MAXICARE HEALTH PLANS INC, DEF 14A, 1999-06-01

MAXICARE HEALTH PLANS INC
DEF 14A, 1999-06-01
HOSPITAL & MEDICAL SERVICE PLANS

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<PAGE> 1
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12

Maxicare Health Plans, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE> 2

MAXICARE HEALTH PLANS, INC.
------------------------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON JUNE 30, 1999

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Maxicare
Health Plans, Inc. (the "Company") will be held at the Sunset Room in the
Transamerica Center Tower Restaurant, 1150 South Olive Street, Los Angeles,
California, on Wednesday, June 30, 1999, at 8:00 a.m. (Pacific Time) for the
following purposes:

1. To elect three directors to the Board of Directors who will serve until
the Company's 2002 Annual Meeting of Shareholders and until their
successors have been duly elected and qualified;

2. To approve the Company's 1999 Stock Option Plan; and

3. To transact such other business as may be properly brought before the
meeting or any adjournment thereof.

Shareholders of record at the close of business on May 25, 1999 will be
entitled to notice of and to vote at the 1999 Annual Meeting of Shareholders
(the "Annual Meeting") or any adjournments thereof. A list of such shareholders
shall be open to the examination of any shareholder at the meeting and for a
period of ten days prior to the date of the Annual Meeting at the office of
Maxicare Health Plans, Inc., 1149 South Broadway Street, Los Angeles, California
90015.

The Board of Directors urges each shareholder to read carefully the
enclosed Proxy Statement which is incorporated herein by reference.

By Order of the Board of Directors,

Alan D. Bloom
Secretary

1149 South Broadway Street
Los Angeles, California 90015
Dated: June 3, 1999

IMPORTANT

WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES. YOUR PROXY
WILL BE REVOCABLE ANY TIME PRIOR TO ITS EXERCISE EITHER IN WRITING OR BY VOTING
YOUR SHARES PERSONALLY AT THE ANNUAL MEETING.
<PAGE> 3

MAXICARE HEALTH PLANS, INC.
1149 SOUTH BROADWAY STREET
LOS ANGELES, CALIFORNIA 90015
------------------------

PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
JUNE 30, 1999

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") and management of Maxicare Health Plans,
Inc., a Delaware corporation (the "Company"), of proxies to be used at the 1999
Annual Meeting of Shareholders (the "Annual Meeting") to be held at the Sunset
Room in the Transamerica Center Tower Restaurant, 1150 South Olive Street, Los
Angeles, California, on Wednesday, June 30, 1999 at 8:00 a.m. (Pacific Time) and
at any adjournments thereof. A form of the proxy is enclosed for use at the
meeting. At the Annual Meeting shareholders will be asked to vote upon the
election of three directors to the Board, for the approval of the 1999 Stock
Option Plan and to transact such other business as may properly come before the
meeting.

IF NO INSTRUCTIONS ARE GIVEN ON THE PROXY, ALL SHARES REPRESENTED BY VALID
PROXIES RECEIVED PURSUANT TO THIS SOLICITATION (AND NOT REVOKED BEFORE THEY ARE
VOTED) WILL BE VOTED FOR THE DIRECTORS NOMINATED BY THE BOARD, FOR THE APPROVAL
OF THE 1999 STOCK OPTION PLAN AND AS RECOMMENDED BY THE BOARD WITH REGARD TO ALL
OTHER MATTERS OR IF NO SUCH RECOMMENDATION IS GIVEN, IN THE DISCRETION OF THE
PROXY HOLDER. PROXIES MARKED "WITHHELD" AND/OR "ABSTAIN" WILL BE COUNTED TOWARDS
THE QUORUM REQUIREMENT BUT WILL NOT BE VOTED FOR THE ELECTION OF THE BOARD'S
DIRECTOR NOMINEES OR VOTED FOR THE APPROVAL OF THE 1999 STOCK OPTION PLAN, AS
THE CASE MAY BE.

A proxy may be revoked at any time before it is exercised by giving written
notice of revocation to the Secretary of the Company or by submitting, prior to
the time of the Annual Meeting, a properly executed proxy bearing a later date.
Shareholders having executed and returned a proxy, who attend the Annual Meeting
and desire to vote in person, are requested to so notify the Secretary of the
Company prior to the time of the Annual Meeting.

The mailing address of the Company is 1149 South Broadway Street, Los
Angeles, California 90015. The approximate date on which this Proxy Statement
and form of proxy are being mailed to the shareholders is June 3, 1999.
<PAGE> 4

GENERAL INFORMATION

OUTSTANDING SHARES AND VOTING RIGHTS

There were 17,925,381 shares of common stock of the Company, par value $.01
per share, (the "Common Stock") outstanding as of May 25, 1999, the Record Date
for the shareholders entitled to vote at the Annual Meeting. Each shareholder of
record at the close of business on May 25, 1999 is entitled to one vote for each
share of Common Stock then held on each matter to come before the Annual
Meeting, or any adjournments thereof.

A majority of the votes eligible to be cast at the Annual Meeting by
holders of Common Stock, or 8,962,691 votes, represented in person or by proxy
at the Annual Meeting is required for a quorum. Shares represented by proxy or
in person for which the vote is withheld with respect to the election of any
nominee for director or for which the vote is abstained on any other matter will
be counted as present for purposes of determining whether a quorum is present. A
plurality of the votes cast at the Annual Meeting by holders of shares of Common
Stock entitled to vote, and present, in person or by proxy, at the Annual
Meeting is required for the election of each nominee as a director. The
Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation") does not provide for cumulative voting for the election of
directors. Votes that are withheld from any nominee will be excluded from the
vote and will have no effect. Brokers who hold shares in street name have the
authority to vote on certain "routine" matters when they have not received
instructions from beneficial owners. The uncontested election of directors and
approval of option plans which provide for the issuance of shares upon the
exercise of options which do not exceed 5% of the Company's then outstanding
shares of Common Stock are considered "routine" matters. Since the proposed 1999
Stock Option Plan authorizes the issuance of 750,000 shares of Common Stock or
4.2% of the shares of Common Stock outstanding as of May 25, 1999, the vote on
the approval of the 1999 Stock Option Plan would be considered a "routine"
matter. Accordingly, unless the arrangement between the broker and the
beneficial owner provides to the contrary, brokers that do not receive
instructions are entitled to vote on the election of directors and approval of
the Company's 1999 Stock Option Plan. An affirmative vote of a majority of the
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote is required for the approval of the Company's 1999 Stock Option
Plan. Pursuant to applicable law, abstentions will have the same effect as a
negative vote on the approval of the Company's 1999 Stock Option Plan.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number and percentage of the outstanding
shares of Common Stock owned beneficially as of May 25, 1999 by each director,
by the Company's Chief Executive Officer ("CEO"), by the four other most highly
compensated executive officers other than the CEO, by all directors and
executive officers as a group, by the nominees to the Board who currently are
not directors, and by each person who, to the knowledge of the Company,
beneficially owned more than 5% of any class of the Company's voting stock on
such date.

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<PAGE> 5

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
----------------------------
COMMON PERCENTAGE OF
NAME AND ADDRESS OF PERSON OR GROUP STOCK(2) COMMON STOCK(3)
----------------------------------- --------- ---------------
<S> <C> <C>
Franklin Resources, Inc.,
Charles B. Johnson and
Rupert H. Johnson, Jr.(6)................................... 1,768,779 9.9%
777 Mariners Island Boulevard
San Mateo, California 94404 and
Franklin Mutual Advisers, Inc.(6)
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Bear, Stearns & Co. Inc.(7)................................. 1,708,669 9.5%
245 Park Avenue
New York, New York 10167
Peter J. Ratican(9)......................................... 708,078 3.8%
1149 South Broadway Street
Los Angeles, California 90015
Paul R. Dupee, Jr.(8)....................................... 662,000 3.7%
10 Wilton Row
London SWIX 7NR
England
Richard A. Link(10)......................................... 100,026 *
1149 South Broadway Street
Los Angeles, California 90015
Warren D. Foon(11).......................................... 60,031 *
1149 South Broadway Street
Los Angeles, California 90015
Elwood I. Kleaver, Jr.(12).................................. 55,839 *
1149 South Broadway Street
Los Angeles, California 90015
Thomas W. Field, Jr.(13).................................... 30,000 *
1149 South Broadway Street
Los Angeles, California 90015
Claude S. Brinegar(13)...................................... 24,000 *
1149 South Broadway Street
Los Angeles, California 90015
Charles E. Lewis(13)........................................ 20,018 *
1149 South Broadway Street
Los Angeles, California 90015
Alan S. Manne(13)........................................... 20,000 *
1149 South Broadway Street
Los Angeles, California 90015
Florence F. Courtright(13).................................. 20,000 *
1149 South Broadway Street
Los Angeles, California 90015
Alan D. Bloom(14)........................................... 10,411 *
1149 South Broadway Street
Los Angeles, California 90015
</TABLE>

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<PAGE> 6

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
----------------------------
COMMON PERCENTAGE OF
NAME AND ADDRESS OF PERSON OR GROUP STOCK(2) COMMON STOCK(3)
----------------------------------- --------- ---------------
<S> <C> <C>
Robert M. Davies(15)........................................ 5,000 *
c/o Menai Group LLC
100 First Stamford Place, 6th Floor
Stamford, Connecticut 06902
George H. Bigelow........................................... -0- *
c/o Americana Group, LLC
535 Boylston Street
Boston, Massachusetts 02116
Simon J. Whitmey............................................ -0- *
c/o Acralight, Inc.
2491 DuBridge Avenue
Irvine, California 92606
All Directors and Executive Officers as a Group (17
persons)(16).............................................. 1,835,760 9.7%
</TABLE>

- ---------------
* less than one percent

(1) Except as otherwise set forth herein, all information pertaining to the
holdings of persons who beneficially own more than 5% of any class of the
Company's voting stock (other than the Company or its executive officers
and directors) is based on filings with the Securities and Exchange
Commission (the "SEC") and information provided by the record holders.

(2) In setting forth "beneficial" ownership, the rules of the SEC require that
shares underlying currently exercisable options, including options which
become exercisable within 60 days, held by a described person be treated as
"beneficially" owned and further require that every person who has or
shares the power to vote or to dispose of shares of stock be reported as a
"beneficial" owner of all shares as to which any such sole or shared power
exists. As a consequence, shares which are not yet outstanding are, if
obtainable upon exercise of an option which is exercisable or will become
exercisable within 60 days, nevertheless treated as "beneficially" owned by
the designated person, and several persons may be deemed to be the
"beneficial" owners of the same securities if they share the power to vote
or dispose of them.

(3) Assumes 17,925,381 shares of Common Stock outstanding, and, with respect to
each listed beneficial owner, the exercise or conversion of any option or
right held by each such owner exercisable or convertible within 60 days.

(4) Heartland Advisors, Inc. is an investment adviser registered under Section
203 of the Investment Advisors Act of 1940. All shares are held in various
investment advisory accounts of Heartland Advisors, Inc. As a result,
various persons have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the
securities. The interests of one such account, Heartland Value Fund, a
series of Heartland Group, Inc., a registered investment company, relates
to more than 5% of the class. These beneficial owners have sole voting
power with respect to 2,387,400 shares and sole dispositive power with
respect to 3,549,700 shares. The above information presented in regards to
the beneficial ownership of the Company's Common Stock by Heartland
Advisors, Inc. is based upon a Schedule 13G filed by Heartland Advisors,
Inc. with the SEC on January 28, 1999.

(5) Snyder Capital Management, L.P. ("SCMLP") is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940. Snyder
Capital Management, Inc. ("SCMI") is the sole general partner of SCMLP.
Both SCMLP and SCMI are wholly owned by Nvest Companies, L.P. ("Nvest
Companies"), a limited partnership affiliated with Nvest, L.P., a publicly
traded limited partnership. The general partner of Nvest, L.P. and the
managing general partner of Nvest Companies is an indirect, wholly owned
subsidiary of Metropolitan Life Insurance Company ("MetLife"). As of June
30, 1998, MetLife beneficially owned all of the general partner interests
in Nvest Companies and

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<PAGE> 7

Nvest, L.P. and, in the aggregate, general partner and limited partner
interests of Nvest Companies and Nvest, L.P. representing approximately 47%
of the economic interests in the business of Nvest Companies. SCMI and
Nvest Companies operate under an understanding that all investment and
voting decisions regarding advisory accounts managed by SCMLP are to be
made by SCMI and SCMLP and not by Nvest Companies or any entity controlling
Nvest Companies. Accordingly, SCMI and SCMLP do not consider Nvest
Companies or any entity controlling Nvest Companies to have any direct or
indirect control over the securities held in managed accounts. These filers
have sole voting power with respect to 125,000 of these shares, shared
voting power with respect to 2,389,300 of these shares, sole dispositive
power with respect to 125,000 of these shares and shared dispositive power
with respect to 2,528,700 of these shares. The above information presented
in regards to the beneficial ownership of the Company's Common Stock by
these filers is based upon a Schedule 13G/A filed by these filers with the
SEC on February 4, 1999.

(6) These shares are beneficially owned by one or more open-end investment
companies or other managed accounts which, pursuant to advisory contracts,
are advised by Franklin Mutual Advisers, Inc. ("FMAI") a wholly owned
investment advisory subsidiary of Franklin Resources, Inc. ("FRI"). Such
advisory contracts grant to FMAI all voting and investment power over the
securities owned by such advisory clients. Therefore, FMAI may be deemed to
be, for purposes of Rule 13d-3 under the Securities Exchange Act of 1934,
the beneficial owner of these shares.

Charles B. Johnson and Rupert H. Johnson, Jr. (the "Principal Shareholders")
each own in excess of 10% of the outstanding Common Stock of FRI and are the
principal shareholders of FRI. However, FMAI exercises voting and investment
powers on behalf of its advisory clients independently of FRI, the Principal
Shareholders, and their respective affiliates. Consequently, beneficial
ownership of the securities being reported by FMAI is not attributed to FRI,
the Principal Shareholders, and their respective affiliates other than FMAI.
FMAI disclaims any economic interest or beneficial ownership in any of these
shares.

These beneficial owners have sole voting power and sole dispositive power
with respect to 1,768,779 shares. The above information presented in regards
to the beneficial ownership of the Company's Common Stock by FRI, the
Principal Shareholders and FMAI is based upon a Schedule 13G filed with the
SEC by FRI, the Principal Shareholders and FMAI on January 29, 1999.

(7) Bear, Stearns & Co. Inc. ("Bear Stearns") is a broker or dealer registered
under Section 15 of the Securities Exchange Act of 1934. Bear Stearns has
sole voting and dispositive power over these shares. The above information
presented in regards to the beneficial ownership of the Company's Common
Stock by Bear Stearns is based upon a Schedule 13G filed with the SEC by
Bear Stearns on February 12, 1999.

(8) The above information presented with regard to the beneficial ownership of
Common Stock by Mr. Dupee is based upon a Schedule 13D filed with the SEC
on December 7, 1998, and also includes 5,000 shares which are subject to
options which are currently exercisable or will become exercisable within
60 days.

(9) Includes 557,778 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

(10) Includes 100,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

(11) Includes 60,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

(12) Includes 23,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

(13) Includes 20,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

(14) Includes 10,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

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(15) Includes 5,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

(16) Includes 980,744 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and to furnish the Company with
copies of all such reports they file. In August 1998, Elwood I. Kleaver, Jr., a
director of the Company, purchased approximately 13,000 shares of the Company's
Common Stock. Mr. Kleaver was required to report the purchase of these shares to
the SEC by filing a "Form 4, Statement of Changes in Beneficial Ownership" no
later than September 10, 1998. Mr. Kleaver did not file the required Form 4
until September 28, 1998. Based solely on its review of the copies of such
reports received by it, or written representations from certain reporting
persons, the Company believes that, except for the above mentioned item, during
the year ended December 31, 1998, each of its officers, directors and greater
than ten percent shareholders complied with all such applicable filing
requirements.

ITEM 1. ELECTION OF DIRECTORS

Under the terms of Article FIFTH of the Certificate of Incorporation and
the Company's Bylaws the Board shall consist of nine persons through the Annual
Meeting. After the Annual Meeting the number of directors shall be as
established by resolution of the Board. As of the date hereof, the Board
consists of: Peter J. Ratican, Claude S. Brinegar, Fiorenza (Florence) F.
Courtright, Robert M. Davies, Paul R. Dupee, Jr., Thomas W. Field, Jr., Elwood
I. Kleaver, Jr., Charles E. Lewis and Alan S. Manne.

The Certificate of Incorporation provides that directors are classified
into Class I, Class II or Class III and the initial terms of the directors are
staggered for one, two and three years, respectively. The Certificate of
Incorporation further provides that at the annual meeting which followed the
expiration of the initial terms of the directors in each class, the class of
directors elected at such meeting would stand for election for a three year term
ending at the third annual meeting thereafter.

The Certificate of Incorporation does not provide for cumulative voting for
the election of directors.

At the Annual Meeting, the Board has nominated for election as directors
George H. Bigelow, Thomas W. Field, Jr., and Simon J. Whitmey each to serve as a
Class III director for three years until the 2002 Annual Meeting, and until his
successor is elected and qualified (the "Board Nominees"). Mr. Field is an
incumbent director and Messrs. Bigelow and Whitmey have been nominated by the
Board to replace current directors Peter J. Ratican and Alan S. Manne. Mr.
Ratican, the Company's Chairman of the Board, CEO and President agreed not to
stand for reelection in connection with his Settlement Agreement with the
Company dated April 16, 1999. For a further discussion of this Settlement
Agreement see "Ratican Employment Agreements and Ratican Settlement and
Consulting Agreements." Mr. Manne, who is 74 years old, elected to retire from
the Board upon the expiration of his term.

Messrs. Dupee, Davies and Kleaver (the "New Directors") were initially
elected to the Board by the Board at a meeting held on May 8, 1998. The New
Directors were elected to the Board pursuant to the terms of a Settlement
Agreement by and among the Company, Mr. Dupee and certain major shareholders of
the Company dated as of May 8, 1998 (the "Shareholder Settlement Agreement").
The Shareholder Settlement Agreement further provided for the nomination by the
Board of Messrs. Dupee and Kleaver for election to a full three year term at the
Company's 1998 Annual Meeting of Shareholders (the "1998 Annual Meeting"), the
termination of certain litigation between the Company, the Board (other than the
New Directors) and Mr. Dupee and certain shareholders of the Company (the
"Soliciting Shareholders"), the Board's agreement to place certain items on the
agenda at the 1998 Annual Meeting and the termination of a Written Consent
Action, initiated by the Soliciting Shareholders, which sought, amongst other
things, to elect ten new directors

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<PAGE> 9

to the Board. Pursuant to the Shareholder Settlement Agreement the Company also
agreed to support amendments to its Certificate and Bylaws, which limit the size
of the Board to nine members through this Annual Meeting (the "Amendments"), at
the 1998 Annual Meeting. The Amendments were approved and Messrs. Dupee and
Kleaver were elected to three year terms as directors by the shareholders at the
1998 Annual Meeting.

CLASS III

GEORGE H. BIGELOW
Age: 56

Mr. Bigelow is a managing member of Americana Group, LLC, a real estate
investment advisor. He was the President, Chief Operating Officer and Director
of Americana Hotels and Realty Corporation, a publicly-traded real estate
investment trust located in Boston, Massachusetts, from 1986 to 1998 and he
became Chief Financial Officer in March 1997. Mr. Bigelow was the President of
Americana Corporation, an investment advisor and consulting firm, from 1986
until 1998. In addition, he served on the Board of Directors of Newton-
Wellesley Hospital from 1986 until 1996, and was Chairman of the Board from 1991
until 1993.

THOMAS W. FIELD, JR.
Director since: 1992
Age: 65

Mr. Field has been President of Field & Associates, a management consulting
firm, since October 1989. Mr. Field served as Chairman of the Board of ABCO
Markets from December 1991 through January 1996. Mr. Field also holds
directorships at Campbell Soup Company and Stater Bros. Markets.

SIMON J. WHITMEY
Age: 52

Mr. Whitmey has served as President and Chief Executive Officer of
Acralight, Inc., a privately owned California corporation (and a California
licensed contractor) that manufactures and installs glazing systems since 1995.
Mr. Whitmey was self-employed as a real estate developer from 1992 to 1995.

If the Board Nominees should for any reason become unavailable to serve as
a director or be withdrawn from nomination, and if the Board shall designate a
substitute nominee, the shares represented by valid proxies will be voted in
favor of the substitute nominee. A shareholder may, in the manner set forth on
the enclosed form of proxy, instruct the named proxies not to vote that
shareholder's shares for a particular nominee or nominees, as indicated.

THE BOARD RECOMMENDS VOTES FOR THE ELECTION OF MR. BIGELOW, MR. FIELD AND MR.
WHITMEY AS DIRECTORS ON THE BOARD. PROXIES GIVEN WITHOUT INSTRUCTIONS WILL BE
VOTED FOR THESE NOMINEES.

The following persons currently serve as members of the Board and each of
these members will continue to serve until the Annual Meeting of Shareholders
for the year indicated or until his or her successor is duly elected and
qualified:

CLASS I

CLAUDE S. BRINEGAR
Director since: 1991
Elected to serve until: 2000 Annual Meeting
Age: 72

Claude S. Brinegar retired as Vice Chairman of the board of directors of
Unocal Corporation in 1995 where he previously served as Chief Financial
Officer. Mr. Brinegar is currently a member of the board of directors of CSX
Corporation and served on the board of directors of its predecessor Conrail,
Inc. from 1990 to 1998.
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<PAGE> 10

ROBERT M. DAVIES
Director since: 1998
Elected to serve until: 2000 Annual Meeting
Age: 48

Robert M. Davies is Managing Director of The Menai Group LLC, a merchant
banking firm. Mr. Davies was the Vice President of Wexford Capital Corporation,
an investment manager to several private investment funds, from 1994 to March
1997. From September 1993 to May 1994 he was Managing Director of Steinhardt
Enterprises, Inc., an investment company, and from 1987 to August 1993 he was
Executive Vice President of The Hallwood Group Incorporated, a merchant banking
firm. Mr. Davies is a Director and Chairman of Oakhurst Company, Inc., a
Director of its majority-owned subsidiary, Steel City Products, Inc. and a
Director of Industrial Acoustics Company, Inc.

CHARLES E. LEWIS
Director since: 1983
Elected to served until: 2000 Annual Meeting
Age: 70

Dr. Lewis has been a Professor of Medicine, Public Health and Nursing at
the University of California at Los Angeles, since 1970. In July 1993, he was
appointed Director of the Center for Health Promotion and Disease Prevention. He
is a member of the Institute of Medicine, National Academy of Sciences and is a
graduate of the Harvard Medical School and of the University of Cincinnati
School of Public Health where he received a Doctorate of Science degree. Dr.
Lewis is a Regent of the American College of Physicians and a member of the
Board of Commissioners of the Joint Commission on Accreditation of Health Care
Organizations.

CLASS II

FLORENCE F. COURTRIGHT
Director since: 1993
Elected to serve until: 2001 Annual Meeting
Age: 67

Ms. Courtright has been a private investor for more than the last five
years. She is a founding Limited Partner of Bainco International Investors, l.p.
and a Trustee of Loyola Marymount University. Ms. Courtright is also the former
co-owner of the Beverly Wilshire Hotel.

PAUL R. DUPEE, JR.
Director since: 1998
Elected to serve until: 2001 Annual Meeting
Age: 56

Paul R. Dupee, Jr., has been a private investor for more than the past five
years. He has served as a Director of the Lynton Group, Inc. since 1996 and has
been Chairman since 1998. From 1986 through 1996, Mr. Dupee was Director and
Vice Chairman of the Boston Celtics Limited Partnership, which owns the National
Basketball Association team, the Boston Celtics.

ELWOOD I. KLEAVER, JR.
Director since: 1998
Elected to serve until: 2001 Annual Meeting
Age: 56

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<PAGE> 11

care to the chronically disabled and Medicaid beneficiaries, respectively. In
1995, Mr. Kleaver became an officer and Director of Early Detection, Inc.
("EDI"), a start-up biotech company which in 1998 underwent liquidation under
Chapter 128 of the Wisconsin law. ADS is the successor of the operations
formerly operated by EDI. From January 1993 through January 1995, Mr. Kleaver
was President and Director of CareNetwork, a Wisconsin based HMO.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

There were twelve meetings of the Company's Board during the year ended
December 31, 1998. During that year, each director attended at least 75% of the
meetings of the Board and its committees that each director was entitled to
attend.

The Board has standing Executive, Audit, Compensation, Option and
Nominating Committees.

Executive Committee. The Executive Committee was formed in December 1997
and exercises all the power of the Board except as limited by Delaware law. The
members of the Executive Committee during 1998 were Messrs. Brinegar, Dupee,
Field and Ratican. The Executive Committee met four times during 1998. Effective
April 24, 1999, Mr. Kleaver replaced Mr. Ratican as a member of the Executive
Committee.

Audit Committee. The Audit Committee meets periodically with management and
the Company's independent public accountants to make inquiries regarding the
manner in which the responsibilities of each are being discharged. The Audit
Committee reports thereon to the Board. The Audit Committee also recommends, for
the approval of the Board, the annual appointment of the Company's independent
public accountants with whom the Audit Committee reviews the scope of the audit
and non-audit assignments, the accounting principles being applied by the
Company in financial reporting, the scope of internal auditing procedures, and
the adequacy of internal controls. The current members of the Audit Committee
are Messrs. Brinegar, Field, Kleaver, Lewis and Manne. The Audit Committee met
five times during 1998.

Compensation Committee. The Compensation Committee reviews and makes
recommendations with respect to the Company's various compensation programs. The
Compensation Committee administers the awarding of discretionary bonuses by the
Company and also approves the remuneration of executive and other senior
officers of the Company. The current members of the Compensation Committee are
Messrs. Brinegar, Davies, Field and Ratican (ex-officio) and Ms. Courtright. The
Compensation Committee met four times during 1998.

Option Committee. The Option Committee administers the 1990 Stock Option
Plan, the 1995 Stock Option Plan (the "Option Plans") and authorizes the
granting of options thereunder. The Option Committee also administers the
Outside Directors 1996 Formula Stock Option Plan (the "Formula Plan") and the
Senior Executives 1996 Stock Option Plan. Subject to the approval by the
shareholders at the Annual Meeting of the 1999 Stock Option Plan, the Option
Committee will also administer the 1999 Stock Option Plan and the grantors of
options thereunder. The current members of the Option Committee are Messrs.
Brinegar and Field. The Option Committee met two times during 1998.

Nominating Committee. The Nominating Committee recommends to the Board
nominees for election to the Board at the annual meeting and to fill any Board
vacancies that may occur. The current members of the Nominating Committee are
Messrs. Lewis and Manne and Ms. Courtright. The Nominating Committee will
consider nominees recommended by shareholders. Nominations of persons for
election to the Board may be made at an annual meeting of shareholders by any
shareholder who is entitled to vote at the meeting, who complies with the notice
procedures set forth in clauses (1) and (2) below and who is a shareholder of
record at the time such notice is delivered to the Secretary of the Company.

(1) For nominations to be properly brought before an annual meeting by
a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive
offices of the Company not less than seventy (70) days nor more than ninety
(90) days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty (20) days or delayed by more than
seventy (70) days from
9
<PAGE> 12

such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the ninetieth (90th) day prior to such annual
meeting and not later than the close of business on the later of the
seventieth (70th) day prior to such annual meeting or the tenth (10th) day
following the day on which public announcement of the date of such meeting
is first made. Such stockholder's notice shall set forth (a) as to each
person who the stockholder proposes to nominate for election or reelection
as a director, all information relating to such person that is required to
be disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Exchange Act, including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; and
(b) as to the stockholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination is made; (i) the name and address of
such stockholder, as they appear on the Company's books, and of such
beneficial owner; and (ii) the class and number of shares of the capital
stock of the Company which are owned beneficially and of record by such
stockholder and such beneficial owner.

(2) Notwithstanding anything in the second sentence of clause 1 to the
contrary, in the event that the number of directors to be elected to the
Board is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board made by
the Company at least eighty (80) days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required shall also
be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
Secretary of the Company at the principal executive offices of the Company
not later than the close of business on the tenth (10th) day following the
day on which such public announcement is first made by the Company.

The Nominating Committee met one time during 1998.

OTHER BUSINESS OF THE ANNUAL MEETING

The Board has not been notified of and is not aware of any matter to be
presented at the Annual Meeting or any postponement or adjournment thereof which
is not listed on the Notice of Annual Meeting and discussed above. The Company
has not received any notice of a shareholder proposal nor are there pending any
shareholder nominees for directors to be considered at the Annual Meeting
pursuant to the Bylaws and the period under which such notice is required to be
submitted has passed. In connection with the Ratican Settlement Agreement, Paul
R. Dupee filed a conditional notice nominating Messrs. Bigelow, Whitmey and
Alexander Federbush in the event Messrs. Bigelow and Whitmey were not included
in the Board's nominees at the Annual Meeting. Since the Board's nominees for
the Annual Meeting included Messrs. Bigelow and Whitmey, Mr. Dupee's notice has
been, pursuant to its terms, withdrawn. If other matters should properly come
before the Annual Meeting, however, the persons named in the accompanying proxy
will vote all such proxies in accordance with the recommendation of the Board,
or if no such recommendation is given, in their own discretion.

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company as of the date of this Proxy
Statement are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter J. Ratican..................... 55 Chairman of the Board of Directors, Chief
Executive Officer and President
Elwood I. Kleaver, Jr. .............. 56 Interim Chief Operating Officer
Richard A. Link...................... 45 Chief Financial Officer, Executive Vice
President -- Finance and Administration
Alan D. Bloom........................ 52 Senior Vice President, Secretary and General
Counsel
Patricia A. Fitzpatrick.............. 47 Treasurer
Warren D. Foon....................... 42 Vice President, General Manager -- Maxicare
California
Sanford N. Lewis..................... 56 Vice President -- Administrative Services
Vicki F. Perry....................... 46 Vice President, General Manager -- Maxicare
Indiana
</TABLE>

10
<PAGE> 13

Peter J. Ratican was appointed Chairman of the Board, CEO and President of
the Company in August 1988. He is a member of the California Knox-Keene Health
Care Services Advisory Committee, which assists the California Department of
Corporations in regulating prepaid health plans (HMOs). Mr. Ratican has been a
director of the Company since August 1983. He received a Bachelor of Science
degree in Accounting from the University of California at Los Angeles and is a
certified public accountant. Mr. Ratican has resigned as Chairman of the Board,
CEO and President of the Company effective June 30, 1999.

Elwood I. Kleaver, Jr. was appointed Interim Chief Operating Officer of the
Company on April 24, 1999. Mr. Kleaver is a private investor and self-employed
health care consultant specializing in turnaround situations. He also serves as
the President and Director of Alcohol Detection Services LLC ("ADS"), a start-
up biotech company, and is a Director of Independent Care and Harmony Health
Plan, HMOs specializing in care to the chronically disabled and Medicaid
beneficiaries, respectively. In 1995, Mr. Kleaver became an officer and Director
of Early Detection, Inc. ("EDI"), a start-up biotech company which in 1998
underwent liquidation under Chapter 128 of the Wisconsin law. ADS is the
successor of the operations formerly operated by EDI. From January 1993 through
January 1995, Mr. Kleaver was President and Director of CareNetwork, a Wisconsin
based HMO. Mr. Kleaver has been a director of the Company since May 1998.

Richard A. Link was appointed Chief Financial Officer, Executive Vice
President -- Finance and Administration of the Company in December 1997. Mr.
Link served as Chief Accounting Officer and Senior Vice President -- Accounting
of the Company from September 1988 to December 1997. He has a Bachelor's degree
in Business Administration from the University of Southern California and is a
certified public accountant.

Alan D. Bloom has been Senior Vice President, Secretary and General Counsel
to the Company since July 1987. Mr. Bloom joined the Company as General Counsel
in 1981. Mr. Bloom received a Bachelor's degree in Biology from the University
of Chicago, a Master of Public Health from the University of Michigan, and a
J.D. degree from American University.

Patricia A. Fitzpatrick has served as Treasurer of the Company since July
1998. Previously, Ms. Fitzpatrick served as Assistant Treasurer of the Company
from July 1988 to July 1998. Ms. Fitzpatrick received a Bachelor of Science
Degree in Management from Pepperdine University.

Warren D. Foon was appointed Vice President, General Manager of the
California HMO in May 1995. Mr. Foon was Vice President -- Plan Operations of
the Company from March 1989 through April 1995 and Vice President -- National
Provider Relations from October 1986 through February 1989. Mr. Foon received a
Doctor of Pharmacy and a Masters in Public Administration from the University of
Southern California and a Bachelor of Arts in Biology from the University of
California at Los Angeles.

Sanford N. Lewis was appointed Vice President -- Administrative Services of
the Company in February 1996. He was Associate Vice President -- Underwriting
from July 1993 to January 1996 and prior to that National Director Data Control.
Mr. Lewis has been with the Company since 1987.

Vicki F. Perry was appointed Vice President, General Manager of Maxicare
Indiana, Inc. in January 1992. From January 1990 to December 1991 she served as
Executive Vice President -- Plan Operations of the Company. Ms. Perry has been
with the Company since 1982. Ms. Perry is a graduate of Indiana University.

11
<PAGE> 14

EXECUTIVE COMPENSATION

Shown below is information concerning the annual and long-term compensation
for services in all capacities to the Company for the years ended December 31,
1998, 1997 and 1996, of those persons who were, at December 31, 1998 (i) the
chief executive officer, (ii) the other four most highly compensated executive
officers of the Company or (iii) would have been among the four most highly
compensated executive officers of the Company had they held such title at
December 31, 1998 (collectively the "Named Officers"):

Summary Compensation Table

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ -------------------------
STOCK
REORGANIZATION OPTIONS
PLAN AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) BONUS(2) (#) COMPENSATION(3)
--------------------------- ---- -------- -------------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Ratican(4)............. 1998 $500,000 70,000 $4,800
Chairman of the Board 1997 $500,000 $71,993 70,000 $4,800
of Directors, Chief 1996 $481,250 $146,872 70,000 $4,500
Executive Officer and
President
Eugene L. Froelich(5)........... 1997 $400,000 $71,993 70,000 $4,800
Executive Vice President 1996 $381,250 $146,872 70,000 $4,500
Finance and Administration,
Chief Financial Officer and
Director
Richard A. Link(6).............. 1998 $275,000 145,000 $4,800
Executive Vice President -- 1997 $220,000 $4,800
Finance and Administration, 1996 $215,000 10,000 $4,500
Chief Financial Officer
Randall S. Anderson(7).......... 1998 $198,500 20,000 $4,800
Senior Vice President -- 1997 $190,000 $4,800
Plan Operations Support 1996 $180,000 10,000 $4,500
Alan D. Bloom................... 1998 $225,000 17,500 $4,800
Senior Vice President, 1997 $218,000 $4,800
Secretary and General 1996 $213,000 5,000 $4,500
Counsel
Warren D. Foon.................. 1998 $190,000 45,000 $4,800
Vice President, General 1997 $185,000 $4,800
Manager -- Maxicare 1996 $175,000 15,000 $4,500
California
</TABLE>

- ---------------
(1) These amounts are bonuses payable pursuant to the Reorganization Plan and
were paid from funds held by the Disbursing Agent in a segregated account
and were not paid out of the Company's available cash.

(2) These amounts include $146,872 paid in February 1997 pursuant to employment
agreements entered into by the Company with Peter J. Ratican and Eugene L.
Froelich. The employment agreements provide for the payment of a bonus to
Mr. Ratican and Mr. Froelich based upon the Company's annual pre-tax
earnings before extraordinary items.

(3) These amounts include contributions made by the Company on behalf of the
Named Officer under the Company's 401(k) Savings Incentive Plan.

(4) Mr. Ratican has resigned as Chairman of the Board, CEO and President of the
Company as of June 30, 1999. For a further discussion see "Ratican
Employment Agreements and Ratican Settlement and Consulting Agreements."

12
<PAGE> 15

(5) Mr. Froelich's employment as Executive Vice President -- Finance and
Administration and Chief Financial Officer of the Company was terminated on
December 11, 1997. Mr. Froelich resigned as a director of the Company
effective January 30, 1998. On January 30, 1998 the Company made a payment
of $2,200,000 to Mr. Froelich in settlement of certain obligations pursuant
to Mr. Froelich's employment agreement.

(6) Mr. Link served as Senior Vice President -- Accounting and Chief Accounting
Officer until December 11, 1997 when he was named Executive Vice
President -- Finance and Administration and Chief Financial Officer.

(7) Dr. Anderson's employment as Senior Vice President -- Plan Operations
Support of the Company terminated effective March 12, 1999.

Option Grants

Shown below is further information on grants of stock options pursuant to
the Senior Executives Plan, the 1990 Plan and the 1995 Plan during the year
ended December 31, 1998, to the Named Officers which are reflected in the
Summary Compensation Table.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL 1998 ($/SHARE)(1) DATE 5% 10%
---- ---------- ------------- ------------ ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Ratican..... 70,000(3) 9.56% $ 7.2875(4) Jan. 1, 2005(4) $320,815 $ 813,008
Richard A. Link...... 75,000 10.24% $ 11.25 Jan. 6, 2008 $530,630 $1,344,720
70,000 9.56% $ 5.00 Nov. 9, 2008 $220,113 $ 557,810
Randall S.
Anderson(5)........ 10,000 1.37% $ 11.25 Jan. 6, 2008 $ 70,751 $ 179,296
10,000 1.37% $ 5.00 Nov. 9, 2008 $ 31,445 $ 79,687
Alan D. Bloom........ 7,500 1.02% $ 11.25 Jan. 6, 2008 $ 53,063 $ 134,472
10,000 1.37% $ 5.00 Nov. 9, 2008 $ 31,445 $ 79,687
Warren D. Foon....... 15,000 2.05% $ 11.25 Jan. 6, 2008 $106,126 $ 268,944
30,000 4.10% $ 5.00 Nov. 9, 2008 $ 94,334 $ 239,061
</TABLE>

- ---------------
(1) The option exercise price is subject to adjustment in the event of a stock
split or dividend, recapitalization or certain other events.

(2) The actual value, if any, the Named Officer may realize will depend on the
excess of the stock price over the exercise price on the date the option is
exercised, so that there is no assurance the value realized by the Named
Officer will be at or near the value estimated. This amount is net of the
option exercise price.

(3) Options were automatically granted under the Senior Executives Plan as of
January 1, 1998 and vest upon date of grant.

(4) The exercise price of these options was reduced from $10.88 per share to
$7.2875 per share and the expiration date changed from January 1, 2008 to
January 1, 2005 on April 16, 1999. For further discussion see "Employment
Agreements -- Ratican Settlement and Consulting Agreements."

(5) Dr. Anderson's employment with the Company terminated effective March 12,
1999 and the options granted in 1998 expired unexercised on April 11, 1999.

13
<PAGE> 16

Option Exercises and Fiscal Year-End Values

No stock options were exercised by Named Officers in 1998. Shown below is
information with respect to the unexercised options to purchase the Company's
Common Stock granted in fiscal 1998 and prior years under employment agreements,
the 1990 Plan, the 1995 Plan and the Senior Executives Plan to the Named
Officers and held by them at December 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter J. Ratican........................... 487,778 0 $0 $ 0
Richard A. Link............................ 71,666 148,334 $0 $26,250
Randall S. Anderson(2)..................... 31,666 23,334 $0 $ 3,750
Alan D. Bloom.............................. 5,833 19,167 $0 $ 3,750
Warren D. Foon............................. 50,000 50,000 $0 $11,250
</TABLE>

- ---------------
(1) Based on the closing price on the NASDAQ-NMS on that date ($5.375), net of
the option exercise price.

(2) Dr. Anderson's employment with the Company terminated effective March 12,
1999 and the options held at December 31, 1998 expired unexercised on April
11, 1999.

Ratican Employment Agreements

The Company entered into a new five-year employment agreement with Peter J.
Ratican (the "Executive") as of April 1, 1996, and as amended on February 11,
1997 (the "Ratican Employment Agreement"). The Ratican Employment Agreement
superseded a five-year employment agreement entered into with Executive as of
January 1, 1992, and as amended on February 27, 1995. The Ratican Employment
Agreement provided for an annual base compensation of $500,000 for Executive,
subject to increases and bonuses, as may be determined by the Board based on
annual reviews.

The Ratican Employment Agreement provided that upon the termination of
Executive by (i) the Company for reasons other than death, incapacity, or
"Cause" or (ii) voluntary termination for "Good Reason" ((i) and (ii)
collectively defined as "Without Cause"), Executive would be entitled to receive
(a) a payment equal to the balance of the Executive's annual base salary which
would have been paid over the remainder of the term of the Ratican Employment
Agreement; (b) an additional one year's annual base salary; (c) payment of any
performance bonus amounts which would have otherwise been payable over the
remainder of the term of the Ratican Employment Agreement; (d) immediate vesting
of all stock options; and (e) the continuation of the right to participate in
any profit sharing, bonus, stock option, pension, life, health and accident
insurance, or other employee benefit plans including a car allowance through
March 31, 2001. "Cause" was defined as: (i) the willful or habitual failure to
perform requested duties commensurate with his employment without good cause;
(ii) the willful engaging in misconduct or inaction materially injurious to the
Company; or (iii) the conviction of a felony or of a crime involving moral
turpitude, dishonesty or theft. "Good Reason" was defined as the voluntary
termination by Executive, as a result of the occurrence, without Executive's
express written consent, of a substantial, material and adverse change in
conditions of employment imposed by the Company; including but not limited to:
(a) the assignment by the Company of any duties materially inconsistent with, or
the diminution of, Executive's positions, titles, offices, duties and
responsibilities with the Company, or any removal or any failure to re-elect
Executive to, any titles, offices or positions held by Executive hereunder,
including membership on the Board; or (b) a reduction by the Company in
Executive's base salary or any other compensation or benefit provided for
herein; provided, however, that the occurrence of any of the foregoing would not
constitute "Good Reason" to the extent that such occurrence is part of a change
in benefits, compensation, policies or practices that affect substantially all
of the employees of the Company; or (c) a change or relocation of Executive's
place of employment, without his written consent, other than within thirty (30)
miles of such location; or (d) the failure of the Company to obtain the explicit
assumption in writing of its obligation under the Ratican Employment Agreement
by any successor entity.

14
<PAGE> 17

In the event of a "Change of Control" of the Company, Executive was
entitled to elect to terminate the Ratican Employment Agreement within 120 days
after such "Change of Control" (the "Change of Control Period") in which case
the Executive would have been entitled to receive a payment equal to 2.99 times
Executive's average annualized compensation from all sources from and relating
to the Company, which was includable in Executive's gross income (including the
value of unexercised options) for the most recent five taxable years ending with
and including the calendar year in which the "Change of Control" occurs, (the
"Change of Control Payment").

Under the Ratican Employment Agreement, a "Change of Control" was defined
as: (i) any transaction or occurrence which results in the Company ceasing to be
publicly owned with at least 300 stockholders; (ii) any person or group becoming
beneficial owner of more than 40% of the combined voting power of the Company's
outstanding securities; (iii) "Continuing Directors", defined as directors as of
April 1, 1996 or any subsequent director nominated by a vote of a majority of
the Continuing Directors then in office, ceasing to be a majority of the Board;
(iv) the merger or consolidation of the Company with or into any other
non-affiliated entity whereby the Company's equity security holders, immediately
prior to such transaction, own less than 60% of the equity; or (v) the sale or
transfer of all or substantially all of the Company's assets. In the event of
death or incapacity prior to June 30, 1999, the Executive or his estate shall
receive the equivalent of 90 days base salary and, in the case of incapacity,
the continuation of health and disability benefits. The Ratican Employment
Agreement also provided that in the event Executive did not receive an offer for
a new employment agreement containing terms at least as favorable as those
contained in the existing Ratican Employment Agreement before the expiration of
such Ratican Employment Agreement, Executive would have been entitled to receive
a payment equal to one year's base salary under the terminating agreement. Under
the Ratican Employment Agreement, Executive was entitled to receive an annual
performance bonus, which is based on the Company's annual pre-tax earnings,
before extraordinary items, over $10 million (the "Performance Bonus"). The
Performance Bonus may not exceed $2,000,000 for any year and shall be in an
amount equal to 2% of the pre-tax earnings in excess of $10 million, 2 1/2% of
pre-tax earnings in excess of $15 million and 3% of pre-tax earnings in excess
of $20 million. In addition, upon the sale of the Company, a sale of
substantially all of its assets or a merger where the Company shareholders cease
to own a majority of the outstanding voting capital stock (a "Sale"), Executive
would have been entitled to a sale bonus which is based on a percentage of the
excess sale value of the Company over an initial value of $147 million in an
amount equal to 1% of the sale value in excess of $147 million, 1 1/2% of the
sale value in excess of $197 million, 2% of the sale value in excess of $247
million and 2 1/2% of the sale value in excess of $347 million (the "Sale
Bonus"). Executive would have been entitled to a Sale Bonus if a Sale occurs
during the term of the Ratican Employment Agreement or thereafter if a
definitive agreement with respect to a Sale, which is consummated, is entered
into within 90 days after the termination of the Ratican Employment Agreement
Without Cause.

Effective March 28, 1998, the Board approved an amendment to the Ratican
Employment Agreement to clarify that the Change of Control Payment in the
Ratican Employment Agreement would also be payable if Executive was terminated
Without Cause, died or became disabled during the 120 day period within which he
is able to voluntarily terminate the Ratican Employment Agreement after a Change
of Control. This amendment did not affect the amount payable under the Ratican
Employment Agreement in connection with a Change of Control Payment. The purpose
of this amendment was to ensure that Executive would not feel that he would be
required to terminate the Ratican Employment Agreement immediately upon a Change
of Control for fear of losing his rights. The Ratican Employment Agreement was
also amended at that time to revise the Sale Bonus provision to provide that
after a Change of Control a Sale Bonus would be payable in the event a Sale
occurs: (i) within one year if Executive terminates voluntarily or (ii) through
the end of the Ratican Employment Agreement if it is terminated Without Cause.
The amount of the Sale Bonus payable to Executive under the Ratican Employment
Agreement was not amended. The purpose of this amendment was to reflect
Executive's contribution to increasing the value of the Company during his
tenure as Chief Executive Officer and President by extending the time period in
which the Sale Bonus was to be payable to Executive. In addition, Executive
would be entitled to a Sale Bonus if after a Change of Control a definitive
agreement with respect to a Sale, which is consummated, was entered into (a)
within one year if Executive elects to terminate the Ratican Employment
Agreement as a result of the Change of Control or the Ratican Employment
Agreement terminates during the Change of Control Period as a result of
Executive's death or
15
<PAGE> 18

incapacity or (b) on or before March 31, 2001 if the Ratican Employment
Agreement is terminated Without Cause after a Change of Control.

If any payment under the Ratican Employment Agreement, either alone or
together with other amounts which Executive has the right to receive from the
Company, (the "Affected Payment") would have constituted an "excess parachute
payment" (as defined in the Internal Revenue Code), then Executive would have
been entitled to receive an additional cash payment (the "Additional Payment")
which, when added to the Affected Payment provides a net benefit to the
Executive, after payment of the excise tax imposed by Section 4999 of the
Internal Revenue Code and penalties and interest thereon, and payment of any
federal, state and local income taxes and penalties and interest thereon
attributable to such Additional Payment, equal to the Affected Payment before
such Additional Payment.

In connection with its approval of the Settlement Agreement with Paul Dupee
and certain other shareholders in May 1998, the Board on May 8, 1998 amended the
Ratican Employment Agreement and the Link Employment Agreement, discussed below,
to clarify that although the New Directors were elected to the Board by a
majority of the "Continuing Directors" as such term is defined in such
employment agreements, they would not be considered "Continuing Directors" for
the purposes of determining whether a "Change of Control" had occurred under
such employment agreements. As a result of the 1998 Amendment to the Ratican
Employment Agreement, the election of a shareholder slate at the Annual Meeting
which did not contain two Board nominees would trigger the "Change of Control"
provisions to the Ratican Employment Agreement. In the event a "Change of
Control" occurred on May 25, 1999, the Record Date, Mr. Ratican would have been
entitled to a "Change of Control" payment of approximately $3,502,000. Said
amount could have been substantially increased in the event Mr. Ratican is
entitled to any "Sale Bonus" under the terms of the Ratican Employment
Agreement.

Ratican Settlement and Consulting Agreements

On April 16, 1999, the Company and Peter J. Ratican ("Ratican"), entered
into a Settlement Agreement dated April 16, 1999 (the "Ratican Settlement
Agreement") pursuant to which Ratican agreed to resign as Chairman of the Board,
CEO and President of the Company. In order to ensure an orderly transition, the
Company and Ratican agreed that such resignations would become effective on June
30, 1999 (the "Termination Date"). In addition, Ratican agreed not to stand for
reelection to the Board when his term expired at the Annual Meeting. The Ratican
Settlement Agreement, which was negotiated between Ratican and representatives
of the Board over a two month period, outlines the terms of the agreements
between Ratican and the Company, including the amendment to Ratican's Employment
Agreement and certain other existing agreements and the terms of a new
consulting agreement (the "Related Agreements"). The Ratican Settlement
Agreement also provides that on April 24, 1999 (the "Effective Date"), upon the
occurrence of certain other events and subject to certain limitations, that
Ratican and the Company exchange releases. On the Effective Date each of the
Related Agreements became effective.

In connection with the Ratican Settlement Agreement, Ratican and the
Company entered into Amendment No. 4 ("Amendment No. 4") dated April 16, 1999 to
the Ratican Employment Agreement, which became effective as of the Effective
Date, pursuant to which Ratican and the Company agreed; (i) to shorten the
termination date of the Ratican Employment Agreement from April 1, 2001 to the
Termination Date; (ii) that Ratican would no longer be entitled to future or
potential Performance Bonuses, Sale Bonuses, severance pay upon the expiration
of the term of the Ratican Employment Agreement, or stock option grants under
the terms of the Ratican Employment Agreement; (iii) that during the period from
the Effective Date through the Termination Date, Ratican's powers and duties
would be limited to those powers and duties designated by the Executive
Committee of the Board (the "Executive Committee"); and (iv) the termination of
Ratican's employment pursuant to Amendment No. 4 on the Termination Date and the
election of the New Directors at the Annual Meeting would not trigger any Change
of Control Payment to Ratican.

Pursuant to the Ratican Settlement Agreement, Ratican and the Company have
entered into a four year non-exclusive consulting agreement commencing July 1,
1999 (the "Commencement Date") at an annual consulting fee of $500,000 (the
"Consulting Fee") and the provision by the Company to Ratican of certain

16
<PAGE> 19

health and other benefits comparable to those currently being received by
Ratican under the Ratican Employment Agreement (the "Ratican Consulting
Agreement"). The Ratican Consulting Agreement provides that Ratican's consulting
services shall not interfere with his other business activities and he will be
free to engage in such other business activities as he desires; provided,
however, he shall be prohibited from rendering services to an HMO competitor of
the Company in California, Indiana or Louisiana during the first year of the
Ratican Consulting Agreement. After the Commencement Date, the Ratican
Consulting Agreement may be terminated voluntarily by Ratican or for "Cause", as
defined in the Consulting Agreement, by the Company in which case no further
payments would be due Ratican thereunder. In the event of a termination of the
Consulting Agreement after the Commencement Date as a result of Ratican's death
or incapacity, Ratican or his estate would receive the Consulting Fee due for
the remainder of the four year term. The Ratican Consulting Agreement provides
for indemnification by the Company to Ratican under appropriate circumstances
and the advancement of legal fees and expenses for indemnification actions and
in the event of a dispute thereunder subject to certain requirements.

If the Company, after notice and time to cure, fails to pay the Ratican
Consulting Fee and is determined to be in breach of the Ratican Consulting
Agreement (a "Company Default"), (i) Ratican may terminate the Ratican
Consulting Agreement, declare the remaining balance due thereunder immediately
payable and receive the discounted value thereof; (ii) the Amended Note (as
defined below) will become non-recourse; and (iii) Ratican will continue to
accrue benefits under the SERP (as defined below) through June 30, 2003.

In connection with the Ratican Settlement Agreement, as of the Effective
Date adjustments were also made to Ratican's outstanding option agreements.
Ratican's Senior Executive Stock Option Agreement (the "1996 Option Agreement")
with respect to options granted under the 1996 Senior Executives Option Plan
(the "1996 Option Plan") was amended so that: (i) the term of the options
granted thereunder (the "1996 Plan Options") was shortened to January 1, 2005
(the "Option Term"); (ii) the exercise price of the options granted on July 26,
1996, January 1, 1997 and January 1, 1998 was reduced from $14.75, $22.25 and
10.88, respectively, to $7.2875 or $1.875 over the average closing trading price
of the Company's common stock for April 19, 1999 through April 23, 1999 or
$5.412 per share and (iii) the 1996 Plan Options would remain exercisable
through the Option Term, notwithstanding the termination of Ratican's employment
with the Company or the termination of the Ratican Consulting Agreement. In
addition, as of the Effective Date, the Company and Ratican entered into
Amendment No. 2 dated April 16, 1999 to the 1989 Option Agreement pursuant to
which the 1989 Option Agreement was amended to extend Ratican's ability to
exercise the options granted thereunder (the "1989 Options") until December 5,
2000 (the original option term of the 1989 Options under the 1989 Option
Agreement), notwithstanding the termination of Ratican's employment with the
Company on the Termination Date.

In connection with the Ratican Settlement Agreement, as of the Effective
Date, the terms of the SERP and Ratican's promissory note to the Company dated
February 17, 1997 (the "1997 Ratican Note") were also amended, see "Supplemental
Executive Retirement Plan" and "Certain Relationships and Related Transactions",
below.

Other Employment Agreements

On December 11, 1997 Richard A. Link was named Executive Vice
President -- Finance and Administration and Chief Financial Officer of the
Company. As of January 1, 1995, the Company entered into an employment agreement
effective through December 31, 1997 with Mr. Link. The contract provided for a
minimum base salary of $205,000 subject to increases and bonuses, as may be
determined from time to time by the Chief Executive Officer of the Company. As
of December 11, 1997, the Company terminated the prior agreement and entered
into a three-year employment agreement with Mr. Link which provides for an
annual base salary of $275,000, subject to increases and bonuses as may be
determined from time to time by the Company's Chief Executive Officer (the "Link
Employment Agreement"). Mr. Link's current base salary is $300,000 per annum.
The Link Employment Agreement further provides that upon the termination of Mr.
Link by the Company without cause or the voluntary termination of employment by
Mr. Link for certain reasons as set forth in the Link Employment Agreement Mr.
Link will be entitled to receive (i) a payment equal to the balance of his
annual base salary which would have been paid over the remainder of the term of
17
<PAGE> 20

the Link Employment Agreement; (ii) an additional one year's annual base salary;
(iii) immediate vesting of all stock options; and (iv) the continuation of the
right to participate in any profit sharing, pension, life, health and accident
insurance, or other employee benefit plans including a car allowance through
December 11, 2000. Cause is defined as: (i) the continued failure or refusal to
substantially perform duties pursuant to the terms of the Link Employment
Agreement; (ii) the engaging in misconduct or inaction materially injurious to
the Company; or (iii) the conviction of a felony or of a crime involving moral
turpitude. In the event of a "Change of Control" of the Company, Mr. Link may
elect to terminate the Link Employment Agreement within 120 days after such
Change in Control in which case he will be entitled to receive a payment equal
to 2.99 times his annualized compensation, as defined. In the event of death or
incapacity, Mr. Link, or his estate, shall receive the equivalent of 90 days
base salary and in the case of incapacity, the continuation of health and life
insurance benefits. The Link Employment Agreement also provides that in the
event Mr. Link does not receive an offer for a new employment agreement
containing terms at least as favorable as those contained in the existing
employment agreement, Mr. Link will be entitled to receive a payment equal to
one year's base salary under the terminating agreement.

As of January 1, 1998, the Company entered into an employment agreement
with Alan D. Bloom for a one year term which provided for an annual base salary
of $225,000. On December 1, 1998, the Company entered into a new employment
agreement with Mr. Bloom with a term through December 31, 1999 which provides
for an annual base salary of $225,000 through December 31, 1998 and $230,000
from January 1, 1999 through December 31, 1999, subject to increases and
bonuses, as may be determined from time to time by the Chief Executive Officer
of the Company.

As of January 1, 1998, the Company entered into an employment agreement
with Warren D. Foon for a two year term which provided for an annual base salary
of $190,000. On December 1, 1998, the Company entered into a new employment
agreement with Mr. Foon with a term through December 31, 2001 which provides for
an annual base salary of $190,000 through December 31, 1998 and $200,000 from
January 1, 1999 with such increases and bonuses as may be determined from time
to time by the Chief Executive Officer of the Company.

Pursuant to these respective agreements, in the event that either Mr. Bloom
or Mr. Foon is terminated without cause as set forth in the agreements, he will
be entitled to receive (a) the greater of his base salary through the expiration
date of the agreement or six months base salary and (b) health, dental,
disability and life insurance benefits he was receiving prior to such
termination.

As of January 1, 1998, the Company entered into an employment agreement
with Randall S. Anderson for a two year term which provided for an annual base
salary of $198,500, subject to increases and bonuses, as may be determined from
time to time by the Chief Executive Officer of the Company. Dr. Anderson's
employment with the Company terminated effective March 12, 1999.

Kleaver Consulting Agreement

In connection with the Ratican Settlement Agreement, Elwood I. Kleaver, Jr.
("Kleaver"), a current board member, agreed to become the Company's Interim
Chief Operating Officer ("COO") beginning April 24, 1999 (the "Kleaver
Commencement Date") pursuant to a consulting agreement with the Company dated
April 16, 1999 (the "Kleaver Consulting Agreement"). Under the Kleaver
Consulting Agreement, Kleaver has agreed to serve as COO for a period of no less
than four months (the "Initial Term") at $40,000 per month (the "Kleaver
Consulting Fees"). Although the Kleaver Consulting Agreement is non-exclusive
and Kleaver may continue and/or finish any of his existing consulting
arrangements; Kleaver's other consulting services may not materially interfere
with the performance of his duties as COO. In addition, during the term of the
Kleaver Consulting Agreement, Kleaver my not enter into new consulting or
employment agreements without prior approval of the Board and will be prohibited
from working for a competitor of the Company in California, Indiana and
Louisiana. The Kleaver Consulting Agreement may be terminated (i) upon Kleaver's
death or disability; (ii) for "Cause", as defined in the Kleaver Consulting
Agreement; (iii) for any reason other than (i) and (ii) as set forth above or
(iv) after August 24, 1999, upon thirty days prior notice. In the event of a
termination of the Kleaver Consulting Agreement pursuant to

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<PAGE> 21

(iii) Kleaver would be entitled to receive either the unpaid portion of the
Kleaver Consulting Fee for the Initial Term or if the termination is after the
Initial Term, $40,000.

Pursuant to the terms of the Kleaver Consulting Agreement, the Company has
granted Kleaver, effective as of the Commencement Date, options to purchase
50,000 shares of the Company's stock (the "Kleaver Options") pursuant to the
Company's 1995 Stock Option Plan at $5.31 per share, the closing market price of
the Company's common stock on the last trading day immediately preceding the
effectiveness of the option grant. The Kleaver Options have a ten year term and
vest at a rate of 6,000 shares per month during the Initial Term and 4,000
shares per month thereafter. All vested options will be exercisable for a period
of one year after the termination of Kleaver's consulting services to the
Company (or employment by the Company, if applicable).

Froelich Settlement Agreement

On December 11, 1997 the employment of Eugene L. Froelich as Executive Vice
President -- Finance and Administration and Chief Financial Officer was
terminated. The Company entered into a new five-year employment agreement with
Mr. Froelich as of April 1, 1996, and as amended on February 11, 1997 (the
"Froelich Employment Agreement"). The Froelich Employment Agreement superseded a
five-year employment agreement entered into with Mr. Froelich as of January 1,
1992, and as amended on February 27, 1995. The Froelich Employment Agreement
provided for an annual base compensation of $400,000, subject to increases and
bonuses, as may be determined by the Board based on annual reviews. Effective
January 30, 1998 the Company and Mr. Froelich entered into an agreement (the
"Release") which settled various obligations of the Froelich Employment
Agreement. Pursuant to the Release the Company made on January 30, 1998 a
settlement payment to Mr. Froelich of $2.2 million in satisfaction of various
provisions of the Froelich Employment Agreement, including (i) the payment of
his base salary through the remainder of the term, (ii) the payment of an
additional one year's annual base salary, (iii) the settlement of any
performance bonus which would otherwise be payable over the remainder of the
term, and (iv) the settlement of the continuation of the right to participate in
any profit sharing, bonus, stock option, pension, life, health and accident
insurance, or other employee benefit plans including a car allowance through
March 31, 2001. In addition, pursuant to the terms of the Froelich Employment
Agreement, Mr. Froelich received the full vesting of all 65,000 shares of
Restricted Stock effective December 11, 1997 and in connection therewith Mr.
Froelich delivered to the Company 32,728 shares to pay withholding taxes
whereupon the Company delivered the remaining 32,272 shares to Mr. Froelich. The
Company remains obligated for all benefits due or which may become due Mr.
Froelich pursuant to the terms of the Maxicare Health Plans, Inc. Supplemental
Executive Retirement Plan; however, the parties clarified these obligations
pursuant to the Release. On January 30, 1998 Mr. Froelich resigned from the
Board.

Supplemental Executive Retirement Plan

Effective January 1, 1997 the Company adopted the Maxicare Health Plans,
Inc. Supplemental Executive Retirement Plan (the "SERP"), an unfunded retirement
plan which covers key executives of the Company as designated by the Board (the
"Participants"). As of December 31, 1998 there were nine participants in the
SERP of which seven were employed by the Company as of that date. All of the
Named Officers of the Company are designated Participants. The SERP provides for
a retirement benefit equal to 25% of the Participant's average compensation (the
average of the Participant's base salary and annual bonus for the final three
years of service) to be reduced by 1/15 for each year of service by which the
Participant's years of service are less than 15 years. The retirement benefit
fully vests upon the Participant reaching the age of 55 or upon a "Change of
Control" if the Participant's employment with the Company is terminated within
two years after the "Change of Control". On March 28, 1998 the SERP was amended
to provide for full vesting to Participants who elect to terminate their
employment with the Company pursuant to a "Change of Control" clause in their
employment agreement. In connection with the Ratican Settlement Agreement, the
SERP was further amended effective as of April 24, 1999 to provide that Ratican
will continue to accrue benefits under the SERP during the term of the Ratican
Consulting Agreement. The normal retirement benefit is payable at age 65;
however, the Participant may elect to receive an early retirement benefit
whereupon, such benefit will

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<PAGE> 22

be reduced by 1/240 for each month by which the distribution precedes the normal
retirement date. In addition, the SERP provides for a pre-retirement death
benefit equal to 200% of the Participant's average compensation.

Compensation of Directors

During 1998, non-employee directors of the Company (the "Outside
Directors") received compensation for their services as directors. These members
were Claude S. Brinegar, Florence F. Courtright, Robert M. Davies, Paul R.
Dupee, Jr., Thomas W. Field, Jr., Elwood I. Kleaver, Jr., Charles E. Lewis and
Alan S. Manne. During 1998, Mr. Brinegar earned $39,750; Ms. Courtright earned
$36,750; Mr. Davies earned $30,500; Mr. Dupee earned $29,750; Mr. Field earned
$40,500; Mr. Kleaver earned $31,250; Dr. Lewis earned $39,000; and Mr. Manne
earned $35,250. During 1999, the Outside Directors will receive cash
compensation for their services in the amount of $30,000 per year, plus $750 per
meeting. In addition, directors are entitled to be reimbursed for all reasonable
out-of-pocket expenses incurred in connection with their services as directors
of the Company.

The Outside Directors have received options to purchase shares of Common
Stock at an exercise price equal to the market price at the date of grant. Set
forth below is a schedule of the outstanding options at December 31, 1998 held
by the Outside Directors, the date of grant and the exercise price of such
options:

<TABLE>
<CAPTION>
# OF EXERCISE PRICE
DIRECTOR OPTIONS DATE OF GRANT PER SHARE
-------- ------- ---------------- --------------
<S> <C> <C> <C>
Claude S. Brinegar.................. 5,000 July 26, 1996 $14.75
5,000 January 2, 1997 $22.25
5,000 January 2, 1998 $10.88
Florence F. Courtright.............. 5,000 July 26, 1996 $14.75
5,000 January 2, 1997 $22.25
5,000 January 2, 1998 $10.88
Thomas W. Field..................... 5,000 July 26, 1996 $14.75
5,000 January 2, 1997 $22.25
5,000 January 2, 1998 $10.88
Charles E. Lewis.................... 5,000 July 26, 1996 $14.75
5,000 January 2, 1997 $22.25
5,000 January 2, 1998 $10.88
Alan S. Manne....................... 5,000 January 28, 1994 $12.63
5,000 July 26, 1996 $14.75
5,000 January 2, 1997 $22.25
5,000 January 2, 1998 $10.88
</TABLE>

For those outstanding options granted prior to July 26, 1996 the options
vested at the date of grant and expire five years from the date of grant
provided these directors continue to serve as directors of the Company. If the
directorship is terminated, such options expire 30 days from the date of such
termination.

The options granted July 26, 1996 and thereafter were issued under the
Formula Plan. Commencing January 2, 1997, and each January 2nd thereafter, each
Outside Director then serving on the Board shall receive a grant of stock
options to purchase 5,000 shares of Common Stock. The options vest six months
from the date of grant and expire ten years from the date of grant provided the
director continues to serve as a director of the Company. In the event of
termination of the directorship, such options expire two years from the date of
such termination.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Peter J. Ratican, the Company's President and Chief Executive Officer,
served as an ex-officio member of the Compensation Committee of the Company for
the year ended December 31, 1998. Although Mr. Ratican served as an ex-officio
member of this Compensation Committee, he did not participate in any decisions
regarding his own compensation as an executive officer. The Company's Board as a
whole determines Mr. Ratican's total compensation package.

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<PAGE> 23

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On February 18, 1997 the Company entered into recourse loan agreements with
Peter J. Ratican and Eugene L. Froelich (the "Senior Executives" and
individually the "Senior Executive") whereby the Company loaned to each Senior
Executive $2,229,028 (the "Original Balance") in connection with the exercise of
certain stock options granted to the Senior Executives on February 25, 1992. The
loans are each evidenced by a Secured Promissory Note which provides for
interest compounding monthly at the one year London Interbank Offered Rate plus
50 basis points in effect from time to time and subject to certain adjustments
in the event the Company enters into a transaction to borrow funds. The interest
rate in effect as of February 18, 1997 and for all of 1997 was 6.25%, the
interest rate in effect for 1998 was 6.44% and the interest rate in effect for
1999 is 5.60%. As of December 31, 1998, each Senior Executive owed the Original
Balance and accrued interest of approximately $279,000. Under the Promissory
Notes all principal and accrued interest was due at the maturity date of April
1, 2001 or upon an event of default; provided however, that if Senior Executive
sells any shares of the Company's Common Stock serving as security under the
loan agreement, then Senior Executive shall pay a pro rata share of the proceeds
to the Company to be applied against any outstanding principal and accrued
interest owed by such Senior Executive as of such date. In connection with the
Ratican Settlement Agreement, as of the Effective Date, the 1997 Ratican Note
and related loan documents were also amended. Pursuant to the terms of the
Amended and Restated Promissory Note dated April 16, 1999 (the "Restated 1997
Note"), the term of the 1997 Ratican Note was extended from April 1, 2001 to
June 30, 2003 (the "Maturity Date"). In addition, the Restated 1997 Note
provides that on the Maturity Date, in lieu of payment of the Original Balance
and all accrued interest thereon (the "Maturity Balance"), Ratican may fully
satisfy his obligations under the Restated 1997 Note through the payment to the
Company for payment to the applicable state and Federal tax authorities the
applicable minimum state and federal withholding amounts and FICA taxes due from
Ratican resulting from the reduction of the Maturity Balance to zero (the
"Applicable Taxes"); provided, however, in the event the Ratican Consulting
Agreement is terminated for Cause or voluntarily by Ratican or Ratican fails to
timely pay the Applicable Taxes, the Restated 1997 Note provides that the full
Maturity Balance will remain due. The Restated 1997 Note also provides that
Ratican may withdraw, at any time, all or any portion of the 150,000 shares of
the Company's common stock held by the Company as collateral under the Restated
1997 Note and substitute in lieu thereof, cash, treasury notes, U.S. government
backed securities or other collateral acceptable to the Company valued at not
less than $800,000. As previously discussed, the Restated 1997 Note becomes
non-recourse upon the occurrence of a Company Default under the Ratican
Consulting Agreement.

In connection with the Ratican Settlement Agreement, effective as of the
Effective Date, the Board agreed to nominate for reelection Thomas W. Field, Jr.
and to nominate for election as new directors, George H. Bigelow and Simon J.
Whitmey (Messrs. Bigelow and Whitmey hereinafter referred to as the "New
Nominees") for election for three year terms as directors at the Annual Meeting.
The New Nominees will take the place of Mr. Ratican and incumbent director Alan
S. Manne, who announced his retirement upon the expiration of his term at the
Annual Meeting.

Effective July 30, 1998, Ratican entered into a Promissory Note with the
Company (the "1998 Ratican Note"), whereby Ratican promised to pay the Company
the sum of $143,118 without interest (the "Principal Balance"). The Principal
Balance was equal to an overpayment, determined in 1998, of Mr. Ratican's
Performance Bonus for the 1995 fiscal year. Under the 1998 Ratican Note, the
Principal Balance was payable out of 1) any payments due Ratican pursuant to
selected provisions of the Ratican Employment Agreement or 2) any other cash
bonuses or cash awards granted to Ratican by the Company whether discretionary
or pursuant to any plan after the effective date of the Promissory Note. The
remaining unpaid and outstanding Principal Amount, if any, was fully due and
payable on March 31, 2001. In connection with the Ratican Settlement Agreement,
the Company also cancelled the Principal Balance due on the 1998 Ratican Note.

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<PAGE> 24

THE 1998 BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION

COMPENSATION PHILOSOPHY REGARDING EXECUTIVE OFFICERS

The fundamental philosophy of the Company's compensation program is to
offer compensation opportunities for all employees which are based on the
individual's contribution and personal performance. Consideration is also given
to a person's potential for future responsibility and promotion.

In designing and administering the individual elements of the executive
compensation program, the Compensation Committee of the Board of Directors (the
"Board") strives to balance short and long-term incentive objectives and employ
prudent judgment in establishing performance criteria, evaluating performance
and determining actual incentive payments. Essentially, the executive
compensation program of the Company has been designed to:

- support a pay for performance policy that differentiates in compensation
amounts based on corporate, business unit and individual performance;

- motivate key executive officers to achieve strategic business initiatives
and reward them for their achievement;

- provide compensation opportunities which are comparable to those offered
by other leading companies in the health care industry, thus allowing the
Company to compete for and retain talented executives who are critical to
the Company's long-term success; and

- align the interest of executives with the long-term interest of
stockholders through award opportunities that can result in bonuses and
ownership of common stock.

RELATIONSHIP OF PERFORMANCE UNDER THE COMPENSATION PROGRAM

The compensation program supports the Company's internal culture and human
resource values which are to foster career opportunities and develop the best
people at all levels and to encourage and reward actions which put the interests
of the Company as a whole ahead of functional specialties and individual
considerations.

During 1998, the compensation program for all executives, including the
Chief Executive Officer (the "CEO"), the Company's then newly named Executive
Vice President and Chief Financial Officer (the "CFO"), and the three other most
highly compensated executive officers other than the CEO and the CFO (the "named
executives"), is comprised of two elements:

- Base salary and benefits typically offered to executives by major
corporations.

- Stock option grants to provide an incentive that focuses the executives'
attention on managing the Company from the perspective of an owner with
an equity stake in the business. These stock options are tied to the
future performance of the Company's stock and will provide value to the
recipient only when the price of the Company's stock increases above the
option grant price.

For the named executives, other than the CEO, the Compensation Committee
determined that to attract and retain quality executives the primary emphasis
should remain in 1998 on base salary rather than performance measured
compensation.

In addition to the above mentioned compensation elements, there are three
elements in the Company's executive compensation program for the CEO:

- Annual incentive compensation.

- Long-term compensation.

- Additional incentive compensation linked to maximization of shareholders'
value.

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<PAGE> 25

COMPENSATION FACTORS

BASE SALARY

Salary Plan: Every employee of the Company, including the named executives,
is assigned a grade level with a salary range that is designed to reflect
competitive practice for the position they hold. At the end of each fiscal year,
the Compensation Committee reviews and approves an annual salary plan for all
executives for the upcoming year. This salary plan is developed under the
ultimate direction of the CEO who informs the Compensation Committee as to the
amount of proposed remuneration for the Company's executive officers (other than
himself). The salaries approved for 1998 reflect consideration of the immediate
supervisor's, CEO's, Compensation Committee's and the Board's subjective
assessment of the performance of each executive over the past year, planned
changes in functional responsibility and judgments as to the expected future
contributions of the individual executive.

Performance Evaluation: The Compensation Committee has taken particular
note of the executives' success in effectively directing the Company's
operations under the difficult competitive conditions in the markets served by
the Company. In its review of the executives' performance and compensation, the
Compensation Committee has also taken into account the executives' consistent
commitment to the long-term success of the Company through development and
execution of focused business strategies. The Compensation Committee also
subjectively assessed past performance and its expectation as to future
contributions in leading the Company and its businesses.

Competitive Data: In accordance with the Compensation Committee's
determination to emphasize base salary rather than performance based
compensation, total cash compensation for executives in 1994, other than the
CEO, were set to meet or exceed the seventy-fifth percentile (75%) for the
specific position held, from a private health care industry survey conducted in
1993 included in a formal report provided by an independent consulting firm.
Using the 1993 analysis as a base, 1998 cash compensation was subjectively
increased for such executives (other than the CEO and CFO) with a goal not to
exceed a five percent (5%) increase in the aggregate as compared to 1997 cash
compensation.

The Compensation Committee considers the total compensation (earned or
potentially available) of each of the executives in establishing each element of
compensation. After completing their subjective assessment of the above salary
factors, the Compensation Committee increased the salaries of the named
executives (excluding the CEO) effective January 1, 1998 and December 11, 1997
for the newly named CFO.

The base salary for the CEO for 1998 was in accordance with the five-year
employment agreement entered into as of April 1, 1996 (the "Restated Employment
Agreement"). The base salary for the CEO was increased effective April 1, 1996
pursuant to the Restated Employment Agreement with a goal to compensate the
executive to meet or exceed the seventy-fifth percentile (75%) for his specific
position and responsibility based upon a broad-based, major company industry
study of executive compensation included in a report provided by an independent
consulting firm. Although the CFO received an increase recognizing his new
responsibilities in his December 1997 Employment Agreement, his base salary was
still only slightly more then two-thirds of that of his predecessor. It was the
Compensation Committee's desire to afford the Company sufficient flexibility
toward the CFO with increases in compensation based upon his performance.

BENEFITS

In the past, the Company adopted certain broad-based employee benefit plans
in which the executives are permitted to participate on the same terms as
non-executive employees who meet applicable eligibility criteria, subject to any
legal limitations on the amounts that may be contributed or the benefits that
may be payable under the plans. Benefits under these and other plans are not
tied to Company performance.

In assessing the Company's overall compensation program, including employee
benefits, the Compensation Committee determined a separate retirement program
for key executives would provide an incentive in attracting and retaining such
executives as well as encourage their contribution to the long-term growth of
the Company. Accordingly, the Compensation Committee adopted the Maxicare Health
Plans, Inc. Supplemental Executive Retirement Program (the "SERP Plan") which
became effective January 1, 1997. The SERP

23
<PAGE> 26

Plan provides for a retirement income benefit based upon a normal retirement
date of age 65 and specified years of service. Currently, there are seven
executives who participate in the SERP Plan of which two executives have met the
requirements for minimum vesting. Two former executives have vested interests
under the SERP Plan.

STOCK OPTION GRANTS

Stock options are granted to employees under the 1990 Stock Option Plan and
1995 Stock Option Plan by the Option Committee which is comprised of two outside
directors. These grants are made only after approval by the Compensation
Committee. Stock option grants provide the right to purchase shares of Common
Stock at the fair market value (the closing price) on the date of grant. Each
stock option generally becomes exercisable in three annual installments
following the date of grant and has a term from five to ten years. The number of
shares covered by an individual's option represents the Option Committee's
subjective assessment of the individual's relative value to the Company. During
1998 stock options were granted under the 1995 Stock Option Plan to all four of
the named executives, other than the CEO. In determining the amount of options
to grant, the Option Committee took into account the items discussed above under
"Base Salary", the desire to tie closely the financial interests of the named
executives to those of the Company's stockholders and the total amount of
options currently held by the named executive. The grants made in 1998 reflect
such considerations.

The CEO was granted stock options as part of the overall compensation
package pursuant to the Restated Employment Agreement as further discussed below
under "Other Long-Term and Incentive Compensation".

ANNUAL INCENTIVE COMPENSATION

In addition to the base salary, the CEO is entitled to earn an annual
performance bonus which is based on the pre-tax earnings of the Company. For
purposes of calculating the annual bonus, the goals on pre-tax earnings set
forth in the CEO's Employment Agreement were carried forward to the Restated
Employment Agreement. An annual bonus was not earned by the CEO based upon the
audited 1997 pre-tax results.

OTHER LONG-TERM AND INCENTIVE COMPENSATION

In order to further incentivize the CEO, and strengthen such executive's
ongoing commitment to the Company, on February 27, 1995 the Compensation
Committee awarded 65,000 shares of Restricted Stock to the CEO. The Restricted
Stock was subject to complete forfeiture should the CEO be terminated prior to
February 27, 1998. The Restricted Stock has fully vested and further aligns the
CEO's financial interests with those of the Company's stockholders.

As a part of the compensation under the Restated Employment Agreement, the
Compensation Committee agreed to grant, subject to stockholder approval, to the
CEO options to individually purchase 350,000 shares of the Company's stock over
the five year employment term. Accordingly, on May 14, 1996 the Board adopted
the Maxicare Health Plans, Inc. Senior Executives 1996 Stock Option Plan (the
"Senior Executives Plan") which was approved by the stockholders on July 26,
1996. The CEO was individually granted 70,000 option shares on July 26, 1996
pursuant to the Senior Executives Plan. The Senior Executives Plan further
provides for the grant of 70,000 option shares to the CEO on each January 1,
from and including January 1, 1997 through and including January 1, 2000.

The Restated Employment Agreement further provides that in the event of a
change of control of the Company, the CEO may terminate the Restated Employment
Agreement and be entitled to receive a payment equal to 2.99 times that
Executive's average annualized compensation, as defined, over the five year
period through the date of the change of control. Also set forth in the Restated
Employment Agreement is a bonus on the sale of the Company or substantially all
of its assets or a merger into another company. This bonus is based on the
extent to which the sale price exceeds an initial value set forth in the CEO's
Restated Employment Agreement.

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<PAGE> 27

EMPLOYMENT AGREEMENT WITH THE CFO

On December 11, 1997 the Company terminated its Employment Agreement with
the Company's Chief Financial Officer, Eugene L. Froelich. The Board named the
Company's Senior Vice President and Chief Accounting Officer, Richard A. Link as
the Company's Executive Vice President and Chief Financial Officer. Previously,
the CFO was employed by the Company pursuant to an existing employment agreement
which terminated pursuant to its terms on December 31, 1997. In light of the
significant increase in the CFO's responsibilities at the Company, the
Compensation Committee determined that it was in the Company's best interest to
enter into an incentive-based compensation program with the CFO which would
recognize his increased contributions to the Company principally through
performance-based awards.

This compensation program consisted of two principal components: (i) a new
three-year Employment Agreement with an increase in base compensation reflecting
his new responsibilities to $275,000 per annum with additional increases and
bonuses based on performance, and (ii) the grant of stock options to purchase
75,000 shares of the Company's common stock.

CONCLUSION

Based on its evaluation of these factors, the Compensation Committee
believes that the executive employees of the Company are dedicated to achieving
significant improvements in long-term financial performance and that the
compensation policies, plans and programs the Compensation Committee and the
Board designed, implemented and administered have contributed to achieving this
management focus. The policies, plans and programs used in setting 1998
compensation are consistent with those used when 1997 compensation was set.

1998 Compensation Committee:

Thomas W. Field, Jr., Chairman

Claude S. Brinegar

Florence F. Courtright

Robert M. Davies

Peter J. Ratican (ex-officio)

25
<PAGE> 28

COMPARISON OF CUMULATIVE TOTAL RETURN GRAPH

The following graph presents a five year comparison (December 31, 1993
through December 31, 1998) of cumulative total returns for the Common Stock of
the Company, the index for the NASDAQ Stock Market (U.S. Companies) and an index
of currently publicly trading operating peer companies (the "Managed Care
Group") selected by the Board. The Managed Care Group initially consisted of
seven members who were publicly traded HMOs which had material operations in
California or were similar in size to the Company. The original members were
Coventry Corporation, Qual-Med, Inc., TakeCare, Inc., Wellpoint Health Networks,
Foundation Health Corporation, FHP International, and PacifiCare. The Managed
Care Group currently consists of four managed care companies who are successor
entities of certain members of the original group: Coventry Health Care, Inc.,
Foundation Health Systems, PacifiCare Health Systems, Inc., (Class B Common
Stock) and Wellpoint Health Networks. The remaining original members of the
Managed Care Group in prior years are no longer publicly traded and are not
included in the graph. Total return assumes an initial investment of $100 and
the monthly reinvestment of dividends.

<TABLE>
<CAPTION>
MAXICARE HEALTH PLANS, INC. NASDAQ U.S. PEER GROUP
--------------------------- ----------- ----------
<S> <C> <C> <C>
'12/31/93' 100.00 100.00 100.00
'12/31/94' 155.13 97.76 121.31
'12/31/95' 275.64 138.26 134.59
'12/31/96' 228.21 170.02 111.87
'12/31/97' 111.54 208.58 104.59
'12/31/98' 55.13 293.20 134.71
</TABLE>

ITEM 2. APPROVAL OF THE 1999 STOCK OPTION PLAN

On April 30, 1999, the Board adopted the 1999 Stock Option Plan, a copy of
which is attached hereto as Exhibit A to this Proxy Statement (the "1999 Plan"),
contingent upon shareholder approval at the Annual Meeting.

The Board believes that the Company's long-term success is dependent upon
the ability of the Company and its subsidiaries to attract and retain
outstanding individuals; to motivate their best efforts on behalf of the
Company's interest; to further the identity of interests of such employees with
the interest of the Company's shareholders; and to enhance the incentive for
such employees to promote the success of the Company and maximize shareholder
value. It is the view of the Board that the grant of options under the 1999 Plan
to directors, officers and employees will be an important addition to these
efforts.

The Company has a 1990 Stock Option Plan (the "1990 Plan"), under which a
maximum of 1,000,000 shares of Common Stock may be issued. As of May 25, 1999,
571,909 shares have been issued pursuant to the exercise of options granted
under the 1990 Plan, options to purchase 329,092 shares of Common Stock are

26
<PAGE> 29

outstanding and options to purchase 98,999 shares of Common Stock may be granted
in the future. The 1990 Plan expires on December 5, 2000 and no options may be
granted under the 1990 Plan thereafter.

The Company also has a 1995 Stock Option Plan (the "1995 Plan"), under
which a maximum of 1,000,000 shares of Common Stock may be issued. As of May 25,
1999, 8,333 shares of Common Stock have been issued pursuant to the exercise of
options granted under the 1995 Plan, options to purchase 882,167 shares of
Common Stock are outstanding and options to purchase 109,500 shares of Common
Stock may be granted in the future. The 1995 Plan expires on July 27, 2005 and
no options may be granted under the 1995 Plan thereafter.

The Company also has a 1996 Outside Directors Formula Stock Option Plan
(the "Formula Plan"). Options to purchase a maximum of 125,000 shares of Common
Stock under the Formula Plan may be granted only to outside directors. As of May
25, 1999, no shares of Common Stock have been issued pursuant to the exercise of
options granted under the Formula Plan, options to purchase 115,000 shares of
Common Stock are outstanding and options to purchase 10,000 shares of Common
Stock may be granted in the future. Since this amount is less than the Formula
Plan no further options will be granted under the Formula Plan. The Board
believes the limited number of shares of Common Stock available under the 1990
Plan and the 1995 Plan restrict the Company from achieving the goals previously
set forth; and, therefore, the Board believes the 1999 Plan is necessary to
achieve such goals.

The principal provisions of the 1999 Plan are summarized below. The summary
is qualified in its entirety by reference to the specific provisions of the 1999
Plan, a copy of which is attached hereto as Exhibit A.

TYPES OF OPTIONS AND STOCK SUBJECT TO THE 1999 PLAN

The stock to be offered under the 1999 Plan consists of a maximum of
750,000 authorized unissued shares of Common Stock or shares of Common Stock
held in the treasury. Based on the closing price on the NASDAQ-NMS on May 25,
1999 ($4.75 per share), the current market value of the Common Stock eligible
for issuance underlying the options is $3,562,500.

In the event of a stock dividend (but only on Common Stock), stock split,
reverse stock split, recapitalization, reorganization, merger, consolidation,
separation or like change in the corporate or capital structure of the Company,
the administrator of the 1999 Plan is authorized to make appropriate adjustment
to the number and kind of shares authorized for issuance pursuant to the 1999
Plan; although no adjustment shall be made in the case of a liquidation, merger,
consolidation or other reorganization if the Company is not the surviving
corporation (see "Changes in Control").

The number of shares issued pursuant to the exercise of stock options under
the 1999 Plan will be charged against the maximum number of shares set forth
above. If any stock option granted under the 1999 Plan expires, terminates, or
is surrendered or canceled without having been exercised in full, the shares of
Common Stock allocable to the unexercised portion of the stock option will again
be eligible for issuance upon exercise of other options. If the exercise price
of a stock option granted under the 1999 Plan is paid for by the surrender of
previously owned shares of Common Stock, the number of shares of Common Stock
available for issuance under the 1999 Plan will be increased by the number of
previously owned shares of Common Stock so surrendered.

Two types of options may be granted under the 1999 Plan: options intended
to qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended; and non-qualified stock options not specifically
authorized or qualified for favorable federal income tax consequences.

ADMINISTRATION OF THE 1999 PLAN

The 1999 Plan is administered by the Board, or in the discretion of the
Board a committee ("Option Committee") of not less than two individuals, all of
whom must be members of the Board, outside directors as defined in Treasury
Regulation Section 1.162-27(e)(3) ("outside directors"), and "non-employee
directors" within the meaning of Rule 16b-3 promulgated pursuant to the
Securities Exchange Act of 1934, as amended

27
<PAGE> 30

(the "Exchange Act"). The 1999 Plan will initially be administered by the Option
Committee which currently consists of Messrs. Brinegar and Field.

The Option Committee may determine and designate those directors, officers
and key employees who are to be granted stock options under the 1999 Plan; the
number of shares to be subject to such options and the nature and terms of the
options granted. The Option Committee shall also, subject to the express
provisions of the 1999 Plan, have authority to interpret and construe any
provisions thereof; including but not limited to whether, to what extent and
under what circumstances options under the 1999 Plan may be canceled, forfeited,
exchanged or surrendered, to make adjustments in the terms and conditions of
options, to construe and interpret the 1999 Plan and any options granted
thereunder and to make all other determinations deemed necessary or advisable
for administration of the 1999 Plan. All decisions, determinations and
interpretations of the Option Committee shall be final and binding for all
persons, including without limitation, the Company.

The Board may, at any time, amend or terminate the 1999 Plan, so long as
such action does not impair any options previously granted thereunder and so
long as stockholder approval is obtained for any amendment materially increasing
the benefits to optionees, materially increasing the number of shares subject to
the 1999 Plan, increasing the term of the 1999 Plan or materially modifying the
requirements as to eligibility for participation in the 1999 Plan.

PURCHASE PRICE

The Option Committee shall determine the purchase price for the shares
subject to any option granted under the 1999 Plan; provided, however, the
purchase price for an incentive stock option shall not be less than 100% of the
fair market value of the shares of Common stock on the date the option is
granted and the purchase price for a non-qualified stock option shall not be
less than the par value per share of Common Stock.

EXERCISE OF STOCK OPTIONS

Stock Options will become exercisable in one or more installments at the
time or times specified by the Option Committee; provided, however, no stock
option may be exercised after the first to occur of: (i) more than ten years
from the date of grant; (ii) after the term of the stock option pursuant to the
Stock Option agreement; or (iii) one year after the optionee's death or
termination of employment or directorship with the Company or its subsidiaries
or directorship with the Company.

In the event an optionee ceases to be employed by the Company for any
reason other than death or permanent disability, any options granted to him or
her under the 1999 Plan will terminate on the earlier of (i) thirty days after
the termination date (or the extended date provided by the Option Committee, if
any) or (ii) the date on which the option expires by its terms. If an optionee
dies or becomes disabled while employed by the Company, any options exercisable
on the date of said death or disability may be exercised by said optionee or his
or her transferees by will or by the laws of descent and distribution until the
earlier of (i) the expiration date of the Options established by the Option
Committee; (ii) ten years from the date of grant; or (iii) one year from the
date of death or disability, as the case may be. Options will not be assignable
or transferable except by will or the laws of descent and distribution, and
during an optionee's lifetime, may be exercised only by him or her.

The purchase price for any shares purchased pursuant to the exercise of an
option granted under the 1999 Plan must be paid in full upon exercise of the
option in cash or, at the discretion of the Option Committee, upon such terms
and conditions as it may approve, a copy of instructions to a broker directing
such broker to sell the Common Stock for which such option is exercised and to
remit to the Company the aggregate exercise price of the options; or at the
discretion of the Option Committee, upon such terms and conditions as it may
approve, by transferring to the Company for redemption shares of previously
acquired Common Stock at their fair market value. In addition, the Company may
extend and maintain, or arrange for the extension and maintenance of, credit to
any optionee to finance his or her purchase of shares pursuant to exercise of an
option on such terms as may be approved by the Option Committee subject to
applicable regulations of the Federal Reserve Board and any other laws or
regulations in effect at the time such credit is extended. The
28
<PAGE> 31

Company may also authorize a cash payment to optionee which shall not exceed the
amount which would be required in order to pay in full the federal, state and
local income taxes due as a result of income recognized by the optionee as a
consequence of the exercise of the Options and receipt of such payment.

Transfer to the Company for redemption of shares of Common Stock at their
fair market value as payment for the shares acquired upon exercise of the option
may enable employees to use a technique known as "pyramiding", if the fair
market value of the shares acquired upon exercise of an option exceeds the price
at which the option may be exercised. Pyramiding of stock options, in brief,
works as follows: An optionee may exercise a limited portion of his or her
option for cash to acquire a few shares of stock. Because the value of the stock
the optionee acquires exceeds the exercise price of the option, he or she may
immediately exercise his or her option again by exchanging the shares acquired
by the first exercise to acquire a greater number of shares. This process may be
repeated until the optionee has fully exercised his or her option. The optionee
does not keep the shares he or she exchanges upon each exercise of the option.
Pyramiding may result in an optionee fully exercising his or her option at any
time by this series of stock exchanges with a nominal initial cash payment.

The 1999 Plan permits the Company to withhold from any compensation payable
to the optionee amounts sufficient to satisfy any withholding taxes required to
be withheld by federal, state or local law as a result of the grant or exercise
of any option.

ELIGIBILITY

Officers, key employees and directors of the Company and employees of its
subsidiaries who are selected by the Option Committee from time to time are
eligible to participate in the 1999 Plan. In determining the persons to whom
options will be granted under the 1999 Plan and the amount, timing and terms of
such options, the Option Committee will take into account such factors as the
Option Committee in its sole discretion deems relevant in connection with
furthering the purposes of the 1999 Plan. No person who owns stock representing
more than 10% of the total combined voting power of all classes of Common Stock
or any subsidiary, at the time the option is granted, shall be eligible to
receive incentive stock options under the 1999 Plan with an exercise price of
less than 110% of the fair market value of the shares on the date of grant or
for a term in excess of five years.

CHANGES IN CONTROL

In the event of a liquidation, merger, reorganization or consolidation of
the Company in which the Company is not the surviving corporation or in the
event the Company becomes a wholly owned subsidiary of another corporation, all
outstanding options shall become exercisable for a ten day period ending on the
fifth day prior to consummation of the transaction, and, unless any successor
corporation makes provision for the continuation of the 1999 Plan or the options
issued thereunder, the 1999 Plan or the options, as the case may be, shall
terminate. In the event such transaction is not consummated, such option
exercise may, at the election of the optionee, be rescinded and all of the stock
options will be returned to their former status under the 1999 Plan and the
Stock Option Agreement.

TERM OF 1999 PLAN

If approved by the stockholders at the 1999 Annual Meeting, the 1999 Plan
will become effective on June 30, 1999 and will expire on June 29, 2009, unless
sooner terminated by the Board.

ADDITIONAL INFORMATION CONCERNING STOCK OPTION GRANTS

Since the 1999 Plan will not become effective until approved by the
shareholders, no grants have been made under the 1999 Plan. If the 1999 Plan is
approved by the shareholders, grants to be made thereunder will be in the
discretion of the Option Committee and, accordingly, are not determinable.

For information relating to the grant under the 1990 Plan, 1995 Plan or
1996 Plan of stock option grants to the named executives in 1996, 1997 and 1998,
see the Summary Compensation Table and the Option

29
<PAGE> 32

Grants table above. In addition, Elwood I. Kleaver, Jr., Interim Chief Operating
Officer, received a grant of options to purchase 50,000 shares of Common Stock
on April 16, 1999 at an exercise price of $5.125 per share.

FEDERAL INCOME TAX CONSEQUENCES

Both non-qualified stock options and incentive stock options may be granted
under the 1999 Plan. Under current federal income tax law, the grant of a
non-qualified stock option under the 1999 Plan will have no federal income tax
consequences to the Company or the optionee. Generally, upon exercise of a
non-qualified stock option granted under the 1999 Plan, the excess of the fair
market value of the stock at the date of exercise over the option price (the
"Spread") is taxable to the optionee as ordinary income. All such amounts
taxable to an employee are deductible by the Company as a compensation expense.
The deduction will be allowed for the taxable year of the Company in which an
amount is includable in the optionee's earned income.

In August 1993, the Omnibus Budget Reconciliation Act ("OBRA") became law.
Under the new law, publicly-held companies may be limited as to income tax
deductions to the extent total remuneration (including stock option exercises)
for certain executive officers exceeds $1 million in any one year. OBRA could
limit the deductibility of remuneration related to options granted under the
1999 Plan. However, such compensation is not subject to the deduction limit if
certain limitations approved by the stockholders are applied to stock options
awarded under the 1999 Plan to executive officers and stock options are granted
at not less than fair market value. The 1999 Plan satisfies these limitations.

The sale or transfer of shares of Common stock issuable under the 1999 Plan
is subject to restrictions pursuant to the Securities Act of 1933, as amended
(the "Securities Act"). In connection therewith, the Company intends to have an
effective Form S-8 Registration Statement on file with the Securities and
Exchange Commission covering the sale of Common Stock issuable upon the exercise
of any options under the 1999 Plan prior to the initial vesting of any stock
options granted under the 1999 Plan. Subject to the foregoing, the shares
received on exercise of a non-qualified stock option under the 1999 Plan will
not be subject to restrictions on transfer or risks of forfeiture; and,
therefore, the optionee will recognize income on the date of exercise of a
non-qualified stock option. However, if the optionee is subject to Section 16(b)
of the Exchange Act, the Section 16(b) restriction may be considered a
substantial risk of forfeiture for tax purposes. Under current law, employees
who are directors or officers of the Company will be subject to restrictions
under Section 16(b) of the Exchange Act during their term of service and for up
to six months after termination of such service. Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act ("Rule 16b-3")
provides an exemption from the restrictions of Section 16(b) for the grant of
derivative securities, such as stock options, under qualifying plans. Because
the 1999 Plan satisfies the requirements for exemption under Rule 16b-3, the
grant of options will not be considered a purchase and the exercise of the
options to acquire the underlying shares of Common Stock will not be considered
a purchase or sale. Thus, ordinary income will be recognized and the Spread will
be measured on the date of exercise.

There will be no federal income tax consequences to the Company or the
employee as a result of the grant of an incentive stock option. The optionee
also will not recognize income when the incentive stock option is exercised
(subject to the alternative minimum tax rules discussed below). Generally, the
Company receives no deduction at the time of exercise.

In the event of a disposition of shares acquired upon exercise of an
incentive stock option the tax consequences depend upon how long the employee
has held the shares. If the employee does not dispose of the shares within two
years after the incentive stock option was granted, or within one year after the
incentive stock option was exercised and shares were purchased, then the
employee must recognize only a long-term capital gain or loss in the year of
disposition. The Company is not entitled to any deduction under these
circumstances.

If the optionee fails to satisfy either of the foregoing holding periods,
then he or she must recognize ordinary income in the year of disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is determined under the rule applicable to non-qualified
options (see above). However, such ordinary income will in no event exceed the
amount of the gain realized on the sale, provided
30
<PAGE> 33

that the disposition involves an arm's-length sale or exchange with an unrelated
party. Any gain in excess of the amount taxed as ordinary income will be treated
as capital gain. The Company, in the year of the disqualifying disposition, is
entitled to a deduction equal to the amount of ordinary income recognized by the
optionee.

The Spread under an incentive stock option is treated as an adjustment in
computing alternative minimum taxable income ("AMTI") for the year of exercise.
A subsequent disqualifying disposition of shares acquired upon exercise of an
incentive stock option will eliminate the AMTI adjustment if the disposition
occurs in the same taxable year as the exercise. A disqualifying disposition in
a subsequent taxable year will not affect the alternative minimum tax
computation in the earlier year.

THE BOARD RECOMMENDS VOTES FOR THE APPROVAL OF THE 1999 STOCK OPTION PLAN
AND THE AUTHORIZATION OF THE ISSUANCE OF UP TO 750,000 SHARES OF COMMON STOCK
UPON THE EXERCISE OF STOCK OPTIONS THEREUNDER. PROXIES GIVEN WITHOUT
INSTRUCTIONS WILL BE VOTED FOR THE PROPOSAL.

RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS

Ernst & Young LLP were the independent accountants for the Company for the
year ended December 31, 1998. The Audit Committee will be recommending, for
approval by the Board, the annual appointment of independent accountants for the
year ending December 31, 1999 at the June 30, 1999 meeting of the Board.

DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING

Any proposal relating to a proper subject which a shareholder may intend to
be presented for action at the next Annual Meeting of Shareholders currently
scheduled to be held on June 30, 2000 must be received by the Company no later
than May 21, 2000, to be considered for inclusion in the proxy material to be
disseminated by the Board in accordance with the provisions of Rule 14a-8
promulgated under the Exchange Act. Copies of such proposals should be sent to
the Company's Secretary at the Company's principal executive offices. To be
eligible for inclusion in such proxy materials, such proposals must conform to
the requirements set forth in Regulation 14A under the Exchange Act.

COST OF SOLICITING PROXIES

The Company will bear the cost of proxy solicitation for the election of
the Board's nominees for director. In addition to the use of the mail, proxies
may be solicited by personal interview, telephone or telegraph, by officers,
directors and other employees of the Company, who will not receive any
additional compensation for such services. The Company may also elect to engage
a proxy solicitation firm to assist in the soliciting of proxies. The Company
does not anticipate that the costs of such proxy solicitation firm would exceed
$10,000, plus its out of pocket fees and expenses. The Company will also request
persons, firms and corporations holding shares in their names, or in the names
of their nominees, which are beneficially owned by others, to send or cause to
be sent proxy materials to, and obtain proxies from, such beneficial owners and
will reimburse such holders for their reasonable expenses in so doing.

31
<PAGE> 34

ADDITIONAL INFORMATION

Copies of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, (including financial statements and financial statement
schedules) as filed with the SEC are available upon written request from the
office of Investor Relations, Maxicare Health Plans, Inc., 1149 South Broadway
Street, Los Angeles, California, 90015.

By Order of the Board of Directors,

Alan D. Bloom
Secretary

Los Angeles, California
Dated: June 3, 1999

32
<PAGE> 35

MAXICARE HEALTH PLANS, INC.

1999 STOCK OPTION PLAN
<PAGE> 36

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1. Purpose..................................................... 1
2. Definitions................................................. 1
2.1 Accrued Installment......................................... 1
2.2 Board....................................................... 1
2.3 Code........................................................ 1
2.4 Company..................................................... 1
2.5 Common Stock................................................ 1
2.6 Disabled or Disability...................................... 1
2.7 Fair Market Value........................................... 1
2.8 Incentive Stock Option...................................... 1
2.9 Nonqualified Stock Option................................... 1
2.10 Optionee.................................................... 1
2.11 Option Price................................................ 1
2.12 Plan........................................................ 1
2.13 Plan Administrator.......................................... 1
2.14 Stock Option................................................ 2
3. Stock Options Under the Plan................................ 2
4. Effective Date of Plan...................................... 2
5. Term of Plan................................................ 2
6. Administration.............................................. 2
6.1 Administration by Board..................................... 2
6.2 Administration by Option Committee.......................... 2
7. Eligibility................................................. 2
8. Shares Subject to the Plan.................................. 3
8.1 Available Shares............................................ 3
8.2 Capital Structure Adjustments............................... 3
8.3 Substitution or Assumptions of Stock Options................ 3
8.4 No Obligations of Successor Corporations.................... 3
9. Terms and Conditions of Stock Options....................... 4
9.1 Number of Shares Subject to Stock Option.................... 4
9.2 Stock Option Price.......................................... 4
9.3 Notice and Payment.......................................... 4
9.4 Exercise of Stock Option.................................... 5
9.5 Term of Stock Option........................................ 5
9.6 Limit on Incentive Stock Options............................ 6
9.7 No Fractional Shares........................................ 6
9.8 Exercisability in the Event of Death........................ 6
9.9 Modification, Extension, and Renewal of Stock Options....... 6
10. Supplemental Exercise Terms................................. 6
10.1 Loans....................................................... 6
</TABLE>

i
<PAGE> 37

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.2 Cash Payments............................................... 7
11. Termination or Amendment of the Plan........................ 7
11.1 Amendment to Plan........................................... 7
Effect of Termination of Plan on Outstanding Stock
11.2 Options..................................................... 7
11.3 Shareholder Approval for Amendment to Plan.................. 7
12. Indemnification............................................. 7
13. Withholding................................................. 7
13.1 Irrevocable Election........................................ 8
13.2 Approval by Plan Administrator.............................. 8
13.3 Timing of Election.......................................... 8
13.4 Timing of Delivery.......................................... 8
13.5 Terms in Agreement.......................................... 8
14. General Provisions.......................................... 8
14.1 Stock Options Not Transferable.............................. 8
14.2 Transfer of Common Stock.................................... 8
14.3 Reservation of Shares of Common Stock....................... 8
14.4 Restrictions on Issuance of Shares.......................... 8
14.5 Notices..................................................... 9
14.6 Representations and Warranties.............................. 9
14.7 No Enlargement of Employee Rights........................... 9
14.8 Restrictions on Issuance of Shares.......................... 9
14.9 Legends on Stock Certificates............................... 9
14.10 Remedies.................................................... 10
14.11 Invalid Provisions.......................................... 10
14.12 Applicable Law.............................................. 10
14.13 Successors and Assigns...................................... 10
14.14 Rights as a Stockholder or Employee......................... 10
</TABLE>

ii
<PAGE> 38

MAXICARE HEALTH PLANS, INC.

1999 STOCK OPTION PLAN

1. Purpose. The purpose of this Maxicare Health Plans, Inc. (the "Company")
1999 Stock Option Plan (the "Plan") is to further the growth and development of
the Company by providing an incentive to directors, officers and other key
employees who are in a position to contribute materially to the prosperity of
the Company and to participate in the long-term growth of the Company by
receiving the opportunity to acquire shares of the Company's Common Stock and to
provide for additional compensation based on appreciation in the Company's
shares. The Plan provides a means to increase such persons' interests in the
Company's welfare, to encourage them to continue their services to the Company
or its subsidiaries, and to attract individuals of outstanding ability to enter
the employment of the Company or its subsidiaries.

2. Definitions. The following definitions are applicable to the Plan:

2.1 Accrued Installment. Any exercisable portion of a Stock Option
granted under the Plan.

2.2 Board. The Board of Directors of the Company.

2.3 Code. The Internal Revenue Code of 1986, as amended from time to
time.

2.4 Company. Maxicare Health Plans, Inc., a Delaware corporation.

2.5 Common Stock. The shares of the $.01 par value per share common
stock of the Company.

2.6 Disabled or Disability. An Optionee shall be deemed to be
Disabled if he or she is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than thirty
(30) consecutive days. The determination of whether an individual is
Disabled or has a Disability shall be determined under procedures
established by the Plan Administrator.

2.7 Fair Market Value. For purposes of the Plan, the Fair Market
Value of any share of Common Stock of the Company at any date shall be
determined based on (a) if the Common Stock is listed on an established
stock exchange or exchanges or reported by NASDAQ, the last reported sale
price per share on the last trading day immediately preceding such date on
the principal exchange on which it is traded, or if no sale was made on
such day on such principal exchange, at the closing reported bid price on
such day on such exchange, or (b) if the Common Stock is not then listed on
an exchange, the last reported sale price per share on the last trading day
immediately preceding such date reported by NASDAQ, or if sales are not
reported by NASDAQ or no sale was made on such date, the average of the
closing bid and asked price per share for the Common Stock in the
over-the-counter market as quoted by NASDAQ on the day prior to such date,
or (c) if the Common Stock is not publicly traded at the time a Stock
Option is granted under the Plan, Fair Market Value shall be deemed to be
the fair value of the Common Stock as determined by the Plan Administrator
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arm's length.

2.8 Incentive Stock Option. Any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422
of the Code.

2.9 Nonqualified Stock Option. Any Stock Option that is not an
Incentive Stock Option.

2.10 Optionee. The recipient of a Stock Option.

2.11 Option Price. The exercise or purchase price for any Stock
Option awarded under the Plan.

2.12 Plan. The Maxicare Health Plans, Inc. 1999 Stock Option Plan, as
amended from time to time.

2.13 Plan Administrator. The Board or the Option Committee designated
pursuant to Section 6 hereof which is authorized to administer, construe
and interpret the terms of the Plan.
1
<PAGE> 39

2.14 Stock Option. Any option to purchase shares of Common Stock
pursuant to Section 9.

3. Stock Options Under the Plan. Two types of Options (referred to herein
as "Stock Options" without distinction between such two types) may be granted
under the Plan: Stock Options intended to qualify as Incentive Stock Options and
Nonqualified Stock Options.

4. Effective Date of Plan. The Plan shall be adopted and become effective
on the date of execution specified below subject, however, to the prior approval
of the Plan by the shareholders of the Company (the "Effective Date").

5. Term of Plan. Unless sooner terminated by the Board in its sole
discretion, the Plan will expire and no Stock Options may be granted hereunder
on and after ten (10) years from the earlier of the date the Plan is adopted or
the date the Plan is approved by the shareholders of the Company (the "Plan
Termination Date").

6. Administration.

6.1 Administration by Board. Subject to Section 6.2, the Plan
Administrator shall be the Board; however, any Board members who are
"outside directors" as defined in Treas. Reg. 1.162-27(e)(3) ("outside
directors") shall abstain from any actions taken by the Plan Administrator.
Subject to the provisions of the Plan, the Plan Administrator shall have
sole authority and discretion to construe and interpret the Plan, to
promulgate, amend and rescind rules and regulations relating to its
administration, to select from time to time from among the eligible
employees (as determined pursuant to Section 7 below) of the Company and
its subsidiaries those employees to whom Stock Options will be granted, to
determine the timing and manner of the grant of the Stock Options, to
determine the Option Price, the number of shares covered by and all of the
terms of the Stock Option, to determine the duration and purpose of leaves
of absence which may be granted to Stock Option holders without
constituting termination of their employment for purposes of the Plan, and
to make all of the determinations necessary or advisable for administration
of the Plan. The interpretation and construction by the Plan Administrator
of any provision of the Plan, or of any agreement issued and executed under
the Plan, shall be final and binding upon all parties. No member of the
Board shall be liable for any action or determination undertaken or made in
good faith with respect to the Plan or any agreement executed pursuant to
the Plan.

6.2 Administration by Option Committee. The Board may, in its sole
discretion, delegate any or all of its duties under Section 6.1 above as
Plan Administrator to a committee selected by the Board which shall act as
the Plan Administrator pursuant to the terms hereof (the "Option
Committee"). The Option Committee shall consist of not fewer than two (2)
members of the Board, all of whom shall be persons who, in the opinion of
counsel to the Company, are outside directors and "non-employee directors"
within the meaning of Rule 16b-3(b)(3)(i) promulgated pursuant to the
Securities Exchange Act of 1934, as amended. From time to time, the Board
may increase or decrease (to not less than two members) the size of the
Option Committee, and add additional members to, or remove members from,
the Option Committee. The Option Committee shall act pursuant to a majority
vote or the written consent of a majority of its members and minutes shall
be kept of all of its meetings and copies thereof shall be provided to the
Board. Subject to the provisions of the Plan and the direction of the
Board, the Option Committee may establish and follow such rules and
regulations for the conduct of its business as it may deem advisable. No
member of the Option Committee shall be liable for any action or
determination undertaken or made in good faith with respect to the Plan or
any agreement executed pursuant to the Plan.

7. Eligibility. Any employee (including any officer who is an employee) or
director of the Company (other than members of the Option Committee while
serving on such Option Committee) or employee if any of its subsidiaries shall
be eligible to receive a Option under the Plan, provided, however, that no
person who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its parent or subsidiary
corporations shall be eligible to receive an Incentive Stock Option under the
Plan unless at the time such Stock Option is granted the Option Price
(determined in the manner provided in Section 9.2 hereof) is at least 110% of
the Fair Market Value of the shares subject to the Stock

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Option and such Stock Option by its terms is not exercisable after the
expiration of five (5) years from the date such Stock Option is granted. An
employee or director may receive more than one Stock Option under the Plan.

8. Shares Subject to the Plan.

8.1 Available Shares. The shares available for issue upon the
exercise of Stock Options granted under the Plan shall be shares of the
Company's authorized but unissued, or reacquired, Common Stock. The
aggregate number of shares which may be issued upon the exercise of Stock
Options granted under the Plan shall not exceed seven hundred and fifty
thousand (750,000) shares of Common Stock, subject to adjustment as
provided in Section 8.2 hereof. In the event that the grant of any Stock
Option under the Plan for any reason expires, is terminated or surrendered
without being exercised in full or is exercised or surrendered without the
distribution of shares, the shares of Common Stock allocable to the
unexercised portion of the Stock Option shall again be available for grant
and distribution under the Plan as if no Stock Option had been granted with
respect to such shares. In the event any portion of a Stock Option is
exercised pursuant to a "stock-for-stock exercise" as provided in
subsection 9.3(b), the shares of Common Stock surrendered thereby shall
again be available for grant and distribution under the Plan as if no Stock
Option had been granted with respect to the amount of such shares
surrendered.

8.2 Capital Structure Adjustments. Except as otherwise provided
herein, appropriate and proportionate capital structure adjustments shall
be made in the number and class of shares subject to the Plan, to the Stock
Option rights granted under the Plan, and the Option Price of such Stock
Option rights, in the event of a stock dividend (but only on Common Stock),
stock split, reverse stock split, recapitalization, reorganization, merger,
consolidation, separation, or like change in the corporate or capital
structure of the Company. To the extent that the foregoing adjustments
relate to stock or securities of the Company, such adjustments shall be
made by the Plan Administrator, the determination of which in that respect
shall be final, binding, and conclusive, provided that each Incentive Stock
Option granted pursuant to the Plan shall not be adjusted in a manner that
causes it to fail to continue to qualify as an Incentive Stock Option. In
the event of a liquidation, a merger, reorganization, or consolidation of
the Company with any other corporation in which the Company is not the
surviving corporation or the Company becomes a wholly owned subsidiary of
another corporation, any unexercised Stock Option rights theretofore
granted under the Plan shall be deemed canceled unless the surviving
corporation in any such merger, reorganization, or consolidation elects to
assume the Stock Option rights under the Plan or to use substitute stock
option rights in place thereof, provided, however, that, notwithstanding
the foregoing, if such Stock Option rights would otherwise be canceled in
accordance with the foregoing, the Stock Option recipient shall have the
right, exercisable during a ten-day period ending on the fifth day prior to
such liquidation, merger, or consolidation, to exercise all Stock Option
rights held by such recipient without regard to any restrictions on
exercisability, including but not limited to the unvested portions of such
Stock Options. Notwithstanding the foregoing, in the event that any
transaction causing the termination of the Stock Option granted hereunder
pursuant to the terms of this Section 8.2 is not consummated; (i) any
Accrued Installment that was exercised pursuant to the terms of this
Section 8.2, may, at the election of the Optionee, be rescinded; and (ii)
unexercised Accrued Installments that had become exercisable solely by
reason of the provisions of Section 8.2 hereof shall again become unaccrued
and unexercisable as of said termination of such transaction, subject,
however, to such Stock Option continuing to be governed by the terms of the
Stock Option agreement under which such Stock Option was granted including
the accrual schedule for the vesting of such Stock Option set forth
therein.

8.3 Substitution or Assumptions of Stock Options. In addition to and
not in lieu of those rights granted pursuant to Section 8.2 hereof, if
provisions shall be made in writing in connection with such transaction for
the continuance of the Plan and/or the assumption of Stock Options
theretofore granted, or the substitution of such Stock Options for options
covering the stock of the successor corporation or a parent or subsidiary
thereof with appropriate adjustments as to the number and kind of shares
and prices, the unexercised Stock Options theretofore granted shall
continue in the manner and under the terms so provided.

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<PAGE> 41

8.4 No Obligations of Successor Corporations. Neither the Company nor
any successor entity shall have any obligation to provide for the
continuance, assumption or substitution of this Plan or the Stock Options
by any successor corporation or parent or subsidiary thereof in the event
of a merger, reorganization or consolidation where the Company is not the
surviving entity.

9. Terms and Conditions of Stock Options. Stock Options granted under the
Plan shall be evidenced by agreements (which need not be identical) in such form
and containing such provisions which are consistent with the Plan as the Plan
Administrator shall from time to time approve. Such agreements may incorporate
all or any of the terms hereof by reference and shall comply with and be subject
to the following terms and conditions:

9.1 Number of Shares Subject to Stock Option. Each Stock Option
agreement shall specify the number of shares subject to the Stock Option.

9.2 Stock Option Price. The Option Price for the shares subject to
any Stock Option shall be such amount as is determined by the Plan
Administrator. Anything to the contrary contained herein notwithstanding,
the Option Price for the shares subject to any Nonqualified Stock Option
may be less than Fair Market Value, but not less than par value per share
and Incentive Stock Option shall not be less than 100% of the Fair Market
Value of the shares of Common Stock of the Company on the date the Stock
Option is granted. In the case of an Incentive Stock Option granted to an
employee who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of its parent or
subsidiary corporations, the Option Price shall not be less than 110% of
the Fair Market Value of the shares of Common Stock of the Company on the
date the Stock Option is granted.

9.3 Notice and Payment. Any exercisable portion of a Stock Option may
be exercised only by:

(a) delivery of a written notice to the Company, prior to the time
when such Stock Option becomes unexercisable under Section 9.5 hereof,
stating the number of shares being purchased and complying with all
applicable rules established by the Plan Administrator;

(b) payment in full of the Option Price of such Option by, as
applicable; (i) cash or check for an amount equal to the aggregate
Option Price for the number of shares being purchased; (ii) in the
discretion of the Plan Administrator, upon such terms as the Plan
Administrator shall approve, a copy of instructions to a broker
directing such broker to sell the Common Stock for which such Stock
Option is exercised, and to remit to the Company the aggregate Option
Price of such Stock Options (a "cashless exercise"); or (iii) in the
discretion of the Plan Administrator, upon such terms as the Plan
Administrator shall approve, the Optionee may pay all or a portion of
the Option Price for the number of shares being purchased by tendering
shares of the Company's Common Stock owned by the Optionee, duly
endorsed for transfer to the Company, with a Fair Market Value on the
date of delivery equal to the aggregate Option Price of the shares with
respect to which such Stock Option or portion is thereby exercised (a
"stock-for-stock exercise");

(c) payment of the amount of tax required to be withheld (if any)
by the Company or any parent or subsidiary corporation as a result of
the exercise of a Stock Option. At the discretion of the Plan
Administrator, upon such terms as the Plan Administrator shall approve,
the Optionee may pay all or a portion of the tax withholding by; (i)
cash or check payable to the Company; (ii) cashless exercise; (iii)
stock-for-stock exercise; or (iv) a combination of (i), (ii) and (iii);
and

(d) delivery of a written notice to the Company requesting that the
Company direct the transfer agent to issue to the Optionee (or to his
designee) a certificate for the number of shares of Common Stock for
which the Stock Option was exercised or, in the case of a cashless
exercise, for any shares that were not sold in the cashless exercise.

Notwithstanding the foregoing, the Company, subject to the
provisions of Section 10.1 hereof, may extend and maintain, or arrange
for the extension and maintenance of, credit to any Optionee to

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<PAGE> 42

finance the Optionee's payment of the Option Price upon the exercise of
any Stock Option, on such terms as may be approved by the Plan
Administrator, subject to applicable regulations of the Federal Reserve
Board and any other laws or regulations in effect at the time such
credit is extended. The Plan Administrator may, at any time and in its
discretion, authorize a cash payment, determined in accordance with
Section 10.2, which shall not exceed the amount required to pay in full
the federal, state and local tax consequences of an exercise of any
Stock Option granted under the Plan.

9.4 Exercise of Stock Option. No Stock Option shall be exercisable
during the lifetime of an Optionee by any person other than the Optionee.
Subject to the foregoing, the Plan Administrator shall have the power to
set the time or times within which each Stock Option shall be exercisable
and to accelerate the time or times of exercise. To the extent that an
Optionee has the right to exercise a Stock Option and purchase shares
pursuant thereto, the Stock Option may be exercised from time to time as
provided in Section 9.4 hereof. Subject to the actions, conditions and/or
limitations set forth in this Plan and/or any applicable Stock Option
agreement entered into hereunder, Stock Options granted under this Plan
shall be exercisable in accordance with the following rules:

(a) Subject in all cases to the provisions of Sections 8 and 9.5
hereof, Stock Options shall vest and become exercisable at such times
and in such installments (which may be cumulative) as the Board shall
provide in the terms of each individual Stock Option agreement;
provided, however that by a resolution adopted after a Stock Option is
granted the Plan Administrator may, on such terms and conditions as the
Plan Administrator may determine to be appropriate, accelerate the time
at which such Stock Option or installment thereof may be exercised.

(b) Subject to the provisions of Sections 8 and 9.5 hereof, a Stock
Option may be exercised when and to the extent such Stock Option becomes
an Accrued Installment as provided in the terms under which such Stock
Option was granted and at any time thereafter during the term of such
Stock Option; provided, however, that in no event shall any Stock Option
be granted after the Plan Termination Date.

9.5 Term of Stock Option. Any unexercised Accrued Installment of any
Stock Option granted hereunder shall expire and become unexercisable and no
Stock Option shall be exercisable after the earliest of:

(a) ten (10) years from the date of grant; or

(b) the expiration date of the Stock Option established by the Plan
Administrator at the time of grant of any Stock Option; or

(c) thirty (30) days following the effective date of the
termination of employment or directorship (if such individual is not
then an officer or employee of the Company) with the Company or any of
its subsidiaries, as the case may be, of an Optionee for any reason
other than death or Disability (the "Termination Date"). The Plan
Administrator, in its sole discretion, may extend such thirty (30) day
period for a period not to exceed one (1) year following the Termination
Date, but in no event beyond ten years from the date of grant. Any
installments under said Stock Option which have not accrued (become
vested) as of said Termination Date shall expire and become
unexercisable as of said Termination Date. Any portion of a Stock Option
that expires hereunder shall remain unexercisable and be of no effect
whatsoever after such expiration notwithstanding that such Optionee may
be re-employed by, or again become a director of, the Company or a
subsidiary thereof, as the case may be; or

(d) notwithstanding the foregoing provisions of this Section 9.5,
in the event of the death of an Optionee while an employee, officer or
director of the Company or a subsidiary thereof as the case may be, or
in the event of the termination of employment or a directorship by
reason of the Optionee's Disability, any unexercised Accrued Installment
of the Stock Option granted hereunder to such Optionee shall expire and
become unexercisable as of the earlier of: (i) the expiration date of
the Stock Option established by the Plan Administrator at the time of
grant of any Stock Option; (ii) ten (10) years from the date of grant;
or (iii) the first anniversary of the date of death of such
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Optionee (if applicable) or the first anniversary of the date of the
termination of employment or directorship by reason of Disability (if
applicable). Any installments under a deceased Optionee's Option that
have not become exercisable as of the date of his or her death shall
expire and become unexercisable as of said date of termination of
employment as a result of death or disability. For purposes of this
Subsection 9.5(d), an Optionee shall be deemed employed by the Company
or any of its subsidiaries, as the case may be, during any period of
leave of absence from active employment as authorized by the Company or
any of its subsidiaries, as the case may be; or

(e) in the case of an Incentive Stock Option granted to an employee
who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its parent or
subsidiary corporations, the term set forth in Subsection 9.5(a), above,
shall not be more than five years after the date the Stock Option is
granted.

9.6 Limit on Incentive Stock Options. The aggregate Fair Market Value
(determined at the time the Incentive Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options granted under
this Plan are exercisable for the first time by an Optionee during any
calendar year shall not exceed $100,000. To the extent that the aggregate
Fair Market Value (determined at the time the Stock Option is granted) of
the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year
(under all Incentive Stock Option plans of the Company and any parent or
subsidiary corporations) exceeds $100,000, such Stock Options shall be
treated as Nonqualified Stock Options. The determination of which Stock
Options shall be treated as Nonqualified Stock Options shall be made by
taking Stock Options into account in the order in which they were granted.

9.7 No Fractional Shares. In no event shall the Company be required
to issue fractional shares upon the exercise of a Stock Option.

9.8 Exercisability in the Event of Death. In the event of the death
of the Optionee, any such Accrued Installment of a deceased Optionee may be
exercised prior to their expiration pursuant to Section 9.5 by (and only
by) Optionee's personal representatives, heirs, or legatees or other person
or persons to whom the Optionee's rights shall pass by will or by the laws
of the descent and distribution, if applicable, subject, however, to all of
the terms and conditions of this Plan and the applicable Stock Option
agreement governing the exercise of Stock Options granted hereunder.

9.9 Modification, Extension, and Renewal of Stock Options. Subject to
the terms and conditions and within the limitations of the Plan, the Plan
Administrator may modify, extend, or renew outstanding Stock Options
granted under the Plan, accept the surrender of outstanding Stock Options
(to the extent not theretofore exercised) and authorize the granting of new
Stock Options in substitution therefore (to the extent not theretofore
exercised). The Plan Administrator may modify any outstanding Stock Options
so as to specify a lower Option Price. The Plan Administrator shall not,
however, without the consent of the Optionee, modify any outstanding
Incentive Stock Option in any manner which would cause the Stock Option not
to qualify as an Incentive Stock Option. Notwithstanding the foregoing, no
modification of a Stock Option shall, without the consent of the Optionee,
alter or impair any rights of the Optionee under the Stock Option.

10. Supplemental Exercise Terms.

10.1 Loans. The Company may extend and maintain, or arrange for the
extension and maintenance of credit to any Optionee to finance the
participant's purchase of shares pursuant to the exercise of any Stock
Option, on such terms as may be approved by the Plan Administrator, subject
to applicable regulations of the Federal Reserve Board and any other laws
or regulations in effect at the time such credit is extended, either on or
after the date of grant of such Stock Option. Such loans may be either in
connection with the grant or exercise of any Stock Option, or in connection
with the payment of any federal, state and local income taxes in respect of
income recognized upon exercise of a Stock Option. The Plan Administrator
shall have full authority to decide whether to make a loan hereunder and to
determine the amount, term, and provisions of any such loan, including the
interest rate (which may be

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<PAGE> 44

zero) charged in respect of any such loan, whether the loan is to be
secured or unsecured, the terms on which the loan is to be repaid and the
conditions, if any, under which it may be forgiven. However, no loan
hereunder shall provide or reimburse to the borrower the amount used by him
for the payment of the par value of any shares of Common Stock issued, have
a term (including extensions) exceeding ten years in duration, or be an
amount exceeding the total Option Price Paid by the borrower under a Stock
Option or for related Common Stock under the Plan plus an amount equal to
the cash payment permitted in Section 10.2 below.

10.2 Cash Payments. The Plan Administrator may, at any time and in
its discretion, authorize a cash payment, in respect of the grant or
exercise of a Stock Option under the Plan or the lapse or waiver of
restrictions under a Stock Option, which shall not exceed the amount which
would be required in order to pay in full the federal, state and local
income taxes due as a result of income recognized by the recipient as a
consequence of: (i) the receipt of a Stock Option or the exercise of rights
thereunder, and (ii) the receipt of such cash payment. The Plan
Administrator shall have complete authority to decide whether to make such
cash payments in any case, to make provisions for such payments either
simultaneously with or after the grant of the associated Stock Option, and
to determine the amount of any such payment.

11. Termination or Amendment of the Plan. The Board may at any time
terminate or amend the Plan in accordance with the following provisions:

11.1 Amendment to Plan. Except as provided in Section 11.3 hereof,
the Board may amend this Plan from time to time in such respect as the
Board may deem advisable, provided, however, that no such amendment shall
operate to affect adversely an Optionee's rights under this Plan with
respect to any Stock Option granted hereunder prior to the adoption of such
amendment, except as may be necessary, in the judgment of counsel to the
Company, to comply with any applicable law.

11.2 Effect of Termination of Plan on Outstanding Stock
Options. Except as set forth in Section 8.2 hereof, no termination of the
Plan prior to the Plan Termination Date, shall, without the written consent
of the Optionee, alter the terms of Stock Options already granted and such
Stock Options shall remain in full force and effect as if this Plan had not
been terminated.

11.3 Shareholder Approval for Amendment to Plan. Any amendment to the
Plan which would result in any of the following changes (except by
operation of Section 8.2) must be approved by the shareholders of the
Company; (i) an increase in the total number of shares of Common Stock
covered by the Plan; (ii) a change in the class of persons eligible to
receive Stock Options granted under the Plan; and (iii) an extension of the
term of the Plan beyond ten (10) years from the earlier of the date the
Plan is adopted or the date the Plan is approved by the shareholders of the
Company.

12. Indemnification. In addition to such other rights of indemnification as
they may have as members of the Board or the Stock Option Committee, the Plan
Administrator shall be indemnified by the Company against reasonable expense,
including attorney's fees, actually and necessarily incurred in connection with
the defense of any action, suit, or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any grant
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any action, suit, or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit, or proceeding that such member is liable for negligence or
misconduct in the performance of his duties, provided that within sixty (60)
days after institution of any such action, suit, or proceeding, the member shall
offer in writing to the Company the opportunity, at its own expense, to handle
and defend the same.

13. Withholding. Whenever the Company proposes or is required to issue or
transfer shares under the Plan, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares of Common Stock. If an Optionee
surrenders shares acquired pursuant to the

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<PAGE> 45

exercise of an Incentive Stock Option in payment of the Option Price and such
surrender constitutes a disqualifying disposition for purposes of obtaining
Incentive Stock Option treatment under the Code, the Company shall have the
right to require the Optionee to remit to the Company an amount sufficient to
satisfy any federal, state and local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. Whenever under the
Plan, payments are to be made in cash, such payments shall be net of an amount
sufficient to satisfy any federal, state and local withholding tax requirements.
An Optionee may elect with respect to any Stock Option which is paid in whole or
in part in shares of Common Stock, to surrender previously acquired shares of
Common Stock or authorize the Company to withhold shares (valued at Fair Market
Value on the date of surrender or withholding of the shares) in satisfaction of
all such withholding requirements (the "Share Surrender Withholding Election")
in accordance with the following:

13.1 Irrevocable Election. Withholding Election shall be made by
written notice to the Company and thereafter shall be irrevocable by the
Optionee.

13.2 Approval by Plan Administrator. Any Share Surrender Withholding
Election shall be subject to the consent or disapproval of the Plan
Administrator in accordance with rules established from time to time by the
Plan Administrator.

13.3 Timing of Election. Any Share Surrender Withholding Election
must be made prior to the date on which the Optionee recognizes taxable
income with respect to the receipt of such shares (the "Tax Date").

13.4 Timing of Delivery. When the Tax Date falls after the exercise
of a Stock Option and the makes a Share Surrender Withholding Election, the
full number of shares subject to the Stock Option being exercised will be
issued, but the Optionee will be unconditionally obligated to deliver to
the Company on the Tax Date the number of shares having a value on the Tax
Date equal to the Optionee's federal, state and local withholding tax
requirements.

13.5 Terms in Agreement. For purposes of this Section 13.5, the Plan
Administrator shall have the discretion to provide (by general rule or a
provision in the specific Stock Option agreement) at the election of the
Optionee, "federal, state and local withholding tax requirements" that
shall be deemed to be any amount designated by the Optionee which does not
exceed his estimated federal, state and local tax obligations associated
with the transaction, including FICA taxes to the extent applicable.

14. General Provisions.

14.1 Stock Options Not Transferable. Stock Options granted under this
Plan may not be sold, pledged, hypothecated, assigned, encumbered, gifted
or otherwise transferred or alienated in any manner, either voluntarily or
involuntarily by operation of law, other than by will or the laws of
descent or distribution, and may be exercised during the lifetime of an
Optionee only by such Optionee.

14.2 Transfer of Common Stock. Common Stock issued pursuant to the
exercise of a Stock Option granted under this Plan or any interest in such
Common Stock, may be sold, assigned, gifted, pledged, hypothecated,
encumbered or otherwise transferred or alienated in any manner by the
holder(s) thereof, subject, however, to the provisions of this Plan,
including any representations or warranties requested under Section 14.6
hereof, and also subject to compliance with any applicable federal, state,
local or other law, regulation or rule governing the sale or transfer of
stock or securities.

14.3 Reservation of Shares of Common Stock. The Company, during the
term of this Plan, will at all times reserve and keep available such number
of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Plan.

14.4 Restrictions on Issuance of Shares. The Company, during the term
of this Plan, will use its best efforts to seek to obtain from the
appropriate regulatory agencies any requisite authorization in order to
issue and sell such number of shares of its Common Stock as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain from any such regulatory agency having jurisdiction
thereof, the authorization deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any shares of its Common Stock hereunder
or the inability of the Company to
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confirm to its satisfaction that any issuance and sale of any shares of
such Common Stock will meet applicable legal requirements shall relieve the
Company of any liability in respect of the non-issuance or sale of such
Common Stock as to which such authorization or confirmation shall have not
been obtained.

14.5 Notices. Any notice to be given to the Company pursuant to the
provisions of this Plan shall be in writing and addressed to the Company in
care of its Stock Option Plan Administrator at its principal office, and
any notice to be given to a director, officer or employee of the Company or
any of its subsidiaries to whom a Stock Option is granted hereunder shall
be in writing and addressed to him or her at the address given beneath his
or her signature on his or her Stock Option agreement, or at such other
address as such employee, officer or director or his or her transferee
(upon the transfer of Common Stock) may hereafter designate in writing to
the Company. Any such notice shall be deemed duly given when delivered in
person or mailed by first-class mail (return receipt requested), telex,
telecopy or overnight courier to the other's address. It shall be the
obligation of each Optionee and each transferee holding Common Stock
purchased pursuant to the exercise of a Stock Option to provide the Stock
Option Plan Administrator of the Company, by letter mailed as provided
hereinabove, with Written notice of his or her correct mailing address.

14.6 Representations and Warranties. As a condition to the exercise
of any portion of a Stock Option, the Company may require the person
exercising such Stock Option to make any representation and/or warranty to
the Company as may, in the judgment of counsel to the Company, be required
under any applicable law or regulation, including, but not limited to, a
representation and warranty that the shares are being acquired only for
investment and without any present intention to sell or distribute such
shares if, in the opinion of counsel for the Company, such a representation
is required under the Securities Act or any other applicable law,
regulation or rule of any governmental agency.

14.7 No Enlargement of Employee Rights. This Plan is purely voluntary
on the part of the Company, and while the Company hopes to continue it
indefinitely, the continuance of the Plan shall not be deemed to constitute
a contract between the Company of any of its subsidiaries and any director
or employee, or to be consideration for, or a condition of, the employment
of any employee. Nothing contained in the Plan shall be deemed to give any
employee the right to be retained in the employ of the Company or any of
its subsidiaries or to interfere with the right of the Company or any of
its subsidiaries to discharge or retire any employee thereof at any time.
No employee shall have any right to or interest in Stock Options authorized
hereunder prior to the grant of such a Stock Option to such employee, and
upon such grant he shall have only such rights and interests as are
expressly provided heroin, subject, however, to all applicable provisions
of the Company's Certificate of Incorporation, as the same may be amended
from time to time.

14.8 Restrictions on Issuance of Shares. The issuance of Stock
Options and shares of Common Stock shall be subject to compliance with all
of the applicable requirements of law with respect to the issuance and sale
of securities, including, without limitation, any required qualification
under the California Corporate Securities Law of 1968, as amended.

14.9 Legends on Stock Certificates. Unless there is a currently
effective appropriate registration statement on file with the Securities
and Exchange Commission pursuant to the Securities Act with respect to the
shares of Common Stock issuable under this Plan, each Certificate
representing such Common Stock shall be endorsed on its face with the
following legend or its equivalent:

"Neither the shares represented by this Certificate, nor the Option
pursuant to which such shares were issued, have been registered under
the Securities Act of 1933, as amended. These shares have been
acquired for investment (and not with a view to distribution or
resale) and may not be sold, mortgaged, pledged, hypothecated or
otherwise transferred without an effective registration statement for
such shares under the Securities Act of 1933, as amended, or until
the issuer has been furnished with an opinion of counsel for the
registered owner of these shares, reasonably satisfactory to counsel
for the issuer, that such sale, transfers or disposition is exempt
from the registration or qualification provisions of the Securities
Act of 1933, as amended."

9
<PAGE> 47

A copy of this Plan shall be delivered to the Secretary of the Company
and shall be shown by him to any eligible person making reasonable inquiry
concerning it. In addition, the Company reserves the right to place any
legends or other restrictions on each certificate representing Common Stock
which may be required by any applicable state securities or other laws.

14.10 Remedies. Should any dispute arise concerning the sale or other
disposition of a Stock Option or shares of Common Stock issued or issuable
upon the exercise of a Stock Option, or any breach by the Company of the
terms of the Plan or any Stock Option agreement, optionee's sole and
exclusive remedy shall be damages.

14.11 Invalid Provisions. In the event that any provision of this
Plan is found to be invalid or otherwise unenforceable under any applicable
law, such invalidity or unenforceability shall not be construed as
rendering any other provisions contained herein invalid or unenforceable,
and all such other provisions shall be given full force and effect to the
same extent as though the invalid or unenforceable provision was not
contained herein.

14.12 Applicable Law. This Plan shall be governed by and construed in
accordance with the laws of the State of California applicable to
agreements made and to be performed entirely within such state and without
regard to the conflict of law principals thereof.

14.13 Successors and Assigns. This Plan shall be binding on and inure
to the benefit of the Company and the officers, directors and employees of
the Company and any subsidiary, to whom a Stock Option is granted
hereunder, and their heirs, executors, administrators, legatees, personal
representatives, assignees and transferees.

14.14 Rights as a Stockholder or Employee. A participant or
transferee of a Stock Option shall have no right as a stockholder of the
Company with respect to any shares covered by any grant under this Plan
until the date of the issuance of a share certificate for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether
cash, securities, or other property) or distributions or other rights for
which the record date is prior to the date such share certificate is
issued, except as provided in Section 8.2 hereof. Nothing in the Plan or in
any Stock Option agreement shall confer upon any Optionee any right to
continue in the employ of the Company or any of its subsidiaries or
interfere in any way with any right of the Company or any subsidiary to
terminate the Optionee's employment at any time.

IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officer and to be effective on this day of June 30, 1999.

Maxicare Health Plans, Inc.

By:
Secretary

Attest:

By:
Chief Financial Officer

10
<PAGE> 48
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MAXICARE HEALTH PLANS, INC.

1999 ANNUAL MEETING OF SHAREHOLDERS JUNE 30, 1999

The undersigned, does hereby appoint Elwood I. Kleaver, Jr. and Richard
A. Link, and each of them, proxies for the undersigned with full power of
substitution, to vote all of the shares which the undersigned is entitled to
vote, with all powers the undersigned would possess if personally present at
the 1999 Annual Meeting of Shareholders of Maxicare Health Plans, Inc.
(including all adjournments thereof) to be held at the Sunset Room in the
Transamerica Center Tower Restaurant, 1150 South Olive Street, Los Angeles,
California, on June 30, 1999 at 8:00 a.m., Pacific Time, on all matters that
may come before the Meeting.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)

SEE REVERSE
SIDE
<PAGE> 49
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.

<TABLE>
<S> <C> <C> <C> <C>
The undersigned hereby instructs said proxies or their substitutes:
FOR WITHHELD FOR AGAINST ABSTAIN
Item 1. Election of [ ] [ ] NOMINEES: George H. Bigelow Item 2. Approval of the adoption of the [ ] [ ] [ ]
Directors Thomas W. Field, Jr., Maxicare Health Plans, Inc.
Simon J. Whitmey 1999 Stock Option Plan.

INSTRUCTIONS: To withhold authority to vote for any individual Item 3. Other Business of the Company [ ] [ ] [ ]
nominee, write that nominee's name in the space in their discretion, the proxies
provided below: are authorized to vote with
respect to all other matters which
_____________________________________________________________ may properly come before the
Meeting.

THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. UNLESS OTHERWISE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES
FOR DIRECTOR, AND FOR THE APPROVAL OF THE MAXICARE HEALTH
PLANS, INC. 1999 STOCK OPTION PLAN.

The undersigned hereby revokes any proxy or proxies heretofore given, and ratifies and confirms the acts that all the proxies
appointed hereby, or either of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. The
undersigned hereby acknowledges receipt of a copy of the Notice of Annual Meeting and Proxy Statement, both dated June 3, 1999,
and a copy of the Company's Annual Report for the year ended December 31, 1998.

Signature(s)_____________________________________________ Dated_______________ , 1999

NOTE: Your signature should appear the same as your name appears hereon. In signing as attorney, executor, administrator, trustee
or guardian, please indicate the capacity in which signing. When signing as joint tenants, all parties, in the joint tenancy must
sign. When a proxy is given by a corporation, it should be signed by an authorized officer and the corporate seal affixed.

</TABLE>