SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K/A
(AMENDMENT NO. 1)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1995;
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-12024
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MAXICARE HEALTH PLANS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-3615709
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1149 South Broadway Street, Los Angeles, California 90015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 765-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
1 of 9
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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
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES X NO
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The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 22, 1996:
Common Stock, $.01 par value - $457,722,000
The number of shares outstanding of each of the issuer's
classes of capital stock, as of March 22, 1996:
Common Stock, $.01 par value - 17,510,652 shares
As of March 22, 1996, Registrant had 636,112 shares of Common
Stock being held by the Registrant, as disbursing agent for the
benefit of holders of allowed claims and interests under the
Registrant's Joint Plan of Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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Item 11. Executive Compensation
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The 1995 Board Compensation Committee Report on Executive
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Compensation
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Compensation Philosophy Regarding Executive Officers
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The Compensation Committee designs, reviews and approves the
compensation program for the Company's top executive employees. The
Compensation Committee for the Company's 1995 fiscal year was
comprised of three outside directors and Peter J. Ratican (ex-
officio), the Company's President and Chief Executive Officer (the
"CEO"). The Compensation Committee coordinates with the Stock
Option Committee stock option grants pursuant to the stockholder
approved 1990 and 1995 Stock Option Plans. 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:
o support a pay for performance policy that differentiates in
compensation amounts based on corporate, business unit and
individual performance;
o motivate key executive officers to achieve strategic business
initiatives and reward them for their achievement;
o 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
o 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.
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Relationship Of Performance Under The Compensation Program
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The compensation program supports the Company's internal culture
and human resource values which are to foster career opportunities
and develop 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.
During 1995, 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:
o Base salary and benefits typically offered to executives by
major corporations.
o 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.
The Compensation Committee believes that to attract and retain
quality executives emphasis should remain in 1995 on base salary
rather than on performance measured compensation for the named
executives, other than the CEO and Eugene L. Froelich the Company's
Executive Vice President - Finance and Administration and Chief
Financial Officer (the "CFO").
In addition to the above mentioned compensation elements, there are
three elements in the Company's executive compensation program for
the CEO and the CFO:
o Annual incentive compensation.
o Long-term compensation.
o Additional incentive compensation linked to maximization of
shareholders' value.
Salary Factors
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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 who informs the Compensation Committee as to the amount
of proposed remuneration for the Company's executive officers
(excluding the CFO). The salaries approved for 1995 reflect
consideration of the CEO's, Compensation Committee's and the
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Board's subjective assessment of the performance of each executive
over the past year, planned changes in functional responsibility
and judgments as to the expected future contributions of the
individual executive.
Performance Evaluation. The Compensation Committee has taken
particular note of the executives' success in effectively directing
the Company's operations under the difficult competitive conditions
in the markets served by the Company. In its review of the
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 subjectively assessed past performance and its
expectation as to future contributions in leading the Company and
its businesses.
Competitive Data. Total cash compensation for executives in 1995,
other than the CEO and CFO, were set to meet or exceed the seventy-
fifth percentile (75%) for the specific position held, from a
private health care industry survey conducted in 1994 included in a
formal report provided by an independent consulting firm. Using
the 1994 analysis as a base, 1995 cash compensation was
subjectively increased for executives with a goal not to exceed
five (5%) in the aggregate.
The salary compensation for the CEO and CFO for 1995 was in
accordance with the five year employment agreements entered into in
1992 (the "Employment Agreements") and no changes or increases were
made for 1995.
The Compensation Committee considers the total compensation (earned
or potentially available) of each of the executives in establishing
each element of compensation. After completing their subjective
assessment of the above salary factors, the Compensation Committee
increased the salaries of the named executives effective January 1,
1995.
Benefits
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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
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Stock options are granted to employees and directors under the 1990
and 1995 Stock Option Plans by the Stock Option Committee which is
comprised of two outside directors. These grants are made only
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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 generally becomes exercisable in three annual installments
following the date of grant and has a term from five to ten years.
The number of shares covered by an individual's option represents
the Option Committee's subjective assessment of the individual's
relative value to the Company. During 1995 stock options were
granted to two of the named executives. In determining the amount
of options to grant, the Option Committee took into account the
items discussed above under "Salary Factors", the desire to tie
closely the financial interests of the named executives to those of
the Company's stockholders and the total amount of options
currently held by the named executive. The grants made in 1995
reflect such considerations.
Annual Incentives
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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 Agreements. For the fiscal year ended December 31, 1994
the Company's pre-tax earnings were not sufficient to generate an
annual bonus payment under the Employment Agreements. However, the
Compensation Committee in evaluating the overall performance of the
Company and the effect of certain litigation charges against pre-
tax earnings for 1994, granted a discretionary bonus in the amount
of $100,000 to both the CEO and CFO which was paid in February
1995. An annual bonus of $256,862 was paid in February 1996 to
both the CEO and the CFO based upon the audited 1995 pre-tax
earnings pursuant to the Employment Agreements.
Other Long-Term and Incentive Compensation
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In order to further incentivize the CEO and CFO, and strengthen
such executives ongoing commitment to the Company, on February 27,
1995 the Compensation Committee awarded 65,000 shares of Restricted
Stock to both executives (individually the "Executive"). The
Restricted Stock is subject to complete forfeiture should the
Executive to which it has been awarded be terminated prior to
February 27, 1998. Upon the Executive remaining in the employ of
the Company through February 27, 1998 the Restricted Stock becomes
fully vested. Under certain defined circumstances involving a
change of control of the Company the Restricted Stock will vest in
full immediately. These Restricted Stock awards provide an
additional incentive to the CEO and CFO to remain in the employ of
the Company for the full three year vesting period as well as
further aligning their financial interests with those of the
Company's stockholders.
The CEO's and CFO's Employment Agreements provide that in the event
of a change of control of the Company, the Executive may terminate
the Employment Agreement and be entitled to receive a payment based
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upon the Executive's average annualized compensation over the five
year period through the date of the change of control. Also set
forth in the 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.
The bonuses paid pursuant to the Company's plan of reorganization
are not under the jurisdiction of the Compensation Committee.
Conclusion
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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 designed,
implemented and administered have contributed to achieving this
management focus. The policies, plans and programs used in setting
1995 compensation are consistent with those used when 1994
compensation was set.
1995 Compensation Committee:
Claude S. Brinegar
Florence F. Courtright
Thomas W. Field, Jr.
Peter J. Ratican (ex-officio)
Comparison of Cumulative Total Return Graph
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The following graph presents a four and three quarter years
comparison of cumulative total returns for the Common Stock of the
Company, the index for the NASDAQ Stock Market (U.S. Companies) and
an index of peer companies (the "Managed Care Group") selected by
the Board of Directors. This Graph only presents four 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 through
December 31, 1993 consisted of seven other managed care companies:
Coventry Corporation, FHP International, Foundation Health
Corporation, PacifiCare Health Systems, Inc., Qual-Med, Inc.,
TakeCare, Inc. and Wellpoint Health Networks (as of February 1993).
As a result of corporate mergers involving Qual-Med, Inc. with
Health Net and TakeCare, Inc. with FHP International, the Managed
Care Group for 1994 and 1995 consists of: Coventry Corporation, FHP
International, Foundation Health Corporation, PacifiCare Health
Systems, Inc., Wellpoint Health Networks and Health Systems
International (the successor company of Qual-Med, Inc.). Total
return assumes the monthly reinvestment of dividends.
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COMPARISON AS OF DECEMBER 31 OF CUMULATIVE TOTAL RETURN
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<TABLE>
<CAPTION>
MAXICARE
MEASUREMENT PERIOD HEALTH PLANS, MANAGED CARE
(FISCAL YEAR COVERED) INC. NASDAQ U.S. GROUP
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<S> <C> <C> <C>
1990 $100.00 $100.00 $100.00
1991 $114.71 $109.45 $ 73.73
1992 $150.00 $127.38 $117.24
1993 $114.71 $146.22 $117.76
1994 $177.94 $142.93 $114.56
1995 $316.18 $201.97 $130.32
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
May 3, 1996 /s/ EUGENE L. FROELICH
Date Eugene L. Froelich
Chief Financial Officer
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