<PAGE>
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. __)
Filed by 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 Section 240.14a-11(c) or
Section 240.14a-12
Mid Atlantic Medical Services, Inc.
(Name of Registrant as Specified In Its Charter)
Mid Atlantic Medical Services, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[ ] 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:_________________________
2) Aggregate number of securities to which transaction
applies:_________________________
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11(1) (set forth the amount on which the filing is
calculated and state how it was
determined):__________________________________
______________________________________________
4) Proposed maximum aggregate value of transaction:
<PAGE>
_________________________________________________
5) Total fee paid:__________________________________
[ ] 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 paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:__________________________________
2) Form, Schedule or Registration Statement Number:_________
_________________________________________________________
3) Filing Party:____________________________________________
4) Date Filed:______________________________________________
- 2 -
<PAGE>
<PAGE>
MID ATLANTIC MEDICAL SERVICES, INC.
4 Taft Court
Rockville, Maryland 20850
(301) 762-8205
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 15, 1996
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders
("Annual Meeting") of Mid Atlantic Medical Services, Inc. ("Company") will
be held on April 15, 1996 at 10:00 a.m., Rockville time, at the offices of
the Company's subsidiary, Optimum Choice, Inc., located at 405 East Gude
Drive, Suite 7, Rockville, Maryland 20850 for the following purposes:
1. To elect four directors for a three year term (Proposal 1);
2. To ratify the adoption of the 1996 Non-Qualified Stock Option
Plan (Proposal 2);
3. To ratify the adoption of the 1996 Management Bonus Plan for all
executive officers (Proposal 3);
4. To transact such other business and other matters and proposals
as may properly come before the meeting or any adjournment or
adjournments thereof.
Pursuant to the Company's Bylaws, the Board of Directors has
fixed the close of business on March 8, 1996, as the record date for the
determination of stockholders entitled to notice of and to vote at the
Annual Meeting. Only record holders of the Company's Common Stock at the
close of business on that date will be entitled to notice of and to vote
at the Annual Meeting or any adjournments thereof.
In the event that there are not sufficient votes to approve any
one or more of the foregoing proposals at the time of the Annual Meeting,
the Annual Meeting may be adjourned in order to permit further
solicitation of proxies by the Company.
By Order of the Board of Directors,
/s/ Joseph L. Guarriello
--------------------------------
By: Joseph L. Guarriello
Secretary
Rockville, Maryland
March 15, 1996
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE,
WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING,
PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY CARD(S) AND RETURN IT
(THEM) IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
- 1 -
<PAGE>
<PAGE>
MID ATLANTIC MEDICAL SERVICES, INC.
4 Taft Court
Rockville, Maryland 20850
(301) 762-8205
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 15, 1996
This Proxy Statement is furnished to stockholders of Mid Atlantic
Medical Services, Inc., a Delaware corporation ("Company"), in connection
with the solicitation by the Board of Directors of the Company of proxies
to be used at the 1996 annual meeting of stockholders of the Company
("Annual Meeting"), to be held on April 15, 1996, at 10:00 a.m., Rockville
time, at the offices of the Company's subsidiary, Optimum Choice, Inc.,
located at 405 East Gude Drive, Suite 7, Rockville, Maryland 20850 and at
any adjournments thereof. It is anticipated that the mailing of this
Proxy Statement and the form of proxy to stockholders will commence on or
about March 15, 1996.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
If the enclosed form of proxy is properly executed and returned
to the Company in time to be voted at the Annual Meeting, the shares
represented thereby will be voted in accordance with the instructions
marked thereon. Executed but unmarked proxies will be voted (1) FOR
Proposal 1 to elect the designated nominees for directors; (2) FOR
Proposal 2 to ratify the adoption of the 1996 Non-Qualified Stock Option
Plan ("1996 Plan"); and (3) FOR Proposal 3 to ratify the adoption of the
1996 Management Bonus Plan ("1996 Bonus Plan") for all executive officers.
If any other matters are properly brought before the Annual Meeting that
require a stockholders' vote, the persons named in the accompanying proxy
will vote the shares represented by such proxies on such matters in
accordance with the determination of a majority of the Board of Directors.
The presence of a stockholder at the Annual Meeting will not
automatically revoke such stockholder's proxy. However, a stockholder may
revoke a proxy at any time prior to its exercise by filing a written
notice of revocation with, or by delivering a duly executed proxy bearing
a later date to, the Secretary of the Company or by attending the Annual
Meeting and voting in person.
The cost of solicitation of proxies will be borne by the Company.
In addition to the solicitation of proxies by mail, the Company or one of
its subsidiaries, MD-Individual Practice Association, Inc. ("MD-IPA"),
Physicians Health Plan of Maryland, Inc. ("PHP-MD"), Optimum Choice, Inc.
("OCI"), MD-IPA Surgicenter, Inc. ("Surgicenter"), National Managed Care,
Inc. ("NMCI"), HomeCall, Inc. ("HomeCall"), HomeCall Infusion Services,
Inc. ("HIS"), Mid Atlantic Psychiatric Services, Inc. ("MAPSI"), Alliance
PPO, Inc. ("Alliance"), MAMSI Life and Health Insurance Company ("MLH"),
- 2 -
<PAGE>
FirstCall, Inc. ("FirstCall"), Optimum Choice, Inc. of Pennsylvania
("OCIPA"), Optimum Choice of the Carolinas, Inc. ("OCIC"), MAMSI Insurance
Agency of the Carolinas, Inc. ("MIACI"), or MAMSI Insurance Resources,
Inc. ("MIRI") (collectively, "Subsidiaries"), through its directors,
officers and regular employees, may also solicit proxies personally or by
telephone or telegraph. 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 proxy materials
to and obtain proxies from such beneficial owners and will reimburse such
holders for their reasonable expenses in doing so.
The securities that can be voted at the Annual Meeting consist of
shares of Common Stock, $0.01 par value per share, of the Company ("Common
Stock"). Each share entitles its owner to one vote on each matter
presented at the Annual Meeting. The close of business on March 8, 1996
has been fixed by the Board of Directors as the record date ("Record
Date") for determination of stockholders entitled to receive notice of and
to vote at the Annual Meeting. There were 747 record holders of Common
Stock as of February 28, 1996. The number of shares of Common Stock
outstanding on February 28, 1996 was 46,595,187. The presence, in person
or by proxy, of at least a majority of the total number of outstanding
shares of Common Stock is necessary to constitute a quorum at the Annual
Meeting. In the event that less than a majority of the outstanding shares
are present at the Annual Meeting, either in person or by proxy, a
majority of the shares so represented may vote to adjourn the Annual
Meeting from time to time without further notice. A plurality of the
total number of shares present or represented by proxy will be necessary
to elect directors (Proposal 1) and a simple majority of the total number
of shares present or represented by proxy will be necessary to approve
Proposal 2 and Proposal 3.
A COPY OF THE ANNUAL REPORT TO STOCKHOLDERS, INCLUDING CERTIFIED
FINANCIAL STATEMENTS, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995,
ACCOMPANIES THIS PROXY STATEMENT. THE COMPANY IS REQUIRED TO FILE AN
ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1995
WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). STOCKHOLDERS MAY
OBTAIN, FREE OF CHARGE, A COPY OF SUCH ANNUAL REPORT BY WRITING TO JOSEPH
L. GUARRIELLO, SECRETARY, MID ATLANTIC MEDICAL SERVICES, INC., 4 TAFT
COURT, ROCKVILLE, MARYLAND 20850.
STOCK OWNED BY MANAGEMENT
The following table sets forth information as of February 28,
1996 with respect to the shares of the Company's Common Stock beneficially
owned by each current director of the Company, by each nominee who is not
currently a director, by each executive officer listed in the Summary
Compensation Table below and by all directors and executive officers of
the Company as a group. There are no arrangements known to the Company,
including any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change in control
of the Company. All ownership consists of sole voting and dispositive
power, except as noted.
- 3 -
<PAGE>
Amount and
Nature of
Beneficial Percent of Common
Name Ownership Stock Outstanding
---- ----------------- -----------------
Thomas P. Barbera 78,500(1) **
Eric R. Baugh, M.D. 168,574(2) **
Francis C. Bruno, M.D.* 41,732(3) **
John L. Child, Jr. 9,500 **
John H. Cook, III, M.D. 1,821(4) **
Stanley M. Dahlman, Ph.D.* 200 **
Peter L. Flaherty, Jr., M.D. 244,422 **
Walter Girardin 200 **
Mark D. Groban, M.D. 236,246(5) **
Joseph L. Guarriello 274,700(6) **
Donald R. Hammett 1,000 **
George T. Jochum* 1,121,060(7) 2.4%
William M. Mayer, M.D. 45,490(8) **
Creighton R. Schneck 1,000(9) **
Stanley F. Smith, R.Ph. 36,000 **
Alfred Talamantes 67,630(10) **
James A. Wild* 2,325 **
All current directors and 2,718,238(11) 5.6%
executive officers as a group
(20 persons)
_________________________
*Nominee for director.
**Represents less than 1% of the outstanding shares of Common Stock.
(1) Represents presently exercisable options to purchase 78,500
shares of Common Stock
- 4 -
<PAGE>
(2) This number includes 6,000 shares of Common Stock held by his
children and presently exercisable options to purchase 48,000
shares of Common Stock.
(3) This number includes 2,306 shares of Common Stock held by his
spouse.
(4) Includes 434 shares of Common Stock held by his spouse.
(5) This number includes 9,000 shares of Common Stock held by his
children, 500 shares of Common Stock held by his spouse, and
presently exercisable options to purchase 180,700 shares of
Common Stock.
(6) This number includes presently exercisable options to purchase
98,700 shares of Common Stock.
(7) This number includes 11,640 shares of Common Stock held by his
child and presently exercisable options to purchase 696,000
shares of Common Stock.
(8) This number includes 400 shares of Common Stock held by his
child.
(9) These shares are held with his spouse.
(10) Includes presently exercisable options to purchase 67,600 shares
of Common Stock.
(11) This number also includes 5,100 shares of Common Stock held
indirectly by executive officers and presently exercisable
options to purchase 498,100 shares of Common Stock. Excludes
shares of Common Stock held by Dr. Baugh as he no longer is an
executive officer of the Company.
- 5 -
<PAGE>
PRINCIPAL STOCKHOLDERS
As of February 28, 1996, no persons or groups within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
("1934 Act"), were known by management to beneficially own more than five
percent of the Company's Common Stock except as follows:
<TABLE>
<CAPTION>
Number of Shares Percent of Outstanding
Name and Address of Common Stock Common Stock
---------------- --------------- --------------------
<S> <C> <C>
Massachusetts Financial Services Company 4,565,330(1) 9.8%
MFS Series Trust II - MFS Emerging Growth Fund
500 Boylston Street
Boston, Massachusetts 02116
Heine Securities Corporation 4,885,600(2) 10.5%
Michael F. Price
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Jurika & Voyles, Inc. 3,807,037(3) 8.2%
1999 Harrison Street
Suite 700
Oakland, California 94612
------------------------------
</TABLE>
(1) Of these 4,051,690 shares of Common Stock, 3,120,600 of these
shares are beneficially owned by MFS Series Trust II - MFS
Emerging Growth Fund and Massachusetts Financial Services Company
("MFS") and 931,090 shares are beneficially owned by certain
other non-reporting entities. MFS reports that it has sole
voting power with respect to 3,910,990 shares and sole
dispositive power with respect to 4,051,690 shares. This
information is based on a Schedule 13G dated February 8, 1994, as
amended on February 6, 1995, March 1, 1995 and February 12, 1996.
(2) Mr. Price is the President of Heine Securities Corporation
("HSC"). Mr. Price and HSC each report sole power to vote or
direct the vote and sole power to dispose or direct the
disposition of these shares. This information is based on a
Schedule 13G dated February 1, 1996, as amended on February 7,
1996.
(3) Jurika & Voyles, Inc., a registered investment adviser, reports
that it has shared voting power with respect to 3,643,137 shares
and shared dispositive power with respect to 3,807,037 shares.
This information is based on a Schedule 13G dated February 12,
1996.
- 6 -
<PAGE>
ELECTION OF DIRECTORS
(Proposal 1)
The terms of office of John L. Child, Jr., George T. Jochum,
William M. Mayer, M.D., and James A. Wild expire at the Annual Meeting.
Francis C. Bruno, M.D., Stanley M. Dahlman, Ph.D., George T. Jochum and
James A. Wild have been nominated by the Board of Directors for election
to the Board, each to serve for a three-year term. The terms of
approximately one-third of the Board expire each year at the Annual
Meeting. Directors serve until their successors are duly elected and
qualified. Following the Annual Meeting, the size of the Board of
Directors will remain at 12 and, if the nominees are elected, there will
be no vacancies on the Board.
Except as stated above, there are no arrangements or
understandings between the Company and any person pursuant to which such
person has been or will be elected as a director. If any nominee becomes
unavailable for election for any reason, or if any other vacancy in the
class of directors to be elected at the Annual Meeting should occur before
the election, the shares represented by the proxy will be voted by any of
the persons serving as proxies for the person designated by the Company's
Board of Directors to replace the nominee or to fill such other vacancy on
the Board. The Board of Directors has no reason to believe that any of
the nominees will be unavailable or that any other such vacancy on the
Board will occur. Each nominee has consented to be named and has
indicated his intent to serve if elected. Except as indicated below,
there are no family relationships among any director, nominee for director
or executive officer of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION
OF ALL NOMINEES TO THE COMPANY'S BOARD OF DIRECTORS.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of the four nominees for
election as director and of those directors who will continue to serve as
such after the Annual Meeting, as well as the executive officers who are
not directors, or will not continue to serve as directors following the
Annual Meeting. Also set forth is certain other information with respect
to each such person's age, the periods during which he or she has served
as a director of the Company and positions currently held with the Company
and its Subsidiaries.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
Term of Office
Director Expires Annual
Name and Age(1) Since Meeting Directorships; Positions with the Company
----------------- -------- ------------ -----------------------------------------
<S> <C> <C> <C>
CONTINUING DIRECTORS:
John H. Cook, III, M.D., 60 1990 1997(2) Director of the Company, MLH and PHP-MD.
Peter L. Flaherty, Jr., M.D., 58 1986 1998 Director of the Company, MLH and PHP-MD;
Vice Chairman of the Company and MLH.
Walter Girardin, 76 1995 1998 Director of the Company and MLH.
Mark D. Groban, M.D., 54 1990 1997(3) Director of the Company, MLH, Alliance,
MAPSI and MIRI; President of Alliance,
MAPSI, and MIACI.
Donald R. Hammett, 57 1994 1997 Director of the Company, MLH and MD-IPA.
Creighton R. Schneck, 50 1995 1998 Director of the Company, MLH and MD-IPA.
Stanley F. Smith, R.Ph., 52 1994 1997 Director of the Company, MLH, MD-IPA and
PHP-MD.
Alfred Talamantes, 59 1995 1998 Director of the Company, MLH, MD-IPA, OCI,
OCIC, OCIPA and NMCI; President of NMCI;
Executive Vice President and Chief Operating
Officer of the Company and Subsidiaries
(except NMCI).
NOMINEES (FOR A THREE-YEAR TERM EXPIRING IN
1999):
Francis C. Bruno, M.D., 54 1986 1995(4) Chairman of PHP-MD; Director of PHP-MD.
Stanley M. Dahlman, Ph.D., 61 1986 1995(5) Director of MD-IPA.
George T. Jochum, 63 1987 1996 Director of the Company, MLH, Alliance,
MAPSI, MD-IPA, OCI, OCIPA, OCIC, NMCI,
HomeCall, FirstCall, Surgicenter, HIS,
MIACI, and MIRI; Chairman, President and
Chief Executive Officer of the Company, OCI
and OCIC; Chairman and Chief Executive
Officer of Alliance, MAPSI, OCIPA and MLH;
Chairman of HomeCall, FirstCall, HIS and
NMCI; Chief Executive Officer of PHP-MD;
Vice President of Surgicenter.
- 8 -
<PAGE>
Term of Office
Director Expires Annual
Name and Age(1) Since Meeting Directorships; Positions with the Company
----------------- -------- ------------ -----------------------------------------
<S> <C> <C> <C>
James A. Wild, 44 1989 1996(6) Director of the Company, MLH, OCI, OCIC and
OCIPA.
EXECUTIVE OFFICERS WHO ARE NOT CURRENT DIRECTORS OR NOMINEES OR WHOSE TERMS AS DIRECTOR WILL NOT CONTINUE
AFTER THE 1996 SHAREHOLDERS MEETING:
Thomas P. Barbera, 45 Director of MD-IPA and MIACI; President of
MLH; Executive Vice President, Governmental
Relations and Assistant Secretary of the
Company; Executive Vice President,
Government Affairs and Assistant Secretary
of MD-IPA, OCI, OCIC and OCIPA.
Paul E. Dillon, 44 Director of MD-IPA and Surgicenter; Senior
Vice President and Treasurer of the Company
and MLH; Treasurer of Alliance, MAPSI, MD-
IPA, OCI, OCIPA and OCIC.
J. Stevens Dufresne, 40 Director of MD-IPA, Alliance, MAPSI, PHP-MD,
Surgicenter, NMCI, and MIRI; CEO of
Surgicenter; Executive Vice President,
Provider Networks of the Company, MLH and
PHP-MD; President of OCIPA.
Vera C. Dvorak, M.D., 49 Senior Vice President and Medical Director
of the Company, MAMSI Life, PHP-MD,
HomeCall, FirstCall and HIS; Senior Vice
President and Assistant Medical Director of
MD-IPA, OCI, OCIPA, OCIC, Alliance, MAPSI
and Surgicenter; Director of HomeCall and
FirstCall.
Robert E. Foss, 45 Director of MD-IPA, HomeCall, FirstCall and
NMCI; Executive Vice President and Chief
Financial Officer of the Company, MLH, MD-
IPA, OCI, OCIPA, OCIC and MIACI; Executive
Vice President, Finance and Treasurer of
HomeCall and FirstCall; Treasurer of NMCI.
Susan D. Goff, 50 Director of Alliance, MAPSI, MD-IPA, MIACI,
and MIRI; President of MD-IPA; Vice
President of OCI, OCIPA and OCIC.
- 9 -
<PAGE>
Term of Office
Director Expires Annual
Name and Age(1) Since Meeting Directorships; Positions with the Company
----------------- -------- ------------ -----------------------------------------
<S> <C> <C> <C>
Joseph L. Guarriello, 46 1991 1994 Director of MD-IPA, HomeCall, FirstCall and
NMCI; Executive Vice President, General
Counsel and Secretary of the Company, MLH,
MD-IPA, OCI, OCIPA, OCIC, HomeCall and
FirstCall; Secretary of Alliance, MAPSI,
NMCI, HIS, MIACI, and MIRI; Assistant
Secretary of PHP-MD.
Mary E. Shocklee, 33 Controller and Chief Accounting Officer of
the Company.
</TABLE>
------------------------------
(1) Signifies age as of December 31, 1995.
(2) Dr. Cook was not a Director of the Company from April 1993 to
April 1995.
(3) Dr. Groban was not a Director of the Company from April 1993 to
April 1994.
(4) Dr. Bruno was not a Director of the Company from April 1991 to
April 1992 or from April 1994 to April 1995.
(5) Dr. Dahlman was not a Director of the Company from April 1991 to
April 1992 or from April 1994 to April 1995.
(6) Mr. Wild was not a Director of the Company from April 1992 to
April 1993.
Information concerning the principal occupations or employment of
the directors, nominees for director and executive officers of the Company
for the past five years and other biographical data are set forth below.
CONTINUING DIRECTORS AND NOMINEES:
FRANCIS C. BRUNO, M.D. received a B.S. from Kings College in 1964
and an M.D. from New York Medical College in 1968. He is Board certified
in family practice and has practiced medicine since 1972.
JOHN H. COOK, III, M.D. is a board certified practitioner of
internal medicine. From June 1957 to July 1973, Dr. Cook served in the
United States Navy. In 1977, Dr. Cook received an M.D. from Yale
University School of Medicine and, in 1957, Dr. Cook received a B.S. from
the United States Naval Academy. Dr. Cook has been in private practice
since 1980.
- 10 -
<PAGE>
STANLEY M. DAHLMAN, Ph.D. received a B.A. from the University of
Cincinnati in 1955 and a Ph.D. from the Catholic University of America in
1976. He began serving Montgomery College as a faculty member in 1963 and
retired on June 30, 1992 as the Provost (Chief Executive Officer) of the
Germantown Campus of Montgomery College. His former positions include
Chancellor, Associate Dean and Executive Director for Facilities.
PETER L. FLAHERTY, JR., M.D. received a B.S. from Georgetown
University in 1959 and an M.D. from Georgetown University in 1963. He is
Board certified in obstetrics/gynecology and has practiced medicine since
1963.
WALTER GIRARDIN is presently retired. Prior to his retirement in
1981, he served as President, Chief Operating Officer and a director of
Western Union Telegraph Company. Mr. Girardin is the uncle of Susan
Goff's husband.
MARK D. GROBAN, M.D. is a Board certified psychiatrist who joined
the Company full time on December 1, 1990 after being in full time
practice since 1973. Dr. Groban served as a consultant from February 1988
to October 1989 for MD-IPA's managed mental health program. He became
President of MAPSI in October 1989. In May 1991, he became President of
Alliance. Dr. Groban received his M.D. degree from Albany Medical College
in Albany, New York and psychiatric training at Sheppard-Pratt Hospital in
Towson, Maryland from 1970 to 1973. Dr. Groban is a member of the
American Psychiatric Association.
DONALD R. HAMMETT began his employment with the Company on
September 1, 1991 as Senior Vice President of Management Information
Systems ("MIS") and served as Executive Vice President of MIS for the
Company from May 18, 1992 until his retirement on June 3, 1995. Prior to
joining the Company, Mr. Hammett was self-employed as a MIS consultant
from November of 1989 to September of 1991. His work during this period
included consulting services to the Company and Western Union Corporation.
Mr. Hammett served Western Union Corporation and its subsidiaries and
affiliates in various technical and managerial capacities from 1960 to
1989. In his last capacity, Mr. Hammett served as Comptroller of Western
Union's Priority Mail Services business unit in McLean, Virginia. From
1982 through 1988, Mr. Hammett held the positions of Assistant Vice
President of Business Development, Planning and Administration, and
Planning and Engineering at Western Union's electronic mail subsidiary in
McLean, Virginia. Mr. Hammett attended Heald Engineering College in San
Francisco, California.
GEORGE T. JOCHUM became President of MD-IPA effective March 9,
1987, President of the Company effective July 20, 1988 and Chief Executive
Officer of the Company effective April 18, 1989. Mr. Jochum served as a
Group Vice President with General Defense Corporation, a manufacturing
firm, from 1985 to 1987. In this position, he was responsible for
corporate management information systems and two manufacturing divisions.
Prior to joining General Defense Corporation, Mr. Jochum served Western
Union Telegraph Company, a communications service organization, and its
subsidiaries and affiliates in various managerial capacities from 1969 to
1985. In his last capacity, Mr. Jochum served as Division Vice President,
Quality Assurance and Operations, with operational responsibility for the
- 11 -
<PAGE>
maintenance of computer centers leased to the U.S. Government. Mr. Jochum
was named Chairman of the Board of Directors of the Company effective
January 16, 1991.
CREIGHTON R. SCHNECK has served as Director of Development for
the Middle Atlantic Area of Tishman Speyer Properties since September
1995. Prior thereto, he was employed as a mortgage banker with Towle
Financial Group of Vienna, Virginia. Between 1990 and 1993, he was a
principal with the Palisades Development Corporation of Bethesda,
Maryland. From 1981 to 1989, he was Senior Vice President with Western
Development Corporation, an office and retail real estate developer. In
1979 to 1981, he was a Vice President with B.F. Saul in their commercial
mortgage group. Mr. Schneck has an M.B.A. from Adelphi University and a
Bachelor's degree from Belmont Abby College.
STANLEY F. SMITH, R.PH. became the President, Manager and
Pharmacist for S+K Inc. (trading as Bradley Drugs) in June of 1972. He
has been Secretary and Consultant to: Albost Inc. (trading as Boulevard
Drugs) since August of 1976; MCP Inc. (trading as Higgers Drugs) since May
of 1979; Bradley Hardware (trading as Strosniders Hardware) since July of
1983; Bradley Cleaners, Inc. since August of 1984; and Lake Care Pharmacy,
Inc. since September of 1987. Mr. Smith has been Vice President and
Consultant for Logic, Inc., a land development corporation, since June of
1984 and President and pharmacist of Home Rx Inc., a mail order pharmacy
since May of 1994. He has also been the Managing General Partner of
Livingston Road Associates, LTD., a mini storage warehouse, since December
of 1989. He has also served as a Consultant to Strosniders Potomac
Hardware since July of 1994. Mr. Smith was a member of the Board of
Directors of Circle Drugs between 1986 and 1990. He was a member of the
Montgomery County Association for Retarded Citizens Behavior Review Board
between 1989 and 1991.
ALFRED TALAMANTES joined the Company in March of 1992 as Director
of Claims Services. He subsequently became Senior Vice President of
Operations in January of 1993 and Chief Operating Officer in December of
1993. Prior to joining the Company, Mr. Talamantes was the President of
Advanced Direct Marketing, Inc., a full service direct marketing firm.
Mr. Talamantes served Western Union Corporation from 1961 to 1989. His
final position with Western Union Corporation was that of President,
Western Union Priority Mail Services. In this capacity, Mr. Talamantes
had bottom line responsibility for all aspects of the corporation's
Priority Mail Services product line.
JAMES A. WILD received a B.A. in accounting from Franklin and
Marshall College in 1973. He has been Vice President and Director of
Waterview Investment Corporation (a holding company whose 100% owned
subsidiary, Almag, is a metal finishing company) since February 1988.
Prior to that, he served the General Defense Corporation as Controller
from April 1985 to March 1987 and as Vice President of Finance from April
1987 to January 1988.
EXECUTIVE OFFICERS:
THOMAS P. BARBERA became Executive Vice President of Government
Relations and Assistant Secretary for the Company and MLH, in May of 1993.
- 12 -
<PAGE>
From December 1987 until May 1993, Mr. Barbera was a partner at Weinberg
and Green, a general practice law firm in Baltimore, Maryland.
PAUL E. DILLON became the Company's Senior Vice President and
Treasurer in April 1994. From January 1994 through April 1994, he served
as the Company's Senior Vice President, Quality Assurance and Quality
Improvement. From November 1990 through January 1994, he served as the
Company's Vice President, Enrollment and Billing; from April 1990 to
November 1990, he served as the Company's Senior Director, Enrollment and
Billing; and from November 1989 to April 1990, he served as the Company's
Director of Enrollment. Mr. Dillon graduated from St. Francis College in
Loretto, Pennsylvania in 1973 and received his MBA in International
Business and Finance from Pace University in New York City in 1983.
J. STEVENS DUFRESNE was employed by the Company as Senior Vice
President of Provider Networks effective February 1989. He became
Executive Vice President of Provider Networks for the Company, MLH and
PHP-MD in April 1993. From June 1987 to February 1989, he served as
Senior Director of Professional Recruitment. From 1985 to 1989, he
functioned as Administrator with the Forbes Health System through Mental
Health Management, Inc., where he was responsible for overall
administration and operation of a mental health delivery system for a
multi-hospital corporation. From 1982 to 1985, Mr. Dufresne was employed
as Assistant Administrator of United Hospitals, Inc., at the Warminster
General Hospital Division. Mr. Dufresne graduated from Florida Southern
College in 1977 and received his Masters of Health Services Administration
from George Washington University in 1982.
VERA C. DVORAK, M.D. joined MAMSI in August 1994 as an Associate
Medical Director. She became Senior Vice President and Medical Director
of the Company, MAMSI Life, PHP-MD, HomeCall, FirstCall and HIS in 1996.
Dr. Dvorak is Board Certified in Internal Medicine and Geriatrics. She
was recertified by the American Board of Internal Medicine in 1987 and
1993. Dr. Dvorak was a practicing physician for 18 years; the last 6
years she served as a Chief of Department of Internal Medicine of Kaiser
Permanente. Dr. Dvorak received her M.D. degree from Charles University
in Prague, Czechoslovakia and trained in internal medicine and infectious
diseases at the University of Oklahoma and the University of Pennsylvania.
ROBERT E. FOSS joined the Company on July 1, 1994 as its
Executive Vice President and Chief Financial Officer. For more than five
years prior to July 1, 1994, Mr. Foss was a partner with Ernst & Young
LLP's Washington, D.C. office. Ernst & Young LLP has served as the
Company's independent public accountants since June 2, 1989 and Mr. Foss
was the audit partner on the Company's account.
SUSAN D. GOFF was employed by Alliance and MAPSI as Vice
President on August 1, 1989, became Executive Vice President of MD-IPA on
April 26, 1993 and President of MD-IPA on November 15, 1993. Prior to
coming to the Company, she was employed from 1979 to 1989 by Montgomery
General Hospital in Administration. From 1971 to 1979, she was employed
by Prince Georges Hospital in Nursing Administration. Ms. Goff graduated
from the University of California at Los Angeles in 1967 with a B.S. in
Nursing and received a Masters in Administration with a concentration in
Health Services from Central Michigan University in 1989. Ms. Goff is a
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<PAGE>
director of Sandy Spring National Bank. Ms. Goff's husband is the nephew
of Mr. Girardin.
JOSEPH L. GUARRIELLO began his employment with MD-IPA in 1987 as
the Vice President of Corporate Affairs. He was the Chief Financial
Officer of MD-IPA from May 9, 1988 to February 29, 1992 and Chief
Financial Officer of the Company from April 18, 1989 to February 29, 1992.
Mr. Guarriello was named General Counsel of the Company and MD-IPA,
effective November 26, 1990. From September 21, 1986 to February 28,
1987, Mr. Guarriello served MD-IPA as a consultant, and from February
through May 1986, he served as Vice President-Operations, Tax Reduction
Institute. From June through August 1986, he served as a consultant with
Health Venture Inc. From 1974 through December 1985, Mr. Guarriello was
employed by Arthur Andersen & Co., where he had achieved the position of
Tax Principal. Mr. Guarriello received a B.S. from Georgetown University
in 1971 and a J.D. from Georgetown University in 1974.
MARY E. SHOCKLEE became Controller of the Company effective
January 1993. From September 1988 to January 1993, Ms. Shocklee managed
the Accounting Department of the Company and served as the Director of
Accounting since September 1990. Ms. Shocklee was employed by Deloitte &
Touche (formerly Deloitte Haskins & Sells) from September 1983 to
September 1988 with a final title of Audit Supervisor. Ms. Shocklee
graduated magna cum laude from Georgetown University with a BS/BA degree
in Accounting in 1983 and became a CPA in 1985.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors met four times in fiscal 1995.
The standing committees of the Board include the Executive Committee, the
Finance Committee, the Audit Committee, the Stock Option Committee, and
the Compensation Committee. During fiscal 1995, the Executive Committee
held five meetings, the Finance Committee held two meetings, the Audit
Committee held three meetings, the Stock Option Committee held two
meetings, and the Compensation Committee held two meetings. The Board
does not have a standing Nominating Committee.
All directors attended at least 75 percent of the aggregate of
the total number of meetings of the Company's Board of Directors and the
total number of meetings held by all committees on which they served.
The Executive Committee of the Board of Directors has general
oversight functions relating to the operation of the Company and its
Subsidiaries and functions as the Company's Board when the Company's Board
is not in session, with all powers of the Company's Board, except those of
removing or nominating Directors, filling vacancies on the Board of
Directors, and as otherwise limited by the Delaware General Corporation
Law. Its members are George T. Jochum (Chairman), John L. Cook, III,
M.D., Peter L. Flaherty, Jr., M.D., William M. Mayer, M.D., Stanley Smith,
R.Ph, and James A. Wild.
The Finance Committee of the Company oversees the projections and
assumptions of the Company in preparing its financial goals each year.
The Audit Committee interfaces with the Company's independent public
accountants to determine if the financial accounting practices of the
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<PAGE>
Company are in compliance with generally accepted accounting principles.
The Finance Committee's members are James A. Wild (Chairman), George T.
Jochum, Creighton R. Schneck, Stanley F. Smith, R.Ph. and Peter L.
Flaherty, Jr., M.D. The Audit Committee members are James A. Wild
(Chairman), Peter L. Flaherty, Jr., M.D., Creighton R. Schneck and Stanley
F. Smith, R.Ph.
The Stock Option Committee grants options under and otherwise
implements the 1991, 1992, 1993, 1994 and 1995 Non-Qualified Stock Option
Plans. The Committee also will oversee the 1996 Plan, which is being
submitted for stockholder approval (See Proposal 2). The members of the
Stock Option Committee are James A. Wild (Chairman), Walter Girardin and
Creighton R. Schneck.
The Compensation Committee oversees the development and
implementation of the Company's compensation program for executive
officers and the Chief Executive Officer. Its members are James A. Wild
(Chairman), Walter Girardin and Creighton R. Schneck.
SECURITIES AND EXCHANGE COMMISSION FILINGS
Susan D. Goff failed to file a Form 4 on a timely basis reporting
three transactions, Stanley F. Smith, R.Ph. failed to file a Form 4 on a
timely basis reporting one transaction and William M. Mayer, M.D. failed
to file a Form 4 on a timely basis reporting one transaction as required
by Section 16(a) of the 1934 Act. All of the aforementioned forms were
subsequently filed.
DIRECTORS' COMPENSATION
For the fiscal year ended December 31, 1995, the directors of the
Company were compensated according to the following table:
Per Person
Compensation(1)
---------------
Chairman & Vice Chairman of the Board $52,000/yr(2)
Director Attendance at Board Meeting 1,450
Director Attendance as Chairman of a Committee Meeting 1,325
Director Attendance at a Committee Meeting 850
------------------------------------------------------
(1) Employees of the Company receive no annual fees and no
compensation for Board or Committee meeting attendance.
(2) Any director compensated as a Chairman or Vice Chairman does not
receive additional compensation from the Company or any of its
Subsidiaries for attending Board or Committee meetings. If the
position is held by an employee of the Corporation, no
compensation in addition to his or her employee compensation is
paid.
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<PAGE>
EXECUTIVE MANAGEMENT COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The role of the Compensation Committee is to set salary for
individuals who are Senior Vice Presidents and above, and to review any
employment agreements or revisions thereto entered into with the Company's
officers; and to establish the bonus goal for the Chief Executive Officer
and other employees.
The Committee uses a common set of criteria for evaluating all
executives. The criteria are:
(1) Selection, placement and evaluation of personnel under the
executive's supervision;
(2) Education of personnel under the executive's supervision;
(3) Control of corporate expenditures;
(4) Customer service;
(5) Job performance;
(6) Acceptance and ability to accomplish special tasks, and
(7) Establishment and completion of specific goals.
Because of the nature of the Company's business, if these
criteria are met, corporate performance, measured by income or earnings
per share, should follow. The use of these criteria aligns compensation
with the value of services provided by employees.
SALARY. The pay-for-performance concept is most clearly
exemplified in the compensation of the Company's Chief Executive Officer.
Mr. Jochum's employment contract was executed on December 18, 1990 after
approval of the Board of Directors of the Company. In 1992, the term of
Mr. Jochum's contract was extended by the Board to December 31, 1998. The
contract includes a provision under which post-1990 changes to Mr.
Jochum's base compensation, whether that change is an increase or
decrease, is directly affected by the earnings of the Company. Mr.
Jochum's employment contract provides that his base salary will increase
or decrease each year by an amount equal to 75% of the percentage change
in the Company's consolidated net after tax income during the previous
year. The employment contract further provides that his salary cannot be
reduced by more than 25% in any one year. Mr. Jochum is the only
executive officer who has an employment contract.
Mr. Jochum's salary for 1995 was determined based upon the
formula described above. The Company's net income after tax grew from
$24,833,000 in 1993 to $54,530,000 in 1994, an increase of 119.59% and Mr.
Jochum's 1995 base salary was increased by 75% of that percentage, or
89.69%.
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<PAGE>
For 1995, the Compensation Committee employed a comparable
methodology in setting the salaries of other executive officers.
Accordingly, with respect to those executive officers other than Mr.
Jochum, the CEO, Mr. Jochum presented a recommendation to the Committee
regarding such individuals' 1995 salary based on his evaluation of each
individual's performance, using the criteria stated above, and applying
the salary adjustment formula described below:
(1) The base salary adjustment was calculated on changes in fully
diluted earnings per share. For purposes of this calculation,
earnings were restated to give effect for stock splits, stock
dividends and similar transactions.
(2) Base salary was adjusted by 50% of the percentage change in the
Company's consolidated change in earnings per share over the
prior year (1994 vs. 1993).
(3) The base adjustment rate may be increased or decreased by 50%,
using the evaluation criteria discussed above, by action of the
Compensation Committee.
The Committee discussed these recommendations and the Committee
set 1995 salary levels in accordance with Mr. Jochum's recommendations.
BONUS. Bonus compensation for management is based on the ability
of the Company to attain a predetermined net income goal. The 1995 Bonus
Plan included a minimum net income (prior to the return of amount withheld
by PHP-MD as part of the claims reserve risk pool and before deductions
for income tax and expansion and acquisition costs) goal. For 1995, the
minimum net income goal was $115 million. As net income did not exceed
this amount, no bonuses have been paid under the 1995 Bonus Plan.
Executive officers are covered by the same bonus plan as are the rest of
the Company's salaried employees. The 1995 Bonus Plan was adopted by the
Company's Board of Directors and approved by the Company's stockholders at
the 1995 Annual Meeting. The goal was established at the beginning of
1995 by the Compensation Committee and was approved by the Company's Board
of Directors.
Some executive officers and other salaried employees do not
receive the full amount of their bonus even if the minimum net income
level is achieved. For these individuals, a portion of their bonus
compensation is determined based on other measurable criteria. For 1995,
two of the Company's executive officers received bonuses other than under
the 1995 Bonus Plan because other goals were met.
In addition, under the 1995 Bonus Plan, Mr. Jochum had the
potential of an additional bonus equal to a maximum of 50% of his base
salary if the Company's membership grew in 1995 to a prescribed level.
This criterion was established as the basis for the additional bonus since
membership is an important factor in the growth in value of the Company.
Furthermore, since Mr. Jochum's base salary adjustment (up or down) and
his management bonus are tied to growth in income, additional compensation
tied to that criterion would be of little incremental value to the
Company. During 1995, the growth in membership required to attain the
minimum bonus was not achieved.
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<PAGE>
STOCK OPTIONS. The total compensation program for executives
also includes equity-based compensation. The Company's shareholders have
approved a series of non-qualified stock option plans. These plans
encourage and create ownership and retention of the Company's stock by the
vast majority of salaried employees. The equity portion of the
executives' compensation provides a tool to recruit and retain employees,
as well as to align the interest of the employees with those of the non-
employee stockholders. The individuals constituting the Compensation
Committee also constitute the Stock Option Committee and, as such,
administer these stock option plans. The Stock Option Committee
determines the amount of stock options awarded to individual executives.
In general, options are granted to executives annually. Although, under
the Company's existing stock option plans (other than the 1994 and 1995
Non-Qualified Stock Option Plans), there is no limitation, either a
minimum or maximum, on the number of options that can be granted to an
individual, usually individuals of the same salary grade level receive
approximately the same number of options. Variations from this standard
are based upon individual performance using the criteria stated above.
Mr. Jochum recommended the number of options to be granted to each
executive officer, including himself, during 1995, considering the
criteria for performance listed above, as well as such factors as the
potential of the recipient and prior grants. The Stock Option Committee
granted options in the amounts recommended by Mr. Jochum. The number of
options granted to Mr. Jochum in 1995 is consistent with the amount
received by him in prior years, and in relation to the amounts received by
other executive officers.
SECTION 162(m). Section 162(m) of the Internal Revenue Code of
1986, as amended ("Code"), limits the ability of a public company, such as
the Company, to deduct, in 1994 and subsequent years, compensation paid to
its chief executive officer and the four other most highly compensated
executive officers in excess of $1 million per year unless certain
conditions are met. What the requirements are vary depending on the type
of compensation paid. One requirement applicable to both stock option and
bonus plans is that the material terms of the plan must be disclosed to,
and approved by, the public company's stockholders in a separate vote.
Accordingly, the Company is soliciting stockholder approval of both its
1996 Non-Qualified Stock Option Plan and its 1996 Bonus Plan. The Company
generally intends to take steps so that its stock option and bonus
programs generally available to all employees comply with the requirements
of Section 162(m). Payments made to Mr. Jochum in 1995 under his
employment agreement are also fully deductible under Section 162(m) of the
Code under a special transition rule.
James A. Wild (Chairman)
Walter Girardin
Creighton R. Schneck
STOCK PERFORMANCE GRAPH
The following graph and table compares the change in the
Company's cumulative total return on its Common Stock [ [] ] with (a) the
change in the cumulative total return on the stocks included in the New
York Stock Exchange Composite Index [o], and (b) a customized peer index
including certain companies in the Standard & Poors Midcap 400 Health Care
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<PAGE>
Services Index [ [] ]. The composite index consists of Continental
Medical Systems, Coram Healthcare, FHP International Corporation,
Foundation Health, HEALTHSOUTH Corporation, Healthcare COMPARE, National
Health Lab Holdings, NovaCare, Pacificare Health Systems B, Surgical Care
Affiliates and Value Health, Inc. and is weighed according to each peer
company's stock market capitalization at the beginning of each period for
which a return is indicated. These comparisons assume an investment of
$100 made on December 31, 1990 and compares relative values on December
31, 1991, 1992, 1993, 1994 and 1995. All of these cumulative total
returns are computed assuming the reinvestment of dividends at the
frequency with which dividends were paid during this period. The Common
Stock price performance shown below should not be viewed as being
indicative of future performance.
[Stock Performance Graph is shown here containing plot points set forth in
table below.]
<TABLE>
<CAPTION>
Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mid Atlantic Medical Services, Inc. $ 100 $112 $200 $375 $669 $710
NYSE Composite Index $ 100 $131 $142 $158 $159 $207
S&P MidCap HealthCare Services Index $ 100 $257 $261 $278 $342 $411
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the members of the Company's Compensation Committee
were Walter Girardin, Creighton R. Schneck, and James A. Wild (Chairman).
No member of the Committee is a current or former officer or employee of
the Company or any of its Subsidiaries.
As a result of the nature of the business conducted by the
Company, certain members of the Board of Directors of the Company have
received fees for physician services rendered on behalf of persons
enrolled in the HMO plans run by the Company and its Subsidiaries
("Enrollees") and consulting fees. Such persons were compensated at the
same rate as were non-director primary care and specialist physicians
("Participating Physicians"). Compensation from PHP-MD for medical
services rendered by all Participating Physicians (or corporations or
partnerships of which they were partners, affiliates or stockholders)
ranged from $0 to $3,843,009 in 1995. MD-IPA also provides health
coverage to members of the Board of Directors of the Company who are
members of the Board of Directors of PHP-MD or MD-IPA at reduced rates.
The following table sets forth the total 1995 compensation from PHP-MD
earned by members of the Board of Directors and nominees for director for
medical services rendered to Enrollees, for services rendered as directors
(other than for service as a director of the Company) and consultants and
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<PAGE>
for health coverage if the total exceeded $60,000. Consultants were
compensated at the same rate that the Company would compensate
non-directors in a similar capacity.
Medical Services Total Compensation
--------------- ------------------
[S] [C] [C]
Francis C. Bruno, M.D. $ 151,782(1) $ 201,072
John H. Cook, III, M.D. $ 196,778(2) $ 209,903
Peter L. Flaherty, Jr., M.D. $ 528,374(3) $ 561,289
William M. Mayer, M.D. $1,090,779(4) $1,112,334
Stanley F. Smith, R.Ph. $2,544,734(5) $2,555,327
------------------------------
(1) Paid to the Francis C. Bruno, M.D., P.A. partnership.
(2) Paid to Loudoun Internal Medicine Associates.
(3) Paid to the Peter J. Flaherty, Jr., M.D. and Charles R. Tuegel,
M.D. partnership.
(4) Paid to Drs. Esposito, Mayer, Hogan and Associates, P.A.
partnership.
(5) Paid to Bradly Drugs and Home Rx Inc. for pharmaceutical
services.
A wholly owned subsidiary of MD-IPA, MD-IPA Surgicenter, entered
into a general partnership agreement with a wholly-owned subsidiary of
Surgical Care Affiliates, and such general partnership entered into a
limited partnership agreement to form the Montgomery Surgery Center
Limited Partnership. The limited partnership owns one ambulatory surgery
center ("Montgomery Surgicenter"). As of February 28, 1996, the following
table sets forth the limited partnership interests that members of the
Board of Directors, nominees for director and executive officers of the
Company hold in the Montgomery Surgery Center Limited Partnership, the
partnership which owns the Montgomery Surgicenter.
Name Limited Partnership Interest (in Units)(1)
------- ------------------------------------------
Peter L. Flaherty, Jr., M.D. 1.0
-----------------------------
(1) One Unit entitles a person to approximately 1.7 percent of the
cash distributions made by the Montgomery Surgery Center Limited
Partnership. The cost of a Unit was approximately $15,000. 32.5
Units are outstanding.
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows the compensation paid to the Company's
Chief Executive Officer and the four other most highly compensated
executive officers whose salary and bonus exceeded $100,000 during 1995.
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
-------------------------------------------- ------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation($)
------------------ ---- --------- -------- --------------- ---------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
George T. Jochum 1995 $1,663,566 -0- (3) 148,500 $1,859,452(5)(6)(8)(9)
Chairman of the Board, 1994 $ 878,495 $439,247 $ 1,176(3)(4) 198,000 $ 852,688(5)(6)
President and Chief 1993 $ 548,466 $272,307 $956,602(3)(4) 510,000 $ 195,958(5)(6)
Executive Officer
Eric R. Baugh 1995 $ 300,923 $ 39,854(2) -0- 24,000 $ 76,326(8)(9)
Executive Vice 1994 $ 237,295 $153,056 -0- 36,000 -0-
President and Medical 1993 $ 194,239 $125,477 $ 98,296(4) 78,000 $ 3,891(7)
Director(1)
Mark D. Groban 1995 $ 295,442 $117,669(2) -0- 24,000 $ 53,787(8)(9)
President of MAPSI 1994 $ 234,486 $232,124 -0- 39,600 -0-
and Alliance 1993 $ 191,365 $ 99,426 $ 98,296(4) 78,000 $ 3,827(7)
Joseph L. Guarriello 1995 $ 291,172 -0- -0- 24,000 $ 55,318(8)
Executive Vice 1994 $ 229,279 $ 80,248 -0- 39,600 -0-
President, General 1993 $ 185,673 $ 64,986 $ 98,296(4) 78,000 $ 3,713(7)
Counsel and Secretary
Thomas P. Barbera 1995 $ 283,103 -0- (3) 42,000 $ 9,160(8)
Executive Vice 1994 $ 221,308 $ 77,458 $ 382(3)(4) 39,600 -0-
President, 1993 $ 102,560 $ 61,250 -0- 24,000 $ 2,051(7)
Governmental Affairs
------------------------------
</TABLE>
(1) Position held on December 31, 1995.
(2) Bonus paid other than under the 1995 Bonus Plan.
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<PAGE>
(3) Perquisites and other personal benefits represented the lesser of
$50,000 or 10% of annual salary and bonus.
(4) Represents amounts reimbursed to executive during year for
payment of taxes.
(5) $1,681,605, $844,060 and $187,330 were accrued in 1995, 1994 and
1993, respectively, relating to Mr. Jochum's augmented retirement
benefit provided by his Employment Agreement. See "Management
Employment Agreement" below.
(6) Includes $8,628 in premiums paid by the Company in 1995, 1994 and
1993 for life insurance for which Mr. Jochum may designate the
beneficiary.
(7) Represents contributions made by the Company allocated to the
executive's account in the Company's 401(k) plan.
(8) As of December 31, 1994, the Company terminated its defined
benefit pension plan. On December 22, 1995, participants
received termination distributions from the plan. Each named
executive officer's termination distribution is included in the
"All Other Compensation" column. Mr. Jochum's termination
distribution was $169,219.
(9) Mr. Jochum, Dr. Baugh, Dr. Groban and certain other current and
former directors and officers of the Company have been named as
defendants in certain litigation filed by six persons who
purchased the Company's common stock (who purport to represent a
class comprised of purchasers of the Company's common stock
between March 1, 1995 and June 16, 1995) against the Company and
certain of its current and former directors and officers. The
Company is advancing the cost of defense to such named executive
officers in connection with such litigation and the related SEC
investigation in accordance with the requirements of the
Company's Certificate of Incorporation and Bylaws, and the
Delaware General Corporation Law. The named executive officers
are obligated and have undertaken to repay the amounts advanced
in certain circumstances. At this time, the costs of defense
have not been allocated among the Company and its current and
former directors and officers so no amounts have been included in
the "All Other Compensation" column.
MANAGEMENT EMPLOYMENT AGREEMENT
The Company and MD-IPA have entered into an Employment Agreement
with Mr. Jochum for the period January 1, 1991 through December 31, 1998.
Mr. Jochum's annual base salary under the agreement was $1,678,950 for
1995. His base salary for 1996 will be $1,831,204. The Employment
Agreement provides that, each year, Mr. Jochum's base salary will increase
or decrease by an amount equal to 75% of the percentage change in the
Company's consolidated net after-tax income; provided that his salary
cannot be reduced by more than 25% in any one year.
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<PAGE>
Mr. Jochum is entitled to participate in the Company's management
bonus program. The amount available for Mr. Jochum is calculated based on
the Company's income before income taxes and is prior to the return of the
amount withheld by PHP-MD as part of the claims reserve risk pool. His
minimum bonus amount is 25% of that year's base salary and his maximum
bonus is 50% of base salary. Additionally, Mr. Jochum is entitled to a
special bonus not to exceed 50% of his base salary should he accomplish
special performance criteria identified by the Company's Board of
Directors. For 1995, the performance criteria was based on membership and
no amount was paid under the special bonus.
The Employment Agreement may be terminated by the Company or
MD-IPA in the event of a material breach thereof by Mr. Jochum or for
cause; however, termination of the Employment Agreement by the Company
other than for material breach or cause does not effect any obligation of
MD-IPA arising under the Employment Agreement. The Company may also, with
cause, reassign Mr. Jochum from his position as Chairman, Chief Executive
Officer and President of the Company. In such event, he is no longer
entitled to any special incentive bonus under the terms of the Employment
Agreement. Further, MD-IPA may also, with cause, reassign Mr. Jochum from
his position as Chief Executive Officer of MD-IPA, in which case he is
also no longer entitled to any special incentive bonus under the terms of
the Employment Agreement.
In the event of a "change of control" as defined in the
Employment Agreement, Mr. Jochum will receive cash equal to twice his base
salary for the year in which such "change in control" occurs. In
addition, all stock options to which Mr. Jochum is entitled will
immediately vest and become exercisable. In the event of a "change in
control," the value of all payments, benefits and other consideration
received and contingent upon a change in control and any additional
payments in the nature of compensation described by Section 280G(b)(2) of
the Code may not exceed an amount that is equal to three times the average
taxable compensation to Mr. Jochum from the Company for the "base period"
as that term is defined in Section 280G(d)(2) of the Code. A "change in
control" is deemed to occur under the Employment Agreement if, at any
time, (a) substantially all the assets of the Company or MD-IPA shall have
been sold or transferred by sale, merger or otherwise, or if any "person"
(as such term is used in Sections 13(d) or 14(d) of the 1934 Act) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or MD-IPA representing 50% or more of the combined voting power of
the then-existing outstanding securities of the Company or MD-IPA; and (b)
Mr. Jochum is reassigned in accordance with the Employment Agreement
within six months of such sale, merger or other event; provided, however,
that no "change in control" is deemed to occur under the Employment
Agreement if Mr. Jochum's reassignment is on a temporary basis and is
attributable to Mr. Jochum's illness or other physical, mental or
emotional disability or incapacity.
The Employment Agreement provides that, upon retirement, Mr.
Jochum is entitled to an augmented retirement benefit so that he will
receive in total, under the Employment Agreement and under all of the
Company's retirement plans, an annual benefit in an amount equal to three
per cent of his base salary during the final year of the Employment
Agreement multiplied by the number of years of service to the Company. In
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<PAGE>
December 1995, Mr. Jochum's Employment Agreement was amended to clarify
that Mr. Jochum's augmented retirement benefit will be reduced by the
termination distribution Mr. Jochum received when the Company's defined
benefit pension plan was terminated. Payment, if any, of the augmented
retirement benefit will be made in the form of an annuity for a fixed term
of years payable to Mr. Jochum, or his estate, heirs, or assignees as
determined by him. Such terms of the annuity shall be the actuarial
equivalent of a fixed and certain term as compared to the average life
expectancy for an individual of the age and status of Mr. Jochum at the
date of retirement or death. The Company is not obligated to pay any
augmented retirement benefit under the Employment Agreement if Mr. Jochum
is terminated for cause by the Company or MD-IPA. Mr. Jochum's estimated
annual retirement benefit as of December 31, 1995 from this provision in
the Employment Agreement is $554,053. As of December 31, 1995, Mr. Jochum
had 9 years of credited service.
The Employment Agreement also provides that either Mr. Jochum or
his spouse at the time of his death is eligible for health coverage from
the Company or its successor during the term of their respective lives,
such health coverage to be paid for by Mr. Jochum or his spouse. The
Company has also agreed to obtain, pay all premiums for and maintain a
$200,000 whole life insurance policy on the life of Mr. Jochum for which
he may designate the beneficiary. The Company has no obligation to
provide such insurance if Mr. Jochum is not insurable at ordinary market
rates and without material cost or other adjustments.
1995 OPTIONS GRANTS TABLE
The following table shows certain information regarding the
options granted to the named executive officers of the Company in 1995.
The Company did not grant any stock appreciation rights to these
individuals in 1995.
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for Option
Underlying Granted to Exercise or Term
Options Employees in Base Price Expiration -----------------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- -------------- ------------- ----------- ------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
George T. Jochum 148,500(1) 6.66% $17.625 5/1/2000 $ 723,115 $1,597,895
Eric R. Baugh 24,000(1) 1.08% $17.625 5/1/2000 $ 116,867 $ 258,246
Mark D. Groban 24,000(1) 1.08% $17.625 5/1/2000 $ 116,867 $ 258,246
Joseph L. Guarriello 24,000(1) 1.08% $17.625 5/1/2000 $ 116,867 $ 258,246
- 24 -
<PAGE>
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for Option
Underlying Granted to Exercise or Term
Options Employees in Base Price Expiration -----------------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- -------------- ------------- ----------- ------------ -----------------------------
Thomas P. Barbera 12,000(1) 0.54% $17.375 7/14/2000 $ 57,605 $ 127,291
30,000(1) 1.35% $17.625 5/1/2000 $ 146,084 $ 322,807
------------------------------
</TABLE>
(1) Becomes exercisable in substantially equal installments on June
1, 1996, 1997 and 1998. Each option becomes immediately
exercisable in the event of a change of control of the Company.
AGGREGATED OPTION EXERCISES IN 1995 AND DECEMBER 31, 1995 OPTION VALUES
The following table contains information regarding options
exercised by the named executive officers during 1995 and the number and
value of unexercised options at December 31, 1995. No information is
presented for stock appreciation rights as none have been granted by the
Company.
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
at 12/31/95 (#) 12/31/95($)
------------------- -----------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable
---- -------------- ----------- ------------------- -----------------------
<S> <C> <C> <C> <C>
George T. Jochum -0- $ -0- 696,000/370,500 $12,044,997/$2,660,063
Eric R. Baugh 36,000 $673,499 48,000/66,000 $709,501/$494,250
Mark D. Groban 31,000 $534,793 180,700/68,400 $3,262,417/$494,250
Joseph L. Guarriello 31,500 $459,374 98,700/68,400 $1,622,250/$494,250
Thomas P. Barbera -0- $ -0- 78,500/68,400 $1,140,027/$281,250
------------------------------
</TABLE>
(1) Based on closing price on The NYSE of $24.25 on December 31, 1995.
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<PAGE>
RATIFICATION OF AND
ADOPTION OF 1996 NON-QUALIFIED STOCK OPTION PLAN
(Proposal 2)
The Company's Board of Directors adopted the 1996 Non-Qualified
Stock Option Plan ("1996 Plan") on October 13, 1995 and February 28, 1996
and it intends to submit the 1996 Plan to stockholders for approval at the
Annual Meeting. The Company is soliciting stockholder approval of the
1996 Plan so that the 1996 Plan complies with the requirements of Section
162(m) of the Code and the Company's ability to deduct compensation paid
to executive officers under the 1996 Plan is preserved. The 1996 Plan
becomes effective May 1, 1996; provided, however, that the 1996 Plan will
not be effective unless and until it is approved by the Company's
stockholders. Pursuant to the 1996 Plan, 3,000,000 shares of Common Stock
were reserved for future issuance by the Company to directors, officers
and key employees through the grant of non-qualified stock options to
purchase Common Stock of the Company.
PURPOSE
The purpose of the 1996 Plan is to advance the interests of the
Company and its Subsidiaries by encouraging and providing for the
acquisition of an equity interest in the Company by non-employee directors
and key employees through the grant of options to purchase Common Stock.
The 1996 Plan will enable the Company to retain the services of non-
employee directors and key employees upon whose judgment, interest and
special effort the successful conduct of its operations its largely
dependent and to compete effectively with other enterprises for the
services of non-employee directors and key employees as may be needed for
the continued improvement of its business. The consideration for issuance
of the non-qualified stock options is the continued services of the
employees and non-employee directors to the Company and its Subsidiaries.
ADMINISTRATION
The 1996 Plan is administered by the Stock Option Committee,
which is appointed from time to time by the Board of Directors of the
Company, and which determines the officers and other key employees of the
Company and its Subsidiaries to be granted options under the 1996 Plan,
and the number of shares subject to each option. (The options to be
granted to non-employee directors are granted automatically under the
terms of the 1996 Plan.) Pursuant to the 1996 Plan, the Committee must
consist of not less than three directors of the Company, each of whom must
be a "disinterested person" as defined in SEC Rule 16b-3 and each of whom
must be an "outside director" within the meaning of Section 162(m) of the
Code and the regulations thereunder.
The Committee acts by a majority vote of its members. The
Committee has the sole and absolute discretion to interpret the 1996 Plan,
to establish and modify administrative rules for the 1996 Plan, to select
the officers and other key employees to whom options may be granted, to
determine the terms and provisions of the respective option agreements
(which need not be identical), to determine all claims for benefits under
the 1996 Plan, to impose such conditions and restrictions on options as it
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<PAGE>
determines appropriate, to determine whether the shares delivered on
exercise of options will be treasury shares or will be authorized but
previously unissued shares, and to take such steps in connection with the
1996 Plan and options granted hereunder as it may deem necessary or
advisable. No action of the Committee is effective if it contravenes or
amends the 1996 Plan in any respect.
Members of the Committee, as directors of the Company, serve
until their successors are elected and qualified, and may be removed, with
or without cause, by the holders of two-thirds of shares entitled to vote
at an election of directors or for cause by an affirmative vote of the
entire Board of Directors at any regular or special meeting of the Board
of Directors. The members of the Committee are set forth in "Directors
and Executive Officers - Board Meetings and Committees."
OPTION GRANTS TO OFFICERS AND KEY EMPLOYEES
ELIGIBILITY. Any officer or key employee of the Company or its
Subsidiaries, including any director who is also an employee, is eligible
to receive options under the 1996 Plan. As of December 31, 1995, the
approximate number of employees who would be eligible to participate in
the 1996 Plan was 500.
Each employee may receive no more than 200,000 options under the
1996 Plan during the term of the 1996 Plan. Except for the limitation in
the preceding sentence, the Committee has complete authority to determine
those officers and key employees to whom options may be granted. However,
the Committee may, with respect to employee participants who are not
subject to Section 16 of the 1934 Act or "covered employees" within the
meaning of Section 162(m) of the Code and the regulations thereunder,
delegate such of its powers and authority under the 1996 Plan as it deems
appropriate to the Company's President or any member of the Committee,
provided that the Committee must regularly review all actions taken
pursuant to such delegation of authority.
TERM; EXERCISABILITY. The grant of an option will be evidenced
by a written stock option agreement executed by the Company and the
optionee, stating the number of shares of Common Stock subject to the
option and other terms that the Committee may determine. The term of each
option will be determined by the Committee at the time the option is
granted; provided however, that no option granted under the 1996 Plan may
have a term in excess of five years after the date of grant. Each option
is exercisable in such installments and at such times as designated by the
Committee. Installments, to the extent not exercised, accumulate and are
exercisable until the option expires, unless the Committee determines
otherwise.
OPTION PRICE AND PAYMENT; FAIR MARKET VALUE. The 1996 Plan
provides that the purchase price of the shares of Common Stock issuable on
exercise of an option shall be no less than the fair market value of the
Common Stock of the Company as of the date of grant of the option.
Fair market value of a share of Common Stock means, as of any
given date, the closing sales price of a share of Common Stock on such
date on the principal national securities exchange on which the Common
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<PAGE>
Stock is then traded or, if the Common Stock is not then traded on a
national securities exchange, the closing sales price or, if none, the
average of the bid and asked prices of the Common Stock on such date as
reported on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"). If, however, there were no sales reported as
of such date, fair market value will be computed as of the last date
preceding such date on which a sale was reported. If any such exchange or
quotation system is closed on any day on which fair market value is to be
determined, fair market value will be determined as of the first date
immediately preceding such date on which such exchange or quotation system
was open for trading. In the event the Common Stock is not admitted to
trade on a securities exchange or quoted on Nasdaq, the fair market value
of a share of Common Stock as of any given date will be as determined in
good faith by the Committee, which determination may be based on, among
other things, the opinion of one or more independent and reputable
appraisers qualified to value companies in the Company's line of business.
Notwithstanding the foregoing, the fair market value of a share of Common
Stock will never be less than par value per share.
TERMINATION OF EMPLOYMENT. In general, in the event of the
termination of an optionee's employment for reasons other than death or
disability, the optionee has the right to exercise any option with respect
to all or any part of the shares subject thereto, to the extent the option
had become exercisable at the time of such termination, for a period of
three months following the date of termination, but in no event later than
the expiration date of the option. The Committee may, however, permit an
employee participant who will render significant services to the Company
following termination of employment to continue to accrue service with
respect to the vesting of his or her options. In general, in the event
that the optionee's employment is terminated by his or her death or
permanent disability within the meaning of Section 22(e)(3) of the Code,
all options granted under the 1996 Plan to such optionee may be exercised
(whether or not otherwise exercisable) at any time within one year after
the optionee's death or termination because of disability, but in any
event no later than the expiration date of the option. The Committee may,
however, in its discretion provide for shorter or longer periods of time
in an option agreement.
In addition, the Committee may permit the purchase of Common
Stock subject to any option granted to an employee participant prior to
the time such option would otherwise become exercisable under the terms of
the option agreement. The Committee also may permit any option granted to
an employee participant to be exercised after its expiration date;
provided, that no option may be exercised more than five years after its
date of grant.
NON-EMPLOYEE DIRECTOR OPTIONS
NON-EMPLOYEE DIRECTORS; NUMBER OF SHARES. The 1996 Plan provides
that, on May 1, 1996, each person who is a director of the Company or one
of its Subsidiaries but who is not an employee of the Company or one of
its Subsidiaries ("Non-Employee Director") on such date will be granted a
Non-Employee Director Option. However, a Non-Employee Director will only
receive one Non-Employee Director Option on May 1, 1996, even if he or she
serves as a Non-Employee Director of the Company and/or of one or more of
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<PAGE>
its Subsidiaries. As of December 31, 1995, the number of Non-Employee
Directors eligible to participate in the 1996 Plan was approximately 18
(which includes the three Non-Employee Director nominees).
Each Non-Employee Director Option will entitle the holder to
purchase 3,000 shares of Common Stock. If, however, a Non-Employee
Director is not a Non-Employee Director of the Company on May 1, 1996, his
or her Non-Employee Director Option will only entitle him or her to
purchase 2,400 shares of Common Stock.
Such number of shares is, however, subject to increase (but not
decrease) based on the application of both of the factors described below.
However, a Non-Employee Director Option will not entitle the holder to
purchase more than 6,000 shares (4,800 shares if a Non-Employee Director
is not a Non-Employee Director of the Company on May 1, 1996) of Common
Stock.
1. YEARS OF SERVICE. Each Non-Employee Director Option will
entitle the holder to purchase an additional 150 shares
(120 shares if a Non-Employee Director is not a Non-
Employee Director of the Company on May 1, 1996) of
Common Stock for each calendar year the Non-Employee
Director has served as a director of the Company or of
one of its Subsidiaries, but only if such calendar year
has been completed prior to May 1, 1996. The 1996 Plan
contains rules for calculating years of service as a
director.
2. INCREASE IN EARNINGS PER SHARE. The number of shares
covered by a Non-Employee Director Option will also be
increased (but not decreased) by (a) the percentage
increase in earnings per share of Common Stock during the
previous two completed fiscal years, multiplied by (b)
3,000 shares (2,400 shares if a Non-Employee Director is
not a Non-Employee Director of the Company on May 1,
1996). Earnings per share of Common Stock is determined
by reference to the audited consolidated financial
statements of the Company, as adjusted to reflect any
stock dividends or stock splits that occur during such
fiscal years. Earnings per share increased 11% from 1994
to 1995 for purposes of this provision.
Assuming that all of the Company's nominees for election as a
director are elected at the Annual Meeting and all of such persons and the
Company's continuing directors continue to serve as such on May 1, 1996,
the Company's current directors will receive in the aggregate options to
purchase 25,530 shares, Francis C. Bruno, M.D. will receive an option to
purchase 4,980 shares, Stanley M. Dahlman, Ph.D. will receive an option to
purchase 5,280 shares and James A. Wild will receive an option to purchase
4,380 shares under the 1996 Plan on May 1, 1996.
EXERCISE PRICE; TERM. The exercise price per share for Non-
Employee Director Options will be the fair market value of a share of
Common Stock on May 1, 1996. All Non-Employee Director Options will have
a five year term.
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<PAGE>
EXERCISABILITY; TERMINATION OF SERVICE. Each Non-Employee
Director Option will become exercisable cumulatively in three equal
installments on June 1, 1997, 1998 and 1999. However, if a Non-Employee
Director is removed for cause, any option held by such Non-Employee
Director will cease to continue to become exercisable on or after the date
of such removal. For this purpose, cause means removal as a director by
the holders of Common Stock or the Company's Board of Directors for cause
or, if a Non-Employee Director is not a director of the Company, removal
as a director by the holders of common stock of any Subsidiary on whose
Board of Directors he or she serves or by such Board of Directors for
cause.
If a Non-Employee Director's service with the Company terminates
for any reason or if such person ceases to be a Non-Employee Director,
such option will continue to become exercisable and may be exercised until
the expiration of the stated term of the option. Accordingly, if a Non-
Employee Director is removed for cause, he or she may continue to exercise
his or her Non-Employee Director Option until the expiration of the stated
term of such option, but only to the extent that (a) such option became
exercisable prior to the date of such removal and (b) it was not
previously exercised.
EXERCISE OF OPTIONS
Options may be exercised by giving written notice of exercise to
the Company specifying the number of shares of Common Stock to be
purchased. Such notice must be accompanied by payment in full of the
purchase price in such form as the Committee may accept (including payment
in accordance with a cashless exercise program approved by the Committee).
A participant (including a Non-Employee Director) also has the right to
pay the exercise price, in full or in part, in the form of Common Stock
duly owned by the participant (and for which the participant has good
title, free and clear of any liens and encumbrances). Any already issued
Common Stock used for payment must have been held by the participant for
at least six months. No Common Stock will be issued on exercise of an
option until payment, as provided herein, therefor has been made. A
participant will generally have the right to dividends or other rights of
a stockholder with respect to Common Stock subject to the option only when
certificates for shares of Common Stock are issued to the participant.
TRANSFERABILITY
Stock options granted under the 1996 Plan are transferable only
by will, by the laws of descent and distribution, or pursuant to a
qualified domestic relations order as defined by the Code, Title I of the
Employee Retirement Security Act of 1974, as amended ("ERISA"), or the
rules thereunder. However, the 1996 Plan is not subject to the provisions
of ERISA and is not qualified under Section 401(a) of the Code.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CHANGE IN CONTROL
RECAPITALIZATION. The number and kind of shares subject to
outstanding options, the purchase price or exercise price of such options,
the amount of Non-Employee Director Options to be granted, and the number
and kind of shares available for options subsequently granted under the
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<PAGE>
1996 Plan will be appropriately adjusted to reflect any stock dividend,
stock split, combination or exchange of shares, merger, consolidation or
other change in capitalization with a similar substantive effect upon the
1996 Plan or the options granted under the 1996 Plan. The Committee has
the power and sole discretion to determine the nature and amount of the
adjustment to be made in each case.
SALE OR REORGANIZATION. After any reorganization, merger, or
consolidation in which the Company is the surviving entity, each
participant will, at no additional cost, be entitled upon the exercise of
an option outstanding prior to such event to receive (subject to any
required action by stockholders), in lieu of the number of shares of
Common Stock receivable on exercise pursuant to such option, the number
and class of shares of stock or other securities to which such participant
would have been entitled pursuant to the terms of the reorganization,
merger, or consolidation if, at the time of such reorganization, merger,
or consolidation, such participant had been the holder of record of a
number of shares of Common Stock equal to the number of shares of Common
Stock receivable on exercise pursuant to such option. Comparable rights
will accrue to each participant in the event of successive
reorganizations, mergers, or consolidations of the character described
above.
OPTIONS TO PURCHASE STOCK OF ACQUIRED COMPANIES. After any
reorganization, merger, or consolidation in which the Company is a
surviving entity, the Committee may grant substituted options under the
provisions of the 1996 Plan, replacing old options granted under a plan of
another party to the reorganization, merger, or consolidation whose stock
subject to the old options may no longer be issued following such
reorganization, merger, or consolidation. The foregoing adjustments and
manner of application of the foregoing provisions will be determined by
the Committee in its sole discretion. Any such adjustments may provide
for the elimination of any fractional shares of Common Stock that might
otherwise become subject to any options.
CHANGES IN CONTROL. (1) Upon the dissolution or liquidation of
the Company, (2) upon a reorganization, merger, or consolidation in which
the Company is not the surviving corporation, (3) upon the sale of
substantially all of the property or assets of the Company to another
corporation, or (4) if at least 50% or more of the voting stock of the
Company is sold either through a tender offer or otherwise to a party or
an affiliated group of parties, then the 1996 Plan and the options issued
thereunder will terminate, unless provisions are made in connection with
such transaction for the assumption of options theretofore granted, or for
the substitution for such options of new options of the successor
corporation or a parent or subsidiary thereof, with appropriate adjustment
as to the number and kinds of shares and the per share exercise prices.
In the event such options terminate, all outstanding options will be
exercisable in full for at least 30 days prior to such termination date,
whether or not exercisable during such period, provided that no option
will be exercisable more than five years following its date of grant. For
purposes of this provision, the Company refers to Mid Atlantic Medical
Services, Inc., MD-IPA, OCI and/or PHP-MD, jointly or separately. The
Committee determines the date on which options may become exercisable
pursuant to this provision.
- 31 -
<PAGE>
AMENDMENT AND TERMINATION OF THE 1996 PLAN
AMENDMENT. The Company's Board of Directors has complete power
and authority to amend the 1996 Plan at any time it is deemed necessary or
appropriate; provided, however, that the Board may not, without the
affirmative approval of a simple majority of the holders of Common Stock,
represented, by person or by proxy, and entitled to vote at an annual or
special meeting of the holders of Common Stock, make any amendment that
requires stockholder approval under SEC Rule 16b-3, Section 162(m) of the
Code or under any other applicable law, unless the Board determines that
compliance with Rule 16b-3, Section 162(m) and/or such law is no longer
desired. No termination or amendment of the 1996 Plan may, without the
consent of the affected participant, adversely affect the right of such
individual under such option. However, the Committee may, in its sole
discretion, make provision in an option agreement for such amendments
that, in its sole discretion, it deems appropriate. The 1996 Plan's
provisions regarding Non-Employee Director Options may not be amended or
modified more frequently than once in any period of six consecutive months
other than to comport with changes in the ERISA, the Code or the rules and
regulations promulgated thereunder.
TERMINATION. The 1996 Plan will terminate on April 30, 2001;
however, the Company's Board of Directors has the right and the power to
terminate the 1996 Plan at any time. No option may be granted under the
1996 Plan after the termination of the 1996 Plan. The termination of the
1996 Plan will not have any other effect and any option outstanding at the
time of the termination of the 1996 Plan may be exercised after
termination of the 1996 Plan at any time prior to the expiration date of
such option to the same extent such option would have been exercisable had
the 1996 Plan not terminated.
OPTIONS CURRENTLY OUTSTANDING
No options have been granted at this time under the 1996 Plan.
The total market value as of February 28, 1996 of 3,000,000 reserved
shares was $64.1 million (based on the closing sales price on the NYSE).
FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain of the
principal federal income tax consequences of the exercise of options
issued pursuant to the 1996 Plan and the later disposition of the shares
acquired by such exercise.
Under present regulations and published authorities, an officer,
director or employee ("holder") recognizes no income when he or she
receives an option under the 1996 Plan. Upon the exercise or other
disposition of an option, however, the holder will recognize ordinary
income in an amount equal to the difference between the fair market value
of the shares on the date of exercise and the option price (called the
"option spread"). If an option holder sells shares acquired by exercise
of an option granted under the 1996 Plan, the option holder generally will
realize capital gain or loss in the year of such sale in an amount equal
to the difference between (i) the net proceeds from the sale and (ii) the
option exercise price plus the amount included in income upon exercise of
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<PAGE>
the option. If such shares are held for more than one year, then any gain
or loss on their sale will be long-term capital gain or loss.
Because the Company's Common Stock is registered under Section
12(b) of the 1934 Act, the reporting and short-swing profit provisions of
Section 16 of the 1934 Act apply. The following rules apply to option
holders who are so-called "insiders" within the meaning of Section 16 of
the 1934 Act. Holders who file Form 4 with the SEC should be regarded as
insiders for this purpose. Any such insider will not recognize income
with respect to any shares of Common Stock received upon exercise of an
option until such shares are no longer subject to the application of
Section 16(b) of the 1934 Act. The amount of income then recognized with
respect to such shares is the difference between the amount paid by the
insider for such shares and the fair market value of the shares on the
first date the shares are no longer subject to the application of Section
16(b), which generally is six months after the date the option was
granted. If, however, the shares are sold under circumstances that give
rise to liability under Section 16(b), then the insider must recognize as
ordinary income the difference between the amount paid for the shares and
the amount received upon their sale.
Alternatively, an insider who exercises an option within less
than six months of grant may fix the amount and timing of the income
attributable to exercise of an option. Section 83(b) of the Code permits
a holder to elect, within 30 days of the exercise of the option, to
include the option spread in gross income for the taxable year in which
the shares are transferred. Such an election permits the holder to fix
the amount of income that must be recognized by virtue of the exercise of
the option to the option spread when the option is exercised (not when the
Section 16(b) period expires). If the election is made, the holder is
effectively taxed as if the Section 16(b) restriction did not apply.
The Company generally will be entitled to a tax deduction for
federal income tax purposes for the fiscal year in which the holder
recognized ordinary income. The amount of the deduction will equal the
amount included in the option holder's gross income for federal income tax
purposes by reason of such exercise. The Company is entitled, under
present Treasury regulations, to such deduction only if it deducts and
withholds tax on the amount included in the option holder's income.
Legislation enacted in 1993 limits the amount of compensation
deductible by a public corporation for U.S. income tax purposes to
$1,000,000 per executive officer. This limitation does not apply to
compensation arrangements that are based on the performance of the
corporation and have been approved by its shareholders.
Under the 1996 Plan, each optionee must arrange with the Company
a means of paying any federal, state, local or foreign withholding tax as
required by law upon the exercise of an option under the 1996 Plan. Such
amounts may be paid, at the election of the optionee, either (i) in cash
withheld from the employee's salary or other compensation payable by the
Company, (ii) with the approval of the Committee, in shares of Common
Stock otherwise issuable to the employee upon exercise of an option that
have a fair market value on the date on which the amount of tax to be
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<PAGE>
withheld is determined equal to the amount of tax the Company is entitled
to withhold, or (iii) cash paid to the Company by the optionee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION
OF ADOPTION OF THE 1996 PLAN.
RATIFICATION OF ADOPTION OF THE 1996 MANAGEMENT BONUS PLAN
(Proposal 3)
The Company's Compensation Committee adopted the 1996 Management
Bonus Plan ("1996 Bonus Plan") on February 28, 1996, the Company's Board
of Directors ratified the adoption of the 1996 Bonus Plan on February 28,
1996 and the Company is submitting the 1996 Bonus Plan to the stockholders
at the Annual Meeting. The Company is soliciting stockholder approval of
the 1996 Bonus Plan so that the 1996 Bonus Plan complies with the
requirements of Section 162(m) of the Code and the Company's ability to
deduct compensation paid to executive officers under the 1996 Bonus Plan
is preserved. Amounts payable to participants under the 1996 Bonus Plan
will not be paid unless and until the 1996 Bonus Plan is approved by the
Company's stockholders. Pursuant to the 1996 Bonus Plan, participants
will receive in cash a percentage of their annual base compensation if a
predetermined net income goal is met. The net income goal is selected
such that, if the goal is achieved, the underlying value of the Company's
stock should increase. Thus, the 1996 Bonus Plan provides an incentive
for management to perform in a way that directly benefits stockholders.
TERMS
Generally, full-time salaried employees of the Company (including
executive officers) will receive a percentage of their base annual cash
compensation as a distribution from the 1996 Bonus Plan if the Company's
consolidated 1996 net income equals or exceeds $106 million (before income
taxes, expansion and acquisition costs and prior to the physicians' return
of withhold and payment of physicians' bonuses). The percentage that a
participant will receive is based upon that individual's grade level.
Salary percentages are as follows:
CEO 25 to 50%
Grade 18 and above (excluding CEO) 12 to 35%
Grade 17 11 to 30%
Grade 16-Senior Directors 10 to 28%
Grade 15-Directors 9 to 21%
Grade 14-Managers 8 to 16%
Grades 12 & 13-Supervisors 7 to 12%
Grades 10 & 11-Professional Staff 5 to 7%
If the above mentioned net income target is met in 1996, the
minimum percentages as set forth above will be payable to participating
personnel. Alternatively, if consolidated net income (as adjusted) equals
or exceeds $115 million, then the maximum percentage set forth above will
be payable to participating employees. If the amount of such consolidated
net income is between $106 million and $115 million, then the bonus is
prorated.
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<PAGE>
Certain individuals who are assigned to particular departments
will not receive a bonus under the 1996 Bonus Plan based solely on the
achievement of the 1996 consolidated net income goal. 50% of these
individuals' 1996 cash bonuses will be based upon the achievement of
certain other measurable criteria and is not paid under the 1996 Bonus
Plan.
In 1996, Mr. Jochum will receive an additional cash bonus under
the 1996 Bonus Plan equal to 10% of his salary in effect on March 1, 1996
("1996 base salary") if the Company's membership grows by 300,000 in 1996,
20% of his 1996 base salary if the Company's membership grows by 325,000
in 1996, 30% of his 1996 base salary if the Company's membership grows by
350,000 in 1996, 40% of his 1996 base salary if the Company's membership
grows by 375,000 in 1996 and 50% of his 1996 base salary if the Company's
membership grows by more than 400,000 members in 1996. Mr. Jochum's 1996
base salary is $1,831,204.
The Company's Board of Directors has reserved the right to amend
the 1996 Bonus Plan to materially increase the amounts payable thereunder
to participants, other than executive officers, or for any other reason.
ELIGIBILITY
All full-time salaried personnel level 10 and above participate
in the 1996 Bonus Plan. As of January 1, 1996, approximately 420
individuals were eligible to participate in the 1996 Bonus Plan. Full-
time salaried employees who are hired during the course of 1996 are also
eligible to participate in the 1996 Bonus Plan, with their bonus being
prorated based upon their actual service during 1996. In general, bonus
payments will be calculated on cash payments made during the year for base
salary. Salaried employees who receive promotions or changes in their
base compensation will receive a prorated 1996 bonus based upon the amount
of salary and grade level during the course of the year. However, with
respect to executive officers hired prior to March 1, 1996, 1996 bonuses
will disregard salary and grade level changes made after March 1, 1996.
For full-time executive officers grade 18 and above, the salary levels on
March 1, 1996 were as follows:
Name Base Salary
---- -----------
George T. Jochum $1,831,204
Thomas P. Barbera $ 308,700
Eric R. Baugh, M.D.(1) $ 281,250
Paul E. Dillon $ 166,000
J. Stevens Dufresne $ 257,250
Vera C. Dvorak, M.D. $ 234,140
Robert E. Foss $ 280,000
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<PAGE>
Name Base Salary
---- -----------
Susan D. Goff $ 180,000
Mark D. Groban, M.D. $ 278,100
Joseph L. Guarriello $ 272,160
Alfred Talamantes $ 220,500
_______________________
(1) Dr. Baugh is no longer an executive officer of the Company.
No bonus is paid to participants who terminate employment with or
are terminated by the Company and its Subsidiaries prior to year end. In
the event of retirement or death of any employee during the year, payments
are made on a prorated basis. The following table shows estimates of the
bonuses payable to the named individuals and groups under the 1996 Bonus
Plan, assuming the minimum net income goal is achieved and the maximum net
income goal is achieved. The bonus listed in the table for Mr. Jochum
does not include his additional bonus based on increases in membership.
<TABLE>
<CAPTION>
Minimum Net Income Maximum Net Income
Name Goal Achieved(1) Goal Achieved(1)
---- ------------------ ------------------
<S> <C> <C>
George T. Jochum $ 457,801 $ 915,602
Chairman of the Board,
President and Chief Executive Officer
Eric R. Baugh $ 33,750 $ 98,438
Medical Director/Quality Assurance/Quality
Improvement(2)
Mark D. Groban $ 16,686 $ 48,668
President of MAPSI and Alliance
Joseph L. Guarriello $ 32,659 $ 95,256
Executive Vice President,
General Counsel and Secretary
Thomas P. Barbera $ 37,044 $ 108,045
Executive Vice President, Government
Affairs
All current executive officers as a group $ 790,340 $1,885,508
- 36 -
<PAGE>
Minimum Net Income Maximum Net Income
Name Goal Achieved(1) Goal Achieved(1)
---- ------------------ ------------------
All current directors who are not $ 0 $ 0
executive officers as a group
All employees who are not executive $1,224,451 $2,433,854
officers as a group(3)
------------------------------
</TABLE>
(1) The calculation is based on salaries for executive officers as of
March 1, 1996 and for all other employees as of December 31,
1995. No adjustments have been made for promotions, salary
adjustments, terminations or new hires that may occur in 1996.
(2) Position held on December 31, 1995.
(3) Includes bonus Dr. Baugh may receive under the 1996 Bonus Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION
OF ADOPTION OF THE 1996 BONUS PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP has been the Company's independent public
accountants since June 2, 1989. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting, and will have an
opportunity, if they so desire, to make a statement and will be available
to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder wishes to have presented at the
1997 Annual Meeting of stockholders of the Company and included in the
Company's Proxy Statement and proxy to be used in connection with such
meeting must be received at the main office of the Company no later than
November 15, 1996. Such proposals should be directed to the attention of
Joseph L. Guarriello, Secretary, at Mid Atlantic Medical Services, Inc., 4
Taft Court, Rockville, Maryland 20850. If such proposal is in compliance
with all of the requirements of Rule 14a-8 of the 1934 Act, it will be
included in the Proxy Statement and set forth in the form of proxy issued
for the next annual meeting of stockholders. It is urged that any such
proposals be sent by certified mail, return receipt requested.
The Bylaws of the Company have been amended to require
stockholders to provide advance notice of all matters to be considered at
annual stockholder meetings, including director nominations. The Bylaws
now require that a stockholder who wishes to propose new business or
nominate individuals to the Company's Board of Directors at an annual
meeting of the stockholders provide notice to the Company's Secretary of
- 37 -
<PAGE>
such a proposal or nomination thirty days in advance of the date of the
annual meeting. A proposing stockholder can provide less than thirty
days' notice only if the Company mails its notice of the annual meeting
less than forty days in advance of the annual meeting date. In such case,
the proposing stockholder must give notice to the Company no later than
the tenth day following the day on which the Company mails its notice of
the annual meeting.
Further, the Bylaws now require that the proposing stockholder
set forth, in his or her notice to the Company's Secretary, (i) a brief
description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Company's books,
of the stockholder proposing such business, (iii) the class and number of
the Company's capital stock that are beneficially owned by such
stockholder, and (iv) any material interest of such stockholder in such
business. In cases of a nomination for director, such stockholder's
notice shall set forth (i) as to each person whom such stockholder
proposes to nominate for election or re-election 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 1934 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 (ii)
as to the stockholder giving the notice (A) the name and address, as they
appear on the Company's books, of such stockholder, and (B) the class and
number of shares of the Company's capital stock that are beneficially
owned by such stockholder.
The Bylaws now also provide that, at any special meeting of the
Company's stockholders, only such business shall be conducted as shall
have been brought before the meeting by or at the direction of the
Company's Board of Directors.
OTHER BUSINESS
Management is not aware of any business to come before the Annual
Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Annual
Meeting, it is intended that proxies solicited hereby will be voted in
accordance with the judgment of the persons voting the proxies.
After the business session and a report to the stockholders on
the progress of the Company and its Subsidiaries, a discussion period will
take place during which stockholders will have an opportunity to discuss
matters of interest concerning the Company and its Subsidiaries.
VOTE REQUIRED FOR APPROVAL
A plurality of the shares present at the Annual Meeting together
with those present by proxy will be sufficient to elect Directors
(Proposal 1). As to Proposal 2, Proposal 3 and other matters that may be
submitted to the Company's stockholders for approval, a simple majority of
the shares present at the Annual Meeting together with those present by
proxy will be sufficient to approve such proposals and other matters.
- 38 -
<PAGE>
Votes cast "for" and "against" each proposal will be counted.
Abstentions will also be counted. "Broker non-votes" (i.e., shares held
by brokers or nominees as to which instructions have not been received
from the beneficial owners or the persons entitled to vote such shares and
the broker or nominee does not have discretionary voting power under the
applicable New York Stock Exchange rules) will not be counted. Brokers
will not have discretionary voting power with respect to Proposal 2
(ratification of the adoption of the 1996 Plan) or Proposal 3
(ratification of the adoption of the 1996 Bonus Plan). Abstentions will
be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. The vote of a stockholder who
abstains will, however, have the same effect as if he or she had voted
"against" a proposal. "Broker non-votes" will have no effect on whether
or not a proposal passes.
By Order of the Board of Directors,
/s/ Joseph L. Guarriello
-----------------------------------
By: Joseph L. Guarriello
Secretary
Rockville, Maryland
March 15, 1996
- 39 -
<PAGE>
MID ATLANTIC MEDICAL SERVICES, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 15, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby authorizes Peter L. Flaherty, Jr., M.D.,
Robert E. Foss and George T. Jochum, and each of them individually, with
the power of substitution, to vote and otherwise represent all of the
shares of common stock ("Common Stock") of Mid Atlantic Medical Services,
Inc. ("Company") held of record by the undersigned, at the Annual Meeting
of Stockholders of the Company ("Annual Meeting") to be held at the
offices of the Company's subsidiary, Optimum Choice, Inc., located at 405
East Gude Drive, Suite 7, Rockville, Maryland 20850 on Monday, April 15,
1996 at 10:00 a.m., Rockville time, and any adjournment or adjournments
thereof, as follows:
The undersigned acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement for the Annual Meeting. All
other proxies heretofore given by the undersigned to vote shares of Common
Stock of the Company are expressly revoked.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSALS REFERRED TO IN ITEMS 1, 2, AND 3. THE BOARD OF
DIRECTORS RECOMMENDS VOTES "FOR" THE PROPOSALS REFERRED TO IN ITEMS 1, 2,
AND 3. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
(Continued, and to be signed on the other side.)
MID ATLANTIC MEDICAL SERVICES, INC.
P.O. BOX 11176
NEW YORK, NY 10203-0176
<PAGE>
(1) Election of Directors. FOR all nominees listed below [ ]
WITHHOLD AUTHORITY to vote for all nominees listed below [ ]
EXCEPTIONS [ ]
Nominees: Francis C. Bruno, M.D.; Stanley Dahlman, Ph.D.;
George T. Jochum and James A. Wild. (INSTRUCTIONS: To withhold
authority to vote for any individual nominee, mark the
"Exceptions" box and write that nominee's name in the space
provided below.)
________________________________________________________________
(2) To ratify the adoption of the 1996 Non-Qualified Stock Option
Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) To ratify the adoption of the 1996 Bonus Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) In their discretion upon such other business and other matters
and proposals as may properly come before the Annual Meeting or
any adjournment or adjournments thereof.
Change of Address or [ ]
Comments Mark Here
Please sign exactly as your name appears on this
card. When signing as attorney, executor,
administrator, trustee or guardian please give
full title as such. If a corporation, please
sign in full corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized person.
Whether or not you plan to attend the Annual
Meeting, you are urged to execute and return your
proxy, which may be revoked at any time prior to
its use.
Dated: _____________________________, 1996
________________________________________
Signature of Stockholder
________________________________________
Signature(s) of Additional Stockholder(s)
Votes must be indicated [X]
[X] in Black or Blue Ink
PLEASE SIGN, DATE AND RETURN CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
APPENDIX A
1996 MANAGEMENT BONUS PLAN
__________________________
Participants in the 1996 Management Bonus Plan shall include all full-time
non-sales positions from Level 10 up to Level 20 and the CEO. Other than
with respect to Mr. Jochum's special bonus, individual performance bonuses
are not included in the 1996 Management Bonus Plan. Bonuses will be
solely predicated on the consolidated performance of Mid Atlantic Medical
Services, Inc. (MAMSI) and will be accrued on at least a quarterly basis
as documented by the year end audited financial statements.
Bonuses shall be paid according to the following guidelines:
1. Minimum Bonus - Minimum bonuses shall be paid if the Company
(MAMSI) achieves a profit of $106 million before income taxes,
expansion or acquisition costs, and prior to the physicians'
return of withhold and payment of physicians' bonuses.
2. Maximum Bonus - Maximum bonuses shall be paid if the Company
(MAMSI) achieves a profit of $115 million before income taxes,
expansion or acquisition costs, and prior to the physicians'
return of withhold and payment of physicians' bonuses.
3. Pro-ration - In the event that the Company earns between $106
million and $115 million, bonus will be pro-rated accordingly.
4. Bonus Base - In general, bonus payments will be calculated on
cash payments made during the year for base salary, which would
take into account salary increases due to promotion or merit
increases. Pro-rated calculations will be made at each salary
level for the portion of the year that the new level is in
effect. However, with respect to executive officers hired prior
to March 1, 1996, bonus payments will disregard salary and grade
level changes made after March 1, 1996.
5. New Employees - New full-time employees are eligible to
participate in the plan during their first year of employment.
The bonus payment will be pro-rated accordingly for the portion
of the year that the employee was employed.
6. Termination - No bonus shall be paid to bonus participants who
terminate or are terminated by the Company prior to the year end.
In the event of retirement or death, the employee or his/her
beneficiary will receive a pro-rated portion of the bonus.
7. Time of Payment - Bonus payments shall be distributed immediately
following the receipt of the audited financial statement(s) for
MAMSI for the year 1996.
<PAGE>
8. Bonus Percentages - The distribution of the bonus payments to the
Management personnel shall be limited according to the following
percentage ranges. These allocations will be reviewed annually
and adjusted if necessary.
CEO 25 - 50%
Grade 18 and above (excluding CEO) 12 - 35%
Grade 17 11 - 30%
Grade 16 10 - 28%
Grade 15 9 - 21%
Grade 14 8 - 16%
Grades 12 & 13 7 - 12%
Grades 10 & 11 5 - 7%
9. CEO's Special Bonus - In addition to the above bonus, in 1996 the
CEO, Mr. Jochum, will receive an additional bonus of up to a
maximum of 50 percent of his salary in effect on March 1, 1996
("1996 base salary") in the following circumstances: he will
earn 20 percent of that bonus if actual membership growth is
300,000 members, 40 percent of that bonus if actual membership
growth is 325,000 members, 60 percent of that bonus if actual
membership growth is 350,000 members, 80 percent of that bonus if
actual membership growth is 375,000 members, and 100 percent of
that bonus (or 50 percent of his 1996 base salary) if actual
membership growth for 1996 exceeds 400,000 members.
10. Amendment - The Board of Directors may amend the 1996 Management
Bonus Plan to materially increase the amounts payable thereunder
to participants, other than executive officers, or for any other
reason.
2
<PAGE>
APPENDIX B
MID ATLANTIC MEDICAL SERVICES, INC.
1996 NON-QUALIFIED STOCK OPTION PLAN
Article I. Purpose, Adoption and Term of the Plan
1.01 Purpose. The purpose of the Mid Atlantic Medical Services,
Inc. 1996 Non-Qualified Stock Option Plan (hereinafter referred to as the
"Plan") is to advance the interests of the Company (as hereinafter
defined) and its Subsidiaries (as hereinafter defined) by encouraging and
providing for the acquisition of an equity interest in the Company by non-
employee directors and key employees through the grant of options to
purchase Common Stock (as hereinafter defined). The Plan will enable the
Company to retain the services of non-employee directors and key employees
upon whose judgment, interest, and special effort the successful conduct
of its operations is largely dependent and to compete effectively with
other enterprises for the services of non-employee directors and key
employees as may be needed for the continued improvement of its business.
1.02 Adoption and Term. The Plan shall become effective on May
1, 1996, subject to the prior approval of a simple majority of the holders
of Common Stock represented, by person or by proxy, and entitled to vote
at an annual or special meeting of the holders of Common Stock. The Plan
shall terminate on April 30, 2001, or such earlier date as shall be
determined by the Board (as hereinafter defined).
Article II. Definitions
For purposes of the Plan, capitalized terms shall have the
following meanings:
2.01 Beneficiary means an individual, trust or estate who or
that, by will or the laws of descent and distribution, succeeds to the
rights and obligations of the Participant under the Plan and an Option
Agreement upon the Participant's death.
2.02 Board means the Board of Directors of the Company.
2.03 Cause means, with respect to a Participant who is a Non-
Employee Director, removal as a director by the holders of Common Stock or
by the Board for cause; provided, however, that, if a Non-Employee
Director is not a director of the Company, removal as a director by the
holders of common stock of any Subsidiary on whose Board of Directors he
or she serves or by such Board of Directors for cause.
2.04 Code means the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto. References to a section of
the Code shall include that section and any comparable section or sections
of any future legislation that amends, supplements, or supersedes said
section.
2.05 Committee means a committee of the Board as may be
appointed, from time to time, by the Board. The Board may, from time to
time, appoint members of the Committee in substitution for those members
<PAGE>
who were previously appointed and may fill vacancies, however caused, in
the Committee. The Committee shall be composed of at least three
directors of the Company, each of whom is a "disinterested person" as
defined in Rule 16b-3, as promulgated by the SEC under the Exchange Act,
and an "outside director" within the meaning of Section 162(m) of the Code
and the regulations thereunder. The Committee shall have the power and
authority to administer the Plan in accordance with Article III.
2.06 Common Stock means the Common Stock, par value $.01 per
share, of the Company.
2.07 Company means Mid Atlantic Medical Services, Inc., a
corporation organized under the laws of the State of Delaware, and its
successors.
2.08 Date of Grant means the date designated by the Committee
(or its designee pursuant to Section 3.01) as the date as of which it
grants an Option, which shall not be earlier than the date on which the
Committee (or such designee) approves the granting of such Option.
2.09 Disability has the meaning specified in Section 22(e)(3) of
the Code.
2.10 Disability Date means the date as of which an Employee
Participant is determined by the Committee to have a Disability.
2.11 Employee Participant means a Participant who is not a Non-
Employee Director.
2.12 ERISA means the Employee Retirement Income Security Act of
1974, as amended.
2.13 Exchange Act means the Securities Exchange Act of 1934, as
amended.
2.14 Fair Market Value of a share of Common Stock means, as of
any given date, the closing sales price of a share of Common Stock on such
date on the principal national securities exchange on which the Common
Stock is then traded or, if the Common Stock is not then traded on a
national securities exchange, the closing sales price or, if none, the
average of the bid and asked prices of the Common Stock on such date as
reported on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"); provided, however, that, if there were no
sales reported as of such date, Fair Market Value shall be computed as of
the last date preceding such date on which a sale was reported; provided,
further, that, if any such exchange or quotation system is closed on any
day on which Fair Market Value is to be determined, Fair Market Value
shall be determined as of the first date immediately preceding such date
on which such exchange or quotation system was open for trading. In the
event the Common Stock is not admitted to trade on a securities exchange
or quoted on Nasdaq, the Fair Market Value of a share of Common Stock as
- 2 -
<PAGE>
of any given date shall be as determined in good faith by the Committee,
which determination may be based on, among other things, the opinion of
one or more independent and reputable appraisers qualified to value
companies in the Company's line of business. Notwithstanding the
foregoing, the Fair Market Value of a share of Common Stock shall never be
less than par value per share.
2.15 Non-Employee Director means each member of the Board or of
the Board of Directors of a Subsidiary, in each case who is not an
employee of the Company or of any of its Subsidiaries.
2.16 Non-Employee Director Option means an Option granted in
accordance with Article VII.
2.17 Option Agreement means a written agreement between the
Company and a Participant specifically setting forth the terms and
conditions of an Option granted to a Participant under the Plan.
2.18 Option means any option to purchase Common Stock granted to
an Employee Participant pursuant to Article V or to a Non-Employee
Director pursuant to Article VII. All Options granted under the Plan
shall be Options that do not qualify as incentive stock options under
Section 422 of the Code.
2.19 Participant means any employee of the Company or any of its
Subsidiaries selected by the Committee to receive an Option under the Plan
in accordance with Article V and, solely to the extent provided in Article
VII, any Non-Employee Director.
2.20 Plan means the Mid Atlantic Medical Services, Inc. 1996
Non-Qualified Stock Option Plan as set forth herein, and as the same may
be amended from time to time.
2.21 SEC means the Securities and Exchange Commission.
2.22 Subsidiary means a company more than 50% of the equity
interests of which are beneficially owned, directly or indirectly, by the
Company.
2.23 Termination of Employment means, with respect to an
Employee Participant, the voluntary or involuntary termination of a
Participant's employment with the Company or any of its Subsidiaries for
any reason, including death, Disability, retirement or as the result of
the sale or other divestiture of the Participant's employer or any similar
transaction in which the Participant's employer ceases to be the Company
or one of its Subsidiaries. Whether entering military or other government
service shall constitute Termination of Employment, and whether a
Termination of Employment is a result of Disability, shall be determined
in each case by the Committee.
Article III. Administration
- 3 -
<PAGE>
3.01 Committee. The Plan shall be administered by the
Committee, which shall have exclusive and final authority in each
determination, interpretation, or other action affecting the Plan and its
Participants. The Committee shall have the sole and absolute discretion
to interpret the Plan, to establish and modify administrative rules for
the Plan, to select the officers and other key employees to whom Options
may be granted, to determine the terms and provisions of the respective
Option Agreements (which need not be identical), to determine all claims
for benefits under the Plan, to impose such conditions and restrictions on
Options as it determines appropriate, to determine whether the shares
delivered on exercise of Options will be treasury shares or will be
authorized but previously unissued shares, and to take such steps in
connection with the Plan and Options granted hereunder as it may deem
necessary or advisable. No action of the Committee will be effective if
it contravenes or amends the Plan in any respect. The Committee may, with
respect to Participants who are not subject to Section 16 of the Exchange
Act or "covered employees" within the meaning of Section 162(m) of the
Code and the regulations thereunder, delegate such of its powers and
authority under the Plan as it deems appropriate to the Company's
President or any member of the Committee, provided that the Committee
shall regularly review all actions taken pursuant to such delegation of
authority.
3.02 Actions of the Committee. All determinations of the
Committee shall be made by a majority vote of its members. Any decision
or determination reduced to writing and signed by all of the members shall
be fully as effective as if it had been made by a majority vote at a
meeting duly called and held. The Committee shall also have express
authorization to hold Committee meetings by conference telephone, or
similar communication equipment by means of which all persons
participating in the meeting can hear each other.
Article IV. Shares of Common Stock
4.01 Number of Shares of Common Stock Issuable. Subject to
adjustments as provided in Section 8.05, 3,000,000 shares of Common Stock
shall be available for Options under the Plan. Any and all of such shares
may be issued pursuant to Options granted to Employee Participants or to
Non-Employee Directors. The Common Stock to be offered under the Plan
shall be authorized and unissued Common Stock, or issued Common Stock that
shall have been reacquired by the Company and held in its treasury.
4.02 Number of Shares of Common Stock Awarded to any
Participant. In the event the purchase price of an Option is paid, or
related tax or withholding payments are satisfied, in whole or in part
through the delivery of shares of Common Stock issuable in connection with
the exercise of the Option, a Participant will be deemed to have received
an Option with respect to those shares of Common Stock.
- 4 -
<PAGE>
4.03 Shares of Common Stock Subject to Terminated Options. The
Common Stock covered by any unexercised portions of terminated Options may
again be subject to new Options under the Plan.
Article V. Participation
5.01 Eligible Participants. Employee Participants in the Plan
shall be such officers and other key employees of the Company or its
Subsidiaries, whether or not directors of the Company, as the Committee,
in its sole discretion, may designate from time to time. In making such
designation, the Committee may take into account the nature of the
services rendered by the officers and key employees, their present and
potential contributions to the success of the Company, and such other
factors as the Committee, in its discretion, may deem relevant. The
Committee's designation of an Employee Participant in any year shall not
require the Committee to designate such person to receive Options in any
other year. The Committee shall consider such factors as it deems
pertinent in selecting Employee Participants and in determining the type
and amount of their respective Options.
Non-Employee Directors shall receive Non-Employee Director
Options in accordance with Article VII, the provisions of which are
automatic and non-discretionary in operation. Non-Employee Directors
shall not be eligible to receive any other Options under the Plan unless
they are no longer Non-Employee Directors on the Date of Grant of such
Options.
A Participant may hold more than one Option granted under the
Plan.
Article VI. Stock Options
6.01 Grant of Option. Any Option granted under the Plan shall
have such terms as the Committee may, from time to time, approve, and the
terms and conditions of Options need not be the same with respect to each
Participant. No Employee Participant may receive more than 200,000
Options under the Plan during the term of the Plan.
6.02 Terms of Options. Options granted under the Plan shall be
subject to the following terms and conditions and shall be in such form
and contain such additional terms and conditions, not inconsistent with
the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of
Common Stock purchasable under an Option shall be
determined by the Committee at the time of grant but
shall not be less than 100% of the Fair Market Value of a
share of Common Stock on the Date of Grant.
- 5 -
<PAGE>
(b) Option Term. The term of each Option shall
be fixed by the Committee, but no Option shall be
exercisable more than five years after the Date of Grant.
(c) Exercisability. An Option Agreement with
respect to Options may contain such performance targets,
waiting periods, exercise dates and restrictions on
exercise (including, but not limited to, a requirement
that an Option is exercisable in periodic installments),
if any, as may be determined by the Committee at the time
of grant. To the extent not exercised, installments
shall cumulate and be exercisable, in whole or in part,
at any time after becoming exercisable, subject to the
limitations set forth in Sections 6.02(b) and (g).
(d) Method of Exercise. Subject to whatever
installment exercise and waiting period provisions that
apply under subsection (c) above, Options may be
exercised in whole or in part at any time during the term
of the Option, by giving written notice of exercise to
the Company specifying the number of shares of Common
Stock to be purchased. Such notice shall be accompanied
by payment in full of the purchase price in such form as
the Committee may accept (including payment in accordance
with a cashless exercise program approved by the
Committee). A Participant shall also have the right to
pay the exercise price, in full or in part, in the form
of Common Stock duly owned by the Participant (and for
which the Participant has good title, free and clear of
any liens and encumbrances). Any already issued Common
Stock used for payment must have been held by the
Participant for at least six months. No Common Stock
shall be issued on exercise of an Option until payment,
as provided herein, therefor has been made. A
Participant shall generally have the right to dividends
or other rights of a stockholder with respect to Common
Stock subject to the Option only when certificates for
shares of Common Stock are issued to the Participant.
(e) Non-Transferability of Options. No Option
shall be transferable by the Participant otherwise than
by will, by the laws of descent and distribution, or
pursuant at a qualified domestic relations order as
defined by the Code, Title I of ERISA or the rules
thereunder.
(f) Acceleration or Extension of Exercise Time.
The Committee, in its sole discretion, shall have the
right (but shall not in any case be obligated) to permit
purchase of Common Stock subject to any Option granted to
an Employee Participant prior to the time such Option
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<PAGE>
would otherwise become exercisable under the terms of the
Option Agreement. In addition, the Committee, in its
sole discretion, shall have the right (but shall not in
any case be obligated) to permit any Option granted to an
Employee Participant to be exercised after its expiration
date, subject, however to the limitation set forth in
Section 6.02(b).
(g) Exercise of Options Upon Termination of
Employment.
(i) Exercise of Vested Options
Upon Termination of Employment.
(A) Termination.
Unless the Committee, in its
sole discretion, provides for a
shorter or longer period of time
in the Option Agreement or a
longer period of time in
accordance with Section 6.02(f),
upon an Employee Participant's
Termination of Employment other
than by reason of death or
Disability, the Employee
Participant may, within three
months from the date of such
Termination of Employment,
exercise all or any part of his
or her Options as were
exercisable at the date of
Termination of Employment. In
no event, however, may any
Option be exercised later than
the date determined pursuant to
Section 6.02(b).
(B) Disability.
Unless the Committee, in its
sole discretion, provides for a
shorter or longer period of time
in the Option Agreement or a
longer period of time in
accordance with Section 6.02(f),
upon an Employee Participant's
Disability Date, the Employee
Participant may, within one year
after the Disability Date,
exercise all or a part of his or
her Options, whether or not such
Option was exercisable on the
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Disability Date, but only to the
extent not previously exercised.
In no event, however, may any
Option be exercised later than
the date determined pursuant to
Section 6.02(b).
(C) Death. Unless the
Committee, in its sole
discretion, provides for a
shorter or longer period of time
in the Option Agreement or a
longer period of time in
accordance with Section 6.02(f),
in the event of the death of an
Employee Participant while
employed by the Company, the
right of the Employee
Participant's Beneficiary to
exercise the Option in full
(whether or not all or any part
of the Option was exercisable as
of the date of death of the
Employee Participant, but only
to the extent not previously
exercised) shall expire upon the
expiration of one year from the
date of the Employee
Participant's death or on the
date of expiration of the Option
determined pursuant to Section
6.02(b), whichever is earlier.
(ii) Expiration of Unvested
Options Upon Termination of Employment.
Subject to Sections 6.02(f) and
6.02(g)(i)(C), to the extent all or any
part of an Option granted to an Employee
Participant was not exercisable as of
the date of Termination of Employment,
such right shall expire at the date of
such Termination of Employment.
Notwithstanding the foregoing, the
Committee, in its sole discretion and
under such terms as it deems
appropriate, may permit an Employee
Participant who will continue to render
significant services to the Company
after his or her Termination of
Employment to continue to accrue service
with respect to the right to exercise
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his or her Options during the period in
which the individual continues to render
such services.
Article VII. Non-Employee Director Options
7.01 Grant of Non-Employee Director Options; Exercise Price;
Term. On May 1, 1996, each person who is a Non-Employee Director on such
date shall be granted a Non-Employee Director Option to purchase the
number of shares of Common Stock determined in accordance with Section
7.02. A Non-Employee Director shall only receive one Non-Employee
Director Option on May 1, 1996, even if he or she serves as a Non-Employee
Director of the Company and/or of one or more of its Subsidiaries.
The exercise price per share for Non-Employee Director Options
shall be the Fair Market Value of a share of Common Stock on the Date of
Grant. All Non-Employee Director Options shall have a five year term.
7.02 Number of Shares. Each Non-Employee Director Option shall
entitle the holder to purchase 3,000 shares of Common Stock; provided,
however, that, if a Non-Employee Director is not a Non-Employee Director
of the Company on the Date of Grant of the Option, his or her Non-Employee
Director Option shall only entitle him or her to purchase 2,400 shares of
Common Stock.
Such number of shares is, however, subject to increase (but not
decrease) based on the application of both of the factors described in
Sections 7.02 (a) and (b) below; provided, however, that the number of
shares of Common Stock covered by a Non-Employee Director Option shall be
increased by one or two shares of Common Stock so that the number of
covered shares is divisible by three and provided further, however, that a
Non-Employee Director Option shall not entitle the holder to purchase more
than 6,000 shares (4,800 shares if a Non-Employee Director is not a Non-
Employee Director of the Company on the Date of Grant of the Option) of
Common Stock.
(a) Number of Years of Service. Each Non-
Employee Director Option shall entitle the holder to
purchase an additional 150 shares (120 shares if a Non-
Employee Director is not a Non-Employee Director of the
Company on the Date of Grant of the Option) of Common
Stock for each calendar year the Non-Employee Director
has served as a director of the Company or of one of its
Subsidiaries, but only if such calendar year has been
completed prior to the Date of Grant of the Non-Employee
Director Option. The following rules shall apply in
calculating years of service as a director:
(i) Partial Service. If a
person has served as a director of the
Company or as a director of any of its
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Subsidiaries at any time during a
calendar year, that calendar year shall
count as one year of service even if the
person did not serve as such for a full
year;
(ii) Multiple Service.
Notwithstanding the foregoing, service
as a director of the Company and/or as a
director of one or more of its
Subsidiaries during any calendar year
shall not be double counted.
Accordingly, if a person has served as a
director of the Company and as a
director of one or more of its
Subsidiaries during a calendar year,
that calendar year shall count as only
one year of service; and
(iii) Service as an Employee.
Notwithstanding the foregoing, if a Non-
Employee Director served as an employee
of the Company or of one of its
Subsidiaries at any time during a
calendar year, that calendar year shall
not count as a year of service.
(b) Increase in Earnings Per Share. The
number of shares covered by a Non-Employee Director
Option shall also be increased (but not decreased) by (i)
the percentage increase in earnings per share of Common
Stock during the previous two completed fiscal years,
multiplied by (ii) 3,000 shares (2,400 shares if a Non-
Employee Director is not a Non-Employee Director of the
Company on the Date of Grant of the Option). Earnings
per share of Common Stock shall be determined by
reference to the audited consolidated financial
statements of the Company, as adjusted to reflect any
stock dividends or stock splits that occur during such
fiscal years.
The increase in earnings per share shall be
determined by the following calculation:
(A) earnings per share
(expressed as a dollar amount) in fiscal
1995 minus earnings per share (expressed
as a dollar amount) in fiscal 1994,
divided by
(B) earnings per share
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(expressed as a dollar amount) in fiscal
1994;
provided, however, that the number of shares covered by a
Non-Employee Director Option shall not be adjusted under
this Section 7.02(b) if the Company suffers a loss per
share in fiscal 1995 or if earnings per share in 1995 is
not greater than earnings per share in 1994.
For example, if earnings per share of Common
Stock in fiscal 1995 increased by 25% over fiscal 1994,
each Non-Employee Director Option (1) granted to a person
who is a Non-Employee Director of the Company on May 1,
1996 would entitle the holder thereof to purchase an
additional 750 shares of Common Stock (25% of 3,000
shares) (assuming the 6,000 share limitation is not
otherwise exceeded as a result of the application of
Section 7.02(a)) and (2) granted to a Non-Employee
Director who is not Non-Employee Director of the Company
on May 1, 1996 would entitle the holder thereof to
purchase an additional 600 shares of Common Stock (25% of
2,400 shares) (assuming the 4,800 share limitation is not
otherwise exceeded as a result of the application of
Section 7.02(a)).
7.03 Exercisability. Each Non-Employee Director Option shall
become exercisable cumulatively in three equal installments on June 1,
1997, June 1, 1998 and June 1, 1999; provided, however, that, if a Non-
Employee Director is removed for Cause, any Option held by such Non-
Employee Director shall cease to continue to become exercisable on or
after the date of such removal.
7.04 Termination. If a Non-Employee Director's service with the
Company terminates for any reason or if such person ceases to be a Non-
Employee Director, such Option shall continue to become exercisable in
accordance with Section 7.03 and may be exercised until the expiration of
the stated term of the Option. Accordingly, if a Non-Employee Director is
removed for Cause, he or she may continue to exercise his or her Non-
Employee Director Option until the expiration of the stated term of such
Option, but only to the extent that (a) such Option became exercisable
prior to the date of such removal and (b) it was not previously exercised.
7.05 Other Plan Provisions. All applicable provisions of the
Plan (other than Sections 6.02(f) and (g)) not inconsistent with this
Article VII shall apply to Options granted to Non-Employee Directors.
Article VIII. Terms Applicable to All Options Granted Under the
Plan
8.01 Plan Provisions Control Option Terms. The terms of the
Plan shall govern all Options granted under the Plan, and in no event
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shall the Committee have the power to grant to a Participant any Option
under the Plan that is contrary to any provisions of the Plan. In the
event any provision of any Option granted under the Plan shall conflict
with any of the terms in the Plan as constituted on the Date of Grant of
such Option, the terms in the Plan as constituted on the Date of Grant of
such Option shall control. Except as provided in Section 8.03 or unless
otherwise provided by the Committee, in its sole discretion, in the Option
Agreement, the terms of any Option granted under the Plan may not be
changed after the Date of Grant of such Option so as to materially
decrease the value of the Option without the express written approval of
the holder.
8.02 Option Agreement. No person shall have any rights under
any Option granted under the Plan unless and until the Company and the
Participant to whom such Option shall have been granted shall have
executed and delivered an Option Agreement authorized by the Committee
expressly granting the Option to such person and containing provisions
setting forth the terms of the Option. If there is any conflict between
the provisions of an Option Agreement and the terms of the Plan, the terms
of the Plan shall control.
8.03 Modification of Option After Grant. Except as provided by
the Committee, in its sole discretion, in the Option Agreement or as
provided in Section 8.05, no Option granted under the Plan to a
Participant may be modified (unless such modification does not materially
decrease the value of the Option) after the Date of Grant except by
express written agreement between the Company and the Participant,
provided that any such change (a) shall not be inconsistent with the terms
of the Plan, and (b) shall be approved by the Committee.
8.04 Taxes. The Company shall be entitled, if the Committee
deems it necessary or desirable, to withhold (or secure payment from the
Participant in lieu of withholding) the amount of any withholding or other
tax required by law to be withheld or paid by the Company with respect to
any Common Stock issuable under such Participant's Option, and the Company
may defer issuance of Common Stock upon the grant or exercise of an Option
unless indemnified to its satisfaction against any liability for any such
tax. The amount of such withholding or tax payment shall be determined by
the Committee or its delegate and shall be payable by the Participant at
such time as the Committee determines. A Participant shall be permitted
to satisfy his or her tax or withholding obligation by (a) having cash
withheld from the Participant's salary or other compensation payable by
the Company, (b) the payment of cash by the Participant to the Company,
and/or (c) with the approval of the Committee, the withholding from the
Option, at the appropriate time, of a number of shares of Common Stock
sufficient, based upon the Fair Market Value of such Common Stock, to
satisfy such tax or withholding requirements. A Participant's election to
have withheld shares of Common Stock that are otherwise issuable on
exercise of an Option shall be in writing, shall be irrevocable upon
approval by the Committee, shall be delivered to the Company prior to the
date on which the amount of tax to be withheld is determined, and shall
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otherwise be made in conformity with SEC Rule 16b-3(e).
8.05 Adjustments to Reflect Capital Changes; Change in Control.
(a) Recapitalization. The number and kind of
shares subject to outstanding Options, the purchase price
or exercise price of such Options, the amount of Non-
Employee Director Options to be granted on any date under
Section 7.02, and the number and kind of shares available
for Options subsequently granted under the Plan shall be
appropriately adjusted to reflect any stock dividend,
stock split, combination or exchange of shares, merger,
consolidation or other change in capitalization with a
similar substantive effect upon the Plan or the Options
granted under the Plan. The Committee shall have the
power and sole discretion to determine the nature and
amount of the adjustment to be made in each case.
(b) Sale or Reorganization. After any
reorganization, merger, or consolidation in which the
Company is the surviving entity, each Participant shall,
at no additional cost, be entitled upon the exercise of
an Option outstanding prior to such event to receive
(subject to any required action by stockholders), in lieu
of the number of shares of Common Stock receivable on
exercise pursuant to such Option, the number and class of
shares of stock or other securities to which such
Participant would have been entitled pursuant to the
terms of the reorganization, merger, or consolidation if,
at the time of such reorganization, merger, or
consolidation, such Participant had been the holder of
record of a number of shares of Common Stock equal to the
number of shares of Common Stock receivable on exercise
pursuant to such Option. Comparable rights shall accrue
to each Participant in the event of successive
reorganizations, mergers, or consolidations of the
character described above.
(c) Options to Purchase Stock of Acquired
Companies. After any reorganization, merger, or
consolidation in which the Company shall be a surviving
entity, the Committee may grant substituted Options under
the provisions of the Plan, replacing old options granted
under a plan of another party to the reorganization,
merger, or consolidation whose stock subject to the old
options may no longer be issued following such
reorganization, merger, or consolidation. The foregoing
adjustments and manner of application of the foregoing
provisions shall be determined by the Committee in its
sole discretion. Any such adjustments may provide for
the elimination of any fractional shares of Common Stock
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that might otherwise become subject to any Options.
(d) Changes in Control. (i) Upon the
dissolution or liquidation of the Company, (ii) upon a
reorganization, merger, or consolidation in which the
Company is not the surviving corporation, (iii) upon the
sale of substantially all of the property or assets of
the Company to another corporation, or (iv) if at least
50% or more of the voting stock of the Company is sold
either through a tender offer or otherwise to a party or
an affiliated group of parties, then the Plan and the
Options issued thereunder shall terminate, unless
provisions are made in connection with such transaction
for the assumption of Options theretofore granted, or for
the substitution for such Options of new options of the
successor corporation or a parent or subsidiary thereof,
with appropriate adjustment as to the number and kinds of
shares and the per share exercise prices. In the event
such Options shall be terminated, all outstanding Options
shall be exercisable in full for at least 30 days prior
to such termination date, whether or not exercisable
during such period, subject, however, to the limitation
set forth in Sections 6.02(b) and 7.01. For purposes of
this Section 8.05(d), the Company refers to Mid Atlantic
Medical Services, Inc., MD-Individual Practice
Association, Inc., Optimum Choice, Inc., and/or
Physicians Health Plan of Maryland, Inc., jointly or
separately. The Committee shall determine the date on
which Options may become exercisable pursuant to this
Section 8.05(d).
8.06 Surrender of Options. Any Option granted to a Participant
under the Plan may be surrendered to the Company for cancellation on such
terms as the Committee and holder approve.
8.07 No Right to Option; No Right to Employment. Except as
provided in Article VII, no director, employee or other person shall have
any claim or right to be granted an Option. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee any right
to be retained in the employ of the Company or any of its Subsidiaries.
8.08 Options Not Includable for Benefit Purposes. Income
recognized by a Participant pursuant to the provisions of the Plan shall
not be included in the determination of benefits under any employee
pension benefit plan (as such term is defined in Section 3(2) of ERISA) or
group insurance or other benefit plans applicable to the Participant that
are maintained by the Company or any of its Subsidiaries, except as may be
provided under the terms of such plans or determined by resolution of the
Board.
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8.09 Governing Law. The Plan and all determinations made and
actions taken pursuant to the Plan shall be governed by the laws of the
State of Delaware other than the conflict of laws provisions of such laws,
and shall be construed in accordance therewith.
8.10 No Strict Construction. No rule of strict construction
shall be implied against the Company, the Committee, or any other person
in the interpretation of any of the terms of the Plan, any Option granted
under the Plan or any rule or procedure established by the Committee.
8.11 Compliance with SEC Rule 16b-3 and Section 162(m). It is
intended that the Plan be applied and administered in compliance with SEC
Rule 16b-3 and with Section 162(m) of the Code and the regulations
thereunder (Section 162(m) of the Code and such regulations are
collectively hereinafter referred to as "Section 162(m)"). If any
provision of the Plan would be in violation of Rule 16b-3 or Section
162(m) if applied as written, such provision shall not have effect as
written and shall be given effect so as to comply with Rule 16b-3 or
Section 162(m), as the case may be, as determined by the Committee. The
Board is authorized to amend the Plan and to make any such modifications
to Option Agreements to comply with Rule 16b-3 and Section 162(m), as they
may be amended from time to time, and to make any other such amendments or
modifications deemed necessary or appropriate to better accomplish the
purposes of the Plan in light of any amendments made to Rule 16b-3 and
Section 162(m).
8.12 Captions. The captions (i.e., all Section headings) used
in the Plan are for convenience only, do not constitute a part of the
Plan, and shall not be deemed to limit, characterize, or affect in any way
any provisions of the Plan, and all provisions of the Plan shall be
construed as if no captions have been used in the Plan.
8.13 Severability. Whenever possible, each provision in the
Plan and every Option at any time granted under the Plan shall be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of the Plan or any Option at any time granted
under the Plan shall be held to be prohibited by or invalid under
applicable law, then (a) such provision shall be deemed amended to
accomplish the objectives of the provision as originally written to the
fullest extent permitted by law, and (b) all other provisions of the Plan
and every other Option at any time granted under the Plan shall remain in
full force and effect.
8.14 Legends. All certificates for Common Stock delivered under
the Plan shall be subject to such transfer restrictions set forth in the
Plan and such other restrictions as the Committee may deem advisable under
the rules, regulations, and other requirements of the SEC, any stock
exchange upon which the Common Stock is then listed, and any applicable
federal or state securities law. The Committee may cause a legend or
legends to be put on any such certificates to make appropriate references
to such restrictions.
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8.15 Investment Representation. The Committee may, in its
discretion, demand that any Participant awarded an Option deliver to the
Committee at the time of exercise of such Option a written representation
that the shares of Common Stock to be acquired upon exercise are to be
acquired for investment and not for resale or with a view to the
distribution thereof. Upon such demand, delivery of such written
representation by the Participant prior to the delivery of any shares of
Common Stock pursuant to the exercise of his or her Option shall be a
condition precedent to the Participant's right to purchase or otherwise
acquire such shares of Common Stock by such exercise. The Company is not
legally obliged hereunder if fulfillment of its obligations under the Plan
would violate federal or state securities laws.
8.16 Amendment and Termination.
(a) Amendment. The Board shall have complete
power and authority to amend the Plan at any time it is
deemed necessary or appropriate; provided, however, that
the Board shall not, without the affirmative approval of
a simple majority of the holders of Common Stock,
represented, by person or by proxy, and entitled to vote
at an annual or special meeting of the holders of Common
Stock, make any amendment that requires stockholder
approval under SEC Rule 16b-3, Section 162(m) or under
any other applicable law, unless the Board determines
that compliance with Rule 16b-3, Section 162(m) and/or
such law is no longer desired. No termination or
amendment of the Plan may, without the consent of the
Participant to whom any Option shall theretofore have
been granted under the Plan, adversely affect the right
of such individual under such Option; provided, however,
that the Committee may, in its sole discretion, make
provision in an Option Agreement for such amendments
that, in its sole discretion, it deems appropriate.
Article VII shall not be amended or modified more
frequently than once in any period of six consecutive
months other than to comport with changes in the ERISA,
the Code or the rules and regulations promulgated
thereunder.
(b) Termination. The Board shall have the right
and the power to terminate the Plan at any time. No
Option shall be granted under the Plan after the
termination of the Plan, but the termination of the Plan
shall not have any other effect and any Option
outstanding at the time of the termination of the Plan
may be exercised after termination of the Plan at any
time prior to the expiration date of such Option to the
same extent such Option would have been exercisable had
the Plan not terminated.
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8.17 Costs and Expenses. All costs and expenses incurred in
administering the Plan shall be borne by the Company.
8.18 Unfunded Plan. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or make
any other segregation of assets to assure the payment of any award under
the Plan.
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