8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):

April 30, 2014

MAGELLAN HEALTH SERVICES, INC.

(Exact Name of Registrant as Specified in Charter)

DELAWARE	1-6639	58-1076937
(State or Other Jurisdiction	(Commission File	(IRS Employer
of Incorporation)	Number)	Identification No.)

55 NOD ROAD
AVON, CONNECTICUT	06001
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (860) 507-1900

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.01. Completion of Acquisition or Disposition of Assets.

On April 30, 2014, Magellan Health Services, Inc., a Delaware corporation (“Magellan”), consummated and closed (the “Closing”) the previously announced acquisition of CDMI, LLC, a Rhode Island limited liability company (“CDMI”) (such acquisition, the “Acquisition”), pursuant to the Purchase Agreement (the “Purchase Agreement”), dated as of March 31, 2014, as amended by Amendment No.1 to the Purchase Agreement (the “Amendment”), dated April 30, 2014, by and among Magellan, CDMI, George N. Petrovas, Susan C. Petrovas and The Susan C. Petrovas Qualified Annuity Trust — 2011, as holders of the outstanding equity interests in CDMI (collectively, the “Sellers”) and George N. Petrovas in his capacity as the Seller Representative.  Based in Newport, Rhode Island, CDMI is a provider of a range of clinical consulting programs and negotiates and administers drug rebates for managed care organizations and other customers.  CDMI works with over 30 health plans, and in 2013 had net revenues of approximately $43 million, primarily derived from rebate management.  As a result of the Acquisition, CDMI will operate as a wholly-owned subsidiary of Magellan Partners RX, Inc. (“Magellan Partners”).

As consideration for the Acquisition, Magellan Partners paid $205.0 million in cash (the “Base Price”) for all of the outstanding equity interests in CDMI, subject to working capital adjustments as provided in the Purchase Agreement.  Pursuant to the Purchase Agreement, the Sellers and certain key management of CDMI purchased a total of $80.0 million in Magellan restricted common stock, which will generally vest over a 42-month period, conditioned upon certain employment and performance targets.  In addition to the Base Price, the Purchase Agreement provides for potential contingent payments up to a maximum aggregate amount of $165.0 million.  The contingent payment provisions provide for (i) cash payments of up to $65.0 million based on the amount of rebates retained in respect of 2015 by CDMI and Magellan’s ICORE specialty pharmacy management business, (ii) cash payments of up to $65.0 million based on the number of CDMI customers that become full service PBM clients of Magellan during 2015 and 2016 and (iii) cash payments of up to $35.0 million based on the gross profit performance of CDMI and ICORE’s rebates business during 2014 and 2015.  Of the $205.0 million paid by Magellan Partners at the Closing, $15.0 million was deposited in an escrow account in connection with the Sellers’ indemnification obligations under the Purchase Agreement.  To the extent Magellan’s claims for indemnification do not exceed this amount, the holdback will be released to Sellers on the fifteen-month anniversary of the Closing.

The foregoing description of the Acquisition and the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to (i) the full text of the Purchase Agreement, a copy of which is attached as Exhibit 2.1 to Magellan’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2014 and (ii) the Amendment, a copy of which is attached hereto as Exhibit 2.2, each of which is incorporated herein by reference.

Item 9.01. Financial Statements, Pro Forma Financial Information and Exhibits

(a)Financial Statements of Business Acquired.

The financial statements required pursuant to this Item 9.01(a) in relation to the Acquisition will be filed by amendment to this Current Report on Form 8-K no later than 71 calendar days after the date that this Current Report was required to be filed.

(b)Pro Forma Financial Information.

The pro forma financial information required pursuant to this Item 9.01(b) in relation to the Acquisition will be filed by amendment to this Current Report on Form 8-K no later than 71 calendar days after the date that this Current Report was required to be filed.

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(d)Exhibits.

Exhibit Number	Description
2.1	Purchase Agreement, dated as of March 31, 2014, among Magellan Health Services, Inc., CDMI, LLC and each of the Sellers’ party thereto (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Magellan Health Services, Inc. on April 1, 2014).
2.2	Amendment No.1 to Purchase Agreement, dated as of April 30, 2014, among Magellan Health Services, Inc., CDMI, LLC and each of the Sellers’ party thereto.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MAGELLAN HEALTH SERVICES, INC.

Date: April 30, 2014	By:	/s/ Jonathan N. Rubin
		Name: Jonathan N. Rubin
		Title: Executive Vice President and Chief Financial Officer

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EX-2.2

Exhibit 2.2

AMENDMENT NO. 1 TO PURCHASE AGREEMENT

This AMENDMENT NO. 1 (this “Amendment”), dated as of April 30, 2014, to the Purchase Agreement, dated as of March 31, 2014 (the “Purchase Agreement”), by and among Magellan Health Services, Inc., a Delaware corporation (“Parent”), CDMI, LLC, a Rhode Island limited liability company (the “Company”), and George N. Petrovas, Susan C. Petrovas and The Susan C. Petrovas Qualified Annuity Trust - 2011 (collectively, the “Sellers” and each individually a “Seller”), and George N. Petrovas in his capacity as the Seller Representative.

WHEREAS, the parties desire to amend certain provisions of the Purchase Agreement pursuant to Section 10.2 thereof.

NOW, THEREFORE, in consideration of the foregoing and intending to be legally bound hereby, the parties hereto agree as follows:

1.Defined Terms.  Except as otherwise specified herein, capitalized terms used in this Amendment shall have the respective meanings set forth in the Purchase Agreement.

2.Amendment to Section 2.5(b)(iii).  Section 2.5(b)(iii) of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

“The “Specialty Offset” shall equal to (A) the 2015 CDMI Specialty Rebates minus Fourteen Million Two Hundred Thousand Dollars ($14,200,000.00), multiplied by (B) three and eight hundred twenty-four thousandths (3.824), provided, however, that (x) in no event shall the amount of the Specialty Offset exceed the amount of the Traditional Rebate Reduction and (y) if the amount specified in clause (A) is a negative number, then the Specialty Offset shall be deemed to be Zero Dollars ($0).”

3.Amendment to Section 2.8.  Section 2.8 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

“As used in this Article II (including in the definitions of defined terms used in this Article II), each of the terms “2014”, “2015”, and “2016” shall be deemed to refer to the fiscal year of Parent ended December 31 of such year.  For the avoidance of doubt, “2014” shall include periods before and after the Closing in 2014.”

4.Amendment to Section 6.10.  Section 6.10 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

“Reserved.”

5.Treatment of Cash.

a.Amendment to Section 6.1(a).  The proviso set forth in clause (iii) of Section 6.1(a) of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

“provided that the parties understand and agree that Sellers intend to cause the

Company to distribute to Sellers before Closing all cash and cash equivalents held by the Company that are in excess of Sellers’ good faith estimation of the amount of cash required to be left in the accounts of the Company to satisfy any short-term payables that may be paid on the Closing Date or the business day immediately following the Closing Date;”.

b.Amendment to Definition.  Section 10.13(a) of the Purchase Agreement is hereby amended by inserting the words “(including cash and cash equivalents)” immediately following the first occurrence of the word “Company” in the definition of “Closing Date Net Working Capital.”

c.Amendment to Exhibit 10.13(d).  The first bullet-point paragraph of Exhibit 10.13(d) to the Purchase Agreement (entitled “No Cash and Cash Equivalents”) is hereby deleted in its entirety.

d.Amendment to Section 4.8 of the Company Disclosure Schedules.  Item 3 of Section 4.8 of the Company Disclosure Schedules is hereby amended to read in its entirety as follows:

“Cash and cash equivalents held by the Company will be distributed to the Sellers prior to the Closing except such amount that, in Sellers’ good faith estimation, is required to be left in the accounts of the Company to satisfy any short-term payables that may be paid on the Closing Date or the business day immediately following the Closing Date.”.

6.Transaction Expenses.  The parties acknowledge and agree that the calculation of the Closing Date Net Working Capital shall not take into account Transaction Expenses that are paid at the Closing.

7.Amendment to Section 7.2(a).  Section 7.2(a) of the Purchase Agreement is hereby amended to insert the words “and the Sellers” immediately after the second occurrence of the word “Company”.

8.The notice address for the Sellers set forth in Section 10.10 of the Purchase Agreement is hereby amended to delete the number “152” and replace it with “156”.

9.Amendment to Section 10.4.  Section 10.4 of the Purchase Agreement is hereby amended to insert the following immediately before the last sentence:

“Notwithstanding anything in this Agreement to the contrary, the parties acknowledge and agree that The Susan C. Petrovas Qualified Annuity Trust — 2011 is anticipated to be terminated (i) on November 20, 2014, if Susan C. Petrovas is then living on such date or (ii) on the first date occurring on or after November 20, 2014, on which both Susan C. Petrovas and George N. Petrovas are not then living, whereupon such termination The Susan C Petrovas Irrevocable Trust — 2011 will succeed, automatically and without any further action of the parties hereto, to all of the rights and obligations of The Susan C. Petrovas Qualified Annuity Trust — 2011 hereunder.”.

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10.Conditions to Effectiveness; Reference to and Effect on the Purchase Agreement.

a.This Amendment shall be effective upon the execution and delivery hereof by each of the Parent, the Company, the Sellers and the Seller Representative.

b.Each reference in the Purchase Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import shall mean and be a reference to the Purchase Agreement as amended and supplemented by this Amendment.

c.Except to the extent specifically set forth herein, the provisions of the Purchase Agreement shall not be amended, modified, waived, impaired or otherwise affected hereby, and the Purchase Agreement and the obligations thereunder are hereby confirmed as being in full force and effect.

11.Governing Law.  This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware without regard to the principles, policies or provisions thereof or of any other jurisdiction concerning conflict or choice of laws.

12.Counterparts.  This Amendment may be executed in counterparts (each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement) and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties (including by facsimile or via portable document format (.pdf)).

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.1 to be duly executed and delivered as of the date first above written.

PARENT:
MAGELLAN HEALTH SERVICES, INC.
By:	/s/ Jonathan N. Rubin
Name: Jonathan N. Rubin
Title: Executive Vice President and Chief Financial Officer
THE COMPANY:
CDMI, LLC
By:	/s/ George N. Petrovas
Name: George N. Petrovas
Title: Executive Vice President
SELLERS
By:	/s/ Susan C. Petrovas
Name: Susan C. Petrovas
By:	/s/ George N. Petrovas
Name: George N. Petrovas
The Susan C. Petrovas Qualified Annuity Trust — 2011
By:	/s/ Susan C. Petrovas
Name: Susan C. Petrovas
Title: Trustee
SELLER REPRESENTATIVE
By:	/s/ George N. Petrovas
	Name: George N. Petrovas

[Signature Page to Amendment No. 1 to Purchase Agreement]