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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,
1994; 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 87 of 201
1 of 201
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.
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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 14, 1995:
Common Stock, $.01 par value - $315,638,000
The number of shares outstanding of each of the issuer's classes
of capital stock, as of March 14, 1995:
Common Stock, $.01 par value - 17,295,253 shares
As of March 14, 1995, Registrant had 727,828 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.
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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 298,000 as of February
1, 1995. 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 traditional
HMO, preferred provider organizations ("PPOs"), exclusive provider
organization, life and accidental death and dismemberment policies
as well as administrative services only, 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 the HMO operations, the Company arranges for 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, 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 the health care provider, 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.
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History
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The HMO business of the Company 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 serviced 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
deterioration in the Company's operating performance and financial
condition.
These financial difficulties ultimately caused certain of the
Company's HMOs to fall out of compliance with state regulations and
its loan agreement with various banks (the "Bank Group") and to
default under the terms of its public indebtedness.
As a result of 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, except those expressly assumed by them, were discharged
upon emergence from Chapter 11 on December 5, 1990, the "Effective
Date" of the plan of reorganization (the "Reorganization Plan"). On
or shortly after the Effective Date, the Company transferred
approximately $85.4 million of cash to be distributed under the
Reorganization Plan to segregated interest bearing bank accounts and
issued global certificates evidencing $67.0 million principal amount
of 13.5% Senior Notes due December 5, 2000 (the "Senior Notes"),
10,000,000 shares of Common Stock and warrants to purchase an
additional 555,555 shares of Common Stock (the "Warrants") to be
distributed to holders of allowed claims and interests under the
Reorganization Plan.
As of January 31, 1995, approximately $87.3 million in cash, $39.7
million principal amount of Senior Notes, $19.0 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"), 9.7 million shares of Common
Stock (including approximately 420,000 shares of Common Stock issued
pursuant to the exercise of Warrants as discussed below) had been
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distributed to holders of allowed claims. 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, 1995, $8.9 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.
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"). Such distributions were allocated sixty
percent (60%) to redeem outstanding Senior Notes and forty percent
(40%) to the Distribution Trust for the benefit of certain classes
of creditors. As a result of the foregoing, the Company made a
Consolidated Net Worth Distribution of $2.0 million in 1992 based on
the Company's net worth at December 31, 1991. In March 1992, the
Company consummated the sale of $60 million of Series A Cumulative
Convertible Preferred Stock (the "Series A Stock") (see "Item 8.
Financial Statements and Supplementary Data - Note 6 to the
Company's Consolidated Financial Statements"). The proceeds from
this sale, plus internally generated cash, were utilized to redeem
in April 1992 the entire outstanding principal amount and accrued
interest on the Senior Notes. The sale of the Series A Stock had
the effect of significantly increasing the net worth of the Company.
The Company does not believe the Reorganization Plan contemplated
either the issuance of the Series A Stock or the redemption of the
Senior Notes, and accordingly, the Company believes the Consolidated
Net Worth Distribution required by the Reorganization Plan should be
calculated on a basis as if the sale of the Series A Stock had not
been consummated and the Senior Notes had not been redeemed. As a
result of the foregoing, the Company calculated the December 31,
1992 Consolidated Net Worth Distribution amount to be approximately
$971,000, which was deposited for distribution to certain creditors
under the Reorganization Plan in March 1993. 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 not required since the Senior Notes were fully
redeemed. 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").
5
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
their Warrant by tendering the Warrant certificate for redemption
has received or is entitled to receive the redemption price of $.05
per Warrant. The Company realized net proceeds of approximately
$4.2 million from the exercise of 420,178 outstanding Warrants. The
remaining 135,377 Warrants were redeemed by the Company.
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. 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 are entitled to receive only the Redemption Price
without additional interest thereon when they surrender the Series A
Stock Share certificates properly endorsed to the Redemption Agent.
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 the 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 or deductible 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.
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An HMO receives a fixed amount from its members regardless of the
nature and extent of health care services provided, and as a result,
an HMO has an incentive to keep its members healthy and to manage
its costs through strategies such as monitoring hospital admissions
and reviewing specialist referrals by primary care physicians. The
goal is to combine the delivery of and access to quality health care
services with effective management controls to make the most cost-
effective use of health care resources.
Although HMOs have been operating in the United States for half a
century, their popularity began increasing in the 1970's 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").
There are four basic organizational models of HMOs which 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 number of physician visits. Under the independent practice
association 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 on a
capitation basis, as in the group model, but medical care is usually
provided in the physician's own facilities. The Company's HMOs
include only network, group and independent practice association
models. For the year ended December 31, 1994, 59% of the Company's
health care expenses represented capitation payments to providers.
PPO. PPOs are generally a network of health care providers which
offer their services to health care purchasers, such as employers.
PPO members choose from among the various contracting physician
groups and independent practice associations (the "Physician
Groups") the particular group from which they desire to receive
their medical care, or choose a noncontracting physician and are
reimbursed on a traditional indemnity plan basis after reaching an
annual deductible. Payment is based on some variation of fee-for-
service reimbursement and health care services are determined by the
terms of the contract. The Company's PPO business began in Indiana
in the fourth quarter of 1989 and has expanded to California,
Louisiana, Illinois and North Carolina. In the third quarter of
1993 the Company introduced a primary care physician network product
("PCPN") to a Louisiana employer group with a health care plan which
is self-insured. Under a PCPN, eligible members of the employer
group may choose the Company's contracted physician network for
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their primary care services. The Company's PPO and PCPN lines of
business comprise less than one percent (1%) of the Company's
combined enrollment at December 31, 1994. The Company believes that
the PPO and PCPN products, as well as the life, accidental death and
dismemberment insurances offered by MLH expand the options for
members, while maintaining the concept of managed health care. MLH
is exploring the possibility of offering the PPO business and
additional products and indemnity services in other markets.
Medicaid. In November 1994, the Company began providing HMO
services to Medicaid recipients pursuant to a one year contract with
the state of California. In addition, the Company has contracted
for two years with the state of Indiana to provide HMO services to
Medicaid recipients beginning in 1995. The Company has been
contracted for one year terms with the state of Wisconsin to provide
HMO services to that state's Medicaid recipients since 1984.
Medicaid beneficiaries do not pay any premiums, deductibles or co-
payments. As of February 1995, the Medicaid programs comprised
approximately nine percent (9%) 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 1995.
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 an additional cost (see "Item 1. Business - Government
Regulation"). As of December 31, 1994, the Company's HMOs had
contracts with approximately 350 hospitals in 7 states and the
Company owns and operates 3 pharmacies in California.
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
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include obstetrician-gynecologists, cardiologists, surgeons and
radiologists.
Hospital Care - 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 and therapeutic
radiological procedures.
Home 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.
Delivery of Health Care Services
--------------------------------
The Company's HMOs provide for a portion of the health care
services to its members by contracting on a prepaid basis with
physician groups. The Company's HMOs typically pay to the
physician groups a monthly capitation fee for each member assigned
to the 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 physician groups provide professional services
to members, including laboratory services and X-rays. Members
choose from among the various contracting physician groups the
particular group from which they desire to receive their medical
care.
Members select a primary care physician to serve as their personal
physician from the physician 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
physician groups and develop agreements with new physician groups.
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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 arise, however,
which require medical care by physicians or hospitals not
affiliated with the Company's HMOs, the Company's HMOs assume
financial responsibility for the cost of such care.
Quality Assurance
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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 in a number of
ways including performing periodic medical care evaluation studies,
analyzing monthly utilization of certain services, conducting
periodic member satisfaction studies and reviewing and responding
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 physician
groups.
The Company has a member services department which deals directly
with members concerning their health care questions, comments,
concerns or grievances. The Company conducts annual surveys
questioning members about their level of satisfaction with the
services they receive. Management reviews any problems that are
presented by members concerning the delivery of medical care and
receives periodic reports summarizing member grievances.
Premium Structure and Cost Control
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The Company generally sets its membership fees, or premiums,
pursuant to a community rating system which means that it charges
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 has attempted to develop uniform procedures and
guidelines to monitor the appropriateness of medical care. These
procedures and guidelines include the annual negotiation of the
capitation fee paid to physician groups, hospitals, dentists and
pharmacies, the negotiation of discount contracts with other health
care providers and the placement of financial responsibility on the
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primary care physician for the initiation of specialist referrals
and hospital utilization. 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 effect appropriate utilization. These
programs are intended to address 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 must be 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 which incorporates such cost containment features as
drug formularies (a Company-developed listing of preferred, cost-
effective drugs).
The Company establishes an annual budget for each geographic area
and determines the expected costs of providing services in such
areas. The budget is calculated on a per member per month basis
for specific components. These components include professional
care by the contracting Physician Groups; hospitals; prescription
drug and dental care services; emergency care; other health care
services; and administration. The Company budgets hospital costs
on the basis of utilization experience, actual cost per member per
month, expected inflation and anticipated changes in health care
delivery.
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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Primary responsibility for the Company's marketing efforts rests
with a marketing director and sales representatives for each HMO
operated by the Company. 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
traditional health insurance or membership with HMOs such as those
operated by the Company. The Company's HMOs' agreements with
employers are generally for a term of 12 months subject to renewal
annually. Once the Company's relationship with the employer is
established, marketing efforts are then focused on employees.
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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. By the end of
January, approximately 57% of the Company's members select 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, 1994, the Company's HMOs were offered by approximately
1,200 employer groups.
The Company markets its medicaid and medicare programs to eligible
individuals through direct mail, door to door solicitation, radio
and cooperative advertising with participating medical groups.
Medicaid and medicare beneficiaries may disenroll for any reason
upon 30 days notice.
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 a plan
level giving the multi-state employer the opportunity to monitor
individual areas within his employer group. 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.
Management Information Systems
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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 make available management and accounting reports
including eligibility, billing, capitation and claims information
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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The health care industry is highly competitive and the managed
health care industry is becoming increasingly competitive in all
markets. The HMO industry continues to gain market share,
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particularly at the expense of the indemnity carriers. The Company
competes in its regional markets for employers and members with
other HMOs, conventional 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 size of other conventional insurance, HMO and PPO
health care services offered in each state. Competitors of the
Company include such well known entities as Kaiser, FHP,
Foundation, Health Systems International and PacifiCare (in
California), MetroHealth (in Indiana), and HMO Illinois, Partners
National Health Plan, Humana and Chicago HMO (in Illinois).
The Company believes the principal competitive factors it faces are
premium rates, the quality 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 limit the growth potential of HMOs in any
particular market. Employers, for example, are increasingly cost
sensitive in selecting health care providers for their employees,
which provides 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 which offer
not only HMO services but PPO and indemnity health care services to
employer groups. In an effort to remain competitive, the Company
has begun to offer a variety of health care services, including
PPOs, and is actively exploring offering additional PPO and
indemnity services through joint ventures or other arrangements.
Competition may also be affected by mergers and acquisitions in the
managed care and general health care industries as companies
respond to proposed health care reform and seek to expand their
operating territories to gain economies of scale and market share.
Government Regulation
---------------------
The federal government and each of the states in which the Company
conducts its HMO and other businesses 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.
Federal Regulations. 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 a health
benefits plan to its employees, with the employer contributing the
same amount toward the employee's HMO enrollment fee as it would
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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 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
which regulate the HMOs.
State Regulations. 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
Company's Chapter 11 Bankruptcy proceedings 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 by changing its legal structure
as a separately licensed HMO in the state of South Carolina or that
of a division of another one of its operating HMOs. 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.
All of the Company's HMOs are subject to extensive state
regulations which require the HMO to comply with certain net worth
and other financial tests. A number of states have recently
enacted legislation which increases these financial tests. To the
extent an HMO fails to satisfy these regulatory requirements, MHP
may need to infuse the HMO with additional capital in order to
maintain the good standing of the HMO in the state. Under the
HMO's business plans and in order to ensure financial compliance
with state regulators, the Company is currently operating under a
decentralized and segregated cash management system. The Company
has implemented 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.
14
The Company believes that it is currently operating in compliance
with the state regulations and has obtained regulatory approval of
the operational and financial plans and related administrative
services agreements for its HMOs.
The issue of health care reform continues to undergo intense
discussion and examination by the public and private sectors.
Though the role of managed care appears to be an integral part in
most proposals, the Company cannot determine the effect, if any,
these proposals may have on the business or operations of the
Company, if adopted.
Employees
---------
As of December 31, 1994, the Company employed approximately 443
full-time employees. None of the Company's employees are
represented by a labor union or covered by a collective bargaining
arrangement and the Company believes its employee relations are
good.
15
Directors and Executive Officers of the Registrant
--------------------------------------------------
The directors and executive officers of the Company at December 31,
1994 were as follows:
Name Age Position
Peter J. Ratican 51 Chairman of the Board of
Directors, Chief Executive
Officer and President
Eugene L. Froelich 53 Chief Financial Officer,
Executive Vice President -
Finance and Administration
and Director
Alan D. Bloom 49 Senior Vice President,
Secretary and General
Counsel
Aivars L. Jerumanis 56 Senior Vice President -
Management Information
Systems and Chief
Information Officer
Richard A. Link 40 Chief Accounting Officer
and Senior Vice President -
Accounting
William B. Caswell 39 Vice President, General
Manager - Maxicare California
David J. Hammons 44 Vice President -
Administrative Services,
Chief Actuary
Robert J. Landis 35 Treasurer
Vicki F. Perry 42 Vice President, General
Manager - Maxicare Indiana
Claude S. Brinegar 68 Director
Florence F. Courtright 62 Director
Thomas W. Field, Jr. 61 Director
Charles E. Lewis, M.D. 66 Director
Alan S. Manne 69 Director
16
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. From May 1989 to January 1990, Mr.
Jerumanis was a private consultant in advising companies on
management information services matters. 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.
William B. Caswell was appointed Vice President, General Manager of
the California HMO in February 1992. From March 1988 to January
1992 Mr. Caswell served as President of VertiHealth, a subsidiary
of UniHealth. Mr. Caswell serves on the board of directors of the
University of Southern California School of Nursing as well as the
Southern California Chapter of the Arthritis Foundation. He
received a Master's degree in Business Administration and a Master
of Public Health 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.
17
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
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 Support of the Company. Ms. Perry has been with the
Company since 1982. Ms. Perry is a graduate of Indiana University.
Claude S. Brinegar is currently Vice Chairman of the board of
directors of Unocal Corporation and served as Executive Vice
President of Administration and Planning until May 1992. In 1989,
Mr. Brinegar was elected as Vice Chairman of Unocal and has been a
director of the Company since December, 1991. He is also a member
of the board of directors of Consolidated Rail Corporation 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.
18
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
qualified and elected. Class II directors include Mr. Froelich and
Ms. Courtright and they will serve until the 1995 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").
19
Item 2. Properties
----------
The Company's operating facilities are held through leaseholds. At
December 31, 1994, the Company or its HMOs leased approximately
226,000 square feet at 24 locations with an aggregate current
monthly rental of approximately $210,000. These leases have
remaining terms of up to seven years.
In June 1994, the Company entered into a lease for new corporate
office space in Los Angeles. The lease commenced in June 1994 and
is for a term of seventy-two (72) 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.
At December 31, 1994, the Company leased other properties including
administrative locations, 3 pharmacies, and other miscellaneous
facilities. The Company has subleased approximately 16,000 square
feet to contracting medical groups, with current monthly rentals
totaling $23,678 and monthly subrental revenue of $23,632.
20
Item 3. Legal Proceedings
-----------------
a. JURISDICTIONAL CHALLENGES AND APPEALS TO THE CHAPTER 11
REORGANIZATION PROCEEDINGS
Immediately after the filing of the voluntary Chapter 11 petitions,
the Debtors were faced with several motions challenging the
jurisdiction of the Bankruptcy Court over the Debtors' Chapter 11
cases. The Bankruptcy Court denied these motions and retained
jurisdiction over the Debtors' cases. Appeals were taken of the
Bankruptcy Court's ruling that it had jurisdiction over the
Debtors' bankruptcy cases. With the exception of the appeals filed
by the State of Wisconsin (the "Wisconsin Appeals") all other
jurisdictional appeals were withdrawn or dismissed before the
appellate court ruled on the appeals.
The Wisconsin Appeals challenged the Maxicare Health Insurance
Company's ("MHIC") eligibility to be a debtor under the Bankruptcy
Code. After the Wisconsin Appeals had been filed, the Bankruptcy
Court confirmed the Debtors' Reorganization Plan. The State of
Wisconsin's motions to stay consummation of the Reorganization Plan
pending determination of the Wisconsin Appeals were denied by the
Bankruptcy Court, the United States District Court for the Central
District of California ("District Court") and the United States
Court of Appeals for the Ninth Circuit ("Court of Appeals").
On July 9, 1992, the District Court entered a Ruling on Appeal (the
"Ruling") which addressed the merits of the Wisconsin Appeals. In
the Ruling, the District Court held that MHIC is a domestic
insurance company under Wisconsin state law and was therefore
ineligible for relief under the Bankruptcy Code, which excludes
domestic insurance companies from entities eligible for relief
thereunder. The District Court remanded back to the Bankruptcy
Court and ordered the Bankruptcy Court to take action consistent
with the Ruling.
The Company, MHIC and other affiliates filed a motion for rehearing
of the Ruling which was denied by the District Court on August 27,
1992. The Ruling and the order denying the motion for rehearing
were appealed by the Company and MHIC to the Court of Appeals (the
"Appeal"). In addition the Company, MHIC, and other affiliates
also filed a motion with the District Court to stay implementation
of the Ruling while the Appeal was pending. The hearing on the
motion to stay was subsequently continued by the parties because of
ongoing settlement negotiations.
The Company and the State of Wisconsin reached a settlement
resolving the Appeal and the jurisdictional dispute between the
parties in a settlement agreement dated June 17, 1994 (the
"Agreement"). In accordance with the Agreement, a reorganization
plan providing for the reorganization of MHIC under Wisconsin state
law on fundamentally the same terms and conditions as the
Reorganization Plan confirmed by the Bankruptcy Court, with respect
21
to liabilities which arose on or before March 15, 1989, (the "State
Plan"), was submitted by the State of Wisconsin for approval by the
Wisconsin State Court. On July 22, 1994 the Wisconsin State Court
entered orders approving and confirming the State Plan and
terminating the state court reorganization proceedings (the
"Termination Orders"). On August 12, 1994, the Bankruptcy Court
entered an order approving the Agreement (the "Approval Order").
No creditor or party in interest appealed the Termination Orders or
the Approval Order which have become final and nonappealable.
Under the State Plan, creditors holding claims that were allowed in
MHIC's bankruptcy proceeding pertaining to liabilities which arose
on or before March 15, 1989 ("MHIC Creditors"), will retain the
distributions made to them under the Reorganization Plan and will
continue to receive the distributions which would otherwise have
been made to them pursuant to the Reorganization Plan. Future
distributions due to MHIC Creditors under the State Plan will be
made from the separate Reorganization Plan assets allocated for the
satisfaction of creditors' bankruptcy claims and not from MHIC's or
the Company's post bankruptcy assets or operations. The State Plan
does not affect MHIC's ongoing business operations or its ability
to conduct business, write new business, or renew old business.
In accordance with the agreement the parties filed a stipulation
with the Court of Appeals dismissing the Appeal, which was approved
by the Court pursuant to an order entered on November 2, 1994. On
February 27, 1995 the Bankruptcy Court granted MHIC's motion to
dismiss MHIC's bankruptcy case, as required by the Agreement. With
the approval of the State Plan, dismissal of the Appeal and
dismissal of MHIC's bankruptcy case, the Agreement has been
implemented and consummated without any material adverse impact on
the Company's business and its operations. Accordingly, the
Company will no longer be reporting on the Wisconsin Appeals.
In addition to the Wisconsin Appeals, twenty-four appeals were
filed challenging various aspects of the Reorganization Plan's
confirmation order. As of March 1, 1995, twenty-one of these
appeals were withdrawn or dismissed. Of the three remaining
appeals two were stayed subject to Bankruptcy Court and District
Court approval of settlement agreements with the class action
representative discussed immediately below. The remaining appeal
was stayed subject to Bankruptcy Court and District Court approval
of the class action settlement agreements and the non-occurrence of
certain other conditions.
The class action settlement agreements pertain to settlements of
pre-petition actions commenced in the federal and state courts
against the Company, former and current officers and directors, and
others, including the Company's former accountants and investment
bankers, alleging violations of federal and state securities laws,
California state common law and the California Corporations Code in
connection with the purchase and sale of the Company's old common
stock or the Company's 11 3/4% Senior Subordinated Notes. Mirkin
22
and Millers, et al. V. Fred Wasserman, et al. (Superior Court, Los
Angeles County, CA) (Consolidated Case No. CA 01122)); Murray
Zucker et. al v. Maxicare Health Plans, Inc. et al. (United States
District Court, Central District of CA) (Case No. 88 02499 LEW
(TX)). The class action settlement agreements were approved by
separate orders entered by the Bankruptcy Court and the District
Court on January 27, 1992 and March 4, 1992, respectively. With
these orders now final and nonappealable and the non-occurence of
certain conditions upon which one of the appeals was stayed, all
conditions for dismissal of the three remaining appeals have been
satisfied. Accordingly, the Company will no longer be reporting on
any jurisdiction or confirmation order appeals.
b. PENN HEALTH
During the period from March 1, 1986 through June 30, 1989, Penn
Health Corporation ("Penn Health"), a subsidiary of the Company,
contracted with the Commonwealth of Pennsylvania through the
Pennsylvania Department of Public Welfare (the "DPW") to provide a
full range of health care services to Medicaid enrollees under the
Pennsylvania Medical Assistance Program known as the HealthPass
Program. The DPW was the sole subscriber group of Penn Health.
These services were rendered by providers pursuant to contracts
with Penn Health ("Penn Health Providers"). In consideration for
these services, subject to certain adjustments, the DPW was
obligated to pay to Penn Health a fixed monthly fee per enrollee
based upon Penn Health's fee-for-service costs and a charge for
administration. In addition, for the first two years of the
contract, the DPW agreed to reimburse Penn Health for any financial
losses in excess of $2 million. Under the applicable provisions of
the contract, at the Petition Dates, the Company believes that the
DPW owed Penn Health in excess of $24 million plus accrued
interest, for reimbursement and adjustment of the cost of pre-
petition services, an amount which the DPW disputes.
After the Petition Dates, the DPW advanced funds directly to the
Penn Health Providers for pre-petition services performed under the
contracts with Penn Health. In certain cases the amount of the
advanced funds may have been in excess of the amounts due to the
Penn Health Providers for such services. The payments made by the
DPW approximated $16 million. The Penn Health Providers filed
proofs of claim against Penn Health and other subsidiaries of the
Company, without making deductions for the payments made by the
DPW, although they noted receipt of such funds on their proofs of
claim. 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 the turnover
of property and to raise all objections to the proofs of claim of
the Penn Health Providers, including that the claims asserted
therein were overstated (the "Bankruptcy Action"). The disputes
with the DPW and the major Penn Health Providers, in the Bankruptcy
Action constitute the majority of the claims filed against Penn
Health.
23
On December 13, 1990, the Bankruptcy Court entered an order
dismissing the Bankruptcy Action as against the DPW on
jurisdictional grounds (the "Dismissal Order"). The Company filed
an appeal of the Dismissal Order to the United States District
Court for the Central District of California, which was
subsequently resolved by a stipulation approved by the District
Court. Pursuant to the stipulation, the jurisdictional issue was
remanded to the Bankruptcy Court for redetermination in light of
developments in the case law.
On February 27, 1991 the Company filed a petition against the DPW
in the Pennsylvania Board of Claims, seeking damages in excess of
$24 million (the "Board Action"). In July 1992, the Pennsylvania
Board of Claims (the "Claims Board") denied DPW's preliminary
objections to the Company's petition. In August 1992, the DPW
answered the Company's petition and asserted counterclaims to
recover (i) $16 million of payments that the DPW made to HealthPass
healthcare providers purportedly to satisfy Penn Health's
obligations to the providers; (ii) the costs the DPW incurred in
processing and mailing the payments to the healthcare providers;
and (iii) $6 million which the DPW alleges was distributed by Penn
Health to the Company, but should have been retained by Penn Health
to satisfy healthcare providers' claims. In the Company's October
14, 1992 answer to the counterclaim, the Company denied the
allegations set forth in the counterclaim. The Company also
asserted as an affirmative defense that Penn Health's discharge in
bankruptcy under the Reorganization Plan is a complete bar to the
DPW's counterclaim. In the event the DPW is successful in its
counterclaims, all of which arose out of pre-petition activities of
the Company and Penn Health, any recovery would be paid out of the
Reorganization Plan funds and there will be no impact on the
Company's cash resources. The Company believes that it has a
meritorious defense to the counterclaim and will prevail on the
counterclaim.
On October 4, 1993 Penn Health filed a remand motion with the
Bankruptcy Court for a determination that the DPW waived its
sovereign immunity by asserting an offset against Penn Health. DPW
opposed the remand motion and subsequently filed a motion with the
Bankruptcy Court requesting that the Court abstain from
adjudicating the Bankruptcy Action and require that Penn Health's
claims against DPW be adjudicated by the Claims Board in the Board
Action. Pursuant to an order of the Bankruptcy Court entered on
February 24, 1994, Penn Health's remand motion was granted in all
respects and the Dismissal Order was vacated. Under an order
entered by the Bankruptcy Court on January 24, 1994, the Court
abstained on a preliminary basis from adjudicating the Bankruptcy
Action and stayed all proceedings in the action until September 1,
1994 to allow the Claims Board an opportunity to adjudicate the
Board Action. Pursuant to a stipulation between the parties, the
Bankruptcy Court continues to retain jurisdiction over the
Bankruptcy Action in the event the Board Action is not fully tried
or heard by May 30, 1995.
24
In an order dated December 21, 1993 the Claims Board consolidated
the Board Action and two separate actions filed by Penn Health
hospital providers and Penn Health primary care physicians against
DPW to recover payment from DPW for services rendered to HealthPass
members (the "Provider Actions") and set the matter 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 DPW for approximately $23.3 million (the
"Provider Settlement"). Contractual issues pertaining to DPW's
liability to Penn Health, DPW's liability to the primary care
physicians and Penn Health's liability on DPW's counterclaim, were
tried before the Claims Board in a trial which concluded on July
25, 1994 (the "Liability Phase").
In the Liability Phase, DPW contended that Penn Health had
materially breached the contract with DPW and that DPW was entitled
to set-off the amount of the Provider Settlement against the amount
of any judgment rendered in Penn Health's favor. DPW contended it
was entitled to a set-off because DPW was required to make payments
to Penn Health Providers as a result of Penn Health's contractual
breaches, DPW had a nondelegable duty to pay Penn Health Providers,
Penn Health was DPW's agent and remained liable in the event of
Penn Health's nonperformance, and Penn Health Providers are third
party beneficiaries of the Contract with DPW. Following the
submission of post-trial briefs, the Claims Board issued an order
on December 2, 1994 which found that: (i) a contract exists between
Penn Health and DPW; (ii) DPW breached the contract; and (iii) Penn
Health is an independent general contractor and not an agent of
DPW. The trial to determine damages which was originally scheduled
to commence before the Claims Board on December 12, 1994 has been
tentatively scheduled to commence in March, 1995. The parties are
waiting for the Claims Board to confirm the trial dates. The
Company believes that its claims against DPW are meritorious and
that it will prevail in the Board Action.
The Company is currently and has in the past, engaged in settlement
discussions with DPW and representatives of the major Penn Health
Providers; however to date no agreement has been reached. The
pre-petition amounts due to Penn Health Providers will be treated
as unsecured claims under the Reorganization Plan. The Company is
currently holding approximately $250,000 in an escrow account,
which the Company believes will be sufficient to satisfy any
remaining post-petition claims of Penn Health Providers.
c. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
On May 4, 1992, Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") commenced an action in the Supreme Court of the state of
New York, located in New York County. In the complaint, DLJ
asserted claims for breach of contract and unjust enrichment by the
Company arising out of an alleged engagement letter entered into
between DLJ and the Company on or about August 8, 1991. On June
19, 1992, the Company served an answer to DLJ's complaint denying
that any amounts were due to DLJ and filed counterclaims asserting
25
misrepresentation by DLJ and, in the event the Court determined
that there was an enforceable contract between the Company and DLJ,
a separate counterclaim for breach of contract. The Court
dismissed the Company's counterclaims. Following a jury trial, the
court entered a judgment in DLJ's favor, which awarded DLJ damages,
interest and costs of approximately $3.0 million (the "Judgment").
On August 19, 1994 the Company filed an appeal of the Judgment with
the Supreme Court of the State of New York, Appellate Division,
First Department.
The Company has reached a settlement with DLJ which is memorialized
in a settlement agreement dated December 30, 1994 (the "DLJ
Agreement"). Pursuant to the DLJ agreement, the Company has paid
DLJ the approximate sum of $2.1 million in full satisfaction of the
Judgment and has withdrawn its appeal. The Company previously
accrued a liability in the full amount of the Judgment.
Accordingly, the Company will no longer be reporting on this
matter.
d. 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.
26
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, 1994.
27
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related
----------------------------------------------------
Stockholder Matters
-------------------
The Company emerged from Chapter 11 on December 5, 1990. Pursuant
to the Reorganization Plan, its pre-petition creditors were
entitled to receive 98% of the 10 million shares of Common Stock
authorized for distribution under the Reorganization Plan and the
remaining 2% of the Common Stock plus the Warrants were to be
distributed to the equity and interest holders.
(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
------ ------
1993 First Quarter $14.25 $ 7.50
Second Quarter $11.75 $ 8.25
Third Quarter $11.00 $ 7.50
Fourth Quarter $11.88 $ 9.13
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
28
(b) Holders
The number of holders of record of the Company's Common Stock on
December 31, 1994 was 18,773. As of such date, the Company held
786,201 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, 1994, 587,885 were held
for the benefit of creditors of the Company's operating
subsidiaries (Reorganization Plan classes 5A through 5H), 108,854
shares were held for bank group creditors (Reorganization Plan
class 7), and 89,462 shares were held for bondholder creditors
(Reorganization Plan classes 8A through 8D). As of December 31,
1994, 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) 587,885 shares which were held in the claims reserves
as of December 31, 1994 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) 198,316 shares which were held in the claims
reserves as of December 31, 1994 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.
29
Item 6. Selected Financial Data
-----------------------
At And For The Years Ended December 31,
---------------------------------------
(Amounts in thousands except per share and
membership data)
1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------
OPERATING REVENUES...................................... $432,173 $440,186 $414,454 $388,694 $386,897
-------- -------- -------- -------- --------
TOTAL HEALTH CARE EXPENSES.............................. 379,608 394,721 362,627 330,529 328,436
Marketing, general and administrative expenses....... 44,084 40,998 37,930 41,008 48,066
Depreciation and amortization........................ 2,087 4,054 5,238 6,535 7,925
Reorganization expenses (1).......................... 895 3,661 8,142
-------- -------- -------- -------- --------
TOTAL OPERATING EXPENSES................................ 425,779 439,773 406,690 381,733 392,569
-------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS........................... 6,394 413 7,764 6,961 (5,672)
Investment income.................................... 3,319 2,636 3,121 4,039 3,054
Interest expense..................................... (36) (32) (2,773) (9,570) (1,111)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS.................................. 9,677 3,017 8,112 1,430 (3,729)
INCOME TAX BENEFIT...................................... 3,658 2,571 3,058
-------- -------- -------- --------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS................ 13,335 5,588 11,170 1,430 (3,729)
EXTRAORDINARY ITEMS (net of income taxes of $0) (2)..... (14,241) (905) 680,444
-------- -------- -------- -------- --------
NET INCOME (LOSS)....................................... 13,335 5,588 (3,071) 525 676,715
PREFERRED STOCK DIVIDENDS............................... (5,280) (5,400) (4,350)
-------- -------- -------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS...... $ 8,055 $ 188 $ (7,421) $ 525 $676,715
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT
SHARE:
Income (Loss) Before Extraordinary Items.............. $ .73 $ .02 $ .66 $ .14 $ (.37)
Extraordinary Items (2)............................... (1.37) (.09) 67.30
-------- -------- -------- -------- --------
Net Income (Loss)..................................... $ .73 $ .02 $ (.71) $ .05 $ 66.93
======== ======== ======== ======= ========
Weighted average number of
common and common equivalent
shares outstanding................................... 11,064 10,416 10,414 10,253 10,111
BALANCE SHEET DATA:
Total assets......................................... $128,692 $106,807 $ 97,278 $105,922 $114,577
Total indebtedness (3)............................... $ 63,342 $ 54,422 $ 45,217 $102,874 $112,054
Shareholders' equity................................. $ 65,350 $ 52,385 $ 52,061 $ 3,048 $ 2,523
MEMBERSHIP DATA:
Number of members.................................... 292,000 308,000 283,000 277,000 287,000
30
Notes to Selected Financial Data
(1) Expenses were offset by $5,218 of investment income for the year ended December 31, 1990 that
was estimated would not have been earned but for the Chapter 11 reorganization proceedings.
Subsequent to the Effective Date, investment income is no longer offset against reorganization
expenses.
(2) 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. Includes a 1990 gain with respect to the
Independence Health Plan of Southeastern Michigan, Inc. settlement and the discharge of pre-
petition liabilities pursuant to the Reorganization Plan. (See "Item 8. Financial Statements
and Supplementary Data - Note 3 to the Company's Consolidated Financial Statements").
(3) Includes long-term liabilities of $887, $504, $1,015, $63,177 and $63,388 in 1994, 1993, 1992,
1991 and 1990, respectively.
31
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
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. Health care expenses as a percentage of operating
revenues (the "medical loss ratio") decreased to 87.8% for fiscal
year 1994 as compared to 89.7% for 1993.
Marketing, general and administrative 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 (see "Item 3. Legal Proceedings - Donaldson,
Lufkin & Jenrette Securities Corporation").
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.
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 - Accounting for Income
Taxes ("FAS 109"). This standard requires, among other things,
recognition of future tax benefits, measured by enacted tax rates,
attributable to deductible temporary differences between financial
statement and income tax bases of assets and liabilities and to tax
NOLs, to the extent that realization of such benefits is 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
32
be sufficient to utilize a minimum of approximately $25.0 million of
NOLs; accordingly, the Company increased its deferred tax asset by
$4.0 million to $10.0 million in the fourth quarter of 1994. The
Company has remaining unutilized net operating loss carryforwards
("NOLs") of approximately $50 million available for future financial
statement reporting purposes which are subject to annual limitations
under Section 382 of the Internal Revenue Code (see "Item 8.
Financial Statements and Supplementary Data - Note 7 to the
Company's Consolidated Financial Statements").
The year ended December 31, 1993 compared to the year ended December
--------------------------------------------------------------------
31, 1992.
---------
The Company reported net income of $5.6 million for the year ended
December 31, 1993, compared to a net loss of $3.1 million, including
extraordinary charges of $14.2 million, for the same period of 1992.
Net income per common share increased to $.02 for the year ended
December 31, 1993 compared to a net loss per common share of $.71
for the same period in 1992.
For the year ended December 31, 1993, the Company reported operating
revenues of $440.2 million, a 6% increase over the $414.5 million
reported for the year ended December 31, 1992. The increase in
revenues primarily results from an increase in membership and modest
premium rate increases. The increase in year-to-date operating
revenues for 1993 was more than offset by an increase in health care
expenses, contributing to a decrease in income from operations to
$413,000 from $7.8 million for fiscal year 1992. Health care
expenses increased for the year ended December 31, 1993 primarily
because of a $7.0 million one-time charge reported in the third
quarter of 1993 for previously unanticipated actual and projected
health care costs. These costs primarily resulted from changes in
the Indiana marketplace, the restructuring of relationships among
the Company and its health care providers as well as unanticipated
increases in high cost health care procedures. The provider network
restructuring which began in mid 1992 has been substantially
completed as of the first quarter of 1994.
Marketing, general and administrative expenses increased $2.2
million to $41.0 million for the year ended December 31, 1993 as
compared to 1992; however, these expenses have decreased as a
percentage of operating revenues.
The Company's consummation of the sale of $60 million of Series A
preferred stock on March 11, 1992 and the redemption on April 13,
1992 of the entire outstanding principal, plus accrued interest, on
the Senior Notes resulted in the Company reporting a $14.2 million
extraordinary loss in the first quarter of 1992, the payment of $5.4
million in preferred stock dividends in 1993 and a decrease in year-
to-date interest expense of $2.7 million for 1993 (see "Item 8.
Financial Statements and Supplementary Data - Notes 3 and 6 to the
Company's Consolidated Financial Statements").
33
Management estimated, based on the Company's 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 $15 million of NOLs; accordingly,
the Company increased its deferred tax asset by $2.8 million to $6.0
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,
reserve 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, 1994, 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". Total Restricted Net Assets of these operating
subsidiaries were $19.7 million at December 31, 1994, with deposit
and reserve requirements representing $11.0 million of the
Restricted Net Assets and net worth requirements, in excess of
deposit and reserve requirements, representing the remaining $8.7
million. The Company's total Restricted Net Assets at December 31,
1994 were $20.0 million. In addition to the $15.3 million in cash,
cash equivalents and marketable securities held by MHP,
approximately $17.6 million could be considered available to
transfer to MHP from operating subsidiaries.
All of MHP's operating 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 by pertinent state authorities. 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 can not predict at this time the required capital infusion,
if any, which may result from the separate licensing of the South
Carolina HMO in the state of South Carolina or operating it as a
division of one of the Company's operating HMOs. If infusion of
additional cash resources is required to ensure compliance with
statutory deposit and net worth requirements, the Company does not
believe such an infusion 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
34
sufficient resources to fund ongoing operations and remain in
compliance with statutory financial requirements.
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
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. 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 are entitled to receive only the Redemption Price
without additional interest thereon when they surrender the Series A
Stock Share certificates properly endorsed to the Redemption Agent.
Pursuant to the Company's plan of reorganization (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"). Such distributions were allocated sixty percent
(60%) to redeem outstanding Senior Notes and forty percent (40%) to
the Distribution Trust for the benefit of certain classes of
creditors. As a result of the foregoing, the Company made a
Consolidated Net Worth Distribution of $2.0 million in 1992 based on
the Company's net worth at December 31, 1991. In March 1992, the
Company consummated the sale of $60 million of Series A Stock. The
proceeds from this sale, plus internally generated cash, were
utilized to redeem in April 1992 the entire outstanding principal
amount and accrued interest on the Senior Notes. The sale of the
Series A Stock had the effect of significantly increasing the net
worth of the Company. The Company does not believe the
Reorganization Plan contemplated either the issuance of the Series A
Stock or the redemption of the Senior Notes, and accordingly, the
Company believes the Consolidated Net Worth Distribution required by
the Reorganization Plan should be calculated on a basis as if the
sale of the Series A Stock had not been consummated and the Senior
Notes had not been redeemed. As a result of the foregoing, the
Company calculated the December 31, 1992 Consolidated Net Worth
Distribution amount to be approximately $971,000, which was
deposited for distribution to certain creditors under the
Reorganization Plan in March 1993. 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 not required since the Senior Notes were fully redeemed.
The committee representing the creditors (the "New Committee") has
stated it does not agree with the Company's interpretation of the
35
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. The
amount that may be ultimately payable pursuant to this
Reorganization Plan provision, if any, could be less than the amount
accrued.
With a current ratio (i.e. current assets divided by current
liabilities) of 1.8 and less than $1.0 million in long-term
liabilities at December 31, 1994, the Company does not believe that
it needs additional working capital at this time. Although the
Company believes it would be able to raise additional working
capital through either an equity infusion or borrowings, if it so
desired, the Company can not state with any degree of certainty at
this time whether additional equity capital or working capital would
be available to the Company, and if available, would be at terms and
conditions acceptable to the Company.
36
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
37
REPORT OF INDEPENDENT AUDITORS
------------------------------
The Board of Directors and Shareholders
Maxicare Health Plans, Inc.
We have audited the accompanying consolidated balance sheet of
Maxicare Health Plans, Inc. as of December 31, 1994, and the related
consolidated statements of operations, shareholders' equity, and
cash flows for the year then ended. Our audit also included the
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 audit. The financial
statements and schedules of Maxicare Health Plans, Inc. for the
years ended December 31, 1993 and 1992 were audited by other
auditors whose report dated March 4, 1994, expressed an unqualified
opinion on those statements and schedules.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the 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,
1994, and the consolidated results of its operations and its cash
flows for the year 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 1994 information set forth therein.
ERNST & YOUNG LLP
February 8, 1995
except for Note 9 for which
the date is March 14, 1995
Los Angeles, California
38
MAXICARE HEALTH PLANS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value)
December 31,
1994 1993
CURRENT ASSETS --------- ---------
Cash and cash equivalents - Note 2........................ $ 37,858 $ 38,672
Marketable securities - Note 2............................ 43,558 19,448
Accounts receivable, net - Note 2......................... 18,314 19,174
Deferred tax asset - Note 7............................... 10,000 6,000
Prepaid expenses.......................................... 2,741 3,717
Other current assets...................................... 299 406
--------- ---------
TOTAL CURRENT ASSETS.................................... 112,770 87,417
--------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,461 5,466
Furniture and equipment................................... 26,137 36,878
--------- ---------
31,598 42,344
Less accumulated depreciation and amortization.......... 29,077 38,715
--------- ---------
NET PROPERTY AND EQUIPMENT.............................. 2,521 3,629
--------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 2,285 2,004
Statutory deposits........................................ 10,953 13,610
Intangible assets, net - Note 2........................... 163 147
--------- ---------
TOTAL LONG-TERM ASSETS.................................. 13,401 15,761
--------- ---------
TOTAL ASSETS............................................ $ 128,692 $ 106,807
========= =========
CURRENT LIABILITIES
Estimated claims and incentives payable................... $ 47,095 $ 38,895
Accounts payable.......................................... 285 401
Deferred income........................................... 2,338 2,682
Accrued salary expense.................................... 2,709 2,732
Payable to disbursing agent............................... 6,248 6,248
Other current liabilities................................. 3,780 2,960
--------- ---------
TOTAL CURRENT LIABILITIES............................... 62,455 53,918
LONG-TERM LIABILITIES....................................... 887 504
--------- ---------
TOTAL LIABILITIES....................................... 63,342 54,422
--------- ---------
COMMITMENTS AND CONTINGENCIES - Note 5
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value - 5,000 shares
authorized, 1994 - 2,290 shares and 1993 - 2,400 shares
issued and outstanding - Note 6......................... 23 24
Common stock, $.01 par value - 40,000 shares authorized,
1994 - 10,850 shares and 1993 - 10,033 shares issued and
outstanding - Note 6.................................... 108 100
Additional paid-in capital................................ 246,054 241,151
Accumulated deficit....................................... (180,835) (188,890)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 65,350 52,385
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 128,692 $ 106,807
========= =========
See notes to consolidated financial statements.
39
MAXICARE HEALTH PLANS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
Years ended December 31,
1994 1993 1992
-------- ------- --------
OPERATING REVENUES.................................... $432,173 $440,186 $414,454
-------- ------- --------
OPERATING EXPENSES
Physician services................................. 170,382 170,377 159,081
Hospital services.................................. 128,790 146,998 139,568
Outpatient services................................ 64,145 62,565 52,541
Other health care expense.......................... 16,291 14,781 11,437
-------- ------- --------
TOTAL HEALTH CARE EXPENSES....................... 379,608 394,721 362,627
Marketing, general and administrative expenses..... 44,084 40,998 38,825
Depreciation and amortization...................... 2,087 4,054 5,238
-------- ------- --------
TOTAL OPERATING EXPENSES......................... 425,779 439,773 406,690
-------- ------- --------
INCOME FROM OPERATIONS................................ 6,394 413 7,764
Investment income.................................. 3,319 2,636 3,121
Interest expense................................... (36) (32) (2,773)
-------- ------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.... 9,677 3,017 8,112
INCOME TAX BENEFIT.................................... 3,658 2,571 3,058
-------- ------- --------
INCOME BEFORE EXTRAORDINARY ITEMS..................... 13,335 5,588 11,170
EXTRAORDINARY ITEMS (net of income taxes of $0) -
Note 3............................................. (14,241)
-------- ------- --------
NET INCOME (LOSS)..................................... 13,335 5,588 (3,071)
PREFERRED STOCK DIVIDENDS............................. (5,280) (5,400) (4,350)
-------- ------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS.... $ 8,055 $ 188 $ (7,421)
======== ======= ========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT
SHARE - Note 2:
Income Before Extraordinary Items................... $ .73 $ .02 $ .66
Extraordinary Items................................. (1.37)
-------- ------- --------
Net Income (Loss)................................... $ .73 $ .02 $ (.71)
======== ======= ========
Weighted average number of common and common equivalent
shares outstanding................................. 11,064 10,416 10,414
======== ======= ========
See notes to consolidated financial statements.
40
MAXICARE HEALTH PLANS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years ended December 31,
1994 1993 1992
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $ 13,335 $ 5,588 $ (3,071)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.................................. 2,087 4,054 5,238
Amortization of Senior Notes discount.......................... 139
Extraordinary items............................................ 14,241
Loss on dispositions of property and equipment................. 19 298
Changes in assets and liabilities:
Decrease (increase) in accounts receivable................... 860 1,613 (3,083)
Increase in deferred tax asset............................... (4,000) (2,800) (3,200)
Increase in estimated claims and incentives payable.......... 8,200 9,909 1,871
Changes in other miscellaneous assets and
liabilities................................................ 1,238 (1,266) (2,450)
--------- -------- --------
Net cash provided by operating activities........................ 21,720 17,117 9,983
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment......................... 15 7 33
Purchases of property and equipment............................ (313) (457) (88)
Decrease (increase) in statutory deposits...................... 2,657 (808) (928)
(Increase) decrease in long-term receivables................... (281) 32 373
Proceeds from sales and maturities of marketable securities.... 78,047 26,245 55,048
Purchases of marketable securities............................. (102,157) (18,375) (67,268)
--------- -------- --------
Net cash (used for) provided by investing activities............. (22,032) 6,644 (12,830)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Notes redemption........................................ (67,000)
Issuance of preferred stock.................................... 60,000
Issuance costs paid on preferred stock......................... (3,700)
Payment of preferred stock dividends........................... (5,280) (5,400) (4,350)
Cash transferred to disbursing agent........................... (971) (4,281)
Payments on capital lease obligations.......................... (132) (381) (477)
Stock options exercised........................................ 717 136 134
Warrants exercised............................................. 4,193
--------- -------- --------
Net cash used for financing activities........................... (502) (6,616) (19,674)
--------- -------- --------
Net (decrease) increase in cash and cash equivalents............. (814) 17,145 (22,521)
Cash and cash equivalents at beginning of period................. 38,672 21,527 44,048
--------- -------- --------
Cash and cash equivalents at end of period....................... $ 37,858 $ 38,672 $ 21,527
========= ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for -
Interest................................................... $ 32 $ 31 $ 2,594
Income taxes............................................... $ 163 $ 284 $ 43
Supplemental schedule of non-cash investing activities:
Book value of assets exchanged for assets.................... $ 40
Fair value of assets exchanged............................... (25)
--------
Loss on assets exchanged..................................... $ 15
========
Capital lease obligations incurred for purchase of
property and equipment and intangible assets............... $ 659 $ 24
See notes to consolidated financial statements.
41
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, 1991.... 10,000 $100 $184,605 $(181,657) $ 3,048
Issuance of preferred stock
(net of issuance costs)...... 2,400 $24 56,276 56,300
Stock options exercised...... 17 134 134
Preferred stock dividends.... (4,350) (4,350)
Net loss..................... (3,071) (3,071)
----- --- ------ ---- -------- --------- -------
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
===== === ====== ==== ======== ========= =======
See notes to consolidated financial statements.
42
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 and California and represents less than one percent (1%)
of the consolidated enrollment of MHP and subsidiaries (the
"Company") at December 31, 1994. 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,
1994.
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.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, 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.
Cash and cash equivalents consist of the following at December 31:
1994 1993
(Amounts in thousands) ------- -------
Cash.............................. $ 5,969 $ 8,398
Certificates of deposit........... 6,531 3,463
Commercial paper.................. 5,983 6,091
Money market funds................ 2,259 7,531
Repurchase agreements............. 13,718 8,194
U.S. Treasury obligations......... 3,398 4,995
------- -------
$37,858 $38,672
======= =======
43
Marketable Securities
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 - Accounting for Certain
Investments in Debt and Equity Securities ("FAS 115"). 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 since the unrealized loss in such
securities at year end is immaterial.
Prior to the adoption of FAS 115, the Company carried marketable
securities at amortized cost or at the lower of amortized cost or
fair value. The adoption of FAS 115 had no material effect on the
carrying value of marketable securities as of January 1, 1994.
The following is a summary of marketable securities at December 31
(gross unrealized gains and losses are immaterial):
1994 1993
Estimated Estimated
Amortized Fair Amortized Fair
(Amounts in thousands) Cost Value Cost Value
U.S. Government obligations.... $ 24,884 $24,753 $ 8,992 $ 9,018
Municipal obligations.......... 825 824
Bonds.......................... 13,717 13,617
Commercial paper............... 4,902 4,886
Auction rate preferred stocks.. 9,526 9,526
Certificates of deposit........ 20 20 70 70
Other.......................... 35 27 35 35
-------- ------- ------- -------
$ 43,558 $43,303 $19,448 $19,473
======== ======= ======= =======
44
The contractual maturities of marketable securities at December
31, 1994 were as follows:
Estimated
Amortized Fair
(Amounts in thousands) Cost Value
Due in one year or less.................. $26,377 $26,316
Due after one year through five years.... 17,181 16,987
------- -------
$43,558 $43,303
======= =======
Accounts Receivable
Accounts receivable consist of the following at December 31:
1994 1993
(Amounts in thousands) ------- -------
Premiums.......................... $14,251 $13,217
Notes............................. 72 1,432
Other............................. 7,362 7,231
------- -------
21,685 21,880
Allowance for retroactive
billing adjustments......... (3,371) (2,706)
------- -------
Accounts receivable, net...... $18,314 $19,174
======= =======
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.
Statutory Deposits
Statutory deposits include cash investments that are limited to
specific purposes as required by federal regulations, regulations
of those states in which the Company operates or employer groups
with which the Company contracts. The Company had $10.7 million and
$12.6 million in such investments limited by federal or state
regulations at December 31, 1994 and 1993, respectively, and
$250,000 and $850,000 in such investments limited by employer groups
at December 31, 1994 and 1993, respectively. As stated under
Marketable Securities above, effective January 1, 1994, the Company
adopted FAS 115. The Company has designated its statutory deposits
as held-to-maturity as it is the Company's intent, and the Company
45
has the ability to hold these securities to maturity. Such deposits
have been recorded at amortized cost.
Prior to the adoption of FAS 115, the Company carried statutory
deposits at amortized cost or at the lower of amortized cost or fair
value. The adoption of FAS 115 had no material effect on the
carrying value of statutory deposits as of January 1, 1994.
Intangible Assets
Intangible assets are amortized using the straight-line method over
five years. Accumulated amortization of intangible assets at
December 31, 1994 and 1993 is $1.7 million.
Revenue Recognition
Premiums are recorded as revenue in the month for which the
enrollees are entitled to health care service. 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.
Cost Recognition
The cost of health care services is expensed in the period the
Company is obligated to provide such services. Estimated claims
payable includes 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. Reserves are continually monitored and reviewed and
as settlements are made or reserves adjusted, differences are
reflected in current operations.
Insurance
Due to the high costs of insurance coverages, the Company's
operating entities, except in South Carolina, are self-insured for
risks on certain medical and hospital claims incurred by their
members. The North Carolina HMO maintained reinsurance coverage
with a third party insurance carrier through December 31, 1992 but
subsequently has been reinsured through MLH. The South Carolina HMO
continues to maintain reinsurance coverage with a third party
insurance carrier.
In addition, the Company's operating entities are self-insured for
medical malpractice claims with the exception of the California
operations, which has maintained malpractice coverage through Health
Care Assurance Company Limited, a wholly-owned subsidiary of MHP,
since January 1, 1993.
46
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.
Net Income (Loss) Per Common and Common Equivalent Share
Primary earnings per share is computed by adjusting the net income
(loss) for the preferred stock dividends in order to determine net
income (loss) available to common shareholders. This amount is then
divided by the weighted average number of common shares and common
equivalent shares for stock options and warrants (when dilutive)
outstanding during the period. Earnings per share assuming full
dilution is reported when the assumption that the preferred stock is
converted to Common Stock is dilutive. Earnings per share assuming
full dilution is determined by dividing net income (loss) by the
weighted average number of common shares and common stock
equivalents for stock options and warrants and for preferred stock
assumed converted to Common Stock (when dilutive). The preferred
stock was anti-dilutive for the years ended December 31, 1994, 1993
and 1992.
Stock Options
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.
Restriction on Fund Transfers
Certain of the Company's operating subsidiaries are subject to state
regulations which require compliance with certain deposit, reserve
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, 1994, 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". Total Restricted Net Assets of these operating
subsidiaries is $19.7 million at December 31, 1994, with deposit and
reserve requirements representing $11.0 million of the Restricted
Net Assets and net worth requirements, in excess of deposit and
reserve requirements, representing the remaining $8.7 million. The
Company's total Restricted Net Assets at December 31, 1994 were
$20.0 million.
47
NOTE 3 - EXTRAORDINARY ITEMS
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") which
provides 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, the Consolidated Net Worth Distribution is
distributed and applied in the following manner: 40% of the
Consolidated Net Worth Distribution is distributed ratably to the
holders of certain allowed claims in accordance with the terms of
the Reorganization Plan and the remaining 60% will be applied
ratably against mandatory redemptions of the 13.5% Senior Notes due
December 5, 2000 (the "Senior Notes") as set forth in the indenture
governing the Senior Notes (the "Indenture").
On March 12, 1992, MHP noticed the redemption of the Senior Notes
for April 13, 1992. In anticipation of this redemption, a $7.0
million extraordinary loss was recorded in the first quarter of 1992
for the write-off of unamortized original issue discount and
unamortized issuance costs on the Senior Notes and an accrual for
Senior Notes redemption costs. Also, a $7.2 million extraordinary
loss (40% of $20 million less $781,000 previously recorded in 1991)
was reported in the first quarter of 1992 to accrue payments which
may be made pursuant to the Reorganization Plan, based on the
Company's consolidated net worth at December 31, 1992, to certain
holders of allowed claims. The Company does not believe the
Reorganization Plan contemplated either the issuance of convertible
preferred stock (see Note 6) or the redemption of the Senior Notes,
and accordingly, the Company believes the Consolidated Net Worth
Distribution required by the Reorganization Plan should be
calculated on a basis as if the sale of convertible preferred stock
had not been consummated and the Senior Notes had not been redeemed.
The Company has thus determined the December 31, 1992 Consolidated
Net Worth Distribution amount to be approximately $971,000, which
was tendered to the distribution trust 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 is 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 has 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. The
Consolidated Net Worth Distribution will be made from the Company's
available cash.
48
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 affect 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 $2.8 million reported for
the years ended December 31, 1994, 1993 and 1992, respectively.
Sublease rental revenue of $251,000, $209,000 and $198,000 is
reported for the years ended December 31, 1994, 1993 and 1992,
respectively.
Assets held under capital leases at December 31, 1994 and 1993 of
$533,000 and $153,000, respectively, (net of $150,000 and $1.6
million, 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, 1994 were as follows:
Operating Capitalized
Leases Leases
(Amounts in thousands) --------- -----------
1995.......................... $2,395 $223
1996.......................... 1,923 223
1997.......................... 1,700 106
1998.......................... 1,730 48
1999.......................... 1,318 18
Thereafter.................... 462
------ ----
Total minimum
obligations................. $9,528 618
======
Less current
portion..................... 223
Long-term ----
obligations................. $395
====
49
Total future minimum rentals to be received under noncancelable
operating subleases at December 31, 1994 were as follows:
(Amounts in thousands)
1995.......................... $119
====
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 will be designated
Series A Cumulative Convertible Preferred Stock, par value $.01,
("Series A Stock").
Preferred Stock
MHP entered into Stock Purchase Agreements dated December 17, 1991
and January 31, 1992 (the "Purchase Agreements"), pursuant to
which, MHP issued an aggregate of 2,400,000 shares of Series A
Stock to certain institutional investors in a private placement at
a purchase price of $25.00 per share. Each share of Series A Stock
accrues quarterly cash dividends at an annual rate of $2.25 per
share and is currently convertible into approximately 2.7548 shares
of Common Stock. The stock conversion ratio is subject to
adjustment upon the occurrence of certain events. The transactions
contemplated by the Purchase Agreements were consummated on March
11, 1992.
Upon any liquidation, dissolution or winding up of the Company,
holders of the Series A Stock are entitled to receive a
preferential payment equal to $25.00 per share, plus all accrued
and unpaid dividends. In the event of a sale of all or
substantially all of the Company's stock or assets, or under
certain circumstances, if the Company merges or combines with
another entity, holders of the Series A Stock, at the election of
holders of at least 75% of the Series A Stock then outstanding, may
request to have their Series A Stock redeemed in which case they
will receive a redemption price equal to the liquidation preference
amount described above. In certain circumstances, the Company will
have the right to redeem the Series A Stock at a redemption price
of $25.00 per share, plus all accrued and unpaid dividends.
Additionally, the Company may not create, issue, or increase the
authorized number of shares of any class or series of stock which
will rank senior to the Series A Stock as to liquidation rights
without the affirmative vote or consent of holders of at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding
shares of Series A Stock.
50
On February 13, 1995 the Company announced it would redeem all of
the outstanding Series A Stock on March 14, 1995. (see Note 9).
Common Stock
On the Effective Date, the Company issued 10.0 million shares of
Common Stock to itself, as disbursing agent for the benefit of
holders of allowed claims, interest and equity claims under the
Reorganization Plan. The shares of Common Stock will be validly
issued, fully paid and nonassessable upon issuance pursuant to the
Reorganization Plan in accordance with the terms thereof. 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 "Stock Option Plan"). Under the terms of the Stock
Option Plan, as amended, the Company may issue up to an aggregate
of 1,000,000 stock options to directors, officers and other
employees.
December 31, December 31,
1994 1993
(Amounts in thousands, except ------------ ------------
price range)
Outstanding, beginning of year.... 743 593
Granted........................... 215 218
Exercised......................... 88 16
Forfeited......................... 10 52
End of year
Outstanding..................... 860 743
Exercisable..................... 528 385
Price Range..................... $8.00 - $13.25 $8.00-$12.75
Available....................... 19 224
Warrants
In accordance with the Reorganization Plan, the Company issued
warrants to itself, as disbursing agent for the allowed interests
and equity holder claims. Upon issuance of the warrants (the
"Warrants"), to these holders pursuant to the terms of the
Reorganization Plan, the registered holders thereof were entitled to
51
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 their 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.
NOTE 7 - INCOME TAXES
The benefit for income taxes at December 31 consisted of the
following:
1994 1993 1992
(Amounts in thousands) ------- ------- -------
Current:
Federal...................... $ 219 $ 120 $ 75
State........................ 123 109 67
------- ------- -------
342 229 142
------- ------- -------
Deferred:
Federal...................... (3,400) (2,380) (2,720)
State........................ (600) (420) (480)
------- ------- -------
(4,000) (2,800) (3,200)
------- ------- -------
Benefit for income taxes....... $(3,658) $(2,571) $(3,058)
======= ======= =======
The federal and state deferred tax liabilities (assets) are comprised
of the following at December 31:
1994 1993 1992
(Amounts in thousands) -------- -------- --------
Loss carryforwards................ $(22,557) $(30,202) $(35,616)
Depreciation...................... (1,133) (602) 1,193
Other............................. (2,465) (2,137) (1,851)
-------- -------- --------
Gross deferred tax assets......... (26,155) (32,941) (36,274)
-------- -------- --------
Deferred tax assets valuation
allowance....................... 16,155 26,941 33,074
-------- -------- --------
Deferred tax asset................ $(10,000) $ (6,000) $ (3,200)
======== ======== ========
52
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:
1994 1993 1992
(Amounts in thousands) ------- ------- -------
Tax provision at statutory rate..... $ 3,290 $ 1,026 $ 2,758
State income taxes.................. 123 109 67
Benefit of NOL carryforwards........ (3,071) (906) (2,683)
Anticipation of future benefit of
NOLs.............................. (4,000) (2,800) (3,200)
------- ------- -------
Benefit for income taxes............ $(3,658) $(2,571) $(3,058)
======= ======= =======
Upon the Effective Date of the Reorganization Plan, the Company
experienced a "change of ownership" pursuant to applicable provisions
of the Internal Revenue Code. As a result of the ownership change,
the Company's utilization of pre-change net operating loss
carryforwards ("NOLs") is limited to $6.3 million per year. In the
event the annual 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 annual limitations on NOLs would be recalculated.
Statement of Financial Accounting Standards 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 $25 million of NOLs. Accordingly, the Company
recorded an increase of $4.0 million in 1994 to its deferred tax
asset, from $6.0 million recorded as of December 31, 1993, resulting
in an aggregate deferred tax asset of $10.0 million recorded as of
December 31, 1994 for the recognition of anticipated future
utilization of NOLs. The maximum amount of remaining NOLs that may be
utilized in future years before expiring in the years 2002 to 2006 is
limited to approximately $75 million.
The Company's income before income taxes for financial statement
purposes for the period of 1992 to 1994 was impacted by the
incurrence of reorganization expenses and interest expense on the
Senior Notes. The Company incurred reorganization expenses of
$895,000 in 1992. The Company incurred interest expense related to
the Senior Notes, which were issued in December of 1990 and redeemed
in March of 1992, in the amount of $2.7 million in 1992. Excluding
reorganization expenses and interest expense on the Senior Notes, the
Company's cumulative pre-tax income for the period of 1992 to 1994
would have been approximately $24.4 million on a pro forma basis
after reflecting these adjustments.
53
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 $289,000, $304,000
and $321,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
NOTE 9 - SUBSEQUENT EVENTS
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
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. 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 are entitled to receive only the Redemption Price
without additional interest thereon when they surrender the Series A
Stock Share certificates properly endorsed to the Redemption Agent.
54
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
--------- --------- --------- ---------
1994
----
Operating revenues $106,925 $106,996 $108,301 $109,951
Income (loss) from operations (1) $ 1,802 $ (700) $ 2,296 $ 2,996
Net income (loss) (2) $ 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) $ .09 $ (.14) $ .16 $ .45
1993
----
Operating revenues $109,175 $109,897 $108,986 $112,128
Income (loss) from operations $ 2,321 $ 2,012 $ (5,335) $ 1,415
Net income (loss) (2) $ 3,036 $ 2,565 $ (4,689) $ 4,676
Net income (loss) available to common
shareholders $ 1,686 $ 1,215 $ (6,039) $ 3,326
Net income (loss) per common share (3) $ .16 $ .12 $ (.60) $ .27
(1) 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.
(2) Includes a $4.0 million and a $2.8 million income tax benefit from the recording of a
deferred tax asset in the fourth quarters of 1994 and 1993, respectively (see "Item 8.
Financial Statements and Supplementary Data - Note 7 to the Company's Consolidated
Financial Statements").
(3) Net income (loss) per common share is computed on a primary basis for the three months
ended March 31, June 30 and September 30, 1994 and 1993 due to the anti-dilutive effect of
the assumed conversion of the Company's Preferred Stock to Common Stock. Net income (loss)
per common share assuming full dilution is reported for the three months ended December 31,
1994 and 1993 due to the dilutive effect of assuming conversion of the Company's Preferred
Stock to Common Stock for that period.
55
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosures
------------------------------------
Item 4. Changes in Registrant's Certifying Accountants.
(a) Previous independent accountants
On August 1, 1994 Maxicare Health Plans, Inc. ("Maxicare")
dismissed Price Waterhouse LLP as its independent
accountants.
The reports of Price Waterhouse LLP on the consolidated
financial statements for the past two years contained no
adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principles.
Maxicare's Audit Committee participated in and approved
the decision to change independent accountants.
In connection with its audits for the two most recent
years and through August 1, 1994, there have been no
disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of
Price Waterhouse LLP, would have caused them to make
reference to the subject matter of the disagreements(s) in
connection with their reports.
Price Waterhouse LLP furnished the Securities and Exchange
Commission with a letter stating they agree with the above
statements.
(b) New independent accountants
Maxicare engaged Ernst & Young LLP as its new independent
accountants as of August 5, 1994. During the two most
recent fiscal years and through August 1, 1994 Maxicare
has not consulted with Ernst & Young LLP regarding the
application of accounting principles to a specified
transaction, either completed or proposed; or the type of
audit opinion that might be rendered on Maxicare's
financial statements, and neither a written report was
provided to Maxicare nor oral advice provided that Ernst &
Young LLP concluded was an important factor considered by
Maxicare in reaching a decision as to the accounting,
auditing or financial reporting issue; or any matter that
was either the subject of a disagreement (as defined in
Regulation S-K Item 304(a)(1)(iv) and the related
instructions to this item) or a reportable event (as
described in Regulation S-K Item 304(a)(1)(v)).
56
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.
During 1994, a report required by Section 16(a) of the Securities
Exchange Act of 1934 covering one transaction in the Company's
common stock by Charles E. Lewis, M.D. was not filed on a timely
basis; however, such report was subsequently filed. In making this
statement, the Company has relied on the written representations of
its incumbent directors and officers and copies of the reports that
they have filed with the Securities and Exchange Commission.
57
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, 1994, 1993 and 1992, of those persons who
were, at December 31, 1994 (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
Options
Awards All Other
Name and Principal Position Year Salary(1) Bonus(2) (#) Compensation(3)
--------------------------- ---- --------- -------- -------- ---------------
Peter J. Ratican 1994 $425,000 $5,539
Chairman of the Board 1993 $425,000 $ 18,513 $7,075
of Directors, Chief 1992 $423,653 $148,122 150,000 $6,866
Executive Officer and
President
Eugene L. Froelich 1994 $325,000 $5,539
Executive Vice President - 1993 $325,000 $ 18,513 $7,075
Finance and Administration, 1992 $323,654 $148,122 150,000 $6,866
Chief Financial Officer
and Director
Alan D. Bloom 1994 $203,000 7,500 $4,697
Senior Vice President, 1993 $200,000 7,500 $6,000
Secretary and General 1992 $195,000 $5,850
Counsel
Richard A. Link 1994 $197,500 5,000 $4,580
Chief Accounting Officer 1993 $195,000 5,000 $5,850
and Senior Vice President 1992 $190,008 $5,700
-Accounting
William B. Caswell 1994 $195,000 $4,200
Vice President, General 1993 $182,000 10,000 $4,200
Manager - Maxicare 1992 $154,818 25,000
California (4)
(1) Excludes distributions received during the year ended December 31, 1994 and 1992 paid with
respect to claims for pre-petition compensation paid pursuant to the Reorganization Plan.
(2) These amounts are bonuses payable pursuant to the Reorganization Plan and were paid from funds
held by the Disbursing Agent in a segregated account and were not paid out of the Company's
available cash.
(3) These amounts include contributions made by the Company on behalf of the Named Officer under
the Company's 401(k) Savings Incentive Plan.
(4) William B. Caswell's employment at the Company began in February 1992.
58
Option Grants
-------------
Shown below is further information on grants of stock options
pursuant to the 1990 Incentive Stock Option Plan during the year
ended December 31, 1994, to the Named Officers which are reflected
in the Summary Compensation Table.
Number of
Securities Percentage of Potential Realizable
Underlying Total Options Value at Assumed
Options Granted to Exercise or Annual Rates of Stock
Granted (1) Employees in Base Price Expiration Price Appreciation for
Name (#) Fiscal 1994 ($/share)(2) Date Option Term (3)
------------------ ----------- ------------- ------------ ---------- ----------------------
5% 10%
-------- --------
Alan D. Bloom 7,500 3.5% $13.25 December 8, 1999 $27,455 $60,669
Richard A. Link 5,000 2.3% $13.25 December 8, 1999 $18,304 $40,446
(1) The options were granted as of December 8, 1994 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.
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 1994 and
prior years under employment agreements and the 1990 Incentive Stock
Option Plan to the Named Officers and held by them at December 31,
1994. None of the Named Officers exercised any stock options during
1994.
Number of Unexercised Value of Unexercised
Options Held At In-the-Money Options At
December 31, 1994 (#) December 31, 1994 (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------- ----------- ------------- ----------- -------------
Peter J. Ratican 427,778 $3,453,474
Eugene L. Froelich 427,778 $3,453,474
Alan D. Bloom 12,500 12,500 $ 84,988 $41,538
Richard A. Link 71,667 8,333 $ 502,910 $27,690
William B. Caswell 20,000 15,000 $ 116,233 $85,592
(1) Based on the closing price on the NASDAQ-NMS on that date ($15.13), net of the option exercise price.
59
Employment Agreements
---------------------
As of January 1, 1992, the Company has entered into five-year
employment agreements with Peter J. Ratican and Eugene L. Froelich
("Senior Management"). 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 their
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 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 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 in Control of the Company, either member may elect to
terminate the employment contract 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 the Company over a
certain period. 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 agreement; (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 its 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 agreements, each member of
Senior Management will be entitled to receive an annual performance
60
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.
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 an employment
agreement, effective through December 31, 1998, with Alan D. Bloom
and Richard A. Link. As of January 1, 1994, the Company entered
into an employment agreement, effective through December 31, 1995,
with William B. Caswell. The contracts provide a minimum base
salary of $208,000, $205,000 and $195,000 for Messrs. Bloom, Link
and Caswell, respectively, subject to increases and bonuses, as may
be determined from time to time by the Chief Executive Officer of
the Company. The contract with Mr. Caswell also provides that: (i)
should he die, his estate shall receive the equivalent of thirty
(30) days base salary; (ii) should the Company terminate his
employment prior to the first anniversary of the contract for any
reason other than death, incapacity, or Cause, he shall receive the
equivalent of his annual base salary; (iii) should the Company
terminate his employment on or after the first anniversary of the
contract for any reason other than death, incapacity, or Cause, he
shall receive the amount of the remainder of his annual base salary
as would have been paid had the contract not been terminated which
amount shall in no event be less than the equivalent of six (6)
months base salary; and (iv) should his employment be terminated for
any reason other than death, voluntary resignation, incapacity or
Cause within six (6) months of a Change of Control, he shall receive
the equivalent of his annual base salary. Cause is defined as (i)
the willful and continued failure to perform duties pursuant to the
employment agreement without good cause; (ii) the willful engaging
in misconduct or inaction materially injurious to the Company; or
(iii) the conviction of a felony or of a crime involving moral
turpitude. Change of Control is defined as (i) 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 fifty percent (50%) of the
equity; or (ii) the sale or transfer of all or substantially all of
its assets. The contracts with Messrs. Link and Bloom provide that
should their employment be terminated under certain circumstances,
they would receive up to the equivalent of four (4) months base
salary.
61
Compensation of Directors
-------------------------
During 1994, certain members of the Board received compensation for
their services as directors. These members included Claude S.
Brinegar, Leon M. Clements, Florence F. Courtright, Thomas W. Field,
Jr., Charles E. Lewis and Alan S. Manne and they received cash
payments of $30,750, $6,000, $27,000, $30,750, $31,500 and $29,250,
respectively. During 1995, current directors, excluding directors
who are also officers of the Company, will receive compensation for
their services in the amount of $24,000 per year, plus $750 per
meeting. In addition, these directors are entitled to be reimbursed
for all of their reasonable out-of-pocket expenses incurred in
connection with their services 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, 1994 held by each of the current and former directors, the date
of grant and the exercise price of such options:
Exercise Price
Director # of 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
Charles E. Lewis 10,000 May 20, 1991 $ 8.00
10,000 December 20, 1993 $ 9.63
Alan S. Manne 10,000 January 28, 1994 $12.63
Provided these directors continue to serve as directors of the
Company, the exercise term of these options is five years. If the
directorship is terminated, the options expire thirty (30) days from
the date of such termination. In October 1994, Dr. Lewis exercised
the 10,000 options granted to him on May 20, 1991.
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, 1994.
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.
62
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 and Series A Stock owned
beneficially as of December 31, 1994 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 Percentage Percentage
of of of Total
Name and Address of Common Series A Common Series A Voting
Person or Group Stock(2) Stock(2)(3) Stock Stock Power(4)
------------------- --------- ----------- ---------- ---------- ----------
Maxicare Health Plans, Inc., 786,201 7.3% 4.6%
as disbursing agent (5)
1149 South Broadway Street
Los Angeles, California 90015
Cede & Co. (6) 7,825,417 72.1% 45.6%
P.O. Box 20
Bowling Green Station
New York, New York 10274
FMR Corp (7)(8) 1,409,673 473,600 11.6% 20.7% 8.2%
82 Devonshire Street
Boston, Massachusetts 02109
Edward C. Johnson, III (7)(8) 1,409,673 473,600 11.6% 20.7% 8.2%
82 Devonshire Street
Boston, Massachusetts 02109
Ryback Management Corporation (9)(10) 1,334,976 484,600 11.0% 21.2% 7.8%
7711 Carondelet Avenue
St. Louis, Missouri 63105
Brown, Brothers, Harriman & Co. (9) 950,406 345,000 8.1% 15.1% 5.5%
40 Water Street
Boston, Massachusetts 02109
Morgan Stanley Group Inc. (11) 908,711 8.4% 5.3%
1251 Avenue of the Americas
New York, New York 10020
Morgan Stanley & Co. Incorporated (11) 908,700 8.4% 5.3%
1221 Avenue of the Americas
New York, New York 10020
Husic Capital Management (12) 787,100 7.3% 4.6%
555 California Street
San Francisco, California 94104
Frank J. Husic (12) 787,100 7.3% 4.6%
555 California Street
San Francisco, California 94104
-------------------------
* - Less than one percent
63
Amount and Nature of
Beneficial Ownership(1)
------------------------
Percentage Percentage Percentage
of of of Total
Name and Address of Common Series A Common Series A Voting
Person or Group Stock(2) Stock(2)(3) Stock Stock Power(4)
------------------- --------- ----------- ---------- ---------- ----------
Frank J. Husic & Co. (12) 787,100 7.3% 4.6%
555 California Street
San Francisco, California 94104
Mutual Series Fund Inc. (13) 717,778 188,100 6.3% 8.2% 4.2%
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Heine Securities Corporation (13) 717,778 188,100 6.3% 8.2% 4.2%
51 J.F.K. Parkway
Short Hills, New Jersey 07078
Michael F. Price (13) 717,778 188,100 6.3% 8.2% 4.2%
51 J.F.K. Parkway
Short Hills, New Jersey 07078
Froley, Revy Investment Co., 650,133 236,000 5.7% 10.3% 3.8%
Inc. (9)(14)
10900 Wilshire Boulevard, #1050
Los Angeles, California 90024
J.P. Morgan & Co. Incorporated (15) 535,612 190,000 4.7% 8.3% 3.1%
23 Wall Street
New York, New York 10015
Smith Barney Shearson Holdings Inc. (16) 475,632 168,950 4.2% 7.4% 2.8%
1345 Avenue of the Americas
New York, New York 10105
General Motors Pension Trusts (17) 429,420 150,000 3.8% 6.6% 2.5%
767 Fifth Avenue
New York, New York 10153
Peter J. Ratican (18) 427,996 3.8% 2.4%
1149 South Broadway Street
Los Angeles, California 90015
Eugene L. Froelich (19) 427,778 3.8% 2.4%
1149 South Broadway Street
Los Angeles, California 90015
Richard A. Link (20) 71,688 * *
1149 South Broadway Street
Los Angeles, California 90015
William B. Caswell (21) 33,533 * *
1149 South Broadway Street
Los Angeles, California 90015
Claude S. Brinegar (22)(23) 21,000 * *
1149 South Broadway Street
Los Angeles, California 90015
Thomas W. Field, Jr. (19)(23) 20,000 * *
1149 South Broadway Street
Los Angeles, California 90015
64
Amount and Nature of
Beneficial Ownership(1)
------------------------
Percentage Percentage Percentage
of of of Total
Name and Address of Common Series A Common Series A Voting
Person or Group Stock(2) Stock(2)(3) Stock Stock Power(4)
------------------- --------- ----------- ---------- ---------- ----------
Alan D. Bloom (24) 12,862 * *
1149 South Broadway Street
Los Angeles, California 90015
Alan S. Manne (23)(25) 10,500 * *
1149 South Broadway Street
Los Angeles, California 90015
Charles E. Lewis (23)(25) 10,016 * *
1149 South Broadway Street
Los Angeles, California 90015
Florence F. Courtright (19)(23) 10,000 * *
1149 South Broadway Street
Los Angeles, California 90015
All Directors and Executive Officers
as a Group (14 persons) (26) 1,176,064 9.8% 6.4%
-------------------------
* - 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 and
information provided by the record holders.
(2) In setting forth "beneficial" ownership, the rules of the
Securities and Exchange Commission require that shares
underlying currently exercisable options or issuable upon
conversion of the Series A Stock, 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 not yet outstanding are, if
obtainable upon exercise of an option which is exercisable or
will become exercisable within sixty (60) days or upon
conversion of the Series A Stock, 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.
65
(3) On February 13, 1995 the Company announced that it will redeem
all of the outstanding shares of Series A Stock on March 14,
1995 (see "Item 1. Business - Preferred Stock Redemption").
(4) Assumes 10,849,607 shares of Common Stock outstanding, the
conversion of 2,290,000 shares of Series A Stock outstanding
(or 6,308,492 shares) and, with respect to each listed
beneficial owner, the exercise or conversion of any option,
warrant or right held by each such owner exercisable or
convertible within 60 days.
(5) 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
holder claims. The Company disclaims beneficial ownership of
these shares. For information concerning the voting of these
shares, see "Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters."
(6) Cede & Co. holds these shares as a nominee for the Depository
Trust Company, which is the securities depository for various
segments of the financial industry. None of these shares are
owned beneficially by Cede & Co.
(7) Includes 473,600 shares of Series A Stock and 94,800 shares of
Common Stock beneficially owned by Fidelity Management and
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR
Corp., as an investment advisor to several investment
companies. One of the investment companies holds 447,500
shares of Series A Stock. Also includes 10,200 shares of
Common Stock held by Fidelity Management Trust Company
("Trust"), a wholly-owned subsidiary of FMR Corp. as an
investment manager of institutional account(s). The shares of
Series A Stock are convertible into an aggregate of 1,304,673
shares of Common Stock; the shares of Common Stock issuable
upon conversion of the Series A Stock are included in the
number of shares of Common Stock attributable to these holders.
FMR Corp. and Edward C. Johnson, III (see (8) below) have sole
dispositive authority of these shares. The power to vote the
shares held by Fidelity resides with the Board of Trustees of
the investment companies.
(8) Edward C. Johnson, III owns 24.9% of the outstanding voting
common stock of FMR Corp. Mr. Johnson III is Chairman of FMR
Corp and together with Abigail P. Johnson, various Johnson
family members and trusts for the benefit of Johnson family
members, through their ownership of voting common stock and the
execution of a family shareholders' voting agreement, form a
controlling group with respect to FMR Corp.
(9) The shares of Common Stock issuable upon conversion of the
Series A Stock are included in the number of shares of Common
Stock attributable to these holders. None of the holders
currently hold shares of Common Stock.
66
(10) Linder Fund, Inc. ("Linder") is a registered investment company
and the shares owned by Linder are registered in nominee name.
Pursuant to an investment advisory contract with Linder, Ryback
Management Corporation, an investment advisor, has sole voting
and dispositive power over the securities beneficially owned by
Linder.
(11) Morgan Stanley & Co. Incorporated ("MSCo"), a wholly-owned
subsidiary of Morgan Stanley Group Inc. ("MS Group"), is a
broker-dealer registered under section 15 of the Securities
Exchange Act of 1934, which manages accounts on a discretionary
basis. MSCo has shared voting and dispositive power over
908,700 shares. MS Group has shared voting power over 908,700
shares and shared dispositive power over 908,711 shares.
(12) Husic Capital Management ("Husic") is a California limited
partnership and registered investment advisor. Frank J. Husic
is the sole shareholder of Frank J. Husic and Co. which is the
sole general partner of Husic. These beneficial owners have
shared voting rights with respect to 773,200 shares and shared
dispositive rights over all shares.
(13) Mutual Series Fund Inc. (the "Fund") is an investment company
consisting of four separate series of stock. Two of the
series, namely, Mutual Beacon Fund and Mutual Qualified Fund,
are the beneficial owners of 58,000 shares and 130,100 shares,
respectively, of Series A Stock. In addition, the Mutual
Beacon Fund is the beneficial owner of 199,600 shares of Common
Stock. The shares owned by these funds are registered in
nominee name. Pursuant to investment advisory contracts with
each of the series, Heine Securities Corporation ("Heine"), an
investment advisor, has sole investment and voting power over
the securities beneficially owned by the series. Michael F.
Price, president of Heine, has shared investment and voting
power over these shares. However, Heine and Mr. Price disclaim
any beneficial ownership in such shares owned by the Fund. The
shares of Series A Stock are convertible into an aggregate of
518,178 shares of Common Stock; the shares of Common Stock
issuable upon conversion of the Series A Stock are included in
the number of shares of Common Stock attributable to these
holders.
(14) All shares are held on behalf of institutional investors and
are subject to the sole voting and dispositive authority of
Froley, Revy Investment Co., Inc.
(15) Includes 12,200 shares of Common Stock and 190,000 shares of
Series A Stock held in a fiduciary capacity by J.P. Morgan and
Co. Incorporated through its subsidiaries J.P. Morgan
Investment Management, Inc. and Morgan Guaranty Trust Company
of New York. All shares of Common Stock and Series A Stock are
subject to the sole dispositive authority of these subsidiaries
of J.P. Morgan and Co. Incorporated and the shares of Series A
Stock are subject to the sole voting authority of these
entities. The shares of Series A Stock are convertible into an
67
aggregate of 523,412 shares of Common Stock; the shares of
Common Stock issuable upon conversion of the Series A Stock are
included in the number of shares of Common Stock attributable
to these holders.
(16) Includes 10,209 shares of Common Stock and 168,950 shares of
Series A Stock held in a fiduciary capacity by Smith Barney
Shearson Inc. ("Barney Shearson Holdings Inc. ("SBH") is the
sole common shareholder of SBS and The Travelers Inc. ("TRV")
is the sole shareholder of SBH. However, SBH and TRV disclaim
any beneficial ownership in such shares. The shares of Series
A Stock are convertible into an aggregate of 465,423 shares of
Common Stock; the shares of Common Stock issuable upon
conversion of the Series A Stock are included in the number of
shares of Common Stock attributable to this holder. SBS has
shared voting and dispositive power over all shares.
(17) The shares of Common Stock and Series A Stock are held by
Mellon Bank, N.A., acting as trustee (the "Trustee") under two
separate trust agreements for the General Motors employee
pension trusts (the "Trusts"). The Trustee may act for the
Trusts with respect to such shares only pursuant to direction
of one of the Trusts' applicable investment managers. General
Motors Investment Management Corporation ("GMIMCo") is the
investment manager with respect to 150,000 shares (in the
aggregate) of Series A Stock. The shares of Series A Stock are
convertible into an aggregate of 413,220 shares of Common
Stock; the shares of Common Stock issuable upon conversion of
the Series A Stock are included in the number of shares of
Common Stock attributable to these holders. Investment and
disposition decisions regarding the shares of Series A Stock
and Common Stock managed by the Trusts' other investment
managers are made by the personnel of such managers, who act
independently of GMIMCo, although the continued engagement of
such managers as investment managers for the Trusts is subject
to the authorization of GMIMCo. Because of the Trustee's
limited role, beneficial ownership of the shares of Series A
Stock and Common Stock by the Trustee is disclaimed.
(18) Includes 427,778 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(19) All shares (and the calculation of the percentage owned assumes
such shares are outstanding) are subject to options which are
currently exercisable or will become exercisable within 60
days.
(20) Includes 71,667 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(21) Includes 28,333 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
68
(22) Includes 20,000 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(23) Does not include the Unallocated Shares, held of record by the
Company. 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."
(24) Includes 12,500 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(25) Includes 10,000 shares which are subject to options which are
currently exercisable or will become exercisable within 60
days.
(26) Includes 1,167,222 shares which are subject to options which
are currently exercisable or will become exercisable within 60
days.
69
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
None.
70
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, 1994
and 1993
Consolidated Statements of Operations - Years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Changes in Shareholders'
Equity - Years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Schedule I - Condensed Financial Information of Registrant
- Condensed Balance Sheets at December 31, 1994 and 1993,
Condensed Statements of Operations and Condensed Statements
of Cash Flows for the years ended December 31, 1994, 1993
and 1992, Notes to Condensed Financial Information of
Registrant
Schedule II - Valuation and Qualifying Accounts for the
years ended December 31, 1994, 1993 and 1992
(a) 3. Exhibits
2.1 Joint Plan of Reorganization dated May 14, 1990, as
modified on May 24 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*
71
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*
10.2 Incentive Compensation Agreement*
72
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 Plan, 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 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 Jerumanis, dated as of December 5,
1990*
73
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@
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 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@
10.48a Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and William B. Caswell, dated
as of January 1, 1994@@@
10.49 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and William B. Caswell, dated as of February
3, 1992@@
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 Landis, dated as
of January 1, 1995
10.52 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Robert Landis, dated as of December 5,
1990@@
10.53 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Robert Landis, dated as of December 20,
1991@@
74
10.54 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Florence 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 Link, dated as of December 20,
1993@@@
10.58 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Aivars Jerumanis, dated as of December
20, 1993@@@
10.59 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Robert Landis, dated as of December 20,
1993@@@
10.60 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and William Caswell, 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@@@
10.64a Employment and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and David 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 Hammons, dated as of December 20,
1993@@@
75
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 Manne, dated as of January 28, 1994
10.70 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Alan Bloom, dated as of December 8, 1994
10.71 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Aivars Jerumanis, dated as of December 8,
1994
10.72 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Richard Link, dated as of December 8,
1994
10.73 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and David Hammons, dated as of December 8,
1994
10.74 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Robert Landis, dated as of December 8,
1994
10.75 Stock Option Agreement by and between Maxicare Health
Plans, Inc. and Vicki 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
21 List of Subsidiaries
23.2 Consent of Independent Accountants - Ernst & Young LLP
23.3 Consent of Independent Accountants - Price Waterhouse LLP
27 Financial Data Schedule for the year ended December 31,
1994
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 Report of Price Waterhouse LLP
76
-------------------
* 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.
@ 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 Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1994, in which this exhibit bore the same
exhibit number.
(b) Reports on Form 8-K
None.
77
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 14, 1995 /s/ PETER J. RATICAN
-------------- ------------------------
Date Peter J. Ratican
Chief Executive Officer
March 14, 1995 /s/ EUGENE L. FROELICH
-------------- ------------------------
Date Eugene L. Froelich
Chief Financial Officer
March 14, 1995 /s/ RICHARD A. LINK
-------------- ------------------------
Date Richard A. Link
Principal Accounting
Officer
78
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 14, 1995
--------------------
Peter J. Ratican
/s/ EUGENE L. FROELICH Director March 14, 1995
----------------------
Eugene L. Froelich
/s/ CLAUDE S. BRINEGAR Director March 6, 1995
-----------------------
Claude S. Brinegar
/s/ FLORENCE F. COURTRIGHT Director March 10, 1995
--------------------------
Florence F. Courtright
/s/ THOMAS W. FIELD, JR. Director March 10, 1995
------------------------
Thomas W. Field, Jr.
/s/ CHARLES E. LEWIS Director March 10, 1995
--------------------
Charles E. Lewis
/s/ ALAN S. MANNE Director March 5, 1995
-----------------
Alan S. Manne
79
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(Amounts in thousands)
December 31,
1994 1993
-------- -------
CURRENT ASSETS
Cash and cash equivalents......................................... $ 4,528 $ 6,586
Marketable securities............................................. 10,754 2,524
Amounts due from affiliates....................................... 2,936 2,128
Deferred tax asset................................................ 10,000 6,000
Other current assets.............................................. 585 857
------- -------
TOTAL CURRENT ASSETS........................................... 28,803 18,095
PROPERTY AND EQUIPMENT, NET......................................... 2,052 3,229
INVESTMENT IN SUBSIDIARIES.......................................... 43,363 36,467
OTHER LONG-TERM ASSETS.............................................. 2,164 2,146
------- -------
TOTAL ASSETS................................................... $76,382 $59,937
======= =======
CURRENT LIABILITIES
Payable to disbursing agent....................................... $ 6,248 $ 6,248
Amounts due to affiliates......................................... 238
Other current liabilities......................................... 4,166 1,159
------- -------
TOTAL CURRENT LIABILITIES...................................... 10,652 7,407
OTHER LONG-TERM LIABILITIES......................................... 380 145
------- -------
TOTAL LIABILITIES.............................................. 11,032 7,552
------- -------
TOTAL SHAREHOLDERS' EQUITY..................................... 65,350 52,385
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $76,382 $59,937
======= =======
See notes to condensed financial information of registrant.
80
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands)
Years ended December 31,
1994 1993 1992
-------- ------- --------
REVENUES
Equity in earnings (losses) of subsidiaries............... $ 9,895 $(1,208) $ 2,295
Service agreement income.................................. 9,017 15,419 15,215
Other income.............................................. 22 4 707
------- ------- --------
TOTAL REVENUES......................................... 18,934 14,215 18,217
------- ------- --------
EXPENSES
Health care expenses...................................... (2,004)
Marketing, general and administrative expenses............ 14,576 12,531 7,534
Depreciation expense...................................... 1,875 3,872 1,648
Reorganization expenses................................... 895
------- ------- --------
TOTAL EXPENSES......................................... 16,451 16,403 8,073
------- ------- --------
INCOME (LOSS) FROM OPERATIONS............................... 2,483 (2,188) 10,144
Investment income......................................... 618 504 973
Interest expense, net of inter-company interest income
and expense............................................. (20) (62) (3,005)
------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS... 3,081 (1,746) 8,112
INCOME TAX BENEFIT.......................................... 10,254 7,334 3,058
------- ------- --------
INCOME BEFORE EXTRAORDINARY ITEMS........................... 13,335 5,588 11,170
EXTRAORDINARY ITEMS (net of income taxes of $0)............. (14,241)
------- ------- --------
NET INCOME (LOSS)........................................... 13,335 5,588 (3,071)
PREFERRED STOCK DIVIDENDS................................... (5,280) (5,400) (4,350)
------- ------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS.......... $ 8,055 $ 188 $ (7,421)
======= ======= ========
See notes to condensed financial information of registrant.
81
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years ended December 31,
1994 1993 1992
-------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $13,335 $ 5,588 $ (3,071)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation expense............................... 1,875 3,872 1,648
Amortization of Senior Notes discount.............. 139
Extraordinary items................................ 14,241
Equity in (earnings) losses of subsidiaries........ (9,895) 1,208 (2,295)
Changes in assets and liabilities:
Changes in other miscellaneous assets and
liabilities.................................. (1,460) (6,905) (7,213)
------- ------- --------
Net cash provided by operating activities............... 3,855 3,763 3,449
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) sales of marketable securities, net....... (8,230) 8,945 (11,444)
Capital contributions to subsidiaries, net............ (4,770) (12,443) (150)
Dividends received from subsidiaries.................. 7,769 10,490 7,287
Purchases of property and equipment................... (208) (397)
Dispositions of property and equipment................ 10
Increase due to merger with HCS Computer, Inc......... 171
------- ------- --------
Net cash provided by (used for) investing activities.... (5,429) 6,595 (4,136)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Notes redemption............................... (67,000)
Issuance of preferred stock........................... 60,000
Issuance costs paid on preferred stock................ (3,700)
Payment of preferred stock dividends.................. (5,280) (5,400) (4,350)
Cash transferred to disbursing agent.................. (971) (781)
Payments on capital lease obligations................. (373) (340)
Payments on long-term debt to affiliates.............. (114) (1,050) (1,050)
Stock options exercised............................... 717 136 134
Warrants exercised.................................... 4,193
------- ------- --------
Net cash used for financing activities.................. (484) (7,658) (17,087)
------- ------- --------
Net (decrease) increase in cash and cash equivalents.... (2,058) 2,700 (17,774)
Cash and cash equivalents at beginning of period........ 6,586 3,886 21,660
------- ------- --------
Cash and cash equivalents at end of period.............. $ 4,528 $ 6,586 $ 3,886
======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for -
Interest........................................... $ 24 $ 28 $ 2,582
Income taxes....................................... $ 163 $ 284 $ 43
82
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years ended December 31,
1994 1993 1992
-------- ------- --------
Supplemental schedule of non-cash investing activities:
Capital lease obligations incurred for purchase of
property and equipment and intangible assets......... $ 484
Book value of assets exchanged for assets............. $ 40
Fair value of assets exchanged........................ (25)
-------
Loss on assets exchanged.............................. $ 15
=======
In conjunction with the merger of HCS Computer, Inc.
the following assets and liabilities were assumed:
Non-cash assets.................................... $ 7,978
Liabilities........................................ 483
--------
$ 7,495
========
See notes to condensed financial information of registrant.
83
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 1993 and 1992 have been reclassified to conform
to the 1994 presentation.
NOTE 2 - COMMITMENTS AND OTHER CONTINGENCIES
MHP's assets held under capital leases at December 31, 1994 and
1993 of $378,000 and $145,000, respectively, (net of $106,000 and
$1.6 million, 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, 1994 were as follows:
Operating Capitalized
Leases Leases
(Amounts in thousands) --------- -----------
1995.......................... $1,187 $174
1996.......................... 1,235 175
1997.......................... 1,323 58
1998.......................... 1,431
1999.......................... 1,034
Thereafter.................... 82
------ ----
Total minimum
obligations................. $6,292 407
======
Less current
portion..................... 174
Long-term ----
obligations................. $233
====
84
MAXICARE HEALTH PLANS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
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(1) $3,371
Other valuation
accounts: 34 $2(2) 32
------ ---- -- ------
$2,740 $665 $2 $3,403
====== ==== == ======
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.
(2) Reduction in notes receivable reserve.
85
MAXICARE HEALTH PLANS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
For the Year Ended December 31, 1992
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: $2,853 $ 529(1) $2,324
Other valuation
accounts: 3,154 3,120(2) 34
------ ------ ------
$6,007 $3,649 $2,358
======= ====== ======
(1) Write-off of aged retroactive billing adjustments.
(2) Write-off of notes receivable reserve.
86
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
------ ---------------------------------------- -----------
2.1 Joint Plan of Reorganization dated May 14,
1990, as modified on May 24 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.
87
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.
88
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 95 of 201
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 97 of 201
10.7e Employment and Indemnification Agreement by
and between Maxicare Health Plans, Inc. and
Vicki F. Perry, dated as of January 1, 1995 99 of 201
10.8d Employment and Indemnification Agreement
by and between Maxicare Health Plans, Inc.
and Alan D. Bloom, dated as of January 1,
1995 107 of 201
10.9d Employment and Indemnification Agreement
by and between Maxicare Health Plans,
Inc. and Richard A. Link, dated as of
January 1, 1995 114 of 201
10.12e Employment and Indemnification Agreement by
and between Maxicare Health Plans, Inc. and
Aivars Jerumanis, dated as of January 1,
1995 121 of 201
-------------------------
* 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.
89
Exhibit Sequential
Number Description Page Number
------ ---------------------------------------- -----------
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
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@
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@
-------------------------
* 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.
90
Exhibit Sequential
Number Description Page Number
------ ---------------------------------------- -----------
10.40 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Aivars
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@
10.48a Employment and Indemnification Agreement
by and between Maxicare Health Plans, Inc.
and William B. Caswell, dated as of January
1, 1994@@@
10.49 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and William
B. Caswell, dated as of February 3, 1992@@
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 Landis, dated as of January 1,
1995 129 of 201
10.52 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Robert
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, 1993, in which this
exhibit bore the same exhibit number.
91
Exhibit Sequential
Number Description Page Number
------ ---------------------------------------- -----------
10.53 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Robert
Landis, dated as of December 20, 1991@@
10.54 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Florence
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
Link, dated as of December 20, 1993@@@
10.58 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Aivars
Jerumanis, dated as of December 20, 1993@@@
10.59 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Robert
Landis, dated as of December 20, 1993@@@
10.60 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and William
Caswell, 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.
92
Exhibit Sequential
Number Description Page Number
------ ---------------------------------------- -----------
10.64a Employment and Indemnification Agreement
by and between Maxicare Health Plans, Inc.
and David Hammons, dated as of January 1,
1995 136 of 201
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
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
Manne dated as of January 28, 1994 143 of 201
10.70 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Alan
Bloom, dated as of December 8, 1994 148 of 201
10.71 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Aivars
Jerumanis, dated as of December 8, 1994 154 of 201
10.72 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Richard
Link, dated as of December 8, 1994 160 of 201
10.73 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and David
Hammons, dated as of December 8, 1994 166 of 201
10.74 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Robert
Landis, dated as of December 8, 1994 172 of 201
-------------------------
@@@ 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 Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1994, in
which this exhibit bore the same exhibit number.
93
Exhibit Sequential
Number Description Page Number
------ ---------------------------------------- -----------
10.75 Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Vicki
Perry, dated as of December 8, 1994 178 of 201
10.76 Restricted Stock Grant Agreement by
and between Maxicare Health Plans,
Inc. and Peter J. Ratican, dated as
of February 27, 1995 184 of 201
10.77 Restricted Stock Grant Agreement by
and between Maxicare Health Plans,
Inc. and Eugene L. Froelich, dated
as of February 27, 1995 190 of 201
21 List of Subsidiaries@@@
23.2 Consent of Independent Accountants
- Ernst & Young LLP 197 of 201
23.3 Consent of Independent Accountants
- Price Waterhouse LLP 198 of 201
27 Financial Data Schedule for the year
ended December 31, 1994 199 of 201
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 Report of Price Waterhouse LLP 201 of 201
-------------------------
*** 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.
94
EX-10.3C
2
EMPLOYMENT AGREEMENT AMENDMENT - PETER J. RATICAN
Exhibit 10.3c
AMENDMENT NO. 1 TO
EMPLOYMENT AND INDEMNIFICATION AGREEMENT
THIS AMENDMENT NO. 1, dated as of the 27th day of February,
1995, is made by and between MAXICARE HEALTH PLANS, INC., a Delaware
corporation (the "Company") and Peter J. Ratican, an individual
("Executive") (the "Amendment No. 1") to the Employment and
Indemnification Agreement, dated as of January 1, 1992, between the
Company and the Executive (the "Agreement").
RECITALS
WHEREAS, Executive presently serves as Chairman of the Board,
Chief Executive officer and President of the Company pursuant to the
Agreement, exerting particularly diligent efforts in such capacities
on behalf of the Company;
WHEREAS, issues of interpretation have arisen as to the meaning
and intent of Section 8(a)(ii) of the Agreement;
WHEREAS, the Company and the Executive deem it to be in their
mutual best interest that any potential ambiguities in the meaning
and scope of such Section 8(a)(ii) be clarified at this time;
WHEREAS, the Company wishes to insure that the terms of Section
8(a)(ii) of the Agreement align the interests of the Executive with
that of the Company's shareholders in the event of a "Change in
Control" as defined in the Agreement;
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, the Company and Executive agree as follows:
1. That Section 8(a)(ii) of the Agreement be
deleted in its entirety and replaced with the following:
"If termination arises under Section 7(f) hereof,
then within five (5) days after such termination, a
cash amount equal to 2.99 times Executive's average
annualized compensation from all sources from and
relating to the Company which is includable in
Executive's gross income, including "income" which
would be attributable to the exercise of any
options to purchase the Company's common stock held
by the Executive whether or not such exercise
occurs, for the most recent five taxable years
ending with and including the calendar year in
95
which the Change of Control occurs, together with
the immediate vesting of: (y) all options to
purchase shares of the Company's common stock, not
otherwise already vested pursuant to Section 4(c)
hereof and (z) all restricted shares of the
Company's common stock issued to the Executive not
already vested pursuant to the terms of the
Restricted Stock Agreement(s) between Executive and
the Company."
2. Except as otherwise provided in this Amendment
No. 1, all of the terms and conditions of the Employment Agreement
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have
executed this Amendment No. 1 to the Employment Agreement as of this
27th day of February, 1995.
MAXICARE HEALTH PLANS, INC.
By: /s/ ALAN BLOOM
-----------------------
Its: Secretary
----------------------
/s/ PETER J. RATICAN
---------------------------
Peter J. Ratican
96
EX-10.4C
3
EMPLOYMENT AGREEMENT AMENDMENT - EUGENE L. FROELICH
Exhibit 10.4c
AMENDMENT NO. 1 TO
EMPLOYMENT AND INDEMNIFICATION AGREEMENT
THIS AMENDMENT NO. 1, dated as of the 27th day of February,
1995, is made by and between MAXICARE HEALTH PLANS, INC., a Delaware
corporation (the "Company") and Eugene L. Froelich, an individual
("Executive") (the "Amendment No. 1") to the Employment and
Indemnification Agreement, dated as of January 1, 1992, between the
Company and the Executive (the "Agreement").
RECITALS
WHEREAS, Executive presently serves as Chairman of the Board,
Chief Executive officer and President of the Company pursuant to the
Agreement, exerting particularly diligent efforts in such capacities
on behalf of the Company;
WHEREAS, issues of interpretation have arisen as to the meaning
and intent of Section 8(a)(ii) of the Agreement;
WHEREAS, the Company and the Executive deem it to be in their
mutual best interest that any potential ambiguities in the meaning
and scope of such Section 8(a)(ii) be clarified at this time;
WHEREAS, the Company wishes to insure that the terms of Section
8(a)(ii) of the Agreement align the interests of the Executive with
that of the Company's shareholders in the event of a "Change in
Control" as defined in the Agreement;
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, the Company and Executive agree as follows:
1. That Section 8(a)(ii) of the Agreement be
deleted in its entirety and replaced with the following:
"If termination arises under Section 7(f) hereof,
then within five (5) days after such termination, a
cash amount equal to 2.99 times Executive's average
annualized compensation from all sources from and
relating to the Company which is includable in
Executive's gross income, including "income" which
would be attributable to the exercise of any
options to purchase the Company's common stock held
by the Executive whether or not such exercise
occurs, for the most recent five taxable years
ending with and including the calendar year in
97
which the Change of Control occurs, together with
the immediate vesting of: (y) all options to
purchase shares of the Company's common stock, not
otherwise already vested pursuant to Section 4(c)
hereof and (z) all restricted shares of the
Company's common stock issued to the Executive not
already vested pursuant to the terms of the
Restricted Stock Agreement(s) between Executive and
the Company."
2. Except as otherwise provided in this Amendment
No. 1, all of the terms and conditions of the Employment Agreement
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have
executed this Amendment No. 1 to the Employment Agreement as of this
27th day of February, 1995.
MAXICARE HEALTH PLANS, INC.
By: /s/ ALAN BLOOM
-----------------------
Its: Secretary
----------------------
/s/ EUGENE L. FROELICH
---------------------------
Eugene L. Froelich
98
EX-10.7E
4
EMPLOYMENT AGREEMENT - VICKI PERRY
Exhibit 10.7e
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 Vicki Perry, 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, General Manager 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.
99
2. Employment, Services and Duties. The Company hereby
employs Employee as Vice President, General Manager. 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 $165,000 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
100
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
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 one (1) year, 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;
101
(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
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
102
such information, knowledge or data to any person, firm,
partnership, corporation or organization other than to the Company,
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;
103
(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. 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 Indiana 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
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
104
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.
105
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/ VICKI PERRY
-------------------
Vicki Perry
Vice President, General Manager
106
EX-10.8D
5
EMPLOYMENT AGREEMENT - ALAN BLOOM
Exhibit 10.8d
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 Alan Bloom, 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 Senior Vice President, General Counsel, Secretary 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.
107
2. Employment, Services and Duties. The Company hereby
employs Employee as Senior Vice President, General Counsel,
Secretary. 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 $208,000 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
108
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
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
109
result of, a Change in Control or for any reason other than as set
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,
its affiliates, designees, assignees or successors or except as may
110
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;
(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;
111
(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. 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
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
112
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.
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/ ALAN BLOOM
----------------------------------
Alan Bloom
Senior Vice President
113
EX-10.9D
6
EMPLOYMENT AGREEMENT - RICHARD LINK
Exhibit 10.9d
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 Richard Link, 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 Senior Vice President, Accounting, Chief Accounting Officer 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.
114
2. Employment, Services and Duties. The Company hereby
employs Employee as Senior Vice President, Accounting, Chief
Accounting Officer. 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 $205,000 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
115
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
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
116
result of, a Change in Control or for any reason other than as set
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,
its affiliates, designees, assignees or successors or except as may
117
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;
(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;
118
(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. 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
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
119
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.
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/ RICHARD LINK
--------------------------------
Richard Link
Senior Vice President
Accounting
Chief Accounting Officer
120
EX-10.12E
7
EMPLOYMENT AGREEMENT - AIVARS
JERUMANIS
Exhibit 10.12e
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 Aivars Jerumanis, 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 Senior Vice President, Management Information Systems, Chief
Information Officer 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.
121
2. Employment, Services and Duties. The Company hereby
employs Employee as Senior Vice President, Management Information
Systems, Chief Information Officer. 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 $190,000 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
122
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
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;
123
(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
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,
124
partnership, corporation or organization other than to the Company,
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;
(ii) any strike or labor dispute or court or
government action, order or decree;
125
(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. 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
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
126
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.
127
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/ AIVARS JERUMANIS
---------------------------------
Aivars Jerumanis
Senior Vice President
Management Information
Systems
Chief Information Officer
128
EX-10.51D
8
EMPLOYMENT AGREEMENT - ROBERT
LANDIS
Exhibit 10.51d
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 Robert Landis, 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 Treasurer 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.
129
2. Employment, Services and Duties. The Company hereby
employs Employee as Treasurer. 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 $160,000 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
130
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
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
131
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,
its affiliates, designees, assignees or successors or except as may
otherwise be required by the law, as ordered by a court or other
132
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;
(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;
133
(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. 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
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
134
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.
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/ ROBERT LANDIS
--------------------
Robert Landis
Treasurer
135
EX-10.64A
9
EMPLOYMENT AGREEMENT - DAVID HAMMONS
Exhibit 10.64a
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 David Hammons, 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, Administrative Services, Chief Actuary 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.
136
2. Employment, Services and Duties. The Company hereby
employs Employee as Vice President, Administrative Services, Chief
Actuary. 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 $140,000 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
137
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
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
138
result of, a Change in Control or for any reason other than as set
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,
its affiliates, designees, assignees or successors or except as may
139
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;
(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;
140
(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. 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
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
141
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.
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/ DAVID HAMMONS
-------------------------------
David Hammons
Vice President
Administrative Services
Chief Actuary
142
EX-10.69
10
STOCK OPTION AGREEMENT - ALAN MANNE
Exhibit 10.69
MAXICARE HEALTH PLANS, INC.
STOCK OPTION AGREEMENT
Maxicare Health Plans, Inc., a Delaware corporation (the
"Company"), hereby grants as of this 28th day of January, 1994, to
Alan Manne (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 $12.63 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. As an officer, employee, or director
with the Company, the Optionee's rights in and to the Option shall
vest as of the date hereof, and the Optionee may, subject to
Section 13 hereof, exercise this Option immediately for up to the
total number of shares set forth in the first sentence of this
Agreement.
While the Optionee continues to serve as an officer, director or
employee of the Company (or a subsidiary thereof, as the case may
be), the Option 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).
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
143
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.
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").
144
(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 if Optionee is entitled to exercise any
unexercised if Optionee is entitled to exercise any unexercised
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.
145
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.
(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
146
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.
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/ ALAN MANNE
--------------
Alan Manne
147
EX-10.70
11
STOCK OPTION AGREEMENT - ALAN BLOOM
Exhibit 10.70
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
Alan Bloom (the "Optionee"), an option to purchase a maximum of
7,500 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 - 2,500 shares
from the date hereof
Two years but less than three - 2,500 shares
years from the date hereof
Three years but less than four - 2,500 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
148
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).
149
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
150
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.
151
(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.
152
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/ ALAN BLOOM
--------------
Alan Bloom
153
EX-10.71
12
STOCK OPTION AGREEMENT - AIVARS JERUMANIS
Exhibit 10.71
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
Aivars Jerumanis (the "Optionee"), an option to purchase a maximum
of 5,000 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 - 1,667 shares
from the date hereof
Two years but less than three - 1,667 shares
years from the date hereof
Three years but less than four - 1,666 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
154
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).
155
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
156
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.
157
(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.
158
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/ AIVARS JERUMANIS
--------------------
Aivars Jerumanis
159
EX-10.72
13
STOCK OPTION AGREEMENT - RICHARD LINK
Exhibit 10.72
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
Richard Link (the "Optionee"), an option to purchase a maximum of
5,000 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 - 1,667 shares
from the date hereof
Two years but less than three - 1,667 shares
years from the date hereof
Three years but less than four - 1,666 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
160
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).
161
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
162
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.
163
(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.
164
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/ RICHARD LINK
----------------
Richard Link
165
EX-10.73
14
STOCK OPTION AGREEMENT - DAVID HAMMONS
Exhibit 10.73
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
David Hammons (the "Optionee"), an option to purchase a maximum of
5,000 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 - 1,667 shares
from the date hereof
Two years but less than three - 1,667 shares
years from the date hereof
Three years but less than four - 1,666 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
166
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).
167
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
168
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.
169
(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.
170
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/ DAVID HAMMONS
-----------------
David Hammons
171
EX-10.74
15
STOCK OPTION AGREEMENT - ROBERT LANDIS
Exhibit 10.74
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
Robert Landis (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 $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 - 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
172
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).
173
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
174
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.
175
(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.
176
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/ ROBERT LANDIS
-----------------
Robert Landis
177
EX-10.75
16
STOCK OPTION AGREEMENT - VICKI PERRY
Exhibit 10.75
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
Vicki Perry (the "Optionee"), an option to purchase a maximum of
2,500 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 - 833 shares
from the date hereof
Two years but less than three - 833 shares
years from the date hereof
Three years but less than four - 834 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
178
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).
179
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
180
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.
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
181
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
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.
182
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/ VICKI PERRY
---------------
Vicki Perry
183
EX-10.76
17
RESTRICTED STOCK AGREEMENT - PETER J.
RATICAN
Exhibit 10.76
RESTRICTED STOCK GRANT AGREEMENT
--------------------------------
This RESTRICTED STOCK GRANT AGREEMENT ("Agreement"), dated as
of February 27, 1995, is made by and between Peter J. Ratican
("Executive") and Maxicare Health Plans, Inc., a Delaware
corporation (the "Company").
WHEREAS, Executive has served as Chief Executive Officer and
President of the Company since August, 1988;
WHEREAS, the Company and the Executive have entered into an
Employment and Indemnification Agreement dated as of January 1,
1992 (the "Employment Agreement"), which provides for certain terms
and conditions regarding the employment of Executive by the
Company;
WHEREAS, the Company and its Board of Directors wish to
recognize the contributions of the Executive to the Company and to
provide further incentive to the Executive in connection with the
future services which he shall be rendering on behalf of the
Company;
WHEREAS, in connection with the foregoing the Company wishes
to issue to the Executive 65,000 shares of its $.01 par value
Common Stock with said issuance subject to the specific terms and
conditions stated herein;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Executive and the
Company hereby agree as follows:
and may rely upon the advice of independent counsel and accountants
of the Company.
1. ISSUANCE OF THE RESTRICTED SHARES. Upon the terms and
subject to the conditions hereinafter set forth, the Company hereby
grants and issues, effective as of the date hereof (the "Issuance
Date"), to Executive 65,000 shares of the Common Stock of the
Company, par value $.01 per share (such shares along with any
additional shares or new securities issued to the Executive as a
result of the Executive's ownership of the aforementioned shares
during the "Forfeiture Period", as hereinafter defined, shall
hereinafter collectively be referred to as the "Restricted
Shares").
184
2. FORFEITURE OF THE RESTRICTED SHARES.
(a) Except as set forth in subsection 2(b) and Section 8
below, Executive's rights in and to the Restricted Shares shall be
subject to complete forfeiture in the event the Executive's
employment with the Company is terminated for any reason prior to
three (3) years from the Issuance Date (the "Forfeiture Period").
Upon the condition that Executive remains continuously employed by
the Company for the entire duration of the Forfeiture Period,
Executive's rights to the Restricted Shares shall become fully
vested and no longer subject to forfeiture hereunder upon the
expiration of the Forfeiture Period, February 27, 1998, without any
further action on the part of the Executive.
(b) Notwithstanding anything to the contrary contained
herein, in the event Executive's employment with the Company is
terminated during the Forfeiture Period either (i) under Sections
7(f) and 9(a) of the Employment Agreement or (ii) as a result of a
"change in control" as such term is defined in the Employment
Agreement, then and in such event Executive's rights to the
Restricted Shares shall become fully vested as of the date of such
termination pursuant to either (i) or (ii) above, the Forfeiture
Period shall be deemed to be terminated and the Company's rights of
forfeiture with respect to the Restricted Shares shall be
terminated.
3. ESCROW OF THE SHARES. The Restricted Shares shall be held
by the Company during the Forfeiture Period. In connection with
the foregoing, as a condition to the issuance of the Restricted
Shares, Executive agrees to execute and deliver to the Company a
stock power endorsed in blank. Except as set forth below, during
the Forfeiture Period the Executive shall be entitled to all rights
of a holder of Common Stock of the Company including but not
limited to the rights to: (i) vote the Restricted Shares on all
matters that come before the holders of Common Stock and (ii)
receive all cash dividends, if any, issued to the holders of Common
Stock. Notwithstanding the foregoing, during the Forfeiture Period
Executive shall not be entitled to: (i) delivery or custody of the
Restricted Shares and (ii) receive stock dividends, if any, issued
to the holders of Common Stock. Such stock dividends will be
delivered to the Company to be held along with the Restricted
Shares and shall be subject to the terms and conditions of this
Agreement, including the forfeiture thereof during the Forfeiture
Period. After the Forfeiture Period, if the Restricted Shares have
not been forfeited to the Company pursuant to Section 2 of this
Agreement, the Company shall deliver the Restricted Shares to the
Executive. In the event the Executive's employment with the
Company is terminated for any reason, except as set forth in
subsection 2(b) above during the Forfeiture Period, all of
Executive's rights in and to the Restricted Shares and the
Company's escrow with respect thereto shall immediately terminate
without any other action on the part of the Company and the
Restricted Shares shall be delivered by the Company to the transfer
agent for cancellation. In the event the Executive's employment
with the Company is terminated as set forth in subsection 2(b)
185
above, the Company's forfeiture rights and its escrow of the
Restricted Shares shall immediately terminate without any further
action by the Executive and the Restricted Shares shall promptly be
delivered to the Executive.
4. ADJUSTMENT UPON RESTRUCTURING OR DISSOLUTION.
(a) In the event of any change, during the Forfeiture
Period, in the number or nature of Restricted Shares by reason of
any stock dividend, split-up, merger, recapitalization,
combination, exchange of common stock, or similar transaction (a
"Restructuring"), the Restricted Shares shall be adjusted, modified
or exchanged for other securities in the same manner and to the
same extent as all other outstanding shares of the Company's Common
Stock. The Restricted Shares as adjusted, modified or exchanged
for other securities as a result of the Restructuring will be
issued to the Executive and delivered to the Company to be held in
escrow in accordance with Section 3 above.
(b) In addition, in the event of any dissolution or
liquidation of the Company or a Restructuring as a result of which
the Company is not the surviving corporation, or a sale of
substantially all the property of the Company to another entity,
the Restricted Shares shall be treated in the same manner and to
the same extent as all other outstanding shares of the Company's
Common Stock, including, but not limited to (i) provision for the
assumption of the Restricted Shares or the substitution of new
securities of the successor corporation (or a parent or subsidiary
thereof) for the Restricted Shares; or (ii) provision for the
payment of substantially equivalent economic benefit to Executive
in exchange for such Restricted Shares, upon the consummation of
such event or transaction. Any securities issued to the Executive
as a result of the transactions contemplated by this subsection
4(b) shall henceforth for the purposes hereof shall be deemed to be
Restricted Shares subject to the provisions of this Agreement. In
the event that said economic benefit is cash or property not
constituting a "security" as such term is defined under the
Securities Act of 1933, as amended (the 1933 Act"), the Executive
shall be entitled to retain such economic benefit.
(c) Adjustments under this Section 4 shall be made by the
Board of Directors of the Company, whose determination as to what
adjustments shall be made shall be final and conclusive. In making
such adjustments the Board of Directors of the Company may obtain
and may rely upon the advice of independent counsel and accountants
of the Company.
5. INVESTMENT REPRESENTATIONS; RESTRICTIONS ON TRANSFER.
(a) Executive represents, warrants and covenants to the
Company that:
(i) All Restricted Shares are being acquired for
Executive's own account and not with a view to resale or
distribution in violation of the 1933 Act.
186
(ii) Executive has such knowledge and experience in
business and financial matters as to be capable of utilizing the
information which is available to him to evaluate the merits and
risks of an investment in the Restricted shares and is able to bear
the economic risks of any Restricted Shares.
(iii) Executive understands that the Restricted Shares
have not been registered under the 1933 Act, in reliance upon
certain exemptions contained therein, and that the Company's
reliance on such exemption is predicated on Executive's
representations set forth herein. Executive further understands
that because the Restricted Shares have not been registered under
the 1933 Act or the securities law of any state, he may not, and
Executive covenants and agrees that he will not, sell, offer to
sell or otherwise dispose of any such securities in violation of
the 1933 Act or any applicable securities law of any state.
Executive acknowledges and understands that he has no independent
right to require the Company to register the Restricted Shares.
Notwithstanding the preceding sentence, the Company shall include
at its sole expense the Restricted Shares in any reoffer or resale
prospectus filed in conjunction with a Form S-8 Registration
Statement, or any equivalent form under the 1933 Act prior to the
expiration of the Forfeiture Period (the "Prospectus"). In the
event that the Restricted Shares have not been included in a
Prospectus prior to the termination of the Forfeiture Period and at
such time the reoffer and resale by Executive are subject to
restrictions under the 1933 Act (the "Resale Restrictions"), then
and in such event, so long as the Resale Restrictions remain in
effect, the Company agrees to include, at its expense, such
Restricted Shares in the next Form S-1, S-3 or Prospectus filed by
it with the Securities and Exchange Commission; provided, however,
that if the Company proposes to include the Restricted Shares in an
underwritten offering then inclusion of the Restricted Shares in
such underwritten offering shall be subject to the consent of the
underwriter(s), which consent shall not be unreasonably withheld.
Executive acknowledges and understands that Executive shall have no
right to require the Company to file any such Prospectus or Form S-
1 or S-3 Registration Statement either prior to or after the
termination of the Forfeiture Period.
(b) Executive consents to the placing of restrictive
legends in substantially the following form, on any stock
certificate(s) representing Restricted Shares:
"The Shares represented by this Certificate
have not been registered under the Securities
Act of 1933, as amended, or the blue sky law
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 shares under
the Securities Act of 1933, as amended, or
until the issuer has been furnished with an
187
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. In addition, these shares are
subject to escrow and forfeiture provisions
all as set forth in that certain Restricted
Stock Grant Agreement dated as of February
27, 1995."
(c) Executive also hereby consents and agrees to the placing of
stop transfer instructions against any transfer(s) of the
Restricted Shares by the Executive. The Company hereby agrees to
remove the legend and stop transfer instructions upon receipt of an
opinion of counsel from the Executive, 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
securities laws of any state having jurisdiction.
6. ADDITIONAL DOCUMENTS. The Company and Executive hereby
covenant and agree to execute and deliver any additional documents
necessary or desirable, in the opinion of Executive or the Company,
as the case may be, to complete the sale and transfer of all of the
Restricted Shares in accordance with the terms and conditions
stated herein.
(a) If to Executive:
Peter J. Ratican
Maxicare Health Plans, Inc.
1149 South Broadway Street
Los Angeles, California 90015
(b) If to the Company:
Maxicare Health Plans, Inc.
1149 South Broadway Street
Los Angeles, California 90015
Attention: Alan D. Bloom, Esq.
General Counsel
or such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
11.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and by separate parties on separate
counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
188
11.7 GOVERNING LAW. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of
California.
11.8 ENTIRE UNDERSTANDING. This Agreement constitutes the
entire understanding between the parties hereto regarding the
subject matter hereof and supersedes all other prior agreements,
understandings, negotiations and discussions of the parties whether
written or oral.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the date first above written.
MAXICARE HEALTH PLANS, INC.,
a Delaware corporation
By: /s/ ALAN D. BLOOM
-----------------
Its: GENERAL COUNSEL
----------------
EXECUTIVE
/s/ PETER J. RATICAN
--------------------
Peter J. Ratican
189
EX-10.77
18
RESTRICTED STOCK AGREEMENT - EUGENE L. FROELICH
Exhibit 10.77
RESTRICTED STOCK GRANT AGREEMENT
--------------------------------
This RESTRICTED STOCK GRANT AGREEMENT ("Agreement"), dated as
of February 27, 1995, is made by and between Eugene L. Froelich
("Executive") and Maxicare Health Plans, Inc., a Delaware
corporation (the "Company").
WHEREAS, Executive has served as Executive Vice President and
Chief Financial Officer of the Company since April, 1989;
WHEREAS, the Company and the Executive have entered into a
Employment and Indemnification Agreement dated as of January 1,
1992, as amended by Amendment No. 1 thereto dated February 27, 1995
(collectively the "Employment Agreement"), which provides for
certain terms and conditions regarding the employment of Executive
by the Company;
WHEREAS, the Company and its Board of Director's wishes to
recognize the contributions of the Executive to the Company and to
provide further incentive to the Executive in connection with the
future services which he shall be rendering on behalf of the
Company;
WHEREAS, in connection with the foregoing the Company wishes
to issue to the Executive 65,000 shares of its $.01 par value
Common Stock with said issuance subject to the specific terms and
conditions stated herein;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Executive and the
Company hereby agree as follows:
1. ISSUANCE OF THE RESTRICTED SHARES. Upon the terms and
subject to the conditions hereinafter set forth, the Company hereby
grants and issues, effective as of the date hereof (the "Issuance
Date"), to Executive 65,000 shares of the Common Stock of the
Company, par value $.01 per share (such shares along with any
additional shares or new securities issued to the Executive as a
result of the Executive's ownership of the aforementioned shares
during the "Forfeiture Period", as hereinafter defined, shall
hereinafter collectively be referred to as the "Restricted
Shares").
2. FORFEITURE OF THE RESTRICTED SHARES.
(a) Except as set forth in subsection 2(b) and Section 8
below, Executive's rights in and to the Restricted Shares shall be
subject to complete forfeiture in the event the Executive's
employment with the Company is terminated for any reason prior to
190
three (3) years from the Issuance Date (the "Forfeiture Period").
Upon the condition that Executive remains continuously employed by
the Company for the entire duration of the Forfeiture Period,
Executive's rights to the Restricted Shares shall become fully
vested and no longer subject to forfeiture hereunder upon the
expiration of the Forfeiture Period, February 27, 1998, without any
further action on the part of the Executive.
(b) Notwithstanding anything to the contrary contained
herein, in the event Executive's employment with the Company is
terminated during the Forfeiture Period either (i) under Sections
7(f) and 9(a) of the Employment Agreement or (ii) as a result of a
"change in control" as such term is defined in the Employment
Agreement, then and in such event Executive's rights to the
Restricted Shares shall become fully vested as of the date of such
termination pursuant to either (i) or (ii) above, the Forfeiture
Period shall be deemed to be terminated and the Company's rights of
forfeiture with respect to the Restricted Shares shall be
terminated.
3. ESCROW OF THE SHARES. The Restricted Shares shall be held
by the Company during the Forfeiture Period. In connection with
the foregoing, as a condition to the issuance of the Restricted
Shares, Executive agrees to execute and deliver to the Company a
stock power endorsed in blank. Except as set forth below, during
the Forfeiture Period the Executive shall be entitled to all rights
of a holder of Common Stock of the Company including but not
limited to the rights to: (i) vote the Restricted Shares on all
matters that come before the holders of Common Stock and (ii)
receive all cash dividends, if any, issued to the holders of Common
Stock. Notwithstanding the foregoing, during the Forfeiture Period
Executive shall not be entitled to: (i) delivery or custody of the
Restricted Shares and (ii) receive stock dividends, if any, issued
to the holders of Common Stock. Such stock dividends will be
delivered to the Company to be held along with the Restricted
Shares and shall be subject to the terms and conditions of this
Agreement, including the forfeiture thereof during the Forfeiture
Period. After the Forfeiture Period, if the Restricted Shares have
not been forfeited to the Company pursuant to Section 2 of this
Agreement, the Company shall deliver the Restricted Shares to the
Executive. In the event the Executive's employment with the
Company is terminated for any reason, except as set forth in
subsection 2(b) above during the Forfeiture Period, all of
Executive's rights in and to the Restricted Shares and the
Company's escrow with respect thereto shall immediately terminate
without any other action on the part of the Company and the
Restricted Shares shall be delivered by the Company to the transfer
agent for cancellation. In the event the Executive's employment
with the Company is terminated as set forth in subsection 2(b)
above, the Company's forfeiture rights and its escrow of the
Restricted Shares shall immediately terminate without any further
action by the Executive and the Restricted Shares shall promptly be
delivered to the Executive.
191
4. ADJUSTMENT UPON RESTRUCTURING OR DISSOLUTION.
(a) In the event of any change, during the Forfeiture
Period, in the number or nature of Restricted Shares by reason of
any stock dividend, split-up, merger, recapitalization,
combination, exchange of common stock, or similar transaction (a
"Restructuring"), the Restricted Shares shall be adjusted, modified
or exchanged for other securities in the same manner and to the
same extent as all other outstanding shares of the Company's Common
Stock. The Restricted Shares as adjusted, modified or exchanged
for other securities as a result of the Restructuring will be
issued to the Executive and delivered to the Company to be held in
escrow in accordance with Section 3 above.
(b) In addition, in the event of any dissolution or
liquidation of the Company or a Restructuring as a result of which
the Company is not the surviving corporation, or a sale of
substantially all the property of the Company to another entity,
the Restricted Shares shall be treated in the same manner and to
the same extent as all other outstanding shares of the Company's
Common Stock, including, but not limited to (i) provision for the
assumption of the Restricted Shares or the substitution of new
securities of the successor corporation (or a parent or subsidiary
thereof) for the Restricted Shares; or (ii) provision for the
payment of substantially equivalent economic benefit to Executive
in exchange for such Restricted Shares, upon the consummation of
such event or transaction. Any securities issued to the Executive
as a result of the transactions contemplated by this subsection
4(b) shall henceforth for the purposes hereof shall be deemed to be
Restricted Shares subject to the provisions of this Agreement. In
the event that said economic benefit is cash or property not
constituting a "security" as such term is defined under the
Securities Act of 1933, as amended (the 1933 Act"), the Executive
shall be entitled to retain such economic benefit.
(c) Adjustments under this Section 4 shall be made by the
Board of Directors of the Company, whose determination as to what
adjustments shall be made shall be final and conclusive. In making
such adjustments the Board of Directors of the Company may obtain
and may rely upon the advice of independent counsel and accountants
of the Company.
5. INVESTMENT REPRESENTATIONS; RESTRICTIONS ON TRANSFER.
(a) Executive represents, warrants and covenants to the
Company that:
(i) All Restricted Shares are being acquired for
Executive's own account and not with a view to resale or
distribution in violation of the 1933 Act.
(ii) Executive has such knowledge and experience in
business and financial matters as to be capable of utilizing the
information which is available to him to evaluate the merits and
risks of an investment in the Restricted Shares and is able to bear
the economic risks of any Restricted Shares.
192
(iii) Executive understands that the Restricted
Shares have not been registered under the 1933 Act, in reliance
upon certain exemptions contained therein, and that the Company's
reliance on such exemption is predicated on Executive's
representations set forth herein. Executive further understands
that because the Restricted Shares have not been registered under
the 1933 Act or the securities law of any state, he may not, and
Executive covenants and agrees that he will not, sell, offer to
sell or otherwise dispose of any such securities in violation of
the 1933 Act or any applicable securities law of any state.
Executive acknowledges and understands that he has no independent
right to require the Company to register the Restricted Shares.
Notwithstanding the preceding sentence, the Company shall include
at its sole expense the Restricted Shares in any reoffer or resale
prospectus filed in conjunction with a Form S-8 Registration
Statement, or any equivalent form under the 1933 Act prior to the
expiration of the Forfeiture Period (the "Prospectus"). In the
event that the Restricted Shares have not been included in a
Prospectus prior to the termination of the Forfeiture Period and at
such time the reoffer and resale by Executive are subject to
restrictions under the 1933 Act (the "Resale Restrictions"), then
and in such event, so long as the Resale Restrictions remain in
effect, the Company agrees to include, at its expense, such
Restricted Shares in the next Form S-1, S-3 or Prospectus filed by
it with the Securities and Exchange Commission; provided, however,
that if the Company proposes to include the Restricted Shares in an
underwritten offering then inclusion of the Restricted Shares in
such underwritten offering shall be subject to the consent of the
underwriter(s), which consent shall not be unreasonably withheld.
Executive acknowledges and understands that Executive shall have no
right to require the Company to file any such Prospectus or Form S-
1 or S-3 Registration Statement either prior to or after the
termination of the Forfeiture Period.
(b) Executive consents to the placing of restrictive
legends in substantially the following form, on any stock
certificate(s) representing Restricted Shares:
"The Shares represented by this Certificate
have not been registered under the Securities
Act of 1933, as amended, or the blue sky law
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 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
193
the blue sky laws of any state having
jurisdiction. In addition, these shares are
subject to escrow and forfeiture provisions
all as set forth in that certain Restricted
Stock Grant Agreement dated as of February
27, 1995."
(c) Executive also hereby consents and agrees to the placing
of stop transfer instructions against any transfer(s) of the
Restricted Shares by the Executive. The Company hereby agrees to
remove the legend and stop transfer instructions upon receipt of an
opinion of counsel from the Executive, 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
securities laws of any state having jurisdiction.
6. ADDITIONAL DOCUMENTS. The Company and Executive hereby
covenant and agree to execute and deliver any additional documents
necessary or desirable, in the opinion of Executive or the Company,
as the case may be, to complete the sale and transfer of all of the
Restricted Shares in accordance with the terms and conditions
stated herein.
7. RESTRICTED SHARES NOT TRANSFERABLE. Executive may not sell,
transfer, pledge (except to the Company as contemplated hereby),
hypothecate or assign the Restricted Shares or his rights under
this Agreement during the Forfeiture Period. Except as
contemplated by this Agreement, the Restricted Shares and
Executive's rights under this Agreement may not otherwise be sold,
exchanged, transferred, assigned, pledged, hypothecated, or
disposed of in any way, whether by operation of law or otherwise
during the Forfeiture Period.
8. DEATH OF EXECUTIVE. If the Executive dies during Forfeiture
Period, a portion of the Restricted Shares shall vest for the
benefit of the Executive's estate and the Forfeiture Period shall
be deemed to have terminated with respect to that amount of the
Restricted Shares computed by multiplying the total number of
Restricted Shares (65,000) by a fraction the numerator of which
consists of the number of completed months from February 27, 1995
through the date of the Executive's death (with each month
concluding on the close of business on the 26th day thereof) and
the denominator equal to thirty-six (36). In the event of the
Executive's death during the Forfeiture Period, those Restricted
Shares which do not vest for the benefit of the Executive's estate
pursuant to the terms hereof shall be forfeited to the Company
without any further action on the part of the Company.
9. NO OBLIGATION TO CONTINUE EMPLOYMENT. The Company is not by
virtue of the Company's issuance of the Restricted Shares to
Executive assuming any obligation to continue Executive's
employment in any manner. The terms and conditions of Executive's
employment by the Company and the Company's obligations with
respect thereto are set forth in the Employment Agreement.
194
10. TAXES. Upon expiration of the Forfeiture Period, Executive
may satisfy any amounts required to be withheld by the Company
under applicable federal, state and local taxes in effect, by
electing to have the Company withhold a portion of the Restricted
Shares to be delivered for the payment of such taxes.
11. MISCELLANEOUS.
(a) SEVERABILITY. If any term, provision covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
(b) BINDING EFFECT AND ASSIGNMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by the
Company without the prior written consent of Executive.
(c) AMENDMENTS AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by each of
the parties hereto.
(d) SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties
hereto acknowledge that the Company or the Executive, respectively,
will be irreparably harmed and that there will be no adequate
remedy at law for a violation by the other party respectively, of
any of the covenants or agreements set forth herein. Therefore, it
is agreed that, in addition to any other remedies which may be
available to Executive or the Company upon any such violation, such
party shall have the right to enforce such covenants and agreements
by specified performance, injunctive relief or by any other means
available to such party at law or in equity.
(e) NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if
delivered by messenger, transmitted by telex or telecopier (with
receipt confirmed), hand-delivered, delivered by Federal Express or
other private delivery service (with receipt confirmed), or mailed
by registered or certified mail, postage prepaid, as follows:
195
(a) If to Executive:
Eugene L. Froelich
Maxicare Health Plans, Inc.
1149 South Broadway Street
Los Angeles, California 90015
(b) If to the Company:
Maxicare Health Plans, Inc.
1149 South Broadway Street
Los Angeles, California 90015
Attention: Alan D. Bloom, Esq.
General Counsel
or such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
(f) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and by separate parties on separate
counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
(g) GOVERNING LAW. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of
California.
(h) ENTIRE UNDERSTANDING. This Agreement constitutes the
entire understanding between the parties hereto regarding the
subject matter hereof and supersedes all other prior agreements,
understandings, negotiations and discussions of the parties whether
written or oral.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the day and year first above written.
MAXICARE HEALTH PLANS, INC.,
a Delaware corporation
By: /s/ ALAN D. BLOOM
-------------------
Its: GENERAL COUNSEL
---------------
EXECUTIVE
/s/ EUGENE L. FROELICH
----------------------
Eugene L. Froelich
196
EX-23.2
19
INDEPENDENT ACCOUNTANT'S CONSENT - ERNST & YOUNG
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
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 8, 1995
except for Note 9 for which the date is March 14, 1995 with respect
to the 1994 consolidated financial statements and schedules of
Maxicare Health Plans, Inc. in its annual report on Form 10-K for
the year ended December 31, 1994.
ERNST & YOUNG LLP
Los Angeles, California
March 14, 1995
197
EX-23.3
20
INDEPENDENT ACCOUNTANT'S CONSENT - PRICE
WATERHOUSE
Exhibit 23.3
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 201 of this Form 10-K.
PRICE WATERHOUSE LLP
Los Angeles, California
March 20, 1995
198
EX-27
21
FDS FOR 12/94 10-K
5