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 March 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-12024
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MAXICARE HEALTH PLANS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-3615709
- ------------------------------- -------------------
(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 [ ]
Common Stock, $.01 par value - 17,925,381 shares outstanding as
of May 12, 1998.
<PAGE>
PART I: FINANCIAL INFORMATION
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Item 1: Financial Statements
--------------------
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ---------
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents................................. $ 45,727 $ 51,881
Marketable securities..................................... 36,423 47,843
Accounts receivable, net.................................. 28,157 26,024
Deferred tax asset........................................ 18,087 18,061
Prepaid expenses......................................... 7,906 6,763
Other current assets...................................... 762 653
---------- ---------
TOTAL CURRENT ASSETS.................................... 137,062 151,225
---------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,441 5,441
Furniture and equipment................................... 18,190 18,135
---------- ---------
23,631 23,576
Less accumulated depreciation and amortization.......... 22,456 22,330
---------- ---------
NET PROPERTY AND EQUIPMENT.............................. 1,175 1,246
---------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 500 509
Restricted investments.................................... 14,179 14,135
Intangible assets, net.................................... 327 307
---------- ---------
TOTAL LONG-TERM ASSETS.................................. 15,006 14,951
---------- ---------
TOTAL ASSETS............................................ $ 153,243 $ 167,422
========== =========
CURRENT LIABILITIES
Estimated claims and other health care costs payable...... $ 62,632 $ 67,334
Accounts payable.......................................... 437 528
Deferred income........................................... 4,581 7,220
Accrued salary expense.................................... 2,477 3,304
Other current liabilities................................. 4,783 7,805
---------- ---------
TOTAL CURRENT LIABILITIES............................... 74,910 86,191
LONG-TERM LIABILITIES....................................... 172 195
---------- ---------
TOTAL LIABILITIES....................................... 75,082 86,386
---------- ---------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value - 40,000 shares authorized,
1998 - 17,925 shares and 1997 - 17,936 shares issued and
outstanding............................................. 179 179
Additional paid-in capital................................ 254,250 254,376
Notes receivable from shareholders ....................... (4,779) (4,704)
Accumulated deficit....................................... (171,532) (168,815)
Accumulated other comprehensive income.................... 43
---------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 78,161 81,036
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $ 153,243 $ 167,422
========== =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
1998 1997
-------- --------
<S> <C> <C>
REVENUES
Commercial premiums............................................... $118,958 $115,082
Governmental premiums............................................. 60,593 39,260
Other income...................................................... 844 154
-------- --------
TOTAL REVENUES.................................................. 180,395 154,496
-------- --------
EXPENSES
Physician services................................................ 72,729 62,997
Hospital services................................................. 62,668 48,747
Outpatient services............................................... 29,357 22,064
Other health care services........................................ 4,351 3,221
-------- --------
TOTAL HEALTH CARE EXPENSES...................................... 169,105 137,029
Marketing, general and administrative expenses.................... 15,399 12,971
Depreciation and amortization..................................... 188 207
Litigation charge................................................. 16,000
-------- --------
TOTAL EXPENSES.................................................. 184,692 166,207
-------- --------
LOSS FROM OPERATIONS................................................. (4,297) (11,711)
Investment income, net of interest expense........................ 1,580 1,802
-------- --------
LOSS BEFORE INCOME TAXES............................................. (2,717) (9,909)
INCOME TAX PROVISION.................................................
-------- --------
NET LOSS............................................................. $ (2,717) $ (9,909)
======== ========
NET LOSS PER COMMON SHARE:
Basic:
Basic Earnings (Loss) per Common Share............................ $ (.15) $ (.56)
======== ========
Weighted average number of common
shares outstanding.............................................. 17,938 17,726
======== ========
Diluted:
Diluted Earnings (Loss) per Common Share.......................... $ (.15) $ (.56)
======== ========
Weighted average number of common dilutive
potential shares outstanding.................................... 17,938 17,726
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
1998 1997
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................... $ (2,717) $ (9,909)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization.................................. 188 207
Benefit from deferred taxes.................................... (26) (54)
Amortization of restricted stock............................... 58 175
Litigation charge.............................................. 16,000
Changes in assets and liabilities:
Increase in accounts receivable.............................. (2,133) (2,923)
Decrease in estimated claims and other health
care costs payable......................................... (4,702) (1,129)
Decrease in deferred income.................................. (2,639) (1,122)
Changes in other miscellaneous assets and liabilities........ (5,238) (94)
-------- --------
Net cash provided by (used for) operating activities.............. (17,209) 1,151
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................ (82) (136)
Decrease (increase) in restricted investments.................. (43) 13
Proceeds from sales of marketable securities................... 22,382 4,008
Purchases of marketable securities............................. (10,920) (11,958)
(Increase) decrease in long-term receivables................... 9 (476)
Loans to shareholders.......................................... (4,458)
-------- --------
Net cash provided by (used for) investing activities.............. 11,346 (13,007)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.......................... (107) (117)
Stock options exercised........................................ 160 3,123
Repurchase of restricted stock................................. (344)
-------- --------
Net cash provided by (used for) financing activities.............. (291) 3,006
-------- --------
Net decrease in cash and cash equivalents......................... (6,154) (8,850)
Cash and cash equivalents at beginning of period.................. 51,881 55,568
-------- --------
Cash and cash equivalents at end of period........................ $ 45,727 $ 46,718
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest..................................................... $ 15 $ 17
See notes to consolidated financial statements.
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Number of Additional Other
Common Common Paid-in Accumulated Comprehensive
Shares Stock Capital Other Deficit Income Total
--------- -------- ---------- ------- ----------- ------------- --------
<C> <C> <C> <C> <C> <C> <C>
<S>
Balances at December 31, 1996.... 17,565 $ 176 $ 249,804 $ (133,734) $116,246
Stock options exercised........ 403 4 3,609 3,613
Restricted stock amortized..... 426 426
Retirement of restricted
stock.......................... (32) (1) (368) (369)
Adjustment to paid-in capital
for deferred compensation...... 905 905
Notes receivable from
shareholders................... $ (4,704) (4,704)
Net loss....................... (35,081) (35,081)
------- -------- --------- -------- ---------- ------------ --------
Balances at December 31, 1997.... 17,936 179 254,376 (4,704) (168,815) 81,036
Comprehensive income (loss)
Net loss..................... (2,717) (2,717)
Other comprehensive income,
net of tax, related to
unrealized gains on
securities................... $ 43 43
--------
Comprehensive income (loss).... (2,674)
Stock options exercised........ 20 160 160
Restricted stock amortized..... 58 58
Retirement of restricted
stock.......................... (31) (344) (344)
Notes receivable from
shareholders................... (75) (75)
------- -------- --------- -------- ---------- ------------ --------
Balances at March 31, 1998....... 17,925 $ 179 $ 254,250 $ (4,779) $ (171,532) $ 43 $ 78,161
======= ======== ========= ======== ========== ============ ========
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
- ---------------------
Maxicare Health Plans, Inc., a Delaware corporation ("MHP"), is a
holding company which owns various subsidiaries, primarily health
maintenance organizations ("HMOs"). The accompanying unaudited
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all
adjustments considered necessary for a fair presentation, which
consist solely of normal recurring adjustments, have been
included. All significant inter-company balances and
transactions have been eliminated.
For further information on MHP and subsidiaries (collectively the
"Company") refer to the consolidated financial statements and
accompanying footnotes included in the Company's annual report on
Form 10-K as filed with the Securities and Exchange Commission
for the year ended December 31, 1997.
Net Income Per Common Share
- ---------------------------
Effective December 15, 1997 the Company was required to adopt
Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings per Share." SFAS No. 128 requires the presentation of
"basic earnings per share" (which excludes dilution) and "diluted
earnings per share" as replacements for primary earnings per
share and fully diluted earnings per share. Restatement of all
earnings per share calculations presented in the financial
statements is required by SFAS No. 128.
Basic earnings per share is computed by dividing net income
available to common shareholders by the weighted average number
of common shares outstanding.
Diluted earnings per share is 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, when such effect would
be to dilute earnings.
Comprehensive Income
- --------------------
As of January 1, 1998, the Company adopted SFAS No. 130
"Reporting Comprehensive Income." SFAS No. 130 requires the
reporting and display of comprehensive income and its components.
SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale and held-to-maturity securities to be included
in other comprehensive income.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
The Company reported a net loss of $2.7 million for the three
months ended March 31, 1998 compared to a net loss of $9.9 million
for the same three month period in 1997. The net loss of $9.9
million for the three months ended March 31, 1997 included a $16.0
million litigation charge. The Company's net loss per common share
was $.15 for the first quarter of 1998 compared to a net loss per
common share of $.56 for the same period in 1997.
Revenues were $180.4 million for the first quarter of 1998, an
increase of $25.9 million or 16.8% when compared to the same
period in 1997. Commercial premiums increased $3.9 million or 3.4%
to $119.0 million as a result of a 4.1% increase in membership
primarily in California and Indiana, offset in part by a .7%
decline in the average commercial premium revenue per member per
month ("PMPM"). Governmental premiums increased $21.3 million or
54.3% to $60.6 million as a result of an 85.4% increase in
membership primarily generated by growth in the Medicaid line of
business in California and Indiana. The average premium revenue
PMPM for the Medicaid line of business decreased by 14.9% due to
greater growth in California which has a lower average premium
revenue PMPM while the average premium revenue PMPM for the
Medicare line of business increased by 4.3%. The decline in the
average premium revenue PMPM for the Medicaid line of business,
along with the greater growth in membership for the Medicaid line
of business as compared to Medicare, resulted in an overall
decrease of 16.8% in the average governmental premium revenue
PMPM. For the foreseeable future it is anticipated that the
average governmental premium revenue PMPM will decline as the
expected membership growth in the lower premium revenue PMPM
Medicaid line of business is anticipated to exceed the membership
growth in the higher premium revenue PMPM Medicare line of
business.
Health care expenses increased 23.4% or $32.1 million in the first
quarter of 1998 as compared to the first quarter of 1997; and,
health care expenses as a percentage of premium revenues (the
"medical loss ratio") increased to 94.2%. The increase in health
care expenses principally results from the increase in membership
and higher prescription drug costs. For the foreseeable future it
is anticipated that the Company will continue to experience higher
prescription drug costs; however, the Company will be implementing
enhanced procedures and controls in mid 1998 to promote cost
effective use of its prescription drug benefit.
<PAGE>
Marketing, general and administrative ("M,G&A") expenses for the
first quarter of 1998 increased as a percentage of revenues from
8.4% in the first quarter of 1997 to 8.5% in the first quarter of
1998. M,G&A expenses were $15.4 million for the first quarter of
1998 compared to $13.0 million for the first quarter of 1997.
The Company recorded in the first quarter of 1997 a $16.0 million
litigation charge as a result of a ruling by the Commonwealth of
Pennsylvania Board of Claims denying the Company recovery on its
receivable of $15.0 million due the Company from the Pennsylvania
Department of Public Welfare and related litigation costs.
Net investment income for the first quarter of 1998 decreased by
$.2 million to $1.6 million as compared to the same period in
1997. The decreased net investment income was due to lower cash
and investment balances as well as lower investment yields.
The Company reported a $26,000 provision for income taxes for the
three months ended March 31, 1998 and an offsetting income tax
benefit of $26,000 due to the Company increasing its deferred tax
asset. The Company reported a $54,000 provision for income taxes
for the three months ended March 31, 1997 and an offsetting income
tax benefit of $54,000 due to the Company increasing its deferred
tax asset.
On March 19, 1998, Paul R. Dupee, Jr. and a group of other
shareholders holding approximately 5% of the Company's stock (the
"Dupee Group"), filed proxy solicitation materials with the
Securities and Exchange Commission to obtain written consents from
the Company's shareholders to enact various proposals. On May 8,
1998, the Company entered into a settlement with the Dupee Group
wherein the Company agreed, among other things, to reimburse
Dupee's costs and expenses related to solicitation of
shareholders' consent to the proposals and negotiation of the
settlement, in an amount not to exceed $450,000. In addition, the
Company has incurred fees and expenses for various legal and
professional services in responding to the actions initiated by
the Dupee Group. The Company estimates that approximately $1.2
million of expenses (which includes the estimated reimbursement of
Dupee's costs and expenses) will be recorded in the second quarter
of 1998 in connection with this matter. For a further discussion
of this matter see "Part II, Item 1, Legal Proceedings - a. DUPEE;
and Item 4, Submission of Matters to a Vote of Security Holders."
Liquidity and Capital Resources
All of MHP's operational subsidiaries are direct subsidiaries of
MHP. The Company's HMOs are federally qualified and are licensed
in the states where they operate. Certain of MHP's operating
subsidiaries are subject to state regulations which require
compliance with certain statutory deposit, dividend distribution
and net worth requirements. To the extent the operating
<PAGE>
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 March 31, 1998, 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". Restricted Net Assets of these operating
subsidiaries were $35.0 million at March 31, 1998, with deposit
requirements and limitations imposed by state regulations on the
distribution of dividends representing $14.0 million and $6.9
million of the Restricted Net Assets, respectively, and net worth
requirements in excess of deposit requirements and dividend
limitations representing the remaining $14.1 million. The
Company's total Restricted Net Assets at March 31, 1998 were $35.3
million. In addition to the $7.1 million in cash, cash
equivalents and marketable securities held by MHP, approximately
$8.9 million in funds held by operating subsidiaries could be
considered available for transfer to MHP at March 31, 1998.
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 1.8 and less than $200,000 of long-term
liabilities at March 31, 1998, the Company does not believe that
it will need additional working capital to fund its operations for
the foreseeable future. However, the Company is presently pursuing
obtaining a committed line of credit to supplement its working
capital. Although the Company believes that it will be able to
secure a committed line of credit or raise additional working
capital through either an equity offering or borrowings if it so
desired, the Company cannot state with any degree of certainty at
this time whether additional equity capital or working capital
would be available to it, and if available, would be at terms and
conditions acceptable to the Company.
Forward Looking Information
General - This Quarterly Report on Form 10-Q contains and
incorporates by reference forward looking statements within the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Reference is made in particular to the
discussion set forth under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations". Such
statements are based on certain assumptions and current
expectations that involve a number of risks and uncertainties, many
of which are beyond the Company's control. These risks and
uncertainties include limitations on premium levels, greater than
<PAGE>
anticipated increases in healthcare expenses, benefit mandates,
variances in anticipated enrollment as a result of competition or
other factors, changes to the laws or funding of Medicare and
Medicaid programs, and increased regulatory requirements of
dividending, minimum capital, reserve and other financial solvency
requirements. These statements are forward looking and actual
results could differ materially from those projected in the forward
looking statements, which statements involve risks and
uncertainties. In addition, past financial performance is not
necessarily a reliable indicator of future performance and
investors should not use historical performance to anticipate
results or future period trends. Shareholders are also directed to
disclosures in this and other documents filed by the Company with
the Securities and Exchange Commission.
Business Strategy - The Company's business strategy includes
strengthening its position in the markets it serves by: marketing
an expanded range of managed care products and services, providing
superior service to the Company's members and employer groups,
enhancing long-term relationships and arrangements with health care
providers, and selectively targeting geographic areas within a
state for expansion through increased penetration or development of
new areas. The Company continually evaluates opportunities to
expand its business as well as evaluates the investment in these
businesses. In December 1997, the Company undertook a
restructuring of management and commenced a re-evaluation of the
Company's operations and businesses with a view towards enhancing
the Company's operations and focusing on the Company's operations
which have generated substantially all of the membership growth and
profits in recent years. For the three months ended March 31, 1998
the Company experienced a loss from operations of approximately
$4.2 million for its Illinois and Carolinas health plans. The
Company is currently reviewing and pursuing strategic alternatives
with respect to these and its other health plans which may include
dispositions and or acquisitions in support of the Company's
business strategy.
PART II: OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
-----------------
The information contained in "Part I, Item 3 Legal Proceedings" of
the Company's 1997 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. DUPEE
Paul R. Dupee, Jr. ("Dupee") and a group of other shareholders
holding approximately 5% of the Company's outstanding stock (the
"Dupee Group"), filed proxy solicitation materials with the
Securities and Exchange Commission ("SEC") on March 19, 1998 (the
<PAGE>
"Dupee Consent Solicitation") to obtain written consents from the
Company's shareholders to enact three proposals (the "Dupee
Proposals"). The Dupee Proposals sought to: (1) repeal any
amendments to the Company's bylaws ("Bylaws") adopted by the
Company's Board of Directors ("Board") since February 1, 1998; (2)
amend the Bylaws to increase the number of authorized directors to
17 and to provide that Article II, Section 14 of the Bylaws shall
not apply to nominees elected to the Board by written consent of
the Company's shareholders; ((1) and (2) collectively the
"Amendments"); and (3) fill the new directorships with a slate of
10 nominees proposed by Dupee. In connection with the filing of
the Dupee Proposals with the SEC, Dupee commenced two actions in
Delaware.
On March 19, 1998, Dupee commenced an action in the United States
District Court for the District of Delaware captioned Paul R.
Dupee, Jr. v. Maxicare Health Plans, Inc., for a declaratory
judgment that the proxy solicitation materials comply with
applicable Federal law and injunctive relief against the Company
challenging the Dupee Consent Solicitation under Rule 14a-9
promulgated by the SEC pursuant to Section 14(a) of the Securities
Exchange Act of 1934 ("District Court Action"). (Civ. Act. No. 98-
127).
In addition to the District Court Action, Dupee filed a complaint
on March 19, 1998, in the Court of Chancery of the State of
Delaware for New Castle County, captioned Paul R. Dupee, Jr. v.
Maxicare Health Plans, Inc., Claude S. Brinegar, Charles E. Lewis,
Florence F. Courtright, Thomas W. Field, Jr. Alan S. Manne, and
Peter J. Ratican, for a declaratory judgment and injunctive relief
naming the Company's directors as defendants ("State Court
Action"). (Civ. Act. No. 16274NC). In the State Court Action Dupee
sought a declaratory judgment that: (a) the Amendments can be
enacted by holders of a majority of the Company's outstanding
voting shares ("Majority Vote"); (b) the Board cannot amend the
Bylaws or take other action to require approval of the Amendments
by a supermajority of the holders of the Company's outstanding
voting shares; (c) Article II, Section 14 of the Bylaws only
applies to directors elected at an annual or special meeting of the
Company's shareholders and will not or does not apply to nominees
elected to the Board by written consent of the Company's
shareholders; (d) the Board cannot enact any other amendments to
the Bylaws, enact new bylaws or take any other action to interfere
with, obstruct, undermine, delay, repeal, or amend the Amendments,
if the Amendments are approved by Majority Vote, and that such
action would be a violation of the Bylaws, the Company's
Certificate of Incorporation, Delaware law and a breach of the
Board's fiduciary duties; and (e) the Shareholder Rights Plan and
in particular the provisions thereof relating to the rights of
"Continuing Directors", as such term is defined in the Shareholder
Rights Plan, ("Dead Hand Provision") is invalid and unenforceable
under Delaware law. The State Court Action also seeks preliminary
<PAGE>
and permanent injunctive relief enjoining the Company's directors
from enforcing or implementing the Shareholder Rights Plan, or from
taking any action that prevents newly elected directors from
repealing the Shareholder Rights Plan or any rights issued pursuant
to the plan.
On March 30, 1998, the Company filed an answer and counterclaim to
each of the District Court Action (the "District Court Response")
and the State Court Action (the "State Court Response"). In the
District Court Response, the Company has denied each of the claims
and certain of the factual allegations made by Dupee in the
District Court Action and has challenged the validity of the Dupee
Consent Solicitation on the basis that the solicitation does not
comply with applicable federal securities and Delaware law. In
addition, the Company has asserted that the Dupee Consent
Solicitation is materially false and misleading and omits material
facts in violation of Section 14(a) and Rule 14a-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Accordingly, the Company has asked that the District Court (a)
dismiss the District Court Action with prejudice, (b) issue a
declaratory judgment that Dupee is violating Section 14(a) and Rule
14a-9 of the Exchange Act, (c) enjoin the Dupee Consent
Solicitation and the continuing violation of Section 14(a) and Rule
14a-9 of the Exchange Act by Dupee and all those acting in concert
with him, and (d) award the Company the costs of the suit and such
further relief as the District Court may deem just and proper.
In the State Court Response, the Company denied each of the claims
and certain of the factual allegations made by Dupee in the State
Court Action and asked that the State Court (a) dismiss the State
Court Action with prejudice, (b) issue a declaratory judgment that
under Article Sixth of the Company's Certificate of Incorporation
("Certificate"), the Board has the authority to adopt, amend or
repeal the Bylaws and that Dupee's attempt to alter that right
through an amendment to the Bylaws is invalid under Delaware law,
(c) issue a declaratory judgment that the Dupee Proposals to amend
the Bylaws and elect ten additional directors are invalid under
Delaware law, (d) preliminarily and permanently enjoin Dupee and
the other members of his group from taking any actions in
furtherance of illegal and invalid attempts to amend the Bylaws,
and (e) award the Company the costs of the suit and such further
relief as the State Court may deem just and proper.
The Company has entered into a settlement agreement with the Dupee
Group (the "Dupee Settlement") in which the Dupee Group agreed to
terminate the Dupee Consent Solicitation and Dupee and the Company
agreed to dismiss the State Court Action and the State Court
Response and the District Court Action and the District Court
Response (collectively the "Dupee Litigations"). Under the Dupee
Settlement the Dupee Litigations have been dismissed with prejudice
with the provision that the dismissal shall not have preclusive
effect with respect to claims arising from action taken or failure
<PAGE>
to be taken on and after May 8, 1998, by the Company, the Board,
Dupee, or any other current or future shareholder of the Company.
Accordingly, the Company will no longer be reporting on the Dupee
Litigations.
The Dupee Settlement also provides: (a) for an increase in the
number of the Company's authorized directors from 7 to 9 pursuant
to Article III, Section 2 of the Bylaws; (b) that the one vacant
directorship and the two newly created directorships will be filled
by Dupee, Mr. Elwood I. Kleaver, Jr., and Mr. Robert M. Davies
("New Directors"); (c) that the Company will use its best efforts
to hold the 1998 annual shareholders meeting ("1998 Meeting") no
later than July 31, 1998, and that the record date for the 1998
Meeting will be no later than June 15, 1998; and (d) Ms. Florence
F. Courtright and Messrs. Kleaver and Dupee will be included in the
slate of nominees recommended by the Board for election ("Company
Slate") at the 1998 Meeting. Pursuant to the Dupee Settlement the
Company has agreed to certain amendments to the Company's
Certificate ("Certificate Amendments"), Bylaws ("Bylaw Amendments")
and to the Shareholder Rights Plan (collectively, "1998
Amendments"). The 1998 Amendments are contingent on the election
of the Company Slate at the 1998 Meeting. The proposed Certificate
Amendments provide for: (1) an amendment of Article Fifth of the
Certificate to increase the Board to 9 members until conclusion of
the 1999 annual shareholders meeting ("1999 Meeting") to be held no
later than June 30, 1999 ("Amendment Termination Date"); and (2)
the addition of a new Article Thirteenth to the Certificate which
eliminates shareholder action by written consent and the
shareholders' ability to call a special meeting of the shareholders
through the Amendment Termination Date. Pursuant to the Bylaw
Amendments, which are contingent on adoption of the proposed
Certificate Amendments, Article III will be amended to add a new
Section 15 prohibiting the Board from adopting any Bylaws or taking
any other action that interferes with shareholders' rights to
nominate and elect three directors at the 1999 Meeting, unless such
action is approved by the shareholders. In addition the Bylaw
Amendments will also repeal the amendments to the Bylaws adopted by
the Board on March 28, 1998, that require a super majority
shareholder vote to take certain action. Subject to election of the
Company Slate and adoption of the Certificate Amendments and Bylaw
Amendments, the Company will recommend that shareholders approve an
amendment to the Shareholder Rights Plan to delete the Dead Hand
Provision.
Pursuant to the Dupee Settlement the Company has agreed that prior
to the conclusion of the 1999 Meeting it will not issue voting
stock that in the aggregate carries more than 20% of the voting
power of the Company's presently outstanding common stock (except
for shares issuable pursuant to stock options or pursuant to the
Shareholder Rights Plan), unless such action is adopted by two of
the three New Directors or approved by a majority vote of the
<PAGE>
Company's shareholders. The Company has also agreed, subject to
the consent of the shareholders, to reimburse Dupee's costs and
expenses related to solicitation of shareholders' consent to the
Dupee Proposals and negotiation of the Dupee Settlement, in an
amount not to exceed $450,000 (the "Dupee Expenses").
As part of the Dupee Settlement, shareholders (including the Dupee
Group) holding in the aggregate approximately 51% of the Company's
current outstanding shares, have agreed to the terms of the Dupee
Settlement including the payment prior to the 1998 Meeting of the
Dupee Expenses and to vote for the Company Slate and the 1998
Amendments at the 1998 Meeting.
b. FOUNDATION FOR MEDICAL CARE
On February 16, 1998, The Foundation For Medical Care of Central
Illinois ("Foundation") filed a complaint in the State of Illinois
Circuit Court, Sangamon County, captioned The Foundation For
Medical Care of Central Illinois v. Maxicare Illinois a division of
Maxicare Health Plans of the Midwest, Inc., for declaratory
judgment and a preliminary injunction arising out of the
Foundation's termination of a provider agreement with the Company's
Illinois HMO ("Agreement"). (Case No. MR0057). In the complaint
the Foundation has alleged that it has an obligation to continue to
provide covered medical services ("Continuation of Care
Obligation") only to members of the Illinois HMO enrolled with the
Foundation with a Group Service Agreement having an annual renewal
date after January 1, 1996 and only until the first annual renewal
date of the Group Service Agreement following January 1, 1996
("Continued Groups"). The Foundation further contends in the
Complaint that it has no Continuation of Care Obligation as to
Illinois HMO members with a renewal date of January 1, 1996, and
members in the Continued Groups after the first annual renewal date
of their Group Service Agreement following January 1, 1996
("Remaining Groups").
In the complaint the Foundation initially sought (i) a declaratory
judgment concerning its Continuation of Care Obligation to members
of the Illinois HMO and the amount and methodology under which the
Foundation should be compensated for the provision of covered
medical services, (ii) a preliminary injunction directing the
Illinois HMO to tender capitation payments to the Foundation for
services rendered after January 1, 1996 in the amount provided in
the Agreement for the Continued Groups and, for members in the
Remaining Groups in an amount equal to the costs to administer and
reimburse providers at their regular fees and (iii) preliminary
injunction enjoining the Illinois HMO from renewing existing
subscriber contracts and enrolling new Illinois HMO members in the
Springfield area. The Illinois HMO filed its answer to the
complaint, amended affirmative defenses and counterclaims on March
26, 1996. The parties are presently engaged in discovery. A trial
date has not been set by the Court.
<PAGE>
Pursuant to an interim agreement between the parties, the
Foundation agreed to continue to provide covered services to the
Illinois HMO's members and the Illinois HMO agreed to deposit
capitation payments into a segregated account and to approve
disbursements to the Foundation from the account for claims for
covered services provided to the Illinois HMO's members and
adjudicated pursuant to a fee schedule, with full reservation of
the parties' respective rights. Pursuant to a partial settlement
agreement subsequently executed by the parties, the Foundation's
claim for injunctive relief, the Company's counterclaim for
tortious interference with economic advantage, and the Company's
affirmative defenses were resolved. The parties further agreed
that the value of the covered services provided to certain Illinois
HMO members during 1996 would be determined by the Court in a
trial.
The capitation payments deposited by the Illinois HMO into the
segregated account exceed the amount of claims Foundation
represented were incurred and payable by approximately $943,000
("Segregated Balance") as of May 13, 1998. The Foundation is
seeking $3.9 million in damages plus interest in excess of the
Segregated Balance and a capitation payment in the approximate
amount of $139,000 plus interest which the Foundation contends is
unpaid. The Company believes that the Foundation's damages are
substantially overstated and that the Foundation's damages do not
exceed the Segregated Balance. Accordingly, the Company does not
believe that resolution of this action will have a material adverse
impact on the Company's operations or financial condition.
c. OTHER LITIGATION
The Company is a defendant in a number of other lawsuits arising in
the ordinary course from its operations, including cases in which
the plaintiffs assert claims against the Company or third parties
that assert breach of contract, 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
seeking compensatory, fraud and, in certain instances, punitive
damages and RICO claims in an indeterminate amount which may be
material and/or seeking other forms of equitable relief. The
Company does not believe that the ultimate determination of these
cases will either individually or in the aggregate have a material,
adverse effect on the Company's business or operations.
Item 2: Change in Securities
--------------------
None
Item 3: Defaults Upon Senior Securities
-------------------------------
None
<PAGE>
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Paul R. Dupee, Jr. ("Dupee") and a group of other
shareholders holding approximately 5% of the Company's
outstanding stock (the "Dupee Group"), filed proxy
solicitation materials with the Securities and Exchange
Commission ("SEC") on March 19, 1998 (the "Dupee Consent
Solicitation") to obtain written consents from the
Company's shareholders to enact three proposals (the "Dupee
Proposals"). Prior to the commencement by the Dupee Group
of the solicitation of consents from the shareholders of
the Company for the Dupee Proposals, the Company and the
Dupee Group entered into a settlement agreement pursuant to
which the Dupee Group agreed to terminate the Dupee Consent
Solicitation and the Dupee Proposals and the parties agreed
to dismiss with prejudice certain related litigations (the
"Dupee Settlement"). For a further discussion of the terms
of the Dupee Settlement and the related litigations see
"Part II, Item 1, Legal Proceedings - a. DUPEE." Pursuant
to the Dupee Settlement the Company has agreed to reimburse
the Dupee Group for their costs and expenses related to
solicitation of shareholders' consent to the Dupee
Proposals and negotiation of the Dupee Settlement, in an
amount not to exceed $450,000 subject to verification and
consent of a majority of the Company's shareholders to such
payment. The Company has received such consents from
shareholders representing 51% of the outstanding shares.
See "Part I, Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Item 5: Other Information
-----------------
None
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 10.3i. Amendment No. 2 to the Amended and
Restated Employment and Indemnification Agreement by
and between Maxicare Health Plans, Inc. and Peter J.
Ratican, dated as of March 28, 1998.
Exhibit 10.3j. Amendment No. 3 to the Amended and
and Restated Employment and Indemnification
Agreement by and between Maxicare Health Plans Inc.
and Peter J. Ratican, dated as of May 8, 1998.
<PAGE>
Exhibit 10.9f. Amendment No. 1 to the Employment
and Indemnification Agreement by and between
Maxicare Health Plans, Inc. and Richard A. Link,
dated as of May 8, 1998.
Exhibit 10.87a. Amendment No. 1 to the Maxicare
Health Plans, Inc. Supplemental Executive Retirement
Plan dated as of March 28, 1998.
Exhibit 10.87b. Amendment No. 2 to the Maxicare
Health Plans, Inc. Supplemental Executive Retirement
Plan dated as of May 8, 1998.
Exhibit 10.89. Dupee Group Settlement Agreement by
and between American Opportunity Trust, Paul R.
Dupee, Jr., J.O. Hambro Capital Management Limited,
J.O. Hambro Investment Management, and North
Atlantic Smaller Companies Investment Trust and
Maxicare Health Plans, Inc., dated as of May 8,
1998, including Exhibit A, "Resolutions to be
Adopted by the Shareholders of Maxicare Health
Plans, Inc. at the 1998 Annual Meeting," and
Exhibits I and II, form of stipulations dismissing
litigation.
Exhibit 10.89a. Form of Voting Agreement including
Exhibit A, "Resolutions to be Adopted by the
Shareholders of Maxicare Health Plans, Inc. at the
1998 Annual Meeting."
(b) Reports on Form 8-K
-------------------
February 24, 1998 - Item 5. Other Events:
On February 24, 1998 the Board of Directors of the
Company adopted a Shareholder Rights Plan and
declared a dividend distribution of one preferred
share purchase right for each outstanding share of
the Company's Common Stock.
<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)
May 15, 1998 /s/ RICHARD A. LINK
------------ ---------------------------
Date Richard A. Link
Chief Financial Officer and
Executive Vice President -
Finance and Administration
Exhibit 10.3i
AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
EMPLOYMENT AND INDEMNIFICATION AGREEMENT
This Amendment No. 2 to the Amended and Restated
Employment and Indemnification Agreement as amended by Amendment
No. 1 thereto dated as of February 11, 1997 (collectively the
"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") and
is dated as of March 28, 1998.
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 the Agreement, exerting particularly diligent efforts
in such capacities on behalf of the Company;
WHEREAS, the Company and the Executive have agreed to
amend the Agreement to modify the terms of: (i) Sections 7(f)
and 8(a) relating to termination of the Agreement upon a "Change
of Control" as such term is defined in Section 1 of the Agreement
and (ii) Section 10 relating to the "Sale Bonus" as such term is
defined in Section 10 of the Agreement; and
NOW, THEREFORE, in consideration of the terms and
conditions hereinafter set forth, the Company and Executive agree
as follows:
1. Section 7(f) of the Agreement is amended to add the
following at the end of such Section:
"... or this Agreement is terminated pursuant to
Sections 7(a), 7(b), 7(c) or 7(e) above within one
hundred and twenty (120) days after a Change of
Control."
2. Sections 8(a) (iii) and 8(a) (iv) are amended to
add the following at the beginning of each Section:
"Except in the event Executive's termination
benefits are covered by Section 8(a) (ii) above in
which case the provision of that section shall
govern the payments due to the Executive,..."
3. Section 10 of the Agreement is amended to delete
<PAGE>
the last paragraph thereof and to replace it with the following:
"Notwithstanding any other provision of this
Agreement, Executive shall nevertheless be entitled
to his Sale Bonus if Executive's employment
terminates pursuant to: (a) Section 7(b) for Good
Reason or Section 7(e) hereof: (i) prior to a
change of Control and the relevant sale agreement
is executed by all the parties thereto within
ninety (90) days after the date of Executive's
termination or (ii) after a Change of Control and
the relevant sale agreement is executed by all the
parties thereto prior to April 1, 2001 or such
other date thereafter as the term of this Agreement
may be extended to; or (b) Section 7(f) and the
relevant sale agreement is executed by all the
parties thereto within one year from the date of
Executive's termination; notwithstanding the
foregoing, Section 10(a) and not Section 10(b) will
apply with respect to any termination as a result
of Section 7(b) for Good Reason or Section 7(e)."
4. Except as expressly set forth herein, all of the
terms and conditions contained in the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, this Amendment No. 2 to the
Agreement has been executed as of the date first above written.
EXECUTIVE MAXICARE HEALTH PLANS, INC.
/s/ Peter J. Ratican /s/ Alan Bloom
Peter J. Ratican
By: /s/ Alan Bloom
Its: Secretary
Exhibit 10.3j
AMENDMENT NO. 3 TO THE AMENDED AND RESTATED
EMPLOYMENT AND INDEMNIFICATION AGREEMENT
This Amendment No. 3 to the Amended and Restated
Employment and Indemnification Agreement dated as of April 1,
1996, as amended by Amendment No. 1 thereto dated as of February
11, 1997 and Amendment No. 2 thereto dated March 28, 1998
(collectively the "Agreement"), is made by and between MAXICARE
HEALTH PLANS, INC., a Delaware corporation (the "Company"), and
Peter J. Ratican, an individual ("Executive") and is dated as of
May 8, 1998.
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 the Agreement, exerting particularly diligent efforts
in such capacities on behalf of the Company;
WHEREAS, the Company has entered into an Agreement of
even date herewith (the "Dupee Settlement") with Paul R. Dupee,
Jr. ("Dupee") and certain of the Company's shareholders who
joined with Dupee (collectively the "Dupee Group") in a Written
Consent Action with respect to the Company dated March 19, 1998
(the "Consent Solicitation");
WHEREAS, certain other shareholders, who combined with
the Dupee Group control in excess of 50% of the outstanding
shares of the Company, have agreed to support certain terms of
the Dupee Settlement which provides for the election of three new
members to the Company's Board of Directors who have been
suggested by Dupee or such shareholders (the "New Directors"),
the dismissal of certain pending litigation between the Company
and Mr. Dupee and Mr. Dupee's termination of his Consent
Solicitation;
WHEREAS, the Company and Executive wish to clarify any
ambiguities with respect to the "Change of Control" or other
provisions of the Employment Agreement raised by the election of
the New Directors to the Board; and
NOW, THEREFORE, in consideration of the terms and
conditions hereinafter set forth, the Company and Executive agree
as follows:
1. Section 1. Definitions. (e) "Continuing
Directors" shall be changed to add at the end thereof the
following:
<PAGE>
"Notwithstanding anything to the contrary
contained elsewhere herein or the
definition of "Continuing Directors"
above, neither Paul R. Dupee, Jr., Elwood
Kleaver, Robert Davies, nor any other
person initially elected to the Board of
Directors at or before the Company's 1998
Annual Meeting of Shareholders, pursuant
to the terms of that certain Agreement
dated as of May 8, 1998 between the
Company and Paul R. Dupee, Jr. and certain
other parties shall be considered a
"Continuing Director" as such term is
defined in the Agreement."
2. Except as expressly set forth herein, all of the
terms and conditions contained in the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, this Amendment No. 3 to the
Agreement has been executed as of the date first above written.
EXECUTIVE MAXICARE HEALTH PLANS, INC.
/s/ Peter J. Ratican /s/ Alan Bloom
Peter J. Ratican
By: /s/ Alan Bloom
Its: Secretary
Exhibit 10.9f
AMENDMENT NO. 1 TO
THE EMPLOYMENT AGREEMENT
This Amendment No. 1 to the Employment Agreement dated
as of December 11, 1997 (the "Agreement"), is made by and between
MAXICARE HEALTH PLANS, INC., a Delaware corporation (the
"Company"), and Richard A. Link, an individual ("Executive") and
is dated as of May 8, 1998.
R E C I T A L S
WHEREAS, Executive presently serves as Executive Vice
President and Chief Financial Officer of the Company pursuant to
the Agreement, exerting particularly diligent efforts in such
capacities on behalf of the Company;
WHEREAS, the Company has entered into an Agreement of
even date herewith (the "Dupee Settlement") with Paul R. Dupee,
Jr. ("Dupee") and certain of the Company's shareholders who
joined with Dupee (collectively the "Dupee Group") in a Written
Consent Action with respect to the Company dated March 19, 1998
(the "Consent Solicitation");
WHEREAS, certain other shareholders, who combined with
the Dupee Group control in excess of 50% of the outstanding
shares of the Company, have agreed to support certain terms of
the Dupee Settlement which provides for the election of three new
members to the Company's Board of Directors who have been
suggested by Dupee or such shareholders (the "New Directors"),
the dismissal of certain pending litigation between the Company
and Mr. Dupee and Mr. Dupee's termination of his Consent
Solicitation;
WHEREAS, the Company and Executive wish to clarify any
ambiguities with respect to the "Change of Control" or other
provisions of the Employment Agreement raised by the election of
the New Directors to the Board; and
NOW, THEREFORE, in consideration of the terms and
conditions hereinafter set forth, the Company and Executive agree
as follows:
1. Section 1. Definitions. (e) "Continuing
Directors" shall be changed to add at the end thereof the
following:
"Notwithstanding anything to the contrary
contained elsewhere herein or the
<PAGE>
definition of "Continuing Directors"
above, neither Paul R. Dupee, Jr., Elwood
Kleaver, Robert Davies, nor any other
person initially elected to the Board of
Directors at or before the Company's 1998
Annual Meeting of Shareholders, pursuant
to the terms of that certain Agreement
dated as of May 8, 1998 between the
Company and Paul R. Dupee, Jr. and certain
other parties shall be considered a
"Continuing Director" as such term is
defined in the Agreement."
2. Except as expressly set forth herein, all of the
terms and conditions contained in the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, this Amendment No. 1 to the
Agreement has been executed as of the date first above written.
EXECUTIVE MAXICARE HEALTH PLANS, INC.
/s/ Richard A. Link /s/ Alan Bloom
Richard A. Link
By: /s/ Alan Bloom
Its: Secretary
Exhibit 10.87a
AMENDMENT NO. 1 TO
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Amendment No. 1 to the Supplemental Executive
Retirement Plan ("SERP") of Maxicare Health Plans, Inc., a Delaware
corporation (the "Company") is hereby adopted effective as of March
28, 1998.
Section 5.03 shall be amended to add, "If a Participant
terminates employment with the Employer pursuant to a change of
control clause in such Participant's employment agreement, "at the
beginning of the paragraph such that following the amendment, the
section shall read in its entirety as follows:
5.03. Change of Control. If a Participant terminates
employment with the Employer pursuant to a change of
control clause in such Participant's employment
agreement, or if, within two (2) years after a Change of
Control, a Participant is terminated from employment
with the Employer or its successor, the Plan is
terminated, the Participant's designation as an
Executive is revoked, or the Employer or its successor
attempts to cancel or reduce the Participant's projected
Retirement Income Benefit as determined immediately
prior to such event, then the Participant shall be
immediately 100% vested in his Retirement Income
Benefit, as determined immediately prior to such event,
and payment of such benefit shall commence to the
Participant at such time as the Participant shall elect
in writing, subject to any reduction pursuant to Section
5.02 if such commencement is prior to the Participant's
Normal Retirement Date.
IN WITNESS WHEREOF, Maxicare Health Plans, Inc. has
executed this Amendment No. 1 to the Supplemental Executive
Retirement Plan as of the 28th day of March, 1998.
MAXICARE HEALTH PLANS, INC.
By: /s/ Peter J. Ratican
Its: President
Exhibit 10.87b
AMENDMENT NO. 2 TO
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Amendment No. 2 to the Supplemental Executive
Retirement Plan (the "Plan") of Maxicare Health Plans, Inc., a
Delaware corporation (the "Company") is hereby adopted effective
as of May 8, 1998.
R E C I T A L S
WHEREAS, the Company has entered into an Agreement
of even date herewith (the "Dupee Settlement") with Paul R.
Dupee, Jr. ("Dupee") and certain of the Company's shareholders
who joined with Dupee (collectively the "Dupee Group") in a
Written Consent Action with respect to the Company dated March
19, 1998 (the "Consent Solicitation");
WHEREAS, certain other shareholders, who combined
with the Dupee Group control in excess of 50% of the outstanding
shares of the Company, have agreed to support certain terms of
the Dupee Settlement which provides for the election of three new
members of the Company's Board of Directors who have been
suggested by Dupee or such shareholders (the "New Directors"),
the dismissal of certain pending litigation between the Company
and Mr. Dupee and Mr. Dupee's termination of his Consent
Solicitation;
WHEREAS, the Company wishes to clarify any
ambiguities with respect to the "Change of Control" or other
provisions of the Plan raised by the election of the New
Directors to the Company's Board pursuant to the terms of the
Dupee Settlement; and
NOW, THEREFORE, in consideration of the terms and
conditions hereinafter set forth, the Company agrees as follows:
1. Section 1.05 Definitions - The last paragraph
setting forth the definition of a "Continuing Director" shall be
changed to add at the end of thereof the following:
"Notwithstanding anything to the contrary
contained elsewhere herein or in the
definition of a "Continuing Director"
above, neither Paul R. Dupee, Jr., Elwood
Kleaver, Robert Davies, nor any other
person initially elected to the Board of
Directors at or before the Company's 1998
<PAGE>
Annual Meeting of Shareholders, pursuant
to the terms of that certain Agreement
dated as of May 8, 1998 between the
Company and Paul R. Dupee, Jr. and
certain other parties shall be considered
a "Continuing Director" as such term is
defined in the Plan."
2. Expect as expressly set forth herein, all of
the terms and conditions contained in the Plan shall remain in
full force and effect.
IN WITNESS WHEREOF, the Company has executed this
Amendment No. 2 to the Supplemental Executive Retirement Plan as
of the 8th day of May, 1998.
MAXICARE HEALTH PLANS, INC.
By: /s/ Peter J. Ratican
Its: President
Exhibit 10.89
AGREEMENT dated as of May 8, 1998 among American
Opportunity Trust, Paul R. Dupee, Jr., J.O. Hambro Capital
Management Limited, J.O. Hambro Investment Management, and North
Atlantic Smaller Companies Investment Trust (collectively, the
"Subscribing Shareholders") and Maxicare Health Plans, Inc. (the
"Company"). Mr. Dupee is also referred to herein as the
"Soliciting Shareholder."
WHEREAS, the parties have entered into this Agreement to
settle disputes between the Company and the Soliciting Shareholder
arising out of the Soliciting Shareholder's solicitation of written
consents from the Company's shareholders (the "Consent
Solicitation"), including litigation between the Soliciting
Shareholder and the Company and certain other parties;
NOW, THEREFORE, in consideration of the agreements
contained herein, the parties agree as follows:
1. Increase in Size of Board, Designation of Directors.
Simultaneously with the execution of this Agreement,
the board of directors of the Company (the "Board")
has adopted resolutions (a) increasing the number of
directors which constitute the Board to nine
pursuant to Article III, Section 2 of the Company's
bylaws (the "Bylaws") and (b) filling the one
existing vacancy and two newly created directorships
on the Board with the following individuals,
pursuant to Article Fifth, Section C of the
Company's certificate of incorporation (the
"Certificate"): Elwood Kleaver, Paul R. Dupee, Jr.,
and Robert M. Davies (collectively, the "New
Directors"). Messrs. Kleaver and Dupee have been
named Class II directors, and Mr. Davies has been
named a Class I director. Mr. Dupee has been added
to the Board's executive committee, which has been
increased in size from three to four members.
2. Renomination of Class II Directors. Messrs. Kleaver
and Dupee and Ms. Florence F. Courtright will be
included in the slate of nominees recommended by the
Board for election as directors (the "Board Slate")
at the Company's 1998 annual meeting of shareholders
(the "1998 Annual Meeting"). The Company will file
preliminary proxy materials for such meeting with
the Securities and Exchange Commission not later
than June 1, 1998, and the record date for such
meeting will be not later than June 15, 1998. The
Company will use its best efforts to hold such
<PAGE>
meeting by July 31, 1998 and to hold the 1999 annual meeting of
shareholders ("1999 Annual Meeting") by June 30, 1999; and if it is
not reasonably practicable to hold any such meeting by such date,
the Company shall use its best efforts to hold such meeting at the
earliest possible date thereafter.
3. Amendments to Bylaws and Certificate Proposed at
1998 Annual Meeting. The Board has approved the
amendments to the Bylaws, Certificate and the rights
agreement between the Company and American Stock
Transfer & Trust Company, as Rights Agent, dated as
of February 24, 1998 (the "Rights Agreement")
attached as Exhibit A (the "Amendments"), subject to
approval of the Amendments by a majority of the
outstanding shares of common stock, par value $.01
per share (the "Shares") at the 1998 Annual Meeting.
The Board will submit the Amendments to a
shareholder vote at the 1998 Annual Meeting and will
recommend approval of the Amendments by shareholders
and will use its best efforts to obtain proxies from
the Company's shareholders to vote in favor of the
Amendments, the Board Slate and the reimbursement of
Soliciting Shareholder expenses pursuant to Section
5. The Subscribing Shareholders will support, and
will cooperate with the Company to cause
shareholders to vote in favor of, the election of
the Board Slate, the adoption of the Amendments and
the reimbursement of such shareholder expenses. If
approved by shareholders, the Amendments will become
effective immediately, subject (in the case of
amendments to the Company's Certificate) to any
required filings of such amendments. Prior to such
shareholder vote, the Board will not change the
number of directors who constitute the Board.
4. Restrictions on Issuance of Voting Stock. Prior to
the beginning of the term of the directors elected
at 1999 Annual Meeting, the Company will not issue
or agree to issue voting stock (excluding stock
issued pursuant to the Rights Plan and shares
issuable under currently outstanding stock options
plus additional option grants consistent with past
practice under existing stock option plans) that in
the aggregate carries more than 20% of the voting
power of the Shares outstanding on the date hereof
without the approval of the requisite vote of the
Board, including the affirmative vote of at least
two of the New Directors (the "Required Director
Vote") or approval by a shareholder vote. Any
voting stock so approved by the Required Director
Vote or by a shareholder vote shall not count
<PAGE>
against such 20% limit unless otherwise provided in such approval.
Any preferred stock (other than preferred stock issued pursuant to
the Rights Agreement) that the Company issues or agrees to issue
after the date hereof and prior to the conclusion of the 1999
Annual Meeting ("New Preferred Stock") will not have the right to
vote as a class except as otherwise provided in the first sentence
of Section 242(b)(2) of the Delaware General Corporation Law. Any
New Preferred Stock which is convertible into Shares ("New
Convertible Preferred Stock") shall not be entitled to more than
one vote per share multiplied by the number of Shares into which a
share of such New Convertible Preferred Stock is convertible. Any
New Preferred Stock that is not convertible into Shares ("New Non-
convertible Preferred Stock") shall not be entitled to more votes
per share than the number of Shares having a market price equal to
the fair market value of such New Non-convertible Preferred Stock
at the time such New Non-convertible Preferred Stock is issued,
taking into account the illiquidity and rights and preferences of
such Non-convertible Preferred Stock.
5. Agreements by Shareholder; Reimbursement of
Expenses. Simultaneously with the execution of this
Agreement, the Soliciting Shareholder is hereby
terminating the Consent Solicitation. The Company
will reimburse the Soliciting Shareholder's fees and
expenses (not to exceed $450,000) related to the
Consent Solicitation and the negotiation of this
Agreement promptly after the satisfaction of the
conditions to such reimbursement subject to
reasonable documentation of such fees and expenses
and approval of such reimbursement by (a) holders of
at least 50% of the outstanding Shares (with such
approval deemed to have been given by all Shares
beneficially owned by the Subscribing Shareholders
or covered by agreements with the Company to vote in
favor of the reimbursement of such expenses at the
1998 Annual Meeting), or (b) the affirmative vote of
the majority of the Shares present in person or by
proxy at the 1998 Annual Meeting and entitled to
vote on such matter. Unless the approval referred
to in (a) above has previously been obtained, the
Board will submit such reimbursement to a
shareholder vote at the 1998 Annual Meeting and will
recommend approval of such reimbursement by
shareholders.
6. Joint Press Release. Simultaneously with the
execution of this Agreement, the Company and the
<PAGE>
Soliciting Shareholder are issuing a joint press release approved
by both parties.
7. Voting Agreement of Subscribing Shareholders. Each
of the Subscribing Shareholders agrees that all
Shares as to which such Subscribing Shareholder or
any of its affiliates has the power to direct the
vote on the record date for the 1998 Annual Meeting,
shall be voted at such meeting in favor of the Board
Slate, the Amendments and the reimbursement of the
Soliciting Shareholder's expenses. If any Shares as
to which a Subscribing Shareholder has the power to
direct the vote are transferred prior to such record
date, such Subscribing Shareholder shall obtain an
agreement from the transferee assuming such
Subscribing Shareholder's obligations under this
sentence and the immediately preceding sentence.
Each of the Subscribing Shareholders agrees that it
will not take any of the following actions in
respect of the Company prior to the 1999 Annual
Meeting: execute a written consent of shareholders
in lieu of a meeting, or solicit any such consents,
or vote for shareholders to call a special meeting
of stockholders or solicit votes for shareholders to
call such a meeting.
8. Termination of Litigation. Promptly after the
execution of this Agreement, the parties shall
execute stipulations of dismissal in the forms
annexed hereto as Exhibits I and II dismissing with
prejudice and with each party to bear its own costs
the action entitled Dupee v. Maxicare Health Plans,
Inc., Case No. 98-127 (D.Del.), pending in the
United States District Court for the District of
Delaware, and the action entitled Dupee v. Maxicare
Health Plans, Inc., et al., Civil Action No. 16274NC
(Del, Ch.), pending in the Delaware Court of
Chancery, including all claims and counterclaims
asserted or that could have been asserted in those
actions; provided, however, that such dismissals
shall not have, and no party shall contend that such
dismissals have any res judicata, collateral
estoppel or other preclusive effect with respect to
any claims arising from or relating to, in part or
in whole, any action by the Company or the Board (or
members thereof) or the Soliciting Shareholder or
any other shareholder taken or not taken on or after
the date of this Agreement or with respect to any
claims arising out of any proxy solicitation or
consent solicitation undertaken by the Soliciting
Shareholder or any other shareholder after the date
of this Agreement in accordance with the terms of
this Agreement.
<PAGE>
9. Voting Agreements with Other Shareholders. The
Company has delivered to the Soliciting Shareholder
correct copies of voting agreements it has entered
into with Franklin Resources, Inc., Heartland
Advisors, Inc., King Investment Advisors, Inc., Par
Capital and Snyder Capital Management, L.P. The
Company will not alter, amend, change, waive,
terminate or otherwise modify any such agreements
without the written consent of the Soliciting
Shareholder.
10.Miscellaneous.
(a) This agreement shall not be altered,
amended, changed, waived, terminated or otherwise
modified except by a writing signed by the party to
be charged.
(b) This agreement shall be interpreted
and enforced in accordance with the laws of the
State of Delaware applicable to contracts made and
to be performed there, and any legal action or
proceeding with respect to this agreement may be
brought in the courts of the State of Delaware or
the United States District Court for the District of
Delaware, and each party accepts the exclusive
jurisdiction of such courts.
(c) This agreement may be executed in
several counterparts, each of which shall be deemed
an original.
(d) Each of the parties acknowledges and
agrees that irreparable damages would occur if any
of the provisions of this agreement were not
performed in accordance with their specific terms or
were otherwise breached. Accordingly, it is agreed
that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this agreement
and to enforce specifically the terms of this
agreement in any court having jurisdiction, in
addition to any other remedy to which they may be
entitled at law or equity.
(e) The parties acknowledge and agree
that this Agreement is not an agreement, arrangement
or understanding of the type referred to in Section
1(d)(iii) of the Company's Shareholders Rights Plan,
and the Subscribing Shareholders and the persons
entering into the agreements referred to in Section
9 shall not be deemed Acquiring Persons as that term
is used in the Shareholders Rights Plan by virtue of
<PAGE>
anything contained in this Agreement or those agreements or any
acts or transactions contemplated thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the date first above written.
MAXICARE HEALTH PLANS, INC.
By: /s/ Peter J. Ratican
Name:
Title:
/s/ Paul R. Dupee, Jr.
Paul R. Dupee, Jr.
<PAGE>
EXHIBIT "A" TO THE DUPEE GROUP SETTLEMENT AGREEMENT
RESOLUTIONS TO BE ADOPTED BY THE SHAREHOLDERS OF
MAXICARE HEALTH PLANS, INC. AT THE 1998 ANNUAL MEETING
RESOLVED, that subject to the election of Florence Courtright,
Paul Dupee, and Elwood Kleaver at this 1998 Annual Meeting of
Shareholders of Maxicare Health Plans, Inc. (the "Company") for
three year terms ending at the Company's 2001 Annual Meeting of
Shareholders ("Board Nominees"), the Shareholders of the Company
hereby authorize and approve amendments to the Company's
Certificate of Incorporation which would amend Article FIFTH
thereof and to add new Article THIRTEENTH as follows (the
"Amendments to the Articles"):
a. Article FIFTH shall be amended to delete the
existing Section "A." thereof and to replace such Section "A."
with the following:
"A. Number of Directors. From the effective
date of this amendment until the
conclusion of the Corporation's 1999
Annual Meeting of Stockholders (the
"Amendment Termination Date"), the
number of directors who shall constitute
the board of directors of the
Corporation (the "Board") shall be nine
(9); thereafter, the number of directors
who shall constitute the Board shall be
fixed in accordance with the Bylaws of
the Corporation."
b. New Article THIRTEENTH shall be added as
follows:
"Article THIRTEENTH: Written Consents and
Special Meetings of
Stockholders.
A. Sunset Provision. The provision of this
Article THIRTEENTH shall terminate and
be of no force and effect after the
Amendment Termination Date.
B Written Consents. From the effective
date of this amendment until the
<PAGE>
Amendment Termination Date (the "Written
Consent Period"), the stockholders of
this Corporation shall not be able to
take any action by written consent.
During the Written Consent Period
stockholders may only take action at an
annual or special meeting of
stockholders.
C. Special Meetings of Stockholders.
During the Written Consent Period
stockholders of this Corporation may not
call any special meetings of
stockholders and special meetings of
stockholders may only be called by the
Board as provided for in the Bylaws of
this Corporation.
BE IT FURTHER RESOLVED, that solely in the event the stockholders
of the Company approve the election of the Board Nominees at this
Annual Meeting of Stockholders and adoption of Amendments to the
Articles as provided for above; then the Company's Amended and
Restated Bylaws dated January 28, 1994, as amended on March 20,
1998 (the "Bylaws"), shall be further amended as follows (the
"Bylaw Amendments"):
1. Article II, Section 3. SPECIAL MEETINGS.
Article II, Section 3 shall be amended to add at the end thereof
the following:
"Notwithstanding anything to the
contrary contained above from and after
the effective date of this amendment
until the conclusion of the
Corporation's 1999 Annual Meeting of
Stockholders, the Stockholders of the
Corporation may not call any special
meeting of stockholders and special
meetings of stockholders may only be
called by the Board of Directors of the
Corporation."
2. Article II. A new Section 15 shall be added
to Article II as follows:
"Section 15. 1999 ANNUAL MEETING OF
STOCKHOLDERS. Prior to the conclusion
of the 1999 Annual Meeting of
Stockholders, the Board of Directors
will not adopt any Bylaws or take any
<PAGE>
other actions that interfere with the
rights of stockholders to nominate and
elect three directors at such meeting in
accordance with the existing Bylaws,
unless such actions have been approved
by the stockholders."
3. Article III, Section 2. NUMBER OF DIRECTORS.
Article III, Section 2 shall be amended to delete the remainder
of the second sentence after "directors" on the fourth line and
insert in lieu thereof:
"or a majority vote of the outstanding
shares entitled to vote thereon."
4. Article IX, Section 1. AMENDMENT BY
STOCKHOLDERS. Article IX, Section 1 shall be amended to delete
"Sections 3 and 14 of Article II, Section 2 of Article III and
Sections 1 and 2 of Article IX" commencing on the fifth line
thereof and insert in lieu thereof:
"Section 3 of Article II and Sections 1
and 2 of Article IX"
5. Except as expressly set forth herein the
Bylaws shall remain in full force and effect.
BE IT FURTHER RESOLVED, that solely in the event the stockholders
of the Company approve the election of the Board Nominees at this
Annual Meeting of Stockholders, the adoption of Amendments to the
Articles and the Bylaw Amendments, as provided for above, then
the following amendments to the Shareholders Rights Plan
previously adopted by the Board shall be submitted to the
stockholders for approval (the "Rights Plan Amendments"):
1. Sections 1(h) and 1(i) of the Rights Agreement
between this Corporation and American Stock Transfer & Trust
Corporation, as rights agent, dated February 24, 1998 is hereby
amended to read as follows:
"(h) "Continuing Directors" shall have the
same meaning as "Disinterested Director" as
defined in Section 1(i) hereof.
(i) "Disinterested Directors" shall mean
the members of the Board of Directors who are
not (i) officers or employees of the
Corporation, (ii) Acquiring Persons or their
Affiliates or Associates or representatives of
any of them, or (iii) any Person who was
<PAGE>
directly or indirectly proposed or nominated
as a director of the Corporation by an
Acquiring Person or a Transaction Person."
2. Except as specifically set forth herein, the
Rights Agreement shall remain in full force and effect, except
that any amendment to Sections 1(h) or 1(i) shall require the
approval of the shareholders.
BE IT FURTHER RESOLVED, that the officers of this Company, or
any of them, be and they hereby are authorized, empowered and
directed in the name of and on behalf of this Company to take all
such actions and to execute and deliver all such documents as
they or any of them may deem necessary or appropriate in their
opinion to carry out the purpose and comply with and effectuate
the intent of the foregoing resolutions, including but not
limited to filing any necessary amendments to the Certificate of
Incorporation with the Delaware Secretary of State and filing the
Bylaw Amendments in the Minute Books of the Company; and
BE IT FURTHER RESOLVED, that any actions previously taken by any
officer of the Company on behalf of the Company in connection
with any of the foregoing resolutions be, and they hereby are,
ratified, adopted and approved in all particulars as acts of the
Company.
<PAGE>
Exhibit I
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
PAUL R. DUPEE, JR., )
)
)
Plaintiff, )
)
) C.A. No.98-127 (RRM)
)
)
MAXICARE HEALTH PLANS, INC., )
a Delaware corporation, )
)
)
Defendant )
- --------------------------------- )
MAXICARE HEALTH PLANS, INC., a )
Delaware corporation, )
)
Counterclaimant, )
)
)
)
PAUL R. DUPEE, JR., GEORGE H. )
BIGELOW, ROBERT K. DAVIES, )
RICHARD A. EDDY, ENRIQUE F. )
GITTES, PETER HOMICK, )
CHRISTOPHER H. MILLS, CLAUDIA )
M. PERKINS, LAWRENCE I. )
SOSNOW, ALLEN THOMAS, J.O )
HAMBRO CAPITAL MANAGEMENT )
LTD., NORTH ATLANTIC SMALLER )
COMPANIES INVESTMENT TRUST, )
PLC, AND AMERICAN OPPORTUNITY )
TRUST PLC, )
)
)
Counterclaim )
Defendants. )
- -----------------------------------
STIPULATION OF DISMISSAL
IT IS HEREBY STIPULATED AND AGREED, this ____ day of
_____, 1998, by and among the parties hereto, through their
<PAGE>
undersigned counsel, that the above-captioned action, including all
claims and counterclaims, is hereby dismissed with prejudice
pursuant to Rule 41(a)(1)(ii), Fed. R. Civ. P., each party to pay
its own costs; provided however, that this dismissal shall not
have, and no party shall contend that this dismissal has, any res
judicata collateral estoppel or other preclusive effect with
respect to any claims arising from or relating to, in part or in
whole, any action taken or failed to be taken on or after May 8,
1998 by Maxicare Health Plans, Inc. (the "Company"), the Company's
Board of Directors (or members thereof), Paul R. Dupee, Jr., or any
other current or future shareholder of the Company, including
(without limitation) any issues arising from the application of the
Federal Securities Laws to any such action or inaction.
POTTER ANDERSON & CORROON LLP
By___________________________
James F. Burnett
Donald J. Wolfe, Jr.
Arthur L. Dent
Hercules Plaza
Post Office Box 951
Wilmington, Delaware 1998
(302) 984-6000
Attorneys for Plaintiff and
Counterclaim Defendants
OF COUNSEL:
David L. Katsky
Joel S. Weiss
Judith M. Shampanier
ESANU KATSKY KORINS & SIGER, LLP
605 Third Avenue
New York, New York 10158-0038
(212) 953-6000
<PAGE>
PRICKETT JONES ELLIOTT
KRISTOL & SCHNEE
By__________________________
Michael Hanrahan (#941)
John H. Small (#664)
Ronald A. Brown, Jr.(#2849)
1310 King Street
Post Office Box 1328
Wilmington, Delaware 19899
(302) 888-6500
Attorneys for Defendant/
Counterclaimant
OF COUNSEL:
Barry L. Burten
Susan Allison
JEFFER MANGELS, BUTLER
& MARMARO LLP
2121 Avenue of the Stars
Tenth Floor
Los Angeles, California 90067-5010
(310) 203-8080
Dated: May ____, 1998
<PAGE>
Exhibit II
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
PAUL R. DUPEE, JR., )
)
)
Plantiff/ )
Counterclaim )
Defendant, )
) C.A.No. 16274 NC
)
)
)
MAXICARE HEALTH PLANS, INC., CLAUDE )
S. BRINEGAR, CHARLES E. LEWIS, )
FLORENCE F. COURTRIGHT, THOMAS W. )
FIELD, JR., ALAN S. MANNE, and )
PETER J. RATICAN )
)
)
Defendants/ )
Counterclaimants. )
STIPULATION OF DISMISSAL
IT IS HEREBY STIPULATED AND AGREED, this _____ day of
____________, 1998, by and among the parties hereto, that the
above-captioned action, including all claims and counterclaims, is
hereby dismissed with prejudice, subject to the provisions of
Chancery Court Rule 41(a)(1)(ii), each party to pay its own costs;
provided, however, that this dismissal shall not have, and no party
shall contend that this dismissal has, any res judicata collateral
estoppel or other preclusive effect with respect to any claims
arising from or relating to, in part or in whole, any action taken
or failed to be taken on or after May 8, 1998 by Maxicare Health
Plans, Inc. (the "Company"), the Company's Board of Directors (or
members thereof), Paul R. Dupee, Jr., or any other current or
future shareholder of the Company, including (without limitation)
any issues arising from the application of Delaware law or the
Company's Certificate of Incorporation or Bylaws to any such action
or inaction.
<PAGE>
POTTER ANDERSON & CORROON,LLP
By___________________________
James F. Burnett
Donald J. Wolfe, Jr.
Arthur L. Dent
Hercules Plaza
Post Office Box 951
Wilmington, Delaware 19899
(302) 984-6000
Attorneys for Plaintiffs/
Counterclaim Defendants
OF COUNSEL:
David L. Katsky
Joe S. Weiss
Judith M. Shampanier
ESANU KATSKY KORINS & SIGER, LLP
605 Third Avenue
New York, New York 10158-0038
(212) 953-6000
PICKETT JONES ELLIOTT KRISTOL &
SCHNEE
By_____________________________
Michael Hanrahan
John H. Small
Ronald A. Brown, Jr.
1310 King Street
Post Office Box 1328
Wilmington, Delaware 19899
(302) 888-6500
Attorneys for Defendants/
Counterclaimants
OF COUNSEL:
Barry L. Burten
Susan Allison
JEFFER, MANGELS, BUTLER
& MARMARO LLP
2121 Avenue of the Stars
Tenth Floor
Los Angeles, California 90067-5010
(310) 203-8080
Dated: May _____,1998
Exhibit 10.89a
Form of Voting Agreement
VOTING AGREEMENT dated as of May 8, 1998 between
____________________ (the "Shareholder") and Maxicare Health Plans,
Inc. (the "Company").
WHEREAS, the board of directors of the Company (the
"Board") has increased the number of directors which constitutes
the Board to nine and has filled the one existing vacancy and two
newly created directorships on the Board with Elwood Kleaver and
Paul R. Dupee, Jr. (the "Soliciting Shareholder"), who have been
named Class II directors with terms expiring in 1998 and Robert M.
Davies who has been named a Class I director with a term expiring
in 2000, and the Board has added the Soliciting Shareholder to the
Board's executive committee which has been increased from three to
four members;
WHEREAS, the Board intends that Mr. Kleaver and the
Soliciting Shareholder and Ms. Florence F. Courtright shall be the
slate of nominees recommended by the Board for election as
directors (the "Board Slate") at the Company's 1998 annual meeting
of shareholders ("1998 Annual Meeting"); and
WHEREAS, the Board has approved the amendments to the
Bylaws, Certificate and the rights agreement between the Company
and American Stock Transfer & Trust Company, as Rights Agent, dated
as of February 24, 1998 (the "Rights Agreement") attached as
Exhibit A (the "Amendments"), subject to approval of the Amendments
by a majority of the outstanding shares of common stock, par value
$.01 per share (the "Shares") at the 1998 Annual Meeting; and
WHEREAS, in connection with the termination of a
solicitation of written consents from the Company's shareholders by
the Soliciting Shareholder (the "Consent Solicitation"), the
Company has agreed to reimburse the Soliciting Shareholder's fees
and expenses (not to exceed $450,000) related to the Consent
Solicitation and the negotiation of related agreements (the
"Expense Reimbursement") promptly after the satisfaction of the
conditions to such reimbursement subject to reasonable
documentation of such fees and expenses and approval of such
reimbursement by (a) holders of at least 50% of the outstanding
Shares (with such approval deemed to have been given by all Shares
covered by agreements with the Company to vote in favor of the
Expense Reimbursement at the 1998 Annual Meeting), or (b) the
affirmative vote of the majority of the Shares present in person or
by proxy at the 1998 Annual Meeting and entitled to vote on such
matter; and
<PAGE>
WHEREAS, the parties desire to agree on certain actions to
be taken at the 1998 Annual Meeting,
NOW, THEREFORE, in consideration of the agreements
contained herein, the parties agree as follows:
1. Proposals By the Company. The Company will propose
the election of the Board Slate, the adoption of the
Amendments and the approval of the Expense
Reimbursement at the 1998 Annual Meeting.
2. Voting Agreement of Shareholder. The Shareholder
agrees that all shares of Common Stock of the
Company ("Shares") as to which the Shareholder or
any of its affiliates has the power to direct the
vote on the record date for the 1998 Annual Meeting,
shall be voted at such meeting in favor of the Board
Slate, the Amendments and the Expense Reimbursement,
and the Shareholder shall not execute a written
consent of shareholders in lieu of a meeting or vote
to call a special meeting prior to the 1998 Annual
Meeting which will be held by July 31, 1998. Such
record date shall be June 8, 1998 or the earliest
possible date thereafter and, in no event, later
than June 12, 1998. If any Shares as to which the
Shareholder has the power to direct the vote are
transferred prior to such record date, the
Shareholder shall obtain an agreement from the
transferee assuming the Shareholder's obligations
under this sentence and the immediately preceding
sentence; provided, however, that the Shareholder
shall not be required to obtain such an agreement
from the transferee of Shares which the Shareholder
sells as a result of instructions from clients or
customers requiring the Shareholder to sell such
Shares, or to liquidate such clients' accounts in
whole or in part or changing the investment
objectives of such accounts.
3. Miscellaneous.
(a) This agreement shall not be
altered, amended, changed, waived, terminated or
otherwise modified except by a writing signed by the
party to be charged.
(b) This agreement shall be
interpreted and enforced in accordance with the laws
of the State of Delaware applicable to contracts
made and to be performed there, and any legal action
or proceeding with respect to this agreement may be
<PAGE>
brought in the courts of the State of Delaware or the United States
District Court for the District of Delaware, and each party accepts
the exclusive jurisdiction of such courts.
(c) This agreement may be executed
in several counterparts, each of which will be
deemed an original.
(d) Each of the parties acknowledges
and agrees that irreparable damages would occur if
any of the provisions of this agreement were not
performed in accordance with their specific terms or
were otherwise breached. Accordingly, it is agreed
that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this agreement
and to enforce specifically the terms of this
agreement in any court having jurisdiction, in
addition to any other remedy to which they may be
entitled at law or equity.
(e) The parties acknowledge and
agree that this Agreement is not an agreement,
arrangement or understanding of the type referred to
in Section 1(d)(iii) of the Company's Shareholders
Rights Plan, and the Shareholder and other
shareholders entering into agreements containing the
covenants contained in Section 2 shall not be deemed
an Acquiring Person as that term is used in the
Shareholders Rights Plan by virtue of anything
contained in this Agreement or those agreements or
any acts or transactions contemplated thereby.
(f) This Agreement shall inure to
the benefit of, and be enforceable by, the
Soliciting Shareholder, as if he were a party
hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the date first above written.
MAXICARE HEALTH PLANS, INC.
By:________________________
___________________________
[Shareholder]
<PAGE>
EXHIBIT "A"
RESOLUTIONS TO BE ADOPTED BY THE SHAREHOLDERS OF
MAXICARE HEALTH PLANS, INC. AT THE 1998 ANNUAL MEETING
RESOLVED, that subject to the election of Florence Courtright,
Paul Dupee, and Elwood Kleaver at this 1998 Annual Meeting of
Shareholders of Maxicare Health Plans, Inc. (the "Company") for
three year terms ending at the Company's 2001 Annual Meeting of
Shareholders ("Board Nominees"), the Shareholders of the Company
hereby authorize and approve amendments to the Company's
Certificate of Incorporation which would amend Article FIFTH
thereof and to add new Article THIRTEENTH as follows (the
"Amendments to the Articles"):
a. Article FIFTH shall be amended to delete the
existing Section "A." thereof and to replace such Section "A."
with the following:
"A. Number of Directors. From the effective
date of this amendment until the
conclusion of the Corporation's 1999
Annual Meeting of Stockholders (the
"Amendment Termination Date"), the
number of directors who shall constitute
the board of directors of the
Corporation (the "Board") shall be nine
(9); thereafter, the number of directors
who shall constitute the Board shall be
fixed in accordance with the Bylaws of
the Corporation."
b. New Article THIRTEENTH shall be added as
follows:
"Article THIRTEENTH: Written Consents and
Special Meetings of
Stockholders.
A. Sunset Provision. The provision of this
Article THIRTEENTH shall terminate and
be of no force and effect after the
Amendment Termination Date.
B Written Consents. From the effective
date of this amendment until the
Amendment Termination Date (the "Written
<PAGE>
Consent Period"), the stockholders of
this Corporation shall not be able to
take any action by written consent.
During the Written Consent Period
stockholders may only take action at an
annual or special meeting of
stockholders.
C. Special Meetings of Stockholders.
During the Written Consent Period
stockholders of this Corporation may not
call any special meetings of
stockholders and special meetings of
stockholders may only be called by the
Board as provided for in the Bylaws of
this Corporation.
BE IT FURTHER RESOLVED, that solely in the event the stockholders
of the Company approve the election of the Board Nominees at this
Annual Meeting of Stockholders and adoption of Amendments to the
Articles as provided for above; then the Company's Amended and
Restated Bylaws dated January 28, 1994, as amended on March 20,
1998 (the "Bylaws"), shall be further amended as follows (the
"Bylaw Amendments"):
1. Article II, Section 3. SPECIAL MEETINGS.
Article II, Section 3 shall be amended to add at the end thereof
the following:
"Notwithstanding anything to the
contrary contained above from and after
the effective date of this amendment
until the conclusion of the
Corporation's 1999 Annual Meeting of
Stockholders, the Stockholders of the
Corporation may not call any special
meeting of stockholders and special
meetings of stockholders may only be
called by the Board of Directors of the
Corporation."
2. Article II. A new Section 15 shall be added
to Article II as follows:
"Section 15. 1999 ANNUAL MEETING OF
STOCKHOLDERS. Prior to the conclusion
of the 1999 Annual Meeting of
Stockholders, the Board of Directors
will not adopt any Bylaws or take any
other actions that interfere with the
rights of stockholders to nominate and
elect three directors at such meeting in
<PAGE>
accordance with the existing Bylaws,
unless such actions have been approved
by the stockholders."
3. Article III, Section 2. NUMBER OF DIRECTORS.
Article III, Section 2 shall be amended to delete the remainder
of the second sentence after "directors" on the fourth line and
insert in lieu thereof:
"or a majority vote of the outstanding
shares entitled to vote thereon."
4. Article IX, Section 1. AMENDMENT BY
STOCKHOLDERS. Article IX, Section 1 shall be amended to delete
"Sections 3 and 14 of Article II, Section 2 of Article III and
Sections 1 and 2 of Article IX" commencing on the fifth line
thereof and insert in lieu thereof:
"Section 3 of Article II and Sections 1
and 2 of Article IX"
5. Except as expressly set forth herein the
Bylaws shall remain in full force and effect.
BE IT FURTHER RESOLVED, that solely in the event the stockholders
of the Company approve the election of the Board Nominees at this
Annual Meeting of Stockholders, the adoption of Amendments to the
Articles and the Bylaw Amendments, as provided for above, then
the following amendments to the Shareholders Rights Plan
previously adopted by the Board shall be submitted to the
stockholders for approval (the "Rights Plan Amendments"):
1. Sections 1(h) and 1(i) of the Rights Agreement
between this Corporation and American Stock Transfer & Trust
Corporation, as rights agent, dated February 24, 1998 is hereby
amended to read as follows:
"(h) "Continuing Directors" shall have the
same meaning as "Disinterested Director" as
defined in Section 1(i) hereof.
(i) "Disinterested Directors" shall mean
the members of the Board of Directors who are
not (i) officers or employees of the
Corporation, (ii) Acquiring Persons or their
Affiliates or Associates or representatives of
any of them, or (iii) any Person who was
directly or indirectly proposed or nominated
as a director of the Corporation by an
Acquiring Person or a Transaction Person."
<PAGE>
2. Except as specifically set forth herein, the
Rights Agreement shall remain in full force and effect, except
that any amendment to Sections 1(h) or 1(i) shall require the
approval of the shareholders.
BE IT FURTHER RESOLVED, that the officers of this Company, or
any of them, be and they hereby are authorized, empowered and
directed in the name of and on behalf of this Company to take all
such actions and to execute and deliver all such documents as
they or any of them may deem necessary or appropriate in their
opinion to carry out the purpose and comply with and effectuate
the intent of the foregoing resolutions, including but not
limited to filing any necessary amendments to the Certificate of
Incorporation with the Delaware Secretary of State and filing the
Bylaw Amendments in the Minute Books of the Company; and
BE IT FURTHER RESOLVED, that any actions previously taken by any
officer of the Company on behalf of the Company in connection
with any of the foregoing resolutions be, and they hereby are,
ratified, adopted and approved in all particulars as acts of the
Company.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the March 31,
1998 financial statements and is qualified in
its entirety by reference to such financial
statements.
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 3-MOS
<CASH> 45,727
<SECURITIES> 36,423
<RECEIVABLES> 35,780
<ALLOWANCES> 7,623
<INVENTORY> 0
<CURRENT-ASSETS> 137,062
<PP&E> 23,631
<DEPRECIATION> 22,456
<TOTAL-ASSETS> 153,243
<CURRENT-LIABILITIES> 74,910
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 77,982
<TOTAL-LIABILITY-AND-EQUITY> 153,243
<PAGE>
<SALES> 180,395
<TOTAL-REVENUES> 181,988
<CGS> 169,105
<TOTAL-COSTS> 184,692
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> (2,717)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,717)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,717)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the March 31,
1997 financial statements and is qualified in
its entirety by reference to such financial
statements. EPS has been restated as required
by SFAS 128.
<RESTATED>
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<CASH> 46,718
<SECURITIES> 66,600
<RECEIVABLES> 27,430
<ALLOWANCES> 6,400
<INVENTORY> 0
<CURRENT-ASSETS> 155,875
<PP&E> 24,403
<DEPRECIATION> 23,006
<TOTAL-ASSETS> 172,198
<CURRENT-LIABILITIES> 66,692
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 104,967
<TOTAL-LIABILITY-AND-EQUITY> 172,198
<PAGE>
<SALES> 154,496
<TOTAL-REVENUES> 156,316
<CGS> 137,029
<TOTAL-COSTS> 166,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> (9,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,909)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
</TABLE>
