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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31,
1995; or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-12024
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MAXICARE HEALTH PLANS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-3615709
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1149 South Broadway Street, Los Angeles, California 90015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 765-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Exhibit Index page 81 of 130
1 of 130
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
-----
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES X NO
----- -----
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 22, 1996:
Common Stock, $.01 par value - $457,722,000
The number of shares outstanding of each of the issuer's
classes of capital stock, as of March 22, 1996:
Common Stock, $.01 par value - 17,510,652 shares
As of March 22, 1996, Registrant had 636,112 shares of Common
Stock being held by the Registrant, as disbursing agent for the
benefit of holders of allowed claims and interests under the
Registrant's Joint Plan of Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
PART I
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Item 1. Business
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General
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Maxicare Health Plans, Inc., a Delaware corporation ("MHP"), is a
holding company which owns various subsidiaries, primarily in the
field of managed health care. MHP and subsidiaries (the "Company")
have a combined enrollment of approximately 361,000 as of February
29, 1996. MHP owns and operates a system of seven health
maintenance organizations ("HMOs") in California, Indiana,
Illinois, Louisiana, North Carolina, South Carolina, and Wisconsin
and additionally operates Maxicare Life and Health Insurance
Company ("MLH") and HealthAmerica Corporation. Through these
subsidiaries, the Company offers an array of employee benefit
packages, including group, Medicaid and Medicare HMO, preferred
provider organization ("PPO"), exclusive provider organization,
group life and accidental death and dismemberment insurance,
administrative services only programs, wellness programs, outcomes
measures and high dollar claims audits. In addition, the Company
offers a number of pharmacy programs, including benefit design,
formulary management, claims processing and mail order services for
employers and their employees.
Through its HMO operations the Company arranges for the delivery of
comprehensive health care services to its members for a
predetermined, prepaid fee. The Company provides these services by
contracting on a prospective basis with physician groups for a
fixed fee per member per month regardless of the extent and nature
of services provided to members, and with hospitals and other
providers under a variety of fee arrangements. The Company
believes that an HMO offers certain advantages over traditional
health insurance:
- To the member, an HMO offers comprehensive and coordinated
health care programs, including preventive services,
generally without requiring claims forms.
- To the employer, an HMO offers an opportunity to improve
the breadth and quality of health benefit programs
available to employees and their families without a
significant increase in cost or administrative burdens.
- To health care providers, such as physician groups and
hospitals, an HMO provides a more predictable revenue
source.
The Company's executive offices are located at 1149 South Broadway
Street, Los Angeles, California 90015, and its telephone number is
(213) 765-2000.
3
History
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The Company's HMO business originated in California in 1973. The
Company began multi-state operations in June 1982 by purchasing
100% of CNA Health Plans, Inc. As part of its expansion strategy,
the Company acquired all of the stock of HealthCare USA Inc.
("HealthCare") and HealthAmerica Corporation ("HealthAmerica") in
the fourth quarter of 1986. At that time, HealthCare owned or
managed HMOs in three states and HealthAmerica owned or managed
HMOs in 17 states, including 11 states not previously served by the
Company.
The acquisitions of HealthCare and HealthAmerica were highly
leveraged and resulted in a substantial increase in the Company's
long-term debt. These acquisitions, combined with adverse industry
conditions and inadequate pricing policies, produced a dramatic
downturn in the Company's operating performance and financial
condition. As a result of the deteriorating financial, operational
and regulatory situations, MHP and forty-seven affiliated entities
filed for protection under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in March and April of 1989
(the "Petition Dates"). Hereinafter, all 48 entities which filed
bankruptcy petitions may from time to time be referred to as the
"Debtors".
Under the Bankruptcy Code, substantially all pre-petition
liabilities, contingencies and other contractual obligations of the
Debtors, were discharged upon emergence from Chapter 11 on December
5, 1990, the "Effective Date" of the plan of reorganization (the
"Reorganization Plan").
As of January 31, 1996, approximately $88.6 million in cash, $39.7
million principal amount of Senior Notes, $19.2 million of cash in
lieu of the now redeemed Senior Notes (see "Item 8. Financial
Statements and Supplementary Data - Note 3 to the Company's
Consolidated Financial Statements"), 9.8 million shares of Common
Stock (including approximately 420,000 shares of Common Stock
issued pursuant to the exercise of Warrants) had been distributed
to holders of allowed claims and interests under the Reorganization
Plan. The remaining amounts of cash and securities will be
distributed to holders of allowed claims upon adjudication of the
remaining disputed claims pursuant to a formula set forth in the
Reorganization Plan.
In addition to the foregoing, certain assets of the Debtors which
were not retained by the reorganized Company were transferred to a
distribution trust for liquidation on behalf of the creditors (the
"Distribution Trust") after reimbursement of expenses of the
Distribution Trust. As of January 31, 1996, $9.6 million has been
disbursed by the Distribution Trust to the disbursing agent. The
Company anticipates that future distributions will be made from the
Distribution Trust.
4
Pursuant to the Reorganization Plan, the Company was required to
make distributions based on its consolidated net worth in excess of
$2.0 million at December 31, 1991 and 1992 (the "Consolidated Net
Worth Distribution"). The Company has made distributions of $2.0
million and $1.0 million related to the periods ended December 31,
1991 and 1992, respectively. The committee representing the
creditors (the "New Committee") has stated it does not agree with
the Company's interpretation of the Reorganization Plan and
believes that additional amounts may be due under the Consolidated
Net Worth Distribution provision of the Reorganization Plan. The
Company has, on a number of occasions, responded to various
questions raised by and inquiries of the New Committee regarding
this matter and believes that its position in this matter will
ultimately prevail. Notwithstanding the foregoing, the Company
elected to accrue in its consolidated financial statements for the
year ended December 31, 1992 the maximum potential liability of
$7.2 million related to this matter (see "Item 8. Financial
Statements and Supplementary Data - Note 3 to the Company's
Consolidated Financial Statements").
The United States Bankruptcy Court (the "Bankruptcy Court") retains
jurisdiction over implementation and interpretation of the
Reorganization Plan and, pursuant to a stipulation with the South
Carolina Department of Insurance, over the operations of the South
Carolina HMO, until all regulatory approvals regarding this HMO
have been obtained (see "Item 1. Business - Government
Regulation").
Preferred Stock Redemption
--------------------------
On February 13, 1995 the Company announced that it would redeem all
of its 2.29 million outstanding shares of Series A Stock on March
14, 1995. Holders of Series A Stock were entitled to either have
their shares redeemed by the Company at $25.4625 per share (the
"Redemption Price"), which represents the redemption price of
$25.00 per share plus accrued and unpaid dividends of $.4625 per
share, or convert their Series A Stock into 2.7548 shares of the
Company's Common Stock for each share of Series A Stock converted.
Holders of Series A Stock who wished to convert their shares into
Common Stock were required to deliver written notice of their
election to convert and tender the Series A Stock certificates
properly endorsed to the Redemption Agent, American Stock Transfer
& Trust Company, no later than 5:00 P.M. (Eastern Standard Time) on
March 9, 1995. Holders of approximately 2.27 million shares of
Series A Stock converted their shares into approximately 6.25
million shares of Common Stock. The remaining holders of 21,000
shares of Series A Stock were entitled to receive only the
Redemption Price without additional interest thereon upon surrender
of the Series A Stock certificates properly endorsed to the
Redemption Agent.
5
Overview of Managed Health Care Services
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HMO. The Company owns and operates a multi-state system of HMOs.
An HMO is an organization that arranges for health care services to
its members. For these services, the members' employers pay all or
most of a predetermined fee that does not vary with the nature or
extent of health care services provided to the member, and the
member pays a relatively small copayment for certain services. The
fixed payment distinguishes HMOs from conventional health insurance
plans that contain customary copayment and deductible features and
also require the submission of claim forms. An HMO receives a
fixed amount from its members regardless of the nature and extent
of health care services provided, and as a result, has an incentive
to keep its members healthy and to manage its costs through
measures such as the monitoring of hospital admissions and the
review of specialist referrals by primary care physicians. The
HMO's goal is to combine the delivery of and access to quality
health care services with effective management controls in order to
make the most cost-effective use of health care resources.
Although HMOs have been operating in the United States for over
half of a century, their popularity began increasing in the 1970s
in response to rapidly escalating health care costs and enactment
of the Federal Health Maintenance Organization Act of 1973, a
federal statute designed to promote the establishment and growth of
HMOs (see "Item 1. Business - Government Regulation").
The four basic organizational models utilized by HMOs are the
staff, group, independent practice association and network models.
The distinguishing feature between models is the HMO's relationship
with its physicians. In the staff model, the HMO employs the
physicians directly at an HMO facility and compensates the
physicians by salary and other incentive plans. In the group
model, the HMO contracts with a multi-specialty physician group
which provides services primarily for HMO members and receives a
fixed monthly fee, known as capitation, for each HMO member,
regardless of the nature and amount of services provided to the
member. Under the independent practice association ("IPA") model,
the HMO either contracts with a physicians' association, which in
turn contracts directly with individual physicians, or contracts
directly with individual physicians. In either case, these
physicians provide care in their own offices. Under the network
model of organization, the HMO contracts with numerous community
multi-specialty physician groups, hospitals and other health care
providers. The physician groups are paid primarily on a capitated
basis, as in the group model, but medical care is usually provided
in the physician's own facilities. The Company's HMOs primarily
utilize network, group and independent practice association models.
PPO. PPO products include certain attributes of managed care;
however, a PPO is similar to conventional health insurance in that
it provides a member with the unrestricted flexibility to choose a
physician or other health care provider. In a PPO, the member is
encouraged, through financial and other incentives, to
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use participating health care providers which have contracted with
the PPO to provide services at discounted rates. In the event a
member elects not to use a participating health care provider, the
member may be required to pay a portion of the provider's fees as
in a conventional indemnity plan. The Company's PPO business began
in Indiana in the fourth quarter of 1989 and has expanded to
California, Louisiana, Illinois and North Carolina. The Company's
PPO line of business comprised approximately one percent (1%) of
the Company's combined enrollment at February 29, 1996.
Medicaid. Medicaid is a state-operated program which utilizes both
state and federal funding to provide health care services to
qualified low-income residents. A Medicaid managed care initiative
developed by a state must be approved by the federal government's
Health Care Financing Administration ("HCFA"). HCFA requires that
Medicaid managed care plans meet federal standards and cost no more
than the amount that would have been spent on a comparable fee-for-
service basis. Under the contract with a state, the Company
receives a fixed monthly payment for which it is required to
provide managed health care services to a member. Medicaid
beneficiaries do not pay any premiums, deductibles or co-payments.
The Company began providing HMO services to Medicaid recipients in
Indiana in May of 1995 under the terms of a two year contract with
that state. The Company has contracted for one year terms with
the states of California and Wisconsin to provide HMO services to
the respective state's Medicaid recipients since 1994 and 1984,
respectively. As of February 29, 1996, the Medicaid programs
comprised approximately fourteen percent (14%) of the Company's
total enrollment.
Medicare. The Company has entered into federally sponsored one
year Medicare contracts to provide HMO services to Medicare
beneficiaries in California and Indiana. The programs, known as
MAX 65 Plus, provide Medicare recipients with a choice between
standard Medicare coverage or MAX 65 Plus which has no deductibles
and minimal copayments. The MAX 65 Plus programs comprised
approximately one percent (1%) of the Company's total enrollment as
of February 29, 1996.
Specialty Managed Care and Other Insurance Services. In addition
to its core HMO operations, the Company offers a range of specialty
managed care and other insurance services. The Company operates a
24 hour managed care program ("Max at Work") in conjunction with an
independent workers' compensation insurance carrier, which provides
HMO and workers' compensation coverage in one coordinated and
comprehensive managed care system. Under this program, both
occupational and nonoccupational injuries and health care needs are
covered by benefit packages administered on a coordinated basis.
The Company also offers a number of pharmacy programs including
benefit design, formulary management, claims processing and mail
order services for employers and their employees. Through MLH, the
Company offers group life and accidental death and dismemberment
insurance products.
7
Health Care Services
--------------------
In exchange for a predetermined monthly payment, an HMO member is
entitled to receive a broad range of health care services. Various
state and federal regulations require an HMO to offer its members
physician and hospital services, and permit an HMO to offer certain
supplemental services such as dental care and prescription drug
services at additional cost.
The Company's members generally receive the following range of
health care services:
Primary Care Physician Services - medical care provided by
primary care physicians (typically family practitioners,
general internists and pediatricians). Such care generally
includes periodic physical examinations, well-baby care and
other preventive health services, as well as the treatment of
illnesses not requiring referral to a specialist.
Specialist Physician Services - medical care provided by
specialist physicians on referral from the responsible primary
care physicians. The most commonly used specialist physicians
include obstetrician-gynecologists, cardiologists, surgeons and
radiologists.
Hospital Services - inpatient and outpatient hospital care
including room and board, diagnostic tests, and medical and
surgical procedures.
Diagnostic Laboratory Services - inpatient and outpatient
laboratory tests.
Diagnostic and Therapeutic Radiology Services - X-ray and
nuclear medicine services, including CT scans, MRI and
therapeutic radiological procedures.
Other Health Services - medical and surgical procedures
performed on an outpatient basis, including emergency room
services where such services are medically necessary,
outpatient surgical procedures, evaluation and crisis
intervention, mental health services, physical therapy and
other similar services in which hospitalization is not
medically necessary or appropriate.
Other Services - other related health care services such as
ambulance, family planning and infertility services and health
education (including prenatal nutritional counseling, weight-
loss and stop-smoking programs).
Additional optional services include inpatient psychiatric care,
hearing aids, durable medical supplies and equipment, dental care,
vision care, chiropractic care and prescription drug services.
8
Delivery of Health Care Services
--------------------------------
The Company's HMOs arrange for the delivery of health care services
to their members by contracting with physicians, either directly or
through IPAs and medical groups, hospitals and other health care
providers. The Company's HMOs typically pay to the physicians a
monthly capitation fee for each member assigned to the physician or
group. The amount of the capitation fee does not vary with the
nature or extent of services utilized. In exchange for the
capitation fee, the physicians provide professional services to
members, including laboratory services and X-rays.
Members select a primary care physician to serve as their personal
physician from the contracting physician or group. This physician
will oversee their medical care and refer them to a specialist when
medically necessary. In order to attract new members and retain
existing members, the Company's HMOs must retain a network of
quality physicians and groups and develop agreements with new
physician groups.
The Company's HMOs contract for hospital services with various
hospitals under a variety of arrangements, including fee-for-
service, discounted fee-for-service, per diem and capitation.
Hospitalization costs are not generally included in the capitation
fee paid by the Company's HMOs to physician groups. Except in
emergency situations, a member's hospitalization must be approved
in advance by the utilization review committee of the member's
physician group and must take place in hospitals affiliated with
the Company's HMOs. When emergency situations requiring medical
care by physicians or hospitals not affiliated with the Company's
HMOs arise, the Company's HMOs assume financial responsibility for
the cost of such care.
Quality Assurance
-----------------
As required by federal and state law, the Company evaluates the
quality and appropriateness of the medical care delivered to its
members by its independently contracted providers. Among the means
used to gauge the quality and appropriateness of care are: the
performance of periodic medical care evaluation studies, the
analysis of monthly utilization of certain services, the
performance of periodic member satisfaction studies and the review
and response to member and physician grievances.
The Company compiles a variety of statistical information
concerning the utilization of various services, including emergency
room care, outpatient care, out-of-area services, hospital services
and physician visits. Under-utilization as well as over-
utilization is closely evaluated in an effort to monitor the
quality of care provided to the Company's members by participating
physicians and physician groups.
9
The Company's HMOs have member services departments which deal
directly with members concerning their health care questions,
comments, concerns or grievances. The Company conducts annual
surveys among members concerning their level of satisfaction with
the services they receive. Management reviews any problems that
are raised by members concerning the delivery of medical care and
receives periodic reports summarizing member grievances.
Premium Structure and Cost Control
----------------------------------
The Company generally sets its membership fees, or premiums,
pursuant to a community rating system, thereby charging the same
nominal premium per class of subscriber within a geographic area
for like services; however, groups which meet certain enrollment
requirements are charged premiums based on prior cost experience
(see "Item 1. Business - Government Regulation").
The Company manages health care costs primarily through contractual
arrangements with health care providers which share the risk of
certain health care costs. The Company's HMOs arrange for health
care services primarily through capitation arrangements. Under
capitation contracts, the HMO pays the IPA, medical group or
hospital a fixed amount per enrollee per month to cover the payment
of all or most medical services regardless of utilization, thereby
transferring the risk of certain health care costs to the provider
organization. For the year ended December 31, 1995 physician and
hospital capitation represented 65% of total health care costs.
The focus for cost control and medical utilization in the Company's
HMOs is the primary care physician or group who provide services
and control utilization of services by directing or approving
hospitalization and referrals to specialists and other providers.
In order to manage costs in situations where the Company assumes
the financial responsibility for specialist referrals and hospital
utilization, the Company provides additional incentives to health
care providers for appropriate utilization of these services.
In addition to directing the Company's health care providers toward
capitation arrangements, the Company has a variety of programs and
procedures in place to encourage appropriate utilization. These
programs and procedures are intended to address the utilization of
inpatient services, outpatient services and referral services
which: (i) verify the medical necessity of inpatient nonemergency
treatment or surgery, (ii) establish whether services are
appropriately performed in an inpatient setting or could be done on
an outpatient basis; and (iii) determine the appropriate length of
stay for inpatient services, which may involve concurrent and/or
retrospective review. In addition, the Company monitors the terms
and procedures of its pharmacy plan, incorporating such cost
containment features as drug formularies (a Company-developed
listing of preferred, cost-effective drugs).
10
For further information, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements and Supplementary Data-Consolidated
Statements of Operations" included herein.
Marketing
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The Company markets to employers or other groups through direct
selling efforts and through contacts with insurance brokers and
consultants. Members typically join the Company's HMOs through an
employer, who pays all or most of the monthly premium. In most
instances, employers offer employees a choice of indemnity health
insurance coverage or coverage with PPOs and HMOs such as those
operated by the Company. The Company's PPO and HMO agreements with
employers are generally for a term of 12 months, and automatically
renew unless a termination notice is given. Once the Company's
relationship with the employer is established, marketing efforts
are then focused on employees. During an annual "open enrollment
period", employees may select their desired health care coverage.
The primary annual open enrollment period occurs in the month of
January. As of January 31, 1996, approximately 57% of the
Company's members had selected their desired health care coverage
for the ensuing annual period. New employees make their choices at
the time of employment. The Company's HMO membership is widely
diverse, with no employer group comprising 10% or more of the
Company's total enrollment. As of December 31, 1995, the Company's
HMOs were offered by approximately 1,345 employer groups.
The Company has also developed a multi-state account program which
offers employers having multiple locations in areas served by the
Company's HMOs the opportunity to deal with one primary account
manager. Billing and enrollment procedures are handled at an
individual HMO level, giving the multi-state employer the
opportunity to monitor individual geographic areas among its
employer population. For certain multi-state employers, the
Company develops individual marketing and benefit programs for
separate divisions, locations or benefit classes within the same
employer.
The Company believes that attracting employers is only the first
step toward increasing enrollment at each of its HMOs; ultimately,
the Company's ability to retain and increase membership will depend
upon how users of the health care system assess its benefit
package, rates, quality of service, financial condition and
responsiveness to user demands.
The Company markets its Medicaid and Medicare programs to eligible
individuals through direct solicitation, radio advertising and
cooperative advertising with participating medical groups. Medicaid
and Medicare beneficiaries may disenroll for any reason upon 30
days notice.
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Management Information Systems
------------------------------
All of the Company's HMOs are currently linked through a network of
data lines to the corporate data center, allowing the Company to
prepare and distribute management, accounting and health care
services reports (including eligibility, billing, capitation,
claims information and utilization reports) on an ongoing basis.
System generated reports contain budgeted and actual monthly cost
and utilization statistics relating to physician initiated services
and hospitalization. Hospital reports, which are available on a
daily basis, are further analyzed by the type of service, days
paid, and actual and average length and cost of stay by type of
admission. The corporate data center is located in Los Angeles.
Competition
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Both the health care industry as a whole and the managed care
industry in particular are becoming increasingly competitive in all
markets. The HMO industry continues to gain market share,
particularly at the expense of indemnity carriers. The Company
competes in its regional markets for employers and members with
other HMOs, indemnity health insurers and PPOs as well as employers
who elect to self-insure, and for quality physician groups with
other HMOs and PPOs. Many of these competitors are larger or have
greater financial resources than the Company. The level of
competition varies from state to state depending on the variety and
relative market share of indemnity insurance, HMO and PPO health
care services offered. The Company also faces competition from
hospitals and other health care providers who have combined and
formed their own networks to contract directly with employer groups
and other prospective customers for the delivery of health care
services.
The Company believes that the principal competitive factors in the
managed health care industry are health care costs to members and
employers, the quality and accessibility of contracted providers,
the variety of health care coverage options offered and the quality
of service to members and providers. Competition may result in
pressure to reduce rates or place limitations upon the growth
potential of HMOs in any particular market. Employers, for
example, are increasingly cost sensitive in selecting health care
coverage for their employees, providing an incentive for the
Company to keep its rates competitive. In addition to the above,
the Company has recently faced increased competition from health
care providers offering not only HMO services but PPO and indemnity
health care services as well. In an effort to remain competitive,
the Company offers a variety of health care services, including
PPOs, and is actively exploring offering additional PPO and
indemnity services through joint ventures or other arrangements.
12
Competition may also be affected by mergers and acquisitions in the
managed care and general health care industries as companies seek
to expand their operating territories, gain economies of scale and
increase market share.
Government Regulation
---------------------
The federal government and each of the states in which the Company
conducts its business have adopted laws and regulations that govern
the business activities of the Company to varying degrees. The
most important laws affecting the Company are the Federal Health
Maintenance Organization Act of 1973, as amended (the "HMO Act"),
and the regulations thereunder promulgated by the Secretary of
Health and Human Services, and the various state regulations
mandating compliance with certain net worth and other financial
tests.
All of the Company's HMOs are federally qualified under the HMO
Act. The HMO Act and regulations provide that, with certain
exceptions, each employer of at least 25 employees must permit two
"qualified" HMOs to market health benefits plans to its employees,
with the employer contributing the same amount toward the
employee's HMO enrollment fee as it would otherwise have paid for
conventional health care insurance. Under federal regulations,
services to members must be provided substantially on a fixed
prepaid monthly basis, without regard to the actual level of
utilization of services. Premiums established by HMOs may vary
from employer to employer through composite rate factors and
special treatment of certain broad classes of members, including
geographical location ("community rating"). Experience rating of
accounts (i.e., setting premiums for a group account based on that
group's past use of health care services) is also permitted under
federal regulations in certain circumstances. From time to time,
modifications to the HMO Act have been considered by Congress. The
Company is unable to predict what, if any, modifications to the HMO
Act will be passed into law or what effect, if any, such
legislation would have upon the operations, profitability or
business prospects of the Company.
Among other areas regulated by federal and state law, although not
necessarily by each state, are the scope of benefits available to
members, the manner in which premiums are structured, procedures
for the review of quality assurance, enrollment requirements, the
relationship between the HMO and its health care providers,
procedures for resolving grievances, licensure, expansion of
service area, and financial condition. The HMOs are subject to
periodic review by the federal and state licensing authorities
regulating them.
All of the Company's HMOs are subject to extensive state
regulations which require periodic financial reports and compliance
with minimum equity, capital, deposit and/or reserve requirements.
These and other requirements limit the ability of the HMO
subsidiaries to transfer funds to MHP. The Company has implemented
13
administrative services agreements which provide for MHP to furnish
various management, financial, legal, computer and
telecommunication services to the HMOs pursuant to the terms of the
agreement with each HMO.
The Company's HMOs which have Medicare risk contracts are subject
to regulation by HCFA, a branch of the United States Department of
Health and Human Services. HCFA has the right to audit HMOs
operating under Medicare risk contracts to determine compliance
with contract terms, regulations and the quality of care being
rendered to the HMO's enrollees. The Company's HMOs which have
Medicaid contracts are subject to both federal and state regulation
regarding services to be provided to Medicaid enrollees, payment
for those services and other attributes of the Medicaid program.
All of the Company's HMOs have contracts with the Federal Employees
Health Benefit Plan ("FEHBP"). These contracts are subject to
extensive regulation including complex rules relating to the
premium rates charged. The FEHBP has the authority to
retroactively audit the premium rates and seek adjustments thereto
in accordance with specified guidelines.
With the exception of the Company's South Carolina HMO, all of the
Company's operational HMOs are licensed by pertinent state
authorities. Since the confirmation of the Reorganization Plan the
Company's South Carolina HMO has been operating under the
jurisdiction of the Bankruptcy Court while it has been negotiating
jurisdictional and licensing issues with various state regulatory
bodies. The Company believes that it will be able to ultimately
resolve the South Carolina HMO's licensing situation with the state
of South Carolina as a separately licensed HMO in such state or,
alternatively, as a division of one of its other operating HMOs to
be licensed to do business in the state of South Carolina. In any
event, the Company does not believe that the resolution of this
situation will have a materially adverse effect on the Company
taken as a whole.
The issue of health care reform continues to undergo discussion and
examination within both the public and private sectors. Although
the concept of managed care appears to be an integral part of many
proposals, the Company cannot determine the effect, if any, these
proposals or other reforms, if enacted, may have on the business or
operations of the Company.
The Company believes that it is currently in compliance in all
material respects with the various federal and state regulations
and contractual requirements applicable to its current operations.
Employees
---------
As of December 31, 1995, the Company employed approximately 510
full-time employees. None of the Company's employees are
represented by a labor union or covered by a collective bargaining
arrangement. The Company believes that its employee relations are
good.
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Directors and Executive Officers of the Registrant
--------------------------------------------------
The directors and executive officers of the Company at December 31,
1995 were as follows:
Name Age Position
Peter J. Ratican 52 Chairman of the Board of
Directors, Chief Executive
Officer and President
Eugene L. Froelich 54 Chief Financial Officer,
Executive Vice President -
Finance and Administration
and Director
Alan D. Bloom 50 Senior Vice President,
Secretary and General
Counsel
Aivars L. Jerumanis 57 Senior Vice President -
Management Information
Systems and Chief
Information Officer
Richard A. Link 41 Chief Accounting Officer
and Senior Vice President -
Accounting
Warren D. Foon 39 Vice President, General
Manager - Maxicare
California
David J. Hammons 45 Vice President -
Administrative Services,
Chief Actuary
Robert J. Landis 36 Treasurer
Vicki F. Perry 43 Vice President, General
Manager - Maxicare Indiana
Claude S. Brinegar 69 Director
Florence F. Courtright 63 Director
Thomas W. Field, Jr. 62 Director
Charles E. Lewis, M.D. 67 Director
Alan S. Manne 70 Director
15
Peter J. Ratican was appointed Chairman of the Board of Directors,
Chief Executive Officer and President of the Company in August
1988. He is a member of the California Knox-Keene Health Care
Services Advisory Committee, which assists the California
Department of Corporations in regulating prepaid health plans
(HMOs). Mr. Ratican has been a director of the Company since
August 1983. He received a Bachelor of Science degree in
Accounting from the University of California at Los Angeles and is
a certified public accountant.
Eugene L. Froelich was appointed Chief Financial Officer, Executive
Vice President - Finance and Administration and director in March
1989. Mr. Froelich graduated from Adelphi University and is a
certified public accountant.
Alan D. Bloom has been Senior Vice President, Secretary and General
Counsel to the Company since July 1987. Mr. Bloom joined the
Company as General Counsel in 1981. Mr. Bloom received a
Bachelor's degree in Biology from the University of Chicago, a
Master of Public Health from the University of Michigan, and a J.D.
degree from American University.
Aivars L. Jerumanis was appointed Senior Vice President -
Management Information Systems and Chief Information Officer of the
Company in January 1990. He received a Masters in Business
Administration from Columbia University, a Masters in Civil
Engineering from Rensselaer Polytechnic Institute and a Bachelor's
degree in Civil Engineering from Lafayette College.
Richard A. Link was appointed Chief Accounting Officer and Senior
Vice President - Accounting of the Company in September 1988. He
has a Bachelor's degree in Business Administration from the
University of Southern California and is a certified public
accountant.
Warren D. Foon was appointed Vice President, General Manager of the
California HMO in May of 1995. Mr. Foon was Vice President - Plan
Operations of the Company from March of 1989 through April of 1995
and Vice President - National Provider Relations from October of
1986 through February of 1989. Mr. Foon received a Doctor of
Pharmacy and a Masters in Public Administration from the University
of Southern California and a Bachelor of Arts in Biology from the
University of California at Los Angeles.
David J. Hammons was appointed Vice President - Administrative
Services and Chief Actuary of the Company in August 1993. From
January 1988 to July 1993 Mr. Hammons was Vice President and Chief
Actuary of the Company. He has a Bachelor's degree in Mathematics
from the State University of New York - Brockport and is a Fellow
of the Society of Actuaries and a member of the American Academy of
Actuaries.
Robert J. Landis has served as Treasurer of the Company since
November 1988. Mr. Landis received a Bachelor's degree in Business
Administration from the University of Southern California, a
16
Master's degree in Business Administration from California State
University at Northridge and is a certified public accountant.
Vicki F. Perry was appointed Vice President, General Manager of
Maxicare Indiana, Inc. in January 1992. From January 1990 to
December 1991 she served as Executive Vice President - Plan
Operations of the Company. Ms. Perry has been with the Company
since 1982. Ms. Perry is a graduate of Indiana University.
Claude S. Brinegar is the retired Vice Chairman of the board of
directors and Chief Financial Officer of Unocal Corporation. Mr.
Brinegar has been a director of the Company since 1991 and is also
a member of the board of directors of Conrail, Inc. and a visiting
scholar at Stanford University.
Florence F. Courtright has been a private investor for the last
five years and was elected a director of the Company in November
1993. She is a founding Limited Partner of Bainco International
Investors, 1.p. and a Trustee of Loyola Marymount University.
Further, Ms. Courtright is a former co-owner of the Beverly
Wilshire Hotel and the Beverly Hills Hotel.
Thomas W. Field, Jr. was appointed the Chairman of the Board of
ABCO Markets in December 1991. ABCO Markets is in the grocery
business. He has been President of Field & Associates, a
management consulting firm, since October 1989. Mr. Field has been
a director of the Company since April 1992. Mr. Field also holds
directorships at Campbell Soup Company, Bromar Inc., ABCO Markets
Foods and Stater Bros. Market.
Charles E. Lewis has been a Professor of Medicine, Public Health
and Nursing at the University of California at Los Angeles, since
1970. As of July 1993, he was appointed Director of the Center of
Health Promotion and Disease Prevention. He is a member of the
Institute of Medicine, National Academy of Sciences and is a
graduate of the Harvard Medical School and of the University of
Cincinnati School of Public Health where he received a Doctorate of
Science degree. Dr. Lewis is a Regent of the American College of
Physicians and a member of the Board of Commissioners of the Joint
Commission on Accreditation of Health Care Organizations. Dr. Lewis
has been a director of the Company since August 1983.
Alan S. Manne is currently a professor emeritus and from 1961 to
1992 was a professor of operations research at Stanford University.
He is an author or co-author of seven books and received his Ph.D.
in economics from Harvard University. He is co-organizer of the
International Energy Workshop. Mr. Manne has been a director of
the Company since January 1994.
The Board of Directors (the "Board") is classified into Class I,
Class II and Class III directors. Class I directors include Dr.
Lewis and Mr. Brinegar and they will serve until the 1997 annual
meeting of stockholders and until their successors are duly
17
qualified and elected. Class II directors include Mr. Froelich and
Ms. Courtright and they will serve until the 1998 annual meeting of
stockholders and until their successors are duly qualified and
elected. Class III directors include Mr. Ratican, Mr. Field and
Mr. Manne and they will serve until the 1996 annual meeting of
stockholders and until their successors are duly qualified and
elected. Officers are elected annually and serve at the pleasure
of the Board, subject to all rights, if any, under certain
contracts of employment (see "Item 11. Executive Compensation").
18
Item 2. Properties
----------
The Company's operating facilities are held through leaseholds. At
December 31, 1995, the Company or its HMOs leased approximately
217,000 square feet at 23 locations with an aggregate current
monthly rental of approximately $180,000. These leases have
remaining terms of up to ten years. The Company's leased
properties include administrative locations, three pharmacies and
other miscellaneous facilities.
In June 1994 the Company entered into a lease for new corporate
office space in Los Angeles commencing in that month for a term of
seventy-two months. The lease is for approximately 83,000 square
feet with a monthly base rental expense of approximately $72,600
excluding the Company's percentage share of all increases in the
landlord's operating cost of the building.
19
Item 3. Legal Proceedings
-----------------
a. PENN HEALTH
During the period March 1, 1986 through June 30, 1989, Penn Health
Corporation ("Penn Health"), a subsidiary of the Company,
contracted with the Commonwealth of Pennsylvania Department of
Public Welfare (the "DPW") to provide a full range of managed
health care services to Medicaid enrollees under the Pennsylvania
Medical Assistance Program known as the HealthPass Program. These
services were rendered by providers pursuant to contracts with Penn
Health (the "Penn Health Providers"). The Company believes that as
of the Petition Dates the DPW owed Penn Health in excess of $24
million plus accrued interest in connection with the HealthPass
Program.
After the Petition Dates, the DPW advanced funds directly to the
Penn Health Providers for pre-petition services rendered to
HealthPass members. In February 1990, the Company filed a
proceeding in the Bankruptcy Court against the DPW and the major
Penn Health Providers to recover preferential transfers, to compel
turnover of property and to assert objections to the proofs of
claim the Penn Health Providers filed against Penn Health (the
"Bankruptcy Action"). Proceedings in the Bankruptcy Action have
been held in abeyance, although the Bankruptcy Court continues to
retain jurisdiction over the action.
On February 27, 1991, the Company filed a petition against the DPW
in the Pennsylvania Board of Claims (the "Claims Board") seeking in
excess of $24 million in damages for monies due from the DPW in
connection with the HealthPass Program plus accrued interest (the
"Board Action"). The Claims Board has consolidated the Board
Action with two separate actions filed by Penn Health hospital and
primary care providers against the DPW to recover payment from the
DPW for pre-petition services rendered to HealthPass members (the
"Provider Actions"). The Board Action was set for trial in two
phases; a liability phase and a damages phase.
Before trial was held on the liability phase, the hospital
providers settled their claims against the DPW for approximately
$23.3 million. Contractual issues pertaining to the DPW's
liability to the parties in the consolidated action were tried
before the Claims Board in a trial which concluded on July 25, 1994
(the "Liability Phase"). On December 2, 1994 the Claims Board
issued an order on the Liability Phase which found that: (i) a
contract exists between Penn Health and the DPW; (ii) the DPW
breached the contract; and (iii) Penn Health is an independent
general contractor and not an agent of the DPW.
Issues pertaining to the parties' respective damages were tried
before the Claims Board in a trial which concluded on November 30,
1995 (the "Damages Phase"). The Company believes it is presently
entitled to damages of $42.0 million (inclusive of accrued
interest) for monies due Penn Health in connection with operation
20
of the HealthPass Program through June 30, 1989. In the Damages
Phase the DPW contended that it was entitled to a credit in the
approximate amount of $26.1 million for certain pre-petition
payments the DPW made to Penn Health Providers and in settling the
Provider Actions, against the damages to be awarded to Penn Health.
The Company contends that the DPW is not entitled to a credit
against any of Penn Health's damages. The parties are presently
engaged in the preparation and submission of post trial legal
memorandum in connection with the Damages Phase. The Company
believes that its damage claims are meritorious and that it will
prevail in the Board Action.
Pre-petition amounts due to Penn Health Providers and other
creditors of Penn Health will be satisfied from Penn Health's
assets pursuant to the Reorganization Plan. In no event will the
Company be required to fund from its current cash resources the
payment of Penn Health's pre-petition claims. However, in the
event the DPW prevails on certain issues in the Board Action this
may result in a material reduction in the Company's recorded
estimate of amounts due the Company from the DPW.
b. OTHER LITIGATION
The Company is a defendant in a number of other lawsuits arising in
the ordinary course from the operations of the HMOs, including
cases in which the plaintiffs assert claims against the Company or
third parties that assert indemnity or contribution claims against
the Company for malpractice, negligence, bad faith in the failure
to pay claims on a timely basis or denial of coverage seeking
compensatory and, in certain instances, punitive damages in an
indeterminate amount which may be material. The Company does not
believe that the ultimate determination of these cases will either
individually or in the aggregate have a material, adverse effect on
the Company's business or operations.
21
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matter was submitted to a vote of security holders during the
three months ended December 31, 1995.
22
PART II
--------
Item 5. Market for the Registrant's Common Stock and Related
----------------------------------------------------
Stockholder Matters
-------------------
(a) Market Information
The Company's Common Stock appears on the National Association of
Securities Dealers Automated Quotation National Market Systems
("NASDAQ-NMS") under the trading symbol MAXI.
The following table sets forth the high and low sale prices per
share on the NASDAQ-NMS. The quotations are interdealer prices
without retail mark-ups, markdowns, or commissions, and may not
represent actual transactions.
Common Stock Sale Price
---------------
High Low
------ ------
1994 First quarter $15.50 $ 9.50
Second Quarter $15.25 $11.00
Third Quarter $14.13 $11.63
Fourth Quarter $16.50 $11.63
1995 First Quarter $19.25 $14.75
Second Quarter $19.00 $14.00
Third Quarter $19.25 $14.25
Fourth Quarter $27.75 $16.13
(b) Holders
The number of holders of record of the Company's Common Stock on
December 31, 1995 was 10,453. As of such date, the Company held
641,746 shares of Common Stock (the "Unallocated Shares") as
disbursing agent for the benefit of creditors and holders of
interests and equity claims under the Reorganization Plan. Of the
Unallocated Shares held as of December 31, 1995, 571,713 were held
for the benefit of creditors of the Company's operating
subsidiaries (Reorganization Plan classes 5A through 5H), 38,455
shares were held for bank group creditors (Reorganization Plan
class 7), and 31,578 shares were held for bondholder creditors
(Reorganization Plan classes 8A through 8D). As of December 31,
23
1995, no shares were being held for the benefit of Maxicare Health
Plans, Inc. creditors (Reorganization Plan class 9); however,
certain of the shares held for the benefit of Reorganization Plan
classes 7 and 8A through 8D will be reallocated to Reorganization
Plan class 9 pursuant to a formula set forth in the Reorganization
Plan. The Reorganization Plan provides that until such time as any
share of Common Stock reserved for a holder of an allowed claim or
allowed interest under the Reorganization Plan is allocated, the
disbursing agent shall deliver an irrevocable proxy to vote the
Unallocated Shares to the independent directors of the Board (as
such term is defined by the Reorganization Plan). Currently, the
independent directors are Messrs. Brinegar, Field, Lewis and Manne
and Ms. Courtright (the "Independent Directors"). The
Reorganization Plan provides that the Unallocated Shares shall be
voted in the following manner:
(i) 571,713 shares which were held in the claims reserves
as of December 31, 1995 for the holders of Reorganization
Plan classes 5A through 5H and Reorganization Plan class
9 allowed claims, shall (a) as to proposals made by the
Company, be voted in the same manner and the same degree
as all of the allocated shares of Common Stock; and (b)
as to proposals made by any person or entity other than
the Company, be voted in accordance with the vote of a
majority of the Independent Directors; and
(ii) 70,033 shares which were held in the claims reserves
as of December 31, 1995 for holders of Reorganization
Plan class 7 and Reorganization Plan classes 8A through
8D allowed claims, shall be voted in the same manner and
the same degree as all of the allocated shares of Common
Stock.
(c) Dividends
The Company has not paid any cash dividends on its Common Stock and
has no intention of doing so in the foreseeable future.
24
Item 6. Selected Financial Data
-----------------------
At And For The Years Ended December 31,
---------------------------------------
(Amounts in thousands except per share and
membership data)
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
OPERATING REVENUES...................................... $477,344 $432,173 $440,186 $414,454 $388,694
-------- -------- -------- -------- --------
TOTAL HEALTH CARE EXPENSES.............................. 414,296 379,608 394,721 362,627 330,529
Marketing, general and administrative expenses....... 43,993 44,084 40,998 37,930 41,008
Depreciation and amortization........................ 1,245 2,087 4,054 5,238 6,535
Reorganization expenses.............................. 895 3,661
-------- -------- -------- -------- --------
TOTAL OPERATING EXPENSES................................ 459,534 425,779 439,773 406,690 381,733
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS.................................. 17,810 6,394 413 7,764 6,961
Investment income.................................... 6,299 3,319 2,636 3,121 4,039
Interest expense..................................... (58) (36) (32) (2,773) (9,570)
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS...... 24,051 9,677 3,017 8,112 1,430
INCOME TAX BENEFIT...................................... 3,625 3,658 2,571 3,058
-------- -------- -------- --------- --------
INCOME BEFORE EXTRAORDINARY ITEMS....................... 27,676 13,335 5,588 11,170 1,430
EXTRAORDINARY ITEMS (net of income taxes of $0) (1)..... (14,241) (905)
-------- -------- -------- -------- --------
NET INCOME (LOSS)....................................... 27,676 13,335 5,588 (3,071) 525
PREFERRED STOCK DIVIDENDS............................... (5,280) (5,400) (4,350)
-------- -------- -------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS...... $ 27,676 $ 8,055 $ 188 $ (7,421) $ 525
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT
SHARE (2):
Primary
Income Before Extraordinary Items..................... $ 1.63 $ .73 $ .02 $ .66 $ .14
Extraordinary Items (1)............................... (1.37) (.09)
-------- -------- -------- -------- --------
Net Income (Loss)..................................... $ 1.63 $ .73 $ .02 $ (.71) $ .05
======== ======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding........................ 16,978 11,064 10,416 10,414 10,253
Fully Diluted
Income Before Extraordinary Items..................... $ 1.50 $ .73 $ .02 $ .66 $ .14
Extraordinary Items (1)............................... (1.37) (.09)
-------- -------- -------- -------- --------
Net Income (Loss)..................................... $ 1.50 $ .73 $ .02 $ (.71) $ .05
======== ======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding........................ 18,410 11,064 10,416 10,414 10,253
BALANCE SHEET DATA:
Total assets......................................... $162,836 $128,692 $106,807 $ 97,278 $105,922
Total indebtedness (3)............................... $ 68,131 $ 63,342 $ 54,422 $ 45,217 $102,874
Shareholders' equity................................. $ 94,705 $ 65,350 $ 52,385 $ 52,061 $ 3,048
MEMBERSHIP DATA:
Number of members.................................... 345,000 292,000 308,000 283,000 277,000
25
Notes to Selected Financial Data
(1) Includes a 1992 write-off of unamortized original issue discount and unamortized issuance costs
on the Senior Notes that were redeemed and a 1992 accrual of a distribution payable pursuant to
the Reorganization Plan based on the Company's consolidated net worth as of December 31, 1992.
Includes a 1991 accrual of a distribution payable pursuant to the Reorganization Plan based on
the Company's consolidated net worth as of December 31, 1991 and a write-off of original issue
discount on Senior Notes that were to be redeemed. (See "Item 8. Financial Statements and
Supplementary Data - Note 3 to the Company's Consolidated Financial Statements").
(2) For the years ended December 31, 1994, 1993, 1992 and 1991 fully diluted earnings per share
exceeded primary earnings per share (i.e., the calculations were "anti-dilutive") so primary
earnings per share are reported as fully diluted.
(3) Includes long-term liabilities of $1,155, $887, $504, $1,015, and $63,177 in 1995, 1994, 1993,
1992, and 1991, respectively.
26
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
The year ended December 31, 1995 compared to the year ended
-----------------------------------------------------------
December 31, 1994.
------------------
The Company reported net income of $27.7 million for the year ended
December 31, 1995 compared to $13.3 million for the same period of
1994. Net income per common share on a fully diluted basis
increased to $1.50 for the year ended December 31, 1995 compared to
$.73 for the same period in 1994.
For the year ended December 31, 1995, the Company reported
operating revenues of $477.3 million, an increase of $45.1 million
or 10.4% when compared to the same period in 1994. Of this $45.1
million increase to operating revenues, $37.5 million resulted from
an 8.2% increase in membership primarily generated by growth in
both the commercial and Medicaid lines of business in California
and Indiana, as well as a .5% increase in the average premium
revenue per member per month. The remaining increase in operating
revenues was the result of recording in the fourth quarter of 1995
additional amounts due the Company with respect to the prior
operation of a governmental managed care program.
Health care expenses, including increases in estimated claims
payable in the fourth quarter of 1995, increased 9.1% or $34.7
million for the year ended December 31, 1995 as compared to the
same period in 1994. Health care expenses as a percentage of
operating revenues (the "medical loss ratio") decreased 1.0
percentage point to 86.8%, contributing $4.8 million to the $10.5
million increase in the Company's gross margin.
Marketing, general and administrative ("M,G&A") expenses were $44.0
million for the year ended December 31, 1995 as compared to $44.1
million for the year ended December 31, 1994. M,G&A expenses for
1994 included a $3.0 million litigation charge recorded in the
second quarter of that year. M,G&A expenses as a percentage of
operating revenues decreased from 9.5% to 9.2% for the year ended
December 31, 1995 as compared to the same period in 1994.
Depreciation and amortization expense for the year ended December
31, 1995 decreased $.8 million from the $2.1 million reported for
1994 because of the expiration of capital leases and certain
equipment that became fully depreciated.
Investment income for the year ended December 31, 1995 increased by
$3.0 million to $6.3 million as compared to the same period in
1994. The increased investment income was due to higher investment
yields and larger cash and investment balances primarily
attributable to the 1995 results of operations.
27
The Company reported a $3.6 million income tax benefit for the year
ended December 31, 1995, primarily due to the recognition in the
fourth quarter of an additional $4.0 million tax benefit as a
result of the Company increasing its deferred tax asset in
accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". The Company also recorded a $4.0
million increase in its deferred tax asset in the fourth quarter of
1994. (See "Item 8. Financial Statements and Supplementary Data -
Note 7 to the Company's Consolidated Financial Statements").
Maxicare concluded the redemption of its Series A Cumulative
Convertible Preferred Stock ("Series A Stock") on March 14, 1995.
As a result of this redemption, the Company is no longer required
to pay Series A Stock dividends and paid no dividends in 1995. For
the year ended December 31, 1994 the Company paid $5.3 million in
dividends.
The year ended December 31, 1994 compared to the year ended
-----------------------------------------------------------
December 31, 1993.
------------------
The Company reported net income of $13.3 million for the year ended
December 31, 1994 compared to $5.6 million for the same period of
1993. Net income per common share increased to $.73 for the year
ended December 31, 1994 compared to $.02 for the same period in
1993.
For the year ended December 31, 1994, the Company reported
operating revenues of $432.2 million, a 2% decrease from the $440.2
million reported for the year ended December 31, 1993. The
decrease in revenues primarily resulted from a 29% decrease in
membership in the Indiana HMO offset by membership increases in the
Illinois and North Carolina HMOs and modest premium rate increases.
Excluding the decrease in membership at the Indiana HMO, the
Company's remaining HMOs experienced an aggregate membership
increase of 9% in 1994.
The decrease in net membership for 1994 and a $7.0 million one-time
charge reported in the third quarter of 1993 for previously
unanticipated actual and projected health care costs contributed to
the 4% decrease in year-to-date health care expenses to $379.6
million for 1994. The medical loss ratio decreased to 87.8% for
fiscal year 1994 as compared to 89.7% for 1993.
M,G&A expenses increased $3.1 million to $44.1 million for the year
ended December 31, 1994 as compared to 1993 because of a $3.0
litigation charge recorded in the second quarter of 1994.
Depreciation and amortization expense for the year ended December
31, 1994 decreased $2.0 million from the $4.1 million reported for
1993 because of the expiration of capital leases and certain
equipment that became fully depreciated.
28
The income tax benefit increased $1.1 million to $3.7 million for
the year ended December 31, 1994. This increase is primarily due
to the Company increasing its deferred tax asset by $4.0 million in
the fourth quarter of 1994 as compared to an increase in its
deferred tax asset of $2.8 million in the fourth quarter of 1993.
Liquidity and Capital Resources
Certain of MHP's operating subsidiaries are subject to state
regulations which require compliance with certain statutory
deposit, dividend distribution and net worth requirements. To the
extent the operating subsidiaries must comply with these
regulations, they may not have the financial flexibility to
transfer funds to MHP. MHP's proportionate share of net assets
(after inter-company eliminations) which, at December 31, 1995, may
not be transferred to MHP by subsidiaries in the form of loans,
advances or cash dividends without the consent of a third party is
referred to as "Restricted Net Assets". Restricted Net Assets of
these operating subsidiaries were $31.5 million at December 31,
1995, with deposit requirements and limitations imposed by state
regulations on the distribution of dividends representing $12.3
million and $11.2 million of the Restricted Net Assets,
respectively, and net worth requirements in excess of deposit
requirements and dividend limitations representing the remaining
$8.0 million. The Company's total Restricted Net Assets at
December 31, 1995 were $31.8 million. Approximately $15.1 million
in funds held by operating subsidiaries could be considered
available for transfer to MHP at December 31, 1995.
All of MHP's operational subsidiaries are direct subsidiaries of
MHP. All of the Company's HMOs are federally qualified, and, with
the exception of the Company's South Carolina HMO, all of the
Company's operating HMOs are licensed in the states where they
primarily operate. The operations of the South Carolina HMO are
currently under Bankruptcy Court jurisdiction pending a
reorganization of that entity to operate as a licensed HMO in the
state of South Carolina. The Company believes that it will be able
to ultimately resolve the South Carolina HMO's licensing situation
with the state of South Carolina as a separately licensed HMO in
such state or, alternatively, as a division of one of its other
operating HMOs to be licensed to do business in the state of South
Carolina. The Company cannot predict at this time the required
capital contribution, if any, which may result from the separate
licensing of the South Carolina HMO in the state of South Carolina
or the operation of it as a division of one of the Company's
operating HMOs. If the contribution of additional cash resources
is required to ensure compliance with statutory deposit and net
worth requirements, the Company does not believe that such a
contribution will have a material adverse effect on its operations
taken as a whole.
The operating HMOs currently pay monthly fees to MHP pursuant to
administrative services agreements for various management,
financial, legal, computer and telecommunications services. The
Company believes that for the foreseeable future it will have
29
sufficient resources to fund ongoing operations and remain in
compliance with statutory financial requirements.
With a current ratio (i.e., current assets divided by current
liabilities) of 2.2 and less than $1.2 million of long-term
liabilities at December 31, 1995, the Company does not believe that
it will need additional working capital to fund its operations for
the foreseeable future. Although the Company believes that it
would be able to raise additional working capital through either an
equity offering or borrowings if it so desired, the Company cannot
state with any degree of certainty at this time whether additional
equity capital or working capital would be available to it, and if
available, would be at terms and conditions acceptable to the
Company.
30
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
31
REPORT OF INDEPENDENT AUDITORS
------------------------------
The Board of Directors and Shareholders
Maxicare Health Plans, Inc.
We have audited the accompanying consolidated balance sheets of
Maxicare Health Plans, Inc. as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareholders'
equity, and cash flows for the two years then ended. Our audits
also included the 1995 and 1994 information with respect to the
financial statement schedules listed in the index at item 14(a).
These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our
audits. The financial statements and schedules of Maxicare Health
Plans, Inc. for the year ended December 31, 1993 were audited by
other auditors whose report dated March 4, 1994, expressed an
unqualified opinion on those statements and schedules.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the 1995 and 1994 consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Maxicare Health Plans, Inc. at
December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for the two years then ended in
conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the 1995 and 1994
information set forth therein.
ERNST & YOUNG LLP
February 6, 1996
Los Angeles, California
32
MAXICARE HEALTH PLANS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value)
December 31,
1995 1994
CURRENT ASSETS --------- ---------
Cash and cash equivalents - Note 2........................ $ 49,170 $ 37,858
Marketable securities - Note 2............................ 49,659 43,558
Accounts receivable, net - Note 2......................... 32,946 18,314
Deferred tax asset - Note 7............................... 14,000 10,000
Prepaid expenses.......................................... 1,195 2,741
Other current assets...................................... 294 299
--------- ---------
TOTAL CURRENT ASSETS.................................... 147,264 112,770
--------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,441 5,461
Furniture and equipment................................... 18,849 26,137
--------- ---------
24,290 31,598
Less accumulated depreciation and amortization.......... 21,755 29,077
--------- ---------
NET PROPERTY AND EQUIPMENT.............................. 2,535 2,521
--------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 200 2,285
Restricted investments - Note 2........................... 12,593 10,953
Intangible assets, net.................................... 244 163
--------- ---------
TOTAL LONG-TERM ASSETS.................................. 13,037 13,401
--------- ---------
TOTAL ASSETS............................................ $ 162,836 $ 128,692
========= =========
CURRENT LIABILITIES
Estimated claims and incentives payable................... $ 46,232 $ 47,095
Accounts payable.......................................... 689 285
Deferred income........................................... 5,272 2,338
Accrued salary expense.................................... 3,296 2,709
Payable to disbursing agent - Note 3...................... 6,248 6,248
Other current liabilities................................. 5,239 3,780
--------- ---------
TOTAL CURRENT LIABILITIES............................... 66,976 62,455
LONG-TERM LIABILITIES....................................... 1,155 887
--------- ---------
TOTAL LIABILITIES....................................... 68,131 63,342
--------- ---------
COMMITMENTS AND CONTINGENCIES - Note 5
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value - 5,000 shares
authorized, 1994 - 2,290 shares issued and
outstanding - Note 6.................................... 23
Common stock, $.01 par value - 40,000 shares authorized,
1995 - 17,420 shares and 1994 - 10,850 shares issued and
outstanding - Note 6.................................... 174 108
Additional paid-in capital................................ 247,690 246,054
Accumulated deficit....................................... (153,159) (180,835)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 94,705 65,350
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 162,836 $ 128,692
========= =========
See notes to consolidated financial statements.
33
MAXICARE HEALTH PLANS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
Years ended December 31,
1995 1994 1993
-------- -------- --------
OPERATING REVENUES.................................... $477,344 $432,173 $440,186
-------- -------- --------
OPERATING EXPENSES
Physician services................................. 183,918 170,382 170,377
Hospital services.................................. 148,546 128,790 146,998
Outpatient services................................ 67,482 64,145 62,565
Other health care expense.......................... 14,350 16,291 14,781
-------- -------- --------
TOTAL HEALTH CARE EXPENSES....................... 414,296 379,608 394,721
Marketing, general and administrative expenses..... 43,993 44,084 40,998
Depreciation and amortization...................... 1,245 2,087 4,054
-------- -------- --------
TOTAL OPERATING EXPENSES......................... 459,534 425,779 439,773
-------- -------- --------
INCOME FROM OPERATIONS................................ 17,810 6,394 413
Investment income.................................. 6,299 3,319 2,636
Interest expense................................... (58) (36) (32)
-------- -------- --------
INCOME BEFORE INCOME TAXES............................ 24,051 9,677 3,017
INCOME TAX BENEFIT.................................... 3,625 3,658 2,571
-------- -------- --------
NET INCOME............................................ 27,676 13,335 5,588
PREFERRED STOCK DIVIDENDS............................. (5,280) (5,400)
-------- -------- --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS.......... $ 27,676 $ 8,055 $ 188
======== ======== ========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
- Note 2:
Primary
Primary Earnings Per Common Share................... $ 1.63 $ .73 $ .02
======== ======== ========
Weighted average number of common and common
equivalent shares outstanding.................... 16,978 11,064 10,416
======== ======== ========
Fully Diluted
Fully Diluted Earnings per Common Share............. $ 1.50 $ .73 $ .02
======== ======== ========
Weighted average number of common and common
equivalent shares outstanding.................... 18,410 11,064 10,416
======== ======== ========
See notes to consolidated financial statements.
34
MAXICARE HEALTH PLANS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years ended December 31,
1995 1994 1993
--------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 27,676 $ 13,335 $ 5,588
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.................................. 1,245 2,087 4,054
(Gain) loss on dispositions of property and equipment.......... (8) 19
Provision for long-term receivables valuation allowance........ 2,004
Benefit from deferred taxes.................................... (4,000) (4,000) (2,800)
Amortization of restricted stock............................... 583
Changes in assets and liabilities:
(Increase) decrease in accounts receivable................... (14,632) 860 1,613
Increase (decrease) in estimated claims and
incentives payable......................................... (863) 8,200 9,909
Increase in deferred income.................................. 2,934 (344) 749
Changes in other miscellaneous assets and liabilities........ 3,353 1,582 (2,015)
--------- --------- --------
Net cash provided by operating activities........................ 18,292 21,720 17,117
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment......................... 5 15 7
Purchases of property and equipment............................ (250) (313) (457)
(Increase) decrease in restricted investments.................. (1,640) 2,657 (808)
Reductions to long-term receivables............................ 81 69 32
Additions to long-term receivables............................. (350)
Proceeds from sales and maturities of marketable securities.... 48,460 78,047 26,245
Purchases of marketable securities............................. (54,561) (102,157) (18,375)
--------- --------- --------
Net cash provided by (used for) investing activities............. (7,905) (22,032) 6,644
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.......................... (171) (132) (381)
Stock options exercised........................................ 1,621 717 136
Redemption of preferred stock.................................. (525)
Payment of preferred stock dividends........................... (5,280) (5,400)
Warrants exercised............................................. 4,193
Cash transferred to disbursing agent........................... (971)
--------- --------- --------
Net cash provided by (used for) financing activities............. 925 (502) (6,616)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents............. 11,312 (814) 17,145
Cash and cash equivalents at beginning of period................. 37,858 38,672 21,527
--------- --------- --------
Cash and cash equivalents at end of period....................... $ 49,170 $ 37,858 $ 38,672
========= ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for -
Interest................................................... $ 37 $ 32 $ 31
Income taxes............................................... $ 2,689 $ 163 $ 284
Supplemental schedule of non-cash investing activities:
Capital lease obligations incurred for purchase of property
and equipment and intangible assets........................ $ 963 $ 659
Book value of assets exchanged for assets.................... $ 40
Fair value of assets exchanged............................... (25)
--------
Loss on assets exchanged..................................... $ 15
========
Supplemental schedule of non-cash financing activities:
Reclassification of preferred stock capital accounts to common
stock capital accounts pursuant to the conversion of
preferred stock to common stock............................ $ 53,195 $ 2,580
Issuance of restricted common stock.......................... $ 2,096
See notes to consolidated financial statements.
35
MAXICARE HEALTH PLANS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in thousands)
Number of Number of Additional
Preferred Preferred Common Common Paid-in Accumulated
Shares Stock Shares Stock Capital Deficit Total
--------- --------- --------- ------ ---------- ----------- -------
Balances at December 31, 1992.... 2,400 $24 10,017 $100 $241,015 $(189,078) $52,061
Stock options exercised...... 16 136 136
Preferred stock dividends.... (5,400) (5,400)
Net income................... 5,588 5,588
----- --- ------ ---- -------- --------- -------
Balances at December 31, 1993.... 2,400 24 10,033 100 241,151 (188,890) 52,385
Stock options exercised...... 88 1 716 717
Warrants exercised........... 420 4 4,189 4,193
Preferred stock converted
to common stock............ (110) (1) 309 3 (2)
Preferred stock dividends.... (5,280) (5,280)
Net income................... 13,335 13,335
----- --- ------ ---- -------- --------- -------
Balances at December 31, 1994.... 2,290 23 10,850 108 246,054 (180,835) 65,350
Stock options exercised...... 189 2 1,619 1,621
Restricted stock issued...... 130 1 (1)
Restricted stock amortized... 583 583
Preferred stock converted
to common stock............ (2,269) (23) 6,251 63 (40)
Preferred stock redeemed..... (21) (525) (525)
Net income................... 27,676 27,676
----- --- ------ ---- -------- --------- -------
Balances at December 31, 1995.... 0 $ 0 17,420 $174 $247,690 $(153,159) $94,705
===== === ====== ==== ======== ========= =======
See notes to consolidated financial statements.
36
MAXICARE HEALTH PLANS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS DESCRIPTION
Maxicare Health Plans, Inc., a Delaware corporation ("MHP"), is a
holding company which owns various subsidiaries, primarily health
maintenance organizations ("HMOs"). MHP operates HMOs in
California, Indiana, Illinois, Louisiana, North Carolina, South
Carolina and Wisconsin. All of MHP's HMOs are federally qualified
by the United States Department of Health and Human Services and
are generally regulated by the Department of Insurance of the state
in which they are domiciled (except Maxicare, which is regulated by
the California Department of Corporations).
Maxicare Life and Health Insurance Company ("MLH"), a licensed
insurance company and wholly-owned subsidiary of MHP, operates
preferred provider organizations ("PPOs") in Illinois, Indiana,
Louisiana, North Carolina and California which constitute less than
one percent (1%) of the consolidated enrollment of MHP and
subsidiaries (the "Company") at December 31, 1995. In addition,
MLH writes policies for group life and accidental death and
dismemberment insurance; however, these lines of business make up
less than one percent (1%) of the Company's operating revenues for
the year ended December 31, 1995.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments that are both
readily convertible into known amounts of cash and mature within 90
days from their date of purchase to be cash equivalents.
37
Cash and cash equivalents consist of the following at December 31:
1995 1994
(Amounts in thousands) ------- -------
Cash.............................. $ 6,160 $ 5,969
Certificates of deposit........... 8,537 6,531
Commercial paper.................. 10,277 5,983
Money market funds................ 6,093 2,259
Repurchase agreements............. 8,347 13,718
U.S. Treasury obligations......... 9,756 3,398
------- -------
$49,170 $37,858
======= =======
Investments
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". Realized gains
and losses and unrealized losses judged to be other than temporary
with respect to available-for-sale and held-to-maturity securities
are included in the determination of net income. The cost of
securities sold is based on the specific identification method.
Fair values of marketable securities are based on published or
quoted market prices.
The Company has designated its marketable securities included in
current assets as available-for-sale. Such securities have been
recorded at amortized cost as the unrealized gain or loss in such
securities is immaterial.
The Company's restricted investments consist of securities
restricted to specific purposes as required by various governmental
regulations. These securities have been designated as held-to-
maturity as the Company has the intent and the ability to hold them
to maturity. These securities are stated at amortized cost.
Prior to the adoption of SFAS No. 115, the Company carried
marketable securities at amortized cost or at the lower of
amortized cost or fair value. The adoption of SFAS No. 115 had no
material effect on the carrying value of marketable securities as
of January 1, 1994.
38
The following is a summary of investments at December 31 (gross
unrealized gains and losses are immaterial):
1995 1994
---------------------- -----------------------
Estimated Estimated
Amortized Fair Amortized Fair
(Amounts in thousands) Cost Value Cost Value
--------- --------- --------- ---------
Available-for-sale:
U.S. Government obligations.. $38,834 $39,074 $24,884 $24,753
Corporate Notes.............. 10,763 10,980 13,717 13,617
Commercial paper............. 4,902 4,886
Other........................ 62 54 55 47
------- ------- ------- -------
$49,659 $50,108 $43,558 $43,303
======= ======= ======= =======
Held-to-maturity:
U.S. Government obligations.. $10,268 $10,346 $ 8,778 $ 8,714
Other........................ 2,325 2,325 2,175 2,175
------- ------- ------- -------
$12,593 $12,671 $10,953 $10,889
======= ======= ======= =======
The contractual maturities of investments at December 31, 1995 were
as follows:
Estimated
Amortized Fair
(Amounts in thousands) Cost Value
--------- ---------
Available-for-sale:
Due in one year or less................ $ 9,440 $ 9,424
Due after one year through five years.. 38,151 38,625
Due after five years through ten years. 2,068 2,059
------- -------
$49,659 $50,108
======= =======
Held-to-maturity:
Due in one year or less............... $ 9,198 $ 9,219
Due after one year through five years.. 3,395 3,452
------- -------
$12,593 $12,671
======= =======
39
Accounts Receivable
Accounts receivable consisted of the following at December 31:
1995 1994
(Amounts in thousands) ------- -------
Premiums receivable.................... $30,886 $19,251
Allowance for retroactive
billing adjustments.................. (2,941) (3,371)
------- -------
Premiums receivable, net............... 27,945 15,880
Federal income tax refund receivable... 2,200
Other.................................. 2,801 2,434
------- -------
Accounts receivable, net............... $32,946 $18,314
======= =======
Premiums receivable include as of December 31, 1995 and 1994 an
estimated $15.0 million and $5.0 million, respectively, for amounts
due the Company with respect to the prior operation of a
governmental managed care program.
Property and Equipment
Property and equipment are recorded at cost and include assets
acquired through capital leases and improvements that significantly
add to the productive capacity or extend the useful life of the
asset. Costs of maintenance and repairs are charged to expense as
incurred. Depreciation for financial reporting purposes is provided
on the straight-line method over the estimated useful lives of the
assets. The costs of major remodeling and improvements are
capitalized as leasehold improvements. Leasehold improvements are
amortized using the straight-line method over the shorter of the
remaining term of the applicable lease or the life of the asset.
Intangible Assets
Intangible assets consist primarily of purchased computer software
and are amortized using the straight-line method over five years.
Accumulated amortization of intangible assets at December 31, 1995
and 1994 is $1.7 million.
Revenue Recognition
Premiums are recorded as revenue in the month for which enrollees
are entitled to health care services. Premiums collected in
advance are deferred. A portion of premiums is subject to possible
retroactive adjustment. Provision has been made for estimated
retroactive adjustments to the extent the probable outcome of such
adjustments can be determined. Any other revenues are recognized
as services are rendered.
40
Health Care Expense Recognition
The cost of health care services is expensed in the period the
Company is obligated to provide such services. The Company's HMOs
arrange for the provision of health care services primarily through
capitation arrangements. Under capitation contracts, the HMO pays
the health care provider a fixed amount per member per month to
cover the payment of all or most medical services regardless of
utilization. Where the Company retains the financial
responsibility for specialist referrals, hospital utilization and
other health care costs, the Company establishes an accrual for
estimated claims payable including claims reported as of the
balance sheet date and estimated (based upon utilization trends and
projections of historical developments) costs of health care
services rendered but not reported. Estimated claims payable are
continually monitored and reviewed and as settlements are made or
accruals adjusted, differences are reflected in current operations.
Insurance
The Company's operating entities, except in South Carolina, North
Carolina and California, are self-insured for risks on certain
medical and hospital claims incurred by their members. The South
Carolina HMO maintains medical and hospital claims reinsurance
coverage with a third party insurance carrier. The North Carolina
HMO maintains medical and hospital claims reinsurance coverage with
MLH. The California HMO maintains medical and hospital claims
reinsurance coverage for its Medicaid line of business with Health
Care Assurance Company Limited ("HCAC"), a wholly-owned subsidiary
of MHP.
In addition, the Company's operating entities are self-insured for
medical malpractice claims with the exception of the California
HMO, which maintains malpractice coverage through HCAC.
Premium Deficiencies
Estimated future health care costs and maintenance expenses under a
group of contracts in excess of estimated future premiums and
reinsurance recoveries on those contracts are recorded as a loss
when determinable. No such deficiencies exist at December 31,
1995.
Net Income Per Common and Common Equivalent Share
The Company concluded the redemption of its Series A Cumulative
Convertible Preferred Stock (the "Series A Stock") on March 14,
1995 (the "Redemption Date"). Holders of approximately 2.27
million shares of Series A Stock converted their shares into
approximately 6.25 million shares of the Company's Common Stock.
As a result of the redemption of the Series A Stock the Company
paid no preferred stock dividends in 1995, and, accordingly, no
consideration is given to preferred stock dividends in the
calculation of earnings per share for the year ended December 31,
1995.
41
Primary earnings per share are computed by dividing net income
available to common shareholders by the weighted average number of
common shares outstanding, after giving effect to stock options
with an exercise price less than the average market price for the
period. Common shares issued upon the conversion of preferred
stock have been included in the weighted average number of common
shares outstanding subsequent to the conversion date.
Fully diluted earnings per share are computed by dividing net
income by the weighted average number of common shares outstanding,
after giving effect to stock options with an exercise price less
than the market price at the end of the period (or average market
price if use of that price results in greater dilution) and shares
assumed to be issued upon conversion of the Company's preferred
stock. Common shares issued upon the conversion of preferred stock
have been included in the weighted average number of common shares
outstanding and the preferred shares have been excluded from the
weighted average number of common equivalent shares outstanding
subsequent to the conversion date.
Fully diluted earnings per share are reported only when the amount
calculated is less than the primary earnings per share. For the
years ended December 31, 1994 and 1993 fully diluted earnings per
share exceeded the primary earnings per share (i.e., the
calculations were "anti-dilutive") so primary earnings per share
are reported as fully diluted.
Stock Options
In October 1995, SFAS No. 123 "Accounting for Stock - Based
Compensation" was issued which provides an alternative to
Accounting Principles Board ("APB") Opinion No. 25 "Accounting for
Stock Issued to Employees". SFAS No. 123 encourages, but does not
require, that compensation expense for grants of stock, stock
options and other equity instruments to employees be based on the
fair value of such instrument. The statement also allows companies
to continue to measure compensation expense using the intrinsic
value method prescribed by APB Opinion No. 25. The Company intends
to continue with the intrinsic value based method.
With respect to stock options granted at an exercise price which is
less than the fair market value on the date of grant, the
difference between the option exercise price and market value at
date of grant is charged to operations over the period the options
vest. Income tax benefits attributable to stock options are
credited to additional paid-in capital when exercised.
Restrictions on Fund Transfers
Certain of the Company's operating subsidiaries are subject to
state regulations which require compliance with certain statutory
deposit, dividend distribution and net worth requirements. To the
extent the operating subsidiaries must comply with these
regulations, they may not have the financial flexibility to
transfer funds to MHP. MHP's proportionate share of net assets
42
(after inter-company eliminations) which, at December 31, 1995, may
not be transferred to MHP by subsidiaries in the form of loans,
advances or cash dividends without the consent of a third party is
referred to as "Restricted Net Assets". Restricted Net Assets of
these operating subsidiaries were $31.5 million at December 31,
1995, with deposit requirements and limitations imposed by state
regulations on the distribution of dividends representing $12.3
million and $11.2 million of the Restricted Net Assets,
respectively, and net worth requirements in excess of deposit and
dividend limitations representing the remaining $8.0 million. The
Company's total Restricted Net Assets at December 31, 1995 were
$31.8 million.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of investments in
marketable securities and premiums receivable. The Company's
investments in marketable securities are managed by internal
investment managers within the guidelines established by the Board
of Directors, which, as a matter of policy, limit the amounts which
may be invested in any one issuer. Concentrations of credit risk
with respect to premiums receivable are limited due to the large
number of employer groups comprising the Company's customer base.
As of December 31, 1995 management believes that the Company had no
significant concentrations of credit risk.
NOTE 3 - PAYABLE TO DISBURSING AGENT
On December 5, 1990 (the "Effective Date") the Company emerged from
protection under Chapter 11 pursuant to the Company's joint plan of
reorganization, as modified (the "Reorganization Plan"). The
Reorganization Plan provided that on December 31, 1991 and 1992 or
within 90 days thereafter, the Company would make additional
distributions, not to exceed $20.0 million in the aggregate, in an
amount equal to its then consolidated net worth (as determined in
the Company's audited consolidated financial statements) less $2.0
million (the "Consolidated Net Worth Distribution"). Pursuant to
the Reorganization Plan, 40% of the Consolidated Net Worth
Distribution was to be distributed ratably to the holders of
certain allowed claims in accordance with the terms of the
Reorganization Plan while the remaining 60% was to be applied
ratably against mandatory redemptions of certain Senior Notes
issued as part of the Reorganization Plan.
In the first quarter of 1992 MHP issued 2,400,000 shares of Series
A Stock (see Note 6) and redeemed the Senior Notes. The Company
does not believe that the Reorganization Plan contemplated either
the issuance of preferred stock or the redemption of the Senior
Notes and, accordingly, believes that the Consolidated Net Worth
Distribution required by the Reorganization Plan should be
calculated as if the sale of Series A Stock had not been
consummated and the Senior Notes had not been redeemed. The Company
thus determined the December 31, 1992 Consolidated Net Worth
Distribution amount to be approximately $971,000. This amount was
43
tendered for distribution to certain creditors under the
Reorganization Plan. In addition, the Company believes that any
Consolidated Net Worth Distribution which under the Reorganization
Plan was to be utilized to redeem the Senior Notes is no longer due
as the Senior Notes have been fully redeemed.
Notwithstanding the foregoing, the Company elected to accrue in its
consolidated financial statements the maximum potential liability
pending clarification of this matter. The amount that may be
ultimately payable pursuant to this Reorganization Plan provision,
if any, could be less than the amount accrued. Any Consolidated
Net Worth Distribution would be made from the Company's available
cash.
NOTE 4 - LITIGATION
The Company is involved in litigation arising in the normal course
of business, which, in the opinion of management, will not have a
material adverse effect on the Company's consolidated financial
position.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Leases
The Company has operating leases, some of which provide for initial
free rent and all of which provide for subsequent rent increases.
Rental expense is recognized on a straight-line basis with rental
expense of $2.5 million, $2.7 million and $2.9 million reported for
the years ended December 31, 1995, 1994 and 1993, respectively.
Sublease rental revenue of $72,000, $251,000 and $209,000 is
reported for the years ended December 31, 1995, 1994 and 1993,
respectively.
Assets held under capital leases at December 31, 1995 and 1994 of
$1.4 million and $533,000, respectively, (net of $253,000 and
$150,000, respectively, of accumulated amortization) are comprised
primarily of equipment leases. Amortization expense for capital
leases is included in depreciation expense.
44
Future minimum lease commitments for noncancelable leases at
December 31, 1995 were as follows:
Operating Capitalized
Leases Leases
(Amounts in thousands) --------- -----------
1996.......................... $ 2,226 $ 554
1997.......................... 2,053 438
1998.......................... 2,086 439
1999.......................... 1,668 18
2000.......................... 707
Thereafter.................... 1,636
------- ------
Total minimum
obligations................. $10,376 1,449
=======
Less current
obligations................. 554
Long-term ------
obligations................. $ 895
======
NOTE 6 - CAPITAL STOCK
On March 9, 1992 the shareholders voted to amend MHP's current
Restated Certificate of Incorporation to increase the authorized
Capital Stock of the Company from 18 million shares to 45 million
shares through: (i) an increase in the amount of authorized Common
Stock of the Company, par value $.01, from 18 million shares to 40
million shares, and (ii) the authorization of 5 million shares of
Preferred Stock of which 2.5 million shares were designated Series
A Cumulative Convertible Preferred Stock, par value $.01 (the
Series A Stock).
Preferred Stock
On February 13, 1995 the Company announced that it would redeem all
of its 2.29 million outstanding shares of the Series A Stock on
March 14, 1995. Holders of Series A Stock were entitled to either
have their shares redeemed by the Company at $25.4625 per share
(the "Redemption Price"), which represents the redemption price of
$25.00 per share plus accrued and unpaid dividends of $.4625 per
share, or convert their Series A Stock into 2.7548 shares of the
Company's Common Stock for each share of Series A Stock converted.
Holders of approximately 2.27 million shares of Series A Stock
converted their shares into approximately 6.25 million shares of
Common Stock. As of March 14, 1995, the remaining 21,000 shares of
Series A Stock are no longer deemed to be outstanding and holders
of Series A Stock certificates were entitled to receive only the
Redemption Price without additional interest thereon upon surrender
of the Series A Stock certificates properly endorsed to the
Redemption Agent, American Stock Transfer & Trust Company.
45
Common Stock
The Company is authorized to issue 40.0 million shares of $.01 par
value Common Stock. Under the Reorganization Plan 10.0 million
shares of the Company's Common Stock were issued for the benefit of
holders of allowed claims, interest and equity claims. An
additional 6.6 million shares were issued upon the conversion of
Series A Stock in 1994 and 1995, and .4 million shares were issued
in connection with the exercise of warrants issued pursuant to the
Reorganization Plan. As of December 31, 1995 approximately 17.4
million shares of the Company's Common Stock were outstanding. The
Certificate of Incorporation of the Company prohibits the issuance
of certain non-voting equity securities as required by the United
States Bankruptcy Code.
Stock Option Plans
Pursuant to the Reorganization Plan, Messrs. Ratican and Froelich
("Senior Management") each received options, which are all
currently exercisable, to purchase up to 277,778 shares of Common
Stock at a price of $6.54 per option share. As of January 1, 1992,
the Company entered into employment agreements with Senior
Management. Under the terms of these employment agreements, each
member of Senior Management received on February 25, 1992 options
to purchase up to 150,000 shares of Common Stock at a price of
$8.00 per option share. All of the options are currently
exercisable.
In December of 1990, the Company approved the 1990 Stock Option
Plan (the "1990 Plan"). Under the terms of the 1990 Plan, as
amended, the Company may issue up to an aggregate of 1,000,000
nonqualified stock options to directors, officers and other
employees. The following table summarizes information with respect
to the 1990 Plan:
December 31, December 31,
1995 1994
(Amounts in thousands, except ------------ ------------
price range)
Outstanding, beginning of year.... 860 743
Granted........................... 20 215
Exercised......................... (189) (88)
Forfeited......................... (46) (10)
---- ---
End of year
Outstanding..................... 645 860
==== ===
Exercisable..................... 461 528
Price Range..................... $8.00-$16.13 $8.00 - $13.25
Available....................... 45 19
46
In July of 1995, the Company approved the 1995 Stock Option Plan
(the "1995 Plan"). Under the terms of the 1995 Plan, the Company
may issue up to an aggregate of 1,000,000 nonqualified or incentive
stock options to directors, officers and other employees. The
following table summarizes information with respect to the 1995
Plan:
December 31,
1995
(Amounts in thousands, except ------------
price range)
Outstanding, beginning of year....
Granted........................... 200
Exercised.........................
Forfeited.........................
---
End of year
Outstanding..................... 200
===
Exercisable.....................
Price........................... $26.50
Available....................... 800
Under the 1990 Plan and 1995 Plan, options granted to date have
been nonqualified stock options which expire no later than 10 years
from the date of grant. Options granted to date have been at an
exercise price equal to 100% of the fair market value of the stock
at the date of grant.
Restricted Stock
On February 27, 1995 the Board of Directors of the Company approved
Restricted Stock Grant Agreements awarding 65,000 shares of
Restricted Stock to each member of Senior Management (individually
the "Executive"). The Restricted Stock is subject to complete
forfeiture should the Executive to which it has been awarded be
terminated prior to February 27, 1998. Upon the Executive
remaining in the employ of the Company through February 27, 1998
the Restricted Stock becomes fully vested. Under certain defined
circumstances involving a change in control of the Company the
Restricted Stock will vest in full immediately.
The Company has measured the total compensation cost of the
Restricted Stock awards as the excess of the quoted market price of
similar but unrestricted shares of stock at the award date over the
purchase price, if any, of the Restricted Stock. The quoted market
price of shares of the Company's Common Stock at the date of grant
was $16.125, and the Restricted Stock was awarded to the Executives
at no cost. The total compensation cost of the Restricted Stock is
$2,096,000 and is being amortized over the three year vesting
period.
47
Warrants
In accordance with the Reorganization Plan, the Company issued
warrants (the "Warrants"), entitling the holders thereof, to
purchase for $9.98 per Warrant, in the aggregate, 555,555 shares of
Common Stock. In June 1994 the Company issued a redemption notice
on the Warrants whereby warrantholders who wished to exercise their
Warrant had to do so by July 29, 1994. Any warrantholder who did
not exercise his or her Warrant by tendering the Warrant
certificate for redemption has received or is entitled to receive
the redemption price of $.05 per Warrant. A total of 420,178
Warrants were exercised and the Company realized net proceeds of
approximately $4.2 million. The remaining 135,377 Warrants were
redeemed by the Company.
NOTE 7 - INCOME TAXES
The benefit for income taxes at December 31 consisted of the
following:
1995 1994 1993
(Amounts in thousands) ------- ------- -------
Current:
Federal...................... $ 236 $ 219 $ 120
State........................ 139 123 109
------- ------- -------
375 342 229
------- ------- -------
Deferred:
Federal...................... (3,400) (3,400) (2,380)
State........................ (600) (600) (420)
------- ------- -------
(4,000) (4,000) (2,800)
------- ------- -------
Benefit for income taxes....... $(3,625) $(3,658) $(2,571)
======= ======= =======
48
The federal and state deferred tax liabilities (assets) are
comprised of the following at December 31:
1995 1994 1993
(Amounts in thousands) -------- -------- --------
Loss carryforwards................ $(19,429) $(27,679) $(31,572)
Depreciation...................... (1,316) (1,133) (602)
Other............................. (2,568) (2,465) (2,137)
-------- -------- --------
Gross deferred tax assets......... (23,313) (31,277) (34,311)
-------- -------- --------
Deferred tax assets valuation
allowance....................... 9,313 21,277 28,311
-------- -------- --------
Deferred tax asset................ $(14,000) $(10,000) $ (6,000)
======== ======== ========
The differences between the benefit for income taxes at the federal
statutory rate of 34% and that shown in the Consolidated Statements
of Operations are summarized as follows for the years ended
December 31:
1995 1994 1993
(Amounts in thousands) ------- ------- -------
Tax provision at statutory rate..... $ 8,177 $ 3,290 $ 1,026
State income taxes.................. 139 123 109
Exercise of nonqualified stock
options........................... (577)
Benefit of NOL carryforwards........ (7,364) (3,071) (906)
Anticipation of future benefit of
NOLs.............................. (4,000) (4,000) (2,800)
------- ------- -------
Benefit for income taxes............ $(3,625) $(3,658) $(2,571)
======= ======= =======
Upon the Effective Date of the Reorganization Plan, the Company
experienced a "change of ownership" pursuant to applicable
provisions of the Internal Revenue Code (the "IRC"). As a result
of the ownership change, the Company's pre-change net operating
loss carryforwards ("NOLs") of approximately $325 million are
subject to limitation under provisions of Section 382 of the IRC.
These NOLs are subject to a fifteen year carryover period and
expire for federal income tax purposes in the years 2002 through
2005. From the Effective Date through December 31, 1995 the
Company has recognized for financial statement reporting purposes
an annual limitation for its NOLs of approximately $6.3 million per
year and the recognition in 1995 of an additional $10.0 million
49
under other provisions of Section 382 of the IRC. In the event the
current limitation amount is not fully utilized, the Company is
allowed to carryover such amount to subsequent years during the
carryover period. Should the Company experience a second "change
of ownership", the limitation under Section 382 of the IRC on NOLs
would be recalculated. The Company is presently determining the
possible availability of NOLs above the current limitation;
however, the Company is unable to quantify to what extent, if any,
the Company may be able to fully utilize its remaining pre-change
NOLs prior to their expiration.
SFAS No. 109 "Accounting for Income Taxes" requires that the tax
benefit of such NOLs be recorded as an asset to the extent that
management assesses the utilization of such NOLs to be more likely
than not. Management has estimated, based on the Company's recent
history of operating results and its expectations for the future,
that future taxable income of the Company will more likely than not
be sufficient to utilize a minimum of approximately $35 million of
NOLs. Accordingly, the Company recorded an increase of $4.0
million in 1995 to its deferred tax asset, from $10.0 million
recorded as of December 31, 1994, resulting in an aggregate
deferred tax asset of $14.0 million recorded as of December 31,
1995 for the recognition of anticipated future utilization of NOLs.
NOTE 8 - EMPLOYEE RETIREMENT PLAN
The Company adopted the Maxicare Health Plans, Inc. Savings
Incentive Plan (the "Plan") in January 1985. The Plan is a defined
contribution 401(k) profit sharing plan covering employees of
Maxicare Health Plans, Inc. and certain participating subsidiaries
who have satisfied the eligibility requirements. The primary
eligibility requirements are that an employee must be employed at a
participating company, and must have completed one year of eligible
service.
The cost of the Plan is shared by the participants and the
participating companies. Eligible employees may defer from 1% to
15% of base compensation on a before-tax basis in accordance with
Section 401(k) of the Internal Revenue Code. The Plan calls for
the Company to match up to 3% of total compensation, not to exceed
the employee's contribution. The Company's contributions totaled
$262,000, $289,000 and $304,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
50
Quarterly Results of Operations (Unaudited)
The following is a tabulation of the quarterly results of
operations for the years ended December 31:
(Amounts in thousands, Three months ended,
except per share data) ---------------------------------------------
--------------------- March 31 June 30 Sept 30 Dec 31
--------- --------- --------- ---------
1995
----
Operating revenues $112,355 $113,692 $119,879 $131,418
Income from operations $ 4,288 $ 4,230 $ 4,445 $ 4,847
Net income (1) $ 4,688 $ 4,897 $ 7,468 $ 10,623
Net income available to common
shareholders $ 4,688 $ 4,897 $ 7,468 $ 10,623
Net income per common share:
Primary $ .35 $ .27 $ .41 $ .58
Fully Diluted $ .26 $ .27 $ .41 $ .58
1994
----
Operating revenues $106,925 $106,996 $108,301 $109,951
Income (loss) from operations (2) $ 1,802 $ (700) $ 2,296 $ 2,996
Net income (loss) (1) $ 2,281 $ (126) $ 3,103 $ 8,077
Net income (loss) available to common
shareholders $ 931 $ (1,476) $ 1,811 $ 6,789
Net income (loss) per common share: (3)
Primary $ .09 $ (.14) $ .16 $ .59
Fully Diluted $ .09 $ (.14) $ .16 $ .45
(1) Includes $4.0 million income tax benefits from the recording of a deferred tax asset in the
fourth quarters of both 1995 and 1994 (see "Item 8. Financial Statements and Supplementary
Data - Note 7 to the Company's Consolidated Financial Statements").
(2) Includes a $3.0 million litigation charge recorded in the second quarter of 1994 as a
result of a judgment awarding financing fees in connection with the Company's 1992 Series A
Stock offering.
(3) For each of the three month periods ending March 31, June 30 and September 30, 1994 fully
diluted earnings per share exceeded primary earnings per share (i.e., the calculations were
"anti-dilutive"). Accordingly, primary earnings per share for those periods are reported
as fully diluted.
51
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosures
------------------------------------
None.
52
PART III
--------
Item 10. Directors, Executive Officers, Promoters and Control
----------------------------------------------------
Persons of the Registrant
-------------------------
The information set forth in the table, the notes thereto and the
paragraphs thereunder, in Part I, Item 1. of this Form 10-K under
the caption "Directors and Executive Officers of the Registrant" is
incorporated herein by reference.
53
Item 11. Executive Compensation
----------------------
Shown below is information concerning the annual and long-term
compensation for services in all capacities to the Company for the
years ended December 31, 1995, 1994 and 1993, of those persons who
were, at December 31, 1995 (i) the chief executive officer and (ii)
the other four most highly compensated executive officers of the
Company (collectively the "Named Officers"):
Summary Compensation Table
Long-Term
Annual Compensation Compensation
---------------------------------- ----------------------
Stock Restricted
Reorganization Options Stock
Plan Awards Awards All Other
Name and Principal Position Year Salary Bonus(1) Bonus(2) (#) (3) Compensation(4)
--------------------------- ---- -------- -------------- -------- -------- ---------- ---------------
Peter J. Ratican 1995 $425,000 $25,278 $356,862 $1,048,125 $4,500
Chairman of the Board 1994 $425,000 $5,539
of Directors, Chief 1993 $425,000 $18,513 $7,075
Executive Officer and
President
Eugene L. Froelich 1995 $325,000 $25,278 $356,862 $1,048,125 $4,500
Executive Vice President - 1994 $325,000 $5,539
Finance and Administration, 1993 $325,000 $18,513 $7,075
Chief Financial Officer
and Director
Alan D. Bloom 1995 $208,000 $4,500
Senior Vice President, 1994 $203,000 7,500 $4,697
Secretary and General 1993 $200,000 7,500 $6,000
Counsel
Richard A. Link 1995 $205,000 10,000 $4,500
Senior Vice President - 1994 $197,500 5,000 $4,580
Accounting and Chief 1993 $195,000 5,000 $5,850
Accounting Officer
Aivars L. Jerumanis 1995 $190,000 5,000 $4,500
Senior Vice President - 1994 $187,000 5,000 $5,250
Management Information 1993 $173,000 5,000 $4,225
Systems and Chief
Information Officer
(1) These amounts are bonuses payable pursuant to the Reorganization Plan and were paid from funds
held by the Disbursing Agent in a segregated account and were not paid out of the Company's
available cash.
(2) These amounts include $256,862 paid in February 1996 pursuant to employment agreements entered
into by the Company with the Named Officers. These employment agreements call for the payment
of a bonus to the Named Officers based upon the Company's annual pre-tax earnings before
extraordinary items. These amounts also include a $100,000 bonus paid to the Named Officers in
February 1995 as determined by the Company's Board of Directors.
54
(3) These amounts represent the fair market value of 65,000 shares of Restricted Stock awarded to
each of the Named Officers on February 27, 1995, based upon the closing market price of the
Company's Common Stock on that date ($16.125). The Restricted Stock is subject to complete
forfeiture should the Named Officer's employment with the Company be terminated prior to
February 27, 1998. Upon the Named Officer remaining in the employ of the Company through
February 27, 1998, the Restricted Stock becomes fully vested. Under certain defined
circumstances involving a change in control of the Company the Restricted Stock will vest in
full immediately. Based upon the closing price of the Company's Common Stock at December 31,
1995 ($26.875), the Restricted Stock awarded to each Named Officer had a fair market value of
$1,746,875 at that date.
(4) These amounts include contributions made by the Company on behalf of the Named Officer under
the Company's 401(k) Savings Incentive Plan.
Option Grants
-------------
Shown below is further information on grants of stock options
pursuant to the 1995 Stock Option Plan during the year ended
December 31, 1995, to the Named Officers which are reflected in the
Summary Compensation Table.
Number of
Securities Percentage of Potential Realizable
Underlying Total Options Value at Assumed
Options Granted to Exercise or Annual Rates of Stock
Granted (1) Employees in Base Price Expiration Price Appreciation for
Name (#) Fiscal 1995 ($/share)(2) Date Option Term (3)
------------------- ----------- ------------- ------------ ----------------- ----------------------
5% 10%
-------- --------
Richard A. Link 10,000 4.6% $26.50 December 19, 2005 $166,657 $422,342
Aivars L. Jerumanis 5,000 2.3% $26.50 December 19, 2005 $ 83,329 $211,171
(1) The options were granted as of December 19, 1995 and vest in one-third installments on the
first, second and third anniversaries of the date of grant. If the grantee's employment is
terminated under certain circumstances or there is a restructuring of the Company (as set forth
in the option agreement) these options would become immediately exercisable.
(2) The option exercise price is subject to adjustment in the event of a stock split or dividend,
recapitalization or certain other events.
(3) The actual value, if any, the Named Officer may realize will depend on the excess of the stock
price over the exercise price on the date the option is exercised, so that there is no
assurance the value realized by the Named Officer will be at or near the value estimated. This
amount is net of the option exercise price.
55
Option Exercises and Fiscal Year-End Values
-------------------------------------------
Shown below is information with respect to the unexercised options
to purchase the Company's Common Stock granted in fiscal 1995 and
prior years under employment agreements, the 1995 Stock Option Plan
and the 1990 Stock Option Plan to the Named Officers and held by
them at December 31, 1995.
Number of Unexercised Value of Unexercised
Options Held At In-the-Money Options At
December 31, 1995 (#) December 31, 1995 (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------- ----------- ------------- ----------- -------------
Peter J. Ratican 427,778 $8,479,866
Eugene L. Froelich 427,778 $8,479,866
Alan D. Bloom 17,500 7,500 $ 309,038 $111,238
Richard A. Link 65,001 14,999 $1,210,208 $ 77,892
Aivars L. Jerumanis 25,001 9,999 $ 457,708 $ 76,017
(1) Based on the closing price on the NASDAQ-NMS on that date ($26.875), net of the option exercise price.
Shown below is information with respect to stock options exercised
by Named Officers in 1995.
Number of Value of
Shares Securities Underlying Unexercised in-the
Acquired on Unexercised Options Money Options at
Exercise Value at December 31, 1995(#) December 31, 1995($)
Name (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------------- ----------- ------------ ------------------------- -------------------------
Richard A. Link 10,000 $ 87,500 65,001/14,999 $1,210,208/$77,892
Aivars L. Jerumanis 10,000 $123,438 25,001/9,999 $ 457,708/$76,017
Employment Agreements
---------------------
As of January 1, 1992, the Company entered into five-year
employment agreements with Peter J. Ratican and Eugene L. Froelich
("Senior Management") which agreements were amended by amendment
dated February 27, 1995 (the "Employment Agreements"). These
Employment Agreements provide for annual base compensation of
$425,000 for Mr. Ratican and $325,000 for Mr. Froelich, subject to
increases and bonuses, as may be determined by the Board based on
annual reviews. The Employment Agreements provide that upon the
termination of either member of Senior Management by the Company
without Cause or reasons other than death or incapacity or the
voluntary termination by either member of Senior Management for
certain reasons as set forth in the Employment Agreements, the
terminated member will be entitled to receive (i) a payment equal
to the balance of the terminated member's annual base salary which
56
would have been paid over the remainder of the term of the
Employment Agreement; (ii) an additional one year's annual base
salary; (iii) payment of any performance bonus amounts which would
have otherwise been payable over the remainder of the term of the
Employment Agreement; (iv) immediate vesting of all stock options;
(v) the continuation of the right to participate in any profit
sharing, bonus, stock option, pension, life, health and accident
insurance, or other employee benefits plans including a car
allowance through December 31, 1996. Cause is defined as: (i) the
willful or habitual failure to perform requested duties
commensurate with his employment without good cause; (ii) the
willful engaging in misconduct or inaction materially injurious to
the Company; or (iii) the conviction for a felony or of a crime
involving moral turpitude, dishonesty or theft. In the event of a
Change of Control of the Company, either member may elect to
terminate the Employment Agreement in which case the electing
member will be entitled to receive a payment equal to 2.99 times
that member's average annualized compensation from all sources
(including the value of unexercised options) from the Company over
the five year period through the date of the Change of Control.
Change of Control is defined as: (i) any transaction or occurence
which results in the Company ceasing to be publically owned with at
least 300 stockholders; (ii) any person or group becoming
beneficial owner of more than forty percent (40%) of the combined
voting power of the Company's outstanding securities; (iii) a
change in the composition of the Board, as set forth in the
Employment Agreements; (iv) the merger or consolidation of the
Company with or into any other non-affiliated entity whereby the
Company's equity security holders, immediately prior to such
transaction, own less than sixty percent (60%) of the equity; or
(v) the sale or transfer of all or substantially all of the
Company's assets. In the event of death or incapacity, the member,
or his estate, shall receive the equivalent of ninety (90) days
base salary and in the case of incapacity, the continuation of
health and disability benefits. The Employment Agreements also
provide that in the event either member of Senior Management does
not receive an offer for a new employment agreement containing
terms at least as favorable as those contained in the existing
Employment Agreements before the expiration of such Employment
Agreements, such member will be entitled to receive a payment equal
to one year's base salary under the terminating agreement. Under
these Employment Agreements, each member of Senior Management will
be entitled to receive an annual performance bonus calculated using
a formula, as set forth in the Employment Agreements, which is
based on the Company's annual pre-tax earnings, before
extraordinary items, over $10 million. In addition, upon the sale
of the Company, a sale of substantially all of its assets or a
merger where the Company shareholders cease to own a majority of
the outstanding voting capital stock, Senior Management will be
entitled to a sale bonus calculated using a formula which is based
on a percentage of the excess value of the Company over an initial
value as set forth in the Employment Agreements.
57
In addition, Senior Management remains entitled to receive certain
additional compensation out of funds set aside for distribution
under the Reorganization Plan on the Effective Date or from the
proceeds of assets liquidated on behalf of pre-petition creditors
under the Reorganization Plan.
As of January 1, 1995, the Company entered into employment
agreements, effective through December 31, 1997, with Alan D.
Bloom, Richard A. Link and Aivars L. Jerumanis. The contracts
provide minimum base salaries of $208,000, $205,000 and $190,000
for Messrs. Bloom, Link and Jerumanis, respectively, subject to
increases and bonuses, as may be determined from time to time by
the Chief Executive Officer of the Company. The contracts with
Messrs. Bloom, Link and Jerumanis provide that should their
employment be terminated under certain circumstances, they would
receive up to the equivalent of four (4) months base salary.
Compensation of Directors
-------------------------
During 1995, certain members of the Board received compensation for
their services as directors. These members were Claude S.
Brinegar, Florence F. Courtright, Thomas W. Field, Jr., Charles E.
Lewis and Alan S. Manne. Messrs. Brinegar, Field, Lewis and Manne
each received cash payments of $30,750 during 1995, while Ms.
Courtright received $27,000. During 1996, current directors,
excluding directors who are also officers of the Company, will
receive compensation for their services in the amount of $27,000
per year, plus $750 per meeting. In addition, these directors are
entitled to be reimbursed for all reasonable out-of-pocket expenses
incurred in connection with their service as directors of the
Company.
Non-employee directors of the Company have received options to
purchase shares of Common Stock which are immediately exercisable
at an exercise price equal to the market price at the date of
grant. Set forth below is a schedule of the outstanding options at
December 31, 1995 held by the directors, the date of grant and the
exercise price of such options:
# of Exercise Price
Director Options Date of Grant Per Share
--------------------- ------- ----------------- --------------
Claude S. Brinegar 10,000 July 18, 1991 $ 9.25
10,000 December 20, 1993 $ 9.63
Florence F. Courtright 10,000 November 5, 1993 $10.88
Thomas W. Field 10,000 April 1, 1992 $10.50
10,000 December 20, 1993 $ 9.63
Alan S. Manne 10,000 January 28, 1994 $12.63
58
Provided these directors continue to serve as directors of the
Company, the exercise term of these outstanding options is five
years. If the directorship is terminated, the options expire
thirty (30) days from the date of such termination. In August
1995, Dr. Lewis exercised 10,000 options granted to him on December
20, 1993.
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
Peter J. Ratican, the Company's President and Chief Executive
Officer, served as an ex-officio member of the Compensation
Committee of the Company for the year ended December 31, 1995.
Although Mr. Ratican served as an ex-officio member of this
Compensation Committee, he did not participate in any decisions
regarding his own compensation as an executive officer. The
Company's Board of Directors as a whole determines Mr. Ratican's
total compensation package.
59
Item 12. Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management
----------
The following table sets forth the number and percentage of the
outstanding shares of Common Stock owned beneficially as of
December 31, 1995 by each director, by the Company's chief
executive officer ("CEO"), by the four other most highly
compensated executive officers other than the CEO, by all directors
and executive officers as a group, and by each person who, to the
knowledge of the Company, beneficially owned more than 5% of any
class of the Company's voting stock on such date.
Amount and Nature of
Beneficial Ownership(1)
------------------------
Percentage
Common of Common
Name and Address of Person or Group Stock(2) Stock(3)
----------------------------------- --------- ----------
RCM Capital Management (4) 1,646,500 9.5%
Four Embarcadero Center
San Francisco, California 94111
Heartland Advisors, Inc. (5) 938,700 5.4%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
RCM Capital Funds, Inc. (6) 926,000 5.3%
Four Embarcadero Center
San Francisco, California 94111
Peter J. Ratican (7) 492,996 3.8%
1149 South Broadway Street
Los Angeles, California 90015
Eugene L. Froelich (7) 492,778 3.8%
1149 South Broadway Street
Los Angeles, California 90015
Richard A. Link (8) 65,022 *
1149 South Broadway Street
Los Angeles, California 90015
Aivars L. Jerumanis (9) 31,001 *
1149 South Broadway Street
Los Angeles, California 90015
60
Amount and Nature of
Beneficial Ownership(1)
------------------------
Percentage
Common of Common
Name and Address of Person or Group Stock(2) Stock(3)
----------------------------------- --------- ----------
Claude S. Brinegar (10)(11) 21,000 *
1149 South Broadway Street
Los Angeles, California 90015
Thomas W. Field, Jr. (11)(12) 20,000 *
1149 South Broadway Street
Los Angeles, California 90015
Alan D. Bloom (13) 17,862 *
1149 South Broadway Street
Los Angeles, California 90015
Alan S. Manne (11)(14) 10,500 *
1149 South Broadway Street
Los Angeles, California 90015
Florence F. Courtright (11)(14) 10,000 *
1149 South Broadway Street
Los Angeles, California 90015
Charles E. Lewis (11) 16 *
1149 South Broadway Street
Los Angeles, California 90015
All Directors and Executive Officers
as a Group (14 persons) (15) 1,300,230 7.0%
-------------------------
* - less than one percent
(1) Except as otherwise set forth herein, all information
pertaining to the holdings of persons who beneficially own
more than 5% of any class of the Company's voting stock (other
than the Company or its executive officers and directors) is
based on filings with the Securities and Exchange Commission
(the "SEC") and information provided by the record holders.
(2) In setting forth "beneficial" ownership, the rules of the SEC
require that shares underlying currently exercisable options,
including options which become exercisable within 60 days,
held by a described person be treated as "beneficially" owned
and further require that every person who has or shares the
power to vote or to dispose of shares of stock be reported as
a "beneficial" owner of all shares as to which any such sole
or shared power exists. As a consequence, shares which are
61
not yet outstanding are, if obtainable upon exercise of an option
which is exercisable or will become exercisable within 60 days,
nevertheless treated as "beneficially" owned by the designated
person, and several persons may be deemed to be the "beneficial"
owners of the same securities if they share the power to vote or
dispose of them.
(3) Assumes 17,420,116 shares of Common Stock outstanding, and,
with respect to each listed beneficial owner, the exercise or
conversion of any option or right held by each such owner
exercisable or convertible within 60 days.
(4) RCM Capital Management ("RCM Capital") is an investment
adviser registered under Section 203 of the Investment
Advisors Act of 1940. RCM Limited L.P. ("RCM Limited") is the
General Partner of RCM Capital. RCM Limited has beneficial
ownership of these shares to the extent RCM Limited may be
deemed to have beneficial ownership of securities managed by
RCM Capital. RCM General Corporation ("RCM General") is the
General Partner of RCM Limited, the General Partner of RCM
Capital. RCM General has beneficial ownership of these shares
to the extent RCM General may be deemed to have beneficial
ownership of securities managed by RCM Capital. These
beneficial owners have sole voting power with respect to
1,501,500 shares, sole dispositive power with respect to
1,639,500 shares and shared dispositive power with respect to
7,000 shares. The above information presented in regards to
the beneficial ownership of the Company's Common Stock by RCM
Capital, RCM Limited and RCM General is based upon a Schedule
13G filed jointly by RCM Capital, RCM Limited and RCM General
with the SEC on February 6, 1996.
(5) Heartland Advisors, Inc. is an investment adviser registered
under Section 203 of the Investment Advisors Act of 1940. All
shares are held in various investment advisory accounts of
Heartland Advisors, Inc. These beneficial owners have sole
voting power with respect to 929,200 shares and sole
dispositive power with respect to 938,700 shares. The above
information presented in regards to the beneficial ownership
of the Company's Common Stock by Heartland Advisors, Inc. is
based upon a Schedule 13G filed by Heartland Advisors, Inc.
with the SEC on February 16, 1996.
(6) RCM Capital Funds is a diversified open-end management
investment company registered under the Investment Company Act
of 1940 and is comprised of three series of stock funds. RCM
Capital Funds has retained RCM Capital as the investment
manager for all three series of stock funds. As investment
manager, RCM Capital makes all investment decisions for each
series of RCM Capital Funds, subject to the overall
supervision of the Board of Directors of RCM Capital Funds.
Accordingly, these shares are also included in the shares
beneficially owned by RCM Capital. These beneficial owners
62
have sole dispositive power with respect to 926,000 shares. The
above information presented in regards to the beneficial ownership
of the Company's Common Stock by RCM Capital Funds and RCM Capital
is based upon a Schedule 13G filed by RCM Capital Funds with the
SEC on February 9, 1996.
(7) Includes 427,778 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(8) Includes 65,001 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(9) Includes 25,001 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(10) Includes 20,000 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(11) Does not include the Unallocated Shares, held of record by the
Company. These shares are held by the Company, as disbursing
agent for the benefit of holders of Reorganization Plan
classes 5A through 5H, 7 and 8A through 8D allowed claims and
Reorganization Plan class 12 allowed interests and equity
claims. The Company disclaims beneficial ownership of these
shares. Under certain circumstances, the Independent
Directors, currently Messrs. Brinegar, Field, Lewis and Manne
and Ms. Courtright, have rights to vote the Unallocated
Shares. The Independent Directors disclaim beneficial
ownership of these shares. For further information on the
voting of these shares, see "Item 5. Market for the
Registrant's Common Stock and Related Stockholder Matters".
(12) All shares are subject to options which are currently
exercisable or will become exercisable within 60 days.
(13) Includes 17,500 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(14) Includes 10,000 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(15) Includes 1,161,561 shares which are subject to options which
are currently exercisable or will become exercisable within 60
days.
63
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
None.
64
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on
-------------------------------------------------------
Form 8-K
--------
(a) 1. Financial Statements
The following consolidated financial statements of
Maxicare Health Plans, Inc. are included in this report in
response to Item 8.
Report of Independent Auditors - Ernst & Young LLP
Consolidated Balance Sheets - At December 31, 1995
and 1994
Consolidated Statements of Operations - Years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders'
Equity - Years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Schedule I - Condensed Financial Information of Registrant
- Condensed Balance Sheets at December 31, 1995 and 1994,
Condensed Statements of Operations and Condensed
Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993, Notes to Condensed Financial
Information of Registrant
Schedule II - Valuation and Qualifying Accounts for the
years ended December 31, 1995, 1994 and 1993
All other financial statement schedules have been omitted since the
required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the
required information is included in the consolidated financial
statements or notes thereto.
(a) 3. Exhibits
2.1 Joint Plan of Reorganization dated May 14, 1990, as modified
on May 24, 1990 and July 12, 1990 (without schedules)*
2.2 Order Confirming Joint Plan of Reorganization dated May 14,
1990, as Modified, entered on August 31, 1990 (without
exhibits or schedules)*
2.3 Amendment to Order Confirming Joint Plan of Reorganization
dated May 14, 1990, as Modified, entered on August 31, 1990*
65
2.4 Stipulation and Order Re Conditions to Effectiveness of the
Plan, entered on December 3, 1990*
2.5 Notice That The Conditions to Effectiveness of the Plan Have
Been Met or Waived, filed on December 4, 1990*
2.6 Agreement and Plan of Merger of Maxicare Health Plans, Inc.
and HealthCare USA Inc., dated as of December 5, 1990
(without exhibits or schedules)*
3.1 Charter of Maxicare Health Plans, Inc., a Delaware
corporation*
3.3 Amendment to Charter of Maxicare Health Plans, Inc., a
Delaware corporation@
3.4 Amended Bylaws of Maxicare Health Plans, Inc., a Delaware
corporation@@@
4.1 Form of Certificate of New Common Stock of Maxicare Health
Plans, Inc.*
4.2 Form of Certificate of Warrant of Maxicare Health Plans,
Inc.*
4.4 Warrant Agreement by and between Maxicare Health Plans, Inc.
and American Stock Transfer & Trust Company, dated as of
December 5, 1990*
4.5 Stock Transfer Agent Agreement by and between Maxicare
Health Plans, Inc., and American Stock Transfer & Trust
Company, dated as of December 5, 1990*
4.6 Registration Undertaking by Maxicare Health Plans, Inc.,
dated as of December 5, 1990*
4.8 Portions of Charter of Maxicare Health Plans, Inc., relating
to the rights of holders of the New Common Stock, the
Warrants, or the New Senior Notes*
4.9 Portions of Bylaws of Maxicare Health Plans, Inc., relating
to the rights of holders of the New Common Stock, the
Warrants, or the New Senior Notes*
4.10 Series A Cumulative Convertible Preferred Stock Purchase
Agreement dated as of December 17, 1991**
4.11 Series A Cumulative Convertible Preferred Stock Purchase
Agreement dated as of January 31, 1992**
4.12 Form of Certificate of Preferred Stock of Maxicare Health
Plans, Inc.@
10.1 Management Incentive Program*
66
10.2 Incentive Compensation Agreement*
10.3b Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Peter J. Ratican, dated as
of January 1, 1992@
10.3c Amendment No. 1 to the Employment and Indemnification
Agreement by and between Maxicare Health Plans, Inc. and
Peter J. Ratican, dated as of January 1, 1992@@@@
10.4b Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Eugene L. Froelich, dated
January 1, 1992@
10.4c Amendment No. 1 to the Employment and Indemnification
Agreement by and between Maxicare Health Plans, Inc. and
Eugene L. Froelich, dated January 1, 1992@@@@
10.7e Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Vicki F. Perry, dated as of
January 1, 1995@@@@
10.8d Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Alan D. Bloom, dated as of
January 1, 1995@@@@
10.9d Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Richard A. Link, dated as of
January 1, 1995@@@@
10.12e Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Aivars L. Jerumanis, dated
as of January 1, 1995@@@@
10.14 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Peter J. Ratican, dated as of December 5, 1990*
10.15 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Eugene L. Froelich, dated as of December 5, 1990*
10.18 Form of Stock Option Agreement by and between Maxicare
Health Plans, Inc. and Vicki F. Perry, dated as of December
5, 1990*
10.19 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Alan D. Bloom, dated as of December 5, 1990*
10.20 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Richard A. Link, dated as of December 5, 1990*
10.23 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Aivars L. Jerumanis, dated as of December 5, 1990*
10.28 Form of Distribution Trust Agreement*
67
10.30 Maxicare Health Plans, Inc. 401(k) Plan*
10.35 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Charles E. Lewis, dated as of May 20, 1991@
10.36 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Claude S. Brinegar, dated as of July 18, 1991@
10.38 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Richard A. Link, dated as of December 20, 1991@
10.40 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Aivars L. Jerumanis, dated as of December 20, 1991@
10.42 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Peter J. Ratican, dated as of February 25, 1992@
10.43 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Eugene L. Froelich, dated as of February 25, 1992@
10.44 Amended Maxicare Health Plans, Inc. 1990 Stock Option Plan@
10.50 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Thomas W. Field, Jr., dated as of April 1, 1992@@
10.51d Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Robert J. Landis, dated as
of January 1, 1995@@@@
10.52 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Robert J. Landis, dated as of December 5, 1990@@
10.53 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Robert J. Landis, dated as of December 20, 1991@@
10.54 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Florence F. Courtright, dated as of November 5,
1993@@@
10.55 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Vicki F. Perry, dated as of December 20, 1993@@@
10.56 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Alan D. Bloom, dated as of December 20, 1993@@@
10.57 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Richard A. Link, dated as of December 20, 1993@@@
10.58 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Aivars L. Jerumanis, dated as of December 20,
1993@@@
10.59 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Robert J. Landis, dated as of December 20, 1993@@@
68
10.61 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Thomas W. Field, Jr., dated as of December 20,
1993@@@
10.62 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Dr. Charles E. Lewis, dated as of December 20,
1993@@@
10.63 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Claude S. Brinegar, dated as of December 20,
1993@@@
10.64a Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and David J. Hammons, dated as
of January 1, 1995@@@@
10.65 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and David J. Hammons, dated as of May 20, 1991@@@
10.66 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and David J. Hammons, dated as of December 20, 1991@@@
10.67 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and David J. Hammons, dated as of December 20, 1993@@@
10.68 Lease by and between Maxicare Health Plans, Inc. and
Transamerica Occidental Life Insurance Company, dated as of
June 1, 1994#
10.69 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Alan S. Manne, dated as of January 28, 1994@@@@
10.70 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Alan D. Bloom, dated as of December 8, 1994@@@@
10.71 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Aivars L. Jerumanis, dated as of December 8,
1994@@@@
10.72 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Richard A. Link, dated as of December 8, 1994@@@@
10.73 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and David J. Hammons, dated as of December 8, 1994@@@@
10.74 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Robert J. Landis, dated as of December 8, 1994@@@@
10.75 Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Vicki F. Perry, dated as of December 8, 1994@@@@
10.76 Restricted Stock Grant Agreement by and between Maxicare
Health Plans, Inc. and Peter J. Ratican, dated as of
February 27, 1995@@@@
69
10.77 Restricted Stock Grant Agreement by and between Maxicare
Health Plans, Inc. and Eugene L. Froelich, dated as of
February 27, 1995@@@
10.78 Maxicare Health Plans, Inc. 1995 Stock Option Plan##
10.79 Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Warren D. Foon, dated as of
January 1, 1995
10.80a Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Warren D. Foon, dated as of May 20, 1991
10.80b Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Warren D. Foon, dated as of December 20, 1991
10.80c Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Warren D. Foon, dated as of December 20, 1993
10.80d Stock Option Agreement by and between Maxicare Health Plans,
Inc. and Warren D. Foon, dated as of December 8, 1994
10.81 Form of Stock Option Agreement relating to Exhibit 10.78
21 List of Subsidiaries@@@
23.4 Consent of Independent Auditors - Ernst & Young LLP
23.5 Consent of Independent Accountants - Price Waterhouse LLP
27 Financial Data Schedule for the year ended December 31, 1995
28.1 Notice That The Conditions to Effectiveness of the Plan Have
Been Met or Waived***
28.2 Stipulation and Order Regarding Conditions to
Effectiveness of Joint Plan of Reorganization***
99.1 Report of Price Waterhouse LLP
-------------------
* Incorporated by reference from the Company's Registration
Statement on Form 10, declared effective March 18, 1991, in
which this exhibit bore the same exhibit number.
** Incorporated by reference from the Company's Reports on
Form 8-K dated December 17, 1991 and January 31, 1992, in
which this exhibit bore the same exhibit number.
*** Incorporated by reference from the Company's Report on Form
8-K dated December 5, 1990, in which this exhibit bore the
same exhibit number.
70
@ Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1991, in which
this exhibit bore the same exhibit number.
@@ Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, in which
this exhibit bore the same exhibit number.
@@@ Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, in which
this exhibit bore the same exhibit number.
@@@@ Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1994, in which
this exhibit bore the same exhibit number.
# Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1994, in which this exhibit bore the same
exhibit number.
## Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1995, in which this exhibit bore the same
exhibit number.
(b) Reports on Form 8-K
None.
71
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
March 28, 1996 /s/ PETER J. RATICAN
-------------- ------------------------
Date Peter J. Ratican
Chief Executive Officer
March 28, 1996 /s/ EUGENE L. FROELICH
-------------- ------------------------
Date Eugene L. Froelich
Chief Financial Officer
March 28, 1996 /s/ RICHARD A. LINK
-------------- ------------------------
Date Richard A. Link
Principal Accounting
Officer
72
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
Signatures Title Date
---------- ----- ----
/s/ PETER J. RATICAN Chairman and Director March 28, 1996
--------------------
Peter J. Ratican
/s/ EUGENE L. FROELICH Director March 28, 1996
----------------------
Eugene L. Froelich
/s/ CLAUDE S. BRINEGAR Director March 26, 1996
-----------------------
Claude S. Brinegar
/s/ FLORENCE F. COURTRIGHT Director March 26, 1996
--------------------------
Florence F. Courtright
/s/ THOMAS W. FIELD, JR. Director March 22, 1996
------------------------
Thomas W. Field, Jr.
/s/ CHARLES E. LEWIS Director March 23, 1996
--------------------
Charles E. Lewis
/s/ ALAN S. MANNE Director March 26, 1996
-----------------
Alan S. Manne
73
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(Amounts in thousands)
December 31,
1995 1994
-------- -------
CURRENT ASSETS
Cash and cash equivalents......................................... $ 9,359 $ 4,528
Marketable securities............................................. 15,008 10,754
Amounts due from affiliates - Note 2.............................. 3,081 2,936
Deferred tax asset................................................ 14,000 10,000
Income tax receivable............................................. 2,200
Other current assets.............................................. 546 585
-------- -------
TOTAL CURRENT ASSETS........................................... 44,194 28,803
PROPERTY AND EQUIPMENT, NET......................................... 2,098 2,052
INVESTMENT IN SUBSIDIARIES.......................................... 59,081 43,363
OTHER LONG-TERM ASSETS.............................................. 244 2,164
-------- -------
TOTAL ASSETS................................................... $105,617 $76,382
======== =======
CURRENT LIABILITIES
Payable to disbursing agent....................................... $ 6,248 $ 6,248
Amounts due to affiliates - Note 2................................ 184 238
Other current liabilities......................................... 3,678 4,166
-------- -------
TOTAL CURRENT LIABILITIES...................................... 10,110 10,652
OTHER LONG-TERM LIABILITIES......................................... 802 380
-------- -------
TOTAL LIABILITIES.............................................. 10,912 11,032
-------- -------
COMMITMENTS AND CONTINGENCIES - Note 3
TOTAL SHAREHOLDERS' EQUITY..................................... 94,705 65,350
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $105,617 $76,382
======== =======
See notes to condensed financial information of registrant.
74
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands)
Years ended December 31,
1995 1994 1993
------- ------- -------
REVENUES
Equity in earnings (losses) of subsidiaries............... $18,318 $ 9,895 $(1,208)
Service agreement income.................................. 11,115 9,017 15,419
Other income.............................................. 22 4
------- ------- -------
TOTAL REVENUES......................................... 29,433 18,934 14,215
------- ------- -------
EXPENSES
Marketing, general and administrative expenses............ 14,123 14,576 12,531
Depreciation and amortization............................. 1,011 1,875 3,872
------- ------- -------
TOTAL EXPENSES......................................... 15,134 16,451 16,403
------- ------- -------
INCOME (LOSS) FROM OPERATIONS............................... 14,299 2,483 (2,188)
Investment income......................................... 1,191 618 504
Interest expense, net of inter-company interest income
and expense............................................. (34) (20) (62)
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES........................... 15,456 3,081 (1,746)
INCOME TAX BENEFIT.......................................... 12,220 10,254 7,334
------- ------- -------
NET INCOME.................................................. 27,676 13,335 5,588
PREFERRED STOCK DIVIDENDS................................... (5,280) (5,400)
------- ------- -------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS................. $27,676 $ 8,055 $ 188
======= ======= =======
See notes to condensed financial information of registrant.
75
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years ended December 31,
1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 27,676 $ 13,335 $ 5,588
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 1,011 1,875 3,872
Provision for long-term receivables valuation......... 2,004
Benefit from deferred taxes........................... (4,000) (4,000) (2,800)
Amortization of restricted stock...................... 583
Equity in (earnings) losses of subsidiaries........... (18,318) (9,895) 1,208
Changes in assets and liabilities:
Changes in other miscellaneous assets and
liabilities........................................ (3,372) 2,540 (4,105)
-------- -------- --------
Net cash provided by operating activities............... 5,584 3,855 3,763
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of marketable securities, net....... (4,254) (8,230) 8,945
Capital contributions to subsidiaries, net............ (5,530) (4,770) (12,443)
Dividends received from subsidiaries.................. 8,130 7,769 10,490
Purchases of property and equipment................... (53) (208) (397)
Dispositions of property and equipment................ 3 10
-------- ------- --------
Net cash provided by (used for) investing activities.... (1,704) (5,429) 6,595
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of preferred stock dividends.................. (5,280) (5,400)
Cash transferred to disbursing agent.................. (971)
Payments on capital lease obligations................. (145) (373)
Payments on long-term debt to affiliates.............. (114) (1,050)
Stock options exercised............................... 1,621 717 136
Redemption of preferred stock......................... (525)
Warrants exercised.................................... 4,193
-------- ------- --------
Net cash provided by (used for) financing activities.... 951 (484) (7,658)
-------- ------- --------
Net increase (decrease) in cash and cash equivalents.... 4,831 (2,058) 2,700
Cash and cash equivalents at beginning of period........ 4,528 6,586 3,886
-------- ------- --------
Cash and cash equivalents at end of period.............. $ 9,359 $ 4,528 $ 6,586
======== ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for -
Interest........................................... $ 22 $ 24 $ 28
Income taxes....................................... $ 2,689 $ 163 $ 284
76
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years ended December 31,
1995 1994 1993
-------- ------- ------
Supplemental schedule of non-cash investing activities:
Capital lease obligations incurred for purchase of
property and equipment and intangible assets......... $ 963 $ 484
Book value of assets exchanged for assets............. $ 40
Fair value of assets exchanged........................ (25)
----
Loss on assets exchanged.............................. $ 15
====
Supplemental schedule of non-cash financing activities:
Reclassification of preferred stock capital accounts
to common stock capital accounts pursuant to the
conversion of preferred stock to common stock........ $53,195 $2,580
Issuance of restricted common stock................... $ 2,096
See notes to condensed financial information of registrant.
77
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE 1 - GENERAL
The condensed financial information of the registrant ("MHP")
should be read in conjunction with the consolidated financial
statements and the notes to consolidated financial statements which
are included elsewhere herein.
Certain amounts for 1994 and 1993 have been reclassified to conform
to the 1995 presentation.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
MHP operates under a decentralized and segregated cash management
system. The operating subsidiaries currently pay monthly fees to
MHP pursuant to administrative services agreements.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
MHP's assets held under capital leases at December 31, 1995 and
1994 of $1,247,000 and $378,000, respectively, (net of $199,000 and
$106,000, respectively, of accumulated amortization) are comprised
primarily of equipment leases. Amortization expense for capital
leases is included in depreciation expense.
Future minimum lease commitments for noncancelable leases at
December 31, 1995 were as follows:
Operating Capitalized
Leases Leases
(Amounts in thousands) --------- -----------
1996.......................... $ 551 $ 506
1997.......................... 595 389
1998.......................... 635 391
1999.......................... 496
2000.......................... 83
------ ------
Total minimum
obligations................. $2,360 1,286
======
Less current
obligations................. 506
Long-term ------
obligations................. $ 780
======
78
MAXICARE HEALTH PLANS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
For the Year Ended December 31, 1995
Column A Column B Column C Column D Column E
-------- ---------- -------------------------- ---------- -------------
Additions
--------------------------
Balance at Charged to Charged to
beginning costs and other accounts Deductions Balance at
Description of period expenses - describe - describe end of period
----------- ---------- ---------- -------------- ---------- -------------
Allowance for
doubtful accounts
and retroactive
billing adjustments: $3,371 $430(1) $2,941
Other valuation
accounts: 32 $2,004(2) 32(3) 2,004
------ ------ ---- ------
$3,403 $2,004 $462 $4,945
====== ====== ==== ======
(1) Reduction in premium revenue.
(2) Reduction in notes receivable reserve.
For the Year Ended December 31, 1994
Column A Column B Column C Column D Column E
-------- ---------- -------------------------- ---------- -------------
Additions
--------------------------
Balance at Charged to Charged to
beginning costs and other accounts Deductions Balance at
Description of period expenses - describe - describe end of period
----------- ---------- ---------- -------------- ---------- -------------
Allowance for
doubtful accounts
and retroactive
billing adjustments: $2,706 $665(4) $3,371
Other valuation
accounts: 34 $2(3) 32
------ ---- -- ------
$2,740 $665 $2 $3,403
====== ==== == ======
(1) Write-off of retroactive billing adjustments.
(2) Increase to valuation allowance for long-term receivables.
(3) Write-off of notes receivable reserve.
(4) Reduction in premium revenue.
79
MAXICARE HEALTH PLANS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
For the Year Ended December 31, 1993
Column A Column B Column C Column D Column E
-------- ---------- -------------------------- ---------- -------------
Additions
--------------------------
Balance at Charged to Charged to
beginning costs and other accounts Deductions Balance at
Description of period expenses - describe - describe end of period
----------- ---------- ---------- -------------- ---------- -------------
Allowance for
doubtful accounts
and retroactive
billing adjustments: $2,324 $382(1) $2,706
Other valuation
accounts: 34 34
------ ---- ------
$2,358 $382 $2,740
====== ==== ======
(1) Reduction in premium revenue.
80
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
------ ----------------------------------------- -----------
2.1 Joint Plan of Reorganization dated May 14,
1990, as modified on May 24, 1990 and
July 12, 1990 (without schedules)*
2.2 Order Confirming Joint Plan of
Reorganization dated May 14, 1990, as
Modified, entered on August 31, 1990
(without exhibits or schedules)*
2.3 Amendment to Order Confirming Joint Plan
of Reorganization dated May 14, 1990, as
Modified, entered on August 31, 1990*
2.4 Stipulation and Order Re Conditions to
Effectiveness of the Plan, entered on
December 3, 1990*
2.5 Notice That The Conditions to Effectiveness
of the Plan Have Been Met or Waived, filed
on December 4, 1990*
2.6 Agreement and Plan of Merger of Maxicare
Health Plans, Inc. and HealthCare USA Inc.,
dated as of December 5, 1990 (without
exhibits or schedules)*
3.1 Charter of Maxicare Health Plans, Inc.,
a Delaware corporation*
3.3 Amendment to Charter of Maxicare Health
Plans, Inc., a Delaware corporation@
3.4 Amended Bylaws of Maxicare Health
Plans, Inc., a Delaware corporation@@@
-------------------------
* Incorporated by reference from the Company's Registration
Statement on Form 10, declared effective March 18, 1991, in
which this exhibit bore the same exhibit number.
@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1991, in which this
exhibit bore the same exhibit number.
@@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, in which this
exhibit bore the same exhibit number.
81
Exhibit Sequential
Number Description Page Number
------- ------------------------------------------ -----------
4.1 Form of Certificate of New Common Stock of
Maxicare Health Plans, Inc.*
4.2 Form of Certificate of Warrant of Maxicare
Health Plans, Inc.*
4.4 Warrant Agreement by and between Maxicare
Health Plans, Inc. and American Stock
Transfer & Trust Company, dated as of
December 5, 1990*
4.5 Stock Transfer Agent Agreement by and
between Maxicare Health Plans, Inc.,
and American Stock Transfer & Trust
Company, dated as of December 5, 1990*
4.6 Registration Undertaking by Maxicare Health
Plans, Inc., dated as of December 5, 1990*
4.8 Portions of Charter of Maxicare Health
Plans, Inc., relating to the rights of
holders of the New Common Stock, the
Warrants, or the New Senior Notes*
4.9 Portions of Bylaws of Maxicare Health Plans,
Inc., relating to the rights of holders of
the New Common Stock, the Warrants, or the
New Senior Notes*
4.10 Series A Cumulative Convertible Preferred
Stock Purchase Agreement dated as of
December 17, 1991**
4.11 Series A Cumulative Convertible Preferred
Stock Purchase Agreement dated as of
January 31, 1992**
4.12 Form of Certificate of Preferred Stock of
Maxicare Health Plans, Inc.@
-------------------------
* Incorporated by reference from the Company's Registration
Statement on Form 10, declared effective March 18, 1991, in
which this exhibit bore the same exhibit number.
** Incorporated by reference from the Company's Reports on Form 8-K
dated December 17, 1991 and January 31, 1992, in which this
exhibit bore the same exhibit number.
@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1991, in which this
exhibit bore the same exhibit number.
82
Exhibit Sequential
Number Description Page Number
------ ------------------------------------------ -----------
10.1 Management Incentive Program*
10.2 Incentive Compensation Agreement*
10.3b Employment and Indemnification Agreement
by and between Maxicare Health Plans, Inc.
and Peter J. Ratican, dated as of January
1, 1992@
10.3c Amendment No. 1 to the Employment and
Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Peter J.
Ratican, dated as of January 1, 1992@@@@
10.4b Employment and Indemnification Agreement
by and between Maxicare Health Plans, Inc.
and Eugene L. Froelich, dated January 1,
1992@
10.4c Amendment No. 1 to the Employment and
Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Eugene L.
Froelich dated, January 1, 1992@@@@
10.7e Employment and Indemnification Agreement
by and between Maxicare Health Plans, Inc.
and Vicki F. Perry, dated as of January
1, 1995@@@@
10.8d Employment and Indemnification Agreement
by and between Maxicare Health Plans, Inc.
and Alan D. Bloom, dated as of January 1,
1995@@@@
10.9d Employment and Indemnification Agreement
by and between Maxicare Health Plans,
Inc. and Richard A. Link, dated as of
January 1, 1995@@@@
-------------------------
* Incorporated by reference from the Company's Registration
Statement on Form 10, declared effective March 18, 1991, in
which this exhibit bore the same exhibit number.
@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1991, in which this
exhibit bore the same exhibit number.
@@@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, in which this
exhibit bore the same exhibit number.
83
Exhibit Sequential
Number Description Page Number
------- ------------------------------------------- -----------
10.12e Employment and Indemnification Agreement by
and between Maxicare Health Plans, Inc. and
Aivars Jerumanis, dated as of January 1,
1995@@@@
10.14 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Peter J.
Ratican, dated as of December 5, 1990*
10.15 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Eugene L.
Froelich, dated as of December 5, 1990*
10.18 Form of Stock Option Agreement by and
between Maxicare Health Plans, Inc. and
Vicki F. Perry, dated as of December 5,
1990*
10.19 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Alan D.
Bloom, dated as of December 5, 1990*
10.20 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Richard
A. Link, dated as of December 5, 1990*
10.23 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Aivars L.
Jerumanis, dated as of December 5, 1990*
10.28 Form of Distribution Trust Agreement*
10.30 Maxicare Health Plans, Inc. 401(k) Plan*
10.35 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Charles
E. Lewis, dated as of May 20, 1991@
-------------------------
* Incorporated by reference from the Company's Registration
Statement on Form 10, declared effective March 18, 1991, in
which this exhibit bore the same exhibit number.
@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1991, in which this
exhibit bore the same exhibit number.
@@@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, in which this
exhibit bore the same exhibit number.
84
Exhibit Sequential
Number Description Page Number
------- ---------------------------------------- -----------
10.36 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Claude
S. Brinegar, dated as of July 18, 1991@
10.38 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Richard
A. Link, dated as of December 20, 1991@
10.40 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Aivars L.
Jerumanis, dated as of December 20, 1991@
10.42 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Peter J.
Ratican, dated as of February 25, 1992@
10.43 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Eugene
L. Froelich, dated as of February 25,
1992@
10.44 Amended Maxicare Health Plans, Inc.
1990 Stock Option Plan@
10.50 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Thomas W.
Field, Jr., dated as of April 1, 1992@@
10.51d Employment and Indemnification Agreement
by and between Maxicare Health Plans, Inc.
and Robert J. Landis, dated as of January 1,
1995@@@@
10.52 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Robert J.
Landis, dated as of December 5, 1990@@
-------------------------
@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1991, in which this
exhibit bore the same exhibit number.
@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, in which this
exhibit bore the same exhibit number.
@@@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, in which this
exhibit bore the same exhibit number.
85
Exhibit Sequential
Number Description Page Number
------- ---------------------------------------- -----------
10.53 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Robert J.
Landis, dated as of December 20, 1991@@
10.54 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Florence F.
Courtright, dated as of November 5, 1993@@@
10.55 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Vicki
F. Perry, dated as of December 20, 1993@@@
10.56 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Alan D.
Bloom, dated as of December 20, 1993@@@
10.57 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Richard A.
Link, dated as of December 20, 1993@@@
10.58 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Aivars L.
Jerumanis, dated as of December 20, 1993@@@
10.59 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Robert J.
Landis, dated as of December 20, 1993@@@
10.61 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Thomas
W. Field, Jr., dated as of December 20,
1993@@@
10.62 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Dr. Charles
E. Lewis, dated as of December 20, 1993@@@
10.63 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Claude
S. Brinegar, dated as of December 20,
1993@@@
-------------------------
@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, in which this
exhibit bore the same exhibit number.
@@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, in which this
exhibit bore the same exhibit number.
86
Exhibit Sequential
Number Description Page Number
------- ------------------------------------------- -----------
10.64a Employment and Indemnification Agreement
by and between Maxicare Health Plans, Inc.
and David J. Hammons, dated as of January
1, 1995@@@@
10.65 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and David
J. Hammons, dated as of May 20, 1991@@@
10.66 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and David
J. Hammons, dated as of December 20, 1991@@@
10.67 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and David J.
Hammons, dated as of December 20, 1993@@@
10.68 Lease by and between Maxicare Health Plans,
Inc. and Transamerica Occidental Life
Insurance Company, dated as of June 1, 1994#
10.69 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Alan S.
Manne dated as of January 28, 1994@@@@
10.70 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Alan D.
Bloom, dated as of December 8, 1994@@@@
10.71 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Aivars L.
Jerumanis, dated as of December 8,
1994@@@@
10.72 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Richard A.
Link, dated as of December 8, 1994@@@@
-------------------------
# Incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the quarterly period ended September 30,
1994, in which this exhibit bore the same exhibit number.
@@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, in which this
exhibit bore the same exhibit number.
@@@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, in which this
exhibit bore the same exhibit number.
87
Exhibit Sequential
Number Description Page Number
------- ---------------------------------------- -----------
10.73 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and David J.
Hammons, dated as of December 8,
1994@@@@
10.74 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Robert J.
Landis, dated as of December 8,
1994@@@@
10.75 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Vicki F.
Perry, dated as of December 8,
1994@@@@
10.76 Restricted Stock Grant Agreement by and
between Maxicare Health Plans, Inc. and
Peter J. Ratican, dated as of February
27, 1995@@@@
10.77 Restricted Stock Grant Agreement by and
between Maxicare Health Plans, Inc. and
Eugene L. Froelich, dated as of February
27, 1995@@@@
10.78 Maxicare Health Plans, Inc., 1995 Stock
Option Plans##
10.79 Employment and Indemnification Agreement 90 of 130
by and between Maxicare Health Plans, Inc.
and Warren D. Foon, dated as of January 1,
1995
10.80a Stock Option Agreement by and between 98 of 130
Maxicare Health Plans, Inc. and Warren D.
Foon, dated as of May 20, 1991
10.80b Stock Option Agreement by and between 105 of 130
Maxicare Health Plans, Inc. and Warren D.
Foon, dated as of December 20, 1991.
-------------------------
## Incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the quarterly period ended September 30,
1995, in which this exhibit bore the same exhibit number.
@@@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, in which this
exhibit bore the same exhibit number.
88
Exhibit Sequential
Number Description Page Number
------- ---------------------------------------- -----------
10.80c Stock Option Agreement by and between 112 of 130
Maxicare Health Plans, Inc. and Warren D.
Foon, dated as of December 20, 1993
10.80d Stock Option Agreement by and between 118 of 130
Maxicare Health Plans, Inc. and Warren D.
Foon, dated as of December 8, 1994
10.81 Form of Stock Option Agreement relating 124 of 130
to Exhibit 10.78
21 List of Subsidiaries@@@
23.4 Consent of Independent Auditors 126 of 130
- Ernst & Young LLP
23.5 Consent of Independent Accountants 127 of 130
- Price Waterhouse LLP
27 Financial Data Schedule for the year 128 of 130
ended December 31, 1995
28.1 Notice That The Conditions to
Effectiveness of the Plan Have Been
Met or Waived***
28.2 Stipulation and Order Regarding Conditions
to Effectiveness of Joint Plan of
Reorganization***
99.1 Report of Price Waterhouse LLP 130 of 130
-------------------------
*** Incorporated by reference from the Company's Report on Form 8-
K dated December 5, 1990, in which this exhibit bore the same
exhibit number.
@@@ Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, in which this
exhibit bore the same exhibit number.
89
EX-10.79
2
EMPLOYMENT AGREEMENT - WARREN FOON
Exhibit 10.79
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), dated as of January 1,
1995, is made by and between Maxicare Health Plans, Inc., a
Delaware corporation (the "Company"), and Warren Foon, an
individual ("Employee").
RECITALS
WHEREAS, Employee is knowledgeable and skillful in the Company's
business;
WHEREAS, the Company wishes to retain the services of Employee as
Vice President, Plan Operations Support of the Company and Employee
has agreed to render services as such;
WHEREAS, Employee is willing to be employed by the Company under
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following
capitalized terms shall have the following meanings, unless
otherwise expressly provided or unless the context otherwise
requires:
(a) "Board of Directors" means the Board of Directors of the
Company.
(b) "Cause" means, as used with respect to the involuntary
termination of Employee:
(i) The continued failure or refusal by Employee to
substantially perform his duties pursuant to the terms of this
Agreement; or
(ii) The engaging by Employee in misconduct or inaction
materially injurious to the Company; or
(iii) The conviction of Employee for a felony or of a
crime involving moral turpitude.
(c) "Change of Control" means (i) the merger or consolidation
of the Company with or into any other person or entity other than
an affiliate or subsidiary of the Company if, upon the consummation
of the transaction, holders of the Company's equity securities,
immediately prior to such transaction, own less than fifty percent
(50%) of the equity; or (ii) the sale or transfer by the Company of
all or substantially all of its assets.
(d) "Incapacity" means the absence of the Employee from his
employment or the inability of Employee to perform his duties
pursuant to this Agreement by reason of mental or physical illness,
disability or incapacity for a period of thirty (30) consecutive
days.
90
2. Employment, Services and Duties. The Company hereby employs
Employee as Vice President, Plan Operations Support. In connection
with the foregoing, Employee shall report to and be supervised by
the Company's Chief Executive Officer (the "CEO") or such other
person as the CEO may designate (the "Supervisor") and shall have
such duties and responsibilities as may be designated by the
Supervisor; provided, however, until and unless Employee is
notified by the CEO, Employee shall continue to report to and be
supervised by the person said Employee is currently reporting to
who shall be deemed to be the Supervisor hereunder if said person
is not the CEO. Subject to the foregoing, Employee shall have and
perform the duties and have the powers, authority and
responsibilities ordinarily associated with a person holding
Employee's position. Employee shall render his services at such
locations as the Supervisor may designate.
3. Acceptance of Employment. Employee hereby accepts employment
hereunder and agrees to devote his full time to the Company's
business and shall in no way be involved in any activities
whatsoever which might interfere with Employee's: (1) employment
with the Company; (2) satisfaction of Employee's obligations on
behalf of the Company pursuant to the terms of this Agreement; or
(3) activities on behalf of the Company in the discharge of his
duties during business hours.
4. Compensation. As compensation for all services to be rendered
by Employee hereunder, the Company shall pay to Employee a base
salary at the rate of $145,000 per annum, (the "Base Salary") with
such increases and/or bonuses as may be determined from time to
time by the CEO in his sole discretion and, if applicable, subject
to the approval of the Board of Directors. Said Base Salary shall
be payable in equal semi-monthly installments or in such other
installments as the Company may from time to time pay other
similarly situated employees.
5. Benefits. In addition to the compensation provided for in
Section 4 of this Agreement, Employee shall have the right to
participate in any profit-sharing, pension, life, health and
accident insurance, or other employee benefit plans presently
adopted or which hereafter may be adopted by the Company in a
manner comparable to those offered or available to other employees
of the Company who are similarly situated. Employee shall be
entitled to twenty (20) days annual vacation time, during which
time his compensation will be paid in full. Unused vacation days
at the end of any pay period(s) may be carried over to a pay
period(s), provided that the cumulative number of vacation days
accruing from and after the date of this Agreement carried over in
any one pay period shall not exceed twenty (20) days. Unused
vacation days accruing from and after the date of this Agreement in
excess of twenty (20) days at the end of each pay period shall be
extinguished without any obligation on the part of the Company;
provided, however, solely in the event Employee has accrued in
excess of twenty (20) vacation days prior to the date hereof
("Excess Vacation Days"), Employee shall be entitled to carry over
up to, but not in excess of, such amount of Excess Vacation Days
from pay period to pay period. Notwithstanding the foregoing, or
any other Company policy to the contrary, Employee shall not be
entitled to, nor shall accrue any new vacation days during any pay
period in which Employee has Excess Vacation Days. In the event
91
Employee reduces the amount of Excess Vacation Days in any year
through the utilization of more than twenty (20) vacation days in
such year, Employee shall not be entitled to the restoration of
such Excess Vacation Days through the utilization of less than
twenty (20) vacation days in any subsequent year and pay period.
Employee shall under no circumstances be entitled to cash in lieu
of vacation days, except in the event of their termination of
employment with the Company and then only as specifically provided
in Section 8 hereof.
6. Expenses. The Company shall reimburse Employee for all
reasonable travel, hotel, entertainment and other expenses incurred
by Employee in the discharge of Employee's duties hereunder, in
accordance with Company policy regarding same, only after receipt
from Employee of vouchers, receipts or other reasonable
substantiation of such expenses acceptable to the Company.
7. Term of Employment. The term of employment hereunder shall be
for a period of three (3) years, commencing as of the date of this
Agreement. Employee's employment with the Company pursuant to this
Agreement shall terminate upon the occurrence of any of the
following events:
(a) The death of Employee;
(b) Employee voluntarily leaves the employ of the Company with
the consent of the Company, which consent may be withheld in the
Company's sole discretion;
(c) The Incapacity of Employee;
(d) The Company terminates this Agreement for Cause;
(e) The Company terminates this Agreement for any reason other
than as set forth in Sections 7 (a), 7 (c) or 7 (d) hereof; or
(f) The appointment of a trustee for the Company for the
purpose of liquidating and winding up the Company pursuant to
Chapter 7 of the Federal Bankruptcy Code.
8. Compensation Upon Termination. In the event this Agreement is
terminated pursuant to Section 7, the Company shall pay to Employee
such compensation as Employee is entitled to receive pursuant to
Section 4, prorated through the date of said termination. In
addition to the forgoing:
(a) In the event that such termination arises under Section 7
(a), Employee's estate shall be entitled to receive severance
compensation equal to such amount of Employee's annual base salary
as would have been paid over an additional thirty (30) day period;
(b) In the event that such termination arises under Section 7
(e), Employee shall be entitled to receive severance compensation
in an amount equal to such amount of Employee's annual base salary
as would have been paid over a four (4) month period;
(c) In the event that this Agreement is terminated by the
Company or its successor in interest in connection with, or as a
result of, a Change in Control or for any reason other than as set
92
forth in Sections 7 (a) - (d) hereof within six (6) months of a
Change in Control, Employee shall, in lieu of any severance
compensation payable pursuant to the immediately preceding
sentence, be entitled to receive severance compensation in an
amount equal to such amount of Employee's annual base salary as
would have been paid over a four (4) month period; and
(d) Any and all severance amounts paid pursuant to the
provisions of this Section 8 shall be paid in one lump sum
installment.
9. Covenant Not to Compete.
(a) Employee covenants and agrees that, during the term of
this Agreement, Employee will not, directly or indirectly, own,
manage, operate, join, control or become employed by, or render any
services of any advisory nature or otherwise, or participate in the
ownership, management, operation or control of, any business which
competes with the business of the Company or any of its affiliates;
provided, however, in the event of a termination of Employee's
employment with the Company pursuant to Sections 7 (b) or 7 (e),
this provision shall be rendered null and void, unless otherwise
provided for in the Company's consent pursuant to Section 7 (b).
(b) In the event of a termination of the Employee's employment
with the Company as a result of Employee's voluntary termination
without the consent of the Company, this provision shall remain in
full force and effect though the remainder of the term hereof as
though Employee continued to be employed by the Company.
(c) Notwithstanding the foregoing, Employee shall not be
prevented from investing his assets in such form or manner as will
not require any services on the part of Employee in the operation
of the affairs of a company in which investments are made, provided
such company is not engaged in a business competitive to the
Company, or if it is in competition with the Company, provided its
stock is publicly traded and Employee owns less than one percent
(1%) of the outstanding stock of that company.
10. Confidentiality. Employee covenants and agrees that he
will not at any time during or after the termination of his
employment by the Company reveal, divulge or make known to any
person, firm or corporation any information, knowledge or data of a
proprietary nature relating to the business of the Company or any
of its affiliates which is not or has not become generally known or
public. Employee shall hold, in a fiduciary capacity, for the
benefit of the Company, all information, knowledge or data of a
proprietary nature, relating to or concerned with, the operations,
customers, developments, sales, business and affairs of the Company
and its affiliates which is not generally known to the public and
which is or was obtained by the Employee during his employment by
the Company. Employee recognizes and acknowledges that all such
information, knowledge or data is a valuable and unique asset of
the Company, and accordingly he will not discuss or divulge any
such information, knowledge or data to any person, firm,
partnership, corporation or organization other than to the Company,
93
its affiliates, designees, assignees or successors or except as may
otherwise be required by the law, as ordered by a court or other
governmental body of competent jurisdiction, or in connection with
the business and affairs of the Company.
11. Equitable Remedies. In the event of a breach or
threatened breach by Employee of any of his obligations under
Sections 9 and 10 hereof, Employee acknowledges that the Company
may not have an adequate remedy at law and therefore it is mutually
agreed between Employee and the Company that, in addition to any
other remedies at law or in equity which the Company may have, the
Company shall be entitled to seek in a court of law and/or equity a
temporary and/or permanent injunction restraining Employee from any
continuing violation or breach of this Agreement.
12. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company. This
Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company or by any merger, reorganization or
other transaction in which the Company is not the surviving or
resulting corporation or upon any transfer of all or substantially
all of the assets of the Company in the event of any such merger,
or transfer of assets. The provisions of this Agreement shall be
binding upon and shall inure to the benefit of the surviving
business entity or the business entity to which such assets shall
be transferred in the same manner and to the same extent that the
Company would be required to perform it if no such transaction had
taken place.
Neither this Agreement nor any rights arising hereunder may be
assigned or pledged by Employee; provided, however, that this
Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
(b) Except as otherwise provided by law or elsewhere herein,
in the event of an act of force majeure, as hereinafter defined,
during the term hereof which event continues for a period of no
less than fifteen (15) days, the Company shall be entitled to
suspend this Agreement for the duration of such event of force
majeure. In such event, during the duration of the event of force
majeure the Company shall be relieved of its obligations to the
Employee pursuant to Sections 4 and 5; except for the continuation
of any health, life or disability insurance coverage. For the
purposes hereof, "force majeure" shall be defined as the occurrence
of one or more of the following events:
(i) any act commonly understood to be of force majeure
which materially and adversely affects the Company's business and
operations, including but no limited to, the Company having
sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, epidemic, explosion, accident, calamity or
other act of God;
94
(ii) any strike or labor dispute or court or government
action, order or decree;
(iii) a banking moratorium having been declared by federal
or state authorities;
(iv) an outbreak of major armed conflict, blockade,
embargo, or other international hostilities or restraints or orders
of civic, civil defense, or military authorities or other national
or international calamity having occurred;
(v) any act of public enemy, riot or civil disturbance
or threat thereof; or
(vi) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business,
or a notification having been received by the Company of the threat
of any such proceeding or action, which could materially adversely
affect the Company.
(c) Except as expressly provided herein, this Agreement
contains the entire understanding between the parties with respect
to the subject matter hereof, and may not be modified, altered or
amended except by an instrument in writing signed by the parties
hereto. This Agreement supersedes all prior agreements of the
parties with respect to the subject matter hereof, including, but
not limited to, the Employment Agreement dated as of January 1,
1994 which is hereby terminated and is no longer in force or effect
except for the provisions in Sections 10 and 11 of such agreement
which shall continue to be binding on the parties. In the event of
termination of employment of Employee pursuant to this Agreement,
the arrangements provided for by this Agreement, by any Stock
Option Agreement or other written agreement between the Company or
any of its affiliates and Employee in effect at the time, and by
any other applicable benefit plan of the Company or any of its
affiliates, will constitute the entire obligation of the Company to
the Employee, and performance thereof by the Company will
constitute full settlement of any and all claims, whether in
contract or tort, that Employee might otherwise assert against the
Company or any of its affiliates on account of such termination.
(d) This Agreement shall be construed in accordance with the
laws of the State of California applicable to agreements made and
to be performed entirely within such state and without regard to
the conflict of law principles thereof.
(e) Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act
in violation of applicable law. The Company's inability pursuant
to court order to perform its obligations under this Agreement
shall not constitute a breach of this Agreement. If any provision
of this Agreement is invalid or unenforceable, the remainder of
this Agreement shall nevertheless remain in full force and effect.
If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall, nevertheless, remain in full
force and effect in all other circumstances.
(f) With the exception of disputes arising under or with
respect to Sections 9 or 10 hereof, any and all disputes hereunder
shall be resolved by arbitration. Any party hereto electing to
commence an action shall give written notice to the other parties
95
hereto of such election. The dispute shall be settled by
arbitration to take place in Los Angeles County, California, in
accordance with the then rules of the American Arbitration
Association; provided, however, in the event the parties are unable
to agree on an arbitrator within twenty (20) days after receipt of
the aforementioned notice of arbitration, a single arbitrator shall
be selected by the Chief Judge of the Superior Court of the State
of California for the County of Los Angeles. The award of such
arbitrator may be confirmed or enforced in any court of competent
jurisdiction. The costs and expenses of the arbitrator including
the attorney's fees and costs of each of the parties, shall be
apportioned between the parties by such arbitrator based upon such
arbitrator's determination of the merits of their respective
positions. With respect to such arbitration, the parties shall
have those rights of discovery as may be granted by the arbitrator
in accordance with California law.
(g) Any notice to the Company required or permitted hereunder
shall be given in writing to the Company, either by personal
service, telex, telecopier or, if by mail, by registered or
certified mail, return receipt requested, postage prepaid, duly
addressed to the Secretary of the Company at its then principal
place of business. Any such notice to Employee shall be given in a
like manner, and if mailed shall be addressed to Employee at
Employee's home address then shown in the files of the Company.
For the purpose of determining compliance with any time limit
herein, a notice shall be deemed given on the fifth day following
the postmarked date, if mailed, or the date of delivery if
personally delivered.
(h) A waiver by either party of any term or condition of this
Agreement or any breach thereof, in any one instance, shall not be
deemed or construed to be a waiver of such term or condition or of
any subsequent breach thereof.
(i) The paragraph and subparagraph headings contained in this
Agreement are solely for convenience and shall not be considered in
its interpretation.
(j) This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
96
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first written above.
COMPANY:
MAXICARE HEALTH PLANS, INC.,
a Delaware corporation
By:/s/ PETER J. RATICAN
--------------------
Peter J. Ratican
Chairman, President and
Chief Executive Officer
EMPLOYEE:
By:/s/ WARREN FOON
-----------------------
Warren Foon
Vice President
Plan Operations Support
97
EX-10.80A
3
STOCK OPTION AGREEMENT - WARREN FOON
Exhibit 10.80a
MAXICARE HEALTH PLANS, INC.
STOCK OPTION AGREEMENT
Maxicare Health Plans, Inc., a Delaware corporation (the
"Company"), hereby grants as of this 20th day of May, 1991, to
Warren Foon (the "Optionee"), an option to purchase a maximum of
10,000 shares of its common stock (the "Common Stock"), at a price
per share (the "Exercise Price") equal to the weighted average
price per share for the first twenty trading days after December 5,
1990, of (1) the closing bid price of the Company's Common stock in
the principal national securities exchange in which the Common
Stock is traded, or (ii) if the Company's Common Stock is not
traded on a national securities exchange, the last reported sale
price of the Common Stock on the NASDAQ National Market List, or
(iii) if the Common Stock is not reported on the NASDAQ National
Market List, the closing bid price (or average of bid prices) last
quoted by an established quotation service for over-the-counter
securities (the "Option"), on the following terms and conditions:
1. Grant Under 1990 Stock Plan. The Option is granted
pursuant to and is governed by the Company's 1990 Stock Option Plan
(the "Plan") and, unless the context otherwise requires, terms used
and/or defined herein shall have the same meaning as in the Plan.
Determinations made in connection with this Option pursuant to the
Plan shall be governed by the Plan as it exists on this date.
2. Extent of Option. If the Optionee has continued to
serve in the capacity of an officer, employee, or director with the
Company on the following dates, the Optionee may, subject to
Section 13 hereof, exercise this Option for the portion of the
total number of shares subject to this Option set opposite the
applicable date:
December 5, 1992 One-third (1/3) of the total
number of shares subject to
this option
December 5, 1993 An additional one third (1/3)
of the total number of shares
subject to this Option
December 5, 1994 An additional one-third (1/3)
of the total number of shares
subject to this Option
98
The foregoing rights are cumulative and, while the Optionee
continues to serve as an officer, director or employee of the
Company may be exercised up to and including the earlier of the
date which is 5 years from December 5, 1990 or the expiration date
of the Plan (the earlier of such dates being hereinafter referred
to as the "Option Expiration Date"). For purposes of this
Agreement, any accrued installment shall be referred to as an
"Accrued Installment". All of the foregoing rights are subject to
Sections 3 and 4 hereof, as appropriate, if the Optionee ceases to
serve as an officer, director or employee of the Company or becomes
disabled or dies while serving as an officer, director or employee
of the Company.
3. Termination of Business Relationship. If the Optionee
ceases to remain an officer, director or employee of the Company
other than by reason of death or disability as defined in Section
4, any unexercised Accrued Installments of the Option shall expire
and become unexercisable as of the earlier of (i) the Option
Expiration Date, or (ii) thirty (30) days following the termination
of Optionee's employment or termination of Optionee's directorship.
No further installment of this Option shall become exercisable.
The Board of Directors of the Company may extend such thirty (30)
day period for a period not to exceed one (1) year following the
Termination Date (as defined in the Plan), but in no event beyond
the applicable Option Expiration Date. In such a case, the
Optionee's only rights hereunder shall be those which are properly
exercised before the termination of this Option. Any portion of an
Option that expires hereunder shall remain unexercisable and be of
no effect whatsoever after such expiration notwithstanding that
such Optionee may be reemployed by, or again become a director of,
the Company.
4. Death or Disability. In the event of the death of the
Optionee while an officer, employee or director of the Company, or
in the event of termination of employment or directorship by reason
of the Optionee's Disability (as defined in the Plan), any
unexercised Accrued Installments of the Option granted to Optionee
shall expire and become unexercisable as of the earlier of (i) the
Option Expiration Date, or (ii) the first anniversary date of the
Optionee's death (if applicable) or (iii) the first anniversary
date of the termination of employment or directorship by reason of
Disability (if applicable). Any such Accrued Installments of a
deceased Optionee may be exercised prior to their expiration by
(and only by) the person or persons to whom the Optionee's Option
rights shall pass by will or by the laws of descent and
distribution. Any installments under a deceased Optionee's Option
that have not accrued as of the date of hi/hers death shall expire
and become unexercisable as of said date of death. For purposes of
this Agreement, the Optionee shall be deemed employed by the
Company during any period of leave of absence from active
employment as authorized by the Company.
5. Partial Exercise. Exercise of this Option up to the
extent above stated may be made in part at any time and from time
to time with the above limits, except that this Option may not be
99
exercised for a fraction of a share. Upon the exercise of the
final installment of this Option, the Optionee shall be entitled to
receive cash with respect to the value of any fraction of a share
(in lieu of any said fractional share).
6. Payment of Exercise Price. The Exercise Price is
payable in United States dollars and may be paid in cash or by
certified or cashier's check, or any combination of the foregoing,
equal in the amount to the Exercise Price.
7. Investment Representations; Restrictions on Transfer.
(a) The Optionee represents, warrants and covenants to the
Company that:
(i) Any Common Stock acquired by the Optionee upon exercise
of the Option will be acquired for the Optionee's own account and
not with a view to resale on distribution in violation of the
Securities Act of 1933, as amended (the "1933 Act").
(ii) The Optionee has such knowledge and experience in
business and financial matters as to be capable of utilizing the
information which is available to the Optionee to evaluate the
merits and risks of an investment in the Common Stock, and is able
to bear the economic risks of any Common Stock or other securities
which the Optionee may acquire upon exercise of the Option.
(iii) The Optionee understands that neither the Option nor
the Common Stock to be issued upon exercise of the Option have been
registered under the Securities Act of 1933, as amended (the "1933
Act"), that the Option has been, and the shares of Common Stock
issuable upon exercise of the Option will be, issued in reliance
upon certain exemptions contained therein, and that the Company's
reliance on such exemption is predicated on Optionee's
representations set forth herein. The Optionee further understands
that because neither the Option nor the shares of Common Stock to
be issued up on exercise of the Option have been registered under
the 1933 Act, the Optionee may not and Optionee covenants and
agrees that Optionee will not, sell, offer to sell or otherwise
dispose of any such securities in violation of the 1933 Act or any
applicable "blue sky" or securities law of any state. The Optionee
acknowledges and understands that Optionee has no independent right
to require the Company to register the Option or the Common Stock
to be issued upon exercise of the Option.
(b) The Optionee consents to the placing of restrictive
legends in substantially the following form on any stock
certificate(s) representing Common Stock Issued upon exercise of
the Option:
"The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or the
blue sky laws of any state. These shares have been acquired for
investment and not with a view to distribution or resale, and may
not be sold,mortgaged, pledged, hypothecated or otherwise
transferred without an effective registration statement for such
100
shares under the Securities Act of 1933, as amended, or until the
issuer has been furnished with an opinion of counsel for the
registered owner of these shares, reasonably satisfactory to
counsel for the issuer, that such sale, transfer or disposition is
exempt from the registration or qualification provisions of the
Securities Act of 1933, as amended, or the blue sky laws of any
state having jurisdiction".
(c) The Optionee also hereby consents and agrees to the
placing of stop transfer instructions against any subsequent
transfer(s) of shares of Common Stock issued upon exercise of the
Option. The Company hereby agrees to remove the legend and stop
transfer instructions upon receipt of an opinion of counsel from
the registered owner of the shares of Common Stock issued upon
exercises of the Option, in form and substance acceptable to
counsel for the Company, to the effect that such shares may be
transferred without violation of the 1933 Act or the "blue sky"
laws of any state having jurisdiction.
8. Method of Exercising Option. No Option may be
exercised in whole or in part until two (2) years after December 5,
1990. Subject to the terms and conditions of this Agreement, this
Option may be exercised by written notice to the Company, at the
principal executive office of the Company, or to such transfer
agent as the Company shall designate. Such notice shall state the
election to exercise this Option and the number of shares in
respect of which it is being exercised and shall be signed by the
Optionee or person or persons entitled to so exercise this Option.
Such notice shall be accompanied by payment of the full Exercise
Price of such shares, and the Company shall deliver a certificate
or certificates representing such shares as soon as practicable
after the notice is received. The certificate or certificates for
the shares as to which this Option shall have been so exercised
shall be registered in the name of the person or persons so
exercising this Option (or, if this Option shall be exercised by
the Optionee and if the Optionee shall so request in the notice
exercising this Option, shall be registered in the name of the
Optionee and another person jointly, with right of survivorship)
and shall be delivered to or upon the written order of the person
or persons exercising this Option. In the event this Option shall
be exercised, pursuant to Section 4 hereof, by any person or
persons other than the Optionee, such notice shall be accompanied
by appropriate proof of the right of such person or persons to
exercise this Option. All shares that shall be purchased upon the
exercise of this Option as provided herein shall be fully paid and
non-assessable.
9. Option Not Transferable; Transfer of Stock. This
Option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Optionee's lifetime,
only the Optionee may exercise this Option. Common Stock issued
pursuant to the exercise of this Option or any interest in such
Common Stock, may be sold, assigned, gifted, pledged, hypothecated,
encumbered or otherwise transferred to alienated in any manner by
the holder(s) thereof, subject, however, to the provisions of the
101
Plan, including any representations or warranties requested under
Section 22 thereof, and also subject to compliance with any
applicable federal, state, local or other law, regulations or rule
governing the sale or transfer of stock or securities, and
provided, further than in all cases, the Optionee may not sell or
otherwise transfer shares acquired upon the exercise of an Option
for a period of six (6) months following the date of acquisition
(within the meaning of Section 16-b (3) of the Security Exchange
Act of 1934) of such Option without the prior written consent of
the Board.
10. No Obligation to Exercise Option. The grant and
acceptance of this Option imposes no obligation on the Optionee to
exercise it.
11. No Obligation to Continue Employment. The Company is
not by the Plan or this Option obligated to continue to employ
Optionee and neither the Plan nor this Option shall otherwise
interfere with the Company's right to discharge or retire any
employee, including Optionee, at any time.
12. No Rights as Stockholder Until Exercise. The Optionee
shall have no rights as a stockholder with respect to shares
subject to this Agreement until a stock certificate therefore has
been issued to the Optionee and is fully paid for. Except as is
expressly provided in the Plan with respect to certain changes in
the capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to
the date such stock certificate is issued.
13. Reorganization of Company.
(a) Upon the dissolution or liquidation of Company, or upon
a reorganization, merger or consolidation of the Company as a
result of which the Company's outstanding Common Stock is changed
into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of all or substantially all
property of the Company to, or the acquisition of all or
substantially all of the stock of the Company then outstanding by,
another corporation or person, the Plan shall terminate, and the
Option granted hereunder shall terminate; provided, however, if
Optionee is entitled, to exercise any unexercised installment of
the Option including all unaccrued installments thereof which
would, but for this subsection 13(a), not yet be exercisable.
Notwithstanding the foregoing, in the event that any transaction
causing such termination is not consummated, any unexercised
unaccrued installments that had become exercisable solely by reason
of the provisions of this subsection 13(a) shall again become
unaccrued and unexercisable as of said termination of such
transaction, subject, however, to such installments accruing
pursuant to the normal accrual schedule provided in the terms under
which the Option was granted.
102
(b) In addition to and not in lieu of those rights granted
pursuant to subsection 13(a) above, if provisions shall be made in
writing in connection with such transaction for the continuance of
the Plan and/or the assumption of options theretofore granted, or
the substitution for such options of options covering the stock of
the successor corporation, or a parent or subsidiary thereof with
appropriate adjustments as to the number and kind of shares and
prices, the unexercised Option shall continue in the manner and
under the terms so provided.
(c) The Company shall have no obligation to provide for the
continuance, assumption or substitution of the Plan or the Option
by any successor corporation or parent or subsidiary thereof.
14. Withholding Taxes. The Optionee hereby agrees that the
Company may withhold from the Optionee's wages or other
remuneration the appropriate amount of federal, state and local
taxes attributable to the Optionee's exercise of any installment of
this Option. The Optionee further agrees that, if the Company does
not withhold an amount from the Optionee's wages or other
remuneration sufficient to satisfy the Company's withholding
obligation, the Optionee will reimburse the Company on demand, in
cash, for the amount underwithheld.
15. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California
applicable to agreements made and to be performed entirely within
such State and without regard to the conflict of law principals
thereof.
16. Amendments. No amendment, modification, termination or
waiver of any provision of this Agreement shall be effective unless
the same shall be in writing signed by all parties hereto.
17. Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same
instrument.
18. Survival of Representations. All representations,
covenants and warranties of the parties hereto shall survive the
execution of this Agreement.
103
IN WITNESS WHEREOF the Company and the Optionee have caused
this instrument to be executed as of the date first written above,
and the Optionee whose signature appears below acknowledges receipt
of a copy of the Plan and acceptance of an original copy of this
Agreement.
THE COMPANY:
MAXICARE HEALTH PLANS, INC.
By: /s/ PETER J. RATICAN
------------------------
Peter J. Ratican
Chairman, President and
Chief Executive Officer
OPTIONEE:
/s/ WARREN FOON
---------------------------
Warren Foon
104
EX-10.80B
4
STOCK OPTION AGREEMENT - WARREN FOON
Exhibit 10.80b
MAXICARE HEALTH PLANS, INC.
STOCK OPTION AGREEMENT
Maxicare Health Plans, Inc., a Delaware corporation (the
"Company"), hereby grants as of this 20th day of December, 1991, to
Warren Foon (the "Optionee"), an option to purchase a maximum of
10,000 shares of its common stock (the "Common Stock"), at a price
per share (the "Exercise Price") of $8.25 per share (the "Option"),
on the following terms and conditions:
1. Grant Under 1990 Stock Plan. The Option is granted
pursuant to and is governed by the Company's 1990 Stock Option Plan
(the "Plan") and, unless the context otherwise requires, terms used
and/or defined herein shall have the same meaning as in the Plan.
Determinations made in connection with this Option pursuant to the
Plan shall be governed by the Plan as it exists on this date. This
Option is not intended to be and shall not be treated as an
incentive stock option under Section 422 of the Internal revenue
Code.
2. Extent of Option. If the Optionee has continued to
serve in the capacity of an officer, employee, or director with the
Company (or a subsidiary thereof, as the case may be) on the
following dates, the Optionee may, subject to Section 13 hereof,
exercise this Option for the portion of the total number of shares
subject to this Option set opposite the applicable date:
Less than one year from the - 0 shares
date hereof
One year but less than two years - 3,333 shares
from the date thereof
Two years but less than three - 3,333 shares
years from the date thereof
Three years but less than four - 3,334 shares
years from the date hereof
The foregoing rights are cumulative and, while the Optionee
continues to serve as an officer, director or employee of the
Company (or a subsidiary thereof, as the case may be) may be
exercised up to and including the earlier of the date which is five
years from the date this Option is granted (the "Fifth anniversary
Date"). For purposes of this Agreement, any accrued installment
shall be referred to as an "Accrued Installment". All of the
foregoing rights are subject to Sections 3 and 4 hereof, as
appropriate, if the Optionee ceases to serve as an officer,
105
director or employee of the Company (or a subsidiary thereof, as
the case may be) or becomes disabled or dies while serving as an
officer, director or employee of the Company (or a subsidiary
thereof, as the case may be).
3. Termination of Business Relationship. If the Optionee
ceases to remain an officer, director or employee of the Company
(or subsidiary thereof, as the case may be) other than by reason of
death or disability as defined in Section 4, any unexercised
Accrued Installments of the Option shall expire and become
unexercisable as of the earlier of (i) the Fifth Anniversary Date,
or (ii) thirty (30) days following the termination of Optionee's
employment or termination of Optionee's directorship. No further
installments of this Option shall become exercisable. The Board of
Directors of the Company may extend such thirty (30) day period for
a period not to exceed one (1) year following the Termination Date
(as defined in the Plan), but in no event beyond the applicable
Fifth Anniversary Date. In such a case, the Optionee's only rights
hereunder shall be those which are properly exercised before the
termination of this Option. Any portion of an Option that expires
hereunder shall remain unexercisable and be of no effect whatsoever
after such expiration notwithstanding that such Optionee may be
reemployed by, or again become a director of, the Company (or
subsidiary thereof, as the case may be).
4. Death or Disability. In the event of the death of the
Optionee while an officer, employee or director of the Company,( or
a subsidiary thereof, as the case may be) or in the event of
termination of employment or directorship by reason of the
Optionee's Disability (as defined in the Plan), any unexercised
Accrued Installments of the Option granted to Optionee shall expire
and become unexercisable as of the earlier of (i) the Fifth
Anniversary Date, or (ii) the first anniversary date of the
Optionee's death (if applicable) or (iii) the first anniversary
date of the termination of employment or directorship by reason of
Disability (if applicable). Any such Accrued Installments of a
deceased Optionee may be exercised prior to their expiration by
(and only by) the person or persons to whom the Optionee's Option
rights shall pass by will or by the laws of descent and
distribution. Any installments under a deceased Optionee's Option
that have not accrued as of the date of his/hers death shall expire
and become unexercisable as of said date of death. For purposes of
this Agreement, the Optionee shall be deemed employed by the
Company (or a subsidiary thereof, as the case may be) during any
period of leave of absence from active employment as authorized by
the Company (or a subsidiary thereof, as the case may be)
5. Partial Exercise. Exercise of this Option up to the
extent above stated may be made in part at any time and from time
to time with the above limits, except that this Option may not be
exercised for a fraction of a share. Upon the exercise of the
final installment of this Option, the Optionee shall be entitled to
receive cash with respect to the value of any fraction of a share
(in lieu of any said fractional share).
106
6. Payment of Exercise Price. The Exercise Price is
payable in United States dollars and may be paid in cash or by
certified or cashier's check, or any combination of the foregoing,
equal in the amount to the Exercise Price.
7. Investment Representations; Restrictions on Transfer.
(a) The Optionee represents, warrants and covenants to the
Company that:
(i) Any Common Stock acquired by the Optionee upon exercise
of the Option will be acquired for the Optionee's own account and
not with a view to resale or distribution in violation of the
Securities Act of 1933, as amended (the "1933 Act").
(ii) The Optionee has such knowledge and experience in
business and financial matters as to be capable of utilizing the
information which is available to the Optionee to evaluate the
merits and risks of an investment in the Common Stock, and is able
to bear the economic risks of any Common Stock or other securities
which the Optionee may acquire upon exercise of the Option.
(iii) The Optionee understands that neither the Option nor
the Common Stock to be issued upon exercise of the Option have been
registered under the Securities Act of 1933, as amended (the "1933
Act"), that the Option has been, and the shares of Common Stock
issuable upon exercise of the Option will be, issued in reliance
upon certain exemptions contained therein, and that the Company's
reliance on such exemption is predicated on Optionee's
representations set forth herein. The Optionee further understands
that because neither the Option nor the shares of Common Stock to
be issued upon exercise of the Option have been registered under
the 1933 Act, the Optionee may not and Optionee covenants and
agrees that Optionee will not, sell, offer to sell or otherwise
dispose of any such securities in violation of the 1933 Act or any
applicable "blue sky" or securities law of any state. The Optionee
acknowledges and understands that Optionee has no independent right
to require the Company to register the Option or the Common Stock
to be issued upon exercise of the Option.
(b) The Optionee consents to the placing of restrictive
legends in substantially the following form on any stock
certificate(s) representing Common Stock Issued upon exercise of
the Option:
"The Shares represented by this Certificate
have not been registered under the Securities Act of
1933,as amended. These shares have been acquired for
investment and not with a view to distribution or
resale, and may not be sold,mortgaged,pledged,
hypothecated or otherwise transferred without an
effective registration statement for such shares under
the Securities Act of 1933, as amended, or until the
issuer has been furnished with an opinion of counsel
for the registered owner of these shares, reasonably
107
satisfactory to counsel for the issuer, that such sale,
transfer or disposition is exempt from the registration
or qualification provisions of the Securities Act of
1933, as amended.
(c) The Optionee also hereby consents and agrees to the
placing of stop transfer instructions against any subsequent
transfer(s) of shares of Common Stock issued upon exercise of the
Option. The Company hereby agrees to remove the legend and stop
transfer instructions upon receipt of an opinion of counsel from
the registered owner of the shares of Common Stock issued upon
exercises of the Option, in form and substance acceptable to
counsel for the Company, to the effect that such shares may be
transferred without violation of the 1933 Act.
8. Method of Exercising Option. Subject to the terms and
conditions of this Agreement, this Option may be exercised by
written notice to the Company, or to such transfer agent as the
Company shall designate. Such notice shall state the election to
exercise this Option and the number of shares in respect of which
it is being exercised and shall be signed by the Optionee or person
or persons entitled to so exercise this Option. Such notice shall
be accompanied by payment of the full Exercise Price of such
shares, and the Company shall deliver a certificate or certificates
representing such shares as soon as practicable after the notice is
received. The certificate or certificates for the shares as to
which this Option shall have been so exercised shall be registered
in the name of the person or persons so exercising this Option (or,
if this Option shall be exercised by the Optionee and if the
Optionee shall so request in the notice exercising this Option,
shall be registered in the name of the Optionee and another person
jointly, with right of survivorship) and shall be delivered to or
upon the written order of the person or persons exercising this
Option. In the event this Option shall be exercised, pursuant to
Section 4 hereof, by any person or persons other than the Optionee,
such notice shall be accompanied by appropriate proof of the right
of such person or persons to exercise this Option. All shares that
shall be purchased upon the exercise of this Option as provided
herein shall be fully paid and non-assessable.
9. Option Not Transferable; Transfer of Stock. This
Option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Optionee's lifetime,
only the Optionee may exercise this Option. Common Stock issued
pursuant to the exercise of this Option or any interest in such
Common Stock, may be sold, assigned, gifted, pledged, hypothecated,
encumbered or otherwise transferred to alienated in any manner by
the holder(s) thereof, subject, however, to the provisions of the
Plan, including any representations or warranties requested under
Section 22 thereof, and also subject to compliance with any
applicable federal, state, local or other law, regulations or rule
governing the sale or transfer of stock or securities, and
provided, further that in all cases, the Optionee may not sell or
otherwise transfer shares acquired upon the exercise of an Option
for a period of six (6) months following the date of acquisition
108
(within the meaning of Section 16-b (3) of the Security Exchange
Act of 1934) of such Option without the prior written consent of
the Board.
10. No Obligation to Exercise Option. The grant and
acceptance of this Option imposes no obligation on the Optionee to
exercise it.
11. No Obligation to Continue Employment. Neither the
Company nor any subsidiary thereof is by the Plan or this Option
obligated to continue to employ Optionee and neither the Plan nor
this Option shall otherwise interfere with the Company's or any of
the Company's subsidiary's right to discharge or retire any
employee, including Optionee, at any time.
12. No Rights as Stockholder Until Exercise. The Optionee
shall have no rights as a stockholder with respect to shares
subject to this Agreement until a stock certificate therefore has
been issued to the Optionee and is fully paid for. Except as is
expressly provided in the Plan with respect to certain changes in
the capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to
the date such stock certificate is issued.
13. Reorganization of Company.
(a) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company as a
result of which the Company's outstanding Common Stock is changed
into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of all or substantially all
property of the Company to, or the acquisition of all or
substantially all of the stock of the Company then outstanding by,
another corporation or person, the Plan shall terminate, and the
Option granted hereunder shall terminate; provided, however, if
Optionee is entitled, to exercise any unexercised installment of
the Option then outstanding, then Optionee may, at such time prior
to the consummation of the transaction causing such termination as
the Company shall designate, exercise the unexercised installments
of the option including all unaccrued installments thereof which
would, but for this subsection 13(a), not yet be exercisable.
Notwithstanding the foregoing, in the event that any transaction
causing such termination is not consummated, any unexercised
unaccrued installments that had become exercisable solely by reason
of the provisions of this subsection 13(a) shall again become
unaccrued and unexercisable as of said termination of such
transaction, subject, however, to such installments accruing
pursuant to the normal accrual schedule provided in the terms under
which the Option was granted.
(b) In addition to and not in lieu of those rights granted
pursuant to subsection 13(a) above, if provisions shall be made in
writing in connection with such transaction for the continuance of
the Plan and/or the assumption of options theretofore granted, or
the substitution for such options of options covering the stock of
109
the successor corporation, or a parent or subsidiary thereof with
appropriate adjustments as to the number and kind of shares and
prices, the unexercised Option shall continue in the manner and
under the terms so provided.
(c) The Company shall have no obligation to provide for the
continuance, assumption or substitution of the Plan or the Option
by any successor corporation or parent or subsidiary thereof.
14. Withholding Taxes. The Optionee hereby agrees that the
Company (or a subsidiary thereof, as the case may be) may withhold
from the Optionee's wages or other remuneration the appropriate
amount of federal, state and local taxes attributable to the
Optionee's exercise of any installment of this Option. The
Optionee further agrees that, if the Company (or a subsidiary
thereof, as the case may be) does not withhold an amount from the
Optionee's wages or other remuneration sufficient to satisfy the
Company's (or any such subsidiary's) withholding obligation, the
Optionee will reimburse the Company (or any such subsidiary) on
demand, in cash, for the amount underwithheld.
15. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California
applicable to agreements made and to be performed entirely within
such State and without regard to the conflict of law principals
thereof.
16. Amendments. No amendment, modification, termination or
waiver of any provision of this Agreement shall be effective unless
the same shall be in writing signed by all parties hereto.
17. Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same
instrument.
18. Survival of Representations. All representations,
covenants and warranties of the parties hereto shall survive the
execution of this Agreement.
110
IN WITNESS WHEREOF the Company and the Optionee have caused
this instrument to be executed as of the date first written above,
and the Optionee whose signature appears below acknowledges receipt
of a copy of the Plan and acceptance of an original copy of this
Agreement.
THE COMPANY:
MAXICARE HEALTH PLANS, INC.
By: /s/ PETER J. RATICAN
------------------------
Peter J. Ratican
Chairman, President and
Chief Executive Officer
OPTIONEE:
/s/ WARREN FOON
---------------------------
Warren Foon
111
EX-10.80C
5
STOCK OPTION AGREEMENT - WARREN FOON
Exhibit 10.80c
MAXICARE HEALTH PLANS, INC.
STOCK OPTION AGREEMENT
Maxicare Health Plans, Inc., a Delaware corporation (the
"Company"), hereby grants as of this 20th day of December, 1993, to
Warren Foon (the "Optionee"), an option to purchase a maximum of
10,000 shares of its common stock (the "Common Stock"), at a price
per share (the "Exercise Price") of $9.63 per share (the "Option"),
on the following terms and conditions:
1. Grant Under 1990 Stock Plan. The Option is granted
pursuant to and is governed by the Company's 1990 Stock Option Plan
(the "Plan") and, unless the context otherwise requires, terms used
and/or defined herein shall have the same meaning as in the Plan.
Determinations made in connection with this Option pursuant to the
Plan shall be governed by the Plan as it exists on this date. This
Option is not intended to be and shall not be treated as an
incentive stock option under Section 422 of the Internal Revenue
Code.
2. Extent of Option. If the Optionee has continued to
serve in the capacity of an officer, employee, or director with the
Company (or a subsidiary thereof, as the case may be) on the
following dates, the Optionee may, subject to Section 13 hereof,
exercise this Option for the portion of the total number of shares
subject to this Option set opposite the applicable date:
Less than one year from the - 0 shares
date hereof
One year but less than two years - 3,333 shares
from the date hereof
Two years but less than three - 3,333 shares
years from the date hereof
Three years but less than four - 3,334 shares
years from the date hereof
The foregoing rights are cumulative and, while the Optionee
continues to serve as an officer, director or employee of the
Company (or a subsidiary thereof, as the case may be), may be
exercised up to and including the earlier of the date which is five
years from the date this Option is granted (the "Fifth Anniversary
Date"). For purposes of this Agreement, any accrued installment
shall be referred to as an "Accrued Installment". All of the
foregoing rights are subject to Sections 3 and 4 hereof, as
appropriate, if the Optionee ceases to serve as an officer,
director or employee of the Company (or a subsidiary thereof, as
the case may be) or becomes disabled or dies while serving as an
officer, director or employee of the Company (or a subsidiary
thereof, as the case may be).
112
3. Termination of Business Relationship. If the Optionee
ceases to remain an officer, director or employee of the Company
(or subsidiary thereof, as the case may be), other than by reason
of death or disability as defined in Section 4, any unexercised
Accrued Installments of the Option shall expire and become
unexercisable as of the earlier of (i) the Fifth Anniversary Date,
or (ii) thirty (30) days following the termination of Optionee's
employment or termination of Optionee's directorship. No further
installments of this Option shall become exercisable. The Board of
Directors of the Company may extend such thirty (30) day period for
a period not to exceed one (1) year following the Termination Date
(as defined in the Plan), but in no event beyond the applicable
Fifth Anniversary Date. In such a case, the Optionee's only rights
hereunder shall be those which are properly exercised before the
termination of this Option. Any portion of an Option that expires
hereunder shall remain unexercisable and be of no effect whatsoever
after such expiration notwithstanding that such Optionee may be
reemployed by, or again become a director of, the Company (or a
subsidiary thereof, as the case may be).
4. Death or Disability. In the event of the death of the
Optionee while an officer, employee or director of the Company (or
a subsidiary thereof, as the case may be), or in the event of
termination of employment or directorship by reason of the
Optionee's Disability (as defined in the Plan), any unexercised
Accrued Installments of the Option granted to Optionee shall expire
and become unexercisable as of the earlier of (i) the Fifth
Anniversary Date, or (ii) the first anniversary date of the
Optionee's death (if applicable) or (iii) the first anniversary
date of the termination of employment or directorship by reason of
Disability (if applicable). Any such Accrued Installments of a
deceased Optionee may be exercised prior to their expiration by
(and only by) the person or persons to whom the Optionee's Option
rights shall pass by will or by the laws of descent and
distribution. Any installments under a deceased Optionee's Option
that have not accrued as of the date of his death shall expire and
become unexercisable as of said date of death. For purposes of
this Agreement, the Optionee shall be deemed employed by the
Company (or a subsidiary thereof, as the case may be) during any
period of leave of absence from active employment as authorized by
the Company (or a subsidiary thereof, as the case may be).
5. Partial Exercise. Exercise of this Option up to the
extent above stated may be in part at any time and from time to
time with the above limits, except that this Option may not be
exercised for a fraction of a share. Upon the exercise of the
final installment of this Option, the Optionee shall be entitled to
receive cash with respect to the value of any fraction of a share
(in lieu of any said fractional share).
6. Payment of Exercise Price. The Exercise Price is
payable in United States dollars and may be paid in cash or by
certified or cashier's check, or any combination of the foregoing,
equal in amount to the Exercise Price.
113
7. Investment Representations; Restrictions on Transfer.
(a) The Optionee represents, warrants and covenants to the
Company that:
(i) Any Common Stock acquired by the Optionee upon exercise
of the Option will be acquired for the Optionee's own account and
not with a view to resale on distribution in violation of the
Securities Act of 1933, as amended (the "1933 Act").
(ii) The Optionee has such knowledge and experience in
business and financial matters as to be capable of utilizing the
information which is available to the Optionee to evaluate the
merits and risks of an investment in the Common Stock, and is able
to bear the economic risks of any Common Stock or other securities
which the Optionee may acquire upon exercise of the Option.
(iii) The Optionee understands that the Option has not been
registered under the Securities Act of 1933, as amended (the "1933
Act"), that the Option has been issued in reliance upon certain
exemptions contained therein. The Optionee further understands
that because the Option has not been registered under the 1933 Act
or registered or qualified pursuant to applicable "blue sky"
statutes, the Optionee may not, and Optionee covenants and agrees
that Optionee will not, sell, offer to sell or otherwise dispose of
any such Option in violation of the 1933 Act or any applicable
"blue sky" or securities law of any state. The Optionee
acknowledges and understands that Optionee has no independent right
to require the Company to register the Option.
8. Method of Exercising Option. Subject to the terms and
conditions of this Agreement, this Option may be exercised by
written notice to the Company, at the principal executive office of
the Company, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this
Option and the number of shares in respect of which it is being
exercised and shall be signed by the Optionee or person or persons
entitled to so exercise this Option. Such notice shall be
accompanied by payment of the full Exercise Price of such shares,
and the Company shall deliver a certificate or certificates
representing such shares as soon as practicable after the notice is
received. The certificate or certificates for the shares as to
which this Option shall have been so exercised shall be registered
in the name of the person or persons so exercising this Option (or,
if this Option shall be exercised by the Optionee and if the
Optionee shall so request in the notice exercising this Option,
shall be registered in the name of the Optionee and another person
jointly, with right of survivorship) and shall be delivered to or
upon the written order of the person or persons exercising this
Option. In the event this Option shall be exercised, pursuant to
Section 4 hereof, by any person or persons other than the Optionee,
such notice shall be accompanied by appropriate proof of the right
of such person or persons to exercise this Option. All shares that
shall be purchased upon the exercise of this Option as provided
herein shall be fully paid and non-assessable.
114
9. Option Not Transferable; Transfer of Stock. This
Option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Optionee's lifetime,
only the Optionee may exercise this Option.
10. No Obligation to Exercise Option. The grant and
acceptance of this Option imposes no obligation on the Optionee to
exercise it.
11. No Obligation to Continue Employment. Neither the
Company nor any subsidiary thereof is by the Plan or this Option
obligated to continue to employ Optionee and neither the Plan nor
this Option shall otherwise interfere with the Company's or any of
the Company's subsidiary's right to discharge or retire any
employee, including Optionee, at any time.
12. No Rights as Stockholder Until Exercise. The Optionee
shall have no rights as a stockholder with respect to shares
subject to this Agreement until a stock certificate therefore has
been issued to the Optionee and is fully paid for. Except as is
expressly provided in the Plan with respect to certain changes in
the capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to
the date such stock certificate is issued.
13. Reorganization of Company.
(a) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company as a
result of which the Company's outstanding Common Stock is changed
into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of all or substantially all
property of the Company to, or the acquisition of all or
substantially all of the stock of the Company then outstanding by,
another corporation or person, the Plan shall terminate, and the
Option granted hereunder shall terminate; provided, however,
Optionee shall be entitled, at such time prior to the consummation
of the transaction causing such termination as the Company shall
designate, to exercise the unexercised installments of the Option
including all unaccrued installments thereof which would, but for
this subsection 13(a), not yet be exercisable. Notwithstanding the
foregoing, in the event that any transaction causing such
termination is not consummated, any unexercised unaccrued
installments that had become exercisable solely by reason of the
provisions of this subsection 13(a) shall again become unaccrued
and unexercisable as of said termination of such transaction,
subject, however, to such installments accruing pursuant to the
normal accrual schedule provided in the terms under which the
Option was granted.
(b) In addition to and not in lieu of those rights granted
pursuant to subsection 13(a) above, if provisions shall be made in
writing in connection with such transaction for the continuance of
the Plan and/or the assumption of options theretofore granted, or
the substitution for such options of options covering the stock of
115
the successor corporation, or a parent or subsidiary thereof with
appropriate adjustments as to the number and kind of shares and
prices, the unexercised Option shall continue in the manner and
under the terms so provided.
(c) The Company shall have no obligation to provide for the
continuance, assumption or substitution of the Plan or the Option
by any successor corporation or parent or subsidiary thereof.
14. Withholding Taxes. The Optionee hereby agrees that the
Company (or a subsidiary thereof, as the case may be) may withhold
from the Optionee's wages or other remuneration the appropriate
amount of federal, state and local taxes attributable to the
Optionee's exercise of any installment of this Option. The
Optionee further agrees that, if the Company (or a subsidiary
thereof, as the case may be) does not withhold an amount from the
Optionee's wages or other remuneration sufficient to satisfy the
Company's (or any such subsidiary's) withholding obligation, the
Optionee will reimburse the Company (or any such subsidiary) on
demand, in cash, for the amount underwithheld.
15. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California
applicable to agreements made and to be performed entirely within
such State and without regard to the conflict of law principals
thereof.
16. Amendments. No amendment, modification, termination or
waiver of any provision of this Agreement shall be effective unless
the same shall be in writing signed by all parties hereto.
17. Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same
instrument.
18. Survival of Representations. All representations,
covenants and warranties of the parties hereto shall survive the
execution of this Agreement.
116
IN WITNESS WHEREOF the Company and the Optionee have caused
this instrument to be executed as of the date first written above,
and the Optionee whose signature appears below acknowledges receipt
of a copy of the Plan and acceptance of an original copy of this
Agreement.
THE COMPANY:
MAXICARE HEALTH PLANS, INC.
By: /s/ PETER J. RATICAN
------------------------
Peter J. Ratican
Chairman, President and
Chief Executive Officer
OPTIONEE:
/s/ WARREN FOON
---------------------------
Warren Foon
117
EX-10.80D
6
STOCK OPTION AGREEMENT - WARREN FOON
Exhibit 10.80d
MAXICARE HEALTH PLANS, INC.
STOCK OPTION AGREEMENT
Maxicare Health Plans, Inc., a Delaware corporation (the
"Company"), hereby grants as of this 8th day of December, 1994, to
Warren Foon (the "Optionee"), an option to purchase a maximum of
15,000 shares of its common stock (the "Common Stock"), at a price
per share (the "Exercise Price") of $13.25 per share (the
"Option"), on the following terms and conditions:
1. Grant Under 1990 Stock Plan. The Option is granted
pursuant to and is governed by the Company's 1990 Stock Option Plan
(the "Plan") and, unless the context otherwise requires, terms used
and/or defined herein shall have the same meaning as in the Plan.
Determinations made in connection with this Option pursuant to the
Plan shall be governed by the Plan as it exists on this date. This
Option is not intended to be and shall not be treated as an
incentive stock option under Section 422 of the Internal Revenue
Code.
2. Extent of Option. If the Optionee has continued to
serve in the capacity of an officer, employee, or director with the
Company (or a subsidiary thereof, as the case may be) on the
following dates, the Optionee may, subject to Section 13 hereof,
exercise this Option for the portion of the total number of shares
subject to this Option set opposite the applicable date:
Less than one year from the - 0 shares
date hereof
One year but less than two years - 5,000 shares
from the date hereof
Two years but less than three - 5,000 shares
years from the date hereof
Three years but less than four - 5,000 shares
years from the date hereof
The foregoing rights are cumulative and, while the Optionee
continues to serve as an officer, director or employee of the
Company (or a subsidiary thereof, as the case may be), may be
exercised up to and including the earlier of the date which is five
years from the date this Option is granted (the "Fifth Anniversary
Date"). For purposes of this Agreement, any accrued installment
shall be referred to as an "Accrued Installment". All of the
foregoing rights are subject to Sections 3 and 4 hereof, as
appropriate, if the Optionee ceases to serve as an officer,
director or employee of the Company (or a subsidiary thereof, as
the case may be) or becomes disabled or dies while serving as an
118
officer, director or employee of the Company (or a subsidiary
thereof, as the case may be).
3. Termination of Business Relationship. If the Optionee
ceases to remain an officer, director or employee of the Company
(or subsidiary thereof, as the case may be), other than by reason
of death or disability as defined in Section 4, any unexercised
Accrued Installments of the Option shall expire and become
unexercisable as of the earlier of (i) the Fifth Anniversary Date,
or (ii) thirty (30) days following the termination of Optionee's
employment or termination of Optionee's directorship. No further
installments of this Option shall become exercisable. The Board of
Directors of the Company may extend such thirty (30) day period for
a period not to exceed one (1) year following the Termination Date
(as defined in the Plan), but in no event beyond the applicable
Fifth Anniversary Date. In such a case, the Optionee's only rights
hereunder shall be those which are properly exercised before the
termination of this Option. Any portion of an Option that expires
hereunder shall remain unexercisable and be of no effect whatsoever
after such expiration notwithstanding that such Optionee may be
reemployed by, or again become a director of, the Company (or a
subsidiary thereof, as the case may be).
4. Death or Disability. In the event of the death of the
Optionee while an officer, employee or director of the Company (or
a subsidiary thereof, as the case may be), or in the event of
termination of employment or directorship by reason of the
Optionee's Disability (as defined in the Plan), any unexercised
Accrued Installments of the Option granted to Optionee shall expire
and become unexercisable as of the earlier of (i) the Fifth
Anniversary Date, or (ii) the first anniversary date of the
Optionee's death (if applicable) or (iii) the first anniversary
date of the termination of employment or directorship by reason of
Disability (if applicable). Any such Accrued Installments of a
deceased Optionee may be exercised prior to their expiration by
(and only by) the person or persons to whom the Optionee's Option
rights shall pass by will or by the laws of descent and
distribution. Any installments under a deceased Optionee's Option
that have not accrued as of the date of his death shall expire and
become unexercisable as of said date of death. For purposes of
this Agreement, the Optionee shall be deemed employed by the
Company (or a subsidiary thereof, as the case may be) during any
period of leave of absence from active employment as authorized by
the Company (or a subsidiary thereof, as the case may be).
5. Partial Exercise. Exercise of this Option up to the
extent above stated may be in part at any time and from time to
time with the above limits, except that this Option may not be
exercised for a fraction of a share. Upon the exercise of the
final installment of this Option, the Optionee shall be entitled to
receive cash with respect to the value of any fraction of a share
(in lieu of any said fractional share).
119
6. Payment of Exercise Price. The Exercise Price is
payable in United States dollars and may be paid in cash or by
certified or cashier's check, or any combination of the foregoing,
equal in amount to the Exercise Price.
7. Investment Representations; Restrictions on Transfer.
(a) The Optionee represents, warrants and covenants to the
Company that:
(i) Any Common Stock acquired by the Optionee upon exercise
of the Option will be acquired for the Optionee's own account and
not with a view to resale on distribution in violation of the
Securities Act of 1933, as amended (the "1933 Act").
(ii) The Optionee has such knowledge and experience in
business and financial matters as to be capable of utilizing the
information which is available to the Optionee to evaluate the
merits and risks of an investment in the Common Stock, and is able
to bear the economic risks of any Common Stock or other securities
which the Optionee may acquire upon exercise of the Option.
(iii) The Optionee understands that the Option has not been
registered under the Securities Act of 1933, as amended (the "1933
Act"), that the Option has been issued in reliance upon certain
exemptions contained therein. The Optionee further understands
that because the Option has not been registered under the 1933 Act
or registered or qualified pursuant to applicable "blue sky"
statutes, the Optionee may not, and Optionee covenants and agrees
that Optionee will not, sell, offer to sell or otherwise dispose of
any such Option in violation of the 1933 Act or any applicable
"blue sky" or securities law of any state. The Optionee
acknowledges and understands that Optionee has no independent right
to require the Company to register the Option.
8. Method of Exercising Option. Subject to the terms and
conditions of this Agreement, this Option may be exercised by
written notice to the Company, at the principal executive office of
the Company, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this
Option and the number of shares in respect of which it is being
exercised and shall be signed by the Optionee or person or persons
entitled to so exercise this Option. Such notice shall be
accompanied by payment of the full Exercise Price of such shares,
and the Company shall deliver a certificate or certificates
representing such shares as soon as practicable after the notice is
received. The certificate or certificates for the shares as to
which this Option shall have been so exercised shall be registered
in the name of the person or persons so exercising this Option (or,
if this Option shall be exercised by the Optionee and if the
Optionee shall so request in the notice exercising this Option,
shall be registered in the name of the Optionee and another person
jointly, with right of survivorship) and shall be delivered to or
upon the written order of the person or persons exercising this
Option. In the event this Option shall be exercised, pursuant to
120
Section 4 hereof, by any person or persons other than the Optionee,
such notice shall be accompanied by appropriate proof of the right
of such person or persons to exercise this Option. All shares that
shall be purchased upon the exercise of this Option as provided
herein shall be fully paid and non-assessable.
9. Option Not Transferable; Transfer of Stock. This
Option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Optionee's lifetime,
only the Optionee may exercise this Option.
10. No Obligation to Exercise Option. The grant and
acceptance of this Option imposes no obligation on the Optionee to
exercise it.
11. No Obligation to Continue Employment. Neither the
Company nor any subsidiary thereof is by the Plan or this Option
obligated to continue to employ Optionee and neither the Plan nor
this Option shall otherwise interfere with the Company's or any of
the Company's subsidiary's right to discharge or retire any
employee, including Optionee, at any time.
12. No Rights as Stockholder Until Exercise. The Optionee
shall have no rights as a stockholder with respect to shares
subject to this Agreement until a stock certificate therefore has
been issued to the Optionee and is fully paid for. Except as is
expressly provided in the Plan with respect to certain changes in
the capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to
the date such stock certificate is issued.
13. Reorganization of Company.
(a) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company as a
result of which the Company's outstanding Common Stock is changed
into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of all or substantially all
property of the Company to, or the acquisition of all or
substantially all of the stock of the Company then outstanding by,
another corporation or person, the Plan shall terminate, and the
Option granted hereunder shall terminate; provided, however,
Optionee shall be entitled, at such time prior to the consummation
of the transaction causing such termination as the Company shall
designate, to exercise the unexercised installments of the Option
including all unaccrued installments thereof which would, but for
this subsection 13(a), not yet be exercisable. Notwithstanding the
foregoing, in the event that any transaction causing such
termination is not consummated, any unexercised unaccrued
installments that had become exercisable solely by reason of the
provisions of this subsection 13(a) shall again become unaccrued
and unexercisable as of said termination of such transaction,
subject, however, to such installments accruing pursuant to the
normal accrual schedule provided in the terms under which the
Option was granted.
121
(b) In addition to and not in lieu of those rights granted
pursuant to subsection 13(a) above, if provisions shall be made in
writing in connection with such transaction for the continuance of
the Plan and/or the assumption of options theretofore granted, or
the substitution for such options of options covering the stock of
the successor corporation, or a parent or subsidiary thereof with
appropriate adjustments as to the number and kind of shares and
prices, the unexercised Option shall continue in the manner and
under the terms so provided.
(c) The Company shall have no obligation to provide for the
continuance, assumption or substitution of the Plan or the Option
by any successor corporation or parent or subsidiary thereof.
14. Withholding Taxes. The Optionee hereby agrees that the
Company (or a subsidiary thereof, as the case may be) may withhold
from the Optionee's wages or other remuneration the appropriate
amount of federal, state and local taxes attributable to the
Optionee's exercise of any installment of this Option. The
Optionee further agrees that, if the Company (or a subsidiary
thereof, as the case may be) does not withhold an amount from the
Optionee's wages or other remuneration sufficient to satisfy the
Company's (or any such subsidiary's) withholding obligation, the
Optionee will reimburse the Company (or any such subsidiary) on
demand, in cash, for the amount underwithheld.
15. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California
applicable to agreements made and to be performed entirely within
such State and without regard to the conflict of law principals
thereof.
16. Amendments. No amendment, modification, termination or
waiver of any provision of this Agreement shall be effective unless
the same shall be in writing signed by all parties hereto.
17. Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same
instrument.
18. Survival of Representations. All representations,
covenants and warranties of the parties hereto shall survive the
execution of this Agreement.
122
IN WITNESS WHEREOF the Company and the Optionee have caused
this instrument to be executed as of the date first written above,
and the Optionee whose signature appears below acknowledges receipt
of a copy of the Plan and acceptance of an original copy of this
Agreement.
THE COMPANY:
MAXICARE HEALTH PLANS, INC.
By: /s/ PETER J. RATICAN
------------------------
Peter J. Ratican
Chairman, President and
Chief Executive Officer
OPTIONEE:
/s/ WARREN FOON
---------------------------
Warren Foon
123
EX-10.81
7
FORM OF STOCK OPTION AGREEMENT
Exhibit 10.81
Maxicare Health Plans, Inc.
1995 STOCK OPTION PLAN
NOTICE OF GRANT OF STOCK OPTION
(Nonqualified Stock Option)
Name:---------------
Location: ----------
Grant of Option
You have been granted an option to buy shares of common stock of
Maxicare Health Plans, Inc. as follows:
Grant Date: -----------------
Option Price per Share: -----------------
Total Number of Shares: -----------------
Vesting Schedule
The option shall become exercisable with respect to the number of
shares of the aforementioned Total Number of Shares as set forth
on the "Vesting Schedule" in the Grant Summary attached hereto and
incorporated herein by this reference.
Agreement
By your signature and Maxicare Health Plans, Inc.'s signature
below, you and Maxicare Health Plans, Inc. agree that this option
is granted under and governed by the terms of the Maxicare Health
Plans, Inc. 1995 Stock Option Plan, and the Nonqualified Stock
Option Agreement which is attached hereto and incorporated herein
by this reference. PLEASE READ SUCH AGREEMENT.
"COMPANY" "OPTIONEE"
Maxicare Health Plans, Inc. Name:--------------------
1149 S. Broadway Boulevard Address:_________________
Los Angeles, CA 90015 _________________________
By: ______________________ Signature:_______________
President
124
Maxicare Health Plans, Inc.
1995 STOCK OPTION PLAN
GRANT SUMMARY
(Nonqualified Stock Option)
Name:---------------
Location: ----------
Grant Type: ----
Grant Date: -------------
Total Shares: -----------
Option Price: -----------
VESTING SCHEDULE
Number of Shares Vesting Date
125
EX-23.4
8
INDEPENDENT ACCOUNTANT'S CONSENT - ERNST & YOUNG
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-50508) pertaining to the Maxicare
Health Plans, Inc. 1990 Stock Option Plan, stock option agreements
with Peter J. Ratican dated December 5, 1990 and February 25, 1992,
and stock option agreements with Eugene L. Froelich dated December
5, 1990 and February 25, 1992 of our report dated February 6, 1996
with respect to the 1995 consolidated financial statements and
schedules of Maxicare Health Plans, Inc. in its annual report on
Form 10-K for the year ended December 31, 1995.
ERNST & YOUNG LLP
Los Angeles, California
March 26, 1996
126
EX-23.5
9
INDEPENDENT ACCOUNTANT'S CONSENT - PRICE
WATERHOUSE
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 33-50508) of
Maxicare Health Plans, Inc. of our report dated March 4,
1994 appearing on page 130 of this Form 10-K.
PRICE WATERHOUSE LLP
Los Angeles, California
March 26, 1996
127
EX-27
10
FDS FOR 12/95 10-K
5