii) 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) Perquisites. Executive shall be entitled to perquisites at least
as favorable as those provided other similarly-situated, senior-level executives
of the Company, it being understood that this provision shall not require the
Company to offer any perquisites to other such executives. Notwithstanding the
foregoing, Executive shall be provided tax services, financial planning, and car
allowances in the aggregate of no less than $27,000 per annum, a personal
membership in a country club at a reasonable cost and health club in the
vicinity of the Offices, and first- or business class air travel (including for
Executive's spouse when appropriate for business purposes) and an annual
physical. The Company agrees to take reasonable actions to minimize any tax
liability of Executive related to the perquisites made available hereunder.
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. In addition, Executive shall be entitled to reimbursement
for the reasonable costs associated with the negotiation and preparation of his
employment and other arrangements with the Company to the extent not exceeding
$50,000.
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6. TERMINATION.
(a) Termination Due to Resignation. Executive may resign his or her
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, 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
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(v) willful failure to comply with direction of the Board or any duly
authorized committee thereof (including any written policies or
procedures promulgated by those bodies), provided that (A) such
directions (or policies or procedures) are action of the Board or a
duly authorized committee thereof within the meaning of Section 141 of
the General Corporation Law of the State of Delaware (or any
comparable provision of applicable law), (B) the existence of such
directions (or policies or procedures) is known by Executive or such
directions (or policies or procedures) have been communicated to
Executive, (C) such directions (or policies or procedures) are
consistent with the duties and role of a Chairman or Chief Executive
Officer 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.
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(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
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:
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(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;
(iv) accelerated vesting of all outstanding equity awards not yet
vested, with all vested options remaining exercisable for three 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 three-year post-termination exercise period;
(v) continued participation for Executive and his eligible dependents
at the Company's expense in all medical, dental and hospitalization coverages
for two years, with any period of continuation coverage provided by COBRA
commencing thereafter; provided that if the applicable plan in effect on
Executive's date of termination does not permit post-termination continuation of
coverage, the Company may commence the COBRA continuation coverage period as of
Executive's date of termination;
(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.
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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 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
Executive as Chairman 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 Chairman of the Board or as Chief Executive Officer
(including any action by the Board or one or more members thereof
to give direction to other employees of the Company with the
intent of undermining, or in a manner that, by itself or in
combination with other actions described in this parenthetical in
clause (ii), could reasonably be expected to materially undermine,
Executive's authority, provided that no action taken by (A) the
Board or one or more members thereof in accordance with any
requirement of law or regulation or the listing standards of
NASDAQ or other securities exchange on which the Company's
securities are listed or (B) the Board as a whole or a duly
authorized committee of the Board as a whole, in accordance with
generally accepted principles of sound corporate governance for
public companies of the size and nature of the Company, shall
constitute "Good Reason");
(iii) the assignment to Executive of duties which are materially
inconsistent with his duties or which materially impair
Executive's ability to function as Chairman or as Chief Executive
Officer of the Company;
(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
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(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;
(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 three 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 three-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 for Executive and his eligible dependents
at the Company's expense in all medical, dental and hospitalization coverages
for three years, with any period of continuation coverage provided by COBRA
commencing thereafter; provided that if the applicable plan in effect on
Executive's date of termination does not permit post-termination continuation of
coverage, the Company may commence the COBRA continuation coverage period as of
Executive's date of termination;
12
(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; provided that this clause (i) shall not be
operative during the period the Minimum Hold Condition is
satisfied (it being understood that a Change in Control will occur
at the time the Minimum Hold Condition is not satisfied (the
"Requisite Time") if (A) a person becomes the beneficial owner of
30% or more of the Voting Stock during the period in which the
Minimum Hold Condition is satisfied and (B) that person is the
beneficial owner of 30% or more of the Voting Stock at the
Requisite Time);
(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, and the Minimum Hold Condition is not
satisfied at the time; 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, or who
became a director at a time the Minimum Hold Condition was
satisfied, 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;
13
(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, (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, and (D) the "Minimum
Hold Condition" has the meaning set forth in the Company's Certificate of
Incorporation.
(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 a termination
of employment (including non-renewal of the term by the Company),
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, but the Company shall not be obligated to provide
medical, dental or hospitalization insurance following Executive's commencement
of other employment if such employment provides comparable coverage determined
on a benefit-by-benefit basis.
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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
be cashed out in connection with a Change in Control if (i) required by the
terms of the Management Inventive 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.
15
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
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 or
her knowledge during his or her 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.
16
(a)(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 or her knowledge during his or her employment by Employer and
shall not disclose, publish or make use of at any time after the date hereof
such Trade Secrets, other than at the direction of Employer, for as long as the
information remains a Trade Secret.
(a)(iii) For purposes of this Agreement, the following definitions
apply:
"Confidential Information" means any data or information, other than
Trade Secrets, that is valuable to Employer and not generally known to the
public or to competitors of Employer.
"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.
(a)(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, he or she 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
17
that provides or sells or attempts to provide or sell
behavioral managed care services, in the United States or
any other geographic location in which Employer or a
controlled subsidiary or affiliate of Employer then sells
or provides behavioral managed care services, other than
Internet Healthcare Group, Digital, Lumenos, RealMed,
CPA2Biz, Navimedix, and iKnowMed, 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, which are engaged in the
provision, or sale of behavioral managed care services.
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 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.
18
(ii) During the period following Executive's termination from
his or her 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 herself 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 or her 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
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
19
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
13. 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:
20
To Executive: Xxxxxx X. Xxxxxxx
00 Xxxxx Xxxxx
Xxxx, Xxxxxxxxxxx 00000
Tel. (860)
000-0000 Fax (860)
677-0731
To Employer: Magellan Health Services, Inc.
0000 Xxxxxxxx Xxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: General Counsel and Lead Director
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.
14. 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.
15. 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.
16. 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.
17. 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
information and will not be construed to alter, modify, or amend this Agreement
for any purpose whatsoever.
21
18. 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]
22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the 5th day of January, 2004.
MAGELLAN HEALTH SERVICES, INC.
"Executive" "Employer"
By:
-------------------------------- -------------------------------------
Name:
Title:
Lead Director By:
------------------------------------- -------------------------------------
Name:
Title:
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