SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
June 30, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-12024
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MAXICARE HEALTH PLANS, INC.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3615709
------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1149 South Broadway Street, Los Angeles, California 90015
--------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 765-2000
---------------
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 whether the registrant has filed all
documents and reports required to be filed by Sections 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 [ ]
<PAGE>
Common Stock, $.01 par value - 17,329,585 shares outstanding as of
August 4, 1995, of which 643,270 shares were 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.
<PAGE>
PART I: FINANCIAL INFORMATION
---------------------
Item 1: Financial Statements
--------------------
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ---------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents................................. $ 37,222 $ 37,858
Marketable securities..................................... 43,230 43,558
Accounts receivable, net.................................. 21,537 18,314
Deferred tax asset....................................... 10,000 10,000
Prepaid expenses.......................................... 2,451 2,741
Other current assets...................................... 283 299
--------- ---------
TOTAL CURRENT ASSETS.................................... 114,723 112,770
--------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,440 5,461
Furniture and equipment................................... 24,402 26,137
--------- ---------
29,842 31,598
Less accumulated depreciation and amortization.......... 27,720 29,077
--------- ---------
NET PROPERTY AND EQUIPMENT.............................. 2,122 2,521
--------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 2,246 2,285
Statutory deposits........................................ 11,679 10,953
Intangible assets, net.................................... 144 163
--------- ---------
TOTAL LONG-TERM ASSETS.................................. 14,069 13,401
--------- ---------
TOTAL ASSETS............................................ $ 130,914 $ 128,692
========= =========
CURRENT LIABILITIES
Estimated claims and incentives payable................... $ 36,564 $ 47,095
Accounts payable.......................................... 368 285
Deferred income........................................... 4,486 2,338
Accrued salary expense.................................... 2,824 2,709
Payable to disbursing agent............................... 6,248 6,248
Other current liabilities................................. 4,203 3,780
--------- ---------
TOTAL CURRENT LIABILITIES............................... 54,693 62,455
LONG-TERM LIABILITIES....................................... 733 887
--------- ---------
TOTAL LIABILITIES....................................... 55,426 63,342
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value - 5,000 shares authorized,
1994 - 2,290 shares issued and outstanding.............. 23
Common stock, $.01 par value - 40,000 shares authorized,
1995 - 17,330 shares and 1994 - 10,850 shares issued
and outstanding......................................... 173 108
Additional paid-in capital................................ 246,565 246,054
Accumulated deficit....................................... (171,250) (180,835)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 75,488 65,350
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 130,914 $ 128,692
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES................................................... $113,692 $106,996 $226,047 $213,921
-------- -------- -------- --------
OPERATING EXPENSES
Physician services................................................ 44,904 42,667 89,126 83,763
Hospital services................................................. 34,594 31,652 68,195 64,026
Outpatient services............................................... 16,197 15,746 32,122 31,989
Other health care services........................................ 2,875 3,831 6,326 8,058
-------- -------- -------- --------
TOTAL HEALTH CARE EXPENSES...................................... 98,570 93,896 195,769 187,836
Marketing, general and administrative expenses.................... 10,591 10,255 21,165 20,675
Depreciation and amortization..................................... 301 545 595 1,308
Litigation expense................................................ 3,000 3,000
-------- -------- -------- --------
TOTAL OPERATING EXPENSES........................................ 109,462 107,696 217,529 212,819
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS........................................ 4,230 (700) 8,518 1,102
Investment income, net of interest expense........................ 1,679 673 3,020 1,237
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.................................... 5,909 (27) 11,538 2,339
INCOME TAX PROVISION................................................. 1,012 99 1,953 184
-------- -------- -------- --------
NET INCOME (LOSS).................................................... 4,897 (126) 9,585 2,155
PREFERRED STOCK DIVIDENDS............................................ 1,350 2,700
-------- -------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS................... $ 4,897 $ (1,476) $ 9,585 $ (545)
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE - Note 1
Primary
Primary Earnings per Common Share................................. $ .27 $ (.14) $ .61 $ (.05)
======== ======== ======== ========
Weighted average number of common and common equivalent
shares outstanding.............................................. 18,092 10,835 15,758 10,802
======== ======== ======== ========
Fully Diluted
Fully Diluted Earnings per Common Share........................... $ .27 $ (.14) $ .53 $ (.05)
======== ======== ======== ========
Weighted average number of common and common equivalent
shares outstanding.............................................. 18,092 10,835 18,076 10,802
======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 9,585 $ 2,155
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization.................................. 595 1,308
Gain on dispositions of property and equipment................. (8) (3)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable................... (3,223) 248
(Decrease) increase in estimated claims and incentives
payable.................................................... (10,531) 717
Changes in other miscellaneous assets and liabilities........ 3,234 1,537
-------- --------
Net cash provided by (used for) operating activities............. (348) 5,962
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment......................... 4 7
Purchases of property and equipment............................ (173) (189)
(Increase) decrease in statutory deposits...................... (726) 3,346
Proceeds from sales and maturities of marketable securities.... 34,578 29,284
Purchases of marketable securities............................. (34,250) (39,199)
Decrease in long-term receivables.............................. 39
-------- --------
Net cash used for investing activities........................... (528) (6,751)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.......................... (80) (20)
Payment of preferred stock dividends........................... (2,700)
Stock options exercised........................................ 845 463
Redemption of preferred stock.................................. (525)
Warrants exercised............................................. 52
-------- --------
Net cash provided by (used for) financing activities............. 240 (2,205)
-------- --------
Net decrease in cash and cash equivalents........................ (636) (2,994)
Cash and cash equivalents at beginning of period................. 37,858 38,672
-------- --------
Cash and cash equivalents at end of period....................... $ 37,222 $ 35,678
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest..................................................... $ 21 $ 7
Income taxes................................................. $ 1,670
Supplemental schedule of non-cash investing and financing
activities:
Conversion of preferred stock to common stock ............... $56,725
Issuance of restricted common stock.......................... $ 2,096
Capital lease incurred for purchase of equipment and
intangible assets.......................................... $ 658
See notes to consolidated financial statements.
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
---------------------
Maxicare Health Plans, Inc., a Delaware corporation ("MHP"), is a
holding company which owns various subsidiaries, primarily health
maintenance organizations ("HMOs"). The accompanying unaudited
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all
adjustments considered necessary for a fair presentation, which
consist solely of normal recurring adjustments, have been
included. All significant inter-company balances and
transactions have been eliminated.
For further information on MHP and subsidiaries (collectively the
"Company") refer to the consolidated financial statements and
accompanying footnotes included in the Company's annual report on
Form 10-K as filed with the Securities and Exchange Commission
for the year ended December 31, 1994.
Capital Stock and Net Income (Loss) Per Common and Common
---------------------------------------------------------
Equivalent Share
----------------
The Company concluded the redemption of its Series A Cumulative
Convertible Preferred Stock ("Series A Stock") on March 14, 1995
(the "Redemption Date"). Holders of approximately 2.27 million
shares of Series A Stock converted their shares into
approximately 6.25 million shares of the Company's Common Stock.
As a result of the redemption of the Series A Stock the Company
paid no preferred stock dividends in 1995, and, accordingly, no
consideration is given to preferred stock dividends in the
calculation of earnings per share for the three and six month
periods ended June 30, 1995.
Primary earnings per share are computed by dividing net income
available to common shareholders by the weighted average number
of common shares outstanding, after giving effect to stock
options with an exercise price less than the average market price
for the period. Common shares issued upon the conversion of
preferred stock have been included in the weighted average number
of common shares outstanding subsequent to the conversion date.
Fully diluted earnings per share are computed by dividing net
income by the weighted average number of common shares
outstanding, after giving effect to stock options with an
<PAGE>
exercise price less than the market price at the end of the
period (or average market price if use of that price results in
greater dilution) and shares assumed to be issued upon conversion
of the Company's preferred stock. Common shares issued upon the
conversion of preferred stock have been included in the weighted
average number of common shares outstanding and the preferred
shares have been excluded from the weighted average number of
common equivalent shares outstanding subsequent to the conversion
date.
Fully diluted earnings per share are reported only when the
amount calculated is less than the primary earnings per share.
For the three and six months ended June 30, 1994 fully diluted
earnings per share exceeded the primary earnings per share (i.e.,
the calculations were "anti-dilutive") so primary earnings per
share are reported as fully diluted.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
Maxicare Health Plans, Inc. and subsidiaries (the "Company")
reported net income of $4.9 million for the three months ended
June 30, 1995, compared to a net loss of $126,000 for the three
months ended June 30, 1994. Net income per common and common
equivalent share was $.27 for the second quarter of 1995, compared
to a net loss per common and common equivalent share of $.14 for
the same period in 1994. Excluding a $3.0 million litigation
charge recorded in the second quarter of 1994, the Company would
have reported net income of $2.9 million for the three months
ended June 30, 1994 and net income per common and common
equivalent share available to common shareholders of $.14.
Operating revenues were $113.7 million for the second quarter of
1995, a 6.3% increase when compared to the same period in 1994.
Increased operating revenues were primarily the result of new
Medi-Cal business in California and a net increase in operating
revenues in the Company's other operations. In the second quarter
of 1995, the Company experienced a 3.4% increase in membership and
a 2.8% average increase in premium revenue per member as compared
to the second quarter of 1994.
Health care expenses increased 5.0% to $98.6 million in the second
quarter of 1995 as compared to the second quarter of 1994;
however, health care expenses as a percentage of operating
revenues (the "medical loss ratio") decreased 1.1 percentage
points to 86.7%, resulting in an increase in the excess of the
Company's operating revenues over its total health care expenses
(the "gross margin") of $1.2 million.
Marketing, general and administrative ("M,G&A") expenses for the
second quarter of 1995 increased 3.3% to $10.6 million as compared
to the second quarter of 1994 but remain below 10.0% of operating
revenues. This increase was offset by a $244,000 decrease in
depreciation and amortization expense to $301,000 for the three
months ended June 30, 1995.
Net investment income for the second quarter of 1995 increased by
$1.0 million to $1.7 million, as compared to 1994, due to higher
interest rates and greater cash and investment balances.
The Company reported a $1.0 million provision for income taxes for
the three months ended June 30, 1995 as compared to $.1 million
for the same period in 1994 due to an increase in taxable income.
The Company concluded the redemption of its Series A Stock on
March 14, 1995 and, as a result of this redemption, is no longer
required to pay Series A Stock dividends.
<PAGE>
For the six months ended June 30, 1995 the Company earned net
income available to common shareholders of $9.6 million as
compared to a net loss available to common shareholders of $.5
million for the same period in 1994. This $10.1 million
improvement is the result of a $4.2 million increase in gross
margin, a $.2 million reduction in M,G&A, depreciation and
amortization expenses, an increase of $1.8 million in investment
income, the absence in 1995 of the aforementioned $3.0 million
litigation charge, and the elimination of Series A Stock dividends
amounting to $2.7 million in 1994, all partially offset by an
increase of $1.8 million in the Company's income tax provision.
The Company's membership has increased by 11% since January 1,
1995 to approximately 319,000 members as of July 1, 1995.
Significant membership increases were realized in the Company's
Indiana and California HMOs and were primarily attributable to
increases in both commercial accounts and Medi-Cal enrollments.
The impact of this 11% membership increase will be substantially
realized in periods subsequent to the six months ended June 30,
1995.
<PAGE>
Liquidity and Capital Resources
Certain of MHP's operating subsidiaries are subject to state
regulations which require compliance with certain statutory
deposit, reserve, dividend distribution and net worth
requirements. To the extent the operating subsidiaries must
comply with these regulations, they may not have the financial
flexibility to transfer funds to MHP. MHP's proportionate share
of net assets (after inter-company eliminations) which, at June
30, 1995, may not be transferred to MHP by subsidiaries in the
form of loans, advances or cash dividends without the consent of a
third party is referred to as "Restricted Net Assets". Total
Restricted Net Assets of these operating subsidiaries were $27.8
million at June 30, 1995, with deposit requirements and
limitations imposed by state regulations on the distribution of
dividends representing $11.0 million and $8.4 million of the
Restricted Net Assets, respectively, and net worth requirements in
excess of deposit requirements and dividend limitations
representing the remaining $8.4 million. The Company's total
Restricted Net Assets at June 30, 1995 were $28.1 million. In
addition to the $18.5 million in cash, cash equivalents and
marketable securities held by MHP, approximately $15.3 million
could be considered available to transfer to MHP from operating
subsidiaries.
All of MHP's operational subsidiaries are direct subsidiaries of
MHP. All of the Company's HMOs are federally qualified, and, with
the exception of the Company's South Carolina HMO, all of the
Company's operating HMOs are licensed in the states where they
primarily operate. The operations of the South Carolina HMO are
currently under Bankruptcy Court jurisdiction pending a
reorganization of that entity to operate as a licensed HMO in the
state of South Carolina. The Company believes that it will be
able to ultimately resolve the South Carolina HMO's licensing
situation with the state of South Carolina as a separately
licensed HMO in such state or, alternatively, as a division of one
of its other operating HMOs to be licensed to do business in the
state of South Carolina. The Company cannot predict at this time
the required capital infusion, if any, which may result from the
separate licensing of the South Carolina HMO in the state of South
Carolina or the operation of it as a division of one of the
Company's operating HMOs. If infusion of additional cash
resources is required to ensure compliance with statutory deposit
and net worth requirements, the Company does not believe that 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
sufficient resources to fund ongoing operations and remain in
compliance with statutory financial requirements.
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
<PAGE>
$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 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 if this matter were to be litigated
its position in this matter would ultimately prevail. Currently,
the Company is engaged in settlement discussions with the New
Committee with respect to a resolution of this matter; however,
there can be no assurances that an agreement between the parties
can be reached. 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 2.1 and less than $1.0 million of long-term
liabilities at June 30, 1995, the Company does not believe that it
needs additional working capital at this time. Although the
Company believes that it would be able to raise additional working
capital through either an equity infusion or borrowings if it so
desired, the Company cannot state with any degree of certainty at
this time whether additional equity capital or working capital
would be available to it, and if available, would be at terms and
conditions acceptable to the Company.
<PAGE>
PART II: OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
-----------------
The information contained in "Part I, Item 3. Legal Proceedings" of
the Company's 1994 Annual report on Form 10-K is hereby
incorporated by reference and the following information updates the
information contained in the relevant subparts thereof.
c.PENN HEALTH
On February 27, 1991 the Company filed a petition against the
Commonwealth of Pennsylvania, Department of Public Welfare (the
"DPW") with the Pennsylvania Board of Claims (the "Board") seeking
damages in excess of $24 million. Pursuant to an order of the
Board, the action was set for trial in two phases; a liability
phase and a damages phase. The trial before the Board of
contractual issues pertaining to DPW's liability (the "Liability
Phase") concluded on July 25, 1994. On December 2, 1994, the Board
issued an order concerning the Liability Phase which found that:
(i) a contract exists between Penn Health Corporation ("Penn
Health") and the DPW; (ii) the DPW breached the contract; and (iii)
Penn Health is an independent general contractor and not an agent
of the DPW. The trial to determine damages in the action has been
scheduled by the Board to commence on September 11, 1995. The
Company believes that its claims against the DPW are meritorious
and that it will prevail in its action before the Board.
d. OTHER LITIGATION
The Company is a defendant in a number of other lawsuits arising in
the ordinary course of operating its HMOs, including cases in which
plaintiffs assert claims against the Company or third parties that
might in turn assert indemnity or contribution claims against the
Company for malpractice, negligence, bad faith failure to pay
claims on a timely basis or denial of coverage. The Company does
not believe that an adverse determination in any one or more of
these cases would have a material, adverse effect on the Company's
business and operations.
Item 2: Change in Securities
--------------------
None.
Item 3: Defaults Upon Senior Securities
-------------------------------
None.
<PAGE>
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5: Other Information
-----------------
None.
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 10.78. Maxicare Health Plans, Inc. 1995
Stock Option Plan
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MAXICARE HEALTH PLANS, INC.
---------------------------
(Registrant)
August 8, 1995 /s/ EUGENE L. FROELICH
---------------------------
Eugene L. Froelich
Chief Financial Officer and
Executive Vice President -
Finance and Administration
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
------ ---------------------------------------- -----------
10.78 Maxicare Health Plans, Inc., 1995 Stock 16 of 37
Option Plan
27 Financial Data Schedule 36 of 37
EX-10.78
Maxicare Health Plans, Inc.
1995 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C> <C>
1. Purpose............................................ 1
2. Definitions........................................ 1
2.1 Accrued Installment.......................... 1
2.2 Board........................................ 1
2.3 Code......................................... 1
2.4 Company...................................... 1
2.5 Common Stock................................. 1
2.6 Disabled or Disability....................... 1
2.7 Fair Market Value............................ 1
2.8 Incentive Stock Option....................... 2
2.9 Nonqualified Stock Option.................... 2
2.10 Optionee..................................... 2
2.11 Option Price................................. 2
2.12 Plan......................................... 2
2.13 Plan Administrator........................... 2
2.14 Stock Option................................. 2
3. Stock Options Under the Plan....................... 2
4. Administration..................................... 2
4.1 Administration by Board...................... 2
4.2 Administration by Stock Option Committee..... 3
5. Eligibility........................................ 3
6. Shares Subject to the Plan......................... 4
6.1 Available Shares............................. 4
6.2 Capital Structure Adjustments................ 4
6.3 Substitution or Assumptions of Stock Options. 5
6.4 No Obligations of Successor Corporations..... 5
7. Terms and Conditions of Stock Options 5
7.1 Number of Shares Subject to Stock Option..... 5
7.2 Stock Option Price........................... 6
7.3 Notice and Payment........................... 6
7.4 Exercise of Stock Option..................... 7
7.5 Term of Stock Option......................... 8
7.6 Limit on Incentive Stock Options............. 9
7.7 No Fractional Shares......................... 9
7.8 Exercisability in the Event of Death......... 9
7.9 Modification, Extension, and Renewal of Stock
Options...................................... 9
8. Supplemental Grants................................ 10
8.1 Loans........................................ 10
8.2 Cash Payments................................ 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
9. Termination or Amendment of the Plan............... 10
9.1 Amendment to Plan............................ 11
9.2 Effect of Termination of Plan on Outstanding
Stock Options................................ 11
9.3 Shareholder Approval for Amendment to Plan... 11
10. Indemnification.................................... 11
11. Withholding........................................ 11
11.1 Irrevocable Election......................... 12
11.2 Approval by Plan Administrator............... 12
11.3 Timing of Election........................... 12
11.4 Window Period................................ 12
11.5 Timing of Delivery........................... 12
11.6 Terms in Agreement........................... 13
12. General Provisions................................. 13
12.1 Stock Options Not Transferable............... 13
12.2 Transfer of Common Stock..................... 13
12.3 Reservation of Shares of Common Stock........ 13
12.4 Restrictions on Issuance of Shares........... 13
12.5 Notices...................................... 14
12.6 Representations and Warranties............... 14
12.7 No Enlargement of Employee Rights............ 14
12.8 Restrictions on Issuance of Shares........... 15
12.9 Legends on Stock Certificates................ 15
12.10 Remedies..................................... 15
12.11 Invalid Provisions........................... 15
12.12 Applicable Law............................... 16
12.13 Successors and Assigns....................... 16
12.14 Rights as a Stockholder or Employee.......... 16
13. Effective Date of Plan............................. 16
14. Term of Plan....................................... 16
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC.
1995 STOCK OPTION PLAN
1. Purpose. The purpose of this Maxicare Health Plans,
Inc. (the "Company") 1995 Stock Option Plan (the "Plan") is to
further the growth and development of the Company by providing an
incentive to officers and other key employees who are in a position
to contribute materially to the prosperity of the Company and to
participate in the long-term growth of the Company by receiving the
opportunity to acquire shares of the Company's Common Stock and to
provide for additional compensation based on appreciation in the
Company's shares. The Plan provides a means to increase such
persons' interests in the Company's welfare, to encourage them to
continue their services to the Company or its subsidiaries, and to
attract individuals of outstanding ability to enter the employment
of the Company or its subsidiaries.
2. Definitions. The following definitions are applicable
to the Plan:
2.1 Accrued Installment. Any exercisable portion of
a Stock Option granted under the Plan.
2.2 Board. The Board of Directors of the Company.
2.3 Code. The Internal Revenue Code of 1986, as
amended from time to time.
2.4 Company. Maxicare Health Plans, Inc., a
Delaware corporation.
2.5 Common Stock. The shares of the $.01 par value
per share common stock of the Company.
2.6 Disabled or Disability. An Optionee shall be
deemed to be Disabled if he or she is unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for
a continuous period of not less than thirty (30) consecutive days.
The determination of whether an individual is Disabled or has a
Disability shall be determined under procedures established by the
Plan Administrator.
2.7 Fair Market Value. For purposes of the Plan,
the Fair Market Value of any share of Common Stock of the Company
at any date shall be determined based on (a) if the Common Stock is
listed on an established stock exchange or exchanges or reported by
NASDAQ, the last reported sale price per share on the last trading
day immediately preceding such date on the principal exchange on
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which it is traded, or if no sale was made on such day on such
principal exchange, at the closing reported bid price on such day
on such exchange, or (b) if the Common Stock is not then listed on
an exchange, the last reported sale price per share on the last
trading day immediately preceding such date reported by NASDAQ, or
if sales are not reported by NASDAQ or no sale was made on such
date, the average of the closing bid and asked price per share for
the Common Stock in the over-the-counter market as quoted by NASDAQ
on the day prior to such date, or (c) if the Common Stock is not
publicly traded at the time a Stock Option is granted under the
Plan, Fair Market Value shall be deemed to be the fair value of the
Common Stock as determined by the Plan Administrator after taking
into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arm's length.
2.8 Incentive Stock Option. Any Stock Option
intended to be and designated as an "incentive stock option" within
the meaning of Section 422 of the Code.
2.9 Nonqualified Stock Option. Any Stock Option
that is not an Incentive Stock Option.
2.10 Optionee. The recipient of a Stock Option.
2.11 Option Price. The exercise or purchase price
for any Stock Option awarded under the Plan.
2.12 Plan. The Maxicare Health Plans, Inc. 1995
Stock Option Plan, as amended from time to time.
2.13 Plan Administrator. The Board or the Stock
Option Committee designated pursuant to Section 4 hereof who/which
is authorized to administer, construe and interpret the terms of
the Plan.
2.14 Stock Option. Any option to purchase shares of
Common Stock pursuant to Section 7.
3. Stock Options Under the Plan. Two types of Stock
Options (referred to herein as "Stock Options" without distinction
between such two types) may be granted under the Plan: Stock
Options intended to qualify as Incentive Stock Options and
Nonqualified Stock Options.
4. Administration.
4.1 Administration by Board. Subject to Section
4.2, the Plan Administrator shall be the Board during such periods
of time as all members of the Board are "disinterested persons" as
defined in Rule 16b-3(c)(2)(i) promulgated pursuant to the
Securities and Exchange Act of 1934, as amended (the "Exchange
Act") (a "disinterested person"). Subject to the provisions of the
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Plan, the Plan Administrator shall have authority to construe and
interpret the Plan, to promulgate, amend, and rescind rules and
regulations relating to its administration, to select from time to
time from among the eligible employees (as determined pursuant to
Section 5 below) of the Company and its subsidiaries those
employees to whom Stock Options will be granted, to determine the
timing and manner of the grant of the Stock Options, to determine
the Option Price, the number of shares covered by and all of the
terms of the Stock Option, to determine the duration and purpose of
leaves of absence which may be granted to Stock Option holders
without constituting termination of their employment for purposes
of the Plan, and to make all of the determinations necessary or
advisable for administration of the Plan. The interpretation and
construction by the Plan Administrator of any provision of the
Plan, or of any agreement issued and executed under the Plan, shall
be final and binding upon all parties. No member of the Board
shall be liable for any action or determination undertaken or made
in good faith with respect to the Plan or any agreement executed
pursuant to the Plan.
4.2 Administration by Stock Option Committee. The
Board may, in its sole discretion, delegate any or all of its
duties as Plan Administrator. In the event that at any time the
Board includes any person who is not a disinterested person, the
Board shall delegate all of its duties as Plan Administrator during
such period of time, to a committee selected by the Board which
shall act as the Plan Administrator pursuant to the terms hereof
(the "Stock Option Committee"). The Stock Option Committee shall
consist of not fewer than two (2) members of the Board, all of
which shall be persons who, in the opinion of counsel to the
Company, are disinterested persons, to be appointed by and serve at
the pleasure of the Board. From time to time, the Board may
increase or decrease (to not less than two members) the size of the
Stock Option Committee, and add additional members to, or remove
members from, the Stock Option Committee. The Stock Option
Committee shall act pursuant to a majority vote or the written
consent of a majority of its members and minutes shall be kept of
all of its meetings and copies thereof shall be provided to the
Board. Subject to the provisions of the Plan and the direction of
the Board, the Stock Option Committee may establish and follow such
rules and regulations for the conduct of its business as it may
deem advisable. No member of the Stock Option Committee shall be
liable for any action or determination undertaken or made in good
faith with respect to the Plan or any agreement executed pursuant
to the Plan.
5. Eligibility. Any employee (including any officer who
is an employee) or director of the Company (other than members of
the Stock Option Committee while serving on such Stock Option
Committee) or any of its subsidiaries shall be eligible to receive
a Stock Option under the Plan; provided, however, that no person
who owns stock possessing more than 10% of the total combined
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voting power of all classes of stock of the Company or any of its
parent or subsidiary corporations shall be eligible to receive an
Incentive Stock Option under the Plan unless at the time such Stock
Option is granted the Option Price (determined in the manner
provided in Section 7.2 hereof) is at least 110% of the Fair Market
Value of the shares subject to the Stock Option and such Stock
Option by its terms is not exercisable after the expiration of five
years from the date such Stock Option is granted. An employee may
receive more than one Stock Option under the Plan.
6. Shares Subject to the Plan.
6.1 Available Shares. The shares available for
issue upon the exercise of Stock Options granted under the Plan
shall be shares of the Company's authorized but unissued, or
reacquired, Common Stock. The aggregate number of shares which may
be issued upon the exercise of Stock Options granted under the Plan
shall not exceed 1,000,000 shares of Common Stock, subject to
adjustment as provided in Section 6.2 hereof. In the event that
the grant of any Stock Option under the Plan for any reason
expires, is terminated or surrendered without being exercised in
full or is exercised or surrendered without the distribution of
shares, the shares of Common Stock allocable to the unexercised
portion of the Stock Option shall again be available for grant and
distribution under the Plan as if no Stock Option had been granted
with respect to such shares.
6.2 Capital Structure Adjustments. Except as
otherwise provided herein, appropriate and proportionate capital
structure adjustments shall be made in the number and class of
shares subject to the Plan, to the Stock Option rights granted
under the Plan, and the Option Price of such Stock Option rights,
in the event of a stock dividend (but only on Common Stock), stock
split, reverse stock split, recapitalization, reorganization,
merger, consolidation, separation, or like change in the corporate
or capital structure of the Company. To the extent that the
foregoing adjustments relate to stock or securities of the Company,
such adjustments shall be made by the Plan Administrator, the
determination of which in that respect shall be final, binding, and
conclusive, provided that each Incentive Stock Option granted
pursuant to the Plan shall not be adjusted in a manner that causes
it to fail to continue to qualify as an Incentive Stock Option. In
the event of a liquidation, a merger, reorganization, or
consolidation of the Company with any other corporation in which
the Company is not the surviving corporation or the Company becomes
a wholly owned subsidiary of another corporation, any unexercised
Stock Option rights theretofore granted under the Plan shall be
deemed canceled unless the surviving corporation in any such
merger, reorganization, or consolidation elects to assume the Stock
Option rights under the Plan or to use substitute stock option
rights in place thereof; provided, however, that, notwithstanding
the foregoing, if such Stock Option rights would otherwise be
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canceled in accordance with the foregoing, the Stock Option
recipient shall have the right, exercisable during a ten-day period
ending on the fifth day prior to such liquidation, merger, or
consolidation, to exercise all Stock Option rights held by such
recipient without regard to any restrictions on exercisability,
including but not limited to the unvested portions of such Stock
Options. Notwithstanding the foregoing, in the event that any
transaction causing the termination of the Stock Option granted
hereunder pursuant to the terms of this Section 6.2 is not
consummated; (i) any Accrued Installment that was exercised
pursuant to the terms of this Section 6.2, may, at the election of
the Optionee, be rescinded; and (ii) Unexercised Accrued
Installments that had become exercisable solely by reason of the
provisions of Section 6.2 hereof shall again become unaccrued and
unexercisable as of said termination of such transaction, subject,
however, to such Stock Option continuing to be governed by the
terms of the Stock Option agreement under which such Stock Option
was granted including the accrual schedule for the vesting of such
Stock Option set forth therein.
6.3 Substitution or Assumptions of Stock Options. In
addition to and not in lieu of those rights granted pursuant to
Section 6.2 hereof, if provisions shall be made in writing in
connection with such transaction for the continuance of the Plan
and/or the assumption of Stock Options theretofore granted, or the
substitution of such Stock Options for 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 Stock Options theretofore granted shall
continue in the manner and under the terms so provided.
6.4 No Obligations of Successor Corporations.
Neither the Company nor any successor entity shall have any
obligation to provide for the continuance, assumption or
substitution of this Plan or the Stock Options by any successor
corporation or parent or subsidiary thereof in the event of a
merger, reorganization or consolidation where the Company is not
the surviving entity.
7. Terms and Conditions of Stock Options. Stock Options
granted under the Plan shall be evidenced by agreements (which need
not be identical) in such form and containing such provisions which
are consistent with the Plan as the Plan Administrator shall from
time to time approve. Such agreements may incorporate all or any
of the terms hereof by reference and shall comply with and be
subject to the following terms and conditions:
7.1 Number of Shares Subject to Stock Option. Each
Stock Option agreement shall specify the number of shares subject
to the Stock Option; however, no Optionee shall be granted Stock
Options to purchase more than 100,000 shares per year.
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7.2 Stock Option Price. The Option Price for the
shares subject to any Stock Option shall be such amount as is
determined by the Plan Administrator. Anything to the contrary
contained herein notwithstanding, the Option Price for the shares
subject to any Nonqualified Stock Option may be less than Fair
Market Value, but not less than par value per share and Incentive
Stock Option shall not be less than 100% of the Fair Market Value
of the shares of Common Stock of the Company on the date the Stock
Option is granted. In the case of an Incentive Stock Option
granted to an employee who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the
Company or any of its parent or subsidiary corporations, the Option
Price shall not be less than 110% of the Fair Market Value of the
shares of Common Stock of the Company on the date the Stock Option
is granted and for a term in excess of five (5) years.
7.3 Notice and Payment. Any exercisable portion of
a Stock Option may be exercised only by:
(a) delivery of a written notice to the
Company, prior to the time when such Stock Option becomes
unexercisable under Section 7.4 hereof, stating the number of
shares being purchased and complying with all applicable rules
established by the Plan Administrator;
(b) payment in full of the Option Price of such
Option by, as applicable; (i) cash or check for an amount equal to
the aggregate Option Price for the number of shares being
purchased; (ii) in the discretion of the Plan Administrator, upon
such terms as the Plan Administrator shall approve, a copy of
instructions to a broker directing such broker to sell the Common
Stock for which such Stock Option is exercised, and to remit to the
Company the aggregate Option Price of such Stock Options (a
"cashless exercise"); or (iii) in the discretion of the Plan
Administrator, upon such terms as the Plan Administrator shall
approve, the Optionee may pay all or a portion of the Option Price
for the number of shares being purchased by tendering shares of the
Company's Common Stock owned by the Optionee, duly endorsed for
transfer to the Company, with a Fair Market Value on the date of
delivery equal to the aggregate Option Price of the shares with
respect to which such Stock Option or portion is thereby exercised
(a "stock-for-stock exercise");
(c) payment of the amount of tax required to be
withheld (if any) by the Company or any parent or subsidiary
corporation as a result of the exercise of a Stock Option. At the
discretion of the Plan Administrator, upon such terms as the Plan
Administrator shall approve, the Optionee may pay all or a portion
of the tax withholding by; (i) cash or check payable to the
Company; (ii) cashless exercise; (iii) stock-for-stock exercise; or
(iv) a combination of (i), (ii) and (iii); and
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(d) delivery of a written notice to the Company
requesting that the Company direct the transfer agent to issue to
the Optionee (or to his designee) a certificate for the number of
shares of Common Stock for which the Stock Option was exercised or,
in the case of a cashless exercise, for any shares that were not
sold in the cashless exercise.
Notwithstanding the foregoing, the Company, subject to the
provisions of Section 8.1 hereof, may extend and maintain, or
arrange for the extension and maintenance of, credit to any
Optionee to finance the Optionee's payment of the Option Price upon
the exercise of any Stock Option, on such terms as may be approved
by the Plan Administrator, subject to applicable regulations of the
Federal Reserve Board and any other laws or regulations in effect
at the time such credit is extended. The Plan Administrator may,
at any time and in its discretion, authorize a cash payment,
determined in accordance with Section 8.2, which shall not exceed
the amount required to pay in full the federal, state and local tax
consequences of an exercise of any Stock Option granted under the
Plan.
7.4 Exercise of Stock Option. No Stock Option shall
be exercisable during the lifetime of an Optionee by any person
other than the Optionee. Subject to the foregoing, the Plan
Administrator shall have the power to set the time or times within
which each Stock Option shall be exercisable and to accelerate the
time or times of exercise; provided, however, Stock Options which
are granted to Optionees who are subject to the restrictions of
Section 16(b) of the Exchange Act may not be exercisable within six
(6) months from the date of grant. To the extent that an Optionee
has the right to exercise a Stock Option and purchase shares
pursuant thereto, the Stock Option may be exercised from time to
time as provided in Section 7.3 hereof. Subject to the actions,
conditions and/or limitations set forth in this Plan and/or any
applicable Stock Option agreement entered into hereunder, Stock
Options granted under this Plan shall be exercisable in accordance
with the following rules:
(a) Subject in all cases to the provisions of
Section 6 and 7.5 hereof, Stock Options shall vest and become
exercisable at such times and in such installments (which may be
cumulative) as the Board shall provide in the terms of each
individual Stock Option agreement; provided, however, that by a
resolution adopted after a Stock Option is granted the Plan
Administrator may, on such terms and conditions as the Plan
Administrator may determine to be appropriate, accelerate the time
at which such Stock Option or installment thereof may be exercised.
(b) Subject to the provisions of Sections 6 and
7.5 hereof, a Stock Option may be exercised when to the extent such
Stock Option becomes an Accrued Installment as provided in the
terms under which such Stock Option was granted and at any time
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thereafter during the term of such Stock Option; provided, however,
that in no event shall any Stock Option be exercisable more than
ten (10) years from the date on which the Plan is adopted (the
"Plan Termination Date").
7.5 Term of Stock Option. Any unexercised Accrued
Installment of any Stock Option granted hereunder shall expire and
become unexercisable and no Stock Option shall be exercisable after
the earliest of:
(a) ten (10) years from the date of grant; or
(b) the expiration date of the Stock Option
established by the Plan Administrator at the time of grant of any
Stock Option; or
(c) thirty (30) days following the effective
date of the termination of employment or directorship (if such
individual is not then an officer or employee of the Company) with
the Company or any of its subsidiaries, as the case may be, of an
Optionee for any reason other than death or Disability (the
"Termination Date"). The Board, in its sole discretion, may extend
such thirty (30) day period for a period not to exceed one (1) year
following the Termination Date, but in no event beyond the
applicable Plan Termination Date. Any installments under said
Stock Option which have not accrued as of said Termination Date
shall expire and become unexercisable as of said Termination Date.
Any portion of a Stock 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; or
(d) notwithstanding the foregoing provisions of
this Section 7.5, in the event of the death of an Optionee while an
employee, officer or director of the Company or a subsidiary
thereof as the case may be, or in the event of the termination of
employment or a directorship by reason of the Optionee's Disability
(as defined below), any unexercised Accrued Installment of the
Stock Option granted hereunder to such Optionee shall expire and
become unexercisable as of the earlier of; (i) the applicable Plan
Termination Date; (ii) the first anniversary of the date of death
of such Optionee (if applicable); or (iii) the first anniversary of
the date of the termination of employment or directorship by reason
of Disability (if applicable). Any such Accrued Installment of a
deceased Optionee may be exercised prior to their expiration by
(and only by) the person or persons to whom the Optionee's rights
shall pass by will or by the laws of the descent and distribution,
if applicable, subject, however, to all of the terms and conditions
of this Plan and the applicable Stock Option agreement governing
the exercise of Stock Options granted hereunder. Any installments
under a deceased Optionee's Option that have not become exercisable
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as of the date of his or her death shall expire and become
unexercisable as of said date of termination of employment as a
result of death or disability. For purposes of this Subsection
7.5(d), an Optionee shall be deemed employed by the Company or any
of its subsidiaries, as the case may be, during any period of leave
of absence from active employment as authorized by the Company or
any of its subsidiaries, as the case may be; or
(e) in the case of an Incentive Stock Option
granted to an employee who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the
Company or any of its parent or subsidiary corporations, the term
set forth in (a), above, shall not be more than five years after
the date the Stock Option is granted.
7.6 Limit on Incentive Stock Options. The aggregate
Fair Market Value (determined at the time the Incentive Stock
Option is granted) of the Common Stock with respect to which
Incentive Stock Options granted under this Plan are exercisable for
the first time by an Optionee during any calendar year shall not
exceed $100,000. To the extent that the aggregate Fair Market
Value (determined at the time the Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar
year (under all Incentive Stock Option plans of the Company and any
parent or subsidiary corporations) exceeds $100,000, such Stock
Options shall be treated as Nonqualified Stock Options. The
determination of which Stock Options shall be treated as
Nonqualified Stock Options shall be made by taking Stock Options
into account in the order in which they were granted.
7.7 No Fractional Shares. In no event shall the
Company be required to issue fractional shares upon the exercise of
a Stock Option.
7.8 Exercisability in the Event of Death. In the
event of the death of the Optionee, any unexercised Accrued
Installment, or any portion thereof, on the date of death, may be
exercised by the Optionee's personal representatives, heirs, or
legatees subject to the provisions of Section 7.4 hereof.
7.9 Modification, Extension, and Renewal of Stock
Options. Subject to the terms and conditions and within the
limitations of the Plan, the Plan Administrator may modify, extend,
or renew outstanding Stock Options granted under the Plan, accept
the surrender of outstanding Stock Options (to the extent not
theretofore exercised) and authorize the granting of new Stock
Options in substitution therefore (to the extent not theretofore
exercised). The Plan Administrator may modify any outstanding
Stock Options so as to specify a lower Option Price. The Plan
Administrator shall not, however, without the consent of the
Optionee, modify any outstanding Incentive Stock Option in any
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manner which would cause the Stock Option not to qualify as an
Incentive Stock Option. Notwithstanding the foregoing, no
modification of a Stock Option shall, without the consent of the
Optionee, alter or impair any rights of the Optionee under the
Stock Option.
8. Supplemental Grants.
8.1 Loans. The Company may extend and maintain, or
arrange for the extension and maintenance of credit to any Optionee
to finance the participant's purchase of shares pursuant to the
exercise of any Stock Option, on such terms as may be approved by
the Plan Administrator, subject to applicable regulations of the
Federal Reserve Board and any other laws or regulations in effect
at the time such credit is extended, either on or after the date of
grant of such Stock Option. Such loans may be either in connection
with the grant or exercise of any Stock Option, or in connection
with the payment of any federal, state and local income taxes in
respect of income recognized upon exercise of a Stock Option. The
Plan Administrator shall have full authority to decide whether to
make a loan hereunder and to determine the amount, term, and
provisions of any such loan, including the interest rate (which may
be zero) charged in respect of any such loan, whether the loan is
to be secured or unsecured, the terms on which the loan is to be
repaid and the conditions, if any, under which it may be forgiven.
However, no loan hereunder shall provide or reimburse to the
borrower the amount used by him for the payment of the par value of
any shares of Common Stock issued, have a term (including
extensions) exceeding ten years in duration, or be an amount
exceeding the total Option Price paid by the borrower under a Stock
Option or for related Common Stock under the Plan plus an amount
equal to the cash payment permitted in Section 8.2 below.
8.2 Cash Payments. The Plan Administrator may, at
any time and in its discretion, authorize a cash payment, in
respect of the grant or exercise of a Stock Option under the Plan
or the lapse or waiver of restrictions under a Stock Option, which
shall not exceed the amount which would be required in order to pay
in full the federal, state and local income taxes due as a result
of income recognized by the recipient as a consequence of; (i) the
receipt of a Stock Option or the exercise of rights thereunder; and
(ii) the receipt of such cash payment. The Plan Administrator shall
have complete authority to decide whether to make such cash
payments in any case, to make provisions for such payments either
simultaneously with or after the grant of the associated Stock
Option, and to determine the amount of any such payment.
9. Termination or Amendment of the Plan. The Board may
at any time terminate or amend the Plan in accordance with the
following provisions:
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9.1 Amendment to Plan. Except as provided in
Section 9.3 hereof, the Board may amend this Plan from time to time
in such respect as the Board may deem advisable, provided, however,
that no such amendment shall operate to affect adversely an
Optionee's rights under this Plan with respect to any Stock Option
granted hereunder prior to the adoption of such amendment, except
as may be necessary, in the judgment of counsel to the Company, to
comply with any applicable law.
9.2 Effect of Termination of Plan on Outstanding
Stock Options. Except as set forth in Section 6.2 hereof, no
termination of the Plan prior to the Plan Termination Date, shall,
without the written consent of the Optionee, alter the terms of
Stock Options already granted and such Stock Options shall remain
in full force and effect as if this Plan had not been terminated.
9.3 Shareholder Approval for Amendment to Plan. Any
amendment to the Plan which would result in any of the following
changes must be approved by the shareholders of the Company in the
manner prescribed by Regulation 240.16b-3(b) of the Exchange Act;
(i) materially increase benefits accruing to Optionee under this
Plan; (ii) materially increase the number of shares which may be
issued under this Plan; (iii) extend the term of the Plan; or (iv)
materially modify the requirements as to eligibility for
participation in the Plan.
10. Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board or the
Stock Option Committee, the Plan Administrator shall be indemnified
by the Company against reasonable expense, including attorney's
fees, actually and necessarily incurred in connection with the
defense of any action, suit, or proceeding, or in connection with
any appeal therein, to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection
with the Plan or any grant thereunder, and against all amounts paid
by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any action, suit, or
proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit, or proceeding that such member is
liable for negligence or misconduct in the performance of his
duties, provided that within sixty (60) days after institution of
any such action, suit, or proceeding, the member shall offer in
writing to the Company the opportunity, at its own expense, to
handle and defend the same.
11. Withholding. Whenever the Company proposes or is
required to issue or transfer shares under the Plan, the Company
shall have the right to require the recipient to remit to the
Company an amount sufficient to satisfy any federal, state and
local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares of Common Stock. If an
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Optionee surrenders shares acquired pursuant to the exercise of an
Incentive Stock Option in payment of the Option Price and such
surrender constitutes a disqualifying disposition for purposes of
obtaining Incentive Stock Option treatment under the Code, the
Company shall have the right to require the Optionee to remit to
the Company an amount sufficient to satisfy any federal, state and
local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. Whenever under the
Plan, payments are to be made in cash, such payments shall be net
of an amount sufficient to satisfy any federal, state and local
withholding tax requirements. An Optionee may elect with respect
to any Stock Option which is paid in whole or in part in shares of
Common Stock, to surrender previously acquired shares of Common
Stock or authorize the Company to withhold shares (valued at Fair
Market Value on the date of surrender or withholding of the shares)
in satisfaction of all such withholding requirements (the "Share
Surrender Withholding Election") in accordance with the following:
11.1 Irrevocable Election. Any Share Surrender
Withholding Election shall be made by written notice to the Company
and thereafter shall be irrevocable by the Optionee.
11.2 Approval by Plan Administrator. If an Optionee
is subject to Section 16 of the Exchange Act, or any successor law,
any Share Surrender Withholding Election shall be subject to the
consent or disapproval of the Plan Administrator in accordance with
rules established from time to time by the Plan Administrator.
11.3 Timing of Election. Any Share Surrender
Withholding Election must be made prior to the date on which the
Optionee recognizes taxable income with respect to the receipt of
such shares (the "Tax Date").
11.4 Window Period. If an Optionee is subject to
Section 16 of the Exchange Act, or any successor law, such person
must make any Share Surrender Withholding Election:
(a) more than six months after the date of
grant with respect to which such election is made (except whenever
such election is made by a Disabled Optionee or the estate or
personal representative of a deceased Optionee); and
(b) either at least six months prior to the Tax
Date or during the period of ten business days beginning on the
third business day following the release for publication of the
Company's summary statement of sales and earnings for a quarter or
fiscal year.
11.5 Timing of Delivery. When the Tax Date falls
after the exercise of a Stock Option and the recipient makes a
Share Surrender Withholding Election, the full number of shares
subject to the Stock Option being exercised will be issued, but the
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Optionee will be unconditionally obligated to deliver to the
Company on the Tax Date the number of shares having a value on the
Tax Date equal to the Optionee's federal, state and local
withholding tax requirements.
11.6 Terms in Agreement. For purposes of this
Section 11.6, the Plan Administrator shall have the discretion to
provide (by general rule or a provision in the specific Stock
Option agreement) at the election of the Optionee, "federal, state
and local withholding tax requirements" that shall be deemed to be
any amount designated by the Optionee which does not exceed his
estimated federal, state and local tax obligations associated with
the transaction, including FICA taxes to the extent applicable.
12. General Provisions.
12.1 Stock Options Not Transferable. Stock Options
granted under this Plan may not be sold, pledged, hypothecated,
assigned, encumbered, gifted or otherwise transferred or alienated
in any manner, either voluntarily or involuntarily by operation of
law, other than by will or the laws of descent or distribution, and
may be exercised during the lifetime of an Optionee only by such
Optionee.
12.2 Transfer of Common Stock. Common Stock issued
pursuant to the exercise of a Stock Option granted under this Plan
or any interest in such Common Stock, may be sold, assigned,
gifted, pledged, hypothecated, encumbered or otherwise transferred
or alienated in any manner by the holder(s) thereof, subject,
however, to the provisions of this Plan, including any
representations or warranties requested under Section 13.6 hereof,
and also subject to compliance with any applicable federal, state,
local or other law, regulation or rule governing the sale or
transfer of stock or securities.
12.3 Reservation of Shares of Common Stock. The
Company, during the term of this Plan, will at all times reserve
and keep available such number of shares of its Common Stock as
shall be sufficient to satisfy the requirements of the Plan.
12.4 Restrictions on Issuance of Shares. The
Company, during the term of this Plan, will use its best efforts to
seek to obtain from the appropriate regulatory agencies any
requisite authorization in order to issue and sell such number of
shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Plan. The inability of the Company to obtain
from any such regulatory agency having jurisdiction thereof, the
authorization deemed by the Company's counsel to be necessary to
the lawful issuance and sale of any shares of its Common Stock
hereunder or the inability of the Company to confirm to its
satisfaction that any issuance and sale of any shares of such
Common Stock will meet applicable legal requirements shall relieve
13
<PAGE>
the Company of any liability in respect of the non-issuance or sale
of such Common Stock as to which such authorization or confirmation
shall have not been obtained.
12.5 Notices. Any notice to be given to the Company
pursuant to the provisions of this Plan shall be in writing and
addressed to the Company in care of its Stock Option Plan
Administrator at its principal office, and any notice to be given
to a director, officer or employee of the Company or any of its
subsidiaries to whom a Stock Option is granted hereunder shall be
in writing and addressed to him or her at the address given beneath
his or her signature on his or her Stock Option agreement, or at
such other address as such employee, officer or director or his or
her transferee (upon the transfer of Common Stock) may hereafter
designate in writing to the Company. Any such notice shall be
deemed duly given when delivered in person or mailed by first-class
mail (return receipt requested), telex, telecopy or overnight
courier to the other's address. It shall be the obligation of each
Optionee and each transferee holding Common Stock purchased
pursuant to the exercise of a Stock Option to provide the Stock
Option Plan Administrator of the Company, by letter mailed as
provided hereinabove, with written notice of his or her correct
mailing address.
12.6 Representations and Warranties. As a condition
to the exercise of any portion of a Stock Option, the Company may
require the person exercising such Stock Option to make any
representation and/or warranty to the Company as may, in the
judgment of counsel to the Company, be required under any
applicable law or regulation, including, but not limited to, a
representation and warranty that the shares are being acquired only
for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the
Company, such a representation is required under the Securities Act
or any other applicable law, regulation or rule of any governmental
agency.
12.7 No Enlargement of Employee Rights. This Plan is
purely voluntary on the part of the Company, and while the Company
hopes to continue it indefinitely, the continuance of the Plan
shall not be deemed to constitute a contract between the Company or
any of its subsidiaries and any director or employee, or to be
consideration for, or a condition of, the employment of any
employee. Nothing contained in the Plan shall be deemed to give
any employee the right to be retained in the employ of the Company
or any of its subsidiaries or to interfere with the right of the
Company or any of its subsidiaries to discharge or retire any
employee thereof at any time. No employee shall have any right to
or interest in Stock Options authorized hereunder prior to the
grant of such a Stock Option to such employee, and upon such grant
he shall have only such rights and interests as are expressly
provided herein, subject, however, to all applicable provisions of
14
<PAGE>
the Company's Certificate of Incorporation, as the same may be
amended from time to time.
12.8 Restrictions on Issuance of Shares. The
issuance of Stock Options and shares of Common Stock shall be
subject to compliance with all of the applicable requirements of
law with respect to the issuance and sale of securities, including,
without limitation, any required qualification under the California
Corporate Securities Law of 1968, as amended.
12.9 Legends on Stock Certificates. Unless there is
a currently effective appropriate registration statement on file
with the Securities and Exchange Commission pursuant to the
Securities Act with respect to the shares of Common Stock issuable
under this Plan, each certificate representing such Common Stock
shall be endorsed on its face with the following legend or its
equivalent:
"Neither the shares represented by this
Certificate, nor the Option pursuant to which such
shares were issued, have been registered under the
Securities Act of 1933, as amended. These shares have
been acquired for investment (and not with a view to
distribution or resale) and may not be sold,
mortgaged, pledged, hypothecated or otherwise
transferred without an effective registration
statement for such shares under the Securities Act of
1933, as amended, or until the issuer has been
furnished with an opinion of counsel for the
registered owner of these shares, reasonably
satisfactory to counsel for the issuer, that such
sale, transfers or disposition is exempt from the
registration or qualification provisions of the
Securities Act of 1933, as amended."
A copy of this Plan shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible
person making reasonable inquiry concerning it. In addition, the
Company reserves the right to place any legends or other
restrictions on each certificate representing Common Stock which
may be required by any applicable state securities or other laws.
12.10 Remedies. Should any dispute arise concerning
the sale or other disposition of a Stock Option or shares of Common
Stock issued or issuable upon the exercise of a Stock Option, or
any breach by the Company of the terms of the Plan or any Stock
Option agreement, an Optionee's sole and exclusive remedy shall be
damages.
12.11 Invalid Provisions. In the event that any
provision of this Plan is found to be invalid or otherwise
unenforceable under any applicable law, such invalidity or
15
<PAGE>
unenforceability shall not be construed as rendering any other
provisions contained herein invalid or unenforceable, and all such
other provisions shall be given full force and effect to the same
extent as though the invalid or unenforceable provision was not
contained herein.
12.12 Applicable Law. This Plan shall be governed by
and 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 principals thereof.
12.13 Successors and Assigns. This Plan shall be
binding on and inure to the benefit of the Company and the
officers, directors and employees of the Company and any
subsidiary, to whom a Stock Option is granted hereunder, and their
heirs, executors, administrators, legatees, personal
representatives, assignees and transferees.
12.14 Rights as a Stockholder or Employee. A
participant or transferee of a Stock Option shall have no right as
a stockholder of the Company with respect to any shares covered by
any grant under this Plan until the date of the issuance of a share
certificate for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether cash, securities, or
other property) or distributions or other rights for which the
record date is prior to the date such share certificate is issued,
except as provided in Section 6.2 hereof. Nothing in the Plan or in
any Stock Option agreement shall confer upon any Optionee any right
to continue in the employ of the Company or any of its subsidiaries
or interfere in any way with any right of the Company or any
subsidiary to terminate the Optionee's employment at any time.
13. Effective Date of Plan. The Plan shall be adopted and
become effective on the date of execution specified below subject,
however, to the prior approval of the Plan by the stockholders of
the Company.
14. Term of Plan. Unless sooner terminated by the Board
in its sole discretion, the Plan will expire and no Stock Options
may be made hereunder on and after July 27, 2005.
16
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by its duly authorized officer and to be effective on this
28th day of July, 1995.
Maxicare Health Plans, Inc.
By:/s/ PETER J. RATICAN
------------------------
Peter J. Ratican,
Chief Executive Officer
Attest:
By:/s/ ALAN D. BLOOM
----------------------------
Alan D. Bloom, Secretary
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the June 30, 1995
financial statements and is qualified in its
entirety by reference to such financial
statements.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<PERIOD-TYPE> 6-MOS
<CASH> 37,222
<SECURITIES> 43,230
<RECEIVABLES> 26,326
<ALLOWANCES> 4,789
<INVENTORY> 0
<CURRENT-ASSETS> 114,723
<PP&E> 29,842
<DEPRECIATION> 27,720
<TOTAL-ASSETS> 130,914
<CURRENT-LIABILITIES> 54,693
<BONDS> 0
0
0
<COMMON> 173
<OTHER-SE> 75,315
<TOTAL-LIABILITY-AND-EQUITY> 130,914
<PAGE>
<SALES> 226,047
<TOTAL-REVENUES> 229,092
<CGS> 195,769
<TOTAL-COSTS> 217,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 11,538
<INCOME-TAX> 1,953
<INCOME-CONTINUING> 9,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,585
<EPS-PRIMARY> .61
<EPS-DILUTED> .53
</TABLE>
