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 240.14a-11(c) or 240.14a-12
Mid Atlantic Medical Services, Inc.
__________________________________________________
(Name of Registrant as Specified In Its Charter)
_______________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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 (set
forth the amount on which the filing is calculated
and state how it was determined):____________________
4) Proposed maximum aggregate value of transaction:_________
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.
<PAGE>
1) Amount Previously
Paid:
2) Form, Schedule or Registration Statement No.:____
3) Filing
Party:
4) Date
Filed:
<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 26, 1999
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders ("Annual
Meeting") of Mid Atlantic Medical Services, Inc. ("Company") will be held on
April 26, 1999 at 10:00 a.m., Rockville time, at the Company's offices located
at 10 Taft Court, Rockville, Maryland 20850 for the following purposes:
1. To elect five directors for a three year term and one director
for a two year term (Proposal 1);
2. To ratify the adoption of the 1999 Non-Qualified Stock Option Plan
(Proposal 2);
3. To ratify the adoption of the 1999 Senior Management Bonus Plan
(Proposal 3); and
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 4, 1999, 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/Sharon C. Pavlos
Sharon C. Pavlos
Secretary
Rockville, Maryland
March 31, 1999
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.
<PAGE>
MID ATLANTIC MEDICAL SERVICES, INC.
4 Taft Court
Rockville, Maryland 20850
(301) 762-8205
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 26, 1999
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 1999 annual meeting of stockholders of the Company ("Annual Meeting"), to
be held on April 26, 1999, at 10:00 a.m., Rockville time, at the Company's
offices located at 10 Taft Court, 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 31, 1999.
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; and (2) FOR Proposal 2 to ratify the adoption
of the 1999 Non-Qualified Stock Option Plan ("1999 Plan"); and (3) FOR Proposal
3 to ratify the adoption of the 1999 Senior Management Bonus Plan. If any other
matters are properly brought before the Annual Meeting that require a
stockholder's 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"), HomeCall, Inc. ("HomeCall"), HomeCall
Pharmaceutical Services, Inc. ("HPS," formerly known as HomeCall Infusion
Services, Inc.), HomeCall Hospice Services, Inc. ("HHS"), Mid Atlantic
Psychiatric Services, Inc. ("MAPSI"), Alliance PPO, LLC ("Alliance"), MAMSI Life
and Health Insurance Company ("MLH"), FirstCall, Inc. ("FirstCall"), Optimum
Choice, Inc. of Pennsylvania ("OCIPA"), Optimum Choice of the Carolinas, Inc.
("OCCI"), MAMSI Insurance Agency of the Carolinas, Inc. ("MIACI"), MAMSI
Insurance Resources, LLC ("MIRI," formerly known as MAMSI Insurance Agency,
Inc.), or Frederick Associates, LLC (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 of the Company. Each share entitles its owner to one vote
on each matter presented at the Annual Meeting. The close of business on March
4, 1999 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 775 record holders of Common Stock as of
such date. The number of shares of Common Stock outstanding on the Record Date
was 51,134,162. 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.
On March 9, 1999, the Company's Board of Directors unanimously
voted to clarify and amend the Company's By-laws to not require any director who
is being elected to fill a vacancy in the Board resulting from an increase in
the number of authorized directors to be elected by the vote of three-quarters
of the votes cast at a meeting of shareholders unless the increase in the number
of authorized directors is a result of an action of the stockholders. Section
2.5(b) of the Company's By-laws as amended March 9, 1999 now reads: "(b) A
majority of the votes cast at a duly held meeting of stockholders at which a
quorum is present (stockholders represented by proxy shall be deemed present)
shall be sufficient to take or authorize action upon any matter which may
properly come before the meeting, unless a greater vote, or voting by classes,
is required by law or by the Certificate of Incorporation or by these By-Laws on
any question, and except that, in elections of directors, those receiving the
greatest number of votes shall be deemed elected even though not receiving a
majority. Notwithstanding the above, at all meetings of the stockholders, any
newly created directorship resulting from any increase in the authorized number
of directors by action of the stockholders may be filled by the affirmative vote
of three-quarters (3/4) of the votes cast at the meeting. Any vacancy in the
Board of Directors resulting from the resignation of a director or for any other
cause other than the removal of a director by the stockholders may be filled by
the affirmative vote of the plurality of the votes cast at the meeting."
A copy of the Annual Report to Stockholders, including certified
financial statements, for the fiscal year ended December 31, 1998, accompanies
this Proxy Statement. The Company is required to file an Annual Report on Form
10-K for its fiscal year ended December 31, 1998 with the Securities and
Exchange Commission ("SEC"). Stockholders may obtain, free of charge, a copy of
such Annual Report by writing to Sharon C. Pavlos, 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 25, 1999 or
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 current 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.
<TABLE>
<CAPTION>
Name Amount and Nature Percent of
of Beneficial Common Stock
Ownership(1) Outstanding
<S> <C> <C>
Thomas P. Barbera* 62,800 (2) **
Francis C. Bruno, M.D.* 49,788 (3) **
John H. Cook, III, M.D. 9,245 (4) **
Raymond H. Cypess, D.V.M., Ph.D. 8,048 (5) **
Stanley M. Dahlman, Ph.D. 7,256 (6) **
J. Stevens Dufresne 178,310 (7) **
Robert E. Foss 51,400 (8) **
Mark D. Groban, M.D. 160,246 (9) **
Joseph L. Guarriello 127,556 (10) **
George T. Jochum 1,728,142 (11) 3.5%
John P. Mamana, M.D. 15,056 (12) **
William M. Mayer, M.D. 52,176 (13) **
Edward J. Muhl 7,056 (14) **
Gretchen P. Murdza 8,578 (15) **
Janet L. Norwood* 0 **
John A. Paganelli* 0 **
Ivan R. Sabel* 0 **
James A. Wild* 9,394 (16) **
All current directors, and 2,677,629 (17) 5.4%
executive officers as a group (27 persons)
</TABLE>
*Nominee for director
**Represents less than 1% of the outstanding shares of Common Stock.
(1) This number includes shares of Common Stock over which the director or
officers has voting power under the Amended and Restated Mid Atlantic
Medical Services, Inc. Stock Compensation Trust Agreement ("Trust").
Under the Trust, each of the persons who holds an option granted under
the Company's 1990 Non-Qualified Stock Option Plan, 1991 Non-Qualified
Stock Option Plan, 1992 Non-Qualified Stock Option Plan, 1993
Non-Qualified Stock Option Plan, 1994 Non-Qualified Stock Option Plan,
1995 Non-Qualified Stock Option Plan, 1996 Non-Qualified Stock Option
Plan, or 1998 Non-Qualified Stock Option Plan (collectively, the
"Plans") has the right to one equal vote of the Common Stock held in
the Trust. As the Trust held 8,523,950 shares of Common Stock on
February 25, 1999 and there were 1,208 option holders under the Plans
as of such date, each option holder has the right to vote 7,056 shares
of Common Stock held by the Trust. Shares for which the trustee of the
Trust does not receive voting instructions will be voted by the
trustee of the Trust for, against or withheld in the same proportions
as those shares of Common Stock for which the trustee does receive
voting instructions. As the number of shares held by the Trust that
each option holder has the right to vote (7,056 shares) is less than
the number of presently exercisable options held by each current
director, executive officer or nominee (other than Dr. Bruno, Dr.
Cook, Dr. Cypess, Dr. Dahlman, Mr. Dufresne, Mr. Guarriello, Dr.
Mamana, Dr. Mayer, Mr. Muhl, Ms. Murdza, and Mr. Wild), the beneficial
ownership of each person (other than Dr. Bruno, Dr. Cook, Dr. Cypess,
Dr. Dahlman, Mr. Dufresne, Mr. Guarriello, Dr. Mamana, Dr. Mayer, Mr.
Muhl, Ms. Murdza, and Mr. Wild ) did not increase as a result of the
Trust.
(2) Represents presently exercisable options to purchase 60,000 shares of
Common Stock.
(3) Includes 2,306 shares of Common Stock held by his spouse and 7,056
shares that he has the right to direct the voting of under the Trust.
(4) Includes 434 shares of Common Stock held by his spouse and 7,056
shares that he has the right to direct the voting of under the Trust.
(5) Includes 7,056 shares that he has the right to direct the voting of
under the Trust. (6) Includes 7,056 shares that he has the right to
direct the voting of under the Trust. (7) Includes 7,056 shares that
he has the right to direct the voting of under the Trust. (8)
Represents 51,000 presently exercisable options to purchase shares of
Common Stock.
(9) Represents 60,000 presently exercisable options to purchase shares of
Common Stock and 9,500 Shares of Common Stock held by his spouse and
children.
(10) Includes 30,000 shares of Common Stock held by his spouse, 7,056
shares that he has the right to direct the voting of under the Trust.
(11) Includes 11,640 shares of Common Stock held by his spouse, 3,420
shares held in his IRA, 3,582 shares held in the Company's 401(k)
Plan, and presently exercisable options to purchase 879,500 shares of
Common Stock.
(12) Includes 7,056 shares that he has the right to direct the voting of
under the Trust and 7,000 shares owned by a partnership and a
corporation in which Dr. Mamana has an ownership interest.
(13) Includes 7,056 shares that he has the right to direct the voting of
under the Trust. (14) Represents 7,056 shares that he has the right to
direct the voting of under the Trust.
(15) Includes 7,056 shares that she has the right to direct the voting of
under the Trust and 302 shares held as part of the Company's 401(K)
Plan.
(16) Includes 7,056 shares that he has the right to direct the voting of
under the Trust.
(17) This number also includes 80,680 shares of Common Stock held by the
spouses of executive officers, 13,250 shares held in executives IRA
accounts, 6,259 shares held in the Company's 401(K) Plan, 4,800 shares
held for the benefit of minor children and 1,111,508 presently
exercisable options to purchase shares of Common Stock.
PRINCIPAL STOCKHOLDERS
As of February 25, 1999, 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>
Name and Address Number of Shares Percent of Outstanding
of Common Stock Common Stock
<S> <C> <C>
Crabbe Huson Group, Inc. 4,925,100 (1) 9.63%
121 S.W. Morrison, Suite 1400
Portland, OR 97204
Massachusetts Financial Services Company 4,391,828 (2) 8.59%
MFS Series Trust II - MFS Energy Growth Fund
500 Boylston Street
Boston, Massachusetts 02116
SG Cowen Securities Corporation 4,982,870 (3) 9.74%
1221 Avenue of the Americas
New York, NY 10020
Franklin Resources, Inc. 4,246,400 (4) 8.3%
Charles B. Johnson
Rupert H. Johnson, Jr.
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin Mutual Advisors, Inc.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
</TABLE>
(1) Crabbe Huson Group, Inc. reports that it has shared voting power
and shared dispositive power with respect to 4,499,200 and 4,925,100
shares, respectively, as an investment adviser registered under Section
203 of the Investment Advisers Act of 1940. This information is based
on Amendment No. 1 to Schedule 13G dated February 12, 1999.
(2) Of these shares of Common Stock, 2,359,888 of the shares are
beneficially owned by MFS Series Trust II MFS Emerging Growth Fund and
4,391,828 are beneficially owned by Massachusetts Financial Services
Company ("MFS") and 2,031,940 shares are beneficially owned by certain
other non-reporting entities. This information is based on a schedule
13G dated February 11, 1999.
(3) SG Cowen Securities Corporation reports that it has sole voting and
dispositive power with respect to 133,220 shares, shared voting power
with respect to 3,814,800 shares, and shared dispositive power with
respect to 4,849,650 shares. This information is based on a Schedule
13G dated February 8, 1999.
(4) Franklin Mutual Advisers, Inc. reports that it has sole voting and
dispositive power with respect to 4,246,400 shares. Franklin
Resources, Inc. reports that it is the parent holding company of
Franklin Mutual Advisers, Inc. and Charles B. Johnson and Rupert H.
Johnson, Jr. report that they are principal shareholders of Franklin
Resources, Inc. This information is based on Amendment 2 to Schedule
13G dated January 27, 1999.
ELECTION OF DIRECTORS
(Proposal 1)
The terms of office of Thomas P. Barbera, Francis C. Bruno, M.D., Stanley
M. Dahlman, Ph.D., and James A. Wild expire at the Annual Meeting. Dr. Francis
C. Bruno, James A. Wild, John A. Paganelli, Ivan R. Sabel, and Janet L. Norwood
have been nominated by the Board of Directors for election to the Board, each to
serve for a three-year term. Mr. Thomas Barbera has been nominated by the Board
of Directors for election to the Board to serve for a two-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 be 14 and, if the
nominees are elected, there will be no vacancies on the Board.
In connection with the settlement of certain litigation among Francis
Bruno, M.D., Stanley Dahlman, Mark D. Groban, M.D., Gretchen Murdza and William
M. Mayer, M.D., current directors of the Company, and George T. Jochum, the
Company's former Chairman, President and Chief Executive Officer, and the
Company, the parties appointed a Transition and Search Committee. This
Committee, composed of Dr. Bruno, Mr. Dahlman, John P. Mamana, M.D. and Edward
J. Muhl, is to identify and recommend to the Board nominees for election as
directors at the Annual Meeting. This Committee identified and proposed Dr.
Bruno, Mr. Wild, John A. Paganelli, Ivan R. Sabel and Janet L. Norwood as
nominees for director at the Annual Meeting.
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 or her intent to serve if elected. Except as noted 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 six 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. 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.
<TABLE>
Name and Age (1) Director Term of Directorships; Positions with the Company
Since Office
Expires
Annual
Meeting
<S> <C> <C> <C>
Continuing Directors:
John H. Cook III, M.D., 62 1990 2001(6) Director of the Company, MLH and PHP-MD.
Raymond H. Cypess, D.V.M., Ph.D., 57 1998 2001 Director of the Company and MLH.
Robert E. Foss, 48 1998 2001 Director of the Company, MLH, HomeCall, FirstCall, HPS,
HHS and Surgicenter; Senior Executive Vice President and
Chief Financial Officer of the Company, MLH, Alliance,
MAPSI, MD-IPA, HomeCall, FirstCall, HPS, HHS,
Surgicenter, OCI, OCIPA, OCCI, MIRI, PHP-MD and MIACI.
Mark D. Groban, M.D., 57 1990 2000(3) Director of the Company, MLH, PHP-MD, MAPSI, MIACI,
MD-IPA, Surgicenter, OCI, OCCI, OCIPA, HomeCall,
FirstCall, HPS, HHS; President of Alliance, MAPSI, and
MIACI; Chairman of the Company, MLH, MAPSI, MIACI,
MD-IPA, Surgicenter, OCI, OCCI, OCIPA, HomeCall,
FirstCall, HPS, HHS; Chief Executive Officer of PHP-MD;
Executive Vice President and Medical Director of Quality
Improvement of the Company, MLH, PHP-MD, FirstCall,
HomeCall, HPS, HHS, MDIPA, Surgicenter, OCI, OCCI, and
OCIPA.
John P. Mamana, M.D., 56 1997 2000 Director of the Company, MLH and PHP-MD.
William M. Mayer, M.D., 51 1993 2000(4) Director of the Company, MLH
and PHP-MD.
Edward J. Muhl, 53 1998 2001 Director of the Company and MLH.
Gretchen P. Murdza, 51 1997 2000 Director of the Company, HomeCall, FirstCall, HPS, HHS,
and MLH; Chief Executive Officer of FirstCall and
HomeCall; President of HPS and HHS.
Nominees (for a three-year term expiring in 2002):
Francis C. Bruno, M.D., 57 1986 1999(2) Director of the Company, MLH and PHP-MD; Chairman of
PHP-MD;Co-Medical Director of HHS.
Janet L. Norwood, 75
John A. Paganelli, 64
Ivan R. Sabel, 53
James A. Wild, 47 1989 1999(5) Director of the Company, MLH,
MD-
IPA and Surgicenter.
Nominee (for a two-year term expiring in 2001)
Thomas P. Barbera, 48 1996 1999 Director of the Company, MLH, MIACI, and MIRI; Vice
Chairman, Chief Executive Officer, President and
Executive Vice President, Governmental Services of the
Company and MLH; Chief Executive Officer and President of
MIRI, OCCI, OCI; Chief Executive Officer of HPS, MD-IPA,
MIACI, OCIPA, HHS and MAPSI; Executive Vice President,
Governmental Services and Assistant Secretary of HPS,
HHS, MIRI, OCCI, FirstCall, and HomeCall; Executive Vice
President, Governmental Services of the Company, MD-IPA,
OCI, OCIPA, Alliance, and MAPSI.
Executive Officers Who Are Not Current Directors or Nominees or Whose Terms as Director Will Not Continue After the 1999
Shareholders Meeting:
Paul E. Dillon, 47 Director of MD-IPA; Senior Vice President, and Treasurer
of the Company, MLH, Alliance, MAPSI, FirstCall,
HomeCall, HPS, HHS, Surgicenter, MD-IPA, OCI, OCIPA,
OCCI, and PHP-MD.
J. Stevens Dufresne, 43 Director of Alliance, MAPSI, PHP-MD, OCI, OCCI, OCIPA,
Surgicenter, MIACI, and MIRI; Chief Executive Officer and
President of Surgicenter; President of OCIPA; Executive
Vice President, Provider Networks of the Company, MLH,
Alliance, FirstCall, HomeCall, HPS, HHS, MAPSI, MDIPA,
OCI, OCCI and PHP-MD.
Vera C. Dvorak, M.D., 52 Director of PHP-MD, HomeCall, and FirstCall; President of
PHP-MD; Executive Vice President and Medical Director of
the Company, Alliance, MAPSI, HomeCall, FirstCall, HPS,
HHS, MD-IPA, OCI, OCCI, OCIPA and Surgicenter.
Catherine M. Fridell, 41 Director of MD-IPA, OCI, OCCI, and OCIPA; Executive Vice
President of Claims and Chief Operating Officer of OCIPA
and OCCI; Executive Vice President of Claims of the
Company, MLH, Alliance, FirstCall, HomeCall, HPS, HHS,
MAPSI, MD-IPA, Surgicenter, OCI, OCCI, OCIPA and PHP-MD.
Susan D. Goff, 53 Director of Alliance, MAPSI, MD-IPA, MIACI and MIRI;
President of MD-IPA; Senior Vice President of the
Company, MLH, OCI, OCIPA and OCCI.
Debbie J. Hulen, 39
Director of OCI,OCCI, and OCIPA. Senior Vice President of
the Company, MLH, MIRI,OCCI, OCI,and OCIPA.
Christopher E. Mackail, 40 Senior Vice President and Controller of the Company, and
MLH.
Sharon C. Pavlos, 40 Executive Vice President, General Counsel and Secretary
of the Company, MLH, Alliance, MAPSI, HomeCall,
FirstCall, HPS, HHS, MD-IPA, Surgicenter, MIACI, MIRI,
OCI, OCCI, OCIPA and PHP-MD.
Mary E. Shocklee, 36 Vice President, Accounting Operations, MLH, Alliance,
MAPSI, HPS, HHS, MD-IPA, Surgicenter, MIACI, MIRI, OCI,
OCCI, OCIPA and PHP-MD.
</TABLE>
(1) Signifies age as of December 31, 1998.
(2) Dr. Bruno was not a Director of the Company from April 1991 to April 1992 or
from April 1994 to April 1995. (3) Dr. Groban was not a Director of the Company
from April 1993 to April 1994. (4) Dr. Mayer was not a Director of the Company
from April 1995 to April 1996. (5) Mr. Wild was not a Director of the Company
from April 1992 to April 1993. (6) Dr. Cook was not a Director of the Company
from April 1993 to April 1995 or from April 1997 to April 1998.
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:
Thomas P. Barbera was elected interim President and Chief Executive Officer
on January 8, 1999. He was elected Vice Chairman of the Company on May 6, 1996.
Mr. Barbera became Executive Vice President of Government Relations and
Assistant Secretary for the Company and MLH in May of 1993. From December 1987
until May 1993, Mr. Barbera was a partner at Weinberg and Green, a general
practice law firm in Baltimore, Maryland.
Francis C. Bruno, M.D. received a B.S. from Kings College in 1964 and a
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.
Raymond H. Cypess, D.V.M., Ph.D. is President and CEO of American Type
Culture Collection, Rockville, Maryland. Dr. Cypess was an Associate Professor
of Epidemiology and Microbiology at the University of Pittsburgh School of
Public Health from 1970 to 1973, Professor and Chairman at the New York State
College of Veterinary Medicine from 1977 to 1987, and Dean of the College of
Graduate Health Sciences, as well as Professor of Microbiology, Immunology, and
Comparative Medicine, and Vice Provost for Research and Research Training, at
the University of Tennessee, Memphis from 1989 to 1993. Dr. Cypess is a fellow
of the Infectious Disease Society and a Member of the American Epidemiology
Society. Dr. Cypess received a B.S. in biology from Brooklyn College in 1961, a
B.Agri. from the University of Illinois in 1965, and a D.V.M. from the
University of Illinois in 1967. In 1970, Dr. Cypess received a Ph.D. in
Parasitology from the University of North Carolina.
Robert E. Foss was elected Senior Executive Vice President and Chief
Financial Officer on January 8, 1999. Mr. 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. Mr. Foss received a BSBA from the University
of Colorado in 1971 and became a CPA in 1972.
Mark D. Groban, M.D. was elected interim Chairman of the Board on January
8, 1999. Dr. Groban 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. In October 1996, Dr. Groban assumed
the responsibility for the Quality Improvement Department and was named
Executive Vice President and Medical Director of Quality Improvement for the
Company.
John P. Mamana, M.D. received his B.A. from Harvard University and his M.D.
degree from Boston University School of Medicine. Dr. Mamana is a Director of
American Health Properties as well as a member of the Audit and Compensation
Committee of that entity. Dr. Mamana is also Chief Executive Officer, Chairman
of the Board and a Director of American Health Sciences Inc. Dr. Mamana has
practiced internal medicine in Springfield, Virginia since 1974. In 1978, he
founded Virginia Medical Associates, P.C., a multi-specialty group practice, and
served as the President, Chief Executive Officer, and Chairman of the Board
until December 1997. During 1998, Virginia Medical Associates, P.C. declared
bankruptcy. Dr. Mamana served as the Chief Executive Officer and Chairman of the
Board for Gateway Physicians Services (formerly Virginia Health Partners) and as
the Chief Medical Officer of Health Partners, Inc. in Norwalk, Connecticut from
1994 until January 1998. Dr. Mamana has been a Clinical Associate Professor of
Medicine at Georgetown University Medical School since 1987. He has served as a
member of the Board of Directors of American Health Properties, since May 1997
and as the Chairman and Chief Executive Officer of American Health Sciences,
Inc. since January 1998.
William M. Mayer, M.D. received a B.S. from Georgetown University in 1967
and his M.D. degree from New York Medical College in 1971. He completed an
internal medicine internship at the Cornell Cooperating Hospitals and completed
his Ob-Gyn residency at New York Medical College. Following completion of his
residency, he was the chief of Ob-Gyn at Kimbrough Army Hospital, serving as a
major in the U.S. Army. Upon completion of his tour of duty, he entered private
practice in the field of Ob-Gyn in Columbia, Maryland and has practiced in
Columbia since 1977.
Edward J. Muhl is Executive Vice President and Member of the Board of
Directors of Peterson Consulting, LLC a business and insurance consulting firm.
Mr. Muhl was Superintendent of Insurance for the State of New York from 1995 to
1997. He is a former President of the National Association of Insurance
Commissioners, and a previous Commissioner of Insurance for the State of
Maryland. From 1991 to 1995, Mr. Muhl was a Senior Vice President of the
Reliance Insurance Group. Mr. Muhl received his B.A. in Social Science from the
University of Baltimore in 1973.
Gretchen P. Murdza was employed by the Company as the Director of
Professional Recruitment in October 1989, became the Senior Director of
Professional Recruitment in April 1990, Vice President, Provider Networks in
July 1991 and Senior Vice President responsible for the development of Home
Health Service on March 9, 1994. In October 1994, she became Chief Executive
Officer of HomeCall, Inc. and subsequently President of HomeCall Pharmaceutical
Services, Inc. and HomeCall Hospice Services, Inc. She was educated at the
College of Notre Dame of Maryland located in Baltimore, Maryland.
Janet L. Norwood is an economist and a Senior Fellow with the Urban
Institute since 1991. She served as the Chair of the Advisory Council on
Unemployment Compensation from 1993 to 1996. She was appointed by Presidents
Carter and Reagan to be the U.S. Commissioner of Labor Statistics from 1979 to
1991. From 1993 to 1996, she was appointed by Presidents Bush and Clinton as
Chair, Advisory Council on Unemployment Compensation. Ms. Norwood received a BA
from Douglas College, Rutgers University and holds an MA and Ph.D. from the
Fletcher School of Law and Diplomacy from Tufts University as well as an LL.D.
Honorary from Harvard University and Carnegie Mellon University.
John A. Paganelli was President and Chief Executive Officer of Transamerica
Life Insurance Company of New York from 1992 to 1997. Mr. Paganelli holds an AB
from Virginia Military Institute. Mr. Paganelli is currently retired.
Ivan R. Sabel has been Chairman and Chief Executive Officer of Hanger
Orthopedics Group Inc. (a New York Stock Exchange company that is in the
orthotics and prosthetics market) since August 1995. From November 1987 to
August 1995, Mr. Sabel was President and Chief Operating Officer of Hanger
Orthopedics Group, Inc. He is also a clinical instructor in orthopedics at
Georgetown University Medical School since 1969. Mr. Sabel holds a Bachelor of
Science in Orthotics and Prosthetics from New York University.
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.
Executive Officers:
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. 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 the Company in August 1994 as an Associate
Medical Director. She became Senior Vice President and Medical Director of the
Company, MLH, PHP-MD, HomeCall, FirstCall and HPS in April 1996. In November
1996, Dr. Dvorak was promoted to Executive Vice President and Medical Director
of the Company. 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 (1976-1994);
the last 6 years she served as 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.
Catherine M. Fridell (formerly Tyser) joined the Company in February 1992
as Senior Supervisor in Claims Production. Subsequently, Ms. Fridell has held
the following positions within the Claims Department: Manager beginning
September 1992, Director beginning November 1993, Senior Director beginning
November 1994, Vice President beginning March 1995, Senior Vice President
beginning July 1995 when she also assumed the additional responsibilities of
managing the Alliance PPO Claims Department. In November 1996, Ms. Fridell was
promoted to Executive Vice President assuming responsibility for Operations in
North Carolina and Pennsylvania. Prior to joining the Company, Ms. Fridell
worked at NationsBank for 15 years holding various positions within the Consumer
Credit Division. Her last position held was Assistant Vice President, Consumer
Credit Automation Manager responsible for the functioning of an automated loan
processing system and related support personnel for the Metropolitan Washington
Consumer Credit Division.
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,
responsible for large group sales activities in all states and President of
MD-IPA on November 15, 1993. Ms. Goff graduated from the University of
California at Los Angeles in 1967 with a B.S. in Nursing and received a Masters
of Science in Administration with a concentration in Health Care from Central
Michigan University in 1989. Ms. Goff is a director of Sandy Spring National
Bank.
Debbie J. Hulen joined the Company in August 1993 as a Regional Director of
Sales for OCI. Ms. Hulen was promoted to Senior Director in July 1995 and became
a Senior Vice President in charge of sales for OCI and MLH effective September
1997. Ms. Hulen is currently responsible for all small group sales activities in
Maryland, Northern Virginia, Delaware, Pennsylvania, and the District of
Columbia. Prior to joining the Company, Ms. Hulen worked at Esprit de Corps for
ten years, leaving with a final title of Regional Director of Sales.
Christopher E. Mackail joined the Company in October 1996 as the Vice
President of Finance. He became Senior Vice President and Controller on January
25, 1999. Prior to joining the Company, Mr. Mackail was a Senior Manager 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. Mackail was
the audit Senior Manager on the Company's account. Mr. Mackail graduated from
the University of Richmond in 1981 with a B.S. in accounting and became a CPA in
1983.
Sharon C. Pavlos was elected Executive Vice President and General Counsel
of the Company on January 15, 1999. Ms. Pavlos became Senior Vice President,
General Counsel and Secretary of the Company effective September 8, 1998. Before
joining the Company, Ms. Pavlos was the Vice President, Regulatory Affairs &
Network Development for United HealthCare of the Mid-Atlantic, Inc. since May
1996. Prior to her position with United HealthCare of the Mid-Atlantic, Inc.,
Ms. Pavlos was the Vice President, General Counsel of Chesapeake Health Plan,
Inc. since February 1994. From March 1994 to May 1996, Ms. Pavlos also served as
the Vice President, Legal Affairs of HealthWise of America, Inc. Ms. Pavlos
received her B.A. summa cum laude from the University of Maryland in 1980 and
her J.D. from Georgetown University in 1983.
Mary E. Shocklee is Vice President of Accounting Operations. She was the
Controller of the Company from January 1993 to January 1999. She became a Vice
President of the Company effective April 1996. 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 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 6 times in fiscal 1998. The standing
committees of the Board include the Executive Committee, the Finance Committee,
the Audit Committee, the Stock Option Committee, the Compensation Committee, the
Employment Practices Committee, and the Select Committee. During fiscal 1998,
the Executive Committee held 6 meetings, the Finance Committee held 1 meeting,
the Audit Committee held 3 meetings, the Stock Option Committee held 3 meetings,
the Compensation Committee held 4 meetings, the Employment Practices Committee
held 5 meetings and the Select Committee held 3 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 Mark D. Groban, M.D.
(Interim Chairman), Thomas P. Barbera, Francis C. Bruno, M.D., John H. Cook,
III, M.D. 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 Company are in compliance
with generally accepted accounting principles. The Finance Committee's members
are James A. Wild (Chairman), Raymond H. Cypess, D.V.M., Ph.D., Robert E. Foss,
Mark D. Groban, M.D., and John P. Mamana, M.D. The Audit Committee's members are
James A. Wild (Chairman), Stanley M. Dahlman, Ph.D., and Edward J. Muhl.
The Stock Option Committee grants options under and otherwise implements
the 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1998 Non-Qualified Stock
Option Plans. The members of the Stock Option Committee are James A. Wild
(Chairman), Stanley M. Dahlman, Ph.D. and Edward J. Muhl.
The Select Committee grants options in the 1989, 1990, 1991, 1992, 1993,
1994, 1995, 1996, and 1998 Non-Qualified Stock Option Plans for employees below
Vice President (Level 17). The Select Committee was formed in 1998. It has
authority to grant options to officers and key employees who are not "covered
employees" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended ("Code"), and who are not subject to Section 16 of the 1934
Act. If there is a conflict between the Select Committee and the Stock Option
Committee, the determination of the Stock Option Committee will control. The
members of the Select Committee are Thomas P. Barbera and Mark D. Groban, M.D.
The Compensation Committee oversees the development and implementation of
the Company's compensation program for executive officers, the Chairman and the
President and Chief Executive Officer. Its members are James A. Wild (Chairman),
Stanley M. Dahlman, PhD. and Edward J. Muhl.
The Employment Practices Committee oversees the Company's maintenance of
equal opportunity for all employees regardless of race, national origin,
religion, gender, physical disability, sexual orientation, or age. The members
of the Employment Practices Committee are James A. Wild (Chairman), Stanley M.
Dahlman, Ph.D., Gretchen P. Murdza, and William M. Mayer, M.D.
In January 1999 the Board established the Transition and Search Committee
to (1) propose 1999 Board nominees and (2) recommend individuals for the
positions of Chairman, Chief Executive Officer and President.
Section 16(a) Beneficial Ownership Reporting Compliance
Thomas P. Barbera, Paul E. Dillon, J. Stevens Dufresne, Vera C. Dvorak,
M.D., Robert E. Foss, Susan D. Goff, Mark D. Groban, M.D., Joseph L. Guarriello,
Debbie J. Hulen, Gretchen P. Murdza and Alfred Talamantes failed to file on a
timely basis one Form 4 Report, Statement of Changes in Beneficial Ownership,
reporting one transaction as required by Section 16(a) of the 1934 Act. Raymond
H. Cypess and Mary E. Shocklee failed to timely file two such forms each
reporting one transaction, and George T. Jochum failed to timely file one such
form reporting 4 transactions. Dr. Mamana failed to timely file 3 such forms
reporting three transactions. All of the aforementioned forms have subsequently
been filed.
Directors' Compensation
For the fiscal year ended December 31, 1998, 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 1,250
Director Attendance as
Chairman of a Committee Meeting 1,250
Director Attendance at
a Committee Meeting 750
(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.
Under the Company's 1996 and 1998 Non-Qualified Stock Option Plan ("the
Plans"), each person who was a director of the Company or one of its
Subsidiaries on May 1, 1996 or May 1, 1998, respectively, but who was not an
employee of the Company or one of its Subsidiaries on such date ("Non-Employee
Director") received a Non-Employee Director Option to purchase shares of Common
Stock at an exercise price of $20.00 per share or $13.00 per share (which was
the fair market value of a share of Common Stock on May 1, 1996 and May 1, 1998,
respectively). The number of shares of Common Stock covered by each Non-Employee
Director Option was based on a formula specified in the Plan.
Each Non-Employee Director Option becomes exercisable cumulatively in
three equal installments starting on May 3, of the year following the year of
the grant and has a five year term. If a Non-Employee Director's service with
the Company terminates (other than as a result of a removal for cause) or if
such person ceases to be a Non-Employee Director, the option will continue to
become exercisable and may be exercised until the stated term of the option. If
a Non-Employee Director is removed for cause, the Non-Employee Director Option
held by such person will cease to continue to become exercisable on or after the
date of such removal.
Set forth below is the number of shares covered by each Non-Employee
Director Options received by current Company directors and nominees on May 1,
1996 and May 1, 1998 under the 1996 and 1998 Plans.
Number of Shares Number of Shares
1996 Plan 1998 Plan
May 1, 1996 May 1, 1998
Francis C. Bruno, M.D.* 4,980 4,950
John L. Cook, III, M.D. 4,380 4,350
Raymond H. Cypess, D.V.M., Ph.D. 2,814 3,450
Stanley M. Dahlman, Ph.D. 5,430 5,400
John P. Mamana, M.D. 3,264 3,900
William M. Mayer, M.D. 3,564 4,200
Edward J. Muhl None None 3,000
Janet L. Norwood* None None
John A. Paganelli* None None
Ivan R. Sabel* None None
James A. Wild* 4,380 4,350
*Nominee
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:
Individual performance
Individual responsibility
Corporate performance
Potential for growth
In evaluating the executive's individual performance, the following
criteria is reviewed:
Selection, placement and evaluation of personnel under the executive's
supervision;
Education of personnel under the executive's supervision;
Control of corporate expenditures;
Customer service;
Job performance;
Acceptance of and ability to accomplish special tasks, and
Establishment and completion of specific goals.
Salary. During 1998, George T. Jochum was the Chairman, President and Chief
Executive Officer of the Company. His 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. For 1998, the Board established Mr. Jochum's salary at $1,350,000.
This amount was the same as his 1997 salary.
With respect to those executive officers other than Mr. Jochum, Mr. Jochum
presented a recommendation to the Committee regarding such individuals' 1998
salary based on his evaluation of each individual's performance, using the
criteria stated above. The Committee discussed these recommendations and the
Committee set 1998 salary levels in accordance with Mr. Jochum's
recommendations.
As of January 8, 1999, Mr. Jochum resigned his positions with the Company.
As of this same date, the Board of Directors elected Mark D. Groban, M.D. to be
interim Chairman of the Board and Thomas P. Barbera to be interim President and
Chief Executive Officer. The Board of Directors also approved employment
agreements for Dr. Groban and Mr. Barbera, and Robert E. Foss, the Company's
Senior Executive Vice President and Chief Financial Officer. The Company's
employment agreements with Dr. Groban and Mr. Barbera are effective January 8,
1999, and will continue for a period of one year from the date of the conclusion
of the search effort and the acceptance of the selected individual(s) to serve
as Chairman of the Board, President and Chief Executive Officer unless earlier
terminated as provided in the agreement. In the event that Dr. Groban or Mr.
Barbera are selected and agree to serve as Chairman of the Board or President
and Chief Executive Officer, the Company and the selected executive would enter
into a new employment agreement. Dr. Groban and Mr. Barbera's employment
agreements provide for a base salary of a minimum of $475,000 per year.
Mr. Foss' employment agreement is effective January 8, 1999 and will
continue for a period of three years from the date of the conclusion of the
search effort and the acceptance of the selected individuals(s) to serve as
Chairman of the Board, President and Chief Executive Officer unless earlier
terminated as provided in the agreement. Mr. Foss' minimum base salary under the
agreement is $400,000 with a provision that allows for an annual change in
salary directly related to the earnings of the Company. Mr. Foss' employment
agreement provides that his base salary will increase or decrease each year
beginning in the year 2000 by an amount equal to 50% of the percentage change in
the Company's consolidated net after tax income during the previous year. The
employment agreement also provides that his salary cannot be increased by more
than 20% or decreased by more than 10% in any one year.
Bonus. Bonus compensation for management is based on the ability of the
Company to attain a predetermined net income goal. The 1998 Senior Management
Bonus Plan includes a minimum net income (prior to the return of amount withheld
by PHP-MD as part of the claims reserve risk pool and payment of physicians'
bonuses and before deductions for income tax and expansion and acquisition
costs) goal. For 1998, the minimum net income goal was $33.750 million. The goal
was not achieved and no bonuses have been paid under the 1998 Senior Management
Bonus Plan. The goal was established at the beginning of 1998 by the
Compensation Committee and was approved by the stockholders.
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.
Stock Options. The total compensation program for executives also includes
equity-based compensation. The Company's stockholders 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, administered
these stock option plans in 1998 with respect to the executive officers. The
Stock Option Committee determines the amount of stock options awarded to
individual executives and the Select Committee determines the amount of stock
options awarded to employees below Vice President (Level 17). In general,
options are granted to executives annually. Although, under the Company's
existing stock option plans (other than the 1994, 1995, 1996, and 1998
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 1998,
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. In general, during
1998, executive officers were only granted additional options if they were
promoted during the year.
On April 15, 1998, the Stock Option Committee authorized the voluntary
exchange of all options whose then current exercise price was in excess of $16
per share for newly issued options with an exercise price of $16 per share. The
repricing program acknowledged the importance to the Company of its employees
and of the incentive to employees represented by stock options, especially in
considering alternative employment opportunities. The Committee considered such
factors as the competitive environment for obtaining and retaining qualified
employees and the overall benefit to the stockholders from a highly motivated
group of employees.
As a condition of the exchange, options holders agreed to an extended
vesting. Options that were vested on the date of the exchange, became, on
exchange, unvested for a period of one year. Additionally, the new options were
exercisable for an additional year beyond the current expiration date. The
Company's Board of Directors and Mr. Jochum's options were not subject to the
repricing program.
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 executive officers
who are named in its "Summary Compensation Table" 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 its 1999 Senior
Management 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).
James A. Wild (Chairman)
Edward J. Muhl
Stanley M. Dahlman,
Ph.D.
Stock Performance Graph
The following graph 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 Stock Market Index [ ], and (b) the Standard &
Poors MidCap Health Care Managed Care Index [ - - - - ].
These comparisons assume an investment of $100 made on December 31,
1993 and compares relative values on an annual basis for the years ending
December 31, 1994, 1995, 1996, 1997 and 1998. 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 below.)
<TABLE>
<CAPTION>
Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Mid-Atlantic Medical Svcs. $100 $179 $189 $104 $100 $77
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
HealthCare (Mgd. Care)-Mid $100 $118 $144 $116 $78 $63
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NY Stock Exchange-Comp. $100 $97 $127 $151 $197 $230
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Compensation Committee Interlocks and Insider Participation
During 1998, the members of the Company's Compensation Committee were James
A. Wild (Chairman), Stanley M. Dahlman, Ph.D and Edward J. Muhl. No member of
the Committee is a former 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 and nominees 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"). Such persons, except as
noted below, 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 $4,537,355 approximately in 1998. 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 1998 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 of the Company and its
Subsidiaries and for health coverage where such amounts exceeded $60,000 in
1998. Certain other directors serve on the Board of Directors of the Company's
Subsidiaries; however, the fees for such services did not exceed $60,000 in
1998.
Medical Services Total Compensation
Francis C. Bruno, M.D. (1) $99,612 $157,701
William M. Mayer M.D. (2) $848,267 $863,547
Ivan R. Sable* (3) $196,771 $196,771
*Nominee
(1) Paid to the Francis C. Bruno, M.D., P.A. partnership for medical
services for enrollees of MD-IPA, MLH and OCI.
(2) Paid to Drs. Esposito, Mayer, Hogan and Associates, P.A. partnership
for medical services for enrollees of MD-IPA, MLH and OCI.
(3) Paid to Hanger Orthopedic Group, Inc. and affiliates for medical
services for enrollees of MD-IPA, MLH and OCI.
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, if any, exceeded $100,000 during 1998 as well as the
former executive officers of the Company (each a "Named Officer").
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
Name and Year Salary($) Bonus($) Other Annual Securities All Other
Principal Position Compensation(2)Underlying Compensation ($)
Options (#)
<S> <C> <C> <C> <C> <C> <C>
George T. Jochum (1) 1998 $1,349,998 -0- $1,062 (6) 350,000 (7) $8,628(4)
Former Chairman of the
Board, President, 1997 $1,385,724 -0- $ 364 (6) 50,000 $8,628(3)(4)
and Chief 1996 $1,828,280 -0- $ 446(6) 200,000 $826,918(3)(4)
Executive Officer
Thomas P. Barbera 1998 $325,369 -0- - 135,600 (7) $3,200(5)
CEO & President, 1997 $308,698 -0- - -0- -0-
Executive Vice 1996 $305,930 -0- - 36,000 -0-
President, Governmental
Services
J. Stevens Dufresne 1998 $268,574 -0- - 120,600 (7) $3,200(5)
Executive Vice 1997 $257,250 -0- - - -0-
President, Provider 1996 $254,942 -0- - 36,000 -0-
Networks
Mark D. Groban 1998 $290,735 -0- -0- 105,600 (7) $3,200(5)
Chairman 1997 $278,107 $32,968 -0- -0- -0-
of the Board, 1996 $283,943 $20,185 -0- 30,000 -0-
President of MAPSI
and Alliance
Robert E. Foss 1998 $292,692 -0- -0- 141,000 (7) $3,200(5)
Senior Executive Vice 1997 $280,020 -0- -0- -0- -0-
President, Chief 1996 $280,020 -0- -0- 30,000 -0-
Financial Officer
Joseph L. Guarriello (8) 1998 $216,819 96,600 (7) $3,200(5)
Former Executive 1997 $272,168 -0- -0- -0- -0-
Vice President, 1996 $277,867 -0- -0- 24,000 -0-
General Counsel
and Secretary
</TABLE>
(1) Effective January 8, 1999, Mr. Jochum resigned from the Board and from
his position as Chairman, President and Chief Executive Officer.
(2) Perquisites and other personal benefits represented the lesser of
$50,000 or 10% of annual salary and bonus. (3) $818,290, and
$1,681,605 were accrued in 1996 and 1995, respectively, relating to
Mr. Jochum's augmented retirement benefit provided by his Employment
Agreement. Due to a change in pension formula, the Company in 1997
recognized a one time benefit of approximately $1.1 million. See
"Management Employment Agreement" below.
(4) Includes $8,628 in premiums paid by the Company in 1998, 1997, and
1996 for life insurance for which Mr. Jochum may designate the
beneficiary.
(5 Represents Company contribution to defined contribution plan.
(6) Represents reimbursement of tax associated with personal use of a
Company car.
(7) Other than with respect to Mr. Jochum, the amount of options granted
includes options granted as part of the voluntary exchange program.
See "Stock Option Repricing" below concerning these grants.
(8) Mr. Guarriello retired from the position of Executive Vice President
and General Counsel in September 1998.
Management Employment Agreements
The Company and MD-IPA entered into an Employment Agreement
("Agreement") with Mr. Jochum for the period January 1, 1991 through December
31, 1998. On November 21, 1997, the Company entered into a new Agreement ("New
Agreement") with Mr. Jochum for the period January 1, 1999 to December 31, 2001.
Because Mr. Jochum's resignation from the Company effective January 8, 1999, the
New Agreement was never effective. Except for a few issues to be discussed
below, the Agreement and the New Agreement (collectively the "Agreements") were
similar in their terms. Mr. Jochum's annual base salary under the Agreement was
$1,350,000 for 1998.
Mr. Jochum was entitled to participate in the Company's management
bonus program. The amount available for Mr. Jochum was calculated based on the
Company's income before income taxes and is prior to the return of the amount
withheld, if any, by PHP-MD as part of the claims reserve risk pool. His minimum
bonus amount was 25% of that year's base salary and his maximum bonus was 50% of
base salary. Additionally, under the terms of the Agreement, Mr. Jochum was
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. Mr. Jochum waived receipt of his special bonus with respect to 1998.
There is no special bonus under the terms of the New Agreement.
The Agreements may be terminated by the Company in the event of a
material breach thereof by Mr. Jochum or for cause; however, termination of the
Agreements by the Company, even for material breach or cause, does not effect
any obligation of the Company or arising under the Agreements. The Company may
also, with cause, reassign Mr. Jochum from his position as Chairman, Chief
Executive Officer and President of the Company.
In the event of a "change of control" as defined in the Agreements, Mr.
Jochum would have received 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 was entitled would have immediately vested 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 Agreements if, at any time, (a)
substantially all the assets of the Company or, in the Agreement only, 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, in the Agreement only, MD-IPA, representing 50% or more of the
combined voting power of the then-existing outstanding securities of the Company
or, in the Agreement only, MD-IPA; and (b) Mr. Jochum is reassigned in
accordance with the Agreements within six months of such sale, merger or other
event; provided, however, that no "change in control" is deemed to occur under
the Agreements 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 Agreement provided that, upon retirement, Mr. Jochum would be
entitled to an augmented retirement benefit so that he will receive in total,
under the Agreement and under all of the Company's retirement plans, an annual
benefit in an amount equal to three percent of his base salary during the final
year of the Agreement multiplied by the number of years of service to the
Company. Payment, if any, of the augmented retirement benefit through 1998 would
have been 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 Agreements if Mr. Jochum was
terminated for cause by the Company. In accordance with a personal service
contract negotiated by the Company, its Chairman was entitled to supplemental
pension benefits based upon years of service and attained salary levels. Expense
recognized related to this plan was $818,000 and $1,682,000 for the years ended
December 31, 1996 and 1995, respectively. During 1997, the service contract was
renegotiated, at which time the supplemental pension benefits package was
amended to include a fixed payment benefit of $450,000 per year for a fixed term
of 15 years and an option to elect to reduce the supplemental retirement payout
in the form of premium advances on a split dollar life insurance policy. The
reduction is pension expense recognized in 1997 related to this change was
approximately $1.1 million. As a result of Mr. Jochum's election to reduce the
annual fixed benefit to $250,000, the Company in 1998 recognized a one time
benefit of approximately $880,000.
The Agreements also provided 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.
As of January 8, 1999, Mr. Jochum resigned his positions with the
Company under the terms of a Settlement Agreement with the Company. Pursuant to
the Settlement Agreement, Mr. Jochum received compensation consistent with a
termination other than for cause under the terms of his Employment Agreement
with the Company for the period January 1, 1991 through December 31, 1998.
Specifically, Mr. Jochum received a lump sum payment of $730,000 and 26 equal
bi-weekly installments of $1,350,000 continuing through the period January 8,
2000. Mr. Jochum is also entitled to the supplemental retirement benefits
subject to the split dollar option that Mr.
Jochum previously elected and health insurance benefits.
As of January 8, 1999, the Board of Directors elected Mark D. Groban,
M.D. to be interim Chairman of the Board and Thomas P. Barbera to be interim
President and Chief Executive Officer. The Board of Directors also approved
employment agreements for Dr. Groban and Mr. Barbera, and Robert E. Foss. The
Company's employment agreements with Dr. Groban and Mr. Barbera are effective
January 8, 1999, and will continue for a period of one year from the date of the
conclusion of the search effort and the acceptance of the selected individual(s)
to serve as Chairman of the Board, President and Chief Executive Officer unless
earlier terminated as provided in the agreement. In the event that Dr. Groban or
Mr. Barbera are selected and agree to serve as Chairman of the Board or
President and Chief Executive Officer, the Company and the selected executive
would enter into a new employment agreement. Dr. Groban and Mr. Barbera's
employment agreements provide for a base salary of a minimum of $475,000 per
year. In addition, Dr. Groban and Mr. Barbera's employment contracts provide for
85,000 shares of MAMSI stock options to be granted on February 25, 1999 and to
vest on a pro-rata basis over a one to five year period to be determined by the
percentage increase of 1999 earnings per share over 1998 earnings per share as
adjusted for one time items and as determined by the Board. Each agreement may
be terminated by the Company in the event of a material breach thereof by either
Dr. Groban or Mr. Barbera or for cause as determined by the Board of Directors
with no payment to either Dr. Groban or Mr. Barbera. In addition, if either Dr.
Groban or Mr. Barbera voluntarily leave employment with the Company prior to the
conclusion of the search effort and the acceptance of the selected
individuals(s) to serve as Chairman of the Board, Chief Executive Officer and
President, there would be no payment made to either person. In the event the
Company terminates either agreement for any reason other than death, disability
or just cause or if Dr. Groban or Mr. Barbera terminate the agreement because
(1) the Company materially breached the agreement; (2) the Company reassigns
either person greater than 75 miles roundtrip from the Company's principal
executive offices; (3) the Company's substantially reassigns Dr. Groban's or Mr.
Barbera's duties and responsibilities; or (4) either Dr. Groban or Mr. Barbera
voluntarily leave employment with the Company after the conclusion of the search
effort and the acceptance of the selected individuals(s) election to serve as
Chairman, Chief Executive Officer and President, the Company will pay Dr. Groban
or Mr. Barbera an amount equal to 12 months base salary paid in equal bi-weekly
payments over a period of one year and any pro-rata bonus that he would have
been entitled to had he been employed at the end of the year. In addition, all
stock options which either Dr. Groban or Mr. Barbera have would immediately vest
and become exercisable under the terms of the applicable plan.
In the event of a "change of control" as defined in the Agreements,
both Dr. Groban and Mr. Barbera will receive cash equal to his base salary for
the year in which such "change in control" occurs. In addition, all stock
options to which either Dr. Groban or Mr. Barbera was entitled would 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 Dr. Groban or Mr.
Barbera 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 Agreements if, at any time, (a) substantially all the assets of the Company
or, in the Agreement only, 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, in the Agreement only, MD-IPA,
representing 50% or more of the combined voting power of the then-existing
outstanding securities of the Company or, in the Agreement only, MD-IPA; and (b)
Dr. Groban or Mr. Barbera is reassigned in accordance with the Agreements within
six months of such sale, merger or other event; provided, however, that no
"change in control" is deemed to occur under the agreements if Dr. Groban or Mr.
Barbera's reassignment is on a temporary basis and is attributable to either Dr.
Groban or Mr. Barbera's illness or other physical, mental or emotional
disability or incapacity.
Mr. Foss' employment agreement is effective January 8, 1999 and will
continue for a period of three years from the date of the conclusion of the
search effort and the acceptance of the selected individuals(s) to serve as
Chairman of the Board, President and Chief Executive Officer unless earlier
terminated as provided in the agreement. Mr. Foss' minimum base salary under the
agreement is $400,000 with a provision that allows for an annual change in
salary directly related to the earning of the Company. Mr. Foss' employment
agreement provided that his base salary will increase or decrease each year
beginning in the year 2000 by an amount equal to 50% of the percentage change in
the Company's consolidated net after tax income during the previous year. The
employment agreement also provides that his salary cannot be increased by more
than 20% or decreased by more than 10% in any one year. In addition, Mr. Foss'
employment contract provides for 75,000 shares of MAMSI stock options to be
granted on February 25, 1999 and to vest on a pro-rata basis over a one to five
year period to be determined by the percentage increase of 1999 earnings per
share over 1998 earnings per share as adjusted for one time items and as
determined by the Board.
Mr. Foss' agreement may be terminated by the Company in the event of a
material breach thereof by Mr. Foss or for cause as determined by the Board of
Directors with no payment to Mr. Foss. In addition, if Mr. Foss voluntarily
leaves employment with the Company prior to the conclusion of the search effort
and the acceptance of the selected individuals(s) to serve as Chairman of the
Board, Chief Executive Officer and President, there would be no payment made to
Mr. Foss. In the event the Company terminates either agreement for any reason
other than death, disability or just cause or if Mr. Foss terminates the
agreement because (1) the Company materially breached the agreement; (2) the
Company reassigns Mr. Foss greater than 75 miles roundtrip from the Company's
principal executive offices; (3) the Company's substantially reassigns Mr. Foss'
duties and responsibilities; or (4) Mr. Foss voluntarily leaves employment with
the Company after the conclusion of the search effort and the acceptance of the
selected individuals(s) election to serve as Chairman, Chief Executive Officer
and President, the Company will pay Mr. Foss an amount equal to 12 months base
salary paid in equal bi-weekly payments over a period of one year and any
pro-rata bonus that he would have been entitled to had he been employed at the
end of the year. In addition, all stock options which Mr. Foss has would
immediately vest and become exercisable under the terms of the applicable plan.
In the event of a "change of control" as defined in the Agreements, Mr.
Foss will receive cash equal to two times his base salary for the year in which
such "change in control" occurs and two times the amount equal to the maximum
bonus he would have earned under the applicable bonus plan for the year in which
such change in control occurs. If the "change in control" occurs in calendar
year 2002, Mr. Foss would be entitled to an amount equal to 12 months base
salary paid in equal bi-weekly payments over a period of one year and any
pro-rata bonus that he would have been entitled to had he been employed at the
end of the year. In addition, all Mr. Foss' stock options would 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. Foss 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 Agreements if, at any time, (a)
substantially all the assets of the Company or, in the Agreement only, 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, in the Agreement only, MD-IPA, representing 50% or more of the
combined voting power of the then-existing outstanding securities of the Company
or, in the Agreement only, MD-IPA; and (b) Mr. Foss is reassigned in accordance
with the Agreements within six months of such sale, merger or other event;
provided, however, that no "change in control" is deemed to occur under the
agreements if Mr. Foss' reassignment is on a temporary basis and is attributable
to Mr. Foss' illness or other physical, mental or emotional disability or
incapacity.
On December 3, 1998, the Board of Directors approved an employment
agreement to be given to then Executive Management at levels 18 and above
("Executive Agreement"). Accordingly, Executive Agreements were entered into
with James P. Bauer, Paul E. Dillon, Vera C. Dvorak, Catherine M. Fridell,
Debbie J. Hulen, John S. Hulen, Craig W. Magargel, Derry L. Mount and Sharon C.
Pavlos. The Executive Agreement has a term of one year effective December 4,
1998 through December 4, 1999. The Agreement may be terminated by the Company in
the event of a material breach thereof by the Executive or for cause as
determined by the Board of Directors with no payment to the Executive. In the
event the Company terminates the Executive Agreement for any reason other than
death, disability or just cause or if Executive terminates the Executive
Agreement because (1) the Company materially breached the Executive Agreement;
(2) the Company reduces Executive's base salary by greater than 25% over the
initial term of the contract from the amount on the effective date; (3) the
Company reassigns Executive greater than 75 miles from the Company's principal
executive offices; or (4) the Company's substantially reassigns Executive's
duties and responsibilities, the Company will pay Executive an amount equal to
12 months base salary paid in equal bi-weekly payments over a period of one
year.
1998 Options Grants Table
The following table shows certain information regarding the options
granted to the Named Officers Company in 1998. Included in these amounts are
those options granted under the voluntary exchange program discussed under
"Stock Option Repricing" below. The Company did not grant any stock appreciation
rights to these individuals in 1998.
<TABLE>
<CAPTION>
Individual Grants
Number of % of Potential Realizable Value at
Securities Total Options Assumed Annual Rates of
Underlying Granted to Exercise Stock Price Appreciation for
Options Employees in or Base Market Price Expiration Option Term
Name Granted(1) Fiscal Year(2) Price ($/Sh) on Grant Date Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas P. Barbera 18,000 0.29% $13.0000 $13.0000 05/01/2003 $64,649 $142,859
39,600 0.63% $16.0000 $12.3750 05/02/2000 $0 $0
30,000 0.48% $16.0000 $12.3750 05/01/2001 $0 $14,133
12,000 0.19% $16.0000 $12.3750 07/14/2001 $0 $5,653
36,000 0.58% $16.0000 $12.3750 05/13/2002 $0 $76,256
J. Stevens Dufresne 15,000 0.24% $13.0000 $13.0000 05/01/2003 $53,874 $119,049
39,600 0.63% $16.0000 $12.3750 05/02/2000 $0 $0
30,000 0.48% $16.0000 $12.3750 05/01/2001 $0 $14,133
36,000 0.58% $16.0000 $12.3750 05/13/2002 $0 $76,256
Robert E. Foss 15,000 0.24% $13.0000 $13.0000 05/01/2003 $53,874 $119,049
60,000 0.95% $16.0000 $12.3750 07/01/2000 $0 $0
36,000 0.58% $16.0000 $12.3750 05/01/2001 $0 $16,960
30,000 0.48% $16.0000 $12.3750 05/13/2002 $0 $63,547
Mark D. Groban 12,000 0.19% $13.0000 $13.0000 05/01/2003 $43,099 $95,239
39,600 0.63% $16.0000 $12.6250 05/02/2000 $0 $0
24,000 0.38% $16.0000 $12.6250 05/01/2001 $0 $19,293
30,000 0.48% $16.0000 $12.6250 05/13/2002 $0 $74,527
Joseph L. Guarriello 9,000 0.14% $13.0000 $13.0000 05/01/2003 $32,324 $71,429
39,600 0.63% $16.0000 $12.6250 05/02/2000 $0 $0
24,000 0.38% $16.0000 $12.6250 05/01/2001 $0 $19,293
24,000 0.38% $16.0000 $12.6250 05/13/2002 $0 $59,622
George T. Jochum 350,000(3) 5.55% $13.0000 $13.0000 04/09/2000 $227,500 $455,000
</TABLE>
(1) Each option becomes immediately exercisable in the event of a change
of control of the Company.
(2) Vesting to occur 1/3 each on the first, second and third anniversary
date of the date of grant except for repriced shares which added an
additional year to the vesting schedule.
(3) Options immediately vested upon grant date.
Aggregated Option Exercises in 1998 and December 31, 1998 Option Values
The following table contains information regarding options exercised by
the Named Officers during 1998 and the number and value of unexercised options
at December 31, 1998. No information is presented for stock appreciation rights
as none have been granted by the Company.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised In-the-Money
Options at Options at
12/31/98 (#) 12/31/98 ($) (1)
- ---------------------------------------------------------------------------------------------------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George T. Jochum 200,000 1,475,000 879,500/67,000 0/0
Thomas P. Barbera 48,975 279,564 0/135,600 0/0
J. Stevens Dufresne 54,000 364,500 0/120,600 0/0
Mark D. Groban 54,000 371,250 0/105,600 0/0
Joseph L. Guarriello 54,000 378,000 0/96,600 0/0
Robert E. Foss 0 0 0/141,000 0/0
</TABLE>
(1) Based on closing price on the New York Stock Exchange of on December 31,
1998.
Stock Option Repricing
On April 15, 1998, the Stock Option Committee authorized the voluntary
exchange of all options whose then current exercise price was in excess of $16
per share for newly issued options with an exercise price of $16 per share. The
repricing program acknowledged the importance to the Company of its employees
and of the incentive to employees represented by stock options, especially in
considering alternative opportunities. The Committee considered such factors as
the competitive environment for obtaining and retaining qualified employees and
the overall benefit to the stockholders from a highly motivated group of
employees.
As a condition of the exchange, options holders agreed to an extended
vesting. Options that were vested on the date of the exchange, became, on
exchange, unvested for a period of one year. Additionally, the new options were
exercisable for an additional year beyond the then current expiration date. The
Company's Board of Directors and Mr. Jochum's options were not subject to the
repricing program.
<TABLE>
<CAPTION>
Number of
Securities Market Price
Underlying of Stock at Exercise Price Length of Original
Options/ Time of at Time of Option Term
SARs Repricing or Repricing or Remaining at Date
Repriced or Amendment Amendment New Exercise of Repricing of
Name Date Amended (#) ($) ($) Price ($) Amendment
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Barbera 4/22/98 12,000 12.375 17.375 16.00 2 yr, 3 mo
CEO and President, 30,000 12.375 17.625 16.00 2 yr
Executive Vice 36,000 12.375 19.250 16.00 3 yr
President, Govern- 39,600 12.375 27.125 16.00 1 yr
mental Services
Paul E. Dillon 4/22/98 33,600 12.375 27.125 16.00 1 yr
Senior Vice President 36,000 12.375 17.625 16.00 2 yr
and Treasurer 24,000 12.375 19.250 16.00 3 yr
J. Stevens Dufresne 4/22/98 30,000 12.375 17.625 16.00 2 yr
Executive Vice 36,000 12.375 19.250 16.00 3 yr
President, Provider 39,600 12.375 27.125 16.00 1 yr
Networks
Vera C. Dvorak, M.D. 4/21/98 12,000 12.625 24.125 16.00 1 yr, 4 mo
Executive Vice 18,000 12.625 17.625 16.00 2 yr
President and Medical 36,000 12.625 19.250 16.00 3 yr
Director
Robert E. Foss 4/22/98 30,000 12.375 19.250 16.00 3 yr
Senior Executive Vice 36,000 12.375 17.625 16.00 2 yr
President, Chief 60,000 12.375 22.813 16.00 1yr, 2mo
Financial Officer
Catherine M. Fridell 5/19/98 16,200 12.625 27.125 16.00 1 yr
Executive Vice 3,000 12.625 22.875 16.00 1 yr, 5 mo
President, Claims 8,100 12.625 21.00 16.00 1 yr, 10 mo
24,300 12.625 17.625 16.00 2 yr
12,000 12.625 18.00 16.00 2 yr, 2 mo
36,000 12.625 19.250 16.00 3 yr
Susan D. Goff 4/21/98 39,600 12.625 27.125 16.00 1 yr
Executive Vice 24,000 12.625 17.625 16.00 2 yr
President, President 30,000 12.625 19.250 16.00 3 yr
of MD-IPA
Mark D. Groban 4/21/98 24,000 12.625 17.625 16.00 2 yr
Chairman of the 30,000 12.625 19.250 16.00 3 yr
Board, President of 39,600 12.625 27.125 16.00 1yr
MAPSI & Alliance
Joseph L. Guarriello 4/21/98 24,000 12.625 17.625 16.00 2 yr
Formerly Executive 24,000 12.625 19.250 16.00 3 yr
Vice President, 39,600 12.625 27.125 16.00 1 yr
General Counsel and
Secretary
Debbie J. Hulen 4/21/98 14,400 12.625 27.125 16.00 1 yr
Senior Vice President 6,000 12.625 21.00 16.00 1 yr, 2 mo
24,300 12.625 17.625 16.00 2 yr
15,000 12.625 19.250 16.00 3 yr
Gretchen P. Murdza 4/21/98 34,200 12.625 27.125 16.00 1 yr
Chief Executive 36,000 12.625 17.625 16.00 2 yr
Officer of HomeCall, 36,000 12.625 19.250 16.00 3 yr
President of HPS and
HHS
Mary E. Shocklee 4/21/98 30,000 12.625 27.125 16.00 1 yr
Vice President of 15,000 12.625 17.625 16.00 2 yr
Accounting Operations 12,150 12.625 23.500 16.00 3 yr
21,000 12.625 19.250 16.00 3 yr
</TABLE>
RATIFICATION OF ADOPTION OF THE 1999 NON-QUALIFIED STOCK OPTION PLAN
(Proposal 2)
The Company's Board of Directors ("Board") adopted the 1999
Non-Qualified Stock Option Plan ("1999 Plan") on October 16, 1998 and February
25, 1999 and it intends to submit the 1999 Plan to stockholders for approval at
the Annual Meeting. The Company is soliciting stockholder approval of the 1999
Plan so that the 1999 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 1999 Plan is preserved.
The 1999 Plan becomes effective May 3, 1999. However, the 1999 Plan
will not be effective unless and until it is approved by the Company's
stockholders. Pursuant to the 1999 Plan, 1.5 million 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 1999 Plan is to advance the interest of the Company
and its Subsidiaries by encouraging and providing for the acquisition of an
equity interest in the Company by non-employee directors, officers, and key
employees through the grant of options to purchase Common Stock. The 1999 Plan
will enable the Company to retain the services of non-employee directors,
officers and key employees upon whose judgment, interest, and special effort the
successful conduct of its operations are largely dependent and to compete
effectively with other enterprises for the services of non-employee directors,
officers 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 non-employee directors, officers and employees to
the Company and its Subsidiaries.
Administration
The Board may appoint more than one Committee to administer the 1999
Plan. If it appoints more than one Committee, one Committee will have the
authority to grant options to a participant who is either, at the date of grant
of the option, a "covered employee" as defined in Section 162(m) of the Code or
who is subject to Section 16 of the 1934 Act. This Committee will also have the
authority to grant options to other participants. This Committee, which will be
the Stock Option Committee, must be composed of at least two directors of the
Company, each of whom is a "non-employee director" as defined in Rule 16b-3 and
an "outside director" within the meaning of Section 162(m) of the Code. If,
however, at least two of the Company's directors are not both "non-employee
directors" and "outside directors," the Board may grant options to a participant
who is either a "covered employee" or subject to Section 16 of the 1934 Act, in
which case the Board may also administer the 1999 Plan.
The other Committee (the "Select Committee") will be composed of at
least one director, who may be an officer of the Company. This Committee will
have authority to grant options to a participant who is not, at the date of
grant of the option, either a "covered employee" as defined in Section 162(m) of
the Code or subject to Section 16 of the 1934 Act. If, however, there is a
conflict between the determinations made by the Stock Option Committee and the
Select Committee, the determinations made by the Stock Option Committee control.
Each Committee will act by a majority vote of its members. Each
Committee may interpret the 1999 Plan, establish and modify administrative rules
for the 1999 Plan, select the officers and other key employees to whom options
may be granted, determine the terms and provisions of the respective options
agreements (which need not be identical), determine all claims for benefits
under the 1999 Plan, impose such conditions and restrictions on options as it
determines appropriate, determine whether the shares delivered on exercise of
options will be treasury shares or will be authorized but previously unissued
shares, and take such steps in connection with the 1999 Plan and options granted
hereunder as it may deem necessary or advisable. No action of a Committee is
effective it if contravenes or amends the 1999 Plan in any respect.
Members of each 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 the 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 Stock Option Committee and the Select 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 1999 Plan. As of December 31, 1998, the approximate
number of employees who would be eligible to participate in the 1999 Plan was
1,200.
Each employee may not receive options to purchase more than one million
shares under the 1999 Plan during the term of the 1999 Plan. Except for the
limitation in the preceding sentence and the limitation on the types of
participants to whom the Select Committee may grant options, each Committee has
complete authority to determine those officers and key employees to whom options
may be granted.
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 appropriate Committee may determine. The term of each option will be
determined by the Committee at the time the option is granted. However, no
option 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 1999 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 the 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 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 by 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
appropriate Committee, in its sole and absolute discretion, 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 that 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.
Each Committee may, however, permit an employee participant 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 1999 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. Each Committee may, however, in its discretion
provide for shorter or longer periods of time in an option agreement.
In addition, each 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. Each Committee also may permit any option granted to an employee
participant to be exercised after its expiration date. However, 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 1999 Plan provides that,
on May 3, 1999, each person who is a director of the Company or PHP-MD 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. Dr.
Bruno is considered a Non-Employee Director for this purpose. As of May 3, 1999,
the number of Non-Employee Directors anticipated to be eligible to participate
in the 1999 Plan is approximately 15 (which includes 3 Non-Employee Director
nominees).
Each Non-Employee Director Option will entitle the holder to purchase 5,000
shares of Common Stock if the non-Employee Director is a director of the Company
or 3,000 shares of Common Stock if the Non-Employee Director is only a director
of PHP-MD.
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
3, 1999. All Non-Employee Director Options will have a five year term.
Exercisability; Termination of Service. Each Non-Employee Director
Option will become exercisable cumulatively in three equal installments on May
3, 2000, May 3, 2001 and May 3, 2002. 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) based on the fair market value of the Common Stock as the date the
option is exercised. 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 therefore 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 1999 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 Income Security Act of 1974, as amended ("ERISA"), or the rules
thereunder. However, the 1999 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, the limit on the number of options
that may be granted to an employee and the number and kind of shares available
for options subsequently granted under the 1999 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 1999 Plan or the options granted under the 1999
Plan. Each Committee has the power and sole and absolute 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 or 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, each Committee may grant substituted options under the provisions of the
1999 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 appropriate Committee in its sole and absolute
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
1999 Plan and the options issued thereunder will terminate, unless provisions
are made in connection with such transaction for the assumption of options
therefore 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. If 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 appropriate Committee determines the date on
which options may become exercisable pursuant to this provision.
Amendment and Termination of the 1999 Plan
Amendment. The Board has complete power and authority to amend the 1999
Plan at any time it is deemed necessary or appropriate. However, 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 any applicable law or rule, unless the
Board determines that compliance with such law or rule is no longer desired. No
termination or amendment of the 1999 Plan may, without the consent of the
affected participant, adversely affect the right of such individual under such
option. However, the appropriate Committee may, in its sole and absolute
discretion, make provision in an option agreement for such amendments that, in
its sole and absolute discretion, it deems appropriate.
Termination. The 1999 Plan will terminate on May 2, 2004; however the
Board has the right and the power to terminate the 1999 Plan at any time. No
option may be granted under the 1999 Plan after the termination of the 1999
Plan. The termination of the 1999 Plan will not have any other effect and any
option outstanding at the time of the termination of the 1999 Plan may be
amended and exercised and may vest after the termination of the 1999 Plan at any
time prior to the expiration date of such option to the same extent such option
could have been amended and would have been exercisable or vest had the 1999
Plan not terminated.
Options Currently Outstanding
No options have been granted at this time under the 1999 Plan.
The total market value as of February 26, 1999 of 1.5million reserved
shares was $ 11,718,750 (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 1999 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 1999 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 the exercise of an option granted under the 1999 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 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 taxable at a
reduced rate. The applicable capital gains rate will depend on the holder's
marginal tax rate and the length of time the shares are held prior to sale.
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 deduct
the amount shown on a timely issued Form W-2 (or Form 1099 if applicable) as
includible with the holder's gross income.
Legislation enacted in 1993 limits the amount of compensation
deductible to 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 1999 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 1999 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 or a Subsidiary,
(ii) in shares of Common Stock already owned or 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 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 1999 PLAN.
RATIFICATION OF ADOPTION OF THE 1999 SENIOR MANAGEMENT BONUS PLAN
(Proposal 3)
The Company's Compensation Committee adopted the 1999 Senior Management
Bonus Plan ("1999 Bonus Plan") on February 22, 1999 and the Company is
submitting the 1999 Bonus Plan to the stockholders at the Annual Meeting. The
Company is soliciting stockholder approval of the 1999 Bonus Plan so that the
1999 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 1999 Bonus Plan is preserved. Amounts payable to participants under the 1999
Bonus Plan will not be paid unless and until the 1999 Bonus Plan is approved by
the Company's stockholders. Pursuant to the 1999 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 Common Stock
should increase. Thus, the 1999 Bonus Plan provides an incentive for management
to perform in a way that directly benefits stockholders.
Terms
Generally, full-time non-sales salaried employees of the Company Level
17 and above will receive a percentage of their base annual cash compensation as
a distribution from the 1999 Bonus Plan if the Company's consolidated 1999
income equals or exceeds $36 million (before income taxes, expansion or
acquisition costs), one time charges or credits not related to current year
operations, and prior to the return of any portion or all of the physicians'
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:
Chairman, CEO, President 12.5 to 45%
Senior Executive Vice President 10.5 to 38%
Executive Staff (Levels 18 to 23, excluding
CEO, Chairman and Senior Executive Vice
President) 6.0 to 28%
Senior Staff (Level 17) 5.5 to 25%
If the above mentioned income target is met in 1999, the minimum
percentages as set forth above will be payable to participating personnel.
Alternatively, if consolidated income (as adjusted) equals or exceeds $42
million, then the maximum percentage set forth above will be payable to
participants. If the amount of such consolidated income is between $36 million
and $42 million, then the bonus is prorated.
The Company's Compensation Committee may not amend the 1999 Bonus
Plan to materially increase the amounts payable thereunder to participants.
The 1999 Bonus Plan is substantially similar to the 1999 Management
Bonus Plan, in which all full-time non-sales level personnel levels 10-16
participate, except that the percentage payments are lower.
Eligibility
All full-time non-sales personnel Level 17 and above participate in the
1999 Bonus Plan. As of January 1, 1999, approximately 35 individuals were
eligible to participate in the 1999 Bonus Plan. Full-time non-sales employees
Level 17 and above who are hired during the course of 1999 are also eligible to
participate in the 1999 Bonus Plan, with their bonus being prorated based upon
their actual service during 1999 or upon any other reasonable method designed to
fairly compensate and recruit a new employee, with the approval of the CFO, CEO
or Chairman.
In general, bonus payments will be calculated based on the salary level
on March 1, 1999. With respect to new participants who are hired or initially
promoted to a full-time non-sales position Level 17 or higher after March 1,
1999, the bonus will be calculated at the initial Level 17 or higher salary and
prorated for the portion of the year that the employee was employed in such
position. With respect to a participant who is demoted during 1999, the amount
will be calculated on a pro-rata basis based on the portion of the year that the
employee was employed in a full-time non-sales position Level 17 or higher.
Persons in interim positions with the Company will be credited as if they held
permanent positions for the purposes of determining bonus plan payment.
No bonus will be paid to a participant who is not employed by the
Company on December 31, 1999 unless approved by the Company's Compensation
Committee. In the event of death or retirement, the participant or his or her
beneficiary will receive a pro-rated portion of the bonus.
The salary levels on March 1, 1999 for the following full-time
non-sales executive officers were as follows:
Name Base Salary
Thomas P. Barbera $475,000
J. Stevens Dufresne $277,000
Vera C. Dvorak, M.D. $263,000
Robert E. Foss $400,000
Catherine M. Fridell $204,000
Susan D. Goff $190,000
Mark D. Groban, M.D. $475,000
Sharon C. Pavlos $168,000
The following table shows estimates of the bonuses payable to the named
individuals and groups under the 1999 Bonus Plan, assuming the minimum net
income goal is achieved and the maximum net income goal is achieved.
<TABLE>
<CAPTION>
Name Minimum Net Maximum
Income Goal Net Income
Achieved(1) Goal Achieved(1)
<S> <C> <C>
George T. Jochum
Former Chairman of the Board,
President and Chief Executive Officer $0 $0
Thomas P. Barbera
President and Chief Executive Officer,
Executive Vice President,
Government Services $59,375 $213,750
Mark D. Groban
Chairman,
President of MAPSI and Alliance $59,375 $213,750
J. Stevens Dufresne
Executive Vice President,
Provider Networks $16,620 $77,560
Robert E. Foss
Senior Executive Vice President,
Chief Financial Officer $42,000 $152,000
Joseph L. Guarriello
Former Executive Vice President,
General Counsel and Secretary $0 $0
All executive officers as a group $274,535 $1,109,730
All directors who are not executive $0 $0
officers as a group
All employees who are not executive $127,561 $584,057
officers as a group (2)
</TABLE>
(1) The calculation is based on salaries for executive officers as of
March 1, 1999 and for all other employees as of December 31, 1998. No
adjustments have been made for promotions, salary adjustments,
terminations or new hires that may occur in 1999. (2) Payable under
the 1999 Bonus Plan. Calculation does not include amounts payable
under the 1999 Management Bonus Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF
ADOPTION OF THE 1999 SENIOR MANAGEMENT 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 2000
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 December 4, 1999. Such
proposals should be directed to the attention of Sharon C. Pavlos, 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 require stockholders to provide advance
notice of all matters to be considered at annual stockholder meetings, including
director nominations. The Bylaws 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 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 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 on which
the Company mails its notice of annual meeting.
Further, the Bylaws 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,
and (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 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 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.
Under Delaware law, shares represented at the Annual Meeting (either by
properly executed proxy or in person) that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee which are represented at
the Annual Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions as to Proposals 1, 2 or 3 will have the same effect as votes
against the respective proposals. Broker non-votes, however, will be treated as
unvoted for purposes of determining approval of such proposals (and therefore
will reduce the absolute number - although not the percentage - of votes needed
for approval) and will not be counted as votes for or against the proposals.
Under applicable rules, brokers will have discretionary voting authority to vote
on Proposals 1, 2 and 3.
By Order of the Board of Directors,
/s/Sharon C. Pavlos
Sharon C. Pavlos
Secretary
Rockville, Maryland
March 31, 1999
<PAGE>
MID ATLANTIC MEDICAL SERVICES, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 26, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby authorizes Thomas P. Barbera and Mark D. Groban, 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 Corporation located at 10 Taft Court, Rockville, Maryland 20850
on Monday, April 26, 1999 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, N.Y. 10203-0176
(1)Election of Directors.
FOR all nominees listed below ( )
WITHHOLD AUTHORITY to vote for all nominees listed below ( )
*EXCEPTIONS ( )
Nominees: Thomas P. Barbera; Francis C. Bruno, M.D.; John A. Paganelli; Janet L.
Norwood; Ivan R. Sabel; and James A. Wild.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee,
mark the Exceptions box and write that nominees name in the space
provided below.)
*Exceptions _________________________________________________________________
(2)To ratify the adoption of the 1999 Non-Qualified Stock Option Plan.
FOR AGAINST ABSTAIN
(3)To ratify the adoption of the 1999 Senior Management 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:_________________________
_______________________________
Signature of Stockholder
________________________________
Signature(s) of Additional Stockholder(s)
Votes must be indicated
(x) in Black or Blue ink.
please complete, sign, date and return this proxy promptly in the enclosed
envelope.
<PAGE>
Appendix A
1999 SENIOR MANAGEMENT BONUS PLAN
(to be approved by the Compensation Committee)
Participants in the 1999 Senior Management Bonus Plan ("Bonus Plan") shall
include all full-time positions Level 17 and above (except for certain sales
personnel who receive override commissions), which includes those individuals
who could possibly be affected by Section 162(m) of the Internal Revenue Code,
including but not limited to the Chairman or CEO. This definition includes all
full-time employees who are Level 17 and above as of March 1, 1999 and all
full-time employees who are promoted to or hired at a Level 17 or above after
March 1, 1999. Bonuses will be solely predicated on the consolidated earnings
performance of Mid Atlantic Medical Services, Inc. (MAMSI).
Bonuses shall be paid according to the following guidelines:
1. Minimum Bonus- Minimum bonuses shall be paid if MAMSI and its consolidated
subsidiaries (the "Company") achieve a profit of $36,000,000 before income
taxes, expansion or acquisition costs, one time charges or credits not related
to current year operations, and prior to the physicians' return of withhold and
payment of physicians' bonuses.
2. Maximum Bonus- Maximum bonuses shall be paid if the Company achieves a profit
of $42,000,000 before income taxes, expansion or acquisition costs, one time
charges or credits not related to current year operations, and prior to the
physicians' return of withhold and payment of physicians' bonuses.
3. Pro-ration- In the event that the Company earns between $36,000,000 and
42,000,000 bonus payments will be pro-rated accordingly.
4. Bonus Base- In general, bonus payments will be calculated based on the salary
level on March 1, 1999. With respect to new participants who are hired or
initially promoted to a full-time non-sales position Level 17 or higher after
March 1, 1999, the bonus will be calculated at the initial Level 17 or higher
salary.With respect to a participant who is demoted during 1999, the amount will
be calculated on a pro-rata basis based on the portion of the year that the
employee was employed in a full-time non-sales position Level 17 or higher.
5. New Employees- New full-time employees or those who are promoted to a
full-time non-sales position Level 17 or higher during 1999 are eligible to
participate in the Bonus Plan. The bonus payment will be pro-rated accordingly
for the portion of the year that the employee was employed in a full-time
non-sales position Level 17 or higher or upon any other reasonable method
designed to fairly compensate and recruit a new employee, with the approval of
the Compensation Committee.
6. Termination- No bonus shall be paid to bonus participants who terminate
employment with the Company or are terminated by the Company prior to the year
end unless approved by the Compensation Committee. 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 following the completion
of the audit of the financial statement(s) for the Company for the year 1999.
8. Bonus Percentages- The distribution of the bonus payments to participants
shall be limited according to the following percentage ranges:
Chairman, CEO, President 12.5 - 45%
Senior Executive Vice President 10.5 -38%
Executive Staff (Levels 18 through 23,
excluding CEO, Chairman and Senior
Executive Vice President) 6.0 - 28%
Senior Staff (Level 17) 5.5 - 25%
For the purposes of administering this Bonus Plan, any offices held by a
participant in an interim capacity will be credited as permanent positions.
9. Relationship to Other Bonus Plan- This Bonus Plan is substantially similar to
the 1999 Management Bonus Plan for full-time non-sales employees Level 10 to
Level 16. The primary differences between the Bonus Plan and the 1999 Management
Bonus Plan are the percentage payments available to personnel and the personnel
covered.
10. Interpretation of the Bonus Plan by the Compensation Committee- If a
question as to the interpretation of the Bonus Plan arises, the Compensation
Committee may interpret the Bonus Plan. The decision of the Compensation
Committee is final.
11. Amendment- The Compensation Committee may not amend the Bonus Plan to
materially increase the amounts payable thereunder to participants.
<PAGE>
Appendix B
MID ATLANTIC MEDICAL SERVICES, INC.
1999 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.
1999 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,
officers 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, officers 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, officers 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 3, 1999,
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 May
2, 2004, or such earlier date as shall be determined by the Board (as
hereinafter defined); provided, however, that, in the event the Plan is not
approved by 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 at or
before the Company's 1999 annual meeting of holders of Common Stock, the Plan
shall terminate on such date and any Options (as hereinafter defined) made under
the Plan prior to such date shall be void and of no force and effect.
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.
(a) The Board may appoint more than one Committee to
administer the Plan. If it appoints more than one Committee, one Committee (the
"Stock Option Committee") shall have the authority to grant Options to a
Participant who is either, at the Date of Grant of the Option, a "covered
employee" as defined in Section 162(m) or who is subject to Section 16 of the
Exchange Act; however, such Committee shall also have the authority to grant
Options to other Participants. The Stock Option Committee shall be composed of
at least two directors of the Company, each of whom is a "non-employee director"
as defined in Rule 16b-3 and an "outside director" within the meaning of Section
162(m). If, however, at least two of the Company's directors are not both
"non-employee directors" and "outside directors," the Board may grant Options to
a Participant who is either a "covered employee" or subject to Section 16 of the
Exchange Act, in which case the Board may also administer the Plan and the term
"Committee" as used herein shall also include the Board. The other Committee
(the "Select Committee") shall be composed of at least one director, who may be
an officer of the Company. The Select Committee shall have authority to grant
Options to a Participant who is not, at the Date of Grant of the Option, either
a "covered employee" as defined in Section 162(m) or subject to Section 16 of
the Exchange Act.
(b) The Board may, from time to time, appoint members of each
Committee in substitution for those members who were previously appointed and
may fill vacancies, however caused, in the Committee.
(c) The Stock Option Committee and the Select Committee shall
each have the power and authority to administer the Plan in accordance with
Article III with respect to particular classes of Participants (as specified in
Section 2.05(a)) and, when used herein, the term "Committee" shall mean either
the Stock Option Committee or the Select Committee if the Board appoints more
than one Committee to administer the Plan. If, however, there is a conflict
between the determinations made by the Stock Option Committee and the Select
Committee, the determinations made by the Stock Option Committee shall control.
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 as the date
as of which it grants an Option, which shall not be earlier than the date on
which the Committee 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 of any given date
shall be as determined in good faith by the Committee, in its sole and absolute
discretion, 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 Physicians Health Plan of Maryland, Inc., in each case who is
not an employee of the Company or of any of its Subsidiaries; provided, however,
that Francis C. Bruno shall be considered to be a Non-Employee Director.
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 Articles V and VI 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 Articles V and VI and, solely to the extent provided in Article
VII, any Non-Employee Director.
2.20 "Plan" means the Mid Atlantic Medical Services, Inc. 1999
Non-Qualified Stock Option Plan as set forth herein, and as the same may be
amended from time to time.
2.21 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under Section 16
of the Exchange Act and any successor rule.
2.22 "SEC" means the Securities and Exchange Commission.
2.23 "Section 162(m)" means Section 162(m) of the Code and the regulations
thereunder.
2.24 "Subsidiary" means a company more than 50% of the equity interests of
which are beneficially owned, directly or indirectly, by the Company.
2.25 "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, without limitation, 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 in its
sole and absolute discretion.
Article III. Administration
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.
3.02 Actions of the Committee. Except when the "Committee" is the
"Board" in the circumstance described in the fourth sentence of Section 2.05(a),
all determinations of the Committee shall be made by a majority vote of its
members. A majority of a Committee's members shall constitute a quorum. 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, 1,500,000 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.
4.03 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 and
absolute 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 sole and absolute 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. A Participant may hold more than one Option granted under the Plan.
During the term of the Plan, no Employee Participant may receive Options to
purchase more than one million shares of Common Stock under the Plan.
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.
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.
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; provided, however, that, except as required
by Rule 16b-3 with respect to Options granted to persons subject to Section 16
of the Exchange Act, no amendment of an Option shall be deemed to be the grant
of a new Option for purposes of this Section 6.02(a). Notwithstanding the
foregoing, the option price per share of Common Stock of an Option shall never
be less than par value per share.
(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), and restrictions on transfer
of the underlying shares of Common Stock, 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), (f) and
(g).
(d) Method of Exercise. Subject to whatever installment
exercise and waiting period provisions that apply under Section 6.02(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). If and to the extent the Committee
determines in its sole and absolute discretion at or after grant, payment in
full or in part may also be made in the form of shares of Common Stock already
owned by the Participant (and for which the Participant has good title, free and
clear of any liens or encumbrances) based on the Fair Market Value of the shares
of Common Stock on the date the Option is exercised; provided, however, that any
already owned 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 and absolute 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 would otherwise
become exercisable under the terms of the Option Agreement. In addition, the
Committee, in its sole and absolute 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. The
following provisions apply to Options granted to Employee Participants:
(i) Exercise of Vested Options Upon Termination of Employment.
(A) Termination. Unless the Committee, in its sole and absolute 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 and absolute 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 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 and absolute 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 or a Subsidiary,
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)(B) and (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 and absolute discretion and under such terms as it deems appropriate, may
permit an Employee Participant to continue to accrue service with respect to the
right to exercise his or her Options.
Article VII. Non-Employee Director Options
7.01 Grant of Non-Employee Director Options; Exercise Price; Term. On
May 3, 1999, 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 3, 1999, 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 5,000 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 3,000 shares of Common Stock.
7.03 Exercisability. Each Non-Employee Director Option shall become
exercisable cumulatively in three equal installments on May 3, 2000, May 3, 2001
and May 3, 2002; 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 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.
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 and absolute 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 or a Subsidiary, (b) the payment of
cash by the Participant to the Company, (c) the payment in shares of Common
Stock already owned by the Participant valued at Fair Market Value, and/or (d)
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. The Committee shall be
authorized, in its sole and absolute discretion, to establish rules and
procedures relating to any such withholding methods it deems necessary or
appropriate (including, without limitation, rules and procedures relating to
elections by Participants who are subject to the provisions of Section 16 of the
Exchange Act to have shares of Common Stock withheld from an Award to meet those
withholding obligations).
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, the limit set forth in the last sentence of the first paragraph of Section
5.01 of the Plan, 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 and absolute 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 and
absolute discretion. Any such adjustments may provide for the elimination of any
fractional shares of Common Stock 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.
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 Rule 16b-3 and Section 162(m). It is intended that
the Plan be applied and administered in compliance with Rule 16b-3 and with
Section 162(m). If any provision of the Plan would be in violation of 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 Section 162(m) as determined by
the Committee in its sole and absolute discretion. The Board is authorized to
amend the Plan and the Committee is authorized 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).
Notwithstanding the foregoing, the Board may amend the Plan so that it (or
certain of its provisions) no longer comply with either or both of Rule 16b-3 or
Section 162(m) if the Board specifically determines that such compliance is no
longer desired and the Committee may grant Options that do not comply with Rule
16b-3 and/or Section 162(m) if the Committee determines, in its sole and
absolute discretion, that it is in the interest of the Company to do so.
8.12 Captions. The captions (i.e., all Article and 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.
8.15 Investment Representation. The Committee may, in its sole and
absolute discretion, demand that any Participant awarded an Option deliver to
the Committee at the time of grant or 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 grant or 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
applicable law or rule, unless the Board determines that compliance with such
law or rule is no longer desired with respect to the Plan as a whole or the
provision to be amended. 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 and absolute
discretion, make provision in an Option Agreement for such amendments that, in
its sole and absolute discretion, it deems appropriate.
(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 amended and exercised and may vest after termination of the
Plan at any time prior to the expiration date of such Option to the same extent
such Option could have been amended or would have been exercisable or vest had
the Plan not terminated.
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.
