MAXICARE HEALTH PLANS INC, DEF 14A, 1994-01-04

MAXICARE HEALTH PLANS INC
DEF 14A, 1994-01-04
HOSPITAL & MEDICAL SERVICE PLANS

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to section 240.14a-11(c) or section 240.14a-12

MAXICARE HEALTH PLANS, INC.
(Name of Registrant as Specified in its Charter)

PATRICIA R. OSBERG
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (check the appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).

[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*

(4) Proposed maximum aggregate value of transaction:
- --------
*Set forth the amount on which the filing is calculated and state how it was
determined.

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount previously paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

Notes:

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MAXICARE HEALTH PLANS, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

ON JANUARY 28, 1994

NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Maxicare Health Plans, Inc. (the "Company") will be held at the Sunset Room in
the Transamerica Center Tower Restaurant, 1150 South Olive Street, Los Angeles,
California, on January 28, 1994, at 8:00 a.m. (Pacific Time) for the following
purposes:

1. To elect three directors to the Board of Directors who will serve until
the Company's 1996 Annual Meeting of Stockholders and until their
successors have been duly elected and qualified; and

2. To transact such other business as may be properly brought before the
meeting or any adjournment thereof.

Stockholders of record at the close of business on December 2, 1993 will be
entitled to notice of and to vote at said meeting or any adjournments thereof.
A list of such stockholders shall be open to the examination of any stockholder
at the meeting and for a period of ten days prior to the date of the meeting at
the office of Maxicare Health Plans, Inc., 1149 South Broadway Street, Los
Angeles, California, 90015.

The Board of Directors urges each stockholder to read carefully the enclosed
proxy statement which is incorporated herein by reference.

By Order of the Board of Directors,

Alan D. Bloom
Secretary

1149 South Broadway Street
Los Angeles, California 90015
Dated: December 27, 1993

IMPORTANT

STOCKHOLDERS ARE REQUESTED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN, AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO WHICH NO POSTAGE NEED BE
AFFIXED IF MAILED IN THE UNITED STATES. IF YOU PLAN TO ATTEND THE MEETING AND
WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY
IS VOTED.
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MAXICARE HEALTH PLANS, INC.
1149 SOUTH BROADWAY STREET
LOS ANGELES, CALIFORNIA 90015

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS

JANUARY 28, 1994

This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") and management of Maxicare Health Plans, Inc.,
a Delaware corporation (the "Company"), of proxies to be used at the Annual
Meeting of Stockholders to be held at the Transamerica Center Sunset Room in
the Tower Restaurant, 1150 South Olive Street, Los Angeles, California, on
January 28, 1994 at 8:00 a.m. (Pacific Time) and at any adjournments thereof. A
form of the proxy is enclosed for use at the meeting. Stockholders are being
asked to vote upon the election of three directors to the Board, and to
transact such other business as may properly come before the meeting.

IF NO INSTRUCTIONS ARE GIVEN ON THE PROXY, ALL SHARES REPRESENTED BY VALID
PROXIES RECEIVED PURSUANT TO THIS SOLICITATION (AND NOT REVOKED BEFORE THEY ARE
VOTED) WILL BE VOTED FOR THE DIRECTORS NOMINATED BY THE BOARD, AND AS
RECOMMENDED BY THE BOARD WITH REGARD TO ALL OTHER MATTERS OR IF NO SUCH
RECOMMENDATION IS GIVEN, IN THE DISCRETION OF THE PROXY HOLDER. PROXIES MARKED
"WITHHOLD" WILL BE COUNTED TOWARDS THE QUORUM REQUIREMENT BUT WILL NOT BE VOTED
FOR THE ELECTION OF THE BOARD'S DIRECTOR NOMINEES.

A proxy may be revoked at any time before it is exercised by giving written
notice of revocation to the Secretary of the Company or by submitting, prior to
the time of the meeting, a properly executed proxy bearing a later date.
Stockholders having executed and returned a proxy, who attend the meeting and
desire to vote in person, are requested to so notify the Secretary of the
Company prior to the time of the meeting.

The mailing address of the Company is 1149 South Broadway Street, Los
Angeles, California, 90015. The approximate date on which this Proxy Statement
and form of proxy are being mailed to the stockholders is December 30, 1993.

GENERAL INFORMATION

OUTSTANDING SHARES AND VOTING RIGHTS

There were 10,033,345 shares of common stock of the Company ("Common Stock")
outstanding as of December 2, 1993, the Record Date for the stockholders
entitled to vote at the Annual Meeting. Of the total shares of Common Stock
outstanding as of that date, 1,265,740 shares of Common Stock were held in
claims reserves by the Company, as disbursing agent pursuant to the Company's
Joint Plan of Reorganization dated May 14, 1990, as modified, which was
confirmed by the Bankruptcy Court by order dated August 31, 1990 (the
"Reorganization Plan"). The Company holds such shares (the "Unallocated
Shares") as disbursing agent for the benefit of creditors under the
Reorganization Plan. Of the 1,265,740 Unallocated Shares held as of the Record
Date, 853,198 were held for the benefit of creditors of the Company's operating
subsidiaries (Reorganization Plan classes 5A through 5H), 118,400 shares were
held for bank group creditors (Reorganization Plan class 7), 97,272 shares were
held for bondholder creditors (Reorganization Plan classes 8A through 8D), and
196,870 were held for former stockholders (Reorganization Plan class 12). As of
the Record Date, 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

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independent directors of the Board (as such term is defined by the
Reorganization Plan). Currently, the independent directors are Messrs. Brinegar
and Lewis and Ms. Courtright (the "Independent Directors"). The Reorganization
Plan provides that the Unallocated Shares shall be voted in the following
manner:

(i) 1,050,068 shares which were held in the claims reserves as of the
Record Date for the holders of Reorganization Plan classes 5A through 5H
and Reorganization Plan class 9 allowed claims and Reorganization Plan
class 12 allowed interests and equity holder claims, shall (a) as to
proposals made by the Company, be voted in the same manner and to 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) 215,672 shares which were held in the claims reserves as of the
Record Date for holders of Reorganization Plan class 7 and Reorganization
Plan classes 8A through 8D allowed claims, shall be voted in the same
manner and to the same degree as all of the allocated shares of Common
Stock.

The only business which the Board presently believes will be voted upon at
the Annual Meeting is the election of three directors. Consequently, all
Unallocated Shares will be voted in the same manner and to the same degree as
the allocated shares of Common Stock.

Each stockholder of record at the close of business on December 2, 1993 is
entitled to one vote for each share of Common Stock then held on each matter to
come before the meeting, or any adjournments thereof.

As of December 2, 1993 there were 2,400,000 shares of Series A Cumulative
Convertible Preferred Stock ("Series A Stock") outstanding and entitled to vote
at the Annual Meeting. Each share of the Series A Stock carries the right to
vote the equivalent of 2.7548 shares of Common Stock or 6,611,520 shares of
Common Stock in aggregate. Generally, holders of Series A Stock vote together
with the holders of the Common Stock as a single class, including with respect
to the election of directors; however, under certain circumstances the holders
of Series A Stock shall be entitled to vote as a separate class and in that
regard may determine the outcome of certain proposals presented for stockholder
consideration.

A majority of the votes eligible to be cast at the Annual Meeting by holders
of Common Stock and Series A Stock, or 8,322,433 votes, represented in person
or by proxy at the Annual Meeting is required for a quorum. A plurality of the
votes cast at the Annual Meeting by holders of shares of Common Stock and
Series A Stock entitled to vote, and present, in person or by proxy, at the
Annual Meeting is required for the election of each nominee as a director. The
Company's Certificate of Incorporation does not provide for cumulative voting.

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 2,
1993 by each director or nominee, 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.

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<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
OWNERSHIP(1) PERCENTAGE PERCENTAGE
-------------------- PERCENTAGE OF OF TOTAL
NAME AND ADDRESS OF COMMON SERIES A OF COMMON SERIES A VOTING
PERSON OR GROUP STOCK(2)(3) STOCK(2) STOCK STOCK POWER(4)
------------------- ----------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Alan S. Manne............... 500 * *
1149 South Broadway Street
Los Angeles, California
90015
General Motors Hourly-Rate
Employes Pension Trust(17). 446,335 153,200 4.27% 6.38% 2.68%
767 Fifth Avenue
New York, New York 10153
General Motors Salaried
Employes Pension Trust(17). 417,066 144,100 4.00% 6.00% 2.51%
767 Fifth Avenue
New York, New York 10153
J.P. Morgan & Co.
Incorporated(18)........... 590,708 210,000 5.57% 8.75% 3.55%
23 Wall Street
New York, New York 10015
Froley, Revy Investment
Co., Inc.(19)(20).......... 650,133 236,000 6.09% 9.83% 3.91%
10900 Wilshire Boulevard,
#1050
Los Angeles, California
90024
Mutual Series Fund
Inc.(19)(21)............... 518,178 188,100 4.91% 7.84% 3.11%
51 John F. Kennedy Parkway
Short Hills, New Jersey
07078
Smith Barney Shearson
Inc.(19)................... 917,348 333,000 8.38% 13.88% 5.51%
388 Greenwich Street
New York, New York 10013
Bear Stearns Securities
Corp.(19)(22)............ 577,957 209,800 5.45% 8.74% 3.47%
One Metrotech Center
North
Brooklyn, New York
11201-3862
All Directors and Execu-
tive Officers as a Group
(15 persons)(23)......... 964,122 8.77% 5.48%
</TABLE>
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*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.

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(3) In the event that a tender offer for the Company's shares of Common Stock
is commenced prior to the final distribution of the Company's Common Stock
pursuant to the Reorganization Plan, the committee elected to oversee the
implementation of the Reorganization Plan after the Effective Date (the
"New Committee") will have certain rights to direct the tender of the
Unallocated Shares. The New Committee disclaims beneficial ownership over
any such shares.
(4) Assumes 10,033,345 shares of Common Stock outstanding, the conversion of
all 2,400,000 shares of Series A Stock outstanding (or 6,611,520 shares)
and, with respect to each listed person or group, the exercise or
conversion of any option, warrant or right held by each such person or
group 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
"General Information--Outstanding Shares and Voting Rights".
(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. Includes 1,806,200 shares beneficially owned by Chilmark Capital Corp.
and Neil Jonathan Weisman; for further information with respect to these
shares, see footnotes (7) and (8), below.
(7) Includes 104,300 shares of Common Stock held by the Chilmark Capital Corp.
("Chilmark") profit sharing plan, and 1,037,600 shares of Common Stock and
101,600 shares of Series A Stock held in two partnerships, of which,
Chilmark is general partner and 654,300 shares of Common Stock and 91,900
shares of Series A Stock held for two managed accounts for which Chilmark
has investment discretion. The shares of Series A Stock held by Chilmark
are convertible into an aggregate of 533,054 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.
(8) Neil Jonathan Weisman is president and sole shareholder of Chilmark. In
addition to beneficially owning the shares set forth in footnote (7),
above, 10,000 shares of Common Stock are held by Mr. Weisman as trustee
for his children.
(9) Includes 377,778 shares which are subject to options which are currently
exercisable.
(10) On December 5, 1990, the effective date of the Reorganization Plan,
Messrs. Ratican, Lewis, Bloom and Clements held 350; 490; 150 and 2,000
shares, respectively, of common stock of Maxicare Health Plans, Inc., a
California corporation ("MHP"), the Company's predecessor in interest; Mr.
Ratican's shares were held in his individual retirement account. These
shares were cancelled as of that date in accordance with the terms of the
Reorganization Plan. As a result, Messrs. Ratican, Lewis, Bloom and
Clements each holds a class 12 claim under the Reorganization Plan which
may entitle them to receive shares of Common Stock and warrants to
purchase Common Stock. The total number of shares of Common Stock and
warrants which these individuals will be entitled to receive has not yet
been determined.
(11) All shares are subject to options which are currently exercisable.
(12) Includes 6,666 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.
(13) Includes 46,664 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.
(14) Includes 10,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.
(15) Does not include the Unallocated Shares, held of record by the Company.
Under certain circumstances, the Independent Directors, currently Messrs.
Brinegar and Lewis and Ms. Courtright, have rights to vote the Unallocated
Shares. The Independent Directors disclaim beneficial ownership of these
shares.

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For further information on the voting of these shares, see "General
Information--Outstanding Shares and Voting Rights", above.
(16) Dr. Lewis, a director of the Company, is employed by a creditor and/or
affiliate of a creditor which have filed claims under the Reorganization
Plan which may entitle such creditor, or affiliate thereof, to receive
distributions of Common Stock. The total number of shares of Common Stock
which these creditors will receive has not yet been determined. Dr. Lewis
disclaims beneficial ownership of these 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 200,000 shares (in the aggregate)
of Series A Stock. The shares of Series A Stock are convertible into an
aggregate of 819,002 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 12,200 shares of Common Stock and 210,000 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 aggregate of 578,508
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.
(19) 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 own, beneficially, shares of Common
Stock.
(20) 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.
(21) 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. 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. However, Heine
disclaims any beneficial ownership in such shares owned by the Fund.
(22) All shares are held on behalf of private investors and Bear Sterns
Securities Corp. disclaims beneficial ownership of the shares.
(23) Includes 955,547 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days. Also, on December
5, 1990, the Effective Date of the Reorganization Plan, certain officers
and directors of the Company held an aggregate of 3,790 shares of common
stock of MHP, the Company's predecessor in interest. These shares were
cancelled as of that date in accordance with the terms of the
Reorganization Plan. As a result, these executive officers and directors
each holds a class 12 claim under the Reorganization Plan which may
entitle them to receive shares of Common Stock and warrants to purchase
Common Stock. The total number of shares of Common Stock and warrants
which these individuals will be entitled to receive has not yet been
determined.

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ITEM 1. ELECTION OF DIRECTORS

Under the terms of the Reorganization Plan, the Board was reconstituted as of
December 5, 1990, to consist of up to nine persons. These persons include the
Chief Executive Officer, one member selected by the Chief Executive Officer,
two members selected by the Official Committee of Unsecured Creditors (the
"OCC") with the concurrence of the Official Bank Bondholders' Committee and up
to five members selected by a majority vote of a search committee. As of the
date hereof, the members of the Board include Peter Ratican, the Chief
Executive Officer; Eugene Froelich, the Chief Executive Officer's nominee; Leon
Clements, the OCC nominee; Charles Lewis, the search committee nominee; Claude
Brinegar and Thomas Field, who were nominated and elected to the Board by the
other members of the Board in June 1991 and April 1992, respectively, and
Fiorenza (Florence) Courtright who was nominated by the Nominating Committee of
the Board and elected to the Board by the members of the Board in November
1993. Peter Ratican, Eugene Froelich, Charles Lewis and Claude Brinegar are the
only directors who were elected by a vote of the Company's stockholders at
meetings which proxies were solicited.

The Company's Certificate of Incorporation provides that directors are
classified into Class I, Class II or Class III and the initial terms of the
directors are staggered for one, two and three years, respectively. The
Certificate of Incorporation further provides that at the annual meeting
following the expiration of the initial terms of the directors in each class,
the class of directors elected at such meeting would stand for election for a
three year term ending at the third annual meeting thereafter.

At the Annual Meeting, the Board proposes the election of the following
nominees to the Board, each to serve as a Class III director for three years,
and until his successor is elected and qualified:

CLASS III

PETER J. RATICAN
Director since: 1983
Age: 50

Mr. Ratican was appointed Chairman of the Board, Chief Executive Officer
and President of the Company in August 1988. Prior to joining the Company,
Mr. Ratican was a senior executive of DeLaurentis Entertainment Group Inc.
and MCA INC. Prior to joining MCA INC, he was a Senior Audit Manager for
the Los Angeles Office of Price Waterhouse, specializing in the
entertainment and health care industries. Mr. Ratican 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) and he is a certified public accountant.

THOMAS W. FIELD, JR.
Director since: 1992
Age: 60

Mr. Field was appointed 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. From
1984 to September 1989, Mr. Field was with McKesson Corporation in a number
of executive capacities, most recently as Chairman of the Board, President
and Chief Executive Officer. Mr. Field also holds directorships at Campbell
Soup Company, Bromar Inc. and Provigo Corp.

ALAN S. MANNE
Nominee for Director
Age: 68

Mr. 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.

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If the nominees should for any reason become unavailable to serve as a
director or be withdrawn from nomination, and if the Board shall designate a
substitute nominee, the shares represented by valid proxies will be voted in
favor of the substitute nominee. A stockholder may, in the manner set forth on
the enclosed form of proxy, instruct the named proxies not to vote that
stockholder's shares for a particular nominee or nominees, as indicated.

THE BOARD RECOMMENDS VOTES FOR THE ELECTION OF MESSRS. RATICAN, FIELD AND
MANNE AS DIRECTORS ON THE BOARD. PROXIES GIVEN WITHOUT INSTRUCTIONS WILL BE
VOTED FOR THESE INDIVIDUALS.

The following persons currently serve as members of the Board and each of
these members will continue to serve until the Annual Meeting in the year
indicated or until his successor is duly elected and qualified:

CLASS I

CHARLES E. LEWIS
Director since: 1983
Elected to serve until: 1994 Annual Meeting
Age: 64

Dr. 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 for 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.

CLAUDE S. BRINEGAR
Director since: 1991
Elected to serve until: 1994 Annual Meeting
Age: 67

Mr. 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 1985, Mr. Brinegar was elected Executive Vice
President of Unocal and he became Chief Financial Officer in 1986. In 1989,
Mr. Brinegar was elected as Vice Chairman of Unocal. He is also a member of
the board of directors of Consolidated Rail Corporation and a visiting
scholar at Stanford University.

CLASS II

EUGENE L. FROELICH
Director since: 1989
Elected to serve until: 1995 Annual Meeting
Age: 52

Mr. Froelich was appointed Chief Financial Officer, Executive Vice
President--Finance and Administration and director in March 1989. From 1984
to March 1989, Mr. Froelich was President of GFE, Inc., where he engaged in
financial and business consulting for a variety of industries. Previously,
Mr. Froelich was Vice President of MCA INC and he is a certified public
accountant.

FLORENCE F. COURTRIGHT
Director since: 1993
Elected to serve until: 1995 Annual Meeting
Age: 61

Ms. Courtright has been a private investor for the last five years. 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.

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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

There were six meetings of the Company's Board during the year ended
December 31, 1992. During that year, each director attended at least 75% of
the meetings of the Board and its committees that each director was entitled
to attend.

The Board has standing Audit, Compensation, Nominating and Option
Committees.

Audit Committee. The Audit Committee meets periodically with management and
the Company's independent public accountants to make inquiries regarding the
manner in which the responsibilities of each are being discharged and the
Audit Committee reports thereon to the Board. The Audit Committee also
recommends, for the approval of the Board, the annual appointment of the
Company's independent public accountants with whom the Audit Committee reviews
the scope of the audit and non-audit assignments, the accounting principles
being applied by the Company in financial reporting, the scope of internal
auditing procedures, and the adequacy of internal controls. The current
members of the Audit Committee are Dr. Lewis and Messrs. Field and Brinegar.
During 1992, the Audit Committee met six times.

Compensation Committee. The Compensation Committee reviews and makes
recommendations with respect to the Company's various compensation programs.
This committee administers the awarding of discretionary bonuses by the
Company and also approves the remuneration of executive and other senior
officers of the Company. The current members of the Compensation Committee are
Messrs. Clements, Field, Brinegar and Ratican (ex-officio). The Compensation
Committee met one time during 1992.

Nominating Committee. The Nominating Committee recommends to the Board
nominees for election to the Board at the annual meeting and to fill any Board
vacancies that may occur. The current members of the Nominating Committee are
Dr. Lewis and Messrs. Brinegar and Field. The Nominating Committee will
consider nominees recommended by stockholders, however, there are presently no
formal procedures for the submission of such recommendations. The Nominating
Committee was established by the Board in December 1992 thus there were no
meetings held during 1992.

Option Committee. The Option Committee administers the 1990 Stock Option
Plan and authorizes the granting of options thereunder. Members of this
committee must be a director who is not, during the one year prior to service
as an administrator of the plan, granted or awarded options pursuant to the
plan. The current members of the Option Committee are Messrs. Ratican and
Froelich. The Option Committee met three times during 1992.

DIRECTORS REMUNERATION

During 1992, certain members of the Board received compensation for their
services as directors. These members included Leon Clements, Walter Filkowski,
Charles Lewis, Claude Brinegar and Thomas Field, Jr. and they received cash
payments of $27,750, $30,000, $30,000, $30,750, and $20,250, respectively.
Walter Filkowski no longer serves as a director of the Company. During 1993,
current directors, excluding directors who are also employees 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. Directors who are
employees of the Company do not receive extra compensation for their services
on the Board.

Upon election to the Board, non-employee directors of the Company have
received options to purchase 10,000 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 held
by each of the current and former directors, the date of grant and the
exercise price of such options:

<TABLE>
<CAPTION>
EXERCISE PRICE
DIRECTOR DATE OF GRANT PER SHARE
-------- ------------- --------------
<S> <C> <C>
Leon Clements............................. May 20, 1991 $ 8.00
Walter Filkowski.......................... May 20, 1991 $ 8.00
Charles Lewis............................. May 20, 1991 $ 8.00
Claude Brinegar........................... July 18, 1991 $ 9.25
Thomas Field.............................. April 1, 1992 $10.50
Florence Courtright....................... November 5, 1993 $10.88
</TABLE>

9
<PAGE>

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. Upon the expiration of his term as a director on February 10,
1993, the Board voted to extend the period in which Mr. Filkowski may exercise
his options to one year from the termination date of his directorship.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Peter 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, 1992. Although Mr. Ratican served as an ex-officio member of
the 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.

EXECUTIVE OFFICER COMPENSATION

Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain data and information in regard to the
compensation and benefits provided to the Company's Chairman and Chief
Executive Officer and the four other most highly compensated executive
officers. The disclosure requirements for these five individuals includes the
use of tables and a report explaining the rationale and considerations that led
to fundamental executive officer compensation decisions affecting those
individuals. In fulfillment of this requirement, the Compensation Committee, at
the direction of the Board, has prepared the following report for inclusion in
this Proxy Statement. This report reflects the Company's compensation
philosophy as endorsed by the Board and resulting actions taken by the Company
for the 1992 reporting period shown in the various compensation tables
supporting this report. As noted earlier in the Proxy Statement, the
Compensation Committee approves the payment amounts and award levels for
executive officers of the Company and its subsidiaries.

THE 1992 BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION

COMPENSATION PHILOSOPHY REGARDING EXECUTIVE OFFICERS

The Compensation Committee designs, reviews and approves the compensation
program for the Company's top executive employees. The Compensation Committee
for the Company's 1992 fiscal year was comprised of two outside directors and
Peter Ratican (ex-officio), the Company's Chief Executive Officer (the "CEO").
The Compensation Committee coordinates with the Stock Option Committee stock
options grants pursuant to the stockholder approved Stock Option Plan. The
recommendations of the Compensation Committee regarding compensation are
presented to the Board which makes all final approvals.

The fundamental philosophy of the Company's compensation program is to offer
compensation opportunities for all employees which are based on the
individual's contribution and personal performance. Consideration is also given
to a person's potential for future responsibility and promotion.

In designing and administering the individual elements of the executive
compensation program, the Compensation Committee strives to balance short and
long-term incentive objectives and employ prudent judgment in establishing
performance criteria, evaluating performance and determining actual incentive
payments. Essentially, the executive compensation program of the Company has
been designed to:

. support a pay for performance policy that differentiates in compensation
amounts based on corporate, business unit and individual performance;

. motivate key executive officers to achieve strategic business
initiatives and reward them for their achievement;

10
<PAGE>

. provide compensation opportunities which are comparable to those offered
by other leading companies in the health care industry, thus allowing
the Company to compete for and retain talented executives who are
critical to the Company's long-term success; and

. align the interest of executives with the long-term interest of
stockholders through award opportunities that can result in bonuses and
ownership of common stock.

RELATIONSHIP OF PERFORMANCE UNDER THE COMPENSATION PLANS

The compensation plans support the Company's internal culture and human
resource values which are to foster career opportunities and development of the
best people at all levels and to encourage and reward actions which put the
interests of the Company as a whole ahead of functional specialties and
individual considerations.

At present, the compensation program for all executives, including the CEO
and the four other most highly compensated executive officers other than the
CEO (the "named executives"), is comprised of two elements:

. Base salary and benefits typically offered to executives by major
corporations.

. Stock option grants to provide an incentive that focuses the executives'
attention on managing the Company from the perspective of an owner with
an equity stake in the business. These stock options are tied to the
future performance of the Company's stock and will provide value to the
recipient only when the price of the Company's stock increases above the
option grant price.

Since the Company has been formally reorganized for only two years and has
not built a strong history of profitable operations, the Compensation Committee
believes that to attract and retain quality executives more emphasis should be
placed in 1992 on base salary than on performance measured compensation for the
named executives, other than the CEO and Mr. Froelich (the "CFO").

In addition to the above mentioned compensation elements, there are two
elements in the Company's executive compensation program for the CEO and the
CFO:

. Annual incentive compensation.

. Long-term compensation.

SALARY FACTORS

Every employee of the Company, including the named executives, is assigned a
grade level with a salary range that is designed to reflect competitive
practice for the position they hold. At the end of each fiscal year, the
Compensation Committee reviews and approves an annual salary plan for all
executives for the upcoming year. This salary plan is developed under the
ultimate direction of the CEO. The salaries approved for 1992 reflect
consideration of the Compensation Committee's and the Board's assessment of the
performance of each executive over the past year, judgments as to the expected
future contributions of the individual executive, competitive data, position
tenure and recognition of the dramatic reversal of the Company's results of
operations as evidenced by a $13 million increase in the Company's income from
operations from 1990 to 1991.

PERFORMANCE EVALUATION. The Compensation Committee has taken particular note
of the executives' success in restructuring the Company's businesses to adjust
for the decline in its enrollment which resulted from the Company filing for
protection under Chapter 11 of Title 11 of the United States Code ("Chapter
11") in 1989 and in effectively directing the Company's operations under the
difficult competitive conditions in the markets served by the Company over the
last two years. The Compensation Committee believes the executives displayed
effective leadership in accomplishing a turnaround of the Company's operating
performance subsequent to the filing of Chapter 11 and has taken into account
the executives' performance in increasing or maintaining the membership of its
ongoing operations. In its review of the

11
<PAGE>

executives' performance and compensation, the Compensation Committee has also
taken into account the executives' consistent commitment to the long-term
success of the Company through development of new or improved products. The
Compensation Committee also assessed past performance and its expectation as to
future contributions in leading the Company and its businesses.

COMPETITIVE DATA. Executive salaries were set to correspond to the
Compensation Committee's understanding of the median range of salaries for
other companies. No formal study was performed except for the salaries
recommended for the CEO and the CFO but a formal study for all other executive
officers is planned for the 1994 fiscal year. The Board considered the
competitive data for chief executive officers and chief financial officers of
seven comparable health care organizations, three of which are in the peer
group line in the performance graph, provided by an independent consulting
firm.

POSITION TENURE. The named executives have been with the Company from three
to ten years and have extensive experience in their areas of expertise and the
health care industry. They remained with the Company during difficult financial
times and have developed a broad base of Company history.

The consulting firm provided advice to the Board with respect to the
reasonableness of compensation paid to the CEO and the CFO. In doing so, the
target levels of cash compensation (salary and annual incentives) and the
estimated potential future value of stock option grants was set to roughly
approximate a 65th percentile competitive level taking into account the
practices of other similar companies in the health care industry and other
companies emerging from a bankruptcy reorganization.

After completing their subjective assessment of the above salary factors, the
Compensation Committee increased the salaries of the CEO and two of the named
executives effective January 1, 1992 as set forth in the tables below.

BENEFITS

In the past, the Company adopted certain broad-based employee benefit plans
in which the executives are permitted to participate on the same terms as non-
executive employees who meet applicable eligibility criteria, subject to any
legal limitations on the amounts that may be contributed or the benefits that
may be payable under the plans. Benefits under these and other plans are not
tied to Company performance.

STOCK OPTIONS

As noted earlier in the Proxy Statement, stock options are granted to
employees and directors under the 1990 Stock Option Plan by the Stock Option
Committee which is comprised of the CEO and the CFO. These grants are made only
after approval by the Compensation Committee. Stock option grants provide the
right to purchase shares of Common Stock at the fair market value (the closing
price) on the date of grant. Each stock option becomes exercisable in three
annual installments following the date of grant and has a 5 year term. The
number of shares covered by an individual's option reflects the Stock Option
Committee's assessment of the individual's relative value to the Company.
During 1992 no stock options were granted to the named executives, other than
the CEO and the CFO, because the Stock Option Committee believes that its past
grants have successfully focused the Company's executives on building
profitability and stockholder value.

Stock options grants to the CEO and the CFO which are recommended by the
Compensation Committee and approved by the Board provide the right to purchase
shares of Common Stock at the fair market value (the closing price) on the date
of grant. Each stock option becomes exercisable in three annual installments
beginning on the date of grant and has a 5 year term. The option grants cover
shares of Common Stock not authorized under a stockholder approved plan. In
granting stock options to the CEO and the CFO, the Board was advised by the
consulting firm which took into account the items discussed above under
"Salary" and the desire to tie closely the financial interests of the CEO and
the CFO to those of the Company's stockholders. The grants made in 1992, as set
forth in the tables below, reflects such considerations.

12
<PAGE>

ANNUAL INCENTIVES

In addition to the base salary, the CEO and the CFO could earn an annual
performance bonus which is based on the pre-tax earnings of the Company. For
purposes of calculating the annual bonus, the goals on pre-tax earnings are set
forth in the CEO's and the CFO's Employment Agreement. No bonus was paid for
1992 because the pre-tax earnings goal was not achieved. The consulting firm
believes this ties closely the financial interests of the CEO and the CFO to
those of the Company's stockholders. The bonuses paid pursuant to the Company's
plan of reorganization are not under the jurisdiction of the Compensation
Committee.

OTHER COMPENSATION

Also set forth in the CEO's and the CFO's employment agreements is a bonus on
the sale of the Company or substantially all of its assets or a merger into
another company. This bonus is based on the extent to which the sale price
exceeds an initial value set forth in the CEO's and the CFO's employment
agreements.

CONCLUSION

Based on its evaluation of these factors, the Compensation Committee believes
that the executive employees of the Company are dedicated to achieving
significant improvements in long-term financial performance and that the
compensation policies, plans and programs the Compensation Committee and the
Board have designed, implemented and administered have contributed to achieving
this management focus. There were no decisions affecting compensation paid to
the CEO or named executives for 1992 that were made by the Board or the
Compensation Committee after October 21, 1992.

SUBMITTED ON OCTOBER 29, 1993 BY THE 1992 COMPENSATION COMMITTEE OF THE
COMPANY'S BOARD OF DIRECTORS:

CLAUDE S. BRINEGAR

LEON M. CLEMENTS

PETER J. RATICAN (ex-officio)

13
<PAGE>

SUMMARY COMPENSATION TABLE

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,
1992, 1991 and 1990, of those persons who were, at December 31, 1992 (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

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
STOCK
OPTIONS ALL OTHER
SALARY(1) BONUS(2) AWARDS COMPENSATION(3)(4)
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
--------------------------- ---- --------- -------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Peter J. Ratican 1992 $ 423,653 $ 148,122 150,000 $6,866
Chairman of the Board 1991 $ 374,999
of Directors, Chief 1990 $ 321,250 $ 461,093 277,778
Executive Officer and President
Eugene L. Froelich 1992 $ 323,654 $ 148,122 150,000 $6,866
Executive Vice President-- 1991 $ 274,999
Finance and Administration, 1990 $ 223,167 $ 461,093 277,778
Chief Financial Officer and Di-
rector
Alan D. Bloom 1992 $ 195,000 $5,850
Senior Vice President, 1991 $ 195,000
Secretary and General Counsel 1990 $ 181,938 $ 9,250 10,000
Richard A. Link 1992 $ 190,008 $5,700
Chief Accounting Officer 1991 $ 175,000 20,000
and Senior Vice President-- 1990 $ 139,062 $ 14,000 50,000
Accounting
Samuel W. Warburton, M.D. 1992 $ 225,000 $6,750
Senior Vice President-- 1991 $ 225,000 5,000
Medical Affairs 1990 $ 201,242 $ 50,000 10,000
</TABLE>
- --------
(1) Excludes distributions received during the years ended December 31, 1992
and 1991 paid with respect to claims for pre-petition compensation paid
pursuant to the Reorganization Plan.
(2) These amounts include bonuses payable pursuant to the Reorganization Plan
as well as bonuses paid to encourage Named Officers to remain in the employ
of the Company through the reorganization. Bonuses paid pursuant to the
Reorganization Plan were paid from funds held by the Disbursing Agent in a
segregated account and were not paid out of the Company's available cash.

<TABLE>
<CAPTION>
1992 1990
-------------- -------------------------
REORGANIZATION REORGANIZATION EMPLOYMENT
PLAN PLAN INCENTIVE
-------------- -------------- ----------
<S> <C> <C> <C>
Mr. Ratican.................... $148,122 $461,093
Mr. Froelich................... $148,122 $461,093
Mr. Bloom...................... $ 9,250
Mr. Link....................... $14,000
Dr. Warburton.................. $ 50,000
</TABLE>
(3) These amounts include contributions made by the Company on behalf of the
Named Officer under the Company's 401K Savings Incentive Plan.
(4) In accordance with the transitional provisions applicable to the revised
rules on executive officer and director compensation disclosure adopted by
the Securities and Exchange Commission, as informally

14
<PAGE>

interpreted by the Commission's Staff, amounts of Other Annual Compensation
and All Other Compensation are excluded for the Company's 1990 and 1991
fiscal years.

OPTION GRANTS TABLE

Shown below is further information on grants of stock options pursuant to
employment agreements and the 1990 Incentive Stock Option Plan during the year
ended December 31, 1992, to the Named Officers which are reflected in the
Summary Compensation Table.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PERCENTAGE OF PRICE
TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(3)
GRANTED(1) EMPLOYEES IN BASE PRICE(2) EXPIRATION -----------------
NAME (#) FISCAL 1992 ($/SHARE) DATE 5% 10%
---- ---------- ------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Ratican........ 150,000 42.3% $8.00 2/25/97 $331,500 $732,000
Eugene L. Froelich...... 150,000 42.3% $8.00 2/25/97 $331,500 $732,000
</TABLE>
- --------
(1) The options were granted as of February 25, 1992 pursuant to employment
agreements and vest in one-third installments on the date of grant, and the
first and second 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.

AGGREGATED 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 1992 and prior years
under employment agreements and the 1990 Incentive Stock Option Plan to the
Named Officers and held by them at December 31, 1992. None of the Named
Officers exercised any stock options during fiscal 1992.

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1992 (#) DECEMBER 31, 1992 (1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter J. Ratican........ 327,778 100,000 $1,962,501 $475,000
Eugene L. Froelich...... 327,778 100,000 $1,962,501 $475,000
Alan D. Bloom........... 3,333 6,667 $ 15,832 $ 31,668
Richard A. Link......... 23,334 46,666 $ 109,170 $218,330
Samuel W. Warburton,
M.D.................... 5,000 10,000 $ 23,334 $ 46,667
</TABLE>
- --------
(1) Based on the closing price on the NASDAQ-NMS on that date ($12.75), net of
the option exercise price.

EMPLOYMENT AND SEVERANCE AGREEMENTS

As of January 1, 1992, the Company 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. The employment agreements

15
<PAGE>

provide that upon the termination of either member of Senior Management by the
Company without cause 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; and (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. In the
event of a Change in Control of the Company, as set forth in the employment
agreement, 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. 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 employment agreement. Under these agreements,
Senior Management will be entitled to receive an annual performance bonus
calculated using a formula, as set forth in the employment agreements, which is
based on the Company's annual pre-tax earnings, before extraordinary items,
over $10 million. In addition, upon the sale of the Company, a sale of
substantially all of its assets or a merger where the Company shareholders
cease to own a majority of the outstanding voting capital stock, Senior
Management will be entitled to a sale bonus calculated using a formula which is
based on a percentage of the excess value of the Company over an initial value
as set forth in the employment agreements.

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.

The Company has also entered into employment agreements, effective through
December 31, 1994, with Richard A. Link and Samuel W. Warburton and an
employment agreement, effective through December 31, 1993, with Alan D. Bloom.
The agreements with Messrs. Link and Bloom provide for the payment of four
months' salary in the event the employee is terminated without cause or
employment ceases due to the Company being acquired or there is a Change in
Control of the Company, as set forth in the employment agreement. Under Mr.
Warburton's employment agreement, if he is terminated without cause or there is
a Change in Control of the Company, as set forth in the employment agreement,
he is entitled to receive (i) the balance of his annual base salary which would
have been paid over the remainder of the term of the agreement but for such
termination if such termination occurs on or before the first anniversary of
the agreement, or (ii) a payment equal to his annual base salary if the
termination occurs in the second year of his agreement.

COMPARISON OF CUMULATIVE TOTAL RETURN GRAPH

The following graph presents a one and three quarter years comparison of
cumulative total returns for the Common Stock of the Company, index for the
NASDAQ Stock Market (U.S. Companies), the index for the Standard and Poor's 500
and an index of peer companies (the "Managed Care Group") selected by the Board
of Directors. This graph only presents one and three quarter years of
information because the Company's Common Stock was issued on April 2, 1991 and
was traded on the over-the-counter market beginning April 30, 1991. The Managed
Care Group consists of six other managed care companies: Coventry Corporation,
FHP International, Foundation Health, Pacificare Health Systems, Qual-Med,
Inc., TakeCare, Inc. Total return assumes the monthly reinvestment of
dividends.

16
<PAGE>

COMPARISON OF CUMULATIVE TOTAL RETURNS

1989 1990 1991 1992
<S> <C> <C> <C> <C>
MAXICARE 0 100 114.71 150.00
PEER GROUP 0 100 96.06 186.35
NASDAQ 0 100 124.11 144.84
STANDARD & POORS' 0 100 113.92 122.60
</TABLE>

INDEPENDENT PUBLIC ACCOUNTANTS

The Company has determined to continue retaining Price Waterhouse as its
independent certified accountants for the current year ending December 31,
1993.

Price Waterhouse has been the Company's principal independent public
accountant since the fourth quarter of 1988, and is familiar with the business
and operations of the Company and its subsidiaries. Management has not followed
the practice of presenting the selection of auditors to the stockholders for
approval. A representative of Price Waterhouse is expected to be present at the
Annual Meeting, will have an opportunity to make a statement, and will be
available to answer questions, if any, from stockholders.

OTHER MATTERS

ADDITIONAL INFORMATION

Copies of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, (including financial statements and financial statement
schedules) as filed with the Securities and Exchange Commission are available
upon written request from the office of Investor Relations, Maxicare Health
Plans, Inc., 1149 South Broadway Street, Los Angeles, California, 90015.

DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1994 ANNUAL MEETING

Any proposal relating to a proper subject which a stockholder may intend to
be presented for action at the next Annual Meeting of Stockholders currently
scheduled to be held on July 29, 1994 must be received

17
<PAGE>

by the Company no later than March 9, 1994, to be considered for inclusion in
the proxy material to be disseminated by the Board of Directors in accordance
with the provisions of Rule 14a-(8)(3)(i) promulgated under the Exchange Act.
Copies of such proposals should be sent to the Corporate Secretary at the
Company's principal executive offices. To be eligible for inclusion in such
proxy materials, such proposals must conform to the requirements set forth in
Regulation 14A under the Exchange Act.

OTHER BUSINESS OF THE MEETING

The Board of Directors is not aware of any matter to be presented at the
Annual Meeting or any postponement or adjournment thereof which is not listed
on the Notice of Annual Meeting and discussed above. If other matters should
properly come before the meeting, however, the persons named in the
accompanying proxy will vote all proxies in accordance with the recommendation
of the Board, or if no such recommendation is given, in their own discretion.

COST OF SOLICITING PROXIES

The Company will bear the cost of proxy solicitation for the election of the
Board's nominees for director. In addition to the use of the mail, proxies may
be solicited by personal interview, telephone or telegraph, by officers,
directors and other employees of the Company, who will not receive any
additional compensation for such services. The Company will also request
persons, firms and corporations holding shares in their names, or in the names
of their nominees, which are beneficially owned by others, to send or cause to
be sent proxy materials to, and obtain proxies from, such beneficial owners and
will reimburse such holders for their reasonable expenses in so doing.

By Order of the Board of Directors,

Alan D. Bloom
Secretary

Los Angeles, California
Dated: December 27, 1993

18
<PAGE>

PROXY PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF MAXICARE HEALTH PLANS, INC.
ANNUAL MEETING OF STOCKHOLDERS JANUARY 28, 1994

The undersigned, does hereby appoint Peter J. Ratican and Eugene L. Froelich,
and each of them, proxies for the undersigned with full power of substitution,
to vote all of the shares of Common Stock of the Company which the undersigned
is entitled to vote, with all powers the undersigned would possess if
personally present at the 1993 Annual Meeting of Stockholders of Maxicare
Health Plans, Inc. (including all adjournments thereof) to be held at the
Transamerica Center Tower Restaurant, 1150 S. Olive Street, Los Angeles,
California, January 28, 1994 at 8:00 a.m., Pacific Time, on all matters that
may come before the Meeting.

The undersigned hereby instructs said proxies or their substitutes:

1.ELECTION OF DIRECTORS:
[_To]VOTE FOR all nominees listed below. [_To]WITHHOLD AUTHORITY to vote
for all nominees listed below.

PETER J. RATICAN, ALAN S. MANNE AND THOMAS W. FIELD, JR.

INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW:
------------------------------------------------------------------------------

2. DISCRETIONARY AUTHORITY:
In their discretion, the proxies are authorized to vote with respect to all
other matters which may properly come before the Meeting.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES FOR DIRECTOR.

The undersigned hereby revokes any proxy or proxies heretofore given, and
ratifies and confirms that all the proxies appointed hereby, or either of them,
or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof. The undersigned hereby acknowledges receipt of a copy of the
Notice of Annual Meeting and Proxy Statement, both dated December 27, 1993, and
a copy of the Company's Annual Report for the year ended December 31, 1992.

NOTE: Your signature should appear the same as your name appears hereon. In
signing as attorney, executor, administrator, trustees or guardian, please
indicate the capacity in which signing, when signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a corporation,
it should be signed by an authorized officer and the corporate seal affixed. No
postage is required if mailed within the United States.

Dated_______________________ , 1994
____________________________ (L.S.)
____________________________ (L.S.)
Signature(s)

<PAGE>

PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF MAXICARE HEALTH PLANS, INC.
ANNUAL MEETING OF STOCKHOLDERS JANUARY 28, 1994

The undersigned, does hereby appoint Peter J. Ratican and Eugene L. Froelich,
and each of them, proxies for the undersigned with full power of substitution,
to vote all of the shares of Series A Cumulative Convertible Preferred Stock of
the Company which the undersigned is entitled to vote, with all powers the
undersigned would possess if personally present at the 1993 Annual Meeting of
Stockholders of Maxicare Health Plans, Inc. (including all adjournments
thereof) to be held at the Transamerica Center Tower Restaurant, 1150 S. Olive
Street, Los Angeles, California, January 28, 1994 at 8:00 a.m., Pacific Time,
on all matters that may come before the Meeting.

The undersigned hereby instructs said proxies or their substitutes:

1.ELECTION OF DIRECTORS:
[_To]VOTE FOR all nominees listed below. [_To]WITHHOLD AUTHORITY to vote
for all nominees listed below.

PETER J. RATICAN, ALAN S. MANNE AND THOMAS W. FIELD, JR.

INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW:

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2. DISCRETIONARY AUTHORITY:
In their discretion, the proxies are authorized to vote with respect to all
other matters which may properly come before the Meeting.

THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES FOR DIRECTOR.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

Dated_______________________ , 1994
____________________________ (L.S.)
____________________________ (L.S.)
Signature(s)