<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Maxicare Health Plans, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
MAXICARE HEALTH PLANS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
ON JULY 25, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Maxicare Health Plans, Inc. (the "Company") will be held at the Sunset Room in
the Transamerica Center Tower Restaurant, 1150 South Olive Street, Los Angeles,
California, on July 25, 1997, at 8:00 a.m. (Pacific Time) for the following
purposes:
1. To elect two directors to the Board of Directors who will serve until
the Company's 2000 Annual Meeting of Stockholders and until their
successors have been duly elected and qualified; and
2. To transact such other business as may be properly brought before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on June 6, 1997 will be
entitled to notice of and to vote at said meeting or any adjournments thereof. A
list of such stockholders shall be open to the examination of any stockholder at
the meeting and for a period of ten days prior to the date of the meeting at the
office of Maxicare Health Plans, Inc., 1149 South Broadway Street, Los Angeles,
California 90015.
The Board of Directors urges each stockholder to read carefully the
enclosed proxy statement which is incorporated herein by reference.
By Order of the Board of Directors,
Alan D. Bloom
Secretary
1149 South Broadway Street
Los Angeles, California 90015
Dated: June 27, 1997
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE 1997 ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES. YOUR PROXY
WILL BE REVOCABLE ANY TIME PRIOR TO ITS EXERCISE EITHER IN WRITING OR BY VOTING
YOUR SHARES PERSONALLY AT THE 1997 ANNUAL MEETING.
<PAGE> 3
MAXICARE HEALTH PLANS, INC.
1149 SOUTH BROADWAY STREET
LOS ANGELES, CALIFORNIA 90015
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JULY 25, 1997
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") and management of Maxicare Health Plans,
Inc., a Delaware corporation (the "Company"), of proxies to be used at the
Annual Meeting of Stockholders to be held at the Sunset Room in the Transamerica
Center Tower Restaurant, 1150 South Olive Street, Los Angeles, California, on
July 25, 1997 at 8:00 a.m. (Pacific Time) and at any adjournments thereof. A
form of the proxy is enclosed for use at the meeting. At the meeting
stockholders will be asked to vote upon the election of two directors to the
Board and to transact such other business as may properly come before the
meeting.
If no instructions are given on the proxy, all shares represented by valid
proxies received pursuant to this solicitation (and not revoked before they are
voted) will be voted FOR the directors nominated by the Board and as recommended
by the Board with regard to all other matters or if no such recommendation is
given, in the discretion of the proxy holder. Proxies marked "withhold" will be
counted towards the quorum requirement but will not be voted FOR the election of
the Board's director nominees.
A proxy may be revoked at any time before it is exercised by giving written
notice of revocation to the Secretary of the Company or by submitting, prior to
the time of the meeting, a properly executed proxy bearing a later date.
Stockholders having executed and returned a proxy, who attend the meeting and
desire to vote in person, are requested to so notify the Secretary of the
Company prior to the time of the meeting.
The mailing address of the Company is 1149 South Broadway Street, Los
Angeles, California 90015. The approximate date on which this Proxy Statement
and form of proxy are being mailed to the stockholders is June 27, 1997.
GENERAL INFORMATION
OUTSTANDING SHARES AND VOTING RIGHTS
There were 17,950,283 shares of common stock of the Company ("Common
Stock") outstanding as of June 6, 1997, the Record Date for the stockholders
entitled to vote at the Annual Meeting. Each stockholder of record at the close
of business on June 6, 1997 is entitled to one vote for each share of Common
Stock then held on each matter to come before the meeting, or any adjournments
thereof.
A majority of the votes eligible to be cast at the Annual Meeting by
holders of Common Stock, or 8,975,142 votes, represented in person or by proxy
at the Annual Meeting is required for a quorum. Shares represented by proxy or
in person which are voted for reelection of any director or for which the vote
is withheld will be counted for purposes of determining whether a quorum is
present. A plurality of the votes cast at the Annual Meeting by holders of
shares of Common Stock entitled to vote, and present, in person or by proxy at
the Annual Meeting is required for the election of each nominee as a director.
Votes that are withheld from any nominee will be excluded from the vote and will
have no effect. Brokers who hold shares in street name have the authority to
vote on certain "routine" matters including the uncontested election of
directors without instructions from beneficial owners. Accordingly, unless the
arrangement between the broker and the beneficial owner provides to the
contrary, brokers that do not receive instructions are entitled to vote on the
election of directors. Shares which are not voted for the election of directors
or which are voted but where the vote is withheld will have no effect on the
outcome of the vote. The Company's Certificate of Incorporation does not provide
for cumulative voting.
<PAGE> 4
Of the total shares of Common Stock outstanding as of June 6, 1997, 616,406
shares of Common Stock were held in claims reserves by the Company, as
disbursing agent pursuant to the Company's Joint Plan of Reorganization dated
May 14, 1990, as modified, which was confirmed by the Bankruptcy Court by order
dated August 31, 1990 (the "Reorganization Plan"). The Company holds such shares
(the "Unallocated Shares") as disbursing agent for the benefit of creditors
under the Reorganization Plan. Of the 616,406 Unallocated Shares held as of the
Record Date, 548,514 were held for the benefit of creditors of the Company's
operating subsidiaries (Reorganization Plan classes 5A through 5H), 37,346 were
held for bank group creditors (Reorganization Plan class 7), and 30,546 shares
were held for bondholder creditors (Reorganization Plan classes 8A through 8D).
As of the Record Date, no shares were being held for the benefit of Maxicare
Health Plans, Inc. creditors (Reorganization Plan class 9); however, certain of
the shares held for the benefit of Reorganization Plan classes 7 and 8A through
8D will be reallocated to Reorganization Plan class 9 pursuant to a formula set
forth in the Reorganization Plan. The Reorganization Plan provides that until
such time as any share of Common Stock reserved for a holder of an allowed claim
under the Reorganization Plan is allocated, the disbursing agent shall deliver
an irrevocable proxy to vote the Unallocated Shares to the independent directors
of the Board (as such term is defined by the Reorganization Plan). Currently,
the independent directors are Messrs. Brinegar, Field, Lewis and Manne and Ms.
Courtright (the "Independent Directors"). The Reorganization Plan provides that
the Unallocated Shares shall be voted in the following manner:
(i) 548,514 shares which were held in the claims reserves as of the
Record Date for the holders of Reorganization Plan classes 5A through 5H
and Reorganization Plan class 9 allowed claims, shall (a) as to proposals
made by the Company, be voted in the same manner and to the same degree as
all of the allocated shares of Common Stock; and (b) as to proposals made
by any person or entity other than the Company, be voted in accordance with
the vote of a majority of the Independent Directors; and
(ii) 67,892 shares which were held in the claims reserves as of the
Record Date for holders of Reorganization Plan class 7 and Reorganization
Plan classes 8A through 8D allowed claims, shall be voted in the same
manner and to the same degree as all of the allocated shares of Common
Stock.
The only business which the Board presently believes will be voted upon at
the Annual Meeting is the election of two directors. Consequently, all
Unallocated Shares will be voted in the same manner and to the same degree as
the allocated shares of Common Stock.
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<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of the outstanding
shares of Common Stock owned beneficially as of June 6, 1997, the Record Date,
by each director or nominee for director as of such date, by the Company's chief
executive officer ("CEO"), by the four other most highly compensated executive
officers other than the CEO, by all directors and executive officers as a group,
and by each person who, to the knowledge of the Company, beneficially owned more
than 5% of any class of the Company's voting stock on such date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------------------
PERCENTAGE OF
NAME AND ADDRESS OF PERSON OR GROUP COMMON STOCK(2) COMMON STOCK(3)
-------------------------------------------- --------------- ---------------
<S> <C> <C>
RCM Capital Management, L.L.C.(4) 1,532,900 8.5%
Four Embarcadero Center
San Francisco, California 94111 and
Dresdner Bank AG(4)
Jurgen-Ponto-Platz 1
60301 Frankfurt, Germany
Franklin Resources, Inc., 1,431,800 8.0%
Charles B. Johnson and
Rupert H. Johnson, Jr.(5)
777 Mariners Island Boulevard
San Mateo, California 94404 and
Franklin Mutual Advisers, Inc.(5)
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Heartland Advisors, Inc.(6) 1,303,900 7.3%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Morgan Stanley Group Inc.(7) 1,228,036 6.8%
1585 Broadway
New York, New York 10036
Miller Anderson & Sherrerd LLP(7) 1,161,700 6.5%
1 Tower Bridge, Suite 1100
West Conshohocken, Pennsylvania 19428
Peter J. Ratican(8) 632,996 3.4%
1149 South Broadway Street
Los Angeles, California 90015
Eugene L. Froelich(8) 632,778 3.4%
1149 South Broadway Street
Los Angeles, California 90015
Richard A. Link(9) 65,020 *
1149 South Broadway Street
Los Angeles, California 90015
Aivars L. Jerumanis(10) 37,665 *
1149 South Broadway Street
Los Angeles, California 90015
Thomas W. Field, Jr.(11)(12) 30,000 *
1149 South Broadway Street
Los Angeles, California 90015
Claude S. Brinegar(11)(12) 24,000 *
1149 South Broadway Street
Los Angeles, California 90015
Florence F. Courtright(12)(13) 20,000 *
1149 South Broadway Street
Los Angeles, California 90015
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------------------
PERCENTAGE OF
NAME AND ADDRESS OF PERSON OR GROUP COMMON STOCK(2) COMMON STOCK(3)
-------------------------------------------- --------------- ---------------
<S> <C> <C>
Alan S. Manne(12)(13) 15,000 *
1149 South Broadway Street
Los Angeles, California 90015
Charles E. Lewis(12)(14) 10,016 *
1149 South Broadway Street
Los Angeles, California 90015
Alan D. Bloom(15) 2,028 *
1149 South Broadway Street
Los Angeles, California 90015
All Directors and Executive Officers 1,620,647 8.5%
as a Group (14 persons)(16)
</TABLE>
- ---------------
* - less than one percent
(1) Except as otherwise set forth herein, all information pertaining to the
holdings of persons who beneficially own more than 5% of any class of the
Company's voting stock (other than the Company or its executive officers
and directors) is based on filings with the Securities and Exchange
Commission (the "SEC").
(2) Pursuant to rules promulgated by the SEC, all shares underlying options
which were exercisable on June 6, 1997 or which become exercisable within
60 days, held by a described person are treated as "beneficially" owned.
The SEC rules further require that every person who has or shares the power
to vote or to dispose of shares of stock be reported as a "beneficial"
owner of all shares as to which any such sole or shared power exists.
(3) Assumes 17,950,283 shares of Common Stock outstanding, and, with respect to
each listed beneficial owner, the exercise or conversion of any option or
right held by each such owner exercisable or convertible within 60 days.
(4) RCM Capital Management, L.L.C. ("RCM Capital") is an investment adviser
registered under Section 203 of the Investment Advisors Act of 1940. RCM
Limited L.P. ("RCM Limited") is the Managing Agent of RCM Capital. RCM
Limited has beneficial ownership of these shares to the extent RCM Limited
may be deemed to have beneficial ownership of securities managed by RCM
Capital. RCM General Corporation ("RCM General") is the General Partner of
RCM Limited, the Managing Agent of RCM Capital. RCM General has beneficial
ownership of these shares to the extent RCM General may be deemed to have
beneficial ownership of securities managed by RCM Capital. These beneficial
owners have sole voting power with respect to 1,383,900 shares, sole
dispositive power with respect to 1,522,900 shares and shared dispositive
power with respect to 10,000 shares. The above information presented in
regards to the beneficial ownership of the Company's Common Stock by RCM
Capital, RCM Limited and RCM General is based upon a Schedule 13G filed
jointly by RCM Capital, RCM Limited and RCM General with the SEC on January
30, 1997.
RCM Capital Funds is a diversified open-end management investment company
registered under the Investment Company Act of 1940 and is comprised of
three series of stock funds. RCM Capital Funds has retained RCM Capital as
the investment manager for all three series of stock funds. As investment
manager, RCM Capital makes all investment decisions for each series of RCM
Capital Funds, subject to the overall supervision of the Board of Directors
of RCM Capital Funds. Accordingly, shares beneficially owned by RCM Capital
Funds are also included in the shares beneficially owned by RCM Capital.
These beneficial owners have sole dispositive power with respect to 696,000
shares. The above information presented in regards to the beneficial
ownership of the Company's Common Stock by RCM Capital Funds and RCM
Capital is based upon a Schedule 13G filed by RCM Capital Funds with the
SEC on February 14, 1997.
4
<PAGE> 7
Dresdner Bank AG ("Dresdner") is an international banking organization
headquartered in Frankfurt, Germany. RCM Capital is a wholly-owned
subsidiary of Dresdner. Dresdner has beneficial ownership of these shares
only to the extent that Dresdner may be deemed to have beneficial ownership
of shares deemed to be beneficially owned by RCM Capital. The above
information presented in regards to the beneficial ownership of the
Company's Common Stock by Dresdner is based upon a Schedule 13G filed with
the SEC on behalf of Dresdner by RCM Capital on February 7, 1997.
(5) These shares are beneficially owned by one or more open or closed-end
investment companies or other managed accounts which are advised by direct
and indirect investment advisory subsidiaries (the "Adviser Subsidiaries")
of Franklin Resources, Inc. ("FRI"). Such advisory contracts grant to such
Adviser Subsidiaries all voting and investment power over the securities
owned by such advisory clients. Therefore, such Adviser Subsidiaries may be
deemed to be, for purposes of Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the beneficial owners of these
shares.
Charles B. Johnson and Rupert H. Johnson, Jr. (the "Principal
Shareholders") each own in excess of 10% of the outstanding Common Stock of
FRI and are the principal shareholders of FRI. FRI and the Principal
Shareholders may be deemed to be, for purposes of Rule 13d-3 under the
Exchange Act, the beneficial owners of securities held by persons and
entities advised by FRI or its subsidiaries. FRI, the Principal
Shareholders and each of the Adviser Subsidiaries disclaim any economic
interest or beneficial ownership in any of these shares.
These beneficial owners have sole voting power and sole dispositive power
with respect to 1,431,800 shares. The above information presented in
regards to the beneficial ownership of the Company's Common Stock by FRI,
the Principal Shareholders and the Adviser Subsidiaries is based upon a
Schedule 13G filed with the SEC by FRI, the Principal Shareholders and the
Adviser Subsidiaries on February 12, 1997.
(6) Heartland Advisors, Inc. is an investment adviser registered under Section
203 of the Investment Advisors Act of 1940. All shares are held in various
investment advisory accounts of Heartland Advisors, Inc. These beneficial
owners have sole voting power with respect to 1,275,400 shares and sole
dispositive power with respect to 1,303,900 shares. The above information
presented in regards to the beneficial ownership of the Company's Common
Stock by Heartland Advisors, Inc. is based upon a Schedule 13G filed by
Heartland Advisors, Inc. with the SEC on February 12, 1997.
(7) Morgan Stanley Group Inc. is an investment adviser registered under Section
203 of the Investment Advisors Act of 1940. Morgan Stanley Group Inc. has
shared voting power with respect to 1,186,436 of these shares and shared
dispositive power with respect to 1,228,036 of these shares. The above
information presented in regards to the beneficial ownership of the
Company's Common Stock is based upon a Schedule 13G filed by Morgan Stanley
Group Inc. and Miller Anderson & Sherrerd LLP with the SEC on February 15,
1997.
Miller Anderson & Sherrerd LLP is an investment adviser registered under
Section 203 of the Investment Advisors Act of 1940. Miller Anderson &
Sherrerd LLP is a wholly-owned subsidiary of the Morgan Stanley Group Inc.
Miller Anderson & Sherrerd LLP has shared voting power with respect to
1,120,100 of these shares and shared dispositive power with respect to
1,161,700 of these shares (all shares of Miller Anderson & Sherrerd LLP are
also included in the beneficial ownership disclosures attributed to Morgan
Stanley Group Inc. in the preceding paragraph). The above information
presented in regards to the beneficial ownership of the Company's Common
Stock is based upon a Schedule 13G filed by Morgan Stanley Group Inc. and
Miller Anderson & Sherrerd LLP with the SEC on February 15, 1997.
(8) Includes 417,778 shares which are subject to options which are currently
exercisable.
(9) Includes 64,999 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.
(10) Includes 31,665 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.
5
<PAGE> 8
(11) Includes 20,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.
(12) Does not include the Unallocated Shares, held of record by the Company.
These shares are held by the Company, as disbursing agent for the benefit
of holders of Reorganization Plan classes 5A through 5H, 7, 8A through 8D,
and 9 allowed claims. The Company disclaims beneficial ownership of these
shares. Under certain circumstances, the Independent Directors, currently
Messrs. Brinegar, Field, Lewis and Manne and Ms. Courtright, have rights to
vote the Unallocated Shares. The Independent Directors disclaim beneficial
ownership of these shares. For further information on the voting of these
shares, see "General Information -- Outstanding Shares and Voting Rights".
(13) All shares are subject to options which are currently exercisable or will
become exercisable within 60 days.
(14) Includes 10,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.
(15) Includes 1,666 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.
(16) Includes 1,169,682 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and to furnish the Company with
copies of all such forms they file. Based solely on its review of the copies of
such forms received by it, or written representations from certain reporting
persons, the Company believes that, during the year ended December 31, 1996,
each of its officers, directors and greater than ten percent stockholders
complied with all such applicable filing requirements.
ITEM 1. ELECTION OF DIRECTORS
Under the terms of the Company's bylaws, the Board may consist of up to
nine persons as established by resolution of the Board. The Board has
established the number of directors at seven persons and as of the date hereof,
the Board consists of: Peter J. Ratican, Claude S. Brinegar, Fiorenza (Florence)
F. Courtright, Thomas W. Field, Jr., Eugene L. Froelich, Charles E. Lewis and
Alan S. Manne.
The Company's Certificate of Incorporation provides that directors are
classified into Class I, Class II or Class III and the initial terms of the
directors are staggered for one, two and three years, respectively. The
Certificate of Incorporation further provides that at the annual meeting
following the expiration of the initial terms of the directors in each class,
the class of directors elected at such meeting would stand for election for a
three year term ending at the third annual meeting thereafter.
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<PAGE> 9
At the Annual Meeting, the Board proposes the election of the following
nominees to the Board, each to serve as a Class I director for three years until
the 2000 Annual Meeting, and until his successor is elected and qualified:
CLASS I
CLAUDE S. BRINEGAR
Director since: 1991
Age: 70
Claude S. Brinegar is the retired Vice Chairman of the board of directors
and Chief Financial Officer of Unocal Corporation. Mr. Brinegar is a member
of the board of directors of Conrail, Inc. and a visiting scholar at
Stanford University.
CHARLES E. LEWIS
Director since: 1983
Age: 68
Dr. Lewis has been a Professor of Medicine, Public Health and Nursing at
the University of California at Los Angeles, since 1970. In July 1993, he
was appointed Director of the Center for Health Promotion and Disease
Prevention. He is a member of the Institute of Medicine, National Academy
of Sciences and is a graduate of the Harvard Medical School and of the
University of Cincinnati School of Public Health where he received a
Doctorate of Science degree. Dr. Lewis is a Regent of the American College
of Physicians and a member of the Board of Commissioners of the Joint
Commission on Accreditation of Health Care Organizations.
If the nominees should for any reason become unavailable to serve as a
director or be withdrawn from nomination, and if the Board shall designate a
substitute nominee, the shares represented by valid proxies will be voted in
favor of the substitute nominee. A stockholder may, in the manner set forth on
the enclosed form of proxy, instruct the named proxies not to vote that
stockholder's shares for a particular nominee or nominees, as indicated.
THE BOARD RECOMMENDS VOTES FOR THE ELECTION OF MR. BRINEGAR AND MR. LEWIS
AS DIRECTORS ON THE BOARD. PROXIES GIVEN WITHOUT INSTRUCTIONS WILL BE VOTED FOR
THESE NOMINEES.
The following persons currently serve as members of the Board and each of
these members will continue to serve until the Annual Meeting for the year
indicated or until his or her successor is duly elected and qualified:
CLASS II
FLORENCE F. COURTRIGHT
Director since: 1993
Elected to serve until: 1998 Annual Meeting
Age: 65
Ms. Courtright has been a private investor for more than the last five
years. She is a founding Limited Partner of Bainco International Investors,
l.p. and a Trustee of Loyola Marymount University. Further, Ms. Courtright
is a former co-owner of the Beverly Wilshire Hotel in Beverly Hills,
California.
EUGENE L. FROELICH
Director since: 1989
Elected to serve until: 1998 Annual Meeting
Age: 55
Mr. Froelich was appointed Chief Financial Officer, Executive Vice
President -- Finance and Administration in March 1989. Mr. Froelich
graduated from Adelphi University and is a certified public accountant.
7
<PAGE> 10
CLASS III
THOMAS W. FIELD, JR.
Director since: 1992
Elected to serve until: 1999 Annual Meeting
Age: 63
Mr. Field has been President of Field & Associates, a management consulting
firm, since October 1989. Mr. Field served as Chairman of the Board of ABCO
Foods Markets from December 1991 through January 1997. Mr. Field also holds
directorships at Campbell Soup Company, ABCO Foods Markets and Stater Bros.
Markets.
ALAN S. MANNE
Director since: 1994
Elected to serve until: 1999 Annual Meeting
Age: 72
Mr. Manne is currently a professor emeritus and from 1961 to 1992 was a
professor of operations research at Stanford University. He is the author
or co-author of seven books and received his Ph.D. in economics from
Harvard University. He is co-organizer of the International Energy
Workshop.
PETER J. RATICAN
Director since: 1983
Elected to serve until: 1999 Annual Meeting
Age: 53
Mr. Ratican was appointed Chairman of the Board, Chief Executive Officer
and President of the Company in August 1988. Mr. Ratican is a member of the
board of directors of the California Association of Health Plans, a
statewide HMO trade association, and is a certified public accountant.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
There were five meetings of the Company's Board during the year ended
December 31, 1996. During that year, each director attended at least 75% of the
meetings of the Board and its committees that each director was entitled to
attend.
The Board has standing Audit, Compensation, Nominating and Option
Committees.
Audit Committee. The Audit Committee meets periodically with management and
the Company's independent public accountants to make inquiries regarding the
manner in which the responsibilities of each are being discharged. The Audit
Committee reports thereon to the Board. The Audit Committee also recommends, for
the approval of the Board, the annual appointment of the Company's independent
public accountants with whom the Audit Committee reviews the scope of the audit
and non-audit assignments, the accounting principles being applied by the
Company in financial reporting, the scope of internal auditing procedures, and
the adequacy of internal controls. The current members of the Audit Committee
are Messrs. Brinegar, Field, Lewis and Manne. The Audit Committee met seven
times during 1996.
Compensation Committee. The Compensation Committee reviews and makes
recommendations with respect to the Company's various compensation programs.
This committee administers the awarding of discretionary bonuses by the Company
and also approves the remuneration of executive and other senior officers of the
Company. The current members of the Compensation Committee are Messrs. Field,
Brinegar and Ratican (ex-officio) and Ms. Courtright. The Compensation Committee
met two times during 1996.
Nominating Committee. The Nominating Committee recommends to the Board
nominees for election to the Board at the annual meeting and to fill any Board
vacancies that may occur. The current members of the Nominating Committee are
Messrs. Lewis and Manne and Ms. Courtright. The Nominating Committee
8
<PAGE> 11
will consider nominees recommended by stockholders. Nominations of persons for
election to the Board may be made at an annual meeting of stockholders by any
stockholder who is entitled to vote at the meeting, who complies with the notice
procedures set forth in clauses (1) and (2) below and who is a stockholder of
record at the time such notice is delivered to the Secretary of the Company.
(1) For nominations to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Company. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Company not
less than seventy (70) days nor more than ninety (90) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than twenty
(20) days or delayed by more than seventy (70) days from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth (90th) day prior to such annual meeting and not later than the close
of business on the later of the seventieth (70th) day prior to such annual
meeting or the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall set
forth (a) as to each person who the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act, including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected; and
(b) as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination is made; (i) the name and address of such
stockholder, as they appear on the Company's books, and of such beneficial
owner; and (ii) the class and number of shares of the capital stock of the
Company which are owned beneficially and of record by such stockholder and such
beneficial owner.
(2) Notwithstanding anything in the second sentence of clause 1 to the
contrary, in the event that the number of directors to be elected to the Board
is increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board made by the Company at
least eighty (80) days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary of the Company at the
principal executive offices of the Company not later than the close of business
on the tenth (10th) day following the day on which such public announcement is
first made by the Company.
The Nominating Committee met one time during 1996.
Option Committee. The Option Committee administers the 1990 Stock Option
Plan, the 1995 Stock Option Plan (the "Option Plans") and authorizes the
granting of options thereunder. Members of this committee must be directors who
are not, during the one year prior to service as an administrator of the Option
Plans, granted or awarded options pursuant to the Option Plans. The Option
Committee also administers the Outside Directors 1996 Formula Stock Option Plan
(the "Formula Plan") and the Senior Executives 1996 Stock Option Plan (the
"Senior Executives Plan"). The current members of the Option Committee are
Messrs. Brinegar and Field. The Option Committee met one time during 1996.
NON-EMPLOYEE DIRECTOR COMPENSATION
During 1996, certain members of the Board received compensation for their
services as directors. These outside directors who were not employees or
officers of the Company (the "Outside Directors") are Claude S. Brinegar,
Florence F. Courtright, Thomas W. Field, Jr., Charles E. Lewis and Alan S. Manne
and they received cash payments of $34,500, $30,000, $34,500, $33,000 and
$33,000 respectively, during 1996. During 1997, the Outside Directors will
receive compensation for their services in the amount of $28,000 per year, plus
$750 per meeting. In addition, Outside Directors are entitled to be reimbursed
for all of their reasonable out-of-pocket expenses incurred in connection with
their services as directors of the Company.
9
<PAGE> 12
Outside Directors of the Company have received options to purchase shares
of Common Stock which are exercisable at an exercise price equal to the market
price at the date of grant. Set forth below is a schedule of the outstanding
options at December 31, 1996 held by each of the Outside Directors, the date of
grant and the exercise price of such options:
<TABLE>
<CAPTION>
# OF EXERCISE PRICE
DIRECTOR OPTIONS DATE OF GRANT PER SHARE
- -------------------------------------------------- ------- ------------------ --------------
<S> <C> <C> <C>
Claude S. Brinegar................................ 10,000 December 20, 1993 $ 9.63
5,000 July 26, 1996 $14.75
Florence F. Courtright............................ 10,000 November 5, 1993 $10.88
5,000 July 26, 1996 $14.75
Thomas W. Field................................... 10,000 April 1, 1992 $10.50
10,000 December 20, 1993 $ 9.63
5,000 July 26, 1996 $14.75
Charles E. Lewis.................................. 5,000 July 26, 1996 $14.75
Alan S. Manne..................................... 10,000 January 28, 1994 $12.63
5,000 July 26, 1996 $14.75
</TABLE>
For those outstanding options granted prior to July 26, 1996 the options
vested at the date of grant and expire five years from the date of grant
provided these directors continue to serve as directors of the Company. If the
directorship is terminated, such options expire 30 days from the date of such
termination.
The options granted July 26, 1996 were issued under the Formula Plan.
Commencing January 2, 1997, and each January 2nd thereafter, each Outside
Director then serving on the Board shall receive a grant of stock options to
purchase 5,000 shares of Common Stock. The options vest six months from the date
of grant and expire ten years from the date of grant provided the director
continues to serve as a director of the Company. In the event of termination of
the directorship, such options expire one year from the date of such
termination.
On May 8, 1996 Mr. Brinegar exercised 10,000 options granted to him on July
18, 1991 at an exercise price of $9.25.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee designs, reviews and approves the compensation
program for the Company's top executive employees. The Compensation Committee
for the Company's 1996 fiscal year was comprised of three outside directors and
Peter J. Ratican (ex officio), the Company's President and Chief Executive
Officer (the "CEO"). The Compensation Committee coordinates with the Option
Committee stock option grants pursuant to the stockholder approved option plans.
The recommendations of the Compensation Committee regarding compensation are
presented to the Board which makes all final approvals.
EXECUTIVE OFFICER COMPENSATION
Under rules established by the SEC, the Company is required to provide
certain data and information in regard to the compensation and benefits provided
to the Company's Chairman and Chief Executive Officer and the four other most
highly compensated executive officers of the Company. The disclosure
requirements for these five individuals include the use of tables and a report
explaining the rationale and considerations that led to fundamental executive
officer compensation decisions affecting those individuals. In fulfillment of
this requirement, the Compensation Committee, at the direction of the Board, has
prepared the following report for inclusion in this Proxy Statement. This report
reflects the Company's compensation philosophy as endorsed by the Board and
resulting actions taken by the Company for the 1996 reporting period shown in
the various compensation tables supporting this report. As noted earlier in the
Proxy Statement, the Compensation Committee approves the payment amounts and
award levels for executive officers of the Company and its subsidiaries subject
to Board approval.
10
<PAGE> 13
THE 1996 BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY REGARDING EXECUTIVE OFFICERS
The fundamental philosophy of the Company's compensation program is to
offer compensation opportunities for all employees which are based on the
individual's contribution and personal performance. Consideration is also given
to a person's potential for future responsibility and promotion.
In designing and administering the individual elements of the executive
compensation program, the Compensation Committee strives to balance short and
long-term incentive objectives and employ prudent judgment in establishing
performance criteria, evaluating performance and determining actual incentive
payments. Essentially, the executive compensation program of the Company has
been designed to:
- support a pay for performance policy that differentiates in compensation
amounts based on corporate, business unit and individual performance;
- motivate key executive officers to achieve strategic business initiatives
and reward them for their achievement;
- provide compensation opportunities which are comparable to those offered
by other leading companies in the health care industry, thus allowing the
Company to compete for and retain talented executives who are critical to
the Company's long-term success; and
- align the interest of executives with the long-term interest of
stockholders through award opportunities that can result in bonuses and
ownership of common stock.
RELATIONSHIP OF PERFORMANCE UNDER THE COMPENSATION PROGRAM
The compensation program supports the Company's internal culture and human
resource values which are to foster career opportunities and develop the best
people at all levels and to encourage and reward actions which put the interests
of the Company as a whole ahead of functional specialties and individual
considerations.
During 1996, the compensation program for all executives, including the
Chief Executive Officer (the "CEO") and the four other most highly compensated
executive officers other than the CEO (the "named executives"), is comprised of
two elements:
- Base salary and benefits typically offered to executives by major
corporations.
- Stock option grants to provide an incentive that focuses the executives'
attention on managing the Company from the perspective of an owner with
an equity stake in the business. These stock options are tied to the
future performance of the Company's stock and will provide value to the
recipient only when the price of the Company's stock increases above the
option grant price.
For the named executives, other than the CEO and Eugene L. Froelich the
Company's Executive Vice President -- Finance and Administration and Chief
Financial Officer (the "CFO"), the Compensation Committee determined that to
attract and retain quality executives the primary emphasis should remain in 1996
on base salary rather than performance measured compensation.
In addition to the above mentioned compensation elements, there are three
elements in the Company's executive compensation program for the CEO and the
CFO:
- Annual incentive compensation.
- Long-term compensation.
- Additional incentive compensation linked to maximization of shareholders'
value.
11
<PAGE> 14
COMPENSATION FACTORS
BASE SALARY
Salary Plan: Every employee of the Company, including the named executives,
is assigned a grade level with a salary range that is designed to reflect
competitive practice for the position they hold. At the end of each fiscal year,
the Compensation Committee reviews and approves an annual salary plan for all
executives for the upcoming year. This salary plan is developed under the
ultimate direction of the CEO who informs the Compensation Committee as to the
amount of proposed remuneration for the Company's executive officers (excluding
the CFO). The salaries approved for 1996 reflect consideration of the immediate
supervisor's, CEO's, Compensation Committee's and the Board's subjective
assessment of the performance of each executive over the past year, planned
changes in functional responsibility and judgments as to the expected future
contributions of the individual executive.
Performance Evaluation: The Compensation Committee has taken particular
note of the executives' success in effectively directing the Company's
operations under the difficult competitive conditions in the markets served by
the Company. In its review of the executives' performance and compensation, the
Compensation Committee has also taken into account the executives' consistent
commitment to the long-term success of the Company through development and
support of new or improved products. The Compensation Committee also
subjectively assessed past performance and its expectation as to future
contributions in leading the Company and its businesses.
Competitive Data: In accordance with the Compensation Committee's
determination to emphasize base salary rather than performance based
compensation, total cash compensation for executives in 1994, other than the CEO
and CFO, were set to meet or exceed the seventy-fifth percentile (75%) for the
specific position held, from a private health care industry survey conducted in
1993 included in a formal report provided by an independent consulting firm.
Using the 1993 analysis as a base, 1996 cash compensation was subjectively
increased for such executives with a goal not to exceed a five percent (5%)
increase in the aggregate as compared to 1995 cash compensation.
The Compensation Committee considers the total compensation (earned or
potentially available) of each of the executives in establishing each element of
compensation. After completing their subjective assessment of the above salary
factors, the Compensation Committee increased the salaries of the named
executives (excluding the CEO and CFO) effective January 1, 1996.
The base salary for the CEO and CFO for 1996 was in accordance with the
five-year employment agreements entered into as of January 1, 1992 and as
amended by amendments dated February 27, 1995 (the "Employment Agreements") and
the new five-year employment agreements entered into as of April 1, 1996 (the
"Restated Employment Agreements"). The base salary for the CEO and CFO was
increased effective April 1, 1996 pursuant to the Restated Employment Agreements
with a goal to compensate these executives to meet or exceed the seventy-fifth
percentile (75%) for their specific positions and responsibilities based upon a
broad-based, major company industry study of executive compensation included in
a report provided by an independent consulting firm.
BENEFITS
In the past, the Company adopted certain broad-based employee benefit plans
in which the executives are permitted to participate on the same terms as
non-executive employees who meet applicable eligibility criteria, subject to any
legal limitations on the amounts that may be contributed or the benefits that
may be payable under the plans. Benefits under these and other plans are not
tied to Company performance.
In assessing the Company's overall compensation program, including employee
benefits, the Compensation Committee determined a separate retirement program
for key executives would provide an incentive in attracting and retaining such
executives as well as encourage their contribution to the long-term growth of
the Company. Accordingly, the Compensation Committee adopted the Maxicare Health
Plans, Inc. Supplemental Executive Retirement Program (the "SERP Plan") which
became effective January 1, 1997. The SERP
12
<PAGE> 15
Plan provides for a retirement income benefit based upon a normal retirement
date of age 65 and specified years of service.
STOCK OPTION GRANTS
Stock options are granted to employees under the 1990 and 1995 Stock Option
Plans by the Option Committee which is comprised of two outside directors. These
grants are made only after approval by the Compensation Committee. Stock option
grants provide the right to purchase shares of Common Stock at the fair market
value (the closing price) on the date of grant. Each stock option generally
becomes exercisable in three annual installments following the date of grant and
has a term from five to ten years. The number of shares covered by an
individual's option represents the Option Committee's subjective assessment of
the individual's relative value to the Company. During 1996 stock options were
granted under the 1995 Stock Option Plan to all three of the named executives,
other than the CEO and CFO. In determining the amount of options to grant, the
Option Committee took into account the items discussed above under "Base
Salary", the desire to tie closely the financial interests of the named
executives to those of the Company's stockholders and the total amount of
options currently held by the named executive. The grants made in 1996 reflect
such considerations.
The CEO and CFO were granted stock options as part of the overall
compensation package pursuant to the Restated Employment Agreements as further
discussed below under "Other Long-Term and Incentive Compensation".
ANNUAL INCENTIVE COMPENSATION
In addition to the base salary, the CEO and the CFO are entitled to earn an
annual performance bonus which is based on the pre-tax earnings of the Company.
For purposes of calculating the annual bonus, the goals on pre-tax earnings set
forth in the CEO's and the CFO's Employment Agreements were carried forward to
the Restated Employment Agreements. An annual bonus of $256,862 was paid in
February 1996 to both the CEO and the CFO based upon the audited 1995 pre-tax
earnings pursuant to the Employment Agreements. An annual bonus of $146,872 was
paid in February 1997 to both the CEO and CFO based upon the audited 1996
pre-tax earnings pursuant to the Restated Employment Agreements.
OTHER LONG-TERM AND INCENTIVE COMPENSATION
In order to further incentivize the CEO and CFO, and strengthen such
executives' ongoing commitment to the Company, on February 27, 1995 the
Compensation Committee awarded 65,000 shares of Restricted Stock to both
executives (individually the "Executive"). The Restricted Stock is subject to
complete forfeiture should the Executive to which it has been awarded be
terminated prior to February 27, 1998. Upon the Executive remaining in the
employ of the Company through February 27, 1998 the Restricted Stock becomes
fully vested. Under certain defined circumstances involving a change of control
of the Company the Restricted Stock will vest in full immediately. These
Restricted Stock awards provide an additional incentive to the CEO and CFO to
remain in the employ of the Company for the full three year vesting period as
well as further aligning their financial interests with those of the Company's
stockholders.
As a part of the compensation under the Restated Employment Agreements, the
Compensation Committee agreed to grant, subject to stockholder approval, to the
CEO and CFO options to individually purchase 350,000 shares of the Company's
stock over the five year employment term. Accordingly, on May 14, 1996 the Board
adopted the Maxicare Health Plans, Inc. Senior Executives 1996 Stock Option Plan
(the "Senior Executives Plan") which was approved by the stockholders on July
26, 1996. The CEO and CFO were individually granted 70,000 option shares on July
26, 1996 pursuant to the Senior Executives Plan. The Senior Executives Plan
further provides for the grant of 70,000 option shares to both the CEO and CFO
on each January 1, from and including January 1, 1997 through and including
January 1, 2000.
The CEO's and CFO's Restated Employment Agreements further provide that in
the event of a change of control of the Company, the Executive may terminate the
Restated Employment Agreement and be entitled to receive a payment equal to 2.99
times that Executive's average annualized compensation, as
13
<PAGE> 16
defined, over the five year period through the date of the change of control.
Also set forth in the Restated Employment Agreements is a bonus on the sale of
the Company or substantially all of its assets or a merger into another company.
This bonus is based on the extent to which the sale price exceeds an initial
value set forth in the CEO's and the CFO's Restated Employment Agreements.
The bonuses paid pursuant to the Company's plan of reorganization are not
under the jurisdiction of the Compensation Committee.
CONCLUSION
Based on its evaluation of these factors, the Compensation Committee
believes that the executive employees of the Company are dedicated to achieving
significant improvements in long-term financial performance and that the
compensation policies, plans and programs the Compensation Committee and the
Board designed, implemented and administered have contributed to achieving this
management focus. The policies, plans and programs used in setting 1996
compensation are consistent with those used when 1995 compensation was set.
1996 Compensation Committee:
Thomas W. Field, Jr., Chairman
Claude S. Brinegar
Florence F. Courtright
Peter J. Ratican (ex-officio)
SUMMARY COMPENSATION TABLE
Shown below is information concerning the annual and long-term compensation
for services in all capacities to the Company for the years ended December 31,
1996, 1995 and 1994, of those persons who were, at December 31, 1996; (i) the
chief executive officer; and (ii) the other four most highly compensated
executive officers of the Company (collectively the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION --------------------
------------------------------------ STOCK RESTRICTED
REORGANIZATION OPTIONS STOCK
PLAN AWARDS AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) BONUS(2) (#) (3) COMPENSATION(4)
- ------------------------------------- ---- -------- -------------- -------- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter J. Ratican 1996 $481,250 $146,872 70,000 $ 4,500
Chairman of the Board of Directors, 1995 $425,000 $ 25,278 $356,862 $1,048,125 $ 4,500
Chief Executive Officer and President 1994 $425,000 $ 5,539
Eugene L. Froelich 1996 $381,250 $146,872 70,000 $ 4,500
Executive Vice President -- Finance 1995 $325,000 $ 25,278 $356,862 $1,048,125 $ 4,500
and Administration, Chief Financial 1994 $325,000 $ 5,539
Officer and Director
Richard A. Link 1996 $215,000 10,000 $ 4,500
Senior Vice President -- Accounting 1995 $205,000 10,000 $ 4,500
and Chief Accounting Officer 1994 $197,500 5,000 $ 4,580
Alan D. Bloom 1996 $213,000 5,000 $ 4,500
Senior Vice President, Secretary and 1995 $208,000 $ 4,500
General Counsel 1994 $203,000 7,500 $ 4,697
Aivars L. Jerumanis 1996 $195,000 5,000 $ 4,500
Senior Vice President -- Management 1995 $190,000 5,000 $ 4,500
Information Systems and Chief 1994 $187,000 5,000 $ 5,250
Information Officer
</TABLE>
- ---------------
(1) These amounts are bonuses payable pursuant to the Reorganization Plan and
were paid from funds held by the Disbursing Agent in a segregated account
and were not paid out of the Company's available cash.
(2) These amounts include $146,872 and $256,862 paid in February 1997 and 1996,
respectively, pursuant to employment agreements entered into by the Company
with Peter J. Ratican and Eugene L. Froelich
14
<PAGE> 17
("Senior Management"). These employment agreements call for the payment of a
bonus to Senior Management based upon the Company's annual pre-tax earnings
before extraordinary items. The 1995 amount also includes a $100,000 bonus
paid to Senior Management in February 1995 as determined by the Company's
Board.
(3) These amounts represent the fair market value of 65,000 shares of Restricted
Stock awarded to each of the Named Officers on February 27, 1995, based upon
the closing market price of the Company's Common Stock on that date
($16.125). The Restricted Stock is subject to complete forfeiture should the
Named Officer's employment with the Company be terminated prior to February
27, 1998. Upon the Named Officer remaining in the employ of the Company
through February 27, 1998, the Restricted Stock becomes fully vested. Under
certain defined circumstances involving a change in control of the Company
the Restricted Stock will vest in full immediately. Based upon the closing
price of the Company's Common Stock at December 31, 1996 ($22.25), the
Restricted Stock awarded to each Named Officer had a fair market value of
$1,446,250 at that date.
(4) These amounts include contributions made by the Company on behalf of the
Named Officer under the Company's 401(k) Savings Incentive Plan.
OPTION GRANTS
Shown below is further information on grants of stock options pursuant to
the Senior Executives Plan and 1995 Stock Option Plan during the year ended
December 31, 1996, to the Named Officers which are reflected in the Summary
Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL 1996 ($/SHARE)(3) DATE 5% 10%
- --------------------- ---------- ------------- ------------ ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Ratican(1) 70,000 12.9% $14.75 July 26, 2006 $649,334 $1,645,539
Eugene L. Froelich(1) 70,000 12.9% $14.75 July 26, 2006 $649,334 $1,645,539
Richard A. Link(2) 10,000 1.8% $14.25 July 23, 2006 $ 89,617 $ 227,108
Alan D. Bloom(2) 5,000 .9% $14.25 July 23, 2006 $ 44,809 $ 113,554
Aivars L.
Jerumanis(2) 5,000 .9% $14.25 July 23, 2006 $ 44,809 $ 113,554
</TABLE>
- ---------------
(1) The options under the Senior Executives Plan were granted as of July 26,
1996 and vest upon date of grant.
(2) The options under the 1995 Stock Option Plan were granted as of July 23,
1996 and vest in one-third installments on the first, second and third
anniversaries of the date of grant. If the grantee's employment is
terminated under certain circumstances or there is a restructuring of the
Company (as set forth in the option agreement) the options granted under the
1995 Stock Option Plan would become immediately exercisable.
(3) The option exercise price is subject to adjustment in the event of a stock
split or dividend, recapitalization or certain other events.
(4) The actual value, if any, the Named Officer may realize will depend on the
excess of the stock price over the exercise price on the date the option is
exercised, so that there is no assurance the value realized by the Named
Officer will be at or near the value estimated. This amount is net of the
option exercise price.
15
<PAGE> 18
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to stock options exercised and
value realized upon exercise during 1996 and the number and value of unexercised
options to purchase the Company's Common Stock granted in fiscal 1996 and prior
years under employment agreements, the 1990 Stock Option Plan, the 1995 Stock
Option Plan and the Senior Executives Plan to the Named Officers and held by
them at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
NUMBER OF SECURITIES UNDERLYING UNEXERCISED IN-THE
SHARES UNEXERCISED OPTIONS MONEY OPTIONS AT
ACQUIRED ON VALUE AT DECEMBER 31, 1996 DECEMBER 31, 1996(1)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Peter J. Ratican 497,778 $7,026,392
Eugene L. Froelich 497,778 $7,026,392
Richard A. Link 10,000 $220,125 61,666 / 18,334 $805,597 / $95,003
Alan D. Bloom 17,500 $344,038 5,000 / 7,500 $54,050 / $62,500
Aivars L. Jerumanis 29,999 / 10,001 $378,097 / $55,003
</TABLE>
- ---------------
(1) Based on the closing price on the NASDAQ-NMS on that date ($22.25), net of
the option exercise price.
EMPLOYMENT AGREEMENTS
As of January 1, 1992, the Company entered into five-year employment
agreements with Peter J. Ratican and Eugene L. Froelich ("Senior Management")
which agreements were amended by amendments dated February 27, 1995 (the
"Employment Agreements"). As of April 1, 1996, and as amended on February 11,
1997, the Company entered into new five-year employment agreements with Peter J.
Ratican and Eugene L. Froelich (the "Restated Employment Agreements"). These
Restated Employment Agreements provide for annual base compensation of $500,000
for Mr. Ratican and $400,000 for Mr. Froelich, subject to increases and bonuses,
as may be determined by the Board based on annual reviews. The Restated
Employment Agreements provide that upon the termination of either member of
Senior Management by the Company without Cause or reasons other than death or
incapacity or the voluntary termination by either member of Senior Management
for certain reasons as set forth in the Restated Employment Agreements, the
terminated member will be entitled to receive (i) a payment equal to the balance
of the terminated member's annual base salary which would have been paid over
the remainder of the term of the Restated Employment Agreement; (ii) an
additional one year's annual base salary; (iii) payment of any performance bonus
amounts which would have otherwise been payable over the remainder of the term
of the Restated Employment Agreement; (iv) immediate vesting of all stock
options; and (v) the continuation of the right to participate in any profit
sharing, bonus, stock option, pension, life, health and accident insurance, or
other employee benefit plans including a car allowance through March 31, 2001.
Cause is defined as: (i) the willful or habitual failure to perform requested
duties commensurate with his employment without good cause; (ii) the willful
engaging in misconduct or inaction materially injurious to the Company; or (iii)
the conviction for a felony or of a crime involving moral turpitude, dishonesty
or theft. In the event of a Change of Control of the Company, either member of
Senior Management may elect to terminate the Restated Employment Agreement
within 120 days after such Change of Control in which case the electing member
will be entitled to receive a payment equal to 2.99 times that member's average
annualized compensation from all sources from and relating to the Company, which
is includable in that member's gross income (including the value of unexercised
options and termination of forfeiture restrictions on shares of Common Stock
issued to that member pursuant to the terms of the Restricted Stock Agreement)
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
of all options to purchase shares of Common Stock not otherwise already vested
pursuant to the terms of such options and all shares of Restricted Stock not
otherwise already vested pursuant to the terms of the applicable Restricted
Stock Agreement. Change of Control is defined as: (i) any transaction or
occurence which results in the Company ceasing to be publically owned with at
least 300 stockholders; (ii) any person or group becoming
16
<PAGE> 19
beneficial owner of more than 40% of the combined voting power of the Company's
outstanding securities; (iii) a change in the composition of the Board, as set
forth in the Restated Employment Agreements; (iv) the merger or consolidation of
the Company with or into any other nonaffiliated entity whereby the Company's
equity security holders, immediately prior to such transaction, own less than
60% of the equity; or (v) the sale or transfer of all or substantially all of
the Company's assets. In the event of death or incapacity, the member of Senior
Management, or his estate, shall receive the equivalent of 90 days base salary
and in the case of incapacity, the continuation of health and disability
benefits. The Restated Employment Agreements also provide that in the event
either member of Senior Management does not receive an offer for a new
employment agreement containing terms at least as favorable as those contained
in the existing Restated Employment Agreements before the expiration of such
Restated Employment Agreements, such member will be entitled to receive a
payment equal to one year's base salary under the terminating agreement. Under
these Restated Employment Agreements, each member of Senior Management will be
entitled to receive an annual performance bonus calculated using a formula, as
set forth in the Restated Employment Agreements, which is based on the Company's
annual pre-tax earnings, before extraordinary items, over $10 million. In
addition, upon the sale of the Company, a sale of substantially all of its
assets or a merger where the Company shareholders cease to own a majority of the
outstanding voting capital stock, Senior Management will be entitled to a sale
bonus calculated using a formula which is based on a percentage of the excess
value of the Company over an initial value as set forth in the Restated
Employment Agreements.
In addition, Senior Management remains entitled to receive certain
additional compensation out of funds set aside for distribution under the
Reorganization Plan on the Effective Date or from the proceeds of assets
liquidated on behalf of pre-petition creditors under the Reorganization Plan.
As of January 1, 1995, the Company entered into employment agreements,
effective through December 31, 1997, with Alan D. Bloom, Richard A. Link and
Aivars L. Jerumanis. The contracts provide minimum base salaries of $208,000,
$205,000 and $190,000 for Messrs. Bloom, Link and Jerumanis, respectively,
subject to increases and bonuses, as may be determined from time to time by the
CEO of the Company. The contracts with Messrs. Bloom, Link and Jerumanis provide
that should their employment be terminated under certain circumstances, they
would receive up to the equivalent of 4 months base salary.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 18, 1997 the Company entered into recourse loan agreements with
Peter J. Ratican and Eugene L. Froelich (the "Senior Executives" and
individually the "Senior Executive") whereby the Company loaned to each Senior
Executive $2,229,028 in connection with the exercise of certain stock options
granted to the Senior Executives on February 25, 1992. The loans are evidenced
by a secured Promissory Note which provides for interest compounding monthly at
the one year London Interbank Offered Rate plus 50 basis points in effect from
time to time and subject to certain adjustments in the event the Company enters
into a transaction to borrow funds. The interest rate in effect as of February
18, 1997 was 6.25%. All principal and accrued interest is due at the maturity
date of April 1, 2001 or upon an event of default; provided however, that if the
Senior Executive shall sell any shares of the Company's Common Stock serving as
security under the loan agreement, then the Senior Executive shall pay a pro
rata share of the proceeds to the Company to be applied against any outstanding
principal and accrued interest of such Senior Executive as of such date.
17
<PAGE> 20
COMPARISON OF CUMULATIVE TOTAL RETURN GRAPH
The following graph presents a five year comparison of cumulative total
returns for the Common Stock of the Company, the index for the NASDAQ Stock
Market (U.S. Companies) and an index of peer companies (the "Managed Care
Group") selected by the Board. The Managed Care Group through December 31, 1993
consisted of seven other managed care companies: Coventry Corporation, FHP
International, Foundation Health Corporation, PacifiCare Health Systems, Inc.,
Qual-Med, Inc., TakeCare, Inc. and Wellpoint Health Networks (as of February
1993). As a result of corporate mergers involving Qual-Med, Inc. with Health Net
and TakeCare, Inc. with FHP International, the Managed Care Group for 1994, 1995
and 1996 consists of: Coventry Corporation, FHP International, Foundation Health
Corporation, PacifiCare Health Systems, Inc., Wellpoint Health Networks and
Health Systems International (the successor company of Qual-Med, Inc.). Total
return assumes the monthly reinvestment of dividends.
<TABLE>
<CAPTION>
COMPARISON AS OF DECEMBER 31 OF CUMULATIVE TOTAL RETURN
MEASUREMENT PERIOD MAXICARE HEALTH MANAGED CARE
(FISCAL YEAR COVERED) PLANS, INC. NASDAQ U.S. GROUP
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 130.77 116.38 179.09
1993 100.00 133.59 174.71
1994 155.13 130.59 200.59
1995 275.64 184.67 235.00
1996 228.21 227.16 214.15
</TABLE>
18
<PAGE> 21
OTHER MATTERS
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Ernst & Young LLP were the independent accountants for the Company for the
year ended December 31, 1996. A representative of Ernst & Young LLP is expected
to be present at the Annual Meeting and will have the opportunity to make a
statement if such representative desires, and to respond to appropriate
questions. The Audit Committee will be recommending, for approval by the Board,
the annual appointment of independent accountants for the year ending December
31, 1997 at the July 25, 1997 meeting of the Board.
ADDITIONAL INFORMATION
Copies of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, (including financial statements and financial statement
schedules) as filed with the SEC are available upon written request from the
office of Investor Relations, Maxicare Health Plans, Inc., 1149 South Broadway
Street, Los Angeles, California 90015.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any proposal relating to a proper subject which a stockholder may intend to
be presented for action at the next Annual Meeting of Stockholders currently
scheduled to be held on July 31, 1998 must be received by the Company no later
than May 22, 1998, to be considered for inclusion in the proxy material to be
disseminated by the Board in accordance with the provisions of Rule
14a-8(a)(3)(i) promulgated under the Exchange Act. Copies of such proposals
should be sent to the Corporate Secretary at the Company's principal executive
offices. To be eligible for inclusion in such proxy materials, such proposals
must conform to the requirements set forth in Regulation 14A under the Exchange
Act.
OTHER BUSINESS OF THE MEETING
The Board is not aware of any matter to be presented at the Annual Meeting
or any postponement or adjournment thereof which is not listed on the Notice of
Annual Meeting and discussed above. If other matters should properly come before
the meeting, however, the persons named in the accompanying proxy will vote all
proxies in accordance with the recommendation of the Board, or if no such
recommendation is given, in their own discretion.
COST OF SOLICITING PROXIES
The Company will bear the cost of proxy solicitation for the election of
the Board's nominees for director. In addition to the use of the mail, proxies
may be solicited by personal interview, telephone or telegraph, by officers,
directors and other employees of the Company, who will not receive any
additional compensation for such services. The Company may also elect to engage
a proxy solicitation firm to assist in the soliciting of proxies. The Company
does not anticipate that the costs of such proxy solicitation firm would exceed
$10,000, plus its out of pocket fees and expenses. The Company will also request
persons, firms and corporations holding shares in their names, or in the names
of their nominees, which are beneficially owned by others, to send or cause to
be sent proxy materials to, and obtain proxies from, such beneficial owners and
will reimburse such holders for their reasonable expenses in so doing.
By Order of the Board of Directors,
--------------------------------------
Alan D. Bloom
Secretary
Los Angeles, California
Dated: June 27, 1997
19
<PAGE> 22
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF MAXICARE HEALTH PLANS, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS JULY 25, 1997
The undersigned, does hereby appoint Peter J. Ratican and Eugene L.
Froelich, and each of them, proxies for the undersigned with full power of
substitution, to vote all of the shares which the undersigned is entitled to
vote, with all powers the undersigned would possess if personally present at
the 1997 Annual Meeting of Stockholders of Maxicare Health Plans, Inc.
(including all adjournments thereof) to be held at the Sunset Room in the
Transamerica Center Tower Restaurant, 1150 South Olive Street, Los Angeles,
California, on July 25, 1997 at 8:00 a.m., Pacific Time, on all matters that may
come before the Meeting.
(Continued and to be Signed on Reverse Side)
-------------
SEE REVERSE
SIDE
-------------
<PAGE> 23
[X] Please mark your votes as in this example
The undersigned hereby instructs To VOTE FOR To WITHHOLD AUTHORITY
said proxies or their substitutes: all nominees to vote for all nominees
listed below listed below
1. ELECTION OF DIRECTORS: [ ] [ ]
Claude S. Brinegar and Charles E. Lewis
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below:
______________________________________________________________________
2. DISCRETIONARY AUTHORITY:
In their discretion, the proxies are authorized to vote with respect to all
other matters which may properly come before the Meeting.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES FOR DIRECTOR.
The undersigned hereby revokes any proxy or proxies heretofore given, and
ratifies and confirms the acts that all the proxies appointed hereby, or either
of them, or their substitute or substitutes may lawfully do or cause to be done
by virtue hereof. The undersigned hereby acknowledges receipt of a copy of the
Notice of Annual Meeting and Proxy Statement, both dated June 27, 1997, and a
copy of the Company's Annual Report for the year ended December 31, 1996.
Signature(s) __________________________________, (L.S.) Dated ___________, 1997
NOTE: Your signature should appear the same as your name appears hereon. In
signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which signing. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a corporation,
it should be signed by an authorized officer and the corporate seal affixed. No
additional postage is required if mailed within the United States.