MAXICARE HEALTH PLANS INC, DEF 14A, 2000-08-17

MAXICARE HEALTH PLANS INC
DEF 14A, 2000-08-17
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

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.
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(Name of Registrant as Specified In Its Charter)

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(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 SEPTEMBER 14, 2000

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 Windows Restaurant, 1150 South Olive Street, Los Angeles,
California, on Thursday, September 14, 2000, at 9:00 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 2003 Annual Meeting of Shareholders and until their
successors have been duly elected and qualified.

2. To approve an amendment to the Company's Restated Certificate of
Incorporation by amending Section A of Article FOURTH to increase the
number of authorized shares of Common Stock, par value $.01 per share,
from 40.0 million to 80.0 million shares.

3. To approve an amendment to the Company's Restated Certificate of
Incorporation by adding new Section K to Article FOURTH, which new
Section K would prohibit transfer of the Company's capital stock, unless
approved by the Board, to the extent the transfer would (i) cause the
ownership interest of the transferee or any other person to equal 5% or
more of the Company's fair market value; or (ii) increase the ownership
interest of the transferee or any other person where such transferee's
or other person's ownership interest equalled 5% or more of the
Company's fair market value before the transfer.

4. To approve the Company's 2000 Stock Option Plan and the authorization of
the issuance of up to 4.0 million shares of Common Stock upon the
exercise of stock options thereunder.

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

THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE FOR THE
BOARD'S NOMINEES FOR DIRECTOR LISTED IN ITEM 1 AND FOR PROPOSALS 2, 3 AND 4.

Shareholders of record at the close of business on August 1, 2000 will be
entitled to notice of and to vote at the 2000 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: August 17, 2000

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
SEPTEMBER 14, 2000

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 2000
Annual Meeting of Shareholders (the "Annual Meeting") to be held at the Sunset
Room in the Transamerica Center Windows Restaurant, 1150 South Olive Street, Los
Angeles, California, on Thursday, September 14, 2000, at 9:00 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:

ITEM 1. ELECTION OF DIRECTORS

The election of three Class I directors to the Board who will serve until
the Company's 2003 Annual Meeting of Shareholders and until their successors
have been duly elected and qualified. The Board has nominated for election Ms.
Susan M. Blais and Messrs. Robert M. Davies and John H. Gutfreund (the
"Nominees").

ITEM 2. CERTIFICATE AMENDMENT TO INCREASE AUTHORIZED SHARES

To approve an amendment to the Company's Restated Certificate of
Incorporation amending Section A of Article FOURTH to increase the number of
shares of the Company's par value $.01, Common Stock (the "Common Stock"), which
the Corporation is authorized to issue from 40.0 million shares to 80.0 million
shares (the "Authorized Share Amendment").

ITEM 3. CERTIFICATE AMENDMENT TO IMPOSE RESTRICTIONS ON THE TRANSFER OF CAPITAL
STOCK

To approve an amendment to the Company's Restated Certificate of
Incorporation amending Article FOURTH by adding a new Section K thereto, which
new Section K would prohibit transfer of the Company's capital stock, unless
approved by the Board, to the extent the transfer would (i) cause the ownership
interest of the transferee or any other person to equal 5% or more of the
Company's fair market value; or (ii) increase the ownership interest of the
transferee or any other person where such transferee's or other person's
ownership interest equalled 5% or more of the Company's fair market value before
the transfer (the "Restricted Transferability of Capital Stock Amendment").

ITEM 4. 2000 STOCK OPTION PLAN

To approve the Company's 2000 Stock Option Plan and the authorization of
the issuance of up to 4.0 million shares of Common Stock upon the exercise of
stock options thereunder.

ITEM 5. OTHER BUSINESS OF THE ANNUAL MEETING

To transact such other business as may be properly brought before the
Annual Meeting or any adjournments thereof.

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 election of the three directors nominated by the
Board, Susan M. Blais, Robert M. Davies, and John H. Gutfreund; FOR the approval
of the Authorized Share Amendment; FOR the approval of the Restricted
Transferability of Capital Stock
<PAGE> 4

Amendment; FOR the approval of the Company's 2000 Stock Option Plan and the
authorization of the issuance of up to 4.0 million shares of Common Stock upon
the exercise of stock options thereunder; 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 Authorized
Share Amendment, the Restricted Transferability of Capital Stock Amendment or
the 2000 Stock Option Plan and the authorization of the issuance of up to 4.0
million shares of common stock upon the exercise of stock options thereunder.

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 August 17, 2000.

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GENERAL INFORMATION

OUTSTANDING SHARES AND VOTING RIGHTS

There were 18,725,381 shares of common stock of the Company, par value $.01
per share, (the "Common Stock") outstanding as of August 1, 2000, the Record
Date for the shareholders entitled to vote at the Annual Meeting. Each
shareholder of record at the close of business on August 1, 2000 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 9,362,691 votes, represented in person or by proxy
at the Annual Meeting is required for a quorum. Shares represented by proxy or
in person for whom the vote is withheld with respect to the election of any
nominee for director, where the vote is abstained for the vote on the approval
of the Authorized Share Amendment, the approval of the Restricted
Transferability of Capital Stock Amendment, the approval of the 2000 Stock
Option Plan and the authorization of the issuance of up to 4.0 million shares of
Common Stock upon the exercise of stock options thereunder 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 affirmative vote of a majority of
the votes eligible to be cast at the Annual Meeting or 9,362,691 shares is
required for the approval of both (i) the Authorized Share Amendment; and (ii)
the Restricted Transferability of Capital Stock Amendment, and the affirmative
vote of a majority of the votes cast at the Annual Meeting is required for the
approval of the 2000 Stock Option Plan and the authorization of the issuance of
up to 4.0 million shares of common stock upon the exercise of stock options
thereunder.

The Company's Restated Certificate of Incorporation (the "Restated
Certificate") does not provide for cumulative voting for the election of
directors. Votes that are withheld from any nominee for director will be
excluded from the vote and will not affect the vote; however, shares that are
not voted or are voted "Abstain" with respect to (i) the Authorized Share
Amendment and (ii) the Restricted Transferability of Capital Stock Amendment
will have the same effect as a vote "Against" the respective amendment, while
shares that are not voted or are voted "Abstain" with respect to the 2000 Stock
Option Plan and the authorization of the issuance of up to 4.0 million shares of
Common Stock upon the exercise of stock options thereunder will be excluded from
the vote and will not affect the vote. 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 is 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. Brokers do not have discretionary authority to vote on (i) the
Authorized Share Amendment; (ii) the Restricted Transferability of Capital Stock
Amendment; or (iii) the 2000 Stock Option Plan and the authorization of the
issuance of up to 4.0 million shares of Common Stock upon the exercise of stock
options thereunder; accordingly, if no instructions are given to the brokers on
these matters the shares will either not be voted or will be voted "Abstain"
with respect to such matters, which will have the same effect as a "No" vote
with respect to (i) the Authorized Share Amendment and (ii) the Restricted
Transferability of Capital Stock Amendment and no effect with respect to the
2000 Stock Option Plan and the authorization of the issuance of up to 4.0
million shares of Common Stock upon the exercise of stock options thereunder.

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 August 1, 2000 by each director,
by (i) the Company's Chief Executive Officer ("CEO"), (ii) the four other most
highly compensated executive officers other than the CEO, or (iii) those
executive officers who would have been among the four most highly compensated
executive officers of the Company had they held such title as of December 31,
1999, (iv) all directors and executive officers as a group,

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(v) the nominees to the Board who currently are not directors, and (vi) each
person who, to the knowledge of the Company, beneficially owned more than 5% of
any class of the Company's voting stock on such date.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
---------------------------
COMMON PERCENTAGE OF
NAME AND ADDRESS OF PERSON OR GROUP STOCK(2) COMMON STOCK(3)
----------------------------------- --------- ---------------
<S> <C> <C>
Snyder Capital Management, L.P. (4)......................... 5,027,000 26.8%
Snyder Capital Management, Inc.
350 California Street, Suite 1460
San Francisco, California 94104
J O Hambro Capital Management............................... 1,998,700 10.7%
(Holdings) Limited (5)
10 Park Place
London, SW1A 1 LP
England
Pequot Capital Management, Inc. (6)......................... 1,000,000 5.3%
500 Nyala Farm Road
Westport, Connecticut 06880
Paul R. Dupee, Jr.(7)....................................... 812,000 4.3%
1149 South Broadway Street
Los Angeles, California 90015
Peter J. Ratican (8)........................................ 710,078 3.8%
1149 South Broadway Street
Los Angeles, California 90015
Richard A. Link (9)......................................... 167,759 *
1149 South Broadway Street
Los Angeles, California 90015
Alan D. Bloom (10).......................................... 121,345 *
1149 South Broadway Street
Los Angeles, California 90015
Susan M. Blais (11)......................................... 110,000 *
1149 South Broadway Street
Los Angeles, California 90015
John H. Gutfreund (12)...................................... 100,000 *
1149 South Broadway Street
Los Angeles, California 90015
Sanford N. Lewis (13)....................................... 40,087 *
1149 South Broadway Street
Los Angeles, California 90015
Elwood I. Kleaver, Jr. (14)................................. 31,839 *
1149 South Broadway Street
Los Angeles, California 90015
Thomas W. Field, Jr.(15).................................... 30,000 *
1149 South Broadway Street
Los Angeles, California 90015
Claude S. Brinegar (15)..................................... 24,000 *
1149 South Broadway Street
Los Angeles, California 90015
Charles E. Lewis (15)....................................... 20,018 *
1149 South Broadway Street
Los Angeles, California 90015
Robert M. Davies (16)....................................... 15,000 *
1149 South Broadway Street
Los Angeles, California 90015
George H. Bigelow........................................... 11,000 *
1149 South Broadway Street
Los Angeles, California 90015
</TABLE>

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---------------
* 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 18,725,381 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) 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"). MetLife
beneficially owns all of the general partner interests in Nvest Companies
and 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
shared voting and dispositive powers with respect to 4,544,100 and 5,027,000
shares, respectively. The above information presented in regards to the
beneficial ownership of the Company's Common Stock by these filers is based
upon a Schedule 13D filed by these filers with the SEC on April 26, 2000.

(5) J O Hambro Capital Management (Holdings) Limited is a corporation organized
under the laws of England. It functions as the ultimate holding company for
J O Hambro Capital Management. J O Hambro Capital Management is principally
engaged in the business of investment management and

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advising. It serves as co-investment advisor to North Atlantic Smaller
Companies Investment Trust and American Opportunity Trust and as investment
adviser to Orgx and investment manager to certain private clients. The
above information is based upon a schedule 13G filed by J O Hambro Capital
Management (Holdings) Limited with the SEC on April 25, 2000.

(6) Pequot Capital Management, Inc. is an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940. 429,600 shares are held
in the Pequot Healthcare Fund LP and 570,400 shares are held in the Pequot
Healthcare Offshore Fund Inc. Pequot Capital Management, Inc. has sole
voting and dispositive powers over these shares.

(7) Includes 155,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

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

(9) Includes 167,733 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

(10) Includes 18,334 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

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

(12) Includes 50,000 shares held by Mr. Gutfreund's spouse, Susan K. Gutfreund.

(13) Includes 40,000 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

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

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

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

(17) Includes 5,833 shares which are subject to options which are currently
exercisable or will become exercisable within 60 days.

(18) Includes 575,066 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 (the
"Exchange Act"), 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. 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 during
the year ended December 31, 1999 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 Restated Certificate and the
Company's Bylaws the number of directors consisting the Board shall be as
established by resolution of the Board. As of the date hereof, the Board
consists of eight members and one vacancy. The current members of the Board are:
Paul R. Dupee, Jr., George H. Bigelow, Claude S. Brinegar, Robert M. Davies,
Thomas W. Field, Jr., Elwood I. Kleaver, Jr., Charles E. Lewis and Simon J.
Whitmey. As of the date of the Annual Meeting, Messrs. Brinegar, Field and Lewis
will be retiring from the Board. Accordingly, Messrs. Brinegar and Lewis will
not be standing for reelection and Mr. Field will be resigning his position on
the Board. Ms. Susan Blais and Mr. John Gutfreund have been nominated by the
Board to replace Messrs. Brinegar and Lewis. Mr. Field's seat will not be
filled.

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Pursuant to a Board resolution adopted on June 6, 2000, the number of directors
consisting the Board after the Annual Meeting will be seven.

The Restated Certificate provides that directors are classified into Class
I, Class II or Class III and that the initial terms of the directors were
staggered for one, two and three years, respectively. The Restated Certificate
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 Restated Certificate does not provide for cumulative voting for the
election of directors.

At the Annual Meeting, the Board has nominated for election as directors
Susan M. Blais, Robert M. Davies and John H. Gutfreund each to serve as a Class
I director for three years until the 2003 Annual Meeting, and until a successor
is elected and qualified (the "Board Nominees"). Mr. Davies is an incumbent
director and Mr. Gutfreund and Ms. Blais are nominees who are standing for
election to the Board for the first time.

Messrs. Dupee, Davies and Kleaver (the "1998 Directors") were initially
elected to the Board by the Board at a meeting held on May 8, 1998. The 1998
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
1998 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 to the Board. Pursuant to the Shareholder
Settlement Agreement the Company also agreed to support amendments to its
Certificate and Bylaws at the 1998 Annual Meeting, which limited the size of the
Board to nine members through the 1999 Annual Meeting of Shareholders (the "1998
Amendments"). The 1998 Amendments were approved and Messrs. Dupee and Kleaver
were elected to three year terms as directors by the shareholders at the 1998
Annual Meeting.

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.

NOMINEES BY THE BOARD OF DIRECTORS FOR ELECTION AT THE ANNUAL MEETING AS CLASS I
DIRECTORS:

TERMS EXPIRING AT THE 2003 ANNUAL MEETING

SUSAN M. BLAIS
Nominee for Election
Age: 48

Susan M. Blais was appointed Executive Vice President of the Company and
Interim Vice President, General Manager of Maxicare California in April 2000.
Ms. Blais had served as Senior Vice President - Strategic Planning of the
Company since January 2000. Prior to joining the Company, Ms. Blais was last
employed by Wellpoint Health Networks Inc. as General Manager, Senior Services
and General Manager, Key Accounts from February 1998 to March 1999 and as Vice
President - Sales and Marketing, Key Accounts from December 1996 to February
1997. Prior to December 1996, Ms. Blais was employed by FHP Health Care as
Director, California Commercial Sales and Marketing from March 1995 to December
1996 and Director, Key and National Accounts from July 1994 to March 1995.

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ROBERT M. DAVIES
Director since: 1998
Age: 49

Robert M. Davies has been Managing Director of The Menai Group LLC, a
merchant banking firm, since April 1998. Mr. Davies was the Vice President of
Wexford Capital Corporation, an investment manager to several private investment
funds, from 1994 to March 1997. Mr. Davies is also a Director and Chairman of
the Board and Chief Executive Officer of Oakhurst Company, Inc., a Director of
its majority-owned subsidiary, Steel City Products, Inc. and a Director of
Industrial Acoustics Company, Inc.

JOHN H. GUTFREUND
Nominee for Election
Age: 70

John H. Gutfreund has been the President of Gutfreund & Company, Inc., an
investment banking and consulting firm for more than five years. In addition,
Mr. Gutfreund serves as a Director of Ambi, Inc.; Ascent Assurance, Inc.;
Baldwin Piano & Organ Company; Evercel, Inc.; Foamex International, Inc.;
LCA-Vision, Inc.; and the Universal Bond Fund.

THE BOARD RECOMMENDS VOTES FOR THE ELECTION OF MS. BLAIS AND MESSRS. DAVIES
AND GUTFREUND AS DIRECTORS ON THE BOARD.

The following persons currently serve as members of the Board and who 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 II

PAUL R. DUPEE, JR.
Director since: 1998
Elected to serve until: 2001 Annual Meeting
Age: 57

Paul R. Dupee, Jr., was appointed Chairman of the Board of Directors in
June 1999 and Chief Executive Officer of the Company in August 1999. For more
than five years prior to the date hereof, Mr. Dupee has been a private investor.
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: 57

Elwood I. Kleaver, Jr. served as Interim Chief Operating Officer of the
Company from April 1999 through July 1999. He has been a private investor and
self-employed health care consultant specializing in turnaround situations for
more than five years. 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
(Creditors' Actions) of the Wisconsin Statutes. ADS is the successor of the
operations formerly operated by EDI.

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CLASS III

GEORGE H. BIGELOW
Director since: 1999
Elected to serve until: 2002 Annual Meeting
Age: 57

Mr. Bigelow has been a managing member of Americana Group, LLC, a real
estate investment advisor since January 1998. Previously, 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 January 1998 and he became Chief Financial Officer from March 1997
through January 1998. Mr. Bigelow was the President of Americana Corporation, an
investment advisor and consulting firm, from 1986 until 1998.

SIMON J. WHITMEY
Director since: 1999
Elected to serve until: 2002 Annual Meeting
Age: 53

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.

Thomas W. Field Jr., currently a Class III director, is retiring from the
Board effective as of the Annual Meeting.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

There were seven meetings of the Company's Board during the year ended
December 31, 1999. 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 - Stock 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
current members of the Executive Committee are Messrs. Dupee, Davies, Brinegar
and Field. The Executive Committee met two times during 1999. Effective August
1999 Mr. Davies replaced Mr. Kleaver 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, Davies, Field, Lewis and Whitmey. The Audit Committee met
six times during 1999.

Compensation - Stock Option Committee. The Compensation - Stock Option
Committee reviews and makes recommendations with respect to the Company's
various compensation programs and administers the 1990 Stock Option Plan, the
1995 Stock Option Plan, the 1999 Stock Option Plan (the "Option Plans") and
authorizes the granting of options thereunder. The Compensation - Stock Option
Committee also administers the Outside Directors 1996 Formula Stock Option Plan
and the Senior Executives 1996 Stock Option Plan (the "Senior Executives'
Plan"). The Compensation - Stock Option 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 - Stock Option Committee are

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Messrs. Bigelow, Brinegar, Field, Whitmey and Dupee (ex-officio). The
Compensation - Stock Option Committee met three times during 1999.

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. Bigelow, Lewis and Whitmey. The Nominating Committee met one time during
1999.

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 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.

ITEM 2. CERTIFICATE AMENDMENT TO INCREASE AUTHORIZED SHARES

DESCRIPTION OF THE PROPOSED AUTHORIZED SHARE AMENDMENT

On June 6, 2000 the Board unanimously adopted and directed to be submitted
to a vote of the shareholders the Authorized Share Amendment which, if adopted,
would amend Section A of Article FOURTH of the Restated Certificate to increase
the number of shares of Common Stock that the Company is authorized to issue
from 40.0 million shares to 80.0 million shares.

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<PAGE> 13

The text of the proposed Authorized Share Amendment is as follows:

Article FOURTH of the Corporation's Restated Certificate of
Incorporation shall be amended to delete the second sentence of Section A
thereof and to replace such sentence with the following:

"The Corporation is authorized to issue 80,000,000 shares of Common
Stock, par value $0.01, and 5,000,000 shares of Preferred Stock, par
value $0.01, which shall be issued from time to time in series and of
which 2,500,000 shares shall be designated as Series A Cumulative
Convertible Preferred Stock (the "Series A Stock") and 500,000 shares
shall be designated as Series B Preferred Stock (the "Series B Stock").

If approved by the shareholders, the Authorized Share Amendment will be
effective upon filing a Certificate of Amendment containing the text of the
amendment with the Secretary of State of the State of Delaware.

PURPOSE OF THE PROPOSED AUTHORIZED SHARE AMENDMENT

The Board believes that the proposed Authorized Share Amendment is
advisable and in the best interests of the Company and its shareholders in order
to increase the number of shares of Common Stock available for issuance by the
Company. The adoption of the Authorized Share Amendment will enable the Company
to proceed with its proposed Rights Offering, described below, which will enable
it to issue up to approximately 28 million additional shares of Common Stock and
potentially raise up to approximately $28 million of new equity capital for the
Company. The Company's Restated Certificate currently authorizes the issuance of
40.0 million shares of Common Stock. As of August 1, 2000, there were 18,725,381
shares of Common Stock issued and outstanding, plus an additional 3,285,000
shares which are subject to issuance pursuant to the exercise of options (of
which options to purchase 2,744,222 shares are currently outstanding) under the
Company's 1990, 1995, 1999 and Formula and Senior Executives' Stock Option Plans
and options granted in conjunction with the Company's 1990 plan of
reorganization. Accordingly, the Company has available for issuance only
17,989,619 shares which are not outstanding or subject to issuance with respect
to the exercise of authorized options. Therefore, currently the Company has an
insufficient number of shares of Common Stock available to enable the Company to
proceed with the Rights Offering as contemplated. Even if the Rights Offering
were to be reduced, a full subscription would leave the Company with potentially
no shares of Common Stock available for future issuances.

Although the Company has considered, and continues to consider from time to
time, other opportunities that may involve the issuance of Common Stock, there
are currently no plans, arrangements, agreements or understandings for the
issuance or use of the additional shares of authorized Common Stock, other than
the proposed Rights Offering and the Standby Underwriter Commitment described
below. Irrespective of whether the Company goes forward with the Rights
Offering, the Board believes the Authorized Share Amendment is in the best
interests of the Company and its shareholders because it would give the Company
greater flexibility to issue stock to acquire other businesses or in connection
with corporate partnering arrangements; to provide incentives to employees,
consultants and contractors; to raise capital; and for other general corporate
purposes. The proposed Restricted Transferability of Common Stock Amendment, if
approved, would not restrict the ability of the Company to issue shares of
Common Stock. Accordingly, the authorized but unissued shares of Common Stock
would be available for issuance from time to time for any proper purpose
approved by the Board. The Board does not presently intend to seek further
shareholder approval of any particular issuance of shares, unless such approval
is required by law or the rules of any quotation system or exchange on which the
Common Stock is then traded.

EFFECTS OF THE PROPOSED AUTHORIZED SHARE AMENDMENT

If the proposed Authorized Share Amendment is implemented, the additional
authorized shares of Common Stock would be available for issuance from time to
time upon such terms and for such purposes as the Board may deem advisable,
generally without further action by the shareholders of the Company. Except in
connection with the proposed Rights Offering and the Company's outstanding
Shareholders' Rights Plan, shareholders would not have any preemptive or similar
rights to subscribe for or purchase any additional
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<PAGE> 14

shares of Common Stock that may be issued in the future. Any future issuance of
Common Stock may, depending upon the circumstances, dilute the earnings per
share, liquidation value, voting power and other rights and interests of the
existing shareholders. The proposed Authorized Share Amendment would not effect
any change in the Company's currently outstanding Common Stock. The additional
authorized shares of Common Stock would have the same rights and privileges as
the shares of Common Stock presently outstanding. Although not a factor in the
decision of the Board to propose the Authorized Share Amendment, the proposed
Authorized Share Amendment could have an anti-takeover effect by increasing the
number of shares of Common Stock available for issuance by the Board. The
increase in the number of shares of Common Stock available for issuance could
enable the Board to render more difficult or discourage a hostile transaction to
take control of the Company. In the course of exercising its fiduciary
responsibilities to shareholders, the Board could issue additional shares
without shareholder approval in order to increase the voting power of parties
friendly to the Board or to dilute the voting power and other rights of a
potential acquirer. The availability of this defensive strategy to the Company
could discourage unsolicited takeover attempts, thereby limiting the opportunity
for the Company's shareholders to realize a higher price for their shares than
would be generally available in the public markets. The Board is not aware of
any attempt, or contemplated attempt, to acquire control of the Company, and
this proposal is not being presented with the intent that it be utilized as a
type of anti-takeover device.

RIGHTS OFFERING

On June 6, 2000 the Board unanimously voted to grant the Company's
shareholders non-transferable rights (the "Rights") to purchase at $1.00 per
share, one and one half shares of newly issued Common Stock for each share of
Common Stock held by them on the record date (the "Rights Offering"). At a
meeting held on July 10, 2000 the Board unanimously agreed to amend the Rights
Offering to change the record date from August 1, 2000 to September 14, 2000.
The Board took this action so that the shareholders eligible to participate in
the Rights Offering would be those shareholders closer to the anticipated
effective date of the Rights Offering. The Rights Offering was further amended
at a Board meeting held on August 3, 2000 to shorten the exercise period from 30
days to 15 days. The Board took this action so that the results of the Rights
Offering could be reflected in the Company's third quarter financial statements.
Subject to the effectiveness of a registration statement covering the sale of
the Company's Common Stock pursuant to the Rights Offering and shareholder
approval of the proposed Authorized Share Amendment at the meeting, the Rights
Offering will remain open for a 15 day period from September 15, 2000 to
September 29, 2000.

In addition, the Company has entered into a letter of intent with MDB
Capital Group LLC (the "Standby Underwriter") which contemplates that the
Standby Underwriter will enter into a Standby Underwriting Agreement with the
Company pursuant to which the Standby Underwriter will provide a firm commitment
(the "Standby Underwriting Commitment") to purchase from the Company, at $1.00
per share (less applicable underwriter's discount), up to $15.0 million worth of
any shares remaining available after completion of the Rights Offering (the
"Standby Underwriting"). Pursuant to the Standby Underwriter's Agreement, the
Company will agree, upon termination of the Rights Offering, to sell to the
Standby Underwriter, for a purchase price of $100, warrants to purchase up to
1.0 million shares of Common Stock at an exercise price of $1.50 per share. The
Standby Underwriting Commitment will be contingent upon the satisfaction of
certain conditions by the Company.

The Board reserves the right to modify, postpone or to cancel the Rights
Offering at any time prior to the consummation of the sale of the shares upon
the exercise of the Rights if they determine such modification, postponement or
cancellation is in its best interest. Based on the $1.00 per share subscription
price, if the Rights Offering is fully subscribed, the Company would raise
proceeds of approximately $28 million before the costs of the Rights Offering
and the costs of the Standby Underwriting. The Restricted Transferability of
Common Stock Amendment described below will be of no effect during effectiveness
of the Rights Offering, because this amendment will not become effective, if at
all, until after the Rights Offering is terminated. The effectiveness of the
Rights Offering is subject to shareholder approval of the proposed Authorized
Share Amendment, the effectiveness of the Standby Underwriting Commitment and
the effectiveness of the Company's Form S-2 Registration Statement covering the
Company's sale of approximately 28 million shares

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<PAGE> 15

of Common Stock issuable upon the exercise of the Rights by shareholders or the
sale to the public of shares of Common Stock pursuant to the Standby
Underwriting Commitment.

All of the continuing directors, the board members and certain of its
executive officers, including the Company's Chief Executive Officer, Paul R.
Dupee, Jr., who collectively own 827,956 shares, or approximately 4.4%, of the
outstanding Common Stock, currently intend to exercise their Rights. To the
extent that the voting power of the directors and executive officers of the
Company increases as a result of the Rights Offering, it will be more difficult
for the remaining shareholders to replace or remove the directors and executive
officers.

Consummation of the Rights Offering will enable the Company to raise up to
approximately $28 million in cash proceeds (before the costs of the Rights
Offering and the costs of the Standby Underwriting). The primary purpose of the
Rights Offering and Standby Underwriting is to alleviate potential serious
liquidity and capital adequacy problems of the Company and in particular of the
parent company, Maxicare Health Plans, Inc. ("MHP"). MHP is a holding company
which currently owns two health maintenance organizations ("HMOs") licensed in
California and Indiana and Maxicare Life and Health Insurance Company ("MLH").
The Company's HMOs and MLH are subject to state regulations which require
compliance with certain statutory deposit, dividend distribution and net worth
requirements. To the extent the operating HMOs and MLH must comply with these
regulations, they may not have the financial flexibility to transfer funds to
MHP. As a result of operating losses and regulatory requirements and
restrictions, the amount of the Company's cash generally available to fund its
working capital and operational requirements at MHP (including cash held at MHP
and cash held by the operating subsidiaries available for transfer to the parent
company) has diminished from $46.6 million as of December 31, 1996 to $1.7
million as of June 30, 2000. This lack of available cash at MHP has created
increased liquidity problems and operational and capital adequacy concerns. For
this reason, failure to successfully implement the Rights Offering and raise the
proceeds contemplated thereby would leave the Company with immediate and serious
liquidity and capital adequacy problems which could materially impair the
Company's business and operations.

In June 2000, the Company sold 800,000 shares of Common Stock, at $1.25 per
share, in a private placement to Meespierson Cayman Limited, as trustee of
Sofaer Funds/SCI Global Hedge Fund. Although this financing gave the Company
some additional liquidity, it is insufficient to enable the Company to retain a
sufficient amount of cash and capital resources at the parent company level for
emergencies, working capital requirements, funding the Company's infrastructure
and capital improvement requirements (in particular the funding of improvements
to the Company's information technology capabilities), and funding of regulatory
capital requirements of the HMOs and MLH to support ongoing business growth.

THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY COMMON STOCK. ANY OFFER SHALL BE MADE ONLY THROUGH A SEPARATE
PROSPECTUS. THE BOARD OF DIRECTORS MAKES NO RECOMMENDATION AS TO WHETHER
SHAREHOLDERS SHOULD EXERCISE ANY SUBSCRIPTION RIGHTS THAT MAY BE ISSUED TO THEM.

VOTE REQUIRED

The proposed Authorized Share Amendment must be approved by the holders of
a majority of all outstanding shares of Common Stock or 9,362,691 shares. Any
abstention or broker non-vote will have the effect of a vote against the
proposed Authorized Share Amendment.

WHILE SHAREHOLDERS OF THE COMPANY ARE NOT BEING ASKED TO VOTE ON THE RIGHTS
OFFERING; THE COMPANY'S ABILITY TO CONSUMMATE THE RIGHTS OFFERING IS DEPENDENT
UPON SHAREHOLDER APPROVAL OF THE PROPOSED AUTHORIZED SHARE AMENDMENT.

FOR THE REASONS STATED ABOVE, THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR
THE PROPOSED AUTHORIZED SHARE AMENDMENT.

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ITEM 3. CERTIFICATE AMENDMENT TO IMPOSE RESTRICTIONS ON THE TRANSFER OF CAPITAL
STOCK

DESCRIPTION OF THE PROPOSED RESTRICTED TRANSFERABILITY OF CAPITAL STOCK
AMENDMENT

On June 6, 2000, the Board unanimously adopted and directed to be submitted
to a vote of the shareholders the Restricted Transferability of Capital Stock
Amendment. If adopted, this amendment would add a new Section K to Article
FOURTH of the Restated Certificate entitled "Certain Restrictions on the
Transfer of Stock" that would prohibit transfer of the Company's Capital Stock,
unless approved by the Board, to the extent the transfer would (i) cause the
ownership interest of the transferee or any other person to equal 5% or more of
the Company's fair market value; or (ii) increase the ownership interest of the
transferee or any other person where such transferee's or other person's
ownership interest equalled 5% or more of the Company's fair market value before
the transfer.

The text of the proposed Restricted Transferability of Capital Stock
Amendment is contained in Exhibit A hereto, and if approved by the shareholders,
will be effective upon filing a Certificate of Amendment containing the text of
the Restricted Transferability of Capital Stock Amendment with the Secretary of
State of the State of Delaware. However, the Company will not file this
amendment until after the completion of the proposed Rights Offering described
above or at such time prior to the effective date of the Rights Offering that
the Board determines not to commence or to cancel the Rights Offering,
including, but not limited to, if the shareholders do not approve the proposed
Authorized Share Amendment described above.

PURPOSE OF THE PROPOSED RESTRICTED TRANSFERABILITY OF CAPITAL STOCK AMENDMENT

The Board believes that the proposed Restricted Transferability of Capital
Stock Amendment is advisable and in the best interests of the Company and its
shareholders in order to provide the Company the opportunity to utilize its net
operating loss (NOL) carryforwards. As of December 31, 1999, the Company had NOL
carryforwards for federal income tax purposes of approximately $407.5 million,
which expire in the years 2003 through 2019. Under the Internal Revenue Code of
1986, as amended (the "Code"), the Company generally would be entitled to reduce
its future federal income tax liabilities by carrying unused NOLs forward for a
period ranging from 15 to 20 years to offset future taxable income. However, the
Company's ability to utilize any NOL carryforwards in future years may be
restricted in the event the Company undergoes an "ownership change" within the
meaning of Section 382 of the Code. An "ownership change" will occur if the
aggregate percentage point ownership increase for all "5% shareholders" for a
three year "testing period" exceeds 50 percentage points. For this purpose, a
"5% shareholder" is any direct or indirect holder, taking certain attribution
rules into account, of 5% or more of a corporation's capital stock, determined
by the fair market value of such capital stock. For this purpose, all holders of
less than 5% are generally treated collectively as a single 5% shareholder. In
general, the "testing period" is the three-year period ending on the date an
ownership shift affecting a 5% shareholder has occurred. Once an ownership
change has occurred, as of that date, only subsequent ownership changes are
tested. In determining the amount by which 5% shareholders have increased their
percentage, the percentage interest of each 5% shareholder on the testing date
is compared to the lowest percentage interest of such shareholder at any time
during the testing period. For example, a shareholder whose percentage ownership
decreased from 8% to 6%, then increased to 20%, within the same testing period
will be considered to have had an increase of 14 percentage points (i.e., the
difference between that shareholder's percentage ownership interest on the
testing date (20%) and the lowest percentage ownership interest during the
testing period (6%)). If the aggregate increase in the ownership percentage of
all 5% shareholders exceeds 50 percentage points as of the end of the testing
period (including increases by any persons or groups of persons who become 5%
shareholders during the testing period), then an ownership change will have
occurred.

The issuance of Common Stock by the Company pursuant to the proposed Rights
Offering and Standby Underwriting may increase the likelihood of the occurrence
of an ownership change. Currently, based on the information available to the
Company, it appears that for the three years ended June 30, 2000 a greater than
50% ownership change has not occurred. In the event the Rights Offering is
consummated the ownership change percentage could increase substantially, so
that additional stock transfers could trigger an over 50% ownership change for
Section 382 purposes which could result in a significant limitation of the
Company's

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<PAGE> 17

ability to fully utilize its NOL carryforwards. In the event of such an
ownership change, the amount of NOLs and NOL carryforwards attributable to the
period prior to the ownership change that may be used to offset taxable income
in any year thereafter generally may not exceed the fair market value of the
Company immediately before the ownership change (subject to certain adjustments)
multiplied by the applicable long-term, tax-exempt rate announced by the
Internal Revenue Service in effect for the date of the ownership change. As a
result of these limitations imposed by Section 382 of the Code (the "Section 382
Limitations"), in the event of an ownership change, the Company's ability to use
its NOL carryforwards in future years may be limited and, to the extent the NOL
carryforwards cannot be fully utilized under these limitations within the
carryforward periods, the NOL carryforwards would expire unutilized.
Accordingly, after any ownership change, if the Company were successful in the
future in generating taxable income, the Company may be required to pay more
income taxes or to pay such taxes sooner than if the use of its NOL
carryforwards were not limited.

In light of the potential for these adverse tax consequences, the Board
believes that the proposed Restricted Transferability of Capital Stock Amendment
is in the best interests of the Company. By prohibiting transfer of the
Company's Capital Stock to the extent the transfer would (i) cause the ownership
interest of the transferee or any other person to equal 5% or more of the
Company's fair market value; or (ii) increase the ownership interest of the
transferee or any other person where such transferee's or other person's
ownership interest equalled 5% or more of the Company's fair market value before
the transfer, this amendment reduces the possibility of an ownership change and
the application of the Section 382 Limitations. Thus, the Company would avoid
the adverse tax consequences discussed above.

EFFECTS OF THE PROPOSED RESTRICTED TRANSFERABILITY OF COMMON STOCK AMENDMENT

Although not a material factor in the decision of the Board to propose the
Restricted Transferability of Capital Stock Amendment, this proposed amendment
could have an anti-takeover effect by prohibiting shareholders from increasing
their ownership interest to 5% or more and prohibiting any increase in the
ownership interest of shareholders already holding 5% or more of the Company's
fair market value. Such limitations could enable the Board to render more
difficult or discourage a hostile transaction to take control of the Company.
Furthermore, the presence of these limitations could discourage unsolicited
takeover attempts, thereby limiting the opportunity for the Company's
shareholders to realize a higher price for their shares than would be generally
available in the public markets. The Board is not aware of any attempt, or
contemplated attempt, to acquire control of the Company, and this proposal is
not being presented with the intent that it be utilized as a type of
anti-takeover device.

The Restricted Transferability of Capital Stock Amendment is not intended
to supercede or terminate the Company's Shareholders Rights Plan pursuant to
which on February 24, 1998, the Board declared a dividend distribution of one
preferred share purchase right (a "Share Purchase Right") for each outstanding
share of Common Stock. The dividend was payable to the shareholders of record on
March 16, 1998, and with respect to Common Stock issued thereafter, until a
certain distribution date and, in certain circumstances, with respect to Common
Stock issued after this distribution date. With certain exceptions, each Share
Purchase Right, when it becomes exercisable, entitles the registered holder to
purchase from the Company one five-hundredth of a share of Series B Preferred
Stock, $0.01 par value, of the Company at a price of $45.00 per one
five-hundredth of a Preferred Share subject to adjustment. The description and
terms of the Share Purchase Rights are set forth in a Rights Agreement between
the Company and American Stock Transfer & Trust Company, as Rights Agent, dated
as of February 24, 1998, and as amended. The Shareholder Rights Plan does not
prohibit transfer of the Company's Common Stock; rather it is an anti-takeover
device triggered by certain acquisitions of the Company's Common Stock. Because
the restrictions on transfer imposed by the Restricted Transferability of Common
Stock Amendment may be lifted in the Board's discretion, the Board, if faced
with a hostile transaction to take control of the Company, may choose to permit
only the Shareholder Rights Plan to operate and not the restrictions imposed by
the Restricted Transferability of Capital Stock Amendment.

In order to further protect the Company's NOLs from the impact of an
ownership change, the Board on June 6, 2000 voted to amend the Shareholders
Rights Plan to provide that the exercisability of the Share
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<PAGE> 18

Purchase Rights is triggered in the event any party acquires 5% or more of the
Company's Common Stock or any party which currently holds 5% or more of the
Common Stock acquires additional shares, without the approval of the Board.

Prior to any change in beneficial ownership percentage (which is not
necessarily equal to ownership as defined by Section 382 of the Code) occasioned
by the Rights Offering and Standby Underwriting described above, SCMLP, J O
Hambro Capital Management (Holdings) Limited (the "Principal Shareholders")
beneficially hold 37.5% of the Common Stock, which may enable such entities to
exercise control over the Company and have the corresponding ability to prevent
hostile takeover attempts. In addition, the Restricted Transferability of
Capital Stock Amendment would restrict the ability of the Principal Shareholders
to transfer a control block of the Common Stock, thereby making more difficult
the completion of a hostile takeover transaction by an outside party (which is
not necessarily equal to ownership as defined by Section 382 of the Code).

VOTE REQUIRED

The proposed Restricted Transferability of Capital Stock Amendment must be
approved by the holders of a majority of all outstanding shares of Common Stock
or 9,362,691 shares. Any abstention or broker non-vote will have the effect of a
vote against the proposed Restricted Transferability of Capital Stock Amendment.

FOR THE REASONS STATED ABOVE, THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR
THE PROPOSED RESTRICTED TRANSFERABILITY OF CAPITAL STOCK AMENDMENT.

ITEM 4. APPROVAL OF THE 2000 STOCK OPTION PLAN

On June 6, 2000, the Board adopted the 2000 Stock Option Plan, a copy of
which is attached hereto as Exhibit B to this Proxy Statement (the "2000 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 2000 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 August 1, 2000,
571,908 shares have been issued pursuant to the exercise of options granted
under the 1990 Plan, options to purchase 413,000 shares of Common Stock are
outstanding and options to purchase 15,092 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 August
1, 2000, 8,333 shares of Common Stock have been issued pursuant to the exercise
of options granted under the 1995 Plan, options to purchase 825,667 shares of
Common Stock are outstanding and options to purchase 166,000 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
August 1, 2000, no shares of Common Stock have been issued pursuant to the
exercise of options granted under the Formula Plan, options to purchase 95,000
shares of Common Stock are outstanding and options to purchase 30,000 shares of
Common Stock may be granted in the future. Since the available amount for grant
is less than the stipulated formula grant amount no further options will be
granted under the Formula Plan.
16
<PAGE> 19

The Company also has a 1996 Senior Executives Stock Option Plan (the
"Senior Executives Plan"). Options to purchase a maximum of 700,000 shares of
Common Stock may be granted under the Senior Executives Plan to the Chief
Executive Officer and Chief Financial Officer of the Company. As of August 1,
2000 no shares of Common Stock have been issued pursuant to the exercise of
options granted under the Senior Executives Plan, options to purchase 420,000
share of Common Stock are outstanding and options to purchase 280,000 shares of
common stock may be granted in the future. The Senior Executives Plan expires on
July 26, 2006 and no options may be granted under the Senior Executives Plan
thereafter.

The Company also has a 1999 Stock Option Plan (the "1999 Plan"), under
which a maximum of 750,000 shares of Common Stock may be issued. As of August 1,
2000, no shares of Common Stock have been issued pursuant to the exercise of
options granted under the 1999 Plan, options to purchase 415,000 shares of
Common Stock are outstanding and options to purchase 335,000 shares of Common
Stock may be granted in the future. The 1999 Plan expires on June 29, 2009 and
no options may be granted under the 1999 Plan thereafter. The 1990 Plan, 1995
Plan, Formula Plan, Senior Executives Plan and 1999 Plan are hereinafter
collectively referred to as the "Option Plans".

As of the date hereof, there are no outstanding options which are "in the
money". This coupled with the limited number of shares of Common Stock available
under the Option Plans and the Formula Plan, in the Board's view, restrict the
Company from achieving the goals for the Option Plans and the Formula Plan
previously described. Therefore, the Board believes the 2000 Plan is necessary
to achieve such goals.

The principal provisions of the 2000 Plan are summarized below. The summary
is qualified in its entirety by reference to the specific provisions of the 2000
Plan, a copy of which is attached hereto as Exhibit B.

TYPES OF OPTIONS AND STOCK SUBJECT TO THE 2000 PLAN

The stock to be offered under the 2000 Plan consists of a maximum of 4.0
million 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 August 1,
2000 ($1.50 per share), the current market value of the Common Stock eligible
for issuance underlying the options is $6,000,000.00.

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 2000 Plan is authorized to make appropriate adjustment
to the number and kind of shares authorized for issuance pursuant to the 2000
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 2000 Plan will be charged against the maximum number of shares set forth
above. If any stock option granted under the 2000 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 2000 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 2000 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 2000 Plan: options intended
to qualify as incentive stock options under Section 422 of the Code and
non-qualified stock options not specifically authorized or qualified for
favorable federal income tax consequences.

ADMINISTRATION OF THE 2000 PLAN

The 2000 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 Exchange
Act. The 2000 Plan will initially be
17
<PAGE> 20

administered by the Compensation - Stock Option Committee which will be
reconstituted by the Board after the Annual Meeting.

The Option Committee may determine and designate those directors, officers
and key employees who are to be granted stock options under the 2000 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 2000 Plan, have authority to interpret and construe any
provisions thereof and any options granted thereunder, including but not limited
to whether, to what extent and under what circumstances, options under the 2000
Plan may be canceled, forfeited, exchanged or surrendered, to make adjustments
in the terms and conditions of options, and to make all other determinations
deemed necessary or advisable for administration of the 2000 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 2000 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 number of shares subject to the 2000 Plan, increasing the term of
the 2000 Plan or materially modifying the requirements as to eligibility for
participation in the 2000 Plan.

PURCHASE PRICE

The Option Committee shall determine the purchase price for the shares
subject to any option granted under the 2000 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) ten years from the date
of grant; (ii) the expiration of 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.

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 2000 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 2000 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, by 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
Company may also authorize a cash payment to an optionee which shall not exceed
the amount which would

18
<PAGE> 21

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 2000 Plan provides that optionees thereunder forfeit any profits they
may realize from the exercise of options granted under the 2000 Plan in the
event such optionee voluntarily terminates their employment with the Company
within 6 months of such exercise and within 90 days after such termination
becomes an officer, director, employee, consultant or advisor to any
"competitor" of the Company, as such term is defined in the 2000 Plan.

The 2000 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, directors of the Company, employees of its
subsidiaries and consultants to the Company or its subsidiaries who are selected
by the Option Committee from time to time are eligible to participate in the
2000 Plan. In determining the persons to whom options will be granted under the
2000 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 2000
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 2000 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 2000 Plan or the options
issued thereunder, the 2000 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 2000 Plan and the
stock option agreement.

TERM OF 2000 PLAN

If approved by the shareholders at the Annual Meeting, the 2000 Plan will
become effective on September 14, 2000 and will expire on September 14, 2010,
unless sooner terminated by the Board.

19
<PAGE> 22

ADDITIONAL INFORMATION CONCERNING STOCK OPTION GRANTS

Since the 2000 Plan will not become effective until approved by the
shareholders, no grants have been made under the 2000 Plan. If the 2000 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 Option Plans of stock
option grants to the named executives in 1997, 1998 and 1999, see the Summary
Compensation Table and the Option Grants table below.

FEDERAL INCOME TAX CONSEQUENCES

Both non-qualified stock options and incentive stock options may be granted
under the 2000 Plan. Under current federal income tax law, the grant of a
non-qualified stock option under the 2000 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 2000 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
2000 Plan. However, such compensation is not subject to the deduction limit if
certain limitations approved by the shareholders are applied to stock options
awarded under the 2000 Plan to executive officers and stock options are granted
at not less than fair market value. The 2000 Plan satisfies these limitations.

The sale or transfer of shares of Common Stock issuable under the 2000 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 SEC covering the sale
of Common Stock issuable upon the exercise of any options under the 2000 Plan
prior to the initial vesting of any stock options granted under the 2000 Plan.
Subject to the foregoing, the shares received on exercise of a non-qualified
stock option under the 2000 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 SEC 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 2000 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

20
<PAGE> 23

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 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.

FOR THE REASONS STATED ABOVE, THE BOARD RECOMMENDS VOTES FOR THE APPROVAL
OF THE 2000 STOCK OPTION PLAN AND THE AUTHORIZATION OF THE ISSUANCE OF UP TO 4.0
MILLION SHARES OF COMMON STOCK UPON THE EXERCISE OF STOCK OPTIONS THEREUNDER.

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. 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>
Paul R. Dupee, Jr.......................... 57 Chairman of the Board of Directors and
Chief Executive Officer
Richard A. Link............................ 46 Chief Operating Officer, Chief Financial
Officer, Executive Vice President-Finance
and Administration

Susan M. Blais............................. 48 Executive Vice President, Interim Vice
President, General Manager-Maxicare
California

Alan D. Bloom.............................. 54 Senior Vice President, Secretary and
General Counsel

Sanford N. Lewis........................... 58 Senior Vice President-Corporate
Administration

Patrick A. Fitzpatrick..................... 49 Treasurer

Kenneth D. Kubisty......................... 34 Vice President, General Manager-Maxicare
Indiana
</TABLE>

Paul R. Dupee was appointed Chairman of the Board of Directors in June 1999
and Chief Executive Officer of the Company in July 1999. For more than five
years prior hereto, Mr. Dupee has been a private

21
<PAGE> 24

investor. He has served as 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. Mr. Dupee has been a Director
of the Company since May 1998.

Richard A. Link was appointed Chief Operating Officer in August 1999 in
addition to his appointment as 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 is a certified public accountant.

Susan M. Blais was appointed Executive Vice President of the Company and
Interim Vice President, General Manager of Maxicare California in April 2000.
Ms. Blais had served as Senior Vice President - Strategic Planning of the
Company since January 2000. Prior to joining the Company, Ms. Blais was last
employed by Wellpoint Health Networks Inc. as General Manager, Key Accounts from
February 1998 to January 1999 and General Manager, Senior Services from January
1999 to March 1999 and as Vice President - Sales and Marketing, Key Accounts
from December 1996 to February 1998. Prior to December 1996, Ms. Blais was
employed by FHP Health Care as Director, California Commercial Sales and
Marketing from March 1995 to December 1996 and Director, Key and National
Accounts from July 1994 to March 1995.

Alan D. Bloom has served as Senior Vice President, Secretary and General
Counsel of the Company since July 1987. Mr. Bloom joined the Company as General
Counsel in 1981.

Sanford N. Lewis was appointed Senior Vice President - Corporate
Administration in April 2000. Previously, Mr. Lewis served as Vice President -
Administrative Services of the Company from February 1996 to April 2000. 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.

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.

Kenneth D. Kubisty was appointed Vice President, General Manager of
Maxicare-Indiana in April 2000 and had served as Acting Vice President, General
Manager since November 1999. Mr. Kubisty served as Director of Governmental
Programs and Provider Relations from April 1998 through October 1999. Prior to
joining the Company, Mr. Kubisty served as a provider services manager for
Managed Care Solutions, Inc. from March 1997 through March 1998 and served as a
policy analyst for the state of Indiana's Medicaid managed care program from
June 1996 through March 1997. From June 1995 to June 1996, Mr. Kubisty completed
graduate studies at Indiana University, receiving a Master of Health
Administration degree in June 1996, and simultaneously served as a respiratory
therapist at Saint Francis Hospital in Beachgrove, Indiana.

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,
1999, 1998 and 1997, of those persons who were, at December 31, 1999 (i) the
chief executive officer, (ii) the other four most highly compensated executive

22
<PAGE> 25

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, 1999 (collectively the "Named Officers"):

Summary Compensation Table

<TABLE>
<CAPTION>
COMPENSATION
ANNUAL COMPENSATION LONG-TERM
------------------------------------------- --------------------------
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>
Paul R. Dupee(4)................................... 1999 $ 42,000 155,000
Chairman of the Board of Directors and
Chief Executive Officer
Richard A. Link(5)................................. 1999 $342,000 $100,000 50,000 $ 4,800
Chief Operating Officer, 1998 $275,000 145,000 $ 4,800
Chief Financial Officer and 1997 $220,000 $ 4,800
Executive Vice President - Administration
Alan D. Bloom...................................... 1999 $225,000 15,000 $ 4,800
Senior Vice President, 1998 $218,000 17,500 $ 4,800
Secretary and General Counsel 1997 $213,000 $ 4,500
Sanford N. Lewis................................... 1999 $155,000 25,000 $ 4,673
Vice President- 1998 $150,000 25,000 $ 4,600
Administrative Services 1997 $135,000 $ 4,050
Warren D. Foon(6).................................. 1999 $190,000 30,000 $ 4,800
Vice President, General 1998 $185,000 45,000 $ 4,800
Manager - Maxicare California 1997 $175,000 $ 4,500
Peter J. Ratican(7)................................ 1999 $250,000 70,000 $ 4,800
Chairman of the Board of Directors, 1998 $500,000 70,000 $ 4,800
Chief Executive Officer and President 1997 $500,000 $71,993 70,000 $ 4,800
Vicki F. Perry(8).................................. 1999 $200,000 $ 4,800
Vice President, General Manager - 1998 $190,000 25,000 $ 4,800
Maxicare Indiana 1997 $180,000 $ 4,800
</TABLE>

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

(2) This amount was paid pursuant to Mr. Link's employment agreement.

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

(4) In connection with Mr. Dupee's appointment, in July 1999, as Chief Executive
Officer and his services to be performed thereunder, the Company agreed to
the pay Mr. Dupee an annual salary of $100,000 and his reasonable business
expenses including his living expenses in Los Angeles which approximated
$169,000 in 1999.

(5) 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. In August 1999 Mr.
Link was given the additional position of Chief Operating Officer.

(6) Mr. Foon resigned his position with the Company effective April 2000.

(7) Mr. Ratican resigned his position as Chairman of the Board of Directors,
President and Chief Executive Officer of the Company effective June 30,
1999. On that date he also resigned as a director of the Company.

(8) Ms. Perry resigned her position with the Company effective November 1999.

23
<PAGE> 26

Option Grants

Shown below is further information on grants of stock options pursuant to
the 1990 Plan, the 1995 Plan, the 1999 Plan, the Senior Executives' Plan, during
the year ended December 31, 1999, to the Named Officers which are reflected in
the Summary Compensation Table.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL ---------------------
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
GRANTED FISCAL 1999 ($/SHARE)(1) DATE 5% 10%
---------- ------------- ------------ -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Dupee, Jr.......................... 150,000 22.34% $4.50 Sept. 17, 2009 $424,504 $1,075,776
5,000 .74% $6.00 Jan. 2, 2009 $ 18,867 $ 47,812
Richard A. Link............................ 50,000 7.45% $4.50 Sept. 17, 2009 $141,501 $ 358,592
Alan D. Bloom.............................. 15,000 2.23% $4.50 Sept. 17, 2009 $ 42,450 $ 107,578
Sanford N. Lewis........................... 25,000 3.72% $4.50 Sept. 17, 2009 $ 70,751 $ 179,296
Warren D. Foon............................. 30,000 4.47% $4.50 Sept. 17, 2009 $ 84,901 $ 215,155
Peter J. Ratican........................... 70,000(3) 9.56% $5.38 Jan. 1, 2005(4) $320,815 $ 813,008
</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, 1999 and vested upon date of grant.

(4) The option termination date for these shares was changed from January 1,
2009 to January 1, 2005 pursuant to the terms of the Ratican Settlement
Agreement discussed below under "Ratican Settlement and Consulting
Agreement."

Option Exercises and Fiscal Year-End Values

No stock options were exercised by Named Officers in 1999. Shown below is
information with respect to the unexercised options to purchase the Company's
Common Stock granted in fiscal 1999 and prior years under employment agreements,
the 1990 Plan, the 1995 Plan, the 1999 Plan, the Senior Executives' Plan and the
Formula Plan to the Named Officers and held by them at December 31, 1999.

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul R. Dupee, Jr................................ 130,000 25,000 $ 0 $ 0
Richard A. Link.................................. 129,933 135,067 $ 0 $ 0
Alan D. Bloom.................................... 10,833 26,667 $ 0 $ 0
Sanford N. Lewis................................. 28,333 41,667 $ 0 $ 0
Warren D. Foon................................... 55,000 60,000 $ 0 $ 0
Peter J. Ratican................................. 557,778 0 $ 0 $ 0
</TABLE>

---------------
(1) Based on the closing price on the NASDAQ-NMS on that date ($2.875), net of
the option exercise price.

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, March 28, 1998 and May 8, 1998 (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,

24
<PAGE> 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.

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"). 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.

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 shareholders; (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,

25
<PAGE> 28

which is based on the Company's annual pre-tax earnings, before extraordinary
items, over $10 million (the "Performance Bonus"). The Performance Bonus could
not exceed $2,000,000 for any year and was to 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 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. 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
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 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 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 Mr. Dupee
and certain other shareholders in May 1998, the Board on May 8, 1998 amended the
Ratican Employment Agreement and the 1997 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.

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 provided that Ratican and the Company exchange releases. On April
24, 1999 (the "Effective Date") the Ratican Settlement Agreement and 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,
26
<PAGE> 29

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 which commenced on
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
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 were also amended, see "Supplemental Executive Retirement
Plan" and "Certain Relationships and Related Transactions" below.

27
<PAGE> 30

Other Employment Agreements

Effective July 1999, Paul R. Dupee, Jr. was appointed Chief Executive
Officer of the Company by the Board. Mr. Dupee has not entered into an
employment agreement with the Company; however, upon his appointment as Chief
Executive Officer the Board (i) authorized the Company to pay Mr. Dupee an
annual salary not to exceed $100,000 per annum; (ii) granted options to Mr.
Dupee to purchase 150,000 shares of the Company's Common Stock and (iii)
authorized the Company to pay Mr. Dupee's reasonable business expenses including
his living expenses in Los Angeles.

As of August 1, 1999, the Company entered into a new employment agreement
with Richard A. Link ("Link") for a period of 29 months commencing as of August
1, 1999 through December 31, 2001 wherein Link is employed as Chief Operating
Officer of the Company in addition to his position of Executive Vice President -
Finance and Administration and Chief Financial Officer (the "Link Employment
Agreement"). The Link Employment Agreement superceded a three-year employment
agreement the Company entered into with Link as of December 11, 1997 upon his
appointment as Executive Vice President - Finance and Administration and Chief
Financial Officer (the "1997 Link Employment Agreement"). The 1997 Link
Employment Agreement provided 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. Link's base salary in 1999 was $300,000 per annum under
the 1997 Link Employment Agreement. The Link Employment Agreement provides for
an annual base salary of $400,000, subject to increases and bonuses as may be
determined from time to time by the Company's Board of Directors. The Link
Employment Agreement also provided for the payment of a $100,000 bonus upon
execution of the agreement. In addition, upon the sale of the Company, a sale of
80% or more of the Company's assets or a merger or other transaction(s) where
the Company shareholders cease to own a majority of the outstanding voting
stock, Link is entitled to a sale bonus of 1% of the excess sale value over an
initial value of $80 million. 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 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 31, 2001. 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 December 1, 1998, the Company entered into a new employment agreement
with Alan D. 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 October 1, 1999 the Company entered into a new employment
agreement with Mr. Bloom with a term through December 31, 2000 which provides
for an annual base salary of $230,000 through December 31, 1999 subject to
increases and bonuses, as may be determined from time to time by the Chief
Executive Officer or Chief Operating Officer of the Company.

As of December 1, 1998, the Company entered into a new employment agreement
with Patricia A. Fitzpatrick with a term through December 31, 1999 which
provides for an annual base salary of $131,000 through December 31, 1998 and
$134,500 from January 1, 1999 through December 31, 1999, subject to
28
<PAGE> 31

increases and bonuses, as may be determined from time to time by the Chief
Executive Officer of the Company. As of October 1, 1999 the Company entered into
a new employment agreement with Patricia A. Fitzpatrick with a term through
December 31, 2000 which provides for an annual base salary of $134,500 through
December 31, 1999, subject to increases and bonuses, as may be determined from
time to time by the Chief Executive Officer or Chief Operating Officer.

As of December 1, 1998, the Company entered into a new employment agreement
with Warren D. 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. Effective, April 19, 2000
Mr. Foon's employment with the Company terminated and the employment agreement
terminated without any further payments due to Mr. Foon from the Company
thereunder. In connection with such termination, the Company has entered into a
one year non-exclusive Consulting Agreement with Mr. Foon dated as of May 10,
2000 with an annual compensation due to Mr. Foon thereunder of $100.000.

As of October 1, 1999, the Company entered into an employment agreement
with Kenneth D. Kubisty for a term through December 31, 2000 which provides for
an annual base salary of $86,000 to be adjusted to $100,000 in the event he is
appointed as Acting Vice President, General Manager of Maxicare Indiana, Inc.,
subject to increases and bonuses, as may be determined from time to time by the
Chief Executive Officer or Chief Operating Officer of the Company. In November
1999, Mr. Kubisty was appointed Acting Vice President, General Manager of
Maxicare Indiana, Inc. In April 2000, Mr. Kubisty was appointed Vice President,
General Manager of Maxicare Indiana, Inc. and his annual base salary was
increased to $120,000.

As of December 1, 1998, the Company entered into an employment agreement
with Sanford N. Lewis with a term through December 31, 2000 which provides for
an annual base salary of $150,000 through December 31, 1998 and $155,000 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. In April 2000, Mr. Lewis
was appointed Senior Vice President - Corporate Administration and his annual
base salary was increased to $200,000.

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

Effective January 25, 2000, the Company entered into a two year employment
agreement with Susan Blais which provides for an annual base salary of $240,000.
Ms. Blais was also granted options for the issuance of 200,000 shares of Common
Stock with an exercise price of $3.3125 per share (the "Blais Options"). The
Blais Options have a ten year term from the date of grant. The Blais Options
vest in 50,000 share increments, with 50,000 shares vesting as of the date of
grant and an additional 50,000 shares 6, 12 and 18 months thereafter. The
employment agreement provides that in the event Ms. Blais' employment is
terminated during the term thereof by the Company "without cause", Ms. Blais
shall be entitled to receive six months base salary from the date of termination
and the immediate vesting of all unvested Blais Options which shall remain
exercisable for a period of two years thereafter. In the event that during the
term of the employment agreement their occurs a "Change of Control" of the
Company, which is defined as either (i) the merger or consolidation of the
Company whereby upon the consummation of such transaction the shareholders of
the Company own less the 50% of the resulting entity or (ii) the sale of all or
substantially all of the Company's assets, and Ms. Blais is not offered a
comparable or better position with the resulting entity within ten days
thereafter, Ms. Blais is entitled to receive a change of control payment. The
change of control payment is equal to 18 months base salary and the immediate
vesting of all unvested Blais Options which shall remain exercisable for a
period of two years thereafter. In April 2000, Ms. Blais was appointed Executive
Vice President of the Company and Interim Vice President, General Manager of
Maxicare California.

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<PAGE> 32

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"). The Kleaver Consulting Agreement was subject to termination
(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 (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 Common Stock (the "Kleaver Options") pursuant to the Company's
1995 Stock Option Plan at $5.31 per share, the closing market price of the
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).

Effective July 30, 1999 Kleaver resigned as Interim Chief Operating Officer
and the Kleaver Consulting Agreement terminated effective August 31, 1999.

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, 1999 there were seven participants in the
SERP of which four were employed by the Company as of that date. Messrs. Link,
Bloom, Foon and Lewis 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 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 1999, 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. (prior to his appointment as Chief Executive Officer), Thomas W.
Field, Jr., Elwood I. Kleaver, Jr., Charles E. Lewis, Alan S. Manne (through
June 30, 1999), George H. Bigelow (subsequent to June 30, 1999) and Simon J.
Whitmey (subsequent to June 30, 1999). During 1999, Mr. Brinegar earned $35,250;
Ms. Courtright earned $30,750; Mr. Davies earned $30,750; Mr. Dupee earned
$22,500; Mr. Field earned $35,250; Mr. Kleaver earned $30,250; Mr. Lewis earned
$30,750; Mr. Manne

30
<PAGE> 33

earned $12,000; Mr. Bigelow earned $18,000; and Mr. Whitmey earned $18,750.
During 2000, 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, 1999 held
by the Outside Directors, the date of grant and the exercise price of such
options:

<TABLE>
<CAPTION>
EXERCISE PRICE
DIRECTOR # OF 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
5,000 January 2, 1999 $ 6.00
Florence F. Courtright(1).............. 5,000 July 26, 1996 $14.75
5,000 January 2, 1997 $22.25
5,000 January 2, 1998 $10.88
5,000 January 2, 1999 $ 6.00
Robert M. Davies....................... 5,000 January 2, 1999 $ 6.00
Paul R. Dupee.......................... 5,000 January 2, 1999 $ 6.00
Thomas W. Field........................ 5,000 July 26, 1996 $14.75
5,000 January 2, 1997 $22.25
5,000 January 2, 1998 $10.88
5,000 January 2, 1999 $ 6.00
Elwood I. Kleaver, Jr.................. 5,000 January 2, 1999 $ 6.00
Charles E. Lewis....................... 5,000 July 26, 1996 $14.75
5,000 January 2, 1997 $22.25
5,000 January 2, 1998 $10.88
5,000 January 2, 1999 $ 6.00
</TABLE>

---------------
(1) Ms. Courtright resigned as a director on May 15, 2000 and her options have
expired.

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 pursuant to the terms and
provisions of the Formula Plan. The options vest six months from the date of
grant and expire ten years from the date of grant provided the director
continues to serve as a director of the Company. In the event of termination of
the directorship, such options expire one year from the date of such
termination.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Peter J. Ratican, the Company's President and Chief Executive Officer,
through June 30, 1999, served as an ex-officio member of the Compensation
Committee of the Company through that date. 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 Board as a
whole determined Mr. Ratican's total compensation package.

Subsequent to his election as the Company's Chief Executive Officer on
August 1, 1999, Paul R. Dupee, Jr., served as an ex-officio member of the
Compensation Committee of the Company for the year ended December 31, 1999.
Although Mr. Dupee 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 Board as a whole determines Mr.
Dupee's total compensation package.

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<PAGE> 34

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On February 18, 1997 the Company entered into recourse loan agreements with
Peter J. Ratican and Eugene L. Froelich (the "Senior Executives" and
individually the "Senior Executive") whereby the Company loaned to each Senior
Executive $2,229,028 in connection with the exercise of certain stock options
granted to the Senior Executives on February 25, 1992. The loans are evidenced
by a secured Promissory Note which provides for interest compounding monthly at
the one year London Interbank Offered Rate plus 50 basis points in effect from
time to time and subject to certain adjustments in the event the Company enters
into a transaction to borrow funds. The interest rate in effect as of February
18, 1997 and for all of 1997 was 6.25%, the interest rate in effect for 1998 was
6.44% and the interest in effect for 1999 was 5.60%.

As of December 31, 1999, Mr. Froelich owed principal of $2,229,028 and
accrued interest of approximately $422,000. All principal and accrued interest
is due at the maturity date of April 1, 2001 or upon an event of default;
provided however, that if Mr. Froelich sells any shares of the Company's Common
Stock serving as security under the loan agreement, then Mr. Froelich 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 Mr. Froelich 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"),
Mr. 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 Mr. Ratican resulting from the reduction of the
Maturity Balance to zero (the "Applicable Taxes"); provided, however, in the
event the Mr. Ratican Consulting Agreement is terminated for Cause or
voluntarily by Mr. Ratican or Mr. 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 Mr. Ratican may withdraw,
at any time, all or any portion of the 150,000 shares of 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 against Mr.
Ratican personally upon the occurrence of a Company Default under the Ratican
Consulting Agreement.

Effective July 30, 1998, Mr. Ratican entered into a Promissory Note with
the Company (the "1998 Ratican Note"), whereby Mr. 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> 35

THE 1999 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
shareholders 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.

Except for the Company's compensation arrangement with Paul R. Dupee, Jr.
who was appointed Chief Executive Officer on July 30, 1999, during 1999, the
compensation program for all executives, including the Chief Executive Officer
(the "CEO"), the Chief Operating Officer (the "COO") and the Chief Financial
Officer (the "CFO"), and the three other most highly compensated executive
officers other than the CEO, COO and the CFO (the "named executives"), was
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 1999 on base salary rather than performance measured
compensation.

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

33
<PAGE> 36

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 1999 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, 1999 cash compensation was subjectively
increased for such executives (other than the CEO, COO and CFO) with a goal not
to exceed a five percent (5%) increase in the aggregate as compared to 1998 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,COO and CFO) effective January 1, 1999.

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 Plan provides for a retirement income
benefit based upon a normal retirement date of age 65 and specified years of
service. As of January 1, 1999, 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,
the 1995 Stock Option Plan and the 1999 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 1999 stock options were
granted under the 1995 Stock Option Plan to all four of the named executives,
other than the CEO, COO and CFO. In determining the amount of options to grant,
the Option Committee took into
34
<PAGE> 37

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
shareholders and the total amount of options currently held by the named
executive. The grants made in 1999 reflect such considerations.

EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS WITH THE CEO, COO AND CFO

THE RATICAN CEO EMPLOYMENT AGREEMENT

Peter J. Ratican ("Ratican") served as the Company's CEO pursuant to a
five-year employment agreement entered into as of April 1, 1996, and as amended
on February 11, 1997, March 28, 1998 and May 8, 1998 (the "Ratican Employment
Agreement"). The base salary for the CEO was increased effective April 1, 1996
pursuant to the Ratican 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. In addition to the compensation elements of base salary and
benefits, there are additional elements to the Company's executive compensation
program for Ratican:

Annual Incentive Compensation: In addition to the base salary, the CEO is
entitled to earn an annual performance bonus which is based on the
Company's annual pre-tax earnings, before extraordinary items, over $10
million. An annual bonus was not earned by Ratican based upon the audited
1998 pre-tax results.

Other Long-Term and Incentive Compensation: In order to further incentivize
Ratican, 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 Ratican. The Restricted Stock was subject to complete
forfeiture should Ratican be terminated prior to February 27, 1998. The
Restricted Stock has fully vested and further aligned Ratican financial
interests with those of the Company's shareholders.

As a part of the compensation under the Ratican Employment Agreement, the
Compensation Committee agreed to grant, subject to stockholder approval, to
Ratican 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
shareholders on July 26, 1996. Ratican 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 Ratican on each January 1, from and including January 1, 1997
through and including January 1, 2000.

The Ratican Employment Agreement further provided that in the event of a
change of control of the Company, Ratican may terminate the Ratican
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 Ratican 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 Ratican's Restated Employment Agreement.

On April 16, 1999, the Company and Ratican announced they had reached an
agreement pursuant to which Ratican would be resigning as President and CEO of
the Company and as Chairman of the Board (the "Settlement Agreement"). 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").

Pursuant to the 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 health and other
benefits comparable to those currently being received by Ratican under the
Ratican Employment Agreement (the "Ratican Consulting Agreement"). In connection
with the Settlement Agreement, Ratican and the Company amended certain
agreements between them including the Ratican Employment Agreement to provide
that: (i) Ratican would no longer be entitled to future or potential

35
<PAGE> 38

performance bonuses, sales bonuses, severance pay upon the expiration of the
term of the Restated Employment Agreement, or stock option grants under the
terms of the Ratican Employment Agreement; (ii) adjustments to the exercise
price and term of Ratican's outstanding stock option agreements, (iii) benefits
under the SERP Plan would continue to accrue during the term of the Ratican
Consulting Agreement, and (iv) a promissory note from Ratican to the Company in
the principal amount of $2.2 million and accrued interest thereon will be
forgiven on June 30, 2003 upon certain conditions being satisfied.

THE KLEAVER COO CONSULTING AGREEMENT

To assist in the orderly transition of management, Elwood I. Kleaver, Jr.
("Kleaver"), a current board member, agreed to become the Company's Interim COO
pursuant to a consulting agreement with the Company dated April 16, 1999 (the
"Kleaver Consulting Agreement"). Under the Kleaver Consulting Agreement, Kleaver
agreed to serve as COO on an interim basis for a period of no less than four
months (the "Initial Term") at $40,000 per month (the "Kleaver Consulting Fee").
Consistent with the Company's compensation program, the Kleaver Consulting Fee
was established at a rate reflective of Kleaver's serving as the Company's
senior executive officer and at a rate reasonably comparable to the monthly
equivalent of the base salary paid to Ratican as the Company's CEO.

Pursuant to the terms of the Kleaver Consulting Agreement, the Company
granted Kleaver options to purchase 50,000 shares of Common Stock (the "Kleaver
Options"). 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. Effective July 30,
1999, Kleaver resigned as Interim COO and the Kleaver Consulting Agreement
terminated effective August 31, 1999.

THE DUPEE CEO EMPLOYMENT ARRANGEMENT

Effective July 30, 1999, Paul R. Dupee, Jr. was appointed Chief Executive
Officer of the Company by the Board. The Board and Mr. Dupee agreed that until
such time the Board working with Mr. Dupee and the Company's management had
completed their evaluation of the Company's long-term goals and direction,
including Mr. Dupee's role with respect thereto, no long-term employment
agreement would be entered into between Mr. Dupee and the Company in his
capacity as CEO. Accordingly, Mr. Dupee has not entered into an employment
agreement with the Company; however, upon his appointment as CEO the Board (i)
authorized the Company to pay Mr. Dupee an annual salary not to exceed $100,000
per annum; (ii) granted options to Mr. Dupee to purchase 150,000 shares of
Common Stock and (iii) authorized the Company to pay Mr. Dupee's reasonable
business expenses including his living expenses in Los Angeles.

THE LINK COO/CFO EMPLOYMENT AGREEMENT

On December 11, 1997 the Company terminated its Employment Agreement with
the Company's former 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.
In light of the significant increase in Mr. Link's responsibilities as CFO, 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 Common Stock. Effective August 1999,
Mr. Link was appointed COO in addition to his position of Executive Vice
President - Finance and Administration and CFO. The Compensation Committee
determined that it was in the Company's best interest to enter into a new
employment agreement with Mr. Link, which would recognize his contributions to
the Company and additional responsibilities assumed as well as providing
incentive-based compensation principally through performance based awards. The
Company entered into a new employment agreement with Mr. Link for a period of 29
months commencing as of August 1, 1999 through December 31, 2001 (the "Link
36
<PAGE> 39

Employment Agreement"). The Link Employment Agreement provides for an annual
base salary of $400,000, subject to increases and bonuses as may be determined
from time to time by the Company's Board of Directors. The Link Employment
Agreement also provided for the payment of a $100,000 bonus upon execution of
the agreement and the granting of options to purchase 50,000 shares of Common
Stock. In addition, to better align Mr. Link's interests with those of the
Company's shareholders, upon the sale of the Company, a sale of 80% or more of
the Company's assets or a merger or other transaction(s) where the Company
shareholders cease to own a majority of the outstanding voting stock, Mr. Link
is entitled to a sale bonus of 1% of the excess sale value over an initial value
of $80 million.

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 1999
compensation are consistent with those used when 1998 compensation was set.

1999 Compensation Committee:

Thomas W. Field, Jr., Chairman

George H. Bigelow

Claude S. Brinegar

Florence F. Courtright

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<PAGE> 40

COMPARISON OF CUMULATIVE TOTAL RETURN GRAPH

The following graph presents a five year comparison (December 31, 1994
through December 31, 1999) 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 as well as Humana, Inc., Oxford Health
Plans, Inc., Sierra Health Services, Inc., and Rightchoice Managed Care, Inc.
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.
COMPARISON GRAHP

<TABLE>
<CAPTION>
MAXICARE HEALTH PLANS, INC. NASDAQ U.S. PEER GROUP
--------------------------- ----------- ----------
<S> <C> <C> <C>
12/31/94 100.00 100.00 100.00
12/31/95 177.69 141.33 120.32
12/31/96 147.11 173.89 109.03
12/31/97 71.90 213.07 85.29
12/31/98 35.54 300.24 97.58
12/31/99 19.01 542.41 67.34
</TABLE>

RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS

Ernst & Young LLP were the independent accountants for the Company for the
year ended December 31, 1999. The Audit Committee will be recommending, for
approval by the Board, the annual appointment of independent accountants for the
year ending December 31, 2000 at the July, 2000 meeting of the Board.

DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS FOR THE 2001 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 29, 2001 must be received by the Company no later
than March 1, 2001, 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

38
<PAGE> 41

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.

ADDITIONAL INFORMATION

Copies of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, (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: August 17, 2000

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<PAGE> 42

EXHIBIT A

THE RESTRICTED TRANSFERABILITY OF
CAPITAL STOCK AMENDMENT

FIRST: That, Article FOURTH of the Corporation's Restated Certificate of
Incorporation shall be amended by adding new Section K thereto as follows:

"K. (1) Certain Restrictions on the Transfer of Stock. In order to preserve
the net operating loss carryovers, capital loss carryovers, and business credit
carryovers (the "Tax Benefits") to which the Corporation is entitled pursuant to
the Internal Revenue Code of 1986, as amended, or any successor statute
(collectively, the "Code") and the regulations thereunder, the following
restrictions shall apply:

(a) Ownership Percentage. From and after the date of the adoption of
this Section K, unless approved by the Board of Directors, no person other
than the Corporation shall transfer any shares of stock of the Corporation
(other than stock described in Section 1504(a)(4) of the Code or any
successor statute, or stock that is not so described solely because it is
entitled to vote as a result of dividend arrearages) to any person to the
extent that such transfer, if effective, would cause (x) the Ownership
Interest Percentage of the transferee or any other person to equal five
percent (5%) or more, or (y) any increase in the Ownership Interest
Percentage of the transferee or any other person if the Ownership Interest
Percentage of such transferee or of such other person equalled five percent
(5%) or more before such transfer. For purposes of this Section K:

(i) "person" shall mean any individual, corporation, estate, trust,
association, company, partnership, joint venture, or similar
organization and shall include an aggregation of similarly-situated
persons;

(ii) a person's "Ownership Interest Percentage" shall be the sum of
such person's direct ownership interest in the Corporation as determined
under Treasury Regulation Section 1.382-2T(f)(8) or any successor
regulation and such person's indirect ownership interest in the
Corporation as determined under Treasury Regulation Section
1.382-2T(f)(15) or any successor regulation, except that, for purposes
of determining a person's direct ownership interest in the Corporation,
any ownership interest held by such person in the Corporation described
in Treasury Regulation Section 1.382-2T(f)(18)(iii)(A) or any successor
regulation shall be treated as stock of the Corporation, and for
purposes of determining a person's indirect ownership interest in the
Corporation, Treasury Regulations Sections 1.382-2T(g)(2),
1.382-2T(g)(3), 1.3822T(h)(2)(iii) and 1.382-2T(h)(6)(iii) or any
successor regulations shall not apply and any stock that would be
attributed to such person pursuant to the option attribution rule of
Treasury Regulation Section 1.382-2T(h)(4) or any successor regulation,
if to do so would result in an ownership change, shall be attributed to
such person without regard to whether such attribution results in an
ownership change;

(iii) "stock of the Corporation" shall mean shares of stock of the
Corporation (other than stock described in Section 1504(a)(4) of the
Code or any successor statute or stock that is not so described solely
because it is entitled to vote as a result of dividend arrearages); and

(iv) "transfer" shall mean any means of conveying legal or
beneficial ownership of shares of stock of the Corporation, whether such
means is direct or indirect, voluntary or involuntary, including,
without limitation, the granting of options with respect to shares of
stock or the transfer of ownership of any entity that owns shares of
stock of the Corporation, and "transferee" shall mean any person to whom
stock of the Corporation is transferred.

(b) Any transfer of shares of stock of the Corporation that would
otherwise be prohibited pursuant to the preceding subparagraph shall
nonetheless be permitted if information relating to a specific proposed
transaction is presented to the Board of Directors of the Corporation and
the Board determines that such transaction will not jeopardize the Tax
Benefits, based upon an opinion to that effect of legal counsel or the
Corporation's outside tax advisors selected by the Board of Directors of
the Corporation.

A-1
<PAGE> 43

Nothing in this subparagraph shall be construed to limit or restrict the
Board of Directors in the exercise of its fiduciary duties under applicable
law.

(2) Attempted Transfer in Violation of Transfer Restrictions.

(a) Unless approval of the Board of Directors is obtained, any
attempted or purported transfer of shares of stock of the Corporation in
excess of the shares that could be transferred to the transferee without
restriction under Section K(1) hereof is not and shall not be effective to
transfer ownership of such excess shares (the "Prohibited Shares") to the
purported acquiror thereof (the "Purported Acquiror"), who shall not be
entitled to any rights as a shareholder of the Corporation with respect to
the Prohibited Shares (including, without limitation, the right to vote or
to receive dividends with respect thereto). All rights with respect to the
Prohibited Shares shall remain the property of the person who initially
purported to transfer the Prohibited Shares (the "Initial Transferor") to
the Purported Acquiror until such time as the Prohibited Shares are resold
as set forth in Sections K(2)(b) or (c). The Purported Acquiror, by
acquiring ownership of any shares of stock of the Corporation, following
adoption of this Section K, whether or not they are Prohibited Shares,
shall be deemed to have consented to all the provisions of this Section K,
and to have agreed to act as provided in the following Section K(2)(b).

(b) Upon demand by the Corporation, the Purported Acquiror shall
transfer any certificate or other evidence of purported ownership of the
Prohibited Shares within the Purported Acquiror's possession or control,
along with any dividends or other distributions paid by the Corporation
with respect to the Prohibited Shares that were received by the Purported
Acquiror (the "Prohibited Distributions"), to an agent designated by the
Corporation (the "Agent"). If the Purported Acquiror has sold the
Prohibited Shares to a protected purchaser (as such term is defined in
Section 8-303 of the Uniform Commercial Code as adopted by the State of
Delaware) in an arm's length transaction after purportedly acquiring them,
the Purported Acquiror shall be deemed to have sold the Prohibited Shares
as agent for the Initial Transferor, and in lieu of transferring the
Prohibited Shares and Prohibited Distributions to the Agent shall transfer
to the Agent the Prohibited Distributions and the proceeds of such sale
(the "Resale Proceeds") except to the extent that the Agent grants written
permission to the Purported Acquiror to retain a portion of the Resale
Proceeds not exceeding the amount that would have been payable by the Agent
to the Purported Acquiror pursuant to the following Section K(2)(c) if the
Prohibited Shares had been sold by the Agent rather than by the Purported
Acquiror. Any purported transfer of the Prohibited Shares by the Purported
Acquiror other than a transfer described in one of the two proceeding
sentences shall not be effective to transfer any ownership of the
Prohibited Shares.

(c) The Agent shall sell in an arm's length transaction (to the extent
possible, on the principal national securities exchange, if any, on which
the Corporation's stock is listed) any Prohibited Shares transferred to the
Agent by the Purported Acquiror, and the proceeds of such sale (the "Sales
Proceeds"), or the Resale Proceeds, if applicable, shall be allocated to
the Purported Acquiror up to the following amount: (a) where applicable,
the purported purchase price paid or value of consideration surrendered by
the Purported Acquiror for the Prohibited Shares, or (b) where the
purported transfer of the Prohibited Shares to the Purported Acquiror was
by gift, inheritance, or any similar purported transfer, the fair market
value of the Prohibited Shares at the time of such purported transfer.
Subject to the succeeding provisions of this subparagraph, any Resale
Proceeds or Sales Proceeds in excess of the amount allocable to the
Purported Acquiror pursuant to the preceding sentence, together with any
Prohibited Distributions, shall be the property of the Initial Transferor.
If the identity of the Initial Transferor cannot be determined by the Agent
through inquiry made to the Purported Acquiror, the Agent shall publish
appropriate notice (in the Wall Street Journal, if possible) for seven (7)
consecutive business days in an attempt to identify the Initial Transferor
in order to transmit any Resale Proceeds or Sales Proceeds or Prohibited
Distributions due to the Initial Transferor pursuant to this subparagraph.
The Agent may also take, but is not required to take, other reasonable
actions to attempt to identify the Initial Transferor. If after ninety (90)
days following the final publication of such notice the initial Transferor
has not been identified, any amounts due to the Initial Transferor pursuant
to this subparagraph may be paid over to a court or government agency, if
applicable law permits, or otherwise shall be transferred to any entity
designated by the Corporation that is described in Section 501(c)(3) of
A-2
<PAGE> 44

the Code. In no event shall any such amounts due to the Initial Transferor
inure to the benefit of the Corporation or the Agent, but such amounts may
be used to cover expenses (including but not limited to the expenses of
publication) incurred by the Agent in attempting to identify the Initial
Transferor.

(3) Prompt Enforcement Against Purported Acquiror. Within forty-five (45)
days of learning of a purported transfer of Prohibited Shares to a Purported
Acquiror, the Corporation through its Secretary shall demand that the Purported
Acquiror surrender to the Agent the certificates representing the Prohibited
Shares, or any Resale Proceeds, and any Prohibited Distributions, and if such
surrender is not made by the Purported Acquiror within forty-five (45) days from
the date of such demand the Corporation shall (unless otherwise directed by the
Board of Directors) institute legal proceedings to compel such transfer;
provided, however, that nothing in this Section K(3) shall preclude the
Corporation in its discretion from immediately bringing legal proceedings
without a prior demand, and also provided that failure of the Corporation to act
within the time periods set out in this Section K(3) shall not constitute a
waiver of any right of the Corporation to compel any transfer required by
Section K(2)(a) hereof.

(4) Additional Actions to Prevent Violation or Attempted Violation. Upon a
determination by the Board of Directors that there has been or is threatened a
purported transfer of Prohibited Shares to a Purported Acquiror, the Board of
Directors may take such action in addition to any action required or permitted
by the preceding Section as it deems advisable to give effect to the provisions
of this Section K, including without limitation, refusing to give effect on the
books of this Corporation to such purported transfer or instituting proceedings
to enjoin such purported transfer.

(5) Obligation to Provide Information. The Corporation may require as a
condition to the registration of the transfer of any share of its stock that the
proposed transferee furnish to the Corporation all information reasonably
requested by the Corporation with respect to all the proposed transferee's
direct or indirect ownership interests in, or options to acquire, stock of the
Corporation.

(6) Further Actions.

(a) Nothing contained in this Section K shall limit the authority of
the Board of Directors to take such action to the extent permitted by law
as it deems necessary or advisable to protect the Corporation and the
interests of the holders of its securities in preserving the Tax Benefits.
The Board of Directors may, to the extent permitted by law, from time to
time establish, modify, amend or rescind, by Bylaw, resolution or
otherwise, regulations and procedures not inconsistent with the provisions
of this Section K for determining whether any acquisition of the
Corporation's stock would jeopardize the Corporation's ability to preserve
and use the Tax Benefits, and for the orderly application, administration
and implementation of the provisions of this Section K. Such procedures and
regulations shall be kept on file with the Secretary of the Corporation
and, upon request, shall be made available for inspection and mailed to any
holder of the Corporation's stock.

(b) Without limiting the generality of the foregoing, the Board of
Directors may (a) modify the Ownership Interest Percentage in the
Corporation specified in the first sentence of Section K(1)(a) hereof, or
(b) modify the definitions of any terms set forth in this Section K;
provided that the Board of Directors shall determine in writing that such
acceleration, extension, change or modification is in the best interests of
the Corporation and its stockholders and, based upon an opinion of counsel
of the Corporation, that such acceleration, extension, change or
modification is reasonably necessary or desirable to preserve the Tax
Benefits under the Code and the regulations thereunder or that the
continuation of these restrictions is no longer reasonably necessary for
the preservation of the Tax Benefits, which determination shall be filed
with the Secretary of the Corporation and mailed by the Secretary to all
stockholders of this Corporation within ten (10) days after the date of any
such determination.

(7) Severability. Any provision in this Section K which is prohibited or
unenforceable under Delaware law shall be ineffective to the extent of such
prohibition or un-enforceability without invalidating the remaining provisions
of this Section K and of this Certificate of Incorporation.

A-3
<PAGE> 45

(8) Stock Certificates. As soon as practicable, the Corporation shall
legend all share certificates representing outstanding shares of stock of the
Corporation in order to conspicuously note the restrictions on transfers set
forth in this Section K."

A-4
<PAGE> 46

EXHIBIT B

MAXICARE HEALTH PLANS, INC.

2000 STOCK OPTION PLAN
<PAGE> 47

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <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.......................................... 2
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.................... 4
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........................................ 7
10.1 Loans....................................................... 7
10.2 Cash Payments............................................... 7
11. Termination or Amendment of the Plan............................... 7
11.1 Amendment to Plan........................................... 7
11.2 Effect of Termination of Plan on Outstanding Stock
Options..................................................... 7
11.3 Shareholder Approval for Amendment to Plan.................. 7
12. Indemnification.................................................... 7
</TABLE>

i
<PAGE> 48

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
13. Withholding........................................................ 8
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....................... 9
14.4 Restrictions on Issuance of Shares.......................... 9
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> 49

MAXICARE HEALTH PLANS, INC.

2000 STOCK OPTION PLAN

1. Purpose. The purpose of this Maxicare Health Plans, Inc. (the "Company")
2000 Stock Option Plan (the "Plan") is to further the growth and development of
the Company by providing an incentive to directors, officers, other key
employees and consultants to the Company or its subsidiaries 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. 2000 Stock Option Plan, as
amended from time to time.

1
<PAGE> 50

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.

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 Stock 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 stockholders 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 Effective Date (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 not
"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 or employee of any of its subsidiaries or any consultant
to the Company or its subsidiaries shall be eligible to receive a Stock 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

2
<PAGE> 51

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 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 four million (4,000,000) 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 such
shares.

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> 52

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 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

4
<PAGE> 53

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.

(c) Nothwithstanding anything to the contrary contained herein, in
the event an Optionee voluntarily terminates his or her employment with
the Company within six months of exercise of any Stock Option granted
hereunder and within 90 days thereafter becomes an employee, consultant,
advisor, officer or director of a "competitor," such Optionee shall
immediately forfeit to the Company all profits realized in connection
with the exercise of such Stock Option. For purposes hereof, a
"competitor" shall mean any person or entity (i) engaging, directly or
indirectly, in the business of owning, operating, underwriting,
administering or managing a health maintenance organization, preferred
provider product, health insurance product, or other form of health
benefit plan in any state where the Company then engages in such
business; or (ii) owning, operating, underwriting, administering or
managing in a state any other business in which the Company then engages
in such state. For purposes hereof, "profits" shall be defined as the
excess of the Fair Market Value of the Common Stock underlying the Stock
Option over the Option Price.

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

5
<PAGE> 54

hereunder shall remain unexercisable and be of no effect whatsoever
after such expiration notwithstanding that such Optionee may be
reemployed 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 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.

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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 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 stockholders 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 Effective Date.

12. Indemnification. In addition to such other rights of indemnification as
they may have as members of the Board or the 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

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<PAGE> 56

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 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 any restrictions contained in the
Company's Certificate of Incorporation, 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.

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<PAGE> 57

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 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 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 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 herein, 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

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<PAGE> 58

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."

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, an 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.

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<PAGE> 59

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 ,
2000.

Maxicare Health Plans, Inc.

By:
------------------------------------
Chief Executive Officer
Attest:
By:
----------------------------------
Secretary

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<PAGE> 60
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MAXICARE HEALTH PLANS, INC.

2000 ANNUAL MEETING OF SHAREHOLDERS SEPTEMBER 14, 2000

The undersigned, does hereby appoint Paul R. Dupee, Jr. and Alan D.
Bloom, 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 2000 Annual Meeting of Shareholders of Maxicare Health Plans, Inc.
(including all adjournments thereof) to be held at the Sunset Room in the
Transamerica Center Windows Restaurant, 1150 South Olive Street, Los Angeles,
California, on September 14, 2000, at 9:00 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> 61
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.

The undersigned hereby instructs said proxies or their substitutes:

Item 1. Election of Directors:

FOR WITHHELD
[ ] [ ] NOMINEES: Susan M. Blais,
Robert M. Davies,
John H. Gutfreund

INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:

--------------------------------------------------------------------------------

Item 2. Certificate Amendment to Increase Authorized Shares. To amend the
Restated Certificate of Incorporation by amending Section A of Article
FOURTH as described in the accompanying Proxy Statement dated August
17, 2000:

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

Item 3. Certificate Amendment to Impose Restrictions on the Transfer of Capital
Stock. To amend the Restated Certificate of Incorporation by adding new
Section K to Article FOURTH as described in the accompanying Proxy
Statement dated August 17, 2000:

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

Item 4. 2000 Stock Option Plan. To approve the Company's 2000 Stock Option Plan
and the authorization of the issuance of up to 4.0 million shares of
Common Stock upon the exercise of stock options thereunder as described
in the accompanying Proxy Statement dated August 17, 2000.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

Item 5. Other Business of the Annual Meeting. In their discretion, the proxies
are authorized to vote with respect to all other matters which properly
come before the Annual Meeting.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
SHAREHOLDER. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES FOR DIRECTOR, FOR THE APPROVAL OF THE CERTIFICATE
AMENDMENT TO INCREASE AUTHORIZED SHARES. FOR THE APPROVAL OF THE CERTIFICATE
AMENDMENT TO IMPOSE RESTRICTIONS ON THE TRANSFER OF CAPITAL STOCK AND FOR THE
APPROVAL OF THE 2000 STOCK OPTION PLAN AND THE AUTHORIZATION OF THE ISSUANCE OF
UP TO 4.0 MILLION SHARES OF COMMON STOCK UPON THE EXERCISE OF STOCK OPTIONS
THEREUNDER.

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 August 17, 2000, and a
copy of the Company's Annual Report for the year ended December 31, 1999.

Signature(s) __________________________ Dated ________, 2000

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.