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, 1996 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 [ ]
Exhibit Index Page 15 of 119
Page 1 of 119
<PAGE>
Common Stock, $.01 par value - 17,539,318 shares outstanding as of
August 9, 1996, of which 622,358 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.
2
<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,
1996 1995
----------- ---------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents................................. $ 27,932 $ 49,170
Marketable securities..................................... 63,298 49,659
Accounts receivable, net.................................. 32,655 32,946
Deferred tax asset........................................ 14,252 14,000
Prepaid expenses.......................................... 2,759 1,195
Other current assets...................................... 319 294
--------- ---------
TOTAL CURRENT ASSETS.................................... 141,215 147,264
--------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,441 5,441
Furniture and equipment................................... 18,855 18,849
--------- ---------
24,296 24,290
Less accumulated depreciation and amortization.......... 22,346 21,755
--------- ---------
NET PROPERTY AND EQUIPMENT.............................. 1,950 2,535
--------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 156 200
Statutory deposits........................................ 13,481 12,593
Intangible assets, net.................................... 315 244
--------- ---------
TOTAL LONG-TERM ASSETS.................................. 13,952 13,037
--------- ---------
TOTAL ASSETS............................................ $ 157,117 $ 162,836
========= =========
CURRENT LIABILITIES
Estimated claims and incentives payable................... 37,212 $ 46,232
Accounts payable.......................................... 456 689
Deferred income........................................... 1,717 5,272
Accrued salary expense.................................... 3,336 3,296
Payable to disbursing agent............................... 6,248 6,248
Other current liabilities................................. 4,829 5,239
--------- ---------
TOTAL CURRENT LIABILITIES............................... 53,798 66,976
LONG-TERM LIABILITIES....................................... 807 1,155
--------- ---------
TOTAL LIABILITIES....................................... 54,605 68,131
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value - 40,000 shares authorized,
1996 - 17,539 shares and 1995 - 17,420 shares issued
and outstanding......................................... 175 174
Additional paid-in capital................................ 249,237 247,690
Accumulated deficit....................................... (146,900) (153,159)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 102,512 94,705
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 157,117 $ 162,836
========= =========
See notes to consolidated financial statements.
</TABLE>
3
<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,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES................................................... $134,573 $113,692 $266,339 $226,047
-------- -------- -------- --------
OPERATING EXPENSES
Physician services................................................ 53,576 44,904 106,157 89,126
Hospital services................................................. 46,487 34,594 88,456 68,195
Outpatient services............................................... 20,348 16,197 38,534 32,122
Other health care services........................................ 3,009 2,875 6,063 6,326
-------- -------- -------- --------
TOTAL HEALTH CARE EXPENSES...................................... 123,420 98,570 239,210 195,769
Marketing, general and administrative expenses.................... 11,817 10,591 23,263 21,165
Depreciation and amortization..................................... 329 301 675 595
-------- -------- -------- --------
TOTAL OPERATING EXPENSES........................................ 135,566 109,462 263,148 217,529
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS........................................ (993) 4,230 3,191 8,518
Investment income, net of interest expense........................ 1,516 1,679 3,068 3,020
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES........................................... 523 5,909 6,259 11,538
INCOME TAX PROVISION................................................. 1,012 1,953
-------- -------- -------- --------
NET INCOME........................................................... $ 523 $ 4,897 $ 6,259 $ 9,585
======== ======== ======== ========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Primary
Primary Earnings per Common Share................................. $ .03 $ .27 $ .34 $ .61
======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding................................... 18,406 18,092 18,446 15,758
======== ======== ======== ========
Fully Diluted
Fully Diluted Earnings per Common Share........................... $ .03 $ .27 $ .34 $ .53
======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding................................... 18,406 18,092 18,446 18,076
======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
4
<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,
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 6,259 $ 9,585
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation and amortization.................................. 675 595
Benefit from deferred taxes.................................... (252)
Amortization of restricted stock............................... 349 233
Changes in assets and liabilities:
(Increase) decrease in accounts receivable................... 291 (3,223)
Decrease in estimated claims and incentives payable.......... (9,020) (10,531)
Increase (decrease) in deferred income....................... (3,555) 2,148
Changes in other miscellaneous assets and liabilities........ (2,388) 845
-------- --------
Net cash used for operating activities........................... (7,641) (348)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment......................... 4
Purchases of property and equipment............................ (41) (173)
Increase in statutory deposits................................. (888) (726)
Proceeds from sales and maturities of marketable securities.... 21,131 34,578
Purchases of marketable securities............................. (34,770) (34,250)
Decrease in long-term receivables.............................. 44 39
-------- --------
Net cash used for investing activities........................... (14,524) (528)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.......................... (272) (80)
Stock options exercised........................................ 1,199 845
Redemption of preferred stock.................................. (525)
-------- --------
Net cash provided by financing activities........................ 927 240
-------- --------
Net decrease in cash and cash equivalents........................ (21,238) (636)
Cash and cash equivalents at beginning of period................. 49,170 37,858
-------- --------
Cash and cash equivalents at end of period....................... $ 27,932 $ 37,222
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest..................................................... $ 65 $ 21
Income taxes................................................. $ 263 $ 1,670
Supplemental schedule of non-cash financing activities:
Reclassification of preferred capital accounts to
common stock capital accounts pursuant to the
conversion of preferred stock to common stock.............. $ 53,195
Issuance of restricted common stock.......................... $ 2,096
See notes to consolidated financial statements.
</TABLE>
5
<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, 1995.
Capital Stock and Net Income 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 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
6
<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.
7
<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 $.5 million for the three months ended June
30, 1996, compared to $4.9 million for the same three month period
in 1995. Net income per common share on a fully diluted basis was
$.03 for the second quarter of 1996, compared to $.27 for 1995.
For the three months ended June 30, 1996, the Company reported
operating revenues of $134.6 million, an increase of 18% or $20.9
million when compared to the same period in 1995. Operating
revenues increased as a result of a 25% increase in the Company's
membership over the prior year period. A majority of the increase
resulted from a doubling of membership in the Company's Medicaid
and Medicare lines of business primarily in Indiana and
California. The remaining increase resulted from a 15% increase
in commercial membership primarily in California and Indiana,
offset in part by a decrease in the average per member per month
("PMPM") commercial premium.
The increase in operating revenues for the second quarter of 1996
was more than offset by a $24.8 million increase in health care
expenses. This increase in health care expenses was in part a
result of a $5.0 million charge for unanticipated health care
claims costs primarily related to the Illinois and Carolinas
health plans, where the Company assumes greater risk for claims
costs as compared to its other health plans. The remaining
increase principally results from growth in the Company's Medicaid
and Medicare lines of business, both of which have a higher
medical loss ratio (health care expenses as a percentage of
operating revenues) than the Company's commercial line of
business.
Marketing, general and administrative ("MG&A") expenses for the
second quarter of 1996 increased $1.2 million to $11.8 million as
compared to the second quarter of 1995. However, MG&A expenses as
a percentage of operating revenues decreased to 8.8% for the three
months ended June 30, 1996 as compared to 9.3% for the second
quarter of 1995 primarily as a result of revenue growth in the
Company's Medicaid line of business.
Net investment income for the second quarter of 1996 decreased by
$200,000 to $1.5 million, as compared to 1995, due to lower
interest rates partially offset by greater cash and investment
balances.
The Company reported a $32,000 provision for income taxes for the
three months ended June 30, 1996 and an offsetting income tax
benefit of $32,000 due to the Company increasing its deferred tax
asset. The Company reported a $1.0 million provision for income
taxes for the three months ended June 30, 1995.
8
<PAGE>
Operating revenues for the first six months of 1996 increased
17.8% to $266.3 million from $226.0 million for the same period in
1995 primarily due to a 24% membership increase in the Company's
Medicaid, Medicare and commercial lines of business; offset in
part by a 5.2% decline in the average premium PMPM primarily as a
result of the growth in the lower premium PMPM Medicaid line of
business. Total health care expenses increased $43.4 million for
the first six months of 1996 as compared to the same period in
1995 as a result of the increase in membership and the $5.0
million charge recorded in the second quarter of 1996. MG&A
expenses increased $2.1 million for the six months ended June 30,
1996, but decreased as a percentage of operating revenues to 8.7%
from 9.4%. The Company reported net income of $6.3 million for
the six months ended June 30, 1996 as compared to $9.6 million for
the same period in 1995.
9
<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, 1996, 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 $38.8
million at June 30, 1996, with deposit requirements and
limitations imposed by state regulations on the distribution of
dividends representing $12.9 million and $18.6 million of the
Restricted Net Assets, respectively, and net worth requirements in
excess of deposit requirements and dividend limitations
representing the remaining $7.3 million. The Company's total
Restricted Net Assets at June 30, 1996 were $39.1 million. In
addition to the $23.9 million in cash, cash equivalents and
marketable securities held by MHP, approximately $13.3 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
licensed in the states where they operate. Subsequent to the
close of the Company's fiscal 1996 second quarter, in July 1996
the North Carolina Department of Insurance and the South Carolina
Department of Insurance approved the expansion of the Company's
North Carolina HMO into the state of South Carolina through its
acquisition of the existing membership, contracts and net assets
of the Company's South Carolina HMO. As a result of this
approval, the Company's North Carolina HMO is licensed to conduct
business in both the states of North Carolina and South Carolina.
Prior to such approval, the operations of the Company's South
Carolina HMO were under Bankruptcy Court jurisdiction.
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.
With a current ratio (i.e., current assets divided by current
liabilities) of 2.6 and less than $.9 million of long-term
liabilities at June 30, 1996, 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 can not state with any degree of certainty at
this time whether additional equity capital or working capital
would be available to the Company, and if available, would be at
terms and conditions acceptable to the Company.
10
<PAGE>
PART II: OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
-----------------
The information contained in "Part I, Item 3. Legal Proceedings" of
the Company's 1995 Annual Report on Form 10-K is hereby
incorporated by reference and the following information updates the
information contained in the relevant subparts thereof.
a. PENN HEALTH
During the period March 1, 1986 through June 30, 1989, Penn Health
Corporation ("Penn Health"), a subsidiary of the Company,
contracted with the Commonwealth of Pennsylvania Department of
Public Welfare (the "DPW") to provide a full range of managed
health care services to Medicaid enrollees under the Pennsylvania
Medical Assistance Program known as the HealthPass Program. On
February 27, 1991, the Company filed a petition against the DPW
with the Pennsylvania Board of Claims (the "Claims Board") seeking
in excess of $24 million in damages for monies due from the DPW in
connection with the HealthPass Program plus accrued interest (the
"Board Action"). The Claims Board consolidated the Board Action
for purposes of trial with two separate actions filed by Penn
Health hospital providers (the "Hospital Providers") and by a class
consisting of Penn Health primary care physician providers (the
"PCP Class") against DPW to secure payment directly from the DPW
for pre-petition services rendered to HealthPass members. Pursuant
to an order of the Claims Board, the actions were set for trial in
two phases; a liability phase and a damages phase.
Following trial before the Claims Board in July 1994 of contractual
issues pertaining to DPW's liability the Claims Board issued an
order on December 2, 1994 on the liability phase which found that:
(i) a contract exists between Penn Health and the DPW; (ii) the DPW
breached the contract; and (iii) Penn Health is an independent
general contractor and not an agent of the DPW. Trial on the
parties' respective damages claims concluded on November 30, 1995.
All post trial briefing has been completed and the parties are
waiting for the Claims Board to issue its ruling on the damages
phase and to enter a judgment in the Board Action. The Company
believes that its damage claims are meritorious and that it will
prevail in the Board Action.
On June 7 and 19, 1996 the Company and Penn Health filed
complaints with the United States Bankruptcy Court for the Central
District of California (the "Bankruptcy Court") against the
Hospital Providers, and the PCP Class and its counsel, respectively
(the "Provider Bankruptcy Actions"), for violating the terms of the
Company's and Penn Health's Joint Plan of Reorganization (the
"Plan") and the Bankruptcy Court's order confirming the Plan. In
the Provider Bankruptcy Actions the Company and Penn Health seek,
among other things, turnover and the
11
<PAGE>
recovery of payments (plus accrued interest) made by the DPW, to
the Hospital Providers in the amount of $13 million and the PCP
Class in the amount of $2.1 million (collectively, the "DPW
Payments"), after confirmation of the Plan, as unlawful Plan
distributions and post-petition transfers. (Maxicare Health Plans,
Inc. and Penn Health Corporation v. Albert Einstein et al. (Case
No. AD96-01611)); (Maxicare Health Plans, Inc. and Penn Health
Corporation v. Faezeh Behjat et al. (Case No. AD96-01668)). The
Company believes that its claims against the defendants in the
Provider Bankruptcy Actions are meritorious and that it will
prevail in these actions. Notwithstanding the foregoing, the
Company believes that its aggregate recovery from the Board Action
and the Provider Bankruptcy Actions will not exceed the aggregate
amount of damages plus accrued interest sought by Penn Health in
the Board Action.
b. OTHER LITIGATION
The Company is a defendant in a number of other lawsuits arising in
the ordinary course from the operations of its HMOs, including
cases in which the plaintiffs assert claims against the Company or
third parties that might assert indemnity or contribution claims
against the Company for malpractice, negligence, bad faith in the
failure to pay claims on a timely basis or denial of coverage. 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.
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5: Other Information
-----------------
None.
12
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 10.3d. Amended and Restated Employment and
Indemnification Agreement by and between Maxicare
Health Plans, Inc. and Peter J. Ratican, dated as of
April 1, 1996
Exhibit 10.4d. Amended and Restated Employment and
Indemnification Agreement by and between Maxicare
Health Plans, Inc. and Eugene L. Froelich, dated as
of April 1, 1996
Exhibit 10.14a Amendment No. 1 to the Stock Option
Agreement by and between Maxicare Health
Plans, Inc. and Peter J. Ratican, dated
as of December 5, 1990.
Exhibit 10.15a Amendment No. 1 to the Stock Option
Agreement by and between Maxicare Health
Plans, Inc. and Eugene L. Froelich, dated
as of December 5, 1990.
Exhibit 10.42a Amendment No. 1 to the Stock Option
Agreement by and between Maxicare Health
Plans, Inc. and Peter J. Ratican, dated
as of February 25, 1992.
Exhibit 10.43a Amendment No. 1 to the Stock Option
Agreement by and between Maxicare Health
Plans, Inc. and Eugene L. Froelich, dated
as of February 25, 1992.
Exhibit 10.82a. Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Peter J. Ratican,
dated as of April 1, 1996
Exhibit 10.82b. Stock Option Agreement by and between
Maxicare Health Plans, Inc. and Eugene L. Froelich,
dated as of April 1, 1996
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
13
<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 12, 1996 /s/ Eugene L. Froelich
---------------------------
Eugene L. Froelich
Chief Financial Officer and
Executive Vice President -
Finance and Administration
14
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
------ ----------------------------------------- -----------
10.3d Amended and Restated Employment and 16 of 119
Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Peter J.
Ratican, dated as of April 1, 1996
10.4d Amended and Restated Employment and 51 of 119
Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Eugene L.
Froelich, dated as of April 1, 1996
10.14a Amendment No. 1 to the Stock Option 86 of 119
Agreement by and between Maxicare Health
Plans, Inc. and Peter J. Ratican, dated
as of December 5, 1990
10.15a Amendment No. 1 to the Stock Option 90 of 119
Agreement by and between Maxicare Health
Plans, Inc. and Eugene L. Froelich, dated
as of December 5, 1990
10.42a Amendment No. 1 to the Stock Option 94 of 119
Agreement by and between Maxicare Health
Plans, Inc. and Peter J. Ratican, dated
as of February 25, 1992
10.43a Amendment No. 1 to the Stock Option 97 of 119
Agreement by and between Maxicare Health
Plans, Inc. and Eugene L. Froelich, dated
as of February 25, 1992
10.82a Stock Option Agreement by and between 100 of 119
Maxicare Health Plans, Inc. and Peter J.
Ratican, dated as of April 1, 1996
10.82b Stock Option Agreement by and between 109 of 119
Maxicare Health Plans, Inc. and Eugene L.
Froelich, dated as of April 1, 1996
27 Financial Data Schedule 118 of 119
15
Exhibit 10.3d
AMENDED AND RESTATED
EMPLOYMENT AND INDEMNIFICATION AGREEMENT
This Amended and Restated Employment and Indemnification
Agreement ("Agreement"), dated as of April 1, 1996, is made by and
between MAXICARE HEALTH PLANS, INC., a Delaware corporation (the
"Company"), and Peter J. Ratican, an individual ("Executive").
R E C I T A L S
WHEREAS, Executive presently serves as Chairman of the Board,
Chief Executive Officer and President of the Company pursuant to an
Employment and Indemnification Agreement dated as of January 1,
1992, as amended by Amendment No. 1 thereto dated February 27, 1995
(collectively the "Old Employment Agreement"), exerting
particularly diligent efforts in such capacities on behalf of the
Company;
WHEREAS, subject to the terms and conditions contained herein,
Executive has agreed to continue to serve as Chairman of the Board,
Chief Executive Officer and President of the Company; and
WHEREAS, in recognition that Executive's skills and experience
are essential to the on-going business, operations and prospects of
the Company, and in order to strengthen Executive's desire to
remain in the employ of the Company and to stimulate Executive's
efforts on the Company's behalf, the Company an Executive have
agreed to terminate the Old Employment Agreement and to enter into
this Agreement;
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, the Company and Executive agree as follows:
1. Definitions. As used in this Agreement, the
following capitalized terms shall have the following meanings,
unless otherwise expressly provided or unless the context otherwise
requires. All capitalized terms used herein but not herein
elsewhere defined shall have the meanings ascribed such term in the
Plan.
"Board of Directors" means the board of Directors of the
Company.
"Cause" means, as used with respect to the involuntary
termination of Executive:
16
<PAGE>
(i) The willful or habitual failure by
Executive to perform requested duties commensurate with his
employment pursuant to the terms of this Agreement without good
cause, after a demand for substantial performance is delivered to
Executive by the Board of Directors, which notice specifically
identifies the manner in which Executive has not performed his
duties (other than as a result of the death or Incapacity of
Executive); or
(ii) The willful engaging by Executive in
misconduct or inaction materially injurious to the Company,
provided, however, that an act or failure to act shall be
considered "willful", only if done or omitted in bad faith and
without reasonable belief on Executive's part that his action or
omission was in the best interest of the Company; or
(iii) The conviction by final judgment of
Executive for a felony or of a crime involving moral turpitude,
dishonesty or theft.
Notwithstanding the foregoing, for purposes of sections (i)
and (ii), above, such events shall be deemed to have occurred only
upon (a) the due adoption by the Board of Directors at a meeting
called and held for such purpose (after reasonable notice to
Executive and his counsel and after affording Executive and his
counsel an opportunity to be heard before the Board of Directors),
of a resolution finding that, in the good faith opinion of the
Board of Directors, Executive was guilty of the conduct set forth
in those sections, and (b) in the event that such resolution is
duly adopted by the Board of Directors, the receipt by Executive of
five (5) days written notice prior to the effectiveness thereof.
"Change of Control" means any transaction or occurrence after
the date hereof as the result of which:
(i) the Company shall cease to be a publicly
owned corporation having at least 300 stockholders; or
(ii) any person or group of persons (as defined
in Rule 13d-5 promulgated under the Securities Exchange Act of 1934
(the "Act")), together with its affiliates, is or becomes the
beneficial owner (as defined in Rule 13d-3 promulgated under the
Act), directly or indirectly, of securities of the Company
(including securities convertible into or exercisable for
securities of the Company) ordinarily having the right to vote in
the election of directors which together represent, after giving
effect to any conversion or exercise, in excess of forty percent
(40%) of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote in the election of
directors; or
17
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(iii) Continuing Directors (as defined below)
shall cease for any reason to constitute at least a majority of the
Board of Directors; or
(iv) the Company shall merge or consolidate
with any other person or entity other than a subsidiary, and, upon
the consummation of such transaction, holders of the Common Stock
immediately prior to such transaction own less than sixty percent
(60%) of the equity securities of the surviving or consolidated
entity; or
(v) all or substantially all of the assets of
the Company are sold or transferred to another person or entity in
a single transaction or a series of related transactions.
Notwithstanding the foregoing, a Change of Control shall not
include the filing by or on behalf of, or entering against, the
Company or its subsidiaries of (a) a petition, decree or order of
bankruptcy or reorganization, or (b) a petition, decree or order
for the appointment of a trustee, receiver, liquidator, supervisor,
conservator or other officer or agency having similar powers over
the Company or its subsidiaries, including any such petitions,
orders or decrees filed or entered by federal or state regulatory
authorities.
"Closing Price" for each trading day, shall mean the closing
bid price (or average of bid prices), the Common Stock as reported
by the National Association of Securities Dealers Automated
Quotation System-National Market System ("NASDAQ-NMS") or if the
Common Stock is not traded on NASDAQ on such national or regional
securities exchange or quotation system where the Common Stock is
traded.
"Common Stock" means the issued and outstanding common stock
of the Company.
"Continuing Director" means any individual who is a member of
the Board of Directors as of the date hereof, which individuals are
listed on Exhibit A attached hereto and made a part hereof, and any
subsequent director nominated by the Board of Directors for
election by the stockholders or appointed to the Board of
Directors, which nomination or appointment is made with the
affirmative vote of a majority of Continuing Directors then serving
on the Board of Directors.
"Good Reason" means, with respect to the voluntary termination
by Executive, the occurrence, without the Executive's express
written consent, of any of the following:
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(i) The assignment to Executive by the Company
of any duties materially inconsistent with, or the diminution of,
Executive's positions, titles, offices, duties and responsibilities
with the Company, as in effect from time to time hereunder, or any
removal of Executive from, or any failure to re-elect Executive to,
any titles, offices or positions held by Executive hereunder,
including the failure of the Board of Directors to nominate
Executive to the Board of Directors' slate of directors to be
recommended to the Company's stockholders or the failure of the
Company's stockholders to elect Executive as a director; or
(ii) Except as in accordance with the terms
hereof, a reduction by the Company in Executive's base salary or
any other compensation provided for herein; or
(iii) The failure by the Company to continue in
effect any material benefit or compensation plan to which Executive
is entitled, hereunder, or plans providing Executive with
substantially similar benefits, the taking of any action by the
Company which would materially and adversely affect Executive's
participation in, or materially reduce Executive's benefits under,
any such benefit plan or deprive Executive of any material fringe
benefits enjoyed by Executive hereunder, or the failure by the
Company to provide Executive with the number of paid vacation days
to which Executive is then entitled (based on years of service)
under the Company's normal vacation policies and practices in
effect on the date hereof or in effect from time to time hereafter;
provided, however, that the occurrence of any of the foregoing
shall not constitute "Good Reason" to the extent that such
occurrence is part of a change in benefits, compensation, policies
or practices that affect substantially all of the employees of the
Company; or
(iv) The failure of the Company to obtain the
explicit assumption in writing of its obligation to perform this
Agreement by any successor as contemplated in Section 18(a) hereof;
or
(v) A change or relocation of Executive's
place of employment, as designated in Section 2 hereof, without his
written consent, other than within thirty (30) miles of such
agreed-upon location; or
(vi) Any other substantial, material and
adverse change in Executive's conditions of employment imposed on
him by the Company.
"Incapacity" means the absence of the Executive from his
employment or the inability of Executive to perform his duties
pursuant to this Agreement by reason of mental or physical illness,
disability or incapacity for a period of four (4) months or more
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during any twelve (12) month period during the term hereof, and
either the Company or Executive elects to declare such illness,
disability or incapacity to be of a permanent nature.
"Initial Value" means, for the purposes of calculating the
aggregate Sale Bonus described in Section 10, below, (i) $67.0
million plus (ii) $80.0 million or a total of $147.0 million.
"Plan" means that certain Joint Plan of Reorganization in a
case entitled In re Family Health Services, Inc., et al., Debtors,
Case No. SA 89-01549 JW (jointly administered with Cases SA 89-
01550 JW through SA 89-01594 JW, inclusive, SA 89-02535 JW and SA
89-02536 JW), confirmed by the United States Bankruptcy Court for
the Central District of California, Santa Ana Division.
"Plan Compensation" means the additional compensation,
remuneration and consideration granted to Executive pursuant to
paragraphs 2, 8 and 9 of Exhibit 10-A to the Plan and paragraphs 4
and 5 of Exhibit 10-B of the Plan.
"Senior Management" means Executive and Eugene Froelich.
2. Employment, Services and Duties. The Company
hereby employs Executive as Chairman of the Board, Chief Executive
Officer and President of the Company, and as Chairman of the Board
and/or Chief Executive Officer and/or a director with respect to
any of the Company's subsidiaries as the Board of Directors or such
subsidiaries may from time to time direct. Additionally, in his
capacity as a director, Executive will be appointed to the
Executive Committee, Management Committee or any other committee
with comparable responsibilities, as may be from time to time
established by the Board of Directors or the board of directors of
any subsidiary on which Executive may serve as a director. Subject
to his continued employment as such by the Board of Directors,
Executive shall continue to have and perform the duties and have
the powers and authority of Chief Executive Officer, Chairman of
the Board, President and director of the Company as provided from
time to time in its By-Laws. As Chief Executive Officer, Executive
shall supervise, control, and be responsible for all aspects of the
business activities and affairs of the Company and its
subsidiaries, and Executive's powers and authority in such capacity
shall be superior to those of any other officer or employee of the
Company and of any subsidiary thereof if Executive is employed by a
subsidiary. Executive shall be subject only to the direction of
the Board of Directors. Executive shall render his services
generally in, and shall not be obligated to maintain his office in
any place other than, Los Angeles, California, or its environs.
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3. Acceptance of Employment. Executive hereby
accepts employment hereunder and agrees to devote his full time,
energy and skill to such employment. Notwithstanding the
foregoing, Executive may engage in other personal business so long
as the performance of such activities does not materially interfere
with the efficient and timely performance of the Executive's duties
hereunder.
4. Compensation. As compensation for all services to
be rendered by Executive hereunder, the Company agrees to provide
Executive with the following:
(a) Base Salary. The Company shall pay to
Executive a base salary at the rate of Five Hundred Thousand
Dollars ($500,000) per annum, with such increases and other
bonuses, if any, as may be determined from time to time by the
Board of Directors pursuant to an annual review of Executive's base
salary. Said salary shall be payable in equal semi-monthly
installments or in such other installments as may be agreed upon
between the parties.
(b) Performance Bonus. In addition to
Executive's base salary and any Plan Compensation which may be due
Executive, and in further consideration of the services to be
rendered hereunder, the Company shall pay to Executive, in cash,
annually, a performance bonus (the "Performance Bonus") which shall
be as set forth on Exhibit C attached hereto and made a part
hereof.
Performance Bonus payments due to
Executive hereunder shall be due for each fiscal year during the
term hereof commencing with the fiscal year ended December 31,1996
through the year ended December 31, 2001; provided, however, that
the Performance Bonus payments due for the fiscal year ended
December 31, 1996 shall be calculated and paid on a full year basis
and the Performance Bonus for the fiscal year ended December 31,
2001 shall pro-rated based upon Executive's service for one-quarter
of such fiscal year pursuant to the terms hereof so that Executive
shall receive 25% of the Performance Bonus which would have been
due hereunder for a full year's service during such period, and
shall be paid to Executive, with respect to a given fiscal year, in
the succeeding fiscal year upon the first to occur of either: (i)
30 days after public release of the Company's audited financial
statements for the prior fiscal year, or (ii) if no such public
release is made, 30 days after the finalization of the Company's
audited financial statements for the prior year, which shall be no
later than 120 days after the end of the preceding fiscal year.
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(c) Stock Options. The Company shall grant to
Executive options (the "Stock Options") to purchase Seventy
Thousand (70,000) shares of Common Stock on each of the following
dates: date on which resolutions are adopted by the Shareholders
approving the Stock Options, January 1, 1997, January 1, 1998,
January 1, 1999 and January 1, 2000 (the "Grant Dates") at exercise
prices equal to the Closing Price of the Common Stock on the last
trading date immediately preceding the Grant Dates. Each Stock
Option granted pursuant to the terms hereof shall have a ten (10)
year term. The Stock Options shall be granted pursuant to the
terms of a Stock Option Agreement in substantially the form of
Exhibit B, attached hereto (the "Option Agreement"). Executive
acknowledges that he is entitled to the grant of only the Stock
Options and no other stock options pursuant to this Agreement. The
grant of the Stock Options shall be subject to and conditioned upon
the approval of the Company's stockholders; provided, however, in
the event such approval is not obtained the parties agree that
Executive shall be entitled to receive the substantial economic
equivalent, which shall be as mutually agreed upon. The Company
agrees to seek shareholder approval of the Stock Options at the
1996 Annual Meeting of Stockholders.
5. Benefits. In addition to the compensation
provided for in Section 4 of this Agreement:
(a) Executive shall have the right to
participate in any profit-sharing, bonus, stock option, pension,
life, health and accident insurance, or other employee benefit
plans which may be in effect from time to time during the term of
this Agreement under terms no less favorable to those offered or
available to other senior executives of the Company; and
(b) The Company shall provide Executive with a
monthly automobile allowance of One Thousand One Hundred Dollars
($1,100) and a car-phone, which car-phone shall be maintained at
the Company's expense.
(c) The Company shall pay on behalf of or
reimburse Executive for up to $15,000 during the initial year of
this Agreement and an additional $10,000 for each year during the
term of this Agreement thereafter for the fees and expenses
incurred by Executive in connection with financial and tax
counseling, estate planning and income tax preparation.
6. Expenses. The Company shall promptly reimburse
Executive for all reasonable travel, hotel, entertainment and other
expenses incurred by Executive in the discharge of Executive's
duties hereunder, upon receipt from Executive of vouchers, receipts
or other reasonable substantiation of such expenses. At
Executive's election, Executive's spouse may accompany him in
connection with all travel and entertainment undertaken for the
22
<PAGE>
benefit of the Company, and the Company shall promptly reimburse
Executive for all travel, hotel, entertainment or other related
expenses incurred for Executive's spouse, under the same terms and
conditions as set forth above, it being acknowledged that
Executive's spouse will render valuable services in meeting and
entertaining business associates and their spouses and that
Executive's employment will be facilitated by the spouse's
performance of such functions. The Company acknowledges and agrees
that Executive (and spouse, if applicable) shall be entitled to
first class travel and hotel accommodationswhile traveling on the
Company's behalf.
7. Term of Employment. The term of employment
hereunder shall commence as of April 1, 1996, and shall continue
for a period of five (5) years from such date, unless earlier
terminated as herein provided. This Agreement shall terminate upon
the occurrence of any of the following events:
(a) The death of Executive; or
(b) Executive voluntarily leaves the employ of
the Company, with or without the consent of the Company, and with
or without Good Reason; or
(c) The Incapacity of Executive; or
(d) The Company terminates this Agreement for
Cause; or
(e) The Company terminates this Agreement for
any reason other than as set forth in Sections 7(a), 7(c) or 7(d)
hereof; or
(f) Executive elects to terminate pursuant to
Section 9(a), below.
8. Compensation Upon Termination; Severance.
(a) In the event this Agreement is terminated
under Section 7 hereof, the Company shall be obligated to pay or
provide to Executive (or his legal representatives, as the case may
be) under this Agreement the following and only the following:
(i) In all events other than termination
under Section 7(b) for Good Reason or Section 7(e), as soon as
practicable, but in no event later than thirty (30) days of the
date of such termination: the Base Salary due Executive under
Section 4(a) hereof, up to the date of termination, together with a
portion of Executive's Performance Bonus for that year, calculated
based upon the Performance Bonus Executive would have received
pursuant to Section 4(b) hereof had he been employed for the full
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fiscal year multiplied by a fraction the numerator of which is the
number of days during such fiscal year on which Executive was
employed by the Company and the denominator of which shall be 365
along with all benefits due Executive under Section 5 through the
date of termination, such benefits to be paid in the ordinary
course and with respect to the benefits due under Sections 5(b) and
5(c) pro rated as applicable; and
(ii) If the termination arises under
Section 7(f) hereof, then within five (5) days after such
termination, a cash amount equal to 2.99 times Executive's average
annualized compensation from all services from and relating to the
Company, which is includable in Executive's gross income, including
but not limited to "income" (y) which would be attributable to the
exercise of any Stock Options or other options to purchase Common
Stock held by Executive whether or not such exercise occurs;
provided, however, if no such exercise occurs, the options will be
valued as of the date on which the Change of Control occurred at
the difference between the exercise price of the Options and the
Closing Trading Price of the Common Stock or (z) from the
termination of forfeiture restrictions on shares of Common Stock
issued to Executive pursuant to the terms of Restricted Stock
Agreement(s) between Executive and the Company (the "Restricted
Stock"), for the most recent five taxable years ending with and
including the calendar year in which the Change of Control occurs,
together with the immediate vesting: (1) all options to purchase
shares of Common Stock not otherwise already vested pursuant to the
terms of such options, and (2) all shares of Restricted Stock not
otherwise already vested pursuant to the terms of the applicable
Restricted Stock Agreement between Executive and the Company; and
(iii) If the termination arises under
Section 7(a) or 7(c) hereof, then as soon as practicable, but in no
event later than thirty (30) days of the date of such termination,
an amount equal to ninety (90) days' Base Salary prorated based on
Executive's then annual Base Salary under Section 4(a) hereof.
Additionally, with respect to a termination arising under Section
7(c) hereof, the Company shall provide the continuation of any
health or disability payments for (1) the duration of the term of
the illness, disability or incapacity which caused such incapacity,
or (2) until March 31, 2001, whichever period is longer; and
(iv) If the termination arises under
Section 7(e) or under Section 7(b) for Good Reason, then as soon as
practicable, but in no event later than thirty (30) days of the
date of such termination, an amount equal to the balance of
Executive's then annual Base Salary which would have been paid over
the remainder of the term of this Agreement pursuant to Section
4(a) hereof. Additionally, Executive shall (1) receive all
compensation and benefits which would have been due Executive under
Section 4(b) hereof over the remainder of the term of this
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Agreement, (2) immediately receive all compensation described in
Section 8(c) hereof, (3) immediately be vested in all stock options
or Restricted Stock not otherwise already vested, and (4) continue
to receive all benefits described in Section 5 hereof, for the
period between the termination date and March 31, 2001, and the
monetary value of any such additional amounts or benefits shall be
paid or provided to Executive as and when such amounts or benefits
would have been paid to Executive had such termination not
occurred.
THE COMPENSATION PROVIDED IN THIS SECTION 8(a)(iv) SHALL BE
PAID TO EXECUTIVE AS LIQUIDATED DAMAGES FOR THE INJURY TO
EXECUTIVE'S REPUTATION. IN CONNECTION THEREWITH, THE PARTIES AGREE
THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE
ACTUAL AMOUNT OF SUCH DAMAGES AND CLAIMS DUE EXECUTIVE WITH RESPECT
THERETO AND THAT SUCH AMOUNT SHALL CONSTITUTE A REALISTIC AND
REASONABLE VALUATION OF THE DAMAGES WITH RESPECT TO EXECUTIVE'S
CLAIMS. FURTHERMORE, EXECUTIVE SHALL NOT BE REQUIRED TO MITIGATE
HIS DAMAGES BY SEEKING OTHER EMPLOYMENT OR OTHERWISE, AS THE
DAMAGES RESULTING TO HIM AS A CONSEQUENCE OF THE LOSS OF THE UNIQUE
EMPLOYMENT ARRANGEMENT SET FORTH HEREIN COULD NOT BE MITIGATED BY
SEEKING EMPLOYMENT ELSEWHERE, NOR SHALL ANY MONIES EARNED BY
EXECUTIVE IN ANY CAPACITY AFTER SUCH TERMINATION OR BREACH ACT TO
REDUCE SUCH DAMAGES OR ANY AMOUNT OF OTHER BENEFITS TO WHICH
EXECUTIVE IS ENTITLED HEREUNDER.
_______ _______
Initial Initial
(b) At such time as any payment is made to
Executive pursuant to Section 8(a)(iv), Executive shall
simultaneously execute and deliver to the Company a release, in a
form satisfactory to the Company, of all claims against the Company
for compensation pursuant to this Agreement.
(c) In the event Executive does not receive,
on or before the expiration of the term hereof, an offer for a new
employment agreement (i) containing terms and provisions no less
favorable (with respect to provisions for term of employment,
benefits, bonuses, and other material terms), than those set forth
in this Agreement (as such may be modified from time to time) and
(ii) providing for an annual base salary of no less than
Executive's then existing annual base salary, and as a result of
the absence of such offer Executive leaves the employ of the
Company on or before the expiration of this Agreement, the Company
shall pay to Executive, severance pay in a lump sum amount equal to
Executive's then annual Base Salary as of the expiration date.
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Termination upon Change of Control; Effect of Partial
Termination.
(a) If, prior to the termination of this
Agreement, there shall occur any Change of Control, Executive, in
his sole discretion, may elect to terminate this Agreement within
one hundred twenty (120) days after such Change of Control by
giving written notice of such election to the Company.
(b) Notwithstanding the provisions of Section
7, above, Executive may, in his sole discretion, elect to
relinquish one or more of the positions for which Executive is
employed hereunder, and this Agreement shall not terminate upon
such partial termination by Executive, so long as Executive remains
employed on a full-time basis in at least one of the offices
contemplated by this Agreement. Executive and the Company hereby
agree that no provision of this Agreement shall be amended or
modified upon the occurrence of a partial termination as described
in this Section 9(b), other than the designation of positions set
forth in Section 2 hereof, and that in such situation the Company
shall continue to pay or provide to Executive the full amount of
compensation and benefits described herein.
10. Sale Bonus. Upon the occurrence of a sale of the
Company or a majority of its assets (as defined below) or a merger
where the then stockholders of the Company cease to own a majority
of the outstanding voting capital stock of the surviving entity or
the sale of a majority of the Company's then issued and outstanding
stock (a "Sale"), the Company will pay to Executive, in cash, a
sale bonus (the "Sale Bonus"). The Sale Bonus shall equal fifty
percent (50%) of the total bonus amount, which total shall be the
sum of the Sale Step Amounts, calculated in accordance with the
following schedule:
A B
Amount by which Sale Step
Sale Price of Company Bonus Amount
Exceeds Initial Value Percentage (= A X B)
$0-50,000,000 2%
$50,000,001-100,000,000 3%
$100,000,001-200,000,000 4%
$200,000,001 or more 5%
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In the event of the sale of a majority of the assets of the
Company, the sale price of the Company for the purpose of
calculating the Sale Step Amounts above, shall be deemed to be
equal to the sale price of the assets sold. In the event of a
merger or sale of all or substantially all of the Company's capital
stock, the sale price of the Company for the purpose of calculating
the Sale Step Amounts above shall be deemed to be the value of the
aggregate consideration received by the Company's stockholders for
their shares. No Sale Bonus shall be payable in connection with
the sale of the Company's capital stock unless such sale includes
no less than a majority of the outstanding voting capital stock.
As used in this Section 10, a sale of "a majority of the
assets" of the Company shall mean the sale, in a single transaction
or as part of a series of related transactions, by the Company of:
(i) assets constituting 50% or more of the Company's book value,
calculated according to generally accepted accounting principles;
or (ii) of one or more subsidiaries of the Company to which is
attributed 50% or more of the Company's net earnings for the
preceding fiscal year, or of all of the assets of, or stock held by
the Company in, such subsidiaries (which stock constitutes a
majority of the issued and outstanding shares of the subsidiaries).
Notwithstanding any other provision of this Agreement, if
Executive's employment terminates, pursuant to Section 7(b) for
Good Reason or 7(e) hereof, Executive shall nevertheless be
entitled to receive a Sale Bonus, if the relevant sale agreement is
executed by all parties thereto within ninety (90) days after the
date of Executive's involuntary termination.
11. Indemnification.
(a) The Company shall indemnify Executive,
whether or not then in office, to the fullest extent provided for
in the Company's Articles of Incorporation or Bylaws, as in effect,
or as may thereafter be amended, modified or revised from time to
time (collectively, "Company's Articles"), or permitted under the
law of Delaware or such other state in which the Company may
hereafter be domiciled, against any and all costs, claims,
judgments, fines, settlements, liabilities, and fees or expenses
(including, without limitation, reasonable attorneys' fees)
incurred in connection with any proceedings (including, without
limitation, threatened actions, suits or investigations) arising
out of, or relating to, Executive's actions or in actions as a
director, officer or employee of the Company at any point during
his employment by or service to the Company, whether under this
Agreement, the Old Employment Agreement or otherwise ("Executive's
Tenure"), including, but not limited, to all such actions or in
actions arising on or before March 15, 1989. The indemnification
contemplated under this Section 11(a) shall be provided to
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Executive unless, at the time indemnification is sought, such
indemnification would be prohibited under the law of Delaware or of
the state in which the Company may then be domiciled; the Company
may rely on the advice of its counsel in determining whether
indemnification is so prohibited.
(b) In the event of any actual or threatened
investigation, administrative proceeding or litigation by any
federal, state or local governmental authority (including agencies
thereof) against the Company or any other director officer or
employee of the Company arising from actions taken or events
occurring at any point during Executive's Tenure, in which
proceedings Executive is not a party or threatened to be made a
party but which require Executive's attendance and if, under
applicable law, or the rules or regulations of the particular
governmental authority, counsel for the Company cannot additionally
represent Executive upon the provision of proper substantiation, or
such simultaneous representation would not be permitted under the
applicable canons of ethics governing attorneys-at-law, then: (i)
Executive shall have the right to retain such personal legal
counsel, accounting advisors and experts as may be reasonably
necessary in connection with such attendance, and (ii) the Company
shall promptly reimburse Executive, whether or not then in office,
for all reasonable expenses incurred by him in retaining the above
counselors, advisors and experts.
If Executive is no longer employed by the
Company at the time Executive's attendance is required at
proceeding contemplated by this Section 11(b), then, in all events,
and in addition to the reimbursement described in (ii) above, the
Company shall pay to Executive a stipend in the amount of One
Thousand Dollars ($1,000) per day for each day or any portion
thereof during which Executive is in attendance and shall reimburse
Executive for all reasonable travel, hotel and living expenses
incurred by him in connection with such attendance.
(c) Any reimbursement or indemnification under
this Section 11 shall be made no later than 10 days after receipt
by the Company of the written request of Executive, together with,
with respect to expenses incurred, vouchers, receipts or other
reasonable substantiation.
(d) If Executive is entitled under any
provision of this Section 11 to indemnification by the Company for
some or a portion of the expenses, judgments, fines, or penalties
actually and reasonably incurred by him in the investigation,
defense, appeal or settlement of any action, suit or other
proceeding, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Executive for the portion of
such expenses, judgments, fines or penalties to which Executive is
entitled.
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(e) The indemnification provided under this
Section 11 shall not be deemed exclusive of any other rights to
which Executive may be entitled under the Company's Articles, any
resolution of the Board of Directors, any agreement, any vote of
shareholders or disinterested directors, insurance contracts, the
law of Delaware or any other state in which the Company may
hereafter be domiciled, or otherwise, both as to actions or in
actions in Executive's official capacity or in any other capacity
at any point during Executive's Tenure, even though he may have
ceased to serve as a director, officer or employee of the Company
at the time of any action, suit or other proceeding. Amounts
payable as indemnification under this Section 11 shall be reduced
by the amount of any other sums received by Executive for the same
purpose pursuant to any of such other provisions.
(f) In the event of any change, after the date
of this Agreement, in any applicable law, statute, or rule which
expands the right of a corporation domiciled in Delaware or the
state in which the Company may hereafter be domiciled to indemnify
a director, officer or employee, such change (to the extent
permitted by applicable law) shall be automatically incorporated
herein, without further action of the parties, to the extent that
such change affects Executive's rights and the Company's
obligations under this Section 11.
In the event of any change, after the date
of this Agreement, in any applicable law, statute, or rule which
narrows or restricts the right of a corporation domiciled in
Delaware or the state in which the Company may hereafter be
domiciled to indemnify a director, officer or employee, such change
(to the extent permitted by applicable law) shall have no effect on
the provisions of, or the parties' respective rights and
obligations under this Section 11.
In the event of an amendment or other
revision, after the date of this Agreement, to the Company's
Articles which expands the right of the Company to indemnify a
director, officer or employee, such change shall be automatically
incorporated into this Agreement, without further action of the
parties, to the extent that such change relates to Executive's
rights and the Company's obligations under this Section 11.
In the event of an amendment or other
revision, after the date of this Agreement, to the Company's
Articles which narrows or restricts the right of the Company to
indemnify a director, officer or employee, such change shall have
no effect on the provisions of, or the parties' respective rights
and obligations under, this Section 11.
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The Company agrees to give Executive
prompt notice of any amendment to or modification of the Company's
Articles which relate to its ability to provide the indemnification
contemplated under this Section 11.
(g) Notwithstanding any other provision
herein, the Company shall not be obligated pursuant to the terms of
this Section 11:
(i) to indemnify or advance expenses to
Executive with respect to proceedings or claims (except counter
claims or cross claims) initiated or brought voluntarily by
Executive and not by way of defense, except with respect to
proceedings brought to establish or enforce a right under this
Agreement or a right to indemnification under the Company's
Articles, or any applicable law (including, without limitation, the
requirements of the Delaware General Corporation Law), but such
indemnification or advancement of expenses may be provided by the
Company in specific cases if the Board of Directors finds it to be
appropriate; or
(ii) to indemnify Executive for any
expenses incurred by him with respect to any claim, issue or
matter, raised in connection with a proceeding instituted by
Executive to enforce or interpret the provisions of this Section
11, if a court of competent jurisdiction renders a final judgment
determining that the material assertions made by Executive with
respect to such claim, issue or matter were not made in good faith
or were frivolous; or
(iii) to indemnify Executive for expenses
or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) which have been paid directly to Executive by
an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Company; or
(iv) to indemnify Executive for expenses
or liabilities arising from the purchase and sale by Executive of
securities of the Company in violation of federal or state
securities laws; or
(v) to indemnify Executive for
liabilities or with respect to proceedings or claims relating to
actions not taken in his capacity as an officer, employee or
director or on behalf of the Company, including, without
limitation, actions taken in his individual capacity as a
shareholder.
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12. Confidentiality. Executive covenants and agrees
that he will not at any time during or after the termination of his
employment by the Company reveal, divulge or make known to any
person, firm or corporation any information, knowledge or data of a
proprietary nature relating to the business of the Company or any
of its affiliates which is not or has not become generally known or
public. Executive shall hold, in a fiduciary capacity, for the
benefit of the Company, all information, knowledge or data of a
proprietary nature, relating to or concerned with, the operations,
customers, developments, sales, business and affairs of the Company
and its affiliates which is not generally known to the public and
which is or was obtained by the Executive during his employment by
the Company. Executive recognizes and acknowledges that all such
information, knowledge or data is a valuable and unique asset of
the Company and accordingly he will not discuss or divulge any such
information, knowledge or data to any person, firm, partnership,
corporation or organization other than to the Company, its
affiliates, designees, assignees or successors or except as may
otherwise be required by the law, as ordered by a court or other
governmental body of competent jurisdiction, or in connection with
the business and affairs of the Company.
13. Equitable Remedies. In the event of a breach or
threatened breach by Executive of any of his obligations under
Section 12 hereof, Executive acknowledges that the Company may not
have an adequate remedy at law and therefore it is mutually agreed
between Executive and the Company that in addition to any other
remedies at law or in equity which the Company may have, the
Company shall be entitled to seek in a court of law and/or equity a
temporary and/or permanent injunction restraining Executive from
any continuing violation or breach of this Agreement.
14. Advance of Fees and Expenses. The Company shall
advance to Executive:
(i) to the maximum extent provided for in the
Company's Articles or permitted by the law of Delaware or such
other state in which the Company may hereafter be domiciled, any
fees or expenses which are included as indemnifiable fees or
expenses pursuant to Sections 11(a) or 11(b) hereof (including,
without limitation, expenses of investigations, judicial or
administrative proceedings or appeals, amounts paid in settlement
by or on behalf of Executive, and legal, accounting or other
professional fees and disbursements) which may be incurred by
Executive; and
(ii) in the event of any other dispute arising
under this Agreement involving an effort by Executive to protect,
enforce or secure rights or benefits claimed by him hereunder, all
reasonable expenses, including attorneys' fees, incurred by
Executive in connection with such dispute. Such advances
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(collectively, "Reimbursed Expenses") shall be made by the Company
upon the written request of Executive, which request shall be
accompanied by an undertaking executed by Executive in
substantially the form of Exhibit D attached hereto, by which
Executive undertakes to repay any amounts advanced to the extent
that it is ultimately determined, by compromise, settlement,
arbitration or final non-appealable court ruling, that the
Executive is not entitled to indemnification or payment, as
appropriate, for all or any portion of such fees and expenses.
No later than ten (10) days after receipt by the Company of
the written request and undertaking of Executive, together with
receipts, invoices or other written documentation evidencing the
Reimbursed Expenses to be covered by the advance, the Company shall
make the advance requested, in one or more payments, to Executive
or according to his written instructions.
Any advances contemplated under Section 14(i) above, shall be
made to Executive unless, at the time the advance is requested,
such advance would be prohibited under the law of Delaware or the
state in which the Company may then be domiciled; the Company may
rely on the advice of its counsel in determining whether an advance
is so prohibited.
15. Effective Date. This Agreement shall be deemed to
be effective as of the date hereof.
16. Adjustments to Payments. Notwithstanding any
other provision of this Agreement, if any payment ("Affected
Payment") under this Agreement, either alone or together with other
amounts which Executive has the right to receive from the Company,
would constitute an "excess parachute payment" (as defined in
Section 28OG of the Code), then Executive shall be entitled to
receive an additional cash payment (an "Additional Payment") which,
when added to the Affected Payment provides a net benefit to the
Executive, after payment of the excise tax imposed by Section 4999
of the Code and penalties and interest thereon, and payment of any
federal, state and local income taxes and penalties and interest
thereon attributable to such Additional Payment, equal to the
Affected Payment before such Additional Payment. The Company shall
have the option of defending or challenging any determination
concerning the status of payments as "excess parachute payments."
Executive shall receive the Additional Payments concurrently with
Affected Payments; provided, however, Executive shall be entitled
to Additional Payments in arrears upon a subsequent finding by the
Internal Revenue Service or court of competent jurisdiction that
any payment is an "excess parachute payment."
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17. Termination of Old Employment Agreement. The
Company and Executive agree that, on April 1, 1996 and the Old
Employment Agreement shall be terminated and, except as expressly
set forth herein, this Agreement constitutes the entire
understanding between the parties hereto as of the date hereof
regarding the subject matter hereof and supersedes all other prior
agreements, understandings, negotiations and discussions of the
parties whether written or oral; provided, however, that
notwithstanding any provision to the contrary contained elsewhere
herein, including, but not limited to, Section 8, above, Executive
shall continue to have all rights to all Plan Compensation due him
and reimbursement for any expenses incurred prior to the Effective
Date of the Agreement but not yet reimbursed by the Company.
18. Miscellaneous.
(a) This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of the
Company. This Agreement shall not be terminated by the voluntary
or involuntary dissolution of the Company or by any merger,
reorganization or other transaction in which the Company is not the
surviving or resulting corporation or upon any transfer of all or
substantially all of the assets of Company in the event of any such
merger, or transfer of assets. The provisions of this Agreement
shall be binding upon and shall inure to the benefit of the
surviving business entity or the business entity to which such
assets shall be transferred in the same manner and to the same
extent that the Company would be required to perform it if no such
transaction had taken place.
Neither this Agreement nor any rights
arising hereunder may be assigned or pledged by Executive.
Executive's rights to the compensation provided for under Sections
4(c) and 16 of this Agreement, to indemnification under Section 11
hereof, and to the advance of Reimbursed Expenses under Section 14
hereof, shall continue, despite the fact that Executive may cease
to be employed by the Company, and shall survive the termination of
this Agreement regardless of cause. This Agreement shall inure to
the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
(b) Except as otherwise provided by law or
elsewhere herein, Executive shall be entitled to all benefits as
set forth herein notwithstanding the occurrence of the following
events:
(i) any act of force majeure which
materially and adversely affects the Company's business and
operations, including but not limited to, the Company having
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sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, epidemic, explosion, accident, calamity or
other act of God; or
(ii) any strike or labor dispute or court
or government action, order or decree; or
(iii) a banking moratorium having been
declared by federal or state authorities; or
(iv) an outbreak of major armed conflict,
blockade, embargo, or other international hostilities or restraints
or orders of civic, civil defense, or military authorities, or
other national or international calamity having occurred; or
(v) any act of public enemy, riot or
civil disturbance or threat thereof; or
(vi) a pending or threatened legal or
governmental proceeding or action relating generally to the
Company's business, or a notification having been received by the
Company of the threat of any such proceeding or action, which could
materially adversely affect the Company.
(c) This Agreement may not be modified,
altered or amended except by an instrument in writing signed by the
parties hereto.
(d) This Agreement shall be construed in
accordance with the laws of the State of California except to the
extent that any provision of Sections 11 or 14 hereof may relate to
an interpretation of the corporation laws of Delaware, the state in
which the Company is domiciled, in which case such provision shall
be construed in accordance with the corporation laws of that state.
(e) Nothing in the Agreement is intended to
require or shall be construed as requiring the Company to do or
fail to do any act in violation of applicable law. The Company's
inability pursuant to court order to perform its obligations under
this the Agreement shall not constitute a breach of this Agreement.
If any provision of this Agreement is invalid or enforceable, the
remainder of this Agreement shall nevertheless remain in full force
and effect. If any provision is held invalid or unenforceable with
respect to particular circumstances, it shall, nevertheless, remain
in full force and effect in all other circumstances.
(f) In addition to the payments pursuant to
Section 5(c) above, the Company agrees to reimburse Executive for
all reasonable legal fees and expenses incurred by Senior
Management in connection with the retention of a single law firm
engaged to represent Senior Management in the negotiation and
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execution of their respective Employment and Indemnification
Agreements and Option Agreements; provided, however that the
Company's obligation under this Section 18(f) shall not exceed an
aggregate of Twenty Five Thousand Dollars ($25,000).
(g) The parties hereto agree that any and all
disputes hereunder shall be submitted to a court located in Los
Angeles, California and in this regard, the parties agree that they
shall consent to personal jurisdiction in any state and/or the
United States District Court for the Central District of California
sitting in Los Angeles, California and agree to venue in the State
of California. All costs and expenses (including attorneys' fees)
incurred by the parties in connection with any dispute arising
under this Agreement, shall be apportioned between the parties by a
court based upon such court's determination of the merits of their
respective positions. The burden of proving that indemnification
or any advance under Sections 11 or 14 is not appropriate shall be
on the Company.
(h) Any notice to the Company required or
permitted hereunder shall be given in writing to the Company,
either by personal service, telex, telecopier or, if by mail, by
registered or certified mail return receipt requested, postage
prepaid, duly addressed to the Secretary of the Company at its then
principal place of business with a copy to Barry L. Burten, Esq.,
Jeffer, Mangels, Butler & Marmaro LLP, 2121 Avenue of the Stars,
10th Floor, Los Angeles, California 90067. Any such notice to
Executive shall be given in a like manner, and if mailed shall be
addressed to Executive at Executive's home address then shown in
the files of the Company with a copy to Philip Magaram, Esq.,
Valensi Rose & Magaram PLC, 1800 Avenue of the Stars, Suite 1000,
Los Angeles, California 90067. For the purpose of determining
compliance with any time limit herein, a notice shall be deemed
given on the fifth business day following the postmarked date, if
mailed, or the date of delivery if personally delivered or
delivered by telex or telecopier.
(i) A waiver by either party of any term or
condition of this Agreement or any breach thereof, in any one
instance, shall not be deemed or construed to be a waiver of such
term or condition or of any subsequent breach thereof.
(j) The paragraph and subparagraph headings
contained in this Agreement are solely for convenience and shall
not be considered in its interpretation.
(k) This Agreement may be executed in one or
more counterparts, each of which shall constitute an original.
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IN WITNESS WHEREOF, the parties hereto have executed this
Employment and Indemnification Agreement as of the day and year
first written above.
COMPANY:
MAXICARE HEALTH PLANS, INC.
a Delaware corporation
By:
-------------------------
Its:
-------------------------
EXECUTIVE:
/s/ PETER J. RATICAN
--------------------
Peter J. Ratican
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EXHIBIT A
Continuing Directors
Peter J. Ratican
Eugene L. Froelich
Claude S. Brinegar
Thomas W. Field, Jr.
Charles E. Lewis
Alan S. Manne
Florence F. Courtright
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Exhibit B
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement"), dated as of April
1, 1996, is made by and between Peter J. Ratican ("Executive") and
Maxicare Health Plans, Inc., a Delaware corporation (the
"Company").
RECITALS
WHEREAS, Executive presently serves as Chief Executive Officer
and President of the Company pursuant to an Employment and
Indemnification Agreement dated as of January 1, 1992 exerting
particularly diligent efforts in such capacity on behalf of the
Company;
WHEREAS, the Company and the Executive have agreed that
Executive should continue to serve in the aforementioned capacities
on behalf of the Company pursuant to the terms and conditions
contained in the Amended and Restated Employment and
Indemnification Agreement dated as of April 1, 1996 between the
Company and the Executive (the "Restated Employment Agreement");
WHEREAS, as a material part of Executive's compensation under
the New Employment Agreement, the Company has agreed to grant
Executive options to purchase 350,000 shares of the Company's, no
par value, common stock (the "Common Stock"); and
WHEREAS, the Company and the Executive desire to set forth in
this Agreement the specific terms and conditions regarding the
aforementioned options.
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, Executive and the
Company hereby agree as follows:
1. Grant of Options. Subject to Section 14 below
and upon the terms and subject to the conditions hereinafter set
forth, the Company hereby agrees to grant to Executive options (the
"Options") to purchase up to 350,000 authorized but unissued shares
of Common Stock (the "Option Shares"). As a pre-condition to the
grant of each of the Options set forth below and all Options to be
granted hereunder following such Option, Executive must be employed
by the Company on the grant date of any such Option. Subject to
the preceding sentence, the Options shall be granted on the
following dates:
(a) an Option to purchase 70,000 Option Shares on
the date on which resolutions are adopted by the Shareholders
approving this Agreement;
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(b) an Option to purchase 70,000 Option Shares on
January 1, 1997;
(c) an Option to purchase 70,000 Option Shares on
January 1, 1998;
(d) an Option to purchase 70,000 Option Shares on
January 1, 1999; and
(e) an Option to purchase 70,000 Option Shares on
January 1, 2000.
2. Option Prices.
(a) The Option Price with respect to the Option
Shares for each of the Options set forth in 1(a) through 1(e) above
shall be the closing price of the Common Stock on the last trading
date immediately preceding the grant dates of the Options set forth
in Sections 1(a) through 1(e) above.
(b) For the purposes of calculating the Option
Price, the closing price shall be (in the following order or
priority), if the Common Stock is listed or admitted for trading
(i) on any national securities exchange (or in case the Common
Stock shall be listed on more than one, the exchange with the
greatest trading volume in the Common Stock), the last sale price,
or, in case no reported sale takes place on such day, the average
of the last reported bid and asked prices; (b) on the National
Association of Securities Dealers, Inc. Automated Quotation System-
National Market System ("NASDAQ-NMS"), the average of the last
reported bid and asked prices; or (iii) in the daily stock price
publication of the National Quotation Bureau (also known as the
"Pink Sheets"), the average of the last reported bid and asked
prices.
3. Vesting of Options. Executive's rights in and to
the Options set forth in Sections 1(a) through 1(e) above shall
vest, and Executive may exercise each such Option immediately as of
the date of the grant of each Option.
4. Term of Options. Subject to and so long as
Executive is employed by the Company, whether pursuant to the
Restated Employment Agreement or otherwise each Option granted
pursuant to Sections 1(a) through 1(e) above, may be exercised in
whole or in part at any time or from time to time by Executive on
or before 12:00 midnight, California time on the expiration of 10
years from the date of grant of each such Option (the "Expiration
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<PAGE>
Date"); provided, however, that in the event that Executive's
employment with the Company terminates prior to the Expiration Date
the Options which have been granted prior to such termination of
employment shall expire as follows:
(a) in the event termination is as a result of
death of Executive or Incapacity, any outstanding Options granted
pursuant to this Agreement shall expire 180 days after such
termination;
(b) in the event termination is as a result of:
(i) Cause pursuant to Section 7(d) of the Restated Employment
Agreement or (ii) pursuant to Section 7(b) of the Restated
Employment Agreement other than for Good Reason, thirty (30) days
after such termination; and
(c) in the event termination is as a result of
Section 7(b) for Good Reason, 7(e) or 7(f) of the Restated
Employment Agreement on the Expiration Date.
The terms "Incapacity", "Cause" and "Good Reason" when utilized
herein shall be as defined in the Restated Employment Agreement.
5. Exercise of Option.
(a) In the event Executive elects to exercise any
Option granted hereunder, he shall give at least three, but no more
than ten business days' prior written notice to the Company, at the
principal executive office of the Company, or to such transfer
agent as the Company shall designate. Such notice shall state
which Option the employee wishes to exercise, the election to
exercise such Option and the number of Option Shares with respect
to which it is being exercised. The notice shall be accompanied by
a cashier's or certified check payable in United States Dollars to
the order of the Company in an aggregate amount equal to the
product of the Option Price times the number of Option Shares to be
purchased.
Upon receipt of Executive's notice to exercise the Option,
conforming to the conditions of this Section 5, the Company shall,
as soon as practicable thereafter, deliver to Executive a
certificate or certificates representing the Option Shares
purchased, registered in the name of the Executive (or, if so
request in the notice to exercise, registered in the name of the
Executive and another person jointly, with right of survivorship).
In the event the Option shall be exercised, pursuant to Section 10
hereof, by any person or persons other than Executive, such notice
shall be accompanied by appropriate proof of the right of such
person or persons to exercise the Option.
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All Option Shares purchased upon the exercise of the Option as
provided herein shall be fully paid and non-assessable.
(b) Notwithstanding the foregoing, the Option may
be exercised only on the condition that no injunction, judgment,
order or decree of a court or governmental agency with competent
jurisdiction prohibits such exercise.
6. Adjustment Upon Restructuring or Dissolution.
(a) In the event of any change, after the date of
grant but prior to the exercise of any Option granted hereunder, in
the number or nature of Option Shares by reason of any stock
dividend, split-up, stock split, reverse stock split, merger,
recapitalization, combination, exchange of common stock, or similar
transaction (the "Restructuring"), the number and kind of Option
Shares subject to acquisition hereunder and the Option Price per
Option Share shall be appropriately adjusted, effective upon the
consummation of the Restructuring, either by way of an amendment to
the Options or by way of a grant of new stock options in
substitution of, or in addition to, the Options, to provide that:
(i) the number of shares subject to the Options shall be adjusted
to reflect such Restructuring so that the percentage of the
outstanding equity of the Company represented by shares subject to
the Options remains constant both before and after the
Restructuring; and (ii) the per share exercise price of the Options
shall be adjusted so that the total exercise price which would be
paid by Executive, were he to purchase all of the shares available
to him under the Options after the adjustment described in the
preceding clause (i), equals the total exercise price he would have
paid had he purchased all Option Shares available to him before the
Restructuring at the Option Price. In the event any Restructuring
occurs prior to the grant of any Option hereunder, (i) above shall
apply; however the Option Price shall be as determined by Section 2
above.
(b) In addition, in the event of any dissolution
or liquidation of the Company or a Restructuring as a result of
which the Company is not the surviving corporation, or a sale of
substantially all the property of the Company to another entity,
then either (i) provision shall be made for the assumption of all
Options or the substitution for the Options of new options covering
the stock of a successor employer corporation (or a parent or
subsidiary thereof) with appropriate adjustments as to number and
kind of shares and prices; or (ii) provision shall be made for the
payment of substantially equivalent economic benefit to Executive
in exchange for such Options which have been granted prior to the
consummation of such event or transaction, upon the consummation of
such event or transaction; notwithstanding the foregoing, Executive
shall have the right, prior to the consummation of such event or
transaction, to exercise all Options granted prior to the
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consummation thereof. In the event that the contemplated event or
transaction is not consummated, any Option that had been exercised
solely by reason of such event or transaction shall again become
unexercised and shall revert to its former status as issued but
unexercised as of the termination of the transaction subject,
however, to such other provisions of this Agreement as may apply.
For the purposes hereof, the aforementioned economic benefit to
Executive shall be calculated (without regard to the illiquidity of
the Common Stock issuable to the Executive upon exercise of the
Option) based upon the actual difference between the Option Price
and the closing price of the Common Stock on the day prior to the
consummation of the aforementioned transaction.
(c) Adjustments under this Section 6 shall be
made by the Board of Directors of the Company, whose determination
as to what adjustments shall be made shall be final and conclusive.
The Board of Directors of the Company may obtain and may rely upon
the advice of independent counsel and accountants of the Company.
No fractional shares of stock shall be issued under the option on
account of any such adjustment. If for any reason Option Shares
shall include a fractional share interest, upon the exercise of the
option with respect to such fractional interest, a cash payment
shall be made of an equivalent value for such fractional interest.
7. Investment Representations; Restrictions on
Transfer.
(a) Executive represents, warrants and covenants
to the Company that:
(i) Any Option Shares or other securities
acquired by Executive upon exercise of the Option will be acquired
for Executive's own account and not with a view to resale or
distribution in violation of the Securities Act of 1933, as amended
(the "1933 Act").
(ii) Executive has such knowledge and
experience in business and financial matters as to be capable of
utilizing the information which is available to him to evaluate the
merits and risks of an investment in Option Shares and is able to
bear the economic risks of any Option Shares or other securities
which Executive may acquire upon exercise of the Option.
(iii) Executive understands that the Option
Shares have not been registered under the 1933 Act, in reliance
upon certain exemptions contained therein, and that the Company's
reliance on such exemption is predicated on Executive's
representations set forth herein. Executive further understands
that because the Option Shares have not been registered under the
1933 Act, he may not, and Executive covenants and agrees that he
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<PAGE>
will not, sell, offer to sell or otherwise dispose of any such
securities in violation of the 1933 Act or any applicable "blue
sky" or securities law of any state. Executive acknowledges and
understands that he has no independent right to require the Company
to register the Option Shares.
(b) Executive consents to the placing of
restrictive legends in substantially the following form on any
stock certificate(s) representing Option Shares:
"The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or the
blue sky law of any state. These shares have been acquired for
investment and not with a view to distribution or resale, and may
not be sold, mortgaged, pledged, hypothecated or otherwise
transferred without an effective registration statement for such
shares under the Securities Act of 1933, as amended, or until the
issuer has been furnished with an opinion of counsel for the
registered owner of these shares, reasonably satisfactory to
counsel for the issuer, that such sale, transfer or disposition is
exempt from the registration or qualification provisions of the
Securities Act of 1933, as amended, or the blue sky laws of any
state having jurisdiction."
(c) Executive also hereby consents and agrees to
the placing of stop transfer instructions against any subsequent
transfer(s) of the Option Shares. The Company hereby agrees to
remove the legend and stop transfer instructions upon receipt of an
opinion of counsel from the registered owner of the Option Shares,
in form and substance reasonably acceptable to counsel for the
Company, to the effect that such shares may be transferred without
violation of the 1933 Act or the blue sky laws of any state having
jurisdiction.
8. Additional Documents. The Company and Executive
hereby covenant and agree to execute and deliver any additional
documents necessary or desirable, in the opinion of Executive or
the Company, as the case may be, to complete the sale and transfer
of all of the Option Shares with respect to which the Option is
exercised.
9. Options Not Transferable. Executive may not
transfer or assign the Option or his rights under this
Agreement,except by will or by the laws of descent and distribution
and subject to the provisions of Section 10 hereof. The Option and
Executive's rights under this Agreement shall not otherwise be
transferred, assigned, pledged or disposed of in any way, whether
by operation of law or otherwise, and shall be exercisable during
Executive's lifetime only by Executive or his guardian or legal
representative.
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10. Death or Termination of Executive. Subject to
Section 5(a) above if the Executive dies during the term of any
Options granted hereunder, the Option may be exercised, to the
extent of the number of shares with respect to which the Executive
could have exercised such Options on the date of his death, by his
estate, personal representative or beneficiary, or the person or
persons entitled to do so under the Executive's last will and
testament or under applicable intestate laws.
11. No Obligation to Exercise Options. The grant and
acceptance of the Options imposes no obligation on Executive to
exercise them.
12. No Obligation to Continue Employment. The
Company is not by virtue of the grant of the Options obligated to
continue Executive in employment.
13. No Rights as Stockholder Until Exercise. The
Executive shall have no rights as a stockholder with respect to
Option Shares until a stock certificate with respect to the Option
Shares has been issued to Executive and the Option Shares have been
fully paid for pursuant to the terms hereof.
14. Shareholder Approval. The grant of the Options
pursuant to the terms of this Agreement shall be subject to and
conditioned upon the approval of the Company's shareholders. The
Company agrees to seek such approval at the 1996 Annual Meeting of
Stockholders.
15. Registration Undertaking. Subsequent to
shareholder approval of the Options, the Company agrees to file a
Form S-8 Registration Statement at such time as may be determined
by its Board of Directors. Said Form S-8 Registration Statement,
and the Form S-3 Prospectus related thereto, shall include, to the
extent permissible, the Option Shares.
16. Miscellaneous.
16.1 Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
16.2 Binding Effect and Assignment. This Agreement
and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and permitted assigns. Executive's rights to the Option with
respect to the percentage of the Option Shares in which his
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<PAGE>
interest has vested as of the termination date hereof shall survive
the termination of this Agreement, regardless of cause. This
Agreement may not be assigned by the Company without the prior
written consent of Executive.
16.3 Amendments and Modification. This Agreement may
not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the
parties hereto.
16.4 Specific Performance; Injunctive Relief. The
parties hereto acknowledge that Executive will be irreparably
harmed and that there will be no adequate remedy at law for a
violation of any of the covenants or agreements of the Company set
forth herein. Therefore, it is agreed that, in addition to any
other remedies which may be available to Executive upon any such
violation, Executive shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any
other means available to Executive at law or inequity.
16.5 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if delivered by messenger, transmitted by telex or telecopier
(with receipt confirmed), or mailed by registered or certified
mail, postage prepaid, as follows:
(a) If to Executive:
Peter J. Ratican
1440 Greenbriar Road
Glendale, California 91207
(b) If to the Company:
Maxicare Health Plans, Inc.
1149 South Broadway Street
Los Angeles, California 90015
Attention: Alan D. Bloom, Esq.
General Counsel
or such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
16.6 Counterparts. This Agreement may be executed in
any number of counterparts, and by separate parties on separate
counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
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16.7 Governing Law. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the State
of California. The Options will not be treated as an "incentive
stock option" under the Internal Revenue Code.
16.8 Jurisdiction, Attorneys' Fees. The parties
hereto agree that any and all disputes hereunder shall be submitted
to a court located in Los Angeles, California and in this regard,
the parties agree that they shall consent to personal jurisdiction
to any state and/or the United States District Court for the
Central District of California sitting in Los Angeles, California
and agree to venue in the State of California. All costs and
expenses (including attorneys' fees) incurred by the parties in
connection with any dispute arising under this Agreement, shall be
apportioned between the parties by a court based upon such court's
determination of the merits of their respective positions.
16.9 Entire Understanding. This Agreement constitutes
the entire understanding between the parties hereto regarding the
subject matter hereof and supersedes all other prior agreements,
understandings, negotiations and discussions of the parties whether
written or oral.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
MAXICARE HEALTH PLANS, INC.,
a Delaware corporation
By: _____________________________
Its: ____________________________
EXECUTIVE:
_________________________________
Peter J. Ratican
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EXHIBIT C
Performance Bonus
Executive's annual Performance Bonus pursuant to Section 4(b)
of the Agreement shall be based upon the Company's annual Pre-Tax
Earnings during the term of the Agreement computed in accordance
with generally accepted accounting principles pursuant to the
following:
1. The first year (the fiscal year) shall commence on
January 1, 1992 and each subsequent fiscal year on the anniversary
date of the first year.
2. "Pre-Tax Earnings" shall not include any items of either
extraordinary income or extraordinary expense, as determined by the
Company's independent auditors.
3. "The Company," for the purposes of this bonus shall
include Maxicare Health Plans, Inc. and all of its subsidiaries
(whose financial statements are consolidated with those of the
Company's), successors and assigns whether now existing or
hereinafter created or acquired. In the event the Company, or a
substantial portion thereof, is acquired by an unrelated entity,
whether by a stock acquisition, purchase of assets or otherwise
during the term of the Agreement, a good-faith allocation of the
Pre-Tax Earnings of the Company during the applicable period for
the purposes of this bonus shall be made by the Company and
reviewed by the independent auditors for the Company. The Company,
and any successor, shall keep its records in such a manner that the
auditors will have the requisite information to be able to review
such allocation.
4. For any fiscal year, the Performance Bonus will only be
granted if the Pre-Tax Earnings for such year exceeds $10,000,000.
5. Executive will be entitled to the following percentages
of the excess of Pre-Tax Earnings over $10,000,000:
a. 2 1/2% of that portion of the Pre-Tax Earnings which
exceeds $10,000,000 by $5,000,000 or less (a maximum
bonus of $125,000); plus
b. 1 1/2% of that portion of the Pre-Tax Earnings which
exceeds $15,000,000 but not in excess of $20,000,000
of Pre-Tax Earnings (a maximum bonus of $75,000);
plus
c. 1 1/4% of that portion of the Pre-Tax Earnings which
exceeds $20,000,000 but not in excess of $30,000,000
of Pre-Tax Earnings (a maximum bonus of $125,000);
plus
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d. 2% of that portion of the Pre-Tax Earnings which
exceeds $30,000,000.
6. The aggregate amount of the Performance Bonus to
Executive shall not exceed $2,000,000 for any fiscal year.
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EXHIBIT D
[Form of Executive's Undertaking]
Undertaking, dated as of , 199 ("Undertaking")
by , an individual ("Executive"), in favor of
Maxicare Health Plans, Inc., a Delaware corporation (the
"Company").
R E C I T A L S
A. Pursuant to Sections 11 and 14 of that certain Amended
and Restated Employment and Indemnification Agreement, dated as of
April 1, 1996, by and between Executive and the Company (the
"Agreement"), Executive has requested the Company to advance in one
or more installments as required to Executive all Reimbursed
Expenses (as that term is defined in the Agreement) in connection
with [insert case reference].
B. As a condition precedent to the making of such
advance(s), Executive has agreed to undertake, and to deliver to
the Company an undertaking for, the possible repayment of certain
sums advanced.
NOW, THEREFORE, Executive hereby undertakes and agrees as
follows:
1. Executive hereby assumes and agrees to repay to the
Company the above Reimbursed Expenses advanced, or any part
thereof, which is ultimately determined by compromise, settlement,
arbitration or final non-appealable court ruling, not to be an
indemnifiable or reimbursable fee for expense under the terms of
the Agreement or applicable law ("Non-Reimbursed Advances").
2. Executive shall repay to the Company any Non-Reimbursed
Advance, within thirty (30) days of the date of determination of
non-indemnification or non-reimbursement by compromise, settlement,
arbitration or final non-appealable court ruling together with
interest thereon, from the date such Non-Reimbursed Advance was
made to the date of final repayment, at the annual rate announced
by the Bank of America, N.T. & S.A., at its principal office in San
Francisco, California, for prime commercial loans for ninety (90)
day maturities, from time to time adjusted as of the date of such
changes, but in no event at a rate higher than the maximum
permitted under the laws of the State of California. Interest on
the outstanding amount of the Non-Reimbursed Advance shall be
computed on the basis of 365 days in a year.
3. This Undertaking shall inure to the benefit of the
Company, its successors and assigns.
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IN WITNESS WHEREOF, Executive has caused this Undertaking to
be executed as of the date first written above.
EXECUTIVE:
-----------------------
50
Exhibit 10.4d
AMENDED AND RESTATED
EMPLOYMENT AND INDEMNIFICATION AGREEMENT
This Amended and Restated Employment and Indemnification
Agreement ("Agreement"), dated as of April 1, 1996, is made by and
between MAXICARE HEALTH PLANS, INC., a Delaware corporation (the
"Company"), and Eugene L. Froelich, an individual ("Executive").
R E C I T A L S
WHEREAS, Executive presently serves as Executive Vice
President - Finance and Administration and Chief Financial Officer
of the Company pursuant to an Employment and Indemnification
Agreement dated as of January 1, 1992, as amended by Amendment No.
1 thereto dated February 27, 1995 (collectively the "Old Employment
Agreement"), exerting particularly diligent efforts in such
capacities on behalf of the Company;
WHEREAS, subject to the terms and conditions contained herein,
Executive has agreed to continue to serve as Executive Vice
President - Finance and Administration and Chief Financial Officer
of the Company; and
WHEREAS, in recognition that Executive's skills and experience
are essential to the on-going business, operations and prospects of
the Company, and in order to strengthen Executive's desire to
remain in the employ of the Company and to stimulate Executive's
efforts on the Company's behalf, the Company and Executive have
agreed to terminate the Old Employment Agreement and to enter into
this Agreement;
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, the Company and Executive agree as follows:
1. Definitions. As used in this Agreement, the
following capitalized terms shall have the following meanings,
unless otherwise expressly provided or unless the context otherwise
requires. All capitalized terms used herein but not herein
elsewhere defined shall have the meanings ascribed such term in the
Plan.
"Board of Directors" means the Board of Directors of the
Company.
"Cause" means, as used with respect to the involuntary
termination of Executive:
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(i) The willful or habitual failure by
Executive to perform requested duties commensurate with his
employment pursuant to the terms of this Agreement without good
cause, after a demand for substantial performance is delivered to
Executive by the Board of Directors, which notice specifically
identifies the manner in which Executive has not performed his
duties (other than as a result of the death or Incapacity of
Executive); or
(ii) The willful engaging by Executive in
misconduct or inaction materially injurious to the Company,
provided, however, that an act or failure to act shall be
considered "willful," only if done or omitted in bad faith and
without reasonable belief on Executive's part that his action or
omission was in the best interest of the Company; or
(iii) The conviction by final judgment of
Executive for a felony or of a crime involving moral turpitude,
dishonesty or theft.
Notwithstanding the foregoing, for purposes of sections (i)
and (ii), above, such events shall be deemed to have occurred only
upon (a) the due adoption by the Board of Directors at a meeting
called and held for such purpose (after reasonable notice to
Executive and his counsel and after affording Executive and his
counsel an opportunity to be heard before the Board of Directors),
of a resolution finding that, in the good faith opinion of the
Board of Directors, Executive was guilty of the conduct set forth
in those sections, and (b) in the event that such resolution is
duly adopted by the Board of Directors, the receipt by Executive of
five (5) days written notice prior to the effectiveness thereof.
"Change of Control" means any transaction or occurrence after
the date hereof as the result of which:
(i) the Company shall cease to be a publicly
owned corporation having at least 300 stockholders; or
(ii) any person or group of persons (as defined
in Rule 13d-5 promulgated under the Securities Exchange Act of 1934
(the "Act")), together with its affiliates, is or becomes the
beneficial owner (as defined in Rule 13d-3 promulgated under the
Act), directly or indirectly, of securities of the Company
(including securities convertible into or exercisable for
securities of the Company) ordinarily having the right to vote in
the election of directors which together represent, after giving
effect to any conversion or exercise, in excess of forty percent
(40%) of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote in the election of
directors; or
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(iii) Continuing Directors (as defined below)
shall cease for any reason to constitute at least a majority of the
Board of Directors; or
(iv) the Company shall merge or consolidate
with any other person or entity other than a subsidiary, and, upon
the consummation of such transaction, holders of the Common Stock
immediately prior to such transaction own less than sixty percent
(60%) of the equity securities of the surviving or consolidated
entity; or
(v) all or substantially all of the assets of
the Company are sold or transferred to another person or entity in
a single transaction or a series of related transactions.
Notwithstanding the foregoing, a Change of Control shall not
include the filing by or on behalf of, or entering against, the
Company or its subsidiaries of (a) a petition, decree or order of
bankruptcy or reorganization, or (b) a petition, decree or order
for the appointment of a trustee, receiver, liquidator, supervisor,
conservator or other officer or agency having similar powers over
the Company or its subsidiaries, including any such petitions,
orders or decrees filed or entered by federal or state regulatory
authorities.
"Closing Price" for each trading day, shall mean the closing
bid price (or average of bid prices), the Common Stock as reported
by the National Association of Securities Dealers Automated
Quotation System-National Market System ("NASDAQ-NMS") or if the
Common Stock is not traded on NASDAQ on such national or regional
securities exchange or quotation system where the Common Stock is
traded.
"Common Stock" means the issued and outstanding common stock
of the Company.
"Continuing Director" means any individual who is a member of
the Board of Directors as of the date hereof, which individuals are
listed on Exhibit A attached hereto and made a part hereof, and any
subsequent director nominated by the Board of Directors for
election by the stockholders or appointed to the Board of
Directors, which nomination or appointment is made with the
affirmative vote of a majority of Continuing Directors then serving
on the Board of Directors.
"Good Reason" means, with respect to the voluntary termination
by Executive, the occurrence, without the Executive's express
written consent, of any of the following:
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(i) The assignment to Executive by the Company
of any duties materially inconsistent with, or the diminution of,
Executive's positions, titles, offices, duties and responsibilities
with the Company, as in effect from time to time hereunder, or any
removal of Executive from, or any failure to re-elect Executive to,
any titles, offices or positions held by Executive hereunder,
including the failure of the Board of Directors to nominate
Executive to the Board of Directors' slate of directors to be
recommended to the Company's stockholders or the failure of the
Company's stockholders to elect Executive as a director; or
(ii) Except as in accordance with the terms
hereof, a reduction by the Company in Executive's base salary or
any other compensation provided for herein; or
(iii) The failure by the Company to continue in
effect any material benefit or compensation plan to which Executive
is entitled, hereunder, or plans providing Executive with
substantially similar benefits, the taking of any action by the
Company which would materially and adversely affect Executive's
participation in, or materially reduce Executive's benefits under,
any such benefit plan or deprive Executive of any material fringe
benefits enjoyed by Executive hereunder, or the failure by the
Company to provide Executive with the number of paid vacation days
to which Executive is then entitled (based on years of service)
under the Company's normal vacation policies and practices in
effect on the date hereof or in effect from time to time hereafter;
provided, however, that the occurrence of any of the foregoing
shall not constitute "Good Reason" to the extent that such
occurrence is part of a change in benefits, compensation, policies
or practices that affect substantially all of the employees of the
Company; or
(iv) The failure of the Company to obtain the
explicit assumption in writing of its obligation to perform this
Agreement by any successor as contemplated in Section 18(a) hereof;
or
(v) A change or relocation of Executive's
place of employment, as designated in Section 2 hereof, without his
written consent, other than within thirty (30) miles of such
agreed-upon location; or
(vi) Any other substantial, material and
adverse change in Executive's conditions of employment imposed on
him by the Company.
"Incapacity" means the absence of the Executive from his
employment or the inability of Executive to perform his duties
pursuant to this Agreement by reason of mental or physical illness,
disability or incapacity for a period of four (4) months or more
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during any twelve (12) month period during the term hereof, and
either the Company or Executive elects to declare such illness,
disability or incapacity to be of a permanent nature.
"Initial Value" means, for the purposes of calculating the
aggregate Sale Bonus described in Section 10, below, (i) $67.0
million plus (ii) $80.0 million or a total of $147.0 million.
"Plan" means that certain Joint Plan of Reorganization in a
case entitled In re Family Health Services, Inc., et al., Debtors,
case No. SA 89-01549 JW (jointly administered with Cases SA 89-
01550 JW through SA 89-01594 JW, inclusive, SA 89-02535 JW and SA
89-02536 JW), confirmed by the United States Bankruptcy Court for
the Central District of California, Santa Ana Division.
"Plan Compensation" means the additional compensation,
remuneration and consideration granted to Executive pursuant to
paragraphs 2, 8 and 9 of Exhibit 10-A to the Plan and paragraphs 4
and 5 of Exhibit 10-B of the Plan.
"Senior Management" means Executive and Peter Ratican.
2. Employment, Services and Duties. The Company
hereby employs Executive as Executive Vice President - Finance and
Administration, chief Financial Officer and a director of the
company, and as Executive Vice President - Finance and
Administration and/or Chief Financial Officer and/or a director
with respect to any of the Company's subsidiaries as the Board of
Directors or such subsidiaries may from time to time direct.
Additionally, in his capacity as a director, Executive will be
appointed to the Executive Committee, Management Committee or any
other committee with comparable responsibilities, as may be from
time to time established by the Board of Directors or the board of
directors of any subsidiary on which Executive may serve as a
director. Subject to his continued employment as such by the Board
of Directors, Executive shall continue to have and perform the
duties and have the powers and authority of Executive Vice
President - Finance and Administration, Chief Financial officer and
director of the company as provided from time to time in its By-
Laws. As Executive Vice President - Administration and Finance and
Chief Financial officer, Executive shall supervise, control, and be
responsible for all administrative and financial aspects of the
business activities and affairs of the Company and its
subsidiaries. Executive shall be subject only to the direction of
the Chief Executive Officer and of the Board of Directors, and,
except as so provided, Executive's powers and authority in such
capacity shall be superior to those of any other officer or
employee of the Company and of any subsidiary thereof if Executive
55
<PAGE>
is employed by a subsidiary. Executive shall render his services
generally in, and shall not be obligated to maintain his office in
any place other than, Los Angeles, California, or its environs.
3. Acceptance of Employment. Executive hereby
accepts employment hereunder and agrees to devote his full time,
energy and skill to such employment. Notwithstanding the
foregoing, Executive may engage in other personal business so long
as the performance of such activities does not materially interfere
with the efficient and timely performance of the Executive's duties
hereunder.
4. Compensation. As compensation for all services to
be rendered by Executive hereunder, the Company agrees to provide
Executive with the following:
(a) Base Salary. The Company shall pay to
Executive a base salary at the rate of Four Hundred Thousand
Dollars ($400,000) per annum, with such increases and other
bonuses, if any, as may be determined from time to time by the
Board of Directors pursuant to an annual review of Executive's base
salary. Said salary shall be payable in equal semi-monthly
installments or in such other installments as may be agreed upon
between the parties.
(b) Performance Bonus. In addition to
Executive's base salary and any Plan Compensation which may be due
Executive, and in further consideration of the services to be
rendered hereunder, the Company shall pay to Executive, in cash,
annually, a performance bonus (the "Performance Bonus") which shall
be as set forth on Exhibit C attached hereto and made a part
hereof.
Performance Bonus payments due to
Executive hereunder shall be due for each fiscal year during the
term hereof commencing with the fiscal year ended December 31, 1996
through the year ended December 31, 2001; provided, however, that
the Performance Bonus payments due for the fiscal year ended
December 31, 1996 shall be calculated and paid on a full year basis
and the Performance Bonus for the fiscal year ended December 31,
2001 shall pro-rated based upon Executive's service for one-quarter
of such fiscal year pursuant to the terms hereof so that Executive
shall receive 25% of the Performance Bonus which would have been
due hereunder for a full year's service during such period, and
shall be paid to Executive, with respect to a given fiscal year, in
the succeeding fiscal year upon the first to occur of either: (i)
30 days after public release of the Company's audited financial
statements for the prior fiscal year, or (ii) if no such public
release is made, 30 days after the finalization of the Company's
audited financial statements for the prior year, which shall be no
later than 120 days after the end of the preceding fiscal year.
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(c) Stock Options. The Company shall grant to
Executive options (the "Stock Options") to purchase Seventy
Thousand (70,000) shares of Common Stock on each of the following
dates: date on which resolutions are adopted by the Shareholders
approving the Stock Options, January 1, 1997, January 1, 1998,
January 1, 1999 and January 1, 2000 (the "Grant Dates") at exercise
prices equal to the Closing Price of the Common Stock on the last
trading date immediately preceding the Grant Dates. Each Stock
Option granted pursuant to the terms hereof shall have a ten (10)
year term. The Stock Options shall be granted pursuant to the
terms of a Stock Option Agreement in substantially the form of
Exhibit B, attached hereto (the "Option Agreement"). Executive
acknowledges that he is entitled to the grant of only the Stock
Options and no other stock options pursuant to this Agreement. The
grant of the Stock Options shall be subject to and conditioned upon
the approval of the Company's stockholders; provided, however, in
the event such approval is not obtained the parties agree that
Executive shall be entitled to receive the substantial economic
equivalent, which shall be as mutually agreed upon. The Company
agrees to seek shareholder approval of the Stock Options at the
1996 Annual Meeting of Stockholders.
5. Benefits. In addition to the compensation
provided for in Section 4 of this Agreement:
(a) Executive shall have the right to
participate in any profit-sharing, bonus, stock option, pension,
life, health and accident insurance, or other employee benefit
plans which may be in effect from time to time during the term of
this Agreement under terms no less favorable to those offered or
available to other senior executives of the Company; and
(b) The Company shall provide Executive with a
monthly automobile allowance of One Thousand One Hundred Dollars
($1,100) and a car-phone, which car-phone shall be maintained at
the Company's expense.
(c) The Company shall pay on behalf of or
reimburse Executive for up to $15,000 during the initial year of
this Agreement and an additional $10,000 for each year during the
term of this Agreement thereafter for the fees and expenses
incurred by Executive in connection with financial and tax
counseling, estate planning and income tax preparation.
6. Expenses. The Company shall promptly reimburse
Executive for all reasonable travel, hotel, entertainment and other
expenses incurred by Executive in the discharge of Executive's
duties hereunder, upon receipt from Executive of vouchers, receipts
or other reasonable substantiation of such expenses. At
Executive's election, Executive's spouse may accompany him in
connection with all travel and entertainment undertaken for the
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benefit of the Company, and the Company shall promptly reimburse
Executive for all travel, hotel, entertainment or other related
expenses incurred for Executive's spouse, under the same terms and
conditions as set forth above, it being acknowledged that
Executive's spouse will render valuable services in meeting and
entertaining business associates and their spouses and that
Executive's employment will be facilitated by the spouse's
performance of such functions. The Company acknowledges and agrees
that Executive (and spouse, if applicable) shall be entitled to
first class travel and hotel accommodations while traveling on the
Company's behalf.
7. Term of Employment. The term of employment
hereunder shall commence as of April 1, 1996, and shall continue
for a period of five (5) years from such date, unless earlier
terminated as herein provided. This Agreement shall terminate upon
the occurrence of any of the following events:
(a) The death of Executive; or
(b) Executive voluntarily leaves the employ of
the Company, with or without the consent of the Company, and with
or without Good Reason; or
(c) The Incapacity of Executive; or
(d) The Company terminates this Agreement for
Cause; or
(e) The Company terminates this Agreement for
any reason other than as set forth in Sections 7(a), 7(c) or 7(d)
hereof; or
(f) Executive elects to terminate pursuant to
Section 9(a), below.
8. Compensation Upon Termination; Severance.
(a) In the event this Agreement is terminated
under Section 7 hereof, the Company shall be obligated to pay or
provide to Executive (or his legal representatives, as the case may
be) under this Agreement the following and only the following:
(i) In all events other than termination
under Section 7(b) for Good Reason or Section 7(e), as soon as
practicable, but in no event later than thirty (30) days of the
date of such termination: the Base Salary due Executive under
Section 4(a) hereof, up to the date of termination, together with a
portion of Executive's Performance Bonus for that year, calculated
based upon the Performance Bonus Executive would have received
pursuant to Section 4(b) hereof had he been employed for the full
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fiscal year multiplied by a fraction the numerator of which is the
number of days during such fiscal year on which Executive was
employed by the Company and the denominator of which shall be 365
along with all benefits due Executive under Section 5 through the
date of termination, such benefits to be paid in the ordinary
course and with respect to the benefits due under Sections 5(b) and
5(c) pro rated as applicable; and
(ii) If the termination arises under
Section 7(f) hereof, then within five (5) days after such
termination, a cash amount equal to 2.99 times Executive's average
annualized compensation from all services from and relating to the
Company, which is includable in Executive's gross income, including
but not limited to "income" (y) which would be attributable to the
exercise of any Stock Options or other options to purchase Common
Stock held by Executive whether or not such exercise occurs;
provided, however, if no such exercise occurs, the options will be
valued as of the date on which the Change of Control occurred at
the difference between the exercise price of the Options and the
Closing Trading Price of the Common Stock or (z) from the
termination of forfeiture restrictions on shares of Common Stock
issued to Executive pursuant to the terms of Restricted Stock
Agreement(s) between Executive and the Company (the "Restricted
Stock"), for the most recent five taxable years ending with and
including the calendar year in which the Change of Control occurs,
together with the immediate vesting: (1) all options to purchase
shares of Common Stock not otherwise already vested pursuant to the
terms of such options, and (2) all shares of Restricted Stock not
otherwise already vested pursuant to the terms of the applicable
Restricted Stock Agreement between Executive and the Company; and
(iii) If the termination arises under
Section 7(a) or 7(c) hereof, then as soon as practicable, but in no
event later than thirty (30) days of the date of such termination,
an amount equal to ninety (90) days' Base Salary prorated based on
Executive's then annual Base Salary under Section 4(a) hereof.
Additionally, with respect to a termination arising under Section
7(c) hereof, the Company shall provide the continuation of any
health or disability payments for (1) the duration of the term of
the illness, disability or incapacity which caused such incapacity,
or (2) until March 31, 2001, whichever period is longer; and
(iv) If the termination arises under
Section 7(e) or under Section 7(b) for Good Reason, then as soon as
practicable, but in no event later than thirty (30) days of the
date of such termination, an amount equal to the balance of
Executive's then annual Base Salary which would have been paid over
the remainder of the term of this Agreement pursuant to Section
4(a) hereof. Additionally, Executive shall (1) receive all
compensation and benefits which would have been due Executive under
Section 4(b) hereof over the remainder of the term of this
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Agreement, (2) immediately receive all compensation described in
Section 8(c) hereof, (3) immediately be vested in all stock options
or Restricted Stock not otherwise already vested, and (4) continue
to receive all benefits described in Section 5 hereof, for the
period between the termination date and March 31, 2001, and the
monetary value of any such additional amounts or benefits shall be
paid or provided to Executive as and when such amounts or benefits
would have been paid to Executive had such termination not
occurred.
THE COMPENSATION PROVIDED IN THIS SECTION 8(a)(iv) SHALL BE
PAID TO EXECUTIVE AS LIQUIDATED DAMAGES FOR THE INJURY TO
EXECUTIVE'S REPUTATION. IN CONNECTION THEREWITH, THE PARTIES AGREE
THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE
ACTUAL AMOUNT OF SUCH DAMAGES AND CLAIMS DUE EXECUTIVE WITH RESPECT
THERETO AND THAT SUCH AMOUNT SHALL CONSTITUTE A REALISTIC AND
REASONABLE VALUATION OF THE DAMAGES WITH RESPECT TO EXECUTIVE'S
CLAIMS. FURTHERMORE, EXECUTIVE SHALL NOT BE REQUIRED TO MITIGATE
HIS DAMAGES BY SEEKING OTHER EMPLOYMENT OR OTHERWISE, AS THE
DAMAGES RESULTING TO HIM AS A CONSEQUENCE OF THE LOSS OF THE UNIQUE
EMPLOYMENT ARRANGEMENT SET FORTH HEREIN COULD NOT BE MITIGATED BY
SEEKING EMPLOYMENT ELSEWHERE, NOR SHALL ANY MONIES EARNED BY
EXECUTIVE IN ANY CAPACITY AFTER SUCH TERMINATION OR BREACH ACT TO
REDUCE SUCH DAMAGES OR ANY AMOUNT OF OTHER BENEFITS TO WHICH
EXECUTIVE IS ENTITLED HEREUNDER.
_______ _______
Initial Initial
(b) At such time as any payment is made to
Executive pursuant to Section 8(a)(iv), Executive shall
simultaneously execute and deliver to the Company a release, in a
form satisfactory to the Company, of all claims against the Company
for compensation pursuant to this Agreement.
(c) In the event Executive does not receive,
on or before the expiration of the term hereof, an offer for a new
employment agreement (i) containing terms and provisions no less
favorable (with respect to provisions for term of employment,
benefits, bonuses, and other material terms), than those set forth
in this Agreement (as such may be modified from time to time) and
(ii) providing for an annual base salary of no less than
Executive's then existing annual base salary, and as a result of
the absence of such offer Executive leaves the employ of the
Company on or before the expiration of this Agreement, the Company
shall pay to Executive, severance pay in a lump sum amount equal to
Executive's then annual Base Salary as of the expiration date.
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Termination upon Change of Control; Effect of Partial
Termination.
(a) If, prior to the termination of this
Agreement, there shall occur any Change of Control, Executive, in
his sole discretion, may elect to terminate this Agreement within
one hundred twenty (120) days after such Change of Control by
giving written notice of such election to the Company.
(b) Notwithstanding the provisions of Section
7, above, Executive may, in his sole discretion, elect to
relinquish one or more of the positions for which Executive is
employed hereunder, and this Agreement shall not terminate upon
such partial termination by Executive, so long as Executive remains
employed on a full-time basis in at least one of the offices
contemplated by this Agreement. Executive and the Company hereby
agree that no provision of this Agreement shall be amended or
modified upon the occurrence of a partial termination as described
in this Section 9(b), other than the designation of positions set
forth in Section 2 hereof, and that in such situation the Company
shall continue to pay or provide to Executive the full amount of
compensation and benefits described herein.
10. Sale Bonus. Upon the occurrence of a sale of the
Company or a majority of its assets (as defined below) or a merger
where the then stockholders of the Company cease to own a majority
of the outstanding voting capital stock of the surviving entity or
the sale of a majority of the Company's then issued and outstanding
stock (a "Sale"), the Company will pay to Executive, in cash, a
sale bonus (the "Sale Bonus"). The Sale Bonus shall equal fifty
percent (50%) of the total bonus amount, which total shall be the
sum of the Sale Step Amounts, calculated in accordance with the
following schedule:
A B
Amount by which Sale Step
Sale Price of Company Bonus Amount
Exceeds Initial Value Percentage (= A X B)
$0-50,000,000 2%
$50,000,001-100,000,000 3%
$100,000,001-200,000,000 4%
$200,000,001 or more 5%
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In the event of the sale of a majority of the assets of the
Company, the sale price of the Company for the purpose of
calculating the Sale Step Amounts above, shall be deemed to be
equal to the sale price of the assets sold. In the event of a
merger or sale of all or substantially all of the Company's capital
stock, the sale price of the Company for the purpose of calculating
the Sale Step Amounts above shall be deemed to be the value of the
aggregate consideration received by the Company's stockholders for
their shares. No Sale Bonus shall be payable in connection with
the sale of the Company's capital stock unless such sale includes
no less than a majority of the outstanding voting capital stock.
As used in this Section 10, a sale of "a majority of the
assets" of the Company shall mean the sale, in a single transaction
or as part of a series of related transactions, by the Company of:
(i) assets constituting 50% or more of the Company's book value,
calculated according to generally accepted accounting principles;
or (ii) of one or more subsidiaries of the Company to which is
attributed 50% or more of the Company's net earnings for the
preceding fiscal year, or of all of the assets of, or stock held by
the Company in, such subsidiaries (which stock constitutes a
majority of the issued and outstanding shares of the subsidiaries).
Notwithstanding any other provision of this Agreement, if
Executive's employment terminates, pursuant to Section 7(b) for
Good Reason or 7(e) hereof, Executive shall nevertheless be
entitled to receive a Sale Bonus, if the relevant sale agreement is
executed by all parties thereto within ninety (90) days after the
date of Executive's involuntary termination.
11. Indemnification.
(a) The Company shall indemnify Executive,
whether or not then in office, to the fullest extent provided for
in the Company's Articles of Incorporation or Bylaws, as in effect,
or as may thereafter be amended, modified or revised from time to
time (collectively, "Company's Articles"), or permitted under the
law of Delaware or such other state in which the Company may
hereafter be domiciled, against any and all costs, claims,
judgments, fines, settlements, liabilities, and fees or expenses
(including, without limitation, reasonable attorneys' fees)
incurred in connection with any proceedings (including, without
limitation, threatened actions, suits or investigations) arising
out of, or relating to, Executive's actions or in actions as a
director, officer or employee of the Company at any point during
his employment by or service to the Company, whether under this
Agreement, the Old Employment Agreement or otherwise ("Executive's
Tenure"), including, but not limited, to all such actions or in
actions arising on or before March 15, 1989. The indemnification
contemplated under this Section 11(a) shall be provided to
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Executive unless, at the time indemnification is sought, such
indemnification would be prohibited under the law of Delaware or of
the state in which the Company may then be domiciled; the Company
may rely on the advice of its counsel in determining whether
indemnification is so prohibited.
(b) In the event of any actual or threatened
investigation, administrative proceeding or litigation by any
federal, state or local governmental authority (including agencies
thereof) against the Company or any other director officer or
employee of the Company arising from actions taken or events
occurring at any point during Executive's Tenure, in which
proceedings Executive is not a party or threatened to be made a
party but which require Executive's attendance and if, under
applicable law, or the rules or regulations of the particular
governmental authority, counsel for the Company cannot additionally
represent Executive upon the provision of proper substantiation, or
such simultaneous representation would not be permitted under the
applicable canons of ethics governing attorneys-at-law, then: (i)
Executive shall have the right to retain such personal legal
counsel, accounting advisors and experts as may be reasonably
necessary in connection with such attendance, and (ii) the Company
shall promptly reimburse Executive, whether or not then in office,
for all reasonable expenses incurred by him in retaining the above
counselors, advisors and experts.
If Executive is no longer employed by the
Company at the time Executive's attendance is required at
proceeding contemplated by this Section 11(b), then, in all events,
and in addition to the reimbursement described in (ii) above, the
Company shall pay to Executive a stipend in the amount of One
Thousand Dollars ($1,000) per day for each day or any portion
thereof during which Executive is in attendance and shall reimburse
Executive for all reasonable travel, hotel and living expenses
incurred by him in connection with such attendance.
(c) Any reimbursement or indemnification under
this Section 11 shall be made no later than 10 days after receipt
by the Company of the written request of Executive, together with,
with respect to expenses incurred, vouchers, receipts or other
reasonable substantiation.
(d) If Executive is entitled under any
provision of this Section 11 to indemnification by the Company for
some or a portion of the expenses, judgments, fines, or penalties
actually and reasonably incurred by him in the investigation,
defense, appeal or settlement of any action, suit or other
proceeding, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Executive for the portion of
such expenses, judgments, fines or penalties to which Executive is
entitled.
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(e) The indemnification provided under this
Section 11 shall not be deemed exclusive of any other rights to
which Executive may be entitled under the Company's Articles, any
resolution of the Board of Directors, any agreement, any vote of
shareholders or disinterested directors, insurance contracts, the
law of Delaware or any other state in which the Company may
hereafter be domiciled, or otherwise, both as to actions or in
actions in Executive's official capacity or in any other capacity
at any point during Executive's Tenure, even though he may have
ceased to serve as a director, officer or employee of the Company
at the time of any action, suit or other proceeding. Amounts
payable as indemnification under this Section 11 shall be reduced
by the amount of any other sums received by Executive for the same
purpose pursuant to any of such other provisions.
(f) In the event of any change, after the date
of this Agreement, in any applicable law, statute, or rule which
expands the right of a corporation domiciled in Delaware or the
state in which the Company may hereafter be domiciled to indemnify
a director, officer or employee, such change (to the extent
permitted by applicable law) shall be automatically incorporated
herein, without further action of the parties, to the extent that
such change affects Executive's rights and the Company's
obligations under this Section 11.
In the event of any change, after the date
of this Agreement, in any applicable law, statute, or rule which
narrows or restricts the right of a corporation domiciled in
Delaware or the state in which the Company may hereafter be
domiciled to indemnify a director, officer or employee, such change
(to the extent permitted by applicable law) shall have no effect on
the provisions of, or the parties' respective rights and
obligations under this Section 11.
In the event of an amendment or other
revision, after the date of this Agreement, to the Company's
Articles which expands the right of the Company to indemnify a
director, officer or employee, such change shall be automatically
incorporated into this Agreement, without further action of the
parties, to the extent that such change relates to Executive's
rights and the Company's obligations under this Section 11.
In the event of an amendment or other
revision, after the date of this Agreement, to the Company's
Articles which narrows or restricts the right of the Company to
indemnify a director, officer or employee, such change shall have
no effect on the provisions of, or the parties' respective rights
and obligations under, this Section 11.
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The Company agrees to give Executive
prompt notice of any amendment to or modification of the Company's
Articles which relate to its ability to provide the indemnification
contemplated under this Section 11.
(g) Notwithstanding any other provision
herein, the Company shall not be obligated pursuant to the terms of
this Section 11:
(i) to indemnify or advance expenses to
Executive with respect to proceedings or claims (except counter
claims or cross claims) initiated or brought voluntarily by
Executive and not by way of defense, except with respect to
proceedings brought to establish or enforce a right under this
Agreement or a right to indemnification under the Company's
Articles, or any applicable law (including, without limitation,the
requirements of the Delaware General Corporation Law), but such
indemnification or advancement of expenses may be provided by the
Company in specific cases if the Board of Directors finds it to be
appropriate; or
(ii) to indemnify Executive for any
expenses incurred by him with respect to any claim, issue or
matter, raised in connection with a proceeding instituted by
Executive to enforce or interpret the provisions of this Section
11, if a court of competent jurisdiction renders a final judgment
determining that the material assertions made by Executive with
respect to such claim, issue or matter were not made in good faith
or were frivolous; or
(iii) to indemnify Executive for expenses
or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) which have been paid directly to Executive by
an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Company; or
(iv) to indemnify Executive for expenses
or liabilities arising from the purchase and sale by Executive of
securities of the Company in violation of federal or state
securities laws; or
(v) to indemnify Executive for
liabilities or with respect to proceedings or claims relating to
actions not taken in his capacity as an officer, employee or
director or on behalf of the Company, including, without
limitation, actions taken in his individual capacity as a
shareholder.
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12. Confidentiality. Executive covenants and agrees
that he will not at any time during or after the termination of his
employment by the Company reveal, divulge or make known to any
person, firm or corporation any information, knowledge or data of a
proprietary nature relating to the business of the Company or any
of its affiliates which is not or has not become generally known or
public. Executive shall hold, in a fiduciary capacity, for the
benefit of the Company, all information, knowledge or data of a
proprietary nature, relating to or concerned with, the operations,
customers, developments, sales, business and affairs of the Company
and its affiliates which is not generally known to the public and
which is or was obtained by the Executive during his employment by
the Company. Executive recognizes and acknowledges that all such
information, knowledge or data is a valuable and unique asset of
the Company and accordingly he will not discuss or divulge any such
information, knowledge or data to any person, firm, partnership,
corporation or organization other than to the Company, its
affiliates, designees, assignees or successors or except as may
otherwise be required by the law, as ordered by a court or other
governmental body of competent jurisdiction, or in connection with
the business and affairs of the Company.
13. Equitable Remedies. In the event of a breach or
threatened breach by Executive of any of his obligations under
Section 12 hereof, Executive acknowledges that the Company may not
have an adequate remedy at law and therefore it is mutually agreed
between Executive and the Company that in addition to any other
remedies at law or in equity which the Company may have, the
Company shall be entitled to seek in a court of law and/or equity a
temporary and/or permanent injunction restraining Executive from
any continuing violation or breach of this Agreement.
14. Advance of Fees and Expenses. The Company shall
advance to Executive:
(i) to the maximum extent provided for in the
Company's Articles or permitted by the law of Delaware or such
other state in which the Company may hereafter be domiciled, any
fees or expenses which are included as indemnifiable fees or
expenses pursuant to Sections 11(a) or 11(b) hereof (including,
without limitation, expenses of investigations, judicial or
administrative proceedings or appeals, amounts paid in settlement
by or on behalf of Executive, and legal, accounting or other
professional fees and disbursements) which may be incurred by
Executive; and
(ii) in the event of any other dispute arising
under this Agreement involving an effort by Executive to protect,
enforce or secure rights or benefits claimed by him hereunder, all
reasonable expenses, including attorneys' fees, incurred by
Executive in connection with such dispute. Such advances
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(collectively, "Reimbursed Expenses") shall be made by the Company
upon the written request of Executive, which request shall be
accompanied by an undertaking executed by Executive in
substantially the form of Exhibit D attached hereto, by which
Executive undertakes to repay any amounts advanced to the extent
that it is ultimately determined, by compromise, settlement,
arbitration or final non-appealable court ruling, that the
Executive is not entitled to indemnification or payment, as
appropriate, for all or any portion of such fees and expenses.
No later than ten (10) days after receipt by the Company of
the written request and undertaking of Executive, together with
receipts, invoices or other written documentation evidencing the
Reimbursed Expenses to be covered by the advance, the Company shall
make the advance requested, in one or more payments, to Executive
or according to his written instructions.
Any advances contemplated under Section 14(i) above, shall be
made to Executive unless, at the time the advance is requested,
such advance would be prohibited under the law of Delaware or the
state in which the Company may then be domiciled; the Company may
rely on the advice of its counsel in determining whether an advance
is so prohibited.
15. Effective Date. This Agreement shall be deemed to
be effective as of the date hereof.
16. Adjustments to Payments. Notwithstanding any
other provision of this Agreement, if any payment ("Affected
Payment") under this Agreement, either alone or together with other
amounts which Executive has the right to receive from the Company,
would constitute an "excess parachute payment" (as defined in
Section 28OG of the Code), then Executive shall be entitled to
receive an additional cash payment (an "Additional Payment") which,
when added to the Affected Payment provides a net benefit to the
Executive, after payment of the excise tax imposed by Section 4999
of the Code and penalties and interest thereon, and payment of any
federal, state and local income taxes and penalties and interest
thereon attributable to such Additional Payment, equal to the
Affected Payment before such Additional Payment. The Company shall
have the option of defending or challenging any determination
concerning the status of payments as "excess parachute payments."
Executive shall receive the Additional Payments concurrently with
Affected Payments; provided, however, Executive shall be entitled
to Additional Payments in arrears upon a subsequent finding by the
Internal Revenue Service or court of competent jurisdiction that
any payment is an "excess parachute payment."
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17. Termination of Old Employment Agreement. The
Company and Executive agree that, on April 1, 1996 and the Old
Employment Agreement shall be terminated and, except as expressly
set forth herein, this Agreement constitutes the entire
understanding between the parties hereto as of the date hereof
regarding the subject matter hereof and supersedes all other prior
agreements, understandings, negotiations and discussions of the
parties whether written or oral; provided, however, that
notwithstanding any provision to the contrary contained elsewhere
herein, including, but not limited to, Section 8, above, Executive
shall continue to have all rights to all Plan Compensation due him
and reimbursement for any expenses incurred prior to the Effective
Date of the Agreement but not yet reimbursed by the Company.
18. Miscellaneous.
(a) This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of the
Company. This Agreement shall not be terminated by the voluntary
or involuntary dissolution of the Company or by any merger,
reorganization or other transaction in which the Company is not the
surviving or resulting corporation or upon any transfer of all or
substantially all of the assets of Company in the event of any such
merger, or transfer of assets. The provisions of this Agreement
shall be binding upon and shall inure to the benefit of the
surviving business entity or the business entity to which such
assets shall be transferred in the same manner and to the same
extent that the Company would be required to perform it if no such
transaction had taken place.
Neither this Agreement nor any rights
arising hereunder may be assigned or pledged by Executive.
Executive's rights to the compensation provided for under Sections
4(c) and 16 of this Agreement, to indemnification under Section 11
hereof, and to the advance of Reimbursed Expenses under Section 14
hereof, shall continue, despite the fact that Executive may cease
to be employed by the Company, and shall survive the termination of
this Agreement regardless of cause. This Agreement shall inure to
the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
(b) Except as otherwise provided by law or
elsewhere herein, Executive shall be entitled to all benefits asset
forth herein notwithstanding the occurrence of the following
events:
(i) any act of force majeure which
materially and adversely affects the Company's business and
operations, including but not limited to, the Company having
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sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, epidemic, explosion, accident, calamity or
other act of God; or
(ii) any strike or labor dispute or court
or government action, order or decree; or
(iii) a banking moratorium having been
declared by federal or state authorities; or
(iv) an outbreak of major armed conflict,
blockade, embargo, or other international hostilities or restraints
or orders of civic, civil defense, or military authorities, or
other national or international calamity having occurred; or
(v) any act of public enemy, riot or
civil disturbance or threat thereof; or
(vi) a pending or threatened legal or
governmental proceeding or action relating generally to the
Company's business, or a notification having been received by the
Company of the threat of any such proceeding or action, which could
materially adversely affect the Company.
(c) This Agreement may not be modified,
altered or amended except by an instrument in writing signed by the
parties hereto.
(d) This Agreement shall be construed in
accordance with the laws of the State of California except to the
extent that any provision of Sections 11 or 14 hereof may relate to
an interpretation of the corporation laws of Delaware, the state in
which the Company is domiciled, in which case such provision shall
be construed in accordance with the corporation laws of that state.
(e) Nothing in the Agreement is intended to
require or shall be construed as requiring the Company to do or
fail to do any act in violation of applicable law. The Company's
inability pursuant to court order to perform its obligations under
this the Agreement shall not constitute a breach of this Agreement.
If any provision of this Agreement is invalid or enforceable, the
remainder of this Agreement shall nevertheless remain in full force
and effect. If any provision is held invalid or unenforceable with
respect to particular circumstances, it shall, nevertheless, remain
in full force and effect in all other circumstances.
(f) In addition to the payments pursuant to
Section 5(c) above, the Company agrees to reimburse Executive for
all reasonable legal fees and expenses incurred by Senior
Management in connection with the retention of a single law firm
engaged to represent Senior Management in the negotiation and
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execution of their respective Employment and Indemnification
Agreements and Option Agreements; provided, however that the
Company's obligation under this Section 18(f) shall not exceed an
aggregate of Twenty Five Thousand Dollars ($25,000).
(g) The parties hereto agree that any and all
disputes hereunder shall be submitted to a court located in Los
Angeles, California and in this regard, the parties agree that they
shall consent to personal jurisdiction in any state and/or the
United States District Court for the Central District of California
sitting in Los Angeles, California and agree to venue in the State
of California. All costs and expenses (including attorneys' fees)
incurred by the parties in connection with any dispute arising
under this Agreement, shall be apportioned between the parties by a
court based upon such court's determination of the merits of their
respective positions. The burden of proving that indemnification
or any advance under Sections 11 or 14 is not appropriate shall be
on the Company.
(h) Any notice to the Company required or
permitted hereunder shall be given in writing to the Company,
either by personal service, telex, telecopier or, if by mail, by
registered or certified mail return receipt requested, postage
prepaid, duly addressed to the Secretary of the Company at its then
principal place of business with a copy to Barry L. Burten, Esq.,
Jeffer, Mangels, Butler & Marmaro LLP, 2121 Avenue of the Stars,
10th Floor, Los Angeles, California 90067. Any such notice to
Executive shall be given in a like manner, and if mailed shall be
addressed to Executive at Executive's home address then shown in
the files of the Company with a copy to Philip Magaram, Esq.,
Valensi Rose & Magaram PLC, 1800 Avenue of the Stars, Suite 1000,
Los Angeles, California 90067. For the purpose of determining
compliance with any time limit herein, a notice shall be deemed
given on the fifth business day following the postmarked date, if
mailed, or the date of delivery if personally delivered or
delivered by telex or telecopier.
(i) A waiver by either party of any term or
condition of this Agreement or any breach thereof, in any one
instance, shall not be deemed or construed to be a waiver of such
term or condition or of any subsequent breach thereof.
(j) The paragraph and subparagraph headings
contained in this Agreement are solely for convenience and shall
not be considered in its interpretation.
(k) This Agreement may be executed in one or
more counterparts, each of which shall constitute an original.
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IN WITNESS WHEREOF, the parties hereto have executed this
Employment and Indemnification Agreement as of the day and year
first written above.
COMPANY:
MAXICARE HEALTH PLANS, INC.
a Delaware corporation
By:
-------------------------
Its:
-------------------------
EXECUTIVE:
/s/ EUGENE L. FROELICH
----------------------
Eugene L. Froelich
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EXHIBIT A
Continuing Directors
Peter J. Ratican
Eugene L. Froelich
Claude S. Brinegar
Thomas W. Field, Jr.
Charles E. Lewis
Alan S. Manne
Florence F. Courtright
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Exhibit B
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement"), dated as of April
1, 1996, is made by and between Eugene L. Froelich ("Executive")
and Maxicare Health Plans, Inc., a Delaware corporation (the
"Company").
RECITALS
WHEREAS, Executive presently serves as Executive Vice
President - Finance and Administration and Chief Financial Officer
of the Company pursuant to an Employment and Indemnification
Agreement dated as of January 1, 1992 exerting particularly
diligent efforts in such capacity on behalf of the Company;
WHEREAS, the Company and the Executive have agreed that
Executive should continue to serve in the aforementioned capacities
on behalf of the Company pursuant to the terms and conditions
contained in the Amended and Restated Employment and
Indemnification Agreement dated as of April 1, 1996 between the
Company and the Executive (the "Restated Employment Agreement");
WHEREAS, as a material part of Executive's compensation under
the Restated Employment Agreement, the Company has agreed to grant
Executive options to purchase 350,000 shares of the Company's, no
par value, common stock (the "Common Stock"); and
WHEREAS, the Company and the Executive desire to set forth in
this Agreement the specific terms and conditions regarding the
aforementioned options.
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, Executive and the
Company hereby agree as follows:
1. Grant of Options. Subject to Section 14 below
and upon the terms and subject to the conditions hereinafter set
forth, the Company hereby agrees to grant to Executive options (the
"Options") to purchase up to 350,000 authorized but unissued shares
of Common Stock (the "Option Shares"). As a pre-condition to the
grant of each of the Options set forth below and all Options to be
granted hereunder following such Option, Executive must be employed
by the Company on the grant date of any such Option. Subject to
the preceding sentence, the Options shall be granted on the
following dates:
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(a) an Option to purchase 70,000 Option Shares on
the date on which resolutions are adopted by the Shareholders
approving this Agreement;
(b) an Option to purchase 70,000 Option Shares on
January 1, 1997;
(c) an Option to purchase 70,000 Option Shares on
January 1, 1998;
(d) an Option to purchase 70,000 Option Shares on
January 1, 1999; and
(e) an Option to purchase 70,000 Option Shares on
January 1, 2000.
2. Option Prices.
(a) The Option Price with respect to the Option
Shares for each of the Options set forth in 1(a) through 1(e) above
shall be the closing price of the Common Stock on the last trading
date immediately preceding the grant dates of the Options set forth
in Sections 1(a) through 1(e) above.
(b) For the purposes of calculating the Option
Price, the closing price shall be (in the following order or
priority), if the Common Stock is listed or admitted for trading
(i) on any national securities exchange (or in case the Common
Stock shall be listed on more than one, the exchange with the
greatest trading volume in the Common Stock), the last sale price,
or, in case no reported sale takes place on such day, the average
of the last reported bid and asked prices; (b) on the National
Association of Securities Dealers, Inc. Automated Quotation System-
National Market System ("NASDAQ-NMS"), the average of the last
reported bid and asked prices; or (iii) in the daily stock price
publication of the National Quotation Bureau (also known as the
"Pink Sheets"), the average of the last reported bid and asked
prices.
3. Vesting of Options. Executive's rights in and to
the Options set forth in Sections 1(a) through 1(e) above shall
vest, and Executive may exercise each such Option immediately as of
the date of the grant of each Option.
4. Term of Options. Subject to and so long as
Executive is employed by the Company, whether pursuant to the
Restated Employment Agreement or otherwise each Option granted
pursuant to Sections 1(a) through (1(e) above, may be exercised in
whole or in part at any time or from time to time by Executive on
or before 12:00 midnight, California time on the expiration of 10
years from the date of grant of each such Option (the "Expiration
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Date"); provided, however, that in the event that Executive's
employment with the Company terminates prior to the Term Expiration
Date the Options which have been granted prior to such termination
of employment shall expire as follows:
(a) in the event termination is as a result of
death of Executive or Incapacity, any outstanding Options granted
pursuant to this Agreement shall expire 180 days after such
termination;
(b) in the event termination is as a result of:
(i) Cause pursuant to Section 7(d) of the Restated Employment
Agreement or (ii) pursuant to Section 7(b) of the Restated
Employment Agreement other than for Good Reason, thirty (30) days
after such termination; and
(c) in the event termination is as a result of
Section 7(b) for Good Reason, 7(e) or 7(f) of the Restated
Employment Agreement on the Term Expiration Date.
The terms "Incapacity", "Cause" and "Good Reason" when utilized
herein shall be as defined in the Restated Employment Agreement.
5. Exercise of Option.
(a) In the event Executive elects to exercise any
Option granted hereunder, he shall give at least three, but no more
than ten business days' prior written notice to the Company, at the
principal executive office of the Company, or to such transfer
agent as the Company shall designate. Such notice shall state
which Option the employee wishes to exercise, the election to
exercise such Option and the number of Option Shares with respect
to which it is being exercised. The notice shall be accompanied by
a cashier's or certified check payable in United States Dollars to
the order of the Company in an aggregate amount equal to the
product of the Option Price times the number of Option Shares to be
purchased.
Upon receipt of Executive's notice to exercise the Option,
conforming to the conditions of this Section 5, the Company shall,
as soon as practicable thereafter, deliver to Executive a
certificate or certificates representing the Option Shares
purchased, registered in the name of the Executive (or, if so
request in the notice to exercise, registered in the name of the
Executive and another person jointly, with right of survivorship).
In the event the Option shall be exercised, pursuant to Section 10
hereof, by any person or persons other than Executive, such notice
shall be accompanied by appropriate proof of the right of such
person or persons to exercise the Option.
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All Option Shares purchased upon the exercise of the Option as
provided herein shall be fully paid and non-assessable.
(b) Notwithstanding the foregoing, the Option may
be exercised only on the condition that no injunction, judgment,
order or decree of a court or governmental agency with competent
jurisdiction prohibits such exercise.
6. Adjustment Upon Restructuring or Dissolution.
(a) In the event of any change, after the date of
grant but prior to the exercise of any Option granted hereunder, in
the number or nature of Option Shares by reason of any stock
dividend, split-up, stock split, reverse stock split, merger,
recapitalization, combination, exchange of common stock, or similar
transaction (the "Restructuring"), the number and kind of Option
Shares subject to acquisition hereunder and the Option Price per
Option Share shall be appropriately adjusted, effective upon the
consummation of the Restructuring, either by way of an amendment to
the Options or by way of a grant of new stock options in
substitution of, or in addition to, the Options, to provide that:
(i) the number of shares subject to the Options shall be adjusted
to reflect such Restructuring so that the percentage of the
outstanding equity of the Company represented by shares subject to
the Options remains constant both before and after the
Restructuring; and (ii) the per share exercise price of the Options
shall be adjusted so that the total exercise price which would be
paid by Executive, were he to purchase all of the shares available
to him under the Options after the adjustment described in the
preceding clause (i), equals the total exercise price he would have
paid had he purchased all Option Shares available to him before the
Restructuring at the Option Price. In the event any Restructuring
occurs prior the grant of any Option hereunder, (i) above shall
apply; however the Option Price shall be as determined by Section 2
above.
(b) In addition, in the event of any dissolution
or liquidation of the Company or a Restructuring as a result of
which the Company is not the surviving corporation, or a sale of
substantially all the property of the Company to another entity,
then either (i) provision shall be made for the assumption of all
Options or the substitution for the Options of new options covering
the stock of a successor employer corporation (or a parent or
subsidiary thereof) with appropriate adjustments as to number and
kind of shares and prices; or (ii) provision shall be made for the
payment of substantially equivalent economic benefit to Executive
in exchange for such Options which have been granted prior to the
consummation of such event or transaction, upon the consummation of
such event or transaction; notwithstanding the foregoing, Executive
shall have the right, prior to the consummation of such event or
transaction, to exercise all Options granted prior to the
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consummation thereof. In the event that the contemplated event or
transaction is not consummated, any Option that had been exercised
solely by reason of such event or transaction shall again become
unexercised and shall revert to its former status as issued but
unexercised as of the termination of the transaction subject,
however, to such other provisions of this Agreement as may apply.
For the purposes hereof, the aforementioned economic benefit to
Executive shall be calculated (without Regard to the illiquidity of
the Common Stock issuable to the Executive upon exercise of the
Option) based upon the actual difference between the Option Price
and the closing price of the Common Stock on the day prior to the
consummation of the aforementioned transaction.
(c) Adjustments under this Section 6 shall be
made by the Board of Directors of the Company, whose determination
as to what adjustments shall be made shall be final and conclusive.
The Board of Directors of the Company may obtain and may rely upon
the advice of independent counsel and accountants of the Company.
No fractional shares of stock shall be issued under the option on
account of any such adjustment. If for any reason Option Shares
shall include a fractional share interest, upon the exercise of the
option with respect to such fractional interest, a cash payment
shall be made of an equivalent value for such fractional interest.
7. Investment Representations; Restrictions on
Transfer.
(a) Executive represents, warrants and covenants
to the Company that:
(i) Any Option Shares or other securities
acquired by Executive upon exercise of the Option will be acquired
for Executive's own account and not with a view to resale or
distribution in violation of the Securities Act of 1933, as amended
(the "1933 Act").
(ii) Executive has such knowledge and
experience in business and financial matters as to be capable of
utilizing the information which is available to him to evaluate the
merits and risks of an investment in Option Shares and is able to
bear the economic risks of any Option Shares or other securities
which Executive may acquire upon exercise of the Option.
(iii) Executive understands that the Option
Shares have not been registered under the 1933 Act, in reliance
upon certain exemptions contained therein, and that the Company's
reliance on such exemption is predicated on Executive's
representations set forth herein. Executive further understands
that because the Option Shares have not been registered under the
1933 Act, he may not, and Executive covenants and agrees that he
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will not, sell, offer to sell or otherwise dispose of any such
securities in violation of the 1933 Act or any applicable "blue
sky" or securities law of any state. Executive acknowledges and
understands that he has no independent right to require the Company
to register the Option Shares.
(b) Executive consents to the placing of
restrictive legends in substantially the following form on any
stock certificate(s) representing Option Shares:
"The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or the
blue sky law of any state. These shares have been acquired for
investment and not with a view to distribution or resale, and may
not be sold, mortgaged, pledged, hypothecated or otherwise
transferred without an effective registration statement for such
shares under the Securities Act of 1933, as amended, or until the
issuer has been furnished with an opinion of counsel for the
registered owner of these shares, reasonably satisfactory to
counsel for the issuer, that such sale, transfer or disposition is
exempt from the registration or qualification provisions of the
Securities Act of 1933, as amended, or the blue sky laws of any
state having jurisdiction."
(c) Executive also hereby consents and agrees to
the placing of stop transfer instructions against any subsequent
transfer(s) of the Option Shares. The Company hereby agrees to
remove the legend and stop transfer instructions upon receipt of an
opinion of counsel from the registered owner of the Option Shares,
in form and substance reasonably acceptable to counsel for the
Company, to the effect that such shares may be transferred without
violation of the 1933 Act or the blue sky laws of any state having
jurisdiction.
8. Additional Documents. The Company and Executive
hereby covenant and agree to execute and deliver any additional
documents necessary or desirable, in the opinion of Executive or
the Company, as the case may be, to complete the sale and transfer
of all of the Option Shares with respect to which the Option is
exercised.
9. Options Not Transferable. Executive may not
transfer or assign the Option or his rights under this Agreement,
except by will or by the laws of descent and distribution and
subject to the provisions of Section 10 hereof. The Option and
Executive's rights under this Agreement shall not otherwise be
transferred, assigned, pledged or disposed of in any way, whether
by operation of law or otherwise, and shall be exercisable during
Executive's lifetime only by Executive or his guardian or legal
representative.
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10. Death or Termination of Executive. Subject to
Section 5(a) above if the Executive dies during the term of any
Options granted hereunder, the Option may be exercised, to the
extent of the number of shares with respect to which the Executive
could have exercised such Options on the date of his death, by his
estate, personal representative or beneficiary, or the person or
persons entitled to do so under the Executive's last will and
testament or under applicable intestate laws.
11. No Obligation to Exercise Options. The grant and
acceptance of the Options imposes no obligation on Executive to
exercise them.
12. No Obligation to Continue Employment. The
Company is not by virtue of the grant of the Options obligated to
continue Executive in employment.
13. No Rights as Stockholder Until Exercise. The
Executive shall have no rights as a stockholder with respect to
Option Shares until a stock certificate with respect to the Option
Shares has been issued to Executive and the Option Shares have been
fully paid for pursuant to the terms hereof.
14. Shareholder Approval. The grant of the Options
pursuant to the terms of this Agreement shall be subject to and
conditioned upon the approval of the Company's shareholders. The
Company agrees to seek such approval at the 1996 Annual Meeting of
Stockholders.
15. Registration Undertaking. Subsequent to
shareholder approval of the Options, the Company agrees to file a
Form S-8 Registration Statement at such time as may be determined
by its Board of Directors. Said Form S-8 Registration Statement,
and the Form S-3 Prospectus related thereto, shall include, to the
extent permissible, the Option Shares.
16. Miscellaneous.
16.1 Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
16.2 Binding Effect and Assignment. This Agreement
and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and permitted assigns. Executive's rights to the Option with
respect to the percentage of the Option Shares in which his
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<PAGE>
interest has vested as of the termination date hereof shall survive
the termination of this Agreement, regardless of cause. This
Agreement may not be assigned by the Company without the prior
written consent of Executive.
16.3 Amendments and Modification. This Agreement may
not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the
parties hereto.
16.4 Specific Performance; Injunctive Relief. The
parties hereto acknowledge that Executive will be irreparably
harmed and that there will be no adequate remedy at law for a
violation of any of the covenants or agreements of the Company set
forth herein. Therefore, it is agreed that, in addition to any
other remedies which may be available to Executive upon any such
violation, Executive shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any
other means available to Executive at law or in equity.
16.5 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if delivered by messenger, transmitted by telex or telecopier
(with receipt confirmed), or mailed by registered or certified
mail, postage prepaid, as follows:
(a) If to Executive:
Eugene L. Froelich
14152 Valley Vista Boulevard
Sherman Oaks, California 91423
(b) If to the Company:
Maxicare Health Plans, Inc.
5200 West Century Boulevard
Los Angeles, California 90045
Attention: Alan D. Bloom, Esq.
General Counsel
or such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
16.6 Counterparts. This Agreement may be executed in
any number of counterparts, and by separate parties on separate
counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
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<PAGE>
16.7 Governing Law. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the State
of California. The Options will not be treated as an "incentive
stock option" under the Internal Revenue Code.
16.8 Jurisdiction, Attorneys' Fees. The parties
hereto agree that any and all disputes hereunder shall be submitted
to a court locate din Los Angeles, California and in this regard,
the parties agree that they shall consent to personal jurisdiction
to any state and/or the United States District Court for the
Central District of California sitting in Los Angeles, California
and agree to venue in the State of California. All costs and
expenses (including attorneys' fees) incurred by the parties in
connection with any dispute arising under this Agreement, shall be
apportioned between the parties by a court based upon such court's
determination of the merits of their respective positions.
16.9 Entire Understanding. This Agreement constitutes
the entire understanding between the parties hereto regarding the
subject matter hereof and supersedes all other prior agreements,
understandings, negotiations and discussions of the parties whether
written or oral.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
MAXICARE HEALTH PLANS, INC.,
a Delaware corporation
By: ________________________________
Its: _______________________________
EXECUTIVE:
____________________________________
Eugene L. Froelich
81
<PAGE>
EXHIBIT C
Performance Bonus
Executive's annual Performance Bonus pursuant to Section 4(b)
of the Agreement shall be based upon the Company's annual Pre-Tax
Earnings during the term of the Agreement computed in accordance
with generally accepted accounting principles pursuant to the
following:
1. The first year (the fiscal year) shall commence on
January 1, 1992 and each subsequent fiscal year on the anniversary
date of the first year.
2. "Pre-Tax Earnings" shall not include any items of either
extraordinary income or extraordinary expense, as determined by the
Company's independent auditors.
3. "The Company," for the purposes of this bonus shall
include Maxicare Health Plans, Inc. and all of its subsidiaries
(whose financial statements are consolidated with those of the
Company's), successors and assigns whether now existing or
hereinafter created or acquired. In the event the Company, or a
substantial portion thereof, is acquired by an unrelated entity,
whether by a stock acquisition, purchase of assets or otherwise
during the term of the Agreement, a good-faith allocation of the
Pre-Tax Earnings of the Company during the applicable period for
the purposes of this bonus shall be made by the Company and
reviewed by the independent auditors for the Company. The Company,
and any successor, shall keep its records in such a manner that the
auditors will have the requisite information to be able to review
such allocation.
4. For any fiscal year, the Performance Bonus will only be
granted if the Pre-Tax Earnings for such year exceeds $10,000,000.
5. Executive will be entitled to the following percentages
of the excess of Pre-Tax Earnings over $10,000,000:
a. 2 1/2% of that portion of the Pre-Tax Earnings which
exceeds $10,000,000 by $5,000,000 or less (a maximum
bonus of $125,000); plus
b. 1 1/2% of that portion of the Pre-Tax Earnings which
exceeds $15,000,000 but not in excess of $20,000,000
of Pre-Tax Earnings (a maximum bonus of $75,000);
plus
c. 1 1/4% of that portion of the Pre-Tax Earnings which
exceeds $20,000,000 but not in excess of $30,000,000
of Pre-Tax Earnings (a maximum bonus of $125,000);
plus
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<PAGE>
d. 2% of that portion of the Pre-Tax Earnings which
exceeds $30,000,000.
6. The aggregate amount of the Performance Bonus to
Executive shall not exceed $2,000,000 for any fiscal year.
83
<PAGE>
EXHIBIT D
[Form of Executive's Undertaking]
Undertaking, dated as of , 199 ("Undertaking")
by , an individual ("Executive"), in favor of
Maxicare Health Plans, Inc., a Delaware corporation (the
"Company").
R E C I T A L S
A. Pursuant to Sections 11 and 14 of that certain Amended
and Restated Employment and Indemnification Agreement, dated as of
April 1, 1996, by and between Executive and the Company (the
"Agreement"), Executive has requested the Company to advance in one
or more installments as required to Executive all Reimbursed
Expenses (as that term is defined in the Agreement) in connection
with [insert case reference].
B. As a condition precedent to the making of such
advance(s), Executive has agreed to undertake, and to deliver to
the Company an undertaking for, the possible repayment of certain
sums advanced.
NOW, THEREFORE, Executive hereby undertakes and agrees as
follows:
1. Executive hereby assumes and agrees to repay to the
Company the above Reimbursed Expenses advanced, or any part
thereof, which is ultimately determined by compromise, settlement,
arbitration or final non-appealable court ruling, not to be an
indemnifiable or reimbursable fee for expense under the terms of
the Agreement or applicable law ("Non-Reimbursed Advances").
2. Executive shall repay to the Company any Non-Reimbursed
Advance, within thirty (30) days of the date of determination of
non-indemnification or non-reimbursement by compromise, settlement,
arbitration or final non-appealable court ruling together with
interest thereon, from the date such Non-Reimbursed Advance was
made to the date of final repayment, at the annual rate announced
by the Bank of America, N.T. & S.A., at its principal office in San
Francisco, California, for prime commercial loans for ninety (90)
day maturities, from time to time adjusted as of the date of such
changes, but in no event at a rate higher than the maximum
permitted under the laws of the State of California. Interest on
the outstanding amount of the Non-Reimbursed Advance shall be
computed on the basis of 365 days in a year.
3. This Undertaking shall inure to the benefit of the
Company, its successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, Executive has caused this Undertaking to
be executed as of the date first written above.
EXECUTIVE:
-------------------------
85
Exhibit 10.14a
AMENDMENT NO. 1 TO 1989 STOCK OPTION AGREEMENT
This Amendment No. 1 to the Stock Option Agreement dated as of
the Confirmation Date, which for the purposes of the Agreement is
defined as August 31, 1989 (the "Agreement"), is made by and
between Peter J. Ratican (the "Executive") and Maxicare Health
Plans, Inc., a Delaware corporation (the "Company") and dated as of
April 1, 1996 (the "Amendment No. 1").
WHEREAS, Executive has served as Chairman of the Board, Chief
Executive Officer and President of the Company since August, 1988;
WHEREAS, the Company and the Executive have entered into an
Amended and Restated Employment Agreement dated as of the date
hereof which provides for certain terms and conditions regarding
the employment of Executive by the Company; and
WHEREAS, the Company and the Executive desire to make certain
changes to the Agreement as set forth herein;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Executive and the
Company hereby agree as follows:
1. Section 3 of the Agreement is amended as follows:
(a) To add after "of" on the second line thereof
the following:
"Section 9 of"
(b) To add a period after (the "Expiration Date")
on the eighth line of the Section and to delete the remainder of
the Section.
2. Section 5 of the Agreement is hereby amended as follows:
(a) To add in the third line of Subsection (a)
thereof after the word "merger" the following:
"stock split, reverse stock split,"
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<PAGE>
(b) To add in the fourth line of Subsection (b)(ii)
thereof after the word "transaction" the following:
". For the purposes hereof, the
aforementioned economic benefit to the
Executive shall be calculated (without regard
to the illiquidity of the Option Shares)
based upon the actual difference between the
Option Price and the closing price of the
Common Stock on the last trading day prior to
the consummation of such event or
transaction."
3. Section 6 of the Agreement is hereby amended to add in the
sixth line of Subsection (c) thereof after "substance" the following:
"reasonably"
4. Section 9 of the Agreement is hereby amended to delete
subsection (b) thereof in its entirety and to replace it with the
following:
"(b) If Executive ceases to be employed by
the Company for any other reason, the Option
may thereafter be exercised as set forth
below and in no event later than the
Expiration Date, and then only to the extent
of the number of Option Shares with respect
to which the Executive could have exercised
pursuant to the terms hereof on the date of
termination of his employment:
(i) In the event the Executive is
terminated for "Cause," as defined in the
Amended and Restated Employment Agreement,
dated as of April 1, 1996 (the "Restated
Employment Agreement"), the Executive shall
have thirty (30) days to exercise any
previously unexercised Option;
(ii) If the Executive leaves voluntarily
or without "Good Reason," as such term is
defined in the Restated Employment
Agreement, the Executive must exercise any
portion of the Option not yet exercised
prior to such termination;
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<PAGE>
(iii) If the Executive's employment with
the Company terminates for any reason other
than as set forth in Sections 9(a), 9(b)(i)
and 9(b)(ii) above, the Executive may
exercise the unexercised portion of the
Option until the Expiration Date.
5. Section 11 of the Agreement is hereby amended to add after
"by" on the second line thereof:
"virtue of the grant of"
6. Section 13 of the Agreement is hereby amended as follows:
(a) Subsection 13.4 is hereby amended to delete
"specified" from the ninth line and add the following in lieu
thereof:
"specific"
(b) A new Subsection 13.10 shall be added to Section
13 as follows:
"13.10 The Jurisdiction, Attorneys' Fees.
The parties hereto agree that any and all
disputes hereunder shall be submitted to a
court located in Los Angeles, California and
in this regard, the parties agree that they
shall consent to personal jurisdiction to any
state and/or the United States District Court
for the Central District of California
sitting in Los Angeles, California and agree
to venue in the State of California. All
costs and expenses (including attorneys'
fees) incurred by the parties in connection
with any dispute arising under this
Agreement, shall be apportioned between the
parties by a court based upon such court's
determination of the merits of their
respective positions."
7. Except as expressly set forth herein, all of the terms and
conditions contained in the Agreement shall remain in full force and
effect.
88
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 1 to the Agreement has
been executed as of the date first above-written.
MAXICARE HEALTH PLANS, INC.
---------------------------
By:
------------------------
Title:
----------------------
EXECUTIVE
/s/ PETER J. RATICAN
--------------------
Peter J. Ratican
Title: Chairman of the Board,
Chief Executive Officer,
and President
Maxicare Health Plans, Inc.
---------------------------
89
Exhibit 10.15a
AMENDMENT NO. 1 TO 1989 STOCK OPTION AGREEMENT
This Amendment No. 1 to the Stock Option Agreement dated as of
the Confirmation Date, which for the purposes of the Agreement is
defined as August 31, 1989 (the "Agreement"), is made by and
between Eugene L. Froelich (the "Executive") and Maxicare Health
Plans, Inc., a Delaware corporation (the "Company") and dated as of
April 1, 1996 (the "Amendment No. 1").
WHEREAS, Executive has served as Executive Vice President-
Finance and Administration and Chief Financial Officer of the
Company since April, 1989;
WHEREAS, the Company and the Executive have entered into an
Amended and Restated Employment Agreement dated as of the date
hereof which provides for certain terms and conditions regarding
the employment of Executive by the Company; and
WHEREAS, the Company and the Executive desire to make certain
changes to the Agreement as set forth herein;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Executive and the
Company hereby agree as follows:
1. Section 3 of the Agreement is amended as follows:
(a) To add after "of" on the second line thereof
the following:
"Section 9 of"
(b) To add a period after (the "Expiration Date")
on the eighth line of the Section and to delete the remainder of
the Section.
2. Section 5 of the Agreement is hereby amended as follows:
(a) To add in the third line of Subsection (a)
thereof after the word "merger" the following:
"stock split, reverse stock split,"
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<PAGE>
(a) To add in the fourth line of Subsection (b)(ii)
thereof after the word "transaction" the following:
". For the purposes hereof, the
aforementioned economic benefit to the
Executive shall be calculated (without regard
to the illiquidity of the Option Shares)
based upon the actual difference between the
Option Price and the closing price of the
Common Stock on the last trading day prior to
the consummation of such event or
transaction."
3. Section 6 of the Agreement is hereby amended to add in
the sixth line of Subsection (c) thereof after "substance" the
following:
"reasonably"
4. Section 9 of the Agreement is hereby amended to
delete subsection (b) thereof in its entirety and to replace it
with the following:
"(b) If Executive ceases to be employed by
the Company for any other reason, the Option
may thereafter be exercised as set forth
below and in no event later than the
Expiration Date, and then only to the extent
of the number of Option Shares with respect
to which the Executive could have exercised
pursuant to the terms hereof on the date of
termination of his employment:
(i) In the event the Executive is
terminated for "Cause," as defined in the
Amended and Restated Employment Agreement,
dated as of April 1, 1996 (the "Restated
Employment Agreement"), the Executive shall
have thirty (30) days to exercise any
previously unexercised Option;
(ii) If the Executive leaves voluntarily or
without "Good Reason," as such term is
defined in the Restated Employment
Agreement, the Executive must exercise any
portion of the Option not yet exercised
prior to such termination;
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<PAGE>
(iii) If the Executive's employment with
the Company terminates for any reason other
than as set forth in Sections 9(a), 9(b)(i)
and 9(b)(ii) above, the Executive may
exercise the unexercised portion of the
Option until the Expiration Date.
5. Section 11 of the Agreement is hereby amended to add
after "by" on the second line thereof:
"virtue of the grant of"
6. Section 13 of the Agreement is hereby amended as
follows:
(a) Subsection 13.4 is hereby amended to delete
"specified" from the ninth line and add the following in lieu
hereof:
"specific"
(b) A new Subsection 13.10 shall be added to
Section 13 as follows:
"13.10 The Jurisdiction, Attorneys' Fees.
The parties hereto agree that any and all
disputes hereunder shall be submitted to a
court located in Los Angeles, California and
in this regard, the parties agree that they
shall consent to personal jurisdiction to any
state and/or the United States District Court
for the Central District of California
sitting in Los Angeles, California and agree
to venue in the State of California. All
costs and expenses (including attorneys'
fees) incurred by the parties in connection
with any dispute arising under this
Agreement, shall be apportioned between the
parties by a court based upon such court's
determination of the merits of their
respective positions."
7. Except as expressly set forth herein, all of the terms
and conditions contained in the Agreement shall remain in full
force and effect.
92
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 1 to the Agreement
has been executed as of the date first above-written.
MAXICARE HEALTH PLANS, INC.
---------------------------
By:
------------------------
Title:
---------------------
EXECUTIVE
/s/ Eugene L. Froelich
----------------------
Eugene L. Froelich
Title: Executive Vice President -
Finance and Administration
and Chief Financial Officer
Maxicare Health Plans, Inc.
---------------------------
93
Exhibit 10.42a
AMENDMENT NO. 1 TO 1992 STOCK OPTION AGREEMENT
This Amendment No. 1 to the Stock Option Agreement dated as of
February 25, 1992 (the "Agreement"), is made by and between Peter
J. Ratican (the "Executive") and Maxicare Health Plans, Inc., a
Delaware corporation (the "Company") and dated as of April 1, 1996
(the "Amendment No. 1").
WHEREAS, Executive has served as Chairman of the Board, Chief
Executive Officer and President of the Company since August, 1988;
WHEREAS, the Company and the Executive have entered into an
Amended and Restated Employment Agreement dated as of the date
hereof which provides for certain terms and conditions regarding
the employment of Executive by the Company; and
WHEREAS, the Company and the Executive desire to make certain
changes to the Agreement as set forth herein;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Executive and the
Company hereby agree as follows:
1. Section 5 of the Agreement is hereby amended as follows:
(a) to add in the fifth line of Subsection (a) thereof
after the word "merger" the following:
"stock split, reverse stock split,"
(a) To add in the fourth line of Subsection (b)(ii)
thereof after the word "transaction" the following:
". For the purposes hereof, the
aforementioned economic benefit to the
Executive shall be calculated (without regard
to the illiquidity of the Option Shares)
based upon the actual difference between the
Option Price and the closing price of the
Common Stock on the last trading day prior to
the consummation of such event or
transaction."
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<PAGE>
2. Section 6 of the Agreement is hereby amended to add in
the sixth line of Subsection (c) thereof after "substance" the
following:
"reasonably"
3. Section 9 of the Agreement is hereby amended to delete in
the fourth line thereof "it".
4. Section 11 of the Agreement is hereby amended to add
after "by" on the second line thereof:
"virtue of the grant of"
5. Section 13 of the Agreement is hereby amended as follows:
(a) Subsection 13.4 is hereby amended to delete
"specified" from the ninth line and add the following in
lieu thereof:
"specific"
(b) A new Subsection 13.9 shall be added to
Section 13 as follows:
"13.9 The Jurisdiction, Attorneys' Fees.
The parties hereto agree that any and all
disputes hereunder shall be submitted to a
court located in Los Angeles, California and
in this regard, the parties agree that they
shall consent to personal jurisdiction to any
state and/or the United States District Court
for the Central District of California
sitting in Los Angeles, California and agree
to venue in the State of California. All
costs and expenses (including attorneys'
fees) incurred by the parties in connection
with any dispute arising under this
Agreement, shall be apportioned between the
parties by a court based upon such court's
determination of the merits of their
respective positions."
6. Except as expressly set forth herein, all of the terms
and conditions contained in the Agreement shall remain in full
force and effect.
95
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 1 to the Agreement has
been executed as of the date first above-written.
MAXICARE HEALTH PLANS, INC.
---------------------------
By:
------------------------
Title:
---------------------
EXECUTIVE
/s/ PETER J. RATICAN
--------------------
Peter J. Ratican
Title: Chairman of the Board,
Chief Executive Officer,
and President
Maxicare Health Plans, Inc.
---------------------------
96
Exhibit 10.43a
AMENDMENT NO. 1 TO 1992 STOCK OPTION AGREEMENT
This Amendment No. 1 to the Stock Option Agreement dated as of
February 25, 1992 (the "Agreement"), is made by and between Eugene
L. Froelich (the "Executive") and Maxicare Health Plans, Inc., a
Delaware corporation (the "Company") and dated as of April 1, 1996
(the "Amendment No. 1").
WHEREAS, Executive has served as Executive Vice President-
Finance and Administration and Chief Financial Officer of the
Company since April, 1989;
WHEREAS, the Company and the Executive have entered into an
Amended and Restated Employment Agreement dated as of the date
hereof which provides for certain terms and conditions regarding
the employment of Executive by the Company; and
WHEREAS, the Company and the Executive desire to make certain
changes to the Agreement as set forth herein;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Executive and the
Company hereby agree as follows:
1. Section 5 of the Agreement is hereby amended as follows:
(a) to add in the fifth line of Subsection (a) thereof
after the word "merger" the following:
"stock split, reverse stock split,"
(a) To add in the fourth line of Subsection
(b)(ii) thereof after the word "transaction" the following:
". For the purposes hereof, the
aforementioned economic benefit to the Executive
shall be calculated (without regard to the
illiquidity of the Option Shares)
based upon actual difference between the Option
Price and the closing price of the Common Stock on
the last trading day prior to the consummation of
such event or transaction."
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<PAGE>
2. Section 6 of the Agreement is hereby amended to add in
the sixth line of Subsection (c) thereof after "substance" the
following:
"reasonably"
3. Section 9 of the Agreement is hereby amended to delete in
the fourth line thereof "it".
4. Section 11 of the Agreement is hereby amended to add
after "by" on the second line thereof:
"virtue of the grant of"
5. Section 13 of the Agreement is hereby amended as follows:
(a) Subsection 13.4 is hereby amended to delete
"specified" from the ninth line and add the following in lieu
thereof:
"specific"
(b) A new Subsection 13.9 shall be added to Section 13
as follows:
"13.9 The Jurisdiction, Attorneys' Fees.
The parties hereto agree that any and all
disputes hereunder shall be submitted to a
court located in Los Angeles, California and
in this regard, the parties agree that they
shall consent to personal jurisdiction to any
state and/or the United States District Court
for the Central District of California
sitting in Los Angeles, California and agree
to venue in the State of California. All
costs and expenses (including attorneys'
fees) incurred by the parties in connection
with any dispute arising under this
Agreement, shall be apportioned between the
parties by a court based upon such court's
determination of the merits of their
respective positions."
6. Except as expressly set forth herein, all of the terms
and conditions contained in the Agreement shall remain in full
force and effect.
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IN WITNESS WHEREOF, this Amendment No. 1 to the Agreement has
been executed as of the date first above-written.
MAXICARE HEALTH PLANS, INC.
---------------------------
By:
------------------------
Title:
---------------------
EXECUTIVE
/s/ Eugene L. Froelich
----------------------
Eugene L. Froelich
Title: Executive Vice President -
Finance and Administration
and Chief Financial Officer
Maxicare Health Plans, Inc.
---------------------------
99
Exhibit 10.82a
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement"), dated as of April
1, 1996, is made by and between Peter J. Ratican ("Executive") and
Maxicare Health Plans, Inc., a Delaware corporation (the
"Company").
RECITALS
WHEREAS, Executive presently serves as Chief Executive Officer
and President of the Company pursuant to an Employment and
Indemnification Agreement dated as of January 1, 1992 exerting
particularly diligent efforts in such capacity on behalf of the
Company;
WHEREAS, the Company and the Executive have agreed that
Executive should continue to serve in the aforementioned capacities
on behalf of the Company pursuant to the terms and conditions
contained in the Amended and Restated Employment and
Indemnification Agreement dated as of April 1, 1996 between the
Company and the Executive (the "Restated Employment Agreement");
WHEREAS, as a material part of Executive's compensation under
the New Employment Agreement, the Company has agreed to grant
Executive options to purchase 350,000 shares of the Company's, no
par value, common stock (the "Common Stock"); and
WHEREAS, the Company and the Executive desire to set forth in
this Agreement the specific terms and conditions regarding the
aforementioned options.
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, Executive and the
Company hereby agree as follows:
1. Grant of Options. Subject to Section 14 below
and upon the terms and subject to the conditions hereinafter set
forth, the Company hereby agrees to grant to Executive options (the
"Options") to purchase up to 350,000 authorized but unissued shares
of Common Stock (the "Option Shares"). As a pre-condition to the
grant of each of the Options set forth below and all Options to be
granted hereunder following such Option, Executive must be employed
by the Company on the grant date of any such Option. Subject to
the preceding sentence, the Options shall be granted on the
following dates:
(a) an Option to purchase 70,000 Option Shares on
the date on which resolutions are adopted by the Shareholders
approving this Agreement;
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(b) an Option to purchase 70,000 Option Shares on
January 1, 1997;
(c) an Option to purchase 70,000 Option Shares on
January 1, 1998;
(d) an Option to purchase 70,000 Option Shares on
January 1, 1999; and
(e) an Option to purchase 70,000 Option Shares on
January 1, 2000.
2. Option Prices.
(a) The Option Price with respect to the Option
Shares for each of the Options set forth in 1(a) through 1(e) above
shall be the closing price of the Common Stock on the last trading
date immediately preceding the grant dates of the Options set forth
in Sections 1(a) through 1(e) above.
(b) For the purposes of calculating the Option
Price, the closing price shall be (in the following order or
priority), if the Common Stock is listed or admitted for trading
(i) on any national securities exchange (or in case the Common
Stock shall be listed on more than one, the exchange with the
greatest trading volume in the Common Stock), the last sale price,
or, in case no reported sale takes place on such day, the average
of the last reported bid and asked prices; (b) on the National
Association of Securities Dealers, Inc. Automated Quotation System-
National Market System ("NASDAQ-NMS"), the average of the last
reported bid and asked prices; or (iii) in the daily stock price
publication of the National Quotation Bureau (also known as the
"Pink Sheets"), the average of the last reported bid and asked
prices.
3. Vesting of Options. Executive's rights in and to
the Options set forth in Sections 1(a) through 1(e) above shall
vest, and Executive may exercise each such Option immediately as of
the date of the grant of each Option.
4. Term of Options. Subject to and so long as
Executive is employed by the Company, whether pursuant to the
Restated Employment Agreement or otherwise each Option granted
pursuant to Sections 1(a) through 1(e) above, may be exercised in
whole or in part at any time or from time to time by Executive on
or before 12:00 midnight, California time on the expiration of 10
years from the date of grant of each such Option (the "Expiration
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Date"); provided, however, that in the event that Executive's
employment with the Company terminates prior to the Expiration Date
the Options which have been granted prior to such termination of
employment shall expire as follows:
(a) in the event termination is as a result of
death of Executive or Incapacity, any outstanding Options granted
pursuant to this Agreement shall expire 180 days after such
termination;
(b) in the event termination is as a result of:
(i) Cause pursuant to Section 7(d) of the Restated Employment
Agreement or (ii) pursuant to Section 7(b) of the Restated
Employment Agreement other than for Good Reason, thirty (30) days
after such termination; and
(c) in the event termination is as a result of
Section 7(b) for Good Reason, 7(e) or 7(f) of the Restated
Employment Agreement on the Expiration Date.
The terms "Incapacity", "Cause" and "Good Reason" when utilized
herein shall be as defined in the Restated Employment Agreement.
5. Exercise of Option.
(a) In the event Executive elects to exercise any
Option granted hereunder, he shall give at least three, but no more
than ten business days' prior written notice to the Company, at the
principal executive office of the Company, or to such transfer
agent as the Company shall designate. Such notice shall state
which Option the employee wishes to exercise, the election to
exercise such Option and the number of Option Shares with respect
to which it is being exercised. The notice shall be accompanied by
a cashier's or certified check payable in United States Dollars to
the order of the Company in an aggregate amount equal to the
product of the Option Price times the number of Option Shares to be
purchased.
Upon receipt of Executive's notice to exercise the Option,
conforming to the conditions of this Section 5, the Company shall,
as soon as practicable thereafter, deliver to Executive a
certificate or certificates representing the Option Shares
purchased, registered in the name of the Executive (or, if so
request in the notice to exercise, registered in the name of the
Executive and another person jointly, with right of survivorship).
In the event the Option shall be exercised, pursuant to Section 10
hereof, by any person or persons other than Executive, such notice
shall be accompanied by appropriate proof of the right of such
person or persons to exercise the Option.
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All Option Shares purchased upon the exercise of the Option as
provided herein shall be fully paid and non-assessable.
(b) Notwithstanding the foregoing, the Option may
be exercised only on the condition that no injunction, judgment,
order or decree of a court or governmental agency with competent
jurisdiction prohibits such exercise.
6. Adjustment Upon Restructuring or Dissolution.
(a) In the event of any change, after the date of
grant but prior to the exercise of any Option granted hereunder, in
the number or nature of Option Shares by reason of any stock
dividend, split-up, stock split, reverse stock split, merger,
recapitalization, combination, exchange of common stock, or similar
transaction (the "Restructuring"), the number and kind of Option
Shares subject to acquisition hereunder and the Option Price per
Option Share shall be appropriately adjusted, effective upon the
consummation of the Restructuring, either by way of an amendment to
the Options or by way of a grant of new stock options in
substitution of, or in addition to, the Options, to provide that:
(i) the number of shares subject to the Options shall be adjusted
to reflect such Restructuring so that the percentage of the
outstanding equity of the Company represented by shares subject to
the Options remains constant both before and after the
Restructuring; and (ii) the per share exercise price of the Options
shall be adjusted so that the total exercise price which would be
paid by Executive, were he to purchase all of the shares available
to him under the Options after the adjustment described in the
preceding clause (i), equals the total exercise price he would have
paid had he purchased all Option Shares available to him before the
Restructuring at the Option Price. In the event any Restructuring
occurs prior to the grant of any Option hereunder, (i) above shall
apply; however the Option Price shall be as determined by Section 2
above.
(b) In addition, in the event of any dissolution
or liquidation of the Company or a Restructuring as a result of
which the Company is not the surviving corporation, or a sale of
substantially all the property of the Company to another entity,
then either (i) provision shall be made for the assumption of all
Options or the substitution for the Options of new options covering
the stock of a successor employer corporation (or a parent or
subsidiary thereof) with appropriate adjustments as to number and
kind of shares and prices; or (ii) provision shall be made for the
payment of substantially equivalent economic benefit to Executive
in exchange for such Options which have been granted prior to the
consummation of such event or transaction, upon the consummation of
such event or transaction; notwithstanding the foregoing, Executive
shall have the right, prior to the consummation of such event or
transaction, to exercise all Options granted prior to the
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consummation thereof. In the event that the contemplated event or
transaction is not consummated, any Option that had been exercised
solely by reason of such event or transaction shall again become
unexercised and shall revert to its former status as issued but
unexercised as of the termination of the transaction subject,
however, to such other provisions of this Agreement as may apply.
For the purposes hereof, the aforementioned economic benefit to
Executive shall be calculated (without regard to the illiquidity of
the Common Stock issuable to the Executive upon exercise of the
Option) based upon the actual difference between the Option Price
and the closing price of the Common Stock on the day prior to the
consummation of the aforementioned transaction.
(c) Adjustments under this Section 6 shall be
made by the Board of Directors of the Company, whose determination
as to what adjustments shall be made shall be final and conclusive.
The Board of Directors of the Company may obtain and may rely upon
the advice of independent counsel and accountants of the Company.
No fractional shares of stock shall be issued under the option on
account of any such adjustment. If for any reason Option Shares
shall include a fractional share interest, upon the exercise of the
option with respect to such fractional interest, a cash payment
shall be made of an equivalent value for such fractional interest.
7. Investment Representations; Restrictions on
Transfer.
(a) Executive represents, warrants and covenants
to the Company that:
(i) Any Option Shares or other securities
acquired by Executive upon exercise of the Option will be acquired
for Executive's own account and not with a view to resale or
distribution in violation of the Securities Act of 1933, as amended
(the "1933 Act").
(ii) Executive has such knowledge and
experience in business and financial matters as to be capable of
utilizing the information which is available to him to evaluate the
merits and risks of an investment in Option Shares and is able to
bear the economic risks of any Option Shares or other securities
which Executive may acquire upon exercise of the Option.
(iii) Executive understands that the Option
Shares have not been registered under the 1933 Act, in reliance
upon certain exemptions contained therein, and that the Company's
reliance on such exemption is predicated on Executive's
representations set forth herein. Executive further understands
that because the Option Shares have not been registered under the
1933 Act, he may not, and Executive covenants and agrees that he
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<PAGE>
will not, sell, offer to sell or otherwise dispose of any such
securities in violation of the 1933 Act or any applicable "blue
sky" or securities law of any state. Executive acknowledges and
understands that he has no independent right to require the Company
to register the Option Shares.
(b) Executive consents to the placing of
restrictive legends in substantially the following form on any
stock certificate(s) representing Option Shares:
"The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or the
blue sky law of any state. These shares have been acquired for
investment and not with a view to distribution or resale, and may
not be sold, mortgaged, pledged, hypothecated or otherwise
transferred without an effective registration statement for such
shares under the Securities Act of 1933, as amended, or until the
issuer has been furnished with an opinion of counsel for the
registered owner of these shares, reasonably satisfactory to
counsel for the issuer, that such sale, transfer or disposition is
exempt from the registration or qualification provisions of the
Securities Act of 1933, as amended, or the blue sky laws of any
state having jurisdiction."
(c) Executive also hereby consents and agrees to
the placing of stop transfer instructions against any subsequent
transfer(s) of the Option Shares. The Company hereby agrees to
remove the legend and stop transfer instructions upon receipt of an
opinion of counsel from the registered owner of the Option Shares,
in form and substance reasonably acceptable to counsel for the
Company, to the effect that such shares may be transferred without
violation of the 1933 Act or the blue sky laws of any state having
jurisdiction.
8. Additional Documents. The Company and Executive
hereby covenant and agree to execute and deliver any additional
documents necessary or desirable, in the opinion of Executive or
the Company, as the case may be, to complete the sale and transfer
of all of the Option Shares with respect to which the Option is
exercised.
9. Options Not Transferable. Executive may not
transfer or assign the Option or his rights under this
Agreement,except by will or by the laws of descent and distribution
and subject to the provisions of Section 10 hereof. The Option and
Executive's rights under this Agreement shall not otherwise be
transferred, assigned, pledged or disposed of in any way, whether
by operation of law or otherwise, and shall be exercisable during
Executive's lifetime only by Executive or his guardian or legal
representative.
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10. Death or Termination of Executive. Subject to
Section 5(a) above if the Executive dies during the term of any
Options granted hereunder, the Option may be exercised, to the
extent of the number of shares with respect to which the Executive
could have exercised such Options on the date of his death, by his
estate, personal representative or beneficiary, or the person or
persons entitled to do so under the Executive's last will and
testament or under applicable intestate laws.
11. No Obligation to Exercise Options. The grant and
acceptance of the Options imposes no obligation on Executive to
exercise them.
12. No Obligation to Continue Employment. The
Company is not by virtue of the grant of the Options obligated to
continue Executive in employment.
13. No Rights as Stockholder Until Exercise. The
Executive shall have no rights as a stockholder with respect to
Option Shares until a stock certificate with respect to the Option
Shares has been issued to Executive and the Option Shares have been
fully paid for pursuant to the terms hereof.
14. Shareholder Approval. The grant of the Options
pursuant to the terms of this Agreement shall be subject to and
conditioned upon the approval of the Company's shareholders. The
Company agrees to seek such approval at the 1996 Annual Meeting of
Stockholders.
15. Registration Undertaking. Subsequent to
shareholder approval of the Options, the Company agrees to file a
Form S-8 Registration Statement at such time as may be determined
by its Board of Directors. Said Form S-8 Registration Statement,
and the Form S-3 Prospectus related thereto, shall include, to the
extent permissible, the Option Shares.
16. Miscellaneous.
16.1 Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
16.2 Binding Effect and Assignment. This Agreement
and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and permitted assigns. Executive's rights to the Option with
respect to the percentage of the Option Shares in which his
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interest has vested as of the termination date hereof shall survive
the termination of this Agreement, regardless of cause. This
Agreement may not be assigned by the Company without the prior
written consent of Executive.
16.3 Amendments and Modification. This Agreement may
not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the
parties hereto.
16.4 Specific Performance; Injunctive Relief. The
parties hereto acknowledge that Executive will be irreparably
harmed and that there will be no adequate remedy at law for a
violation of any of the covenants or agreements of the Company set
forth herein. Therefore, it is agreed that, in addition to any
other remedies which may be available to Executive upon any such
violation, Executive shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any
other means available to Executive at law or inequity.
16.5 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if delivered by messenger, transmitted by telex or telecopier
(with receipt confirmed), or mailed by registered or certified
mail, postage prepaid, as follows:
(a) If to Executive:
Peter J. Ratican
1440 Greenbriar Road
Glendale, California 91207
(b) If to the Company:
Maxicare Health Plans, Inc.
1149 South Broadway Street
Los Angeles, California 90015
Attention: Alan D. Bloom, Esq.
General Counsel
or such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
16.6 Counterparts. This Agreement may be executed in
any number of counterparts, and by separate parties on separate
counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
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16.7 Governing Law. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the State
of California. The Options will not be treated as an "incentive
stock option" under the Internal Revenue Code.
16.8 Jurisdiction, Attorneys' Fees. The parties
hereto agree that any and all disputes hereunder shall be submitted
to a court located in Los Angeles, California and in this regard,
the parties agree that they shall consent to personal jurisdiction
to any state and/or the United States District Court for the
Central District of California sitting in Los Angeles, California
and agree to venue in the State of California. All costs and
expenses (including attorneys' fees) incurred by the parties in
connection with any dispute arising under this Agreement, shall be
apportioned between the parties by a court based upon such court's
determination of the merits of their respective positions.
16.9 Entire Understanding. This Agreement constitutes
the entire understanding between the parties hereto regarding the
subject matter hereof and supersedes all other prior agreements,
understandings, negotiations and discussions of the parties whether
written or oral.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
MAXICARE HEALTH PLANS, INC.,
a Delaware corporation
By:
-----------------------------
Its:
-----------------------------
EXECUTIVE:
/s/ PETER J. RATICAN
--------------------
Peter J. Ratican
108
Exhibit 10.82b
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement"), dated as of April
1, 1996, is made by and between Eugene L. Froelich ("Executive")
and Maxicare Health Plans, Inc., a Delaware corporation (the
"Company").
RECITALS
WHEREAS, Executive presently serves as Executive Vice
President - Finance and Administration and Chief Financial Officer
of the Company pursuant to an Employment and Indemnification
Agreement dated as of January 1, 1992 exerting particularly
diligent efforts in such capacity on behalf of the Company;
WHEREAS, the Company and the Executive have agreed that
Executive should continue to serve in the aforementioned capacities
on behalf of the Company pursuant to the terms and conditions
contained in the Amended and Restated Employment and
Indemnification Agreement dated as of April 1, 1996 between the
Company and the Executive (the "Restated Employment Agreement");
WHEREAS, as a material part of Executive's compensation under
the Restated Employment Agreement, the Company has agreed to grant
Executive options to purchase 350,000 shares of the Company's, no
par value, common stock (the "Common Stock"); and
WHEREAS, the Company and the Executive desire to set forth in
this Agreement the specific terms and conditions regarding the
aforementioned options.
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, Executive and the
Company hereby agree as follows:
1. Grant of Options. Subject to Section 14 below
and upon the terms and subject to the conditions hereinafter set
forth, the Company hereby agrees to grant to Executive options (the
"Options") to purchase up to 350,000 authorized but unissued shares
of Common Stock (the "Option Shares"). As a pre-condition to the
grant of each of the Options set forth below and all Options to be
granted hereunder following such Option, Executive must be employed
by the Company on the grant date of any such Option. Subject to
the preceding sentence, the Options shall be granted on the
following dates:
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(a) an Option to purchase 70,000 Option Shares on
the date on which resolutions are adopted by the Shareholders
approving this Agreement;
(b) an Option to purchase 70,000 Option Shares on
January 1, 1997;
(c) an Option to purchase 70,000 Option Shares on
January 1, 1998;
(d) an Option to purchase 70,000 Option Shares on
January 1, 1999; and
(e) an Option to purchase 70,000 Option Shares on
January 1, 2000.
2. Option Prices.
(a) The Option Price with respect to the Option
Shares for each of the Options set forth in 1(a) through 1(e) above
shall be the closing price of the Common Stock on the last trading
date immediately preceding the grant dates of the Options set forth
in Sections 1(a) through 1(e) above.
(b) For the purposes of calculating the Option
Price, the closing price shall be (in the following order or
priority), if the Common Stock is listed or admitted for trading
(i) on any national securities exchange (or in case the Common
Stock shall be listed on more than one, the exchange with the
greatest trading volume in the Common Stock), the last sale price,
or, in case no reported sale takes place on such day, the average
of the last reported bid and asked prices; (b) on the National
Association of Securities Dealers, Inc. Automated Quotation System-
National Market System ("NASDAQ-NMS"), the average of the last
reported bid and asked prices; or (iii) in the daily stock price
publication of the National Quotation Bureau (also known as the
"Pink Sheets"), the average of the last reported bid and asked
prices.
3. Vesting of Options. Executive's rights in and to
the Options set forth in Sections 1(a) through 1(e) above shall
vest, and Executive may exercise each such Option immediately as of
the date of the grant of each Option.
4. Term of Options. Subject to and so long as
Executive is employed by the Company, whether pursuant to the
Restated Employment Agreement or otherwise each Option granted
pursuant to Sections 1(a) through (1(e) above, may be exercised in
whole or in part at any time or from time to time by Executive on
or before 12:00 midnight, California time on the expiration of 10
years from the date of grant of each such Option (the "Expiration
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Date"); provided, however, that in the event that Executive's
employment with the Company terminates prior to the Term Expiration
Date the Options which have been granted prior to such termination
of employment shall expire as follows:
(a) in the event termination is as a result of
death of Executive or Incapacity, any outstanding Options granted
pursuant to this Agreement shall expire 180 days after such
termination;
(b) in the event termination is as a result of:
(i) Cause pursuant to Section 7(d) of the Restated Employment
Agreement or (ii) pursuant to Section 7(b) of the Restated
Employment Agreement other than for Good Reason, thirty (30) days
after such termination; and
(c) in the event termination is as a result of
Section 7(b) for Good Reason, 7(e) or 7(f) of the Restated
Employment Agreement on the Term Expiration Date.
The terms "Incapacity", "Cause" and "Good Reason" when utilized
herein shall be as defined in the Restated Employment Agreement.
5. Exercise of Option.
(a) In the event Executive elects to exercise any
Option granted hereunder, he shall give at least three, but no more
than ten business days' prior written notice to the Company, at the
principal executive office of the Company, or to such transfer
agent as the Company shall designate. Such notice shall state
which Option the employee wishes to exercise, the election to
exercise such Option and the number of Option Shares with respect
to which it is being exercised. The notice shall be accompanied by
a cashier's or certified check payable in United States Dollars to
the order of the Company in an aggregate amount equal to the
product of the Option Price times the number of Option Shares to be
purchased.
Upon receipt of Executive's notice to exercise the Option,
conforming to the conditions of this Section 5, the Company shall,
as soon as practicable thereafter, deliver to Executive a
certificate or certificates representing the Option Shares
purchased, registered in the name of the Executive (or, if so
request in the notice to exercise, registered in the name of the
Executive and another person jointly, with right of survivorship).
In the event the Option shall be exercised, pursuant to Section 10
hereof, by any person or persons other than Executive, such notice
shall be accompanied by appropriate proof of the right of such
person or persons to exercise the Option.
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All Option Shares purchased upon the exercise of the Option as
provided herein shall be fully paid and non-assessable.
(b) Notwithstanding the foregoing, the Option may
be exercised only on the condition that no injunction, judgment,
order or decree of a court or governmental agency with competent
jurisdiction prohibits such exercise.
6. Adjustment Upon Restructuring or Dissolution.
(a) In the event of any change, after the date of
grant but prior to the exercise of any Option granted hereunder, in
the number or nature of Option Shares by reason of any stock
dividend, split-up, stock split, reverse stock split, merger,
recapitalization, combination, exchange of common stock, or similar
transaction (the "Restructuring"), the number and kind of Option
Shares subject to acquisition hereunder and the Option Price per
Option Share shall be appropriately adjusted, effective upon the
consummation of the Restructuring, either by way of an amendment to
the Options or by way of a grant of new stock options in
substitution of, or in addition to, the Options, to provide that:
(i) the number of shares subject to the Options shall be adjusted
to reflect such Restructuring so that the percentage of the
outstanding equity of the Company represented by shares subject to
the Options remains constant both before and after the
Restructuring; and (ii) the per share exercise price of the Options
shall be adjusted so that the total exercise price which would be
paid by Executive, were he to purchase all of the shares available
to him under the Options after the adjustment described in the
preceding clause (i), equals the total exercise price he would have
paid had he purchased all Option Shares available to him before the
Restructuring at the Option Price. In the event any Restructuring
occurs prior the grant of any Option hereunder, (i) above shall
apply; however the Option Price shall be as determined by Section 2
above.
(b) In addition, in the event of any dissolution
or liquidation of the Company or a Restructuring as a result of
which the Company is not the surviving corporation, or a sale of
substantially all the property of the Company to another entity,
then either (i) provision shall be made for the assumption of all
Options or the substitution for the Options of new options covering
the stock of a successor employer corporation (or a parent or
subsidiary thereof) with appropriate adjustments as to number and
kind of shares and prices; or (ii) provision shall be made for the
payment of substantially equivalent economic benefit to Executive
in exchange for such Options which have been granted prior to the
consummation of such event or transaction, upon the consummation of
such event or transaction; notwithstanding the foregoing, Executive
shall have the right, prior to the consummation of such event or
transaction, to exercise all Options granted prior to the
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consummation thereof. In the event that the contemplated event or
transaction is not consummated, any Option that had been exercised
solely by reason of such event or transaction shall again become
unexercised and shall revert to its former status as issued but
unexercised as of the termination of the transaction subject,
however, to such other provisions of this Agreement as may apply.
For the purposes hereof, the aforementioned economic benefit to
Executive shall be calculated (without Regard to the illiquidity of
the Common Stock issuable to the Executive upon exercise of the
Option) based upon the actual difference between the Option Price
and the closing price of the Common Stock on the day prior to the
consummation of the aforementioned transaction.
(c) Adjustments under this Section 6 shall be
made by the Board of Directors of the Company, whose determination
as to what adjustments shall be made shall be final and conclusive.
The Board of Directors of the Company may obtain and may rely upon
the advice of independent counsel and accountants of the Company.
No fractional shares of stock shall be issued under the option on
account of any such adjustment. If for any reason Option Shares
shall include a fractional share interest, upon the exercise of the
option with respect to such fractional interest, a cash payment
shall be made of an equivalent value for such fractional interest.
7. Investment Representations; Restrictions on
Transfer.
(a) Executive represents, warrants and covenants
to the Company that:
(i) Any Option Shares or other securities
acquired by Executive upon exercise of the Option will be acquired
for Executive's own account and not with a view to resale or
distribution in violation of the Securities Act of 1933, as amended
(the "1933 Act").
(ii) Executive has such knowledge and
experience in business and financial matters as to be capable of
utilizing the information which is available to him to evaluate the
merits and risks of an investment in Option Shares and is able to
bear the economic risks of any Option Shares or other securities
which Executive may acquire upon exercise of the Option.
(iii) Executive understands that the Option
Shares have not been registered under the 1933 Act, in reliance
upon certain exemptions contained therein, and that the Company's
reliance on such exemption is predicated on Executive's
representations set forth herein. Executive further understands
that because the Option Shares have not been registered under the
1933 Act, he may not, and Executive covenants and agrees that he
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will not, sell, offer to sell or otherwise dispose of any such
securities in violation of the 1933 Act or any applicable "blue
sky" or securities law of any state. Executive acknowledges and
understands that he has no independent right to require the Company
to register the Option Shares.
(b) Executive consents to the placing of
restrictive legends in substantially the following form on any
stock certificate(s) representing Option Shares:
"The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or the
blue sky law of any state. These shares have been acquired for
investment and not with a view to distribution or resale, and may
not be sold, mortgaged, pledged, hypothecated or otherwise
transferred without an effective registration statement for such
shares under the Securities Act of 1933, as amended, or until the
issuer has been furnished with an opinion of counsel for the
registered owner of these shares, reasonably satisfactory to
counsel for the issuer, that such sale, transfer or disposition is
exempt from the registration or qualification provisions of the
Securities Act of 1933, as amended, or the blue sky laws of any
state having jurisdiction."
(c) Executive also hereby consents and agrees to
the placing of stop transfer instructions against any subsequent
transfer(s) of the Option Shares. The Company hereby agrees to
remove the legend and stop transfer instructions upon receipt of an
opinion of counsel from the registered owner of the Option Shares,
in form and substance reasonably acceptable to counsel for the
Company, to the effect that such shares may be transferred without
violation of the 1933 Act or the blue sky laws of any state having
jurisdiction.
8. Additional Documents. The Company and Executive
hereby covenant and agree to execute and deliver any additional
documents necessary or desirable, in the opinion of Executive or
the Company, as the case may be, to complete the sale and transfer
of all of the Option Shares with respect to which the Option is
exercised.
9. Options Not Transferable. Executive may not
transfer or assign the Option or his rights under this Agreement,
except by will or by the laws of descent and distribution and
subject to the provisions of Section 10 hereof. The Option and
Executive's rights under this Agreement shall not otherwise be
transferred, assigned, pledged or disposed of in any way, whether
by operation of law or otherwise, and shall be exercisable during
Executive's lifetime only by Executive or his guardian or legal
representative.
114
<PAGE>
10. Death or Termination of Executive. Subject to
Section 5(a) above if the Executive dies during the term of any
Options granted hereunder, the Option may be exercised, to the
extent of the number of shares with respect to which the Executive
could have exercised such Options on the date of his death, by his
estate, personal representative or beneficiary, or the person or
persons entitled to do so under the Executive's last will and
testament or under applicable intestate laws.
11. No Obligation to Exercise Options. The grant and
acceptance of the Options imposes no obligation on Executive to
exercise them.
12. No Obligation to Continue Employment. The
Company is not by virtue of the grant of the Options obligated to
continue Executive in employment.
13. No Rights as Stockholder Until Exercise. The
Executive shall have no rights as a stockholder with respect to
Option Shares until a stock certificate with respect to the Option
Shares has been issued to Executive and the Option Shares have been
fully paid for pursuant to the terms hereof.
14. Shareholder Approval. The grant of the Options
pursuant to the terms of this Agreement shall be subject to and
conditioned upon the approval of the Company's shareholders. The
Company agrees to seek such approval at the 1996 Annual Meeting of
Stockholders.
15. Registration Undertaking. Subsequent to
shareholder approval of the Options, the Company agrees to file a
Form S-8 Registration Statement at such time as may be determined
by its Board of Directors. Said Form S-8 Registration Statement,
and the Form S-3 Prospectus related thereto, shall include, to the
extent permissible, the Option Shares.
16. Miscellaneous.
16.1 Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
16.2 Binding Effect and Assignment. This Agreement
and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and permitted assigns. Executive's rights to the Option with
respect to the percentage of the Option Shares in which his
115
<PAGE>
interest has vested as of the termination date hereof shall survive
the termination of this Agreement, regardless of cause. This
Agreement may not be assigned by the Company without the prior
written consent of Executive.
16.3 Amendments and Modification. This Agreement may
not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the
parties hereto.
16.4 Specific Performance; Injunctive Relief. The
parties hereto acknowledge that Executive will be irreparably
harmed and that there will be no adequate remedy at law for a
violation of any of the covenants or agreements of the Company set
forth herein. Therefore, it is agreed that, in addition to any
other remedies which may be available to Executive upon any such
violation, Executive shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any
other means available to Executive at law or in equity.
16.5 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if delivered by messenger, transmitted by telex or telecopier
(with receipt confirmed), or mailed by registered or certified
mail, postage prepaid, as follows:
(a) If to Executive:
Eugene L. Froelich
14152 Valley Vista Boulevard
Sherman Oaks, California 91423
(b) If to the Company:
Maxicare Health Plans, Inc.
5200 West Century Boulevard
Los Angeles, California 90045
Attention: Alan D. Bloom, Esq.
General Counsel
or such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
16.6 Counterparts. This Agreement may be executed in
any number of counterparts, and by separate parties on separate
counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
116
<PAGE>
16.7 Governing Law. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the State
of California. The Options will not be treated as an "incentive
stock option" under the Internal Revenue Code.
16.8 Jurisdiction, Attorneys' Fees. The parties
hereto agree that any and all disputes hereunder shall be submitted
to a court locate din Los Angeles, California and in this regard,
the parties agree that they shall consent to personal jurisdiction
to any state and/or the United States District Court for the
Central District of California sitting in Los Angeles, California
and agree to venue in the State of California. All costs and
expenses (including attorneys' fees) incurred by the parties in
connection with any dispute arising under this Agreement, shall be
apportioned between the parties by a court based upon such court's
determination of the merits of their respective positions.
16.9 Entire Understanding. This Agreement constitutes
the entire understanding between the parties hereto regarding the
subject matter hereof and supersedes all other prior agreements,
understandings, negotiations and discussions of the parties whether
written or oral.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
MAXICARE HEALTH PLANS, INC.,
a Delaware corporation
By:
-------------------------
Its:
-------------------------
EXECUTIVE:
/s/ EUGENE L. FROELICH
----------------------
Eugene L. Froelich
117
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the June 30,
1996 financial statements and is qualified in
its entirety by reference to such financial
statements.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<PERIOD-TYPE> 6-MOS
<CASH> 27,932
<SECURITIES> 63,298
<RECEIVABLES> 37,487
<ALLOWANCES> 4,832
<INVENTORY> 0
<CURRENT-ASSETS> 141,215
<PP&E> 24,296
<DEPRECIATION> 22,346
<TOTAL-ASSETS> 157,117
<CURRENT-LIABILITIES> 53,798
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 102,337
<TOTAL-LIABILITY-AND-EQUITY> 157,117
<SALES> 266,339
<TOTAL-REVENUES> 269,462
<CGS> 239,210
<TOTAL-COSTS> 263,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 6,259
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,259
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
