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 toss.240.14a-11(c) orss.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.
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 MAY 1, 2000
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders ("Annual
Meeting") of Mid Atlantic Medical Services, Inc. ("Company") will be held on May
1, 2000 at 10:00 a.m., local time, at the Company's offices located at 10 Taft
Court, Rockville, Maryland 20850 for the following purposes:
1. To elect four directors for a three year term (Proposal 1);
2. To ratify the adoption of the 2000 Non-Qualified Stock Option
Plan (Proposal 2);
3. To ratify the adoption of the 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 7, 2000 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, 2000
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
May 1, 2000
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 2000 annual meeting of stockholders of the Company ("Annual Meeting"), to
be held on May 1, 2000, at 10:00 a.m., local 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, 2000.
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 2000 Non-Qualified Stock Option Plan ("2000 Plan"); and (3) FOR Proposal
3 to ratify the adoption of the 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"), 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"), 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
7, 2000 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 753 record holders of Common Stock as of
such date. The number of shares of Common Stock outstanding on the Record Date
was 48,637,422. The presence, in person or by proxy, of at least a majority of
the total number of outstanding shares of Common Stock is necessary to
constitute a quorum at the Annual Meeting. In the event that less than a
majority of the outstanding shares are present at the Annual Meeting, either in
person or by proxy, a majority of the shares so represented may vote to adjourn
the Annual Meeting from time to time without further notice. A plurality of the
total number of shares present or represented by proxy will be necessary to
elect directors (Proposal 1) and a simple majority of the total number of shares
present or represented by proxy will be necessary to approve Proposal 2 and
Proposal 3.
A copy of the Annual Report to Stockholders, including audited
financial statements, for the fiscal year ended December 31, 1999, accompanies
this Proxy Statement. The Company is required to file an Annual Report on Form
10-K for its fiscal year ended December 31, 1999 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 18, 2000 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>
Howard M. Arnold* 0
Thomas P. Barbera 382,375 (2) **
Francis C. Bruno, M.D. 54,362 (3) **
John H. Cook, III, M.D. 12,019 (4) **
Raymond H. Cypess, D.V.M., Ph.D. 9,956 (5) **
John W. Dillon* 0
J. Stevens Dufresne*** 259,854 (6) **
Vera C. Dvorak, M.D. 77,000 (7) **
Robert E. Foss 353,891 (8) **
Mark D. Groban, M.D.* 455,721 (9) **
Debbie J. Hulen 93,300 (10) **
George T. Jochum*** 1,597,142 ( 1) 3.25%
John P. Mamana, M.D.* 17,564 (12) **
William M. Mayer, M.D. 54,155 (13) **
Edward J. Muhl 8,131 (14) **
Gretchen P. Murdza 100,747 (15) **
Janet L. Norwood 8,131 (16) **
John A. Paganelli 8,131 (17) **
Ivan R. Sabel 8,131 (18) **
James A. Wild 13,168 (19) **
All current directors, and 1,770,616 (20) 3.60%
executive officers as a group (20 persons)
</TABLE>
*Nominee for director
**Represents less than 1% of the outstanding shares of Common Stock.
***Individual resigned their position as an executive officer of the
Company in 1999.
(1) This number includes shares of Common Stock over which the director or
officer 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, 1998 Non-Qualified Stock Option Plan or 1999 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
10,009,217 shares of Common Stock on February 18, 2000 and there were
1,231 option holders under the Plans as of such date, each option
holder has the right to vote 8,131 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 (8,131 shares) is more than the number of presently
exercisable options held by Mr. Muhl, Ms. Norwood, Mr. Paganelli, and
Mr. Sabel, the beneficial ownership for all of the other individuals
listed did not increase as a result of the Trust.
(2) Includes presently exercisable options to purchase 379,475 shares of
Common Stock.
(3) Includes 2,306 shares of Common Stock held by his spouse and presently
exercisable options to purchase 11,630 shares of Common Stock.
(4) Includes 434 shares of Common Stock held by his spouse and presently
exercisable options to purchase 10,830 shares of Common Stock.
(5) Includes presently exercisable options to purchase 8,964 shares of
Common Stock.
(6) Includes presently exercisable options to purchase 98,600 shares of
Common Stock.
(7) Represents presently exercisable options to purchase 77,000 shares of
Common Stock.
(8) Includes presently exercisable options to purchase 353,491 shares of
Common Stock.
(9) Includes presently exercisable options to purchase 355,475 shares of
Common Stock and 9,500 shares of Common Stock held by his spouse and
children.
(10) Includes 13,400 shares of Common Stock held by her spouse and
presently exercisable options to purchase 66,500 shares of Common
Stock.
(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 748,500 shares of
Common Stock.
(12) Includes presently exercisable options to purchase 9,564 shares of
Common Stock and 7,000 shares owned by a limited liability company and
a corporation in which Dr. Mamana has an ownership interest.
(13) Includes presently exercisable options to purchase 9,964 shares of
Common Stock.
(14) Represents 8,131 shares that the individual has the right to direct
the voting of under the Trust.
(15) Includes presently exercisable options to purchase 99,200 shares of
Common Stock and 302 shares held as part of the Company's 401(K) Plan.
(16) Represents 8,131 shares that the individual has the right to direct
the voting of under the Trust.
(17) Represents 8,131 shares that the individual has the right to direct
the voting of under the Trust.
(18) Represents 8,131 shares that the individual has the right to direct
the voting of under the Trust.
(19) Includes presently exercisable options to purchase 10,830 shares of
Common Stock.
(20) This number also includes 25,740 shares of Common Stock held by the
spouses and children of executive officers, 4,410 shares held in
individual retirement accounts, 616 shares held in the Company's
401(K) Plan, and 1,523,424 presently exercisable options to purchase
shares of Common Stock.
PRINCIPAL STOCKHOLDERS
As of February 18, 2000, 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. 2,778,757 (1) 5.65%
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
Massachusetts Financial Services Company 3,667,494 (2) 7.45%
MFS Series Trust II - MFS Energy Growth Fund
500 Boylston Street
Boston, Massachusetts 02116
SG Cowen Securities Corporation 2,959,360 (3) 6.01%
1221 Avenue of the Americas
New York, New York 10020
Franklin Mutual Advisors, LLC 3,612,400 (4) 7.34%
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Par Investment Partners L.P. 2,585,500 (5) 5.25%
Par Group, L.P.
Par Capital Management, Inc.
One Financial Center, Suite 1600
Boston, Massachusetts 02111
</TABLE>
(1) Crabbe Huson Group, Inc. reports that it has shared voting power and
shared dispositive power with respect to 2,569,657 and 2,778,757
shares, respectively, as an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940. This information
is based on Amendment No. 2 to Schedule 13G dated February 3, 2000.
(2) Of these shares of Common Stock, 2,526,988 of the shares are
beneficially owned by MFS Series Trust II MFS Emerging Growth Fund and
1,140,506 are beneficially owned by Massachusetts Financial Services
Company ("MFS") and certain other non-reporting entities. MFS reports
that it has sole voting power with respect to 3,283,494 shares and
sole dispositive power with respect to 3,667,494 shares. This
information is based on a Schedule 13G dated February 11, 2000.
(3) SG Cowen Securities Corporation reports that it has sole voting and
dispositive power with respect to 23,660 shares, shared voting power
with respect to 2,856,000 shares, and shared dispositive power with
respect to 2,945,700 shares. This information is based on a Schedule
13G dated January 20, 2000.
(4) Franklin Mutual Advisers, LLC reports that it has sole voting and
dispositive power with respect to 3,612,400 shares. This information
is based on Amendment 3 to a Schedule 13G dated January 13, 2000.
(5) Par Investment Partners, L.P., Par Group, L.P. and Par Capital
Management, Inc. each reports that it has sole voting and dispositive
power with respect to 2,585,000 shares. This information is based on
Amendment 1 to Schedule 13G dated February 9, 2000.
ELECTION OF DIRECTORS
(Proposal 1)
The terms of office of Mark D. Groban, M.D., John P. Mamana, M.D., William
M. Mayer, M.D., and Gretchen P. Murdza expire at the Annual Meeting. The Board
of Directors have nominated Howard M. Arnold, John W. Dillon, Mark D. Groban,
M.D. and John P. Mamana, M.D. for election to the Board, each to serve for a
three-year term. The terms of approximately one-third of the Board expire each
year at the Annual Meeting. Directors serve until their successors are duly
elected and qualified. Following the Annual Meeting, the size of the Board of
Directors will be 14 and, if the nominees are elected, there will be no
vacancies on the Board.
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 four nominees for
election as director and of those directors who will continue to serve as such
after the Annual Meeting, as well as the executive officers who are not
directors. 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>
<CAPTION>
Name and Age (1) Director Term of Directorships; Positions with the Company
Since Office
Expires
Annual
Meeting
<S> <C> <C> <C>
Thomas P. Barbera, 49 1996 2001 Director of the Company, MLH, MIACI,
MDIPA, Surgicenter, OCI, OCCI, OCIPA,
HomeCall, FirstCall, HHS, HPS, MAPSI
and MIRI; Vice Chairman, Chief
Executive Officer, and President of
the Company and MLH; Chief Executive
Officer and President of MIRI, OCCI
and OCI; Chief Executive Officer of
Alliance, HPS, MD-IPA, MIACI, OCIPA,
HHS and MAPSI.
Francis C. Bruno, M.D., 58 1986 2002(2) Director of the Company, MLH and
PHP-MD; Chairman of PHP-MD;
Co-Medical Director of HHS.
John H. Cook III, M.D., 63 1990 2001(3) Director of the Company, MLH and
PHP-MD.
Raymond H. Cypess, D.V.M., Ph.D., 59 1998 2001 Director of the Company and MLH.
Robert E. Foss, 49 1998 2001 Director of the Company, MLH,
HomeCall, FirstCall, HPS, HHS, MDIPA,
OCI, OCCI, OCIPA, MAPSI, MIACI 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.
Edward J. Muhl, 54 1998 2001 Director of the Company and MLH.
Janet L. Norwood, 76 1999 2002 Director of the Company and MLH.
John A. Paganelli, 65 1999 2002 Director of the Company and
MLH.
Ivan R. Sabel, 54 1999 2002 Director of the Company and MLH.
James A. Wild, 48 1989 2002(4) Director of the Company, MLH, and OCIPA.
Nominees (for a three-year term expiring in 2003):
Howard M. Arnold, 58
John W. Dillon, 55
Mark D. Groban, M.D., 58 1990 2000(5) Director of the Company, MLH, MAPSI,
MIACI, MD-IPA, Surgicenter, OCI,
OCCI, OCIPA, HomeCall, FirstCall, HPS
and HHS; Chairman of Alliance;
President and Chairman of MIACI;
Chairman of the Company, MLH, MAPSI,
MIACI, MD-IPA, Surgicenter, OCI,
OCCI, OCIPA, HomeCall, FirstCall, HPS
and HHS; and Chief Executive Officer
of PHP-MD.
John P. Mamana, M.D., 57 1997 2000 Director of the Company, MLH and
PHP-MD.
Executive Officers Who Are Not Current Directors or Nominees or Whose Terms as
Director Will Not Continue After the 2000 Shareholders Meeting:
John DeRosa, 47 President of Alliance and MAPSI.
Vera C. Dvorak, M.D., 53 Director and 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.
Susan D. Goff, 54 Director of MD-IPA, OCI, OCCI and
Surgicenter; President of MD-IPA;
Executive Vice President of the
Company, MIACI, MIRI, MLH, OCI, OCIPA
and OCCI.
Debbie J. Hulen, 40 Director of OCI, OCCI, OCIPA, Surgicenter and MD-IPA;
Senior Vice President of the Company, MLH, MIACI,
MIRI, OCCI, OCI and OCIPA.
Executive Officers Who Are Not Current Directors or Nominees or Whose Terms as
Director Will Not Continue After the 2000 Shareholders Meeting (continued):
Christopher E. Mackail, 41 Senior Vice President and Controller
of the Company, MLH, Alliance, PHP-
MD, FirstCall, HomeCall, HHS, HCPS,
MAPSI, MD-IPA, Surgicenter, MIACI,
OCI, OCCI, and OCIPA.
Sharon C. Pavlos, 41 Associate Senior 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.
</TABLE>
(1) Signifies age as of December 31, 1999.
(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. Cook was not a Director of the Company from April 1993 to April
1995 or from April 1997 to April 1998.
(4) Mr. Wild was not a Director of the Company from April 1992 to April
1993.
(5) Dr. Groban was not a Director of the Company from April 1993 to April
1994.
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:
Howard M. Arnold has been Chairman and Chief Executive Officer of Churchill
Investment Corporation ("Churchill") since 1992. Churchill is the managing
general partner of Churchill Technology Limited Partnership, a hedge fund
focused on emerging high technology companies. From 1986 to 1991, Mr. Arnold was
co-founder and Chief Executive Officer of Chartway Technologies, Inc.
("Chartway"), a spin-off from Sage Systems, Inc. ("Sage"). Chartway was an
application software and services firm, which was sold to an international
consulting firm in 1991. From 1973 to 1986, Mr. Arnold was co-founder and Vice
President of Sage, a software products company. Sage went public in 1986 as Sage
Software, Inc. and was the predecessor of Intersolv, Inc. and now Merant Plc.
Mr. Arnold received a B.S. in 1963 from American University and an M.B.A. in
1968 from Golden State University.
Thomas P. Barbera was elected President and Chief Executive Officer on
April 21, 1999. He was elected Interim President and Chief Executive Officer on
January 8, 1999 and 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. Mr. Barbera received an A.B. from Loyola College in 1972
and received his J.D. from University of Baltimore in 1976.
Francis C. Bruno, M.D. received a B.S. from Kings College in 1964 and an
M.D. from New York Medical College in 1968. He is Board certified in Family
Practice and has practiced medicine since 1972.
John H. Cook III, M.D. is a board certified practitioner of Internal
Medicine and Geriatrics. 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. In 1963, Dr. Cook received a Masters of Science in
Electrical Engineering from the U.S. Naval Post-Graduate School 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. In May, 1999, Dr. Cypess
was elected to the Board of Directors of Commonwealth Biotechnologies, Inc., a
biotechnology company. 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.
John W. Dillon is Vice President - External Affairs, for Bell
Atlantic-Maryland, Inc., Baltimore, Maryland. Prior to joining Bell
Atlantic-Maryland, Inc., Mr. Dillon was a Director at AT&T in Basking Ridge, New
Jersey. He is on the Board of Directors of Bell Atlantic-Maryland, Inc. He is
also on the Board of Directors of the University of Maryland Foundation and
serves on its Executive Committee. He is past President of the MD-DC Utilities
Association, a member of the Leadership Council of the Johns Hopkins Bayview
Medical Center, and is a member of the Board of Directors of the Baltimore
Private Industry Council, Maryland's Court Appointed Special Advocates
Association, Baltimore Museum of Industry, Baltimore Downtown Partnership, Lyric
Foundation and Center Stage. Mr. Dillon graduated from St. Bonaventure
University in 1966 and served in the United States Marine Corps from 1966-1970.
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. Prior to joining
the Company, Mr. Foss practiced as a certified public accountant with a "Big
Five" accounting firm. 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 Chairman of the Board on April 21, 1999.
Dr. Groban was elected interim Chairman of the Board on January 8, 1999. Dr.
Groban joined the Company full time on October 10, 1990 after being in full time
private practice since 1973. Dr. Groban served as a consultant to the Company
from February 1988 to October 1989. He became President of MAPSI in October
1989. In May 1991, he became President of Alliance. In October 1996, Dr. Groban
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 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. Dr. Mamana is also Chairman and Chief Executive
Officer of American Health Sciences, Inc. since January 1998.
Edward J. Muhl is the Senior Managing Director of Navigant Consulting, Inc.
(formerly Peterson Worldwide Consulting, LLC). From 1997 to August 1998, Mr.
Muhl was Executive Vice President and Member of the Board of Directors of
Peterson Worldwide 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.
Janet L. Norwood was an economist and a Senior Fellow with the Urban
Institute from 1991 through 1999. 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 B.A. from Douglas College, Rutgers University and holds an M.A. and
Ph.D. from the Fletcher School of Law and Diplomacy from Tufts University as
well as an LL.D. Honorary from Harvard University, Carnegie Mellon University
and Florida International University. Currently, Ms. Norwood is self-employed
part-time as a consultant.
John A. Paganelli was President and Chief Executive Officer of Transamerica
Life Insurance Company of New York from 1992 to 1997. Since 1987, Mr. Paganelli
has been a partner in RFG Associates, a financial planning organization, and
Vice President and Executive Vice President of PEG Capital Management, an
investment advisory organization. From 1980 to the present, Mr. Paganelli has
been an officer and director-shareholder of Mike Barnard Chevrolet, Inc., an
automobile dealership. Mr. Paganelli holds an A.B. from Virginia Military
Institute.
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 has been 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:
John D. DeRosa joined the Company in August 1999 as President of Alliance
and MAPSI. Prior to joining the Company, Mr. DeRosa was Vice President of Group
Managed Care Products for The Guardian Insurance Company from 1993 to 1999. Mr.
DeRosa graduated from Brooklyn College in 1974.
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.
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. Ms. Hulen
is the daughter of George T. Jochum, a former executive officer and director of
the Company.
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 Associate Senior Executive Vice President and
General Counsel of the Company on February 14, 2000 and 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. from the University of Maryland in
1980 and her J.D. from Georgetown University in 1983.
Board Meetings and Committees
The Company's Board of Directors met 9 times in fiscal 1999. 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 1999,
the Executive Committee held 4 meetings, the Finance Committee held 3 meetings,
the Audit Committee held 3 meetings, the Stock Option Committee held 4 meetings,
the Compensation Committee held 4 meetings, the Employment Practices Committee
held 4 meetings, the Select Committee held 3 meetings and the Transition and
Search Committee held 8 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.
(Chairman), Thomas P. Barbera, Francis C. Bruno, M.D., Ivan R. Sabel 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 John P. Mamana, M.D. (Chairman), Raymond H. Cypess, D.V.M., Ph.D., Mark D.
Groban, M.D., and Thomas P. Barbera. The Audit Committee's members are James A.
Wild (Chairman), Edward J. Muhl and Janet L. Norwood.
The Stock Option Committee grants options under and otherwise implements
the 1992, 1993, 1994, 1995, 1996, 1998 and 1999 Non-Qualified Stock Option
Plans. The members of the Stock Option Committee are Edward J. Muhl (Chairman),
John P. Mamana, M.D. and John A. Paganelli.
The Select Committee grants options under the 1992, 1993, 1994, 1995, 1996,
1998, and 1999 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 Mark D. Groban, M.D. and Thomas P. Barbera.
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 John P. Mamana, M.D.
(Chairman), Edward J. Muhl, and John A. Paganelli.
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), John H.
Cook, III, M.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
William M. Mayer, M.D. and Gretchen P. Murdza failed to file on a
timely basis one Form 5 Report, Statement of Changes in Beneficial Ownership,
reporting one transaction as required by Section 16 (a) of the 1934 Act. Each of
the aforementioned forms has subsequently been filed.
Directors' Compensation
For the fiscal year ended December 31, 1999, 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 Annual Retainer $20,000(3)
Director Attendance at Board Meeting $1,500
Director Attendance at a Committee Meeting $1,000
(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 except for Dr. Bruno who does receive
fees as Chairman of PHP-MD and fees as a Director of the Company. If the
position is held by an employee of the Company, no compensation in addition
to his or her employee compensation is paid.
(3) Paid quarterly.
Under the Company's Deferred Compensation Plan adopted by the Board on
February 15, 2000, each person who was a director of the Company on April 1,
2000, or thereafter may defer all or 50% of their cash compensation to a
deferred compensation account. The account will accrue interest at the prime
rate as periodically adjusted and published in the Wall Street Journal. The
balance of a director's account in the Deferred Compensation Plan will become
payable, at the director's election, (1) on the January 1 next following the
date he or she ceases to serve as a director, or (2) the January 1 following his
or her 65th birthday or (3) on the later of those two dates. Employees of the
Company receive no annual fees and no compensation for Board or Committee
meeting attendance. As such, employee directors will not participate in the
Deferred Compensation Plan.
Under the Company's 1996, 1998, and 1999 Non-Qualified Stock Option
Plans (the "Plans"), each Non-Employee Director received a Non-Employee Director
Option to purchase shares of Common Stock at an exercise price of $20.00 per
share, $13.00 per share, or $9.25 per share (which was the fair market value of
a share of Common Stock on May 1, 1996, May 1, 1998, and May 3, 1999,
respectively). The number of shares of Common Stock covered by each Non-Employee
Director Option was based on a formula specified in the plan for the 1996 and
1998 Plans. The 1999 Plan provided that Non-Employee Directors of the Company
would each receive an option to purchase 5,000 shares.
For the 1996 and 1998 Plans, each Non-Employee Director Option becomes
exercisable cumulatively in three equal installments starting on May 1, 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.
With respect to the 1999 Plan, each Non-Employee Director Option is
exercisable in full on the date of grant. 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 may be exercised until the expiration of the
stated term of the option. Accordingly, if a Non-Employee Director ceases to
serve for any reason, he or she may continue to exercise his or her Non-Employee
Option until the expiration of the stated term of such option.
Set forth below is the number of Non-Employee Director Options to
purchase shares of Common Stock received by current Company directors (who are
not also employees) and nominees on May 1, 1996, May 1, 1998, and May 3, 1999
under the 1996, 1998, and 1999 Plans.
Number of Shares Number of Shares Number of Shares
1996 Plan 1998 Plan 1999 Plan
May 1, 1996 May 1, 1998 May 1, 1999
Howard M. Arnold* None None None
Francis C. Bruno, M.D. 4,980 4,950 5,000
John L. Cook, III, M.D. 4,380 4,350 5,000
Raymond H.Cypess,
D.V.M., Ph.D. 2,814 3,450 5,000
John W. Dillon* None None None
John P. Mamana, M.D.* 3,264 3,900 5,000
William M. Mayer, M.D. 3,564 4,200 5,000
Edward J. Muhl None 3,000 5,000
Janet L. Norwood None None 5,000
John A. Paganelli None None 5,000
Ivan R. Sabel None None 5,000
James A. Wild 4,380 4,350 5,000
*Nominee
EXECUTIVE MANAGEMENT COMPENSATION
Report of the Compensation Committee on Executive Compensation
The role of the Compensation Committee is to (1) set salary for
individuals who are Senior Executive Vice Presidents and above, subject to the
approval of the Board of Directors with respect to the Chairman, President and
Chief Executive Officer and Senior Executive Vice President and all executive
officers of the Company; (2) to review any employment agreements or revisions
thereto entered into with the Company's officers; and (3) to establish the bonus
goal for the Chairman, Chief Executive Officer, Senior Executive Vice President,
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. As of January 8, 1999, Mr. George T. 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 which was for the period
of January 1, 1991 through December 31, 1998. Specifically, Mr. Jochum
received a lump sum payment of $730,000. He received an additional amount
totaling $1,350,000 payable in installments, for the period January 22,
1999 through January 21, 2000. Mr. Jochum is also entitled to the
supplemental retirement benefits pursuant to the split dollar life
insurance option that Mr. Jochum previously elected and health insurance
benefits to be paid by Mr. Jochum.
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, upon the recommendation of the Compensation Committee, 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 were
effective January 8, 1999, and were to 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. If Dr. Groban or Mr. Barbera were selected and agreed to serve
as Chairman of the Board or President and Chief Executive Officer, the
Company and the selected executive were required to enter into a new
employment agreement. Dr. Groban and Mr. Barbera's employment agreements
provided for a base salary of a minimum of $475,000 per year, which amount
was determined by the Compensation Committee after reviewing comparable
executive salaries in the Company's industry.
On April 21, 1999, Dr. Groban was elected Chairman of the Board and
Mr. Barbera was elected President and Chief Executive Officer. On that
date, Dr. Groban and Mr. Barbera entered into new employment agreements
with the Company. These new agreements were recommended by the Compensation
Committee and approved by the Board of Directors. The Company's employment
agreements with Dr. Groban and Mr. Barbera are to continue for a three-year
term and provide each a minimum base salary of $525,000 with a provision
that allows for an annual change in salary directly related to the earnings
of the Company. For years two and three of the agreement, the base salary
will increase or decrease by a percentage equal to 50% of the percentage
change in the Company's consolidated net after tax income during the
previous year. The employment agreements also provide that any salary
increase may not be greater than 25% and any salary decrease may not be
greater than 12.5% in any one year. Dr. Groban and Mr. Barbera's salaries
were determined by the Compensation Committee after reviewing comparable
executive salaries in the Company's industry.
Mr. Foss' employment agreement is effective January 8, 1999 and will
continue through April 21, 2002 unless earlier terminated as provided in
the agreement. This agreement was recommended by the Compensation Committee
and approved by the Board of Directors. 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 a percentage 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. Mr. Foss' salary was determined by the Compensation
Committee after reviewing comparable executive salaries in the Company's
industry.
With respect to those executive officers other than Mr. Jochum, Dr.
Groban, Mr. Barbera, and Mr. Foss, Dr. Groban and Mr. Barbera presented a
recommendation to the Committee regarding such individuals' 1999 salary
based on their evaluation of each individual's performance, using the
criteria stated above. The Committee discussed these recommendations and
the Committee set 1999 salary levels in accordance with those
recommendations.
Bonus. Bonus compensation for management is based on the ability of the
Company to attain a predetermined pretax income goal. The 1999 Senior Management
Bonus Plan includes a minimum pretax income goal (prior to the return of amount
withheld by PHP-MD as part of the claims reserve risk pool, payment of
physicians' bonuses and charges or credits not related to current year
operations, and before deductions for income tax and expansion and acquisition
costs). For 1999, the minimum pretax income goal was $36 million and the maximum
pretax income goal was $42 million. The Company achieved an actual 1999 pretax
earnings of $39,830,000 resulting in the Company paying a bonus under the 1999
Senior Management Bonus Plan equal to 64% of the maximum bonus. The goal was
established at the beginning of 1999 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 pretax 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 1999 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, 1998, and 1999
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. Dr. Groban and Mr. Barbera recommended the
number of options to be granted to each executive officer during 1999,
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 Dr. Groban and Mr. Barbera. In
general, during 1999, executive officers were only granted additional options if
they were promoted during the year.
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 Senior
Management Bonus Plan. The Company generally intends to take steps so that its
stock option and bonus programs that are generally available to all exempt
employees comply with the requirements of Section 162(m).
John P. Mamana, M.D.
Edward J. Muhl
John A. Paganelli
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 [ ].
(Stock performance Graph is shown here containing plot points below.)
These comparisons assume an investment of $100 made on December 31, 1994
and compares relative values on an annual basis for the years ending December
31, 1995, 1996, 1997, 1998 and 1999. 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.
<TABLE>
<CAPTION>
Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Mid Atlantic Medical Svcs. $100 $106 $58 $56 $43 $36
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
HealthCare (Mgd. Care)-Mid $100 $122 $98 $66 $53 $49
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NY Stock Exchange-Comp. $100 $131 $156 $204 $237 $259
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Compensation Committee Interlocks and Insider Participation
During 1999, the members of the Company's Compensation Committee were John
P. Mamana, M.D. (Chairman), Edward J. Muhl and John A. Paganelli. 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 of the Company have received fees for services
rendered on behalf of persons enrolled in the HMO plans run by the Company and
its Subsidiaries ("Enrollees"). Such persons were compensated at the same rate
as were non-director primary care and specialist healthcare practitioners
("Participating Practitioners"). Compensation from PHP-MD for medical services
rendered by all Participating Practitioners (or corporations or partnerships of
which they were partners, affiliates or stockholders) ranged from $0 to
approximately $3,387,000 in 1999. MD-IPA also offers 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 1999 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 1999. 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 1999.
<TABLE>
<CAPTION>
Medical Services Total Compensation
<S> <C> <C>
Francis C. Bruno, M.D. (1) $ 94,429 $185,574
John H. Cook III, M.D. (2) $119,880 $162,530
John P. Mamana, M.D. (3) $369,144 $413,394
William M. Mayer M.D. (4) $849,669 $893,163
Ivan R. Sable (5) $196,771 $221,771
</TABLE>
(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 Loudoun Health Services for medical services to enrollees of
MD-IPA, MLH, and OCI. (3) Paid to Virginia Medical Associates ("VMA") for
medical services to enrollees of MD-IPA, MLH, and OCI. Dr. Mamana owns less
than 5% of VMA and the revenues received by VMA from the Company and its
Subsidiaries represents less than 5% of VMA's revenues.
(4) Paid to Drs. Esposito, Mayer, Hogan and Associates, P.A. partnership for
medical services for enrollees of MD-IPA, MLH and OCI.
(5) 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 Chairman,
Chief Executive Officer and the three other most highly compensated executive
officers whose salary and bonus, if any, exceeded $100,000 during 1999 as well
as two former executive officers of the Company (each a "Named Officer").
<TABLE>
<CAPTION>
Long-term
Compensation
Awards
Annual Compensation
Name and Year Salary($) Bonus($) Other Annual Securities All Other
Principal Position Compensation(2)Underlying Compensation ($)
Options (#)
<S> <C> <C> <C> <C> <C> <C>
Mark D. Groban 1999 $497,859 $163,267 - 145,000 $3,200(5)
Chairman 1998 $290,735 -0- - 105,600 (6) $3,200(5)
of the Board 1997 $278,107 $32,968 - -0- -0-
Thomas P. Barbera 1999 $499,994 $163,695 - 145,000 $3,200(5)
President and Chief 1998 $325,369 -0- - 135,600 (6) $3,200(5)
Executive Officer 1997 $308,698 -0- - -0- -0-
Robert E. Foss 1999 $394,241 $109,044 - 126,000 $3,200(5)
Senior Executive Vice 1998 $292,692 -0- - 141,000 (6) $3,200(5)
President and Chief 1997 $280,020 -0- - -0- -0-
Financial Officer
Vera C. Dvorak 1999 $274,108 $54,931 - 18,000 $3,200(5)
Executive Vice President 1998 $256,417 -0- - 81,000 (6) $3,200(5)
and Medical Director 1997 $245,000 -0- - -0- -0-
Debbie J. Hulen 1999 $130,597 $209,244 (7) - 22,500 $3,200(5)
Senior Vice President 1998 $ 78,808 $168,998 (7) - 74,700 (6) $3,200(5)
1997 $ 67,500 $118,107 (7) - -0- $2,783(5)
George T. Jochum (1) 1999 $1,350,000 -0- - -0- $980,000 (1)
Former Chairman of the 1998 $1,349,998 -0- - 350,000 (6) $8,628 (3)(4)
Board, President, 1997 $1,385,724 -0- - 50,000 $8,628(3)(4)
and Chief
Executive Officer
J. Stevens Dufresne 1999 $293,827 -0- - 9,000 $5,000(5)
Former Executive Vice 1998 $268,574 -0- - 120,600 (6) $3,200(5)
President of Provider 1997 $257,250 -0- - -0- -0-
Networks
</TABLE>
(1) Effective January 8, 1999, Mr. Jochum resigned from the Board and from his
position as Chairman, President and Chief Executive Officer. The $1,350,000
was received for consulting services. As part of the termination agreement,
Mr. Jochum received a one time payment of $730,000. Under the terms of his
employment contract, Mr. Jochum received a monthly pension which during
1999 aggregated $250,000. The Company had accrued a liability for the
pension during his employment.
(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.
(4) Includes $8,628 in premiums paid by the Company in 1998 and 1997 for life
insurance for which Mr. Jochum may designate the beneficiary.
(5) Represents Company contribution to defined contribution plan.
(6) Other than with respect to Mr. Jochum, the amount of options granted
includes options granted as part of the voluntary exchange program.
(7) These bonuses were paid outside of the Company's senior management bonus
programs.
Pursuant to an agreement with the Company, Mr. DeRosa's home in New Jersey was
purchased by the Company for $382,500, which was based on the average of three
independent appraisals.
Management Employment Agreements
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 were effective
January 8, 1999, and were to 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. If Dr. Groban or
Mr. Barbera were selected and agreed to serve as Chairman of the Board or
President and Chief Executive Officer, the Company and the selected executive
were required to enter into a new employment agreement. Dr. Groban and Mr.
Barbera's employment agreements provided for a base salary of a minimum of
$475,000 per year. In addition, Dr. Groban and Mr. Barbera's employment
agreements provided for options to purchase 85,000 shares of Common Stock to be
granted to each of them on February 25, 1999 and to vest on a pro-rata basis
over a one to five year period, said vesting 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.
On April 21, 1999, Dr. Groban was elected Chairman of the Board and Mr.
Barbera was elected President and Chief Executive Officer. On that date, Dr.
Groban and Mr. Barbera entered into new employment agreements with the Company.
These agreements were amended on August 11, 1999 and the amended agreements are
described below.
The Company's new employment agreements with Dr. Groban and Mr. Barbera are
to continue for a three-year term and provide each a minimum base salary of
$525,000 with a provision that allows for an annual change in salary directly
related to the earnings of the Company. For 2000 and 2001, the base salary will
increase or decrease by the percentage equal to 50% of the percentage change in
the Company's consolidated net after tax income during the previous year. Items
of a non-recurring nature may be excluded in computing the Company's
consolidated net income. The employment agreements also provide that any salary
increase may not be greater than 25% and any salary decrease may not be greater
than 12.5% in any one year. In addition, the Company agreed to grant Dr. Groban
and Mr. Barbera options to purchase no less than 150,000 shares of Common Stock
at the stock price on the date of grant on each of January 1, 2000 and January
1, 2001. Such options will vest 50% on the date of grant and 50% based on
performance to be determined by the Stock Option Committee and the Board at the
first Board meeting in 2000 and 2001, respectively.
On February 15, 2000, the Stock Option Committee, with the approval of the
Board, voted to grant Dr. Groban and Mr. Barbara options to purchase 245,750
shares of Common Stock at the January 1, 2000 price. One half of the options
vested on the grant date. The vesting period for the remaining options could be
as short as one year if 2000 pretax income exceeds $50 million and as long as 5
years if 2000 pretax income is $44 million or less. The Stock Option Committee,
with the approval of the Board, provided that the options would vest over 4, 3,
or 2 years as income increased over $44 million and approaches $50 million.
Each new employment 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
with no payment to either Dr. Groban or Mr. Barbera. If 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;
or (3) the Company substantially reassigns Dr. Groban's or Mr. Barbera's duties
and responsibilities, the Company must pay Dr. Groban or Mr. Barbera an amount
equal to 24 months base salary paid in equal bi-weekly payments over a period of
two years and any pro-rata bonus that he would have been entitled to had he been
employed at the end of the year in which such termination occured. In addition,
all stock options held by either Dr. Groban or Mr. Barbera would immediately
vest and become exercisable under the terms of the applicable plan. The
employment agreements also contain a covenant not to compete provision upon a
termination without cause or voluntary resignation whereby Dr. Groban and Mr.
Barbera agree not to be employed as an executive officer of, control, manage, or
otherwise participate in the management of the business of a significant
competitor of the Company for one year after his termination of employment. In
consideration of the covenant not to compete, the Company will pay Dr. Groban or
Mr. Barbera an additional amount equal to one year of his pre-termination base
salary.
In the event of a "change of control" as defined in the agreements,
both Dr. Groban and Mr. Barbera would 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 Dr. Groban or Mr. Barbera could have earned
under the applicable bonus plan 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 addition, in the
event of a "change in control," the Company will pay to Dr. Groban or Mr.
Barbera an amount equal to the sum of (x) excise taxes imposed on him under
Section 4999 of the Code and (y) income taxes due from him with respect to the
payment of the amount in subsection (x) above as well as the payment for income
taxes under this provision. A "change in control" is deemed to occur under the
agreements if, at any time, substantially all the assets of the Company are 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 representing 50% or
more of the combined voting power of the then-existing outstanding securities of
the Company.
The employment agreements also provide that either Dr. Groban and Mr.
Barbera and their respective spouses at the time of their death or retirement
are 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 Dr.
Groban, Mr. Barbera or their respective spouses with the normal Company
contribution for active employees in effect during the period of coverage. The
employment agreements also provide for a $450 a month automobile allowance.
Mr. Foss' employment agreement was effective January 8, 1999 and
continues until April 21, 2002 unless earlier terminated as provided in the
agreement. His agreement was amended on August 11, 1999 and the amended
agreement is described below.
Mr. Foss' minimum base salary under the amended 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 provided that his
base salary will increase or decrease each year beginning in the year 2000 by a
percentage 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 options to
purchase 75,000 shares of the Common Stock granted to him on February 25, 1999
and to vest on a pro-rata basis over a one to five year period 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. In addition, on both
January 1, 2000 and January 1, 2001, the Company agreed to grant Mr. Foss
options to purchase no less than 130,000 shares of Common Stock at the stock
price on the date of grant. Such options will vest 50% on the date of grant and
50% based on performance to be determined by the Stock Option Committee and the
Board at the first Board meeting in 2000 and 2001, respectively.
On February 15, 2000, the Stock Option Committee, with the approval of
the Board, voted to grant Mr. Foss options to purchase 212,983 shares of Common
Stock at the January 1, 2000 price. One half of the options vested on the grant
date. The remaining options will vest from one to five years based upon the 2000
pretax income in the same manner as the options of Dr. Groban and Mr. Barbara.
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. If the Company terminates the 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; or (3) the Company's
substantially reassigns Mr. Foss' duties and responsibilities, the Company must
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 held 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 agreement, Mr.
Foss would receive a cash payment 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 could have earned under the applicable bonus plan for the
year in which such change in control occurs. In addition, all stock options to
which he was entitled would immediately vest and become exercisable. In the
event of a "change in control," the Company will pay Mr. Foss an amount equal to
the sum of (x) excise taxes imposed on him under Section 4999 of the Code and
(y) income taxes due from him with respect to the payment of the amount in
subsection (x) above as well as the payment for income taxes under this
provision. A "change in control" is deemed to occur under the agreement if, at
any time, substantially all the assets of the Company are 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 representing 50% or more of the
combined voting power of the then-existing outstanding securities of the
Company.
The employment agreement contains a covenant not to compete provision
upon a termination without cause or voluntary resignation whereby Mr. Foss
agrees not to be employed as an executive officer of, control, manage, or
otherwise participate in the management of the business of a significant
competitor of the Company for one year after his termination of employment. In
consideration of the covenant not to compete, the Company will pay Mr. Foss an
additional amount equal to one year of his pre-termination base salary.
The employment agreement also provides that Mr. Foss and his respective
spouse at the time of his death or retirement are 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. Foss or his spouse with the normal
Company contribution for active employees in effect during the period of
coverage. The employment agreement also provides for a $450 a month automobile
allowance.
Under the agreements, retirement benefits will be payable to Dr.
Groban, Mr. Barbera and Mr. Foss beginning on the day each person attains age
sixty-two if he is at that time still employed by the Company and he elects to
retire from employment with the Company or he is not at the time employed by the
Company and elects to begin receiving retirement benefits. In addition, Dr.
Groban, Mr. Barbera or Mr. Foss may elect early retirement and may elect to
receive payment of the retirement benefit at anytime after attaining age 55 but
before age 62 by providing notice to the Company. Such early retirement benefit
will be actuarially adjusted solely for actual retirement age and will be
subject to a vesting schedule. If Dr. Groban, Mr. Barbera or Mr. Foss retires on
or after reaching age 62, each person will be entitled to receive from the
Company a retirement benefit which will provide an annual lifetime benefit in an
amount equal to three percent of the total average annual base salary and bonus
compensation for the years beginning on or after January 1, 1999 times the total
number of months of service with the Company, including all months prior to
January 1, 1999, divided by 12 to a limit of 60% of each person's total
compensation defined as the total amount of annual salary and maximum annual
bonus that he could have earned in the calendar year of his termination of
employment with the Company. If he elects early retirement and retires after
reaching age 55 but before age 62, the annual payment will be adjusted so that
the total amount of retirement benefits to be paid does not exceed the actuarial
equivalent of the amount that would then have been payable in retirement
benefits had he reached and retired at age 62. For the purposes of determining
actuarial equivalency, the retirement benefit will be reduced by .25% per month
for each month that the actual retirement age is below age 62. Retirement
benefits became 50% vested on January 1, 2000 and the remaining 50% vests if
such person is employed on January 1, 2001 and immediately upon a change in
control, death or disability. Such retirement benefit will be paid in single
annual payments for his life with the initial payment made to him on his
retirement date. The Company is not obligated to pay any retirement benefit
under this provision if he is terminated for cause by the Company. He may elect
a beneficiary to receive a survivor benefit upon his retirement date.
The Company and MD-IPA entered into an employment 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 with Mr. Jochum for the period
January 1, 1999 to December 31, 2001. For the reasons stated in the following
paragraph, Mr. Jochum's new agreement was never effective. Mr. Jochum's annual
base salary under the agreements was $1,350,000 for 1998.
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 $1,350,000
paid in 26 equal bi-weekly installments continuing through the period January
21, 2000. Mr. Jochum is also entitled to the supplemental retirement benefits
including a split dollar option that Mr. Jochum previously elected and health
insurance benefits.
Dr. Dvorak and Ms. Hulen also entered into employment contracts with
the Company on December 4, 1998, which provided for a one year term effective
through December 4, 1999, and entitled them to specified compensation in the
event of a change in control of the Company during such period.
1999 Options Grants Table
The following table shows certain information regarding the options
granted to the Named Officers in 1999. The Company did not grant any stock
appreciation rights to these individuals in 1999.
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total Options Potential Realizable
Securities Granted to Value at Assumed Annual
Underlying Employees in Rates of Appreciation for
Options Fiscal Year Exercise or Base Market Price Expiration Option Term
Name Granted (#)(1) Price ($/Sh) on Grant Date Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C>
Mark D. Groban, M.D. 85,000(2) 3.34% $8.2500 $8.2500 02/25/2004 $193,742 $428,120
60,000(3) 2.35% $12.0000 $12.0000 01/08/2004 $198,923 $439,567
Thomas P. Barbera 85,000(2) 3.34% $8.2500 $8.2500 02/25/2004 $193,742 $428,120
60,000(3) 2.35% $12.0000 $12.0000 01/08/2004 $198,923 $439,567
Robert E. Foss 75,000(2) 2.94% $8.2500 $8.2500 02/25/2004 $170,949 $377,753
51,000(3) 2.00% $12.0000 $12.0000 01/08/2004 $169,084 $373,632
Vera C. Dvorak, M.D. 18,000(4) 0.70% $9.250 $9.250 05/03/2004 $46,001 $101,650
Debbie J. Hulen 15,000(4) 0.58% $9.250 $9.250 05/03/2004 $38,334 $84,708
7,500(4) 0.29% $6.875 $6.875 10/08/2004 $14,246 $31,479
George T. Jochum -0- - - - - - -
J. Stevens Dufresne 9,000(4) 0.35% $9.2500 $9.2500 07/30/2000 $4,163 $8,325
</TABLE>
(1) Each option becomes immediately exercisable in the event of a change of
control of the Company.
(2) Vesting occurred on February 15, 2000 based on the Company's 1999 earnings
per share over 1998 earnings per share as set forth by schedule in the
applicable employment agreements, which became 100% vested based upon the
increase of 1999 earnings over 1998 earnings.
(3) Options immediately vested upon grant.
(4) Vesting to occur 1/3 each on the first, second and third anniversary date
of the date of grant.
<PAGE>
Aggregated Option Exercises in 1999 and December 31, 1999 Option Values
The following table contains information regarding options exercised by the
Named Officers during 1999 and the number and value of unexercised options at
December 31, 1999. No information is presented for stock appreciation rights as
none have been granted by the Company.
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying Unexercised In-the-Money
Options at Options at
12/31/99 (#) 12/31/99 ($) (1)
- -------------------------------------------------------------------------------------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Mark D. Groban, M.D. 0 0 147,600/103,000 0/$5,313
Thomas P. Barbera 0 0 171,600/109,000 0/$5,313
Robert E. Foss 0 0 172,000/95,000 0/$4,688
Vera C. Dvorak, M.D. 0 0 77,000/40,000 0/0
Debbie J. Hulen 0 0 66,500/40,900 0/$10,781
George T. Jochum 0 0 748,500/0 0/0
J. Stevens Dufresne 0 0 98,600/0 0/0
- ---------------------------
(1) Based on closing price on the New York Stock Exchange of $8.3125 on December 31, 1999.
</TABLE>
Supplemental Retirement Plan for Key Executives
In general, pursuant to the employment contracts entered into with Dr.
Groban, Mr. Barbera, and Mr. Foss, each executive is entitled to supplemental
retirement income benefits. See "Management Employment Agreements." The
retirement benefit, subject to a vesting schedule, is payable to the executives
beginning on the day the executive attains age 62, (1) if the executive is at
that time still employed by the Company, and the executive elects to retire or
(2) the executive is not at that time employed by the Company, and elects to
begin receiving retirement benefits. The executive may elect an early retirement
and may elect to receive payment of the retirement benefit at anytime after
attaining age 55. An early retirement benefit will be actuarially adjusted
solely for actual retirement age and will be subject to a vesting schedule.
The retirement benefit vests 50% if the executive is employed by the
Company on January 1, 2000 and the remaining 50% if the executive is employed on
January 1, 2001 by the Company. The retirement benefit becomes 100% vested upon
a change in control, death or disability.
<TABLE>
<CAPTION>
Pension Plan Table
Estimated Annual Benefit
Years of Service
Remuneration 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$150,000 $ 67,500 $ 90,000 $ 90,000 $ 90,000 $ 90,000
$200,000 $ 90,000 $120,000 $120,000 $120,000 $120,000
$300,000 $135,000 $180,000 $180,000 $180,000 $180,000
$400,000 $180,000 $240,000 $240,000 $240,000 $240,000
$500,000 $225,000 $300,000 $300,000 $300,000 $300,000
$600,000 $270,000 $360,000 $360,000 $360,000 $360,000
$700,000 $315,000 $420,000 $420,000 $420,000 $420,000
$800,000 $360,000 $480,000 $480,000 $480,000 $480,000
$850,000 $382,500 $510,000 $510,000 $510,000 $510,000
</TABLE>
The retirement benefit is calculated as a percentage of total average
annual salary and bonus compensation for years beginning after January 1, 1999.
The estimated credited years of service as of February 2000 are:
Dr. Groban 10 years 5 months
Mr. Barbera 6 years 10 months
Mr. Foss 5 years 8 months
The retirement benefit is equal to 3% of the total average annual base
salary and bonus compensation for years beginning on or after January 1, 1999
times the total number of months of service with the Company, including all
months prior to January 1, 1999, divided by 12, to a limit to 60% of the
executive's total amount of annual salary and maximum annual bonus that he could
have earned in the calendar year of the executive's termination of employment
with the Company. The retirement benefit is not subject to any deduction from
Social Security or other offset amounts. However, the Company is not obligated
to pay any retirement benefit if the executive is terminated for cause by the
Company.
RATIFICATION OF ADOPTION OF THE 2000 NON-QUALIFIED STOCK OPTION PLAN
(Proposal 2)
The Company's Board of Directors ("Board") adopted the 2000
Non-Qualified Stock Option Plan ("2000 Plan") on October 24, 1999 and amended it
on February 15, 2000 and it intends to submit the 2000 Plan to stockholders for
approval at the Annual Meeting. The Company is soliciting stockholder approval
of the 2000 Plan so that the 2000 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 2000 Plan is preserved.
The 2000 Plan becomes effective May 8, 2000. However, the 2000 Plan
will not be effective unless and until it is approved by the Company's
stockholders. Pursuant to the 2000 Plan, 2 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. These shares of Common Stock will be deposited in the
Trust.
Purpose
The purpose of the 2000 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 2000 Plan
will enable the Company to retain the services of non-employee directors,
officers and key employees 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 2000
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 2000 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 2000 Plan, establish and modify administrative rules
for the 2000 Plan, select the non-employee directors, 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 2000 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 2000 Plan
and options granted under the 2000 Plan as it may deem necessary or advisable.
No action of a Committee is effective it if contravenes or amends the 2000 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 Directors, Officers and Key Employees
Eligibility. Any non-employee director, officer or key employee of the
Company or its Subsidiaries is eligible to receive options under the 2000 Plan.
As of December 31, 1999, the approximate number of employees who would be
eligible to participate in the 2000 Plan was 1,250 and the approximate number of
eligible non-employee directors was 30.
Each employee participant may not receive options to purchase more than
one million shares under the 2000 Plan during the term of the 2000 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 directors, 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 ten 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 2000 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. If 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 or Other Service. 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 ninety days
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, if the optionee's employment is terminated by his or her permanent
disability within the meaning of Section 22(e)(3) of the Code, all options
granted under the 2000 Plan to such optionee may be exercised (whether or not
otherwise exercisable) at any time within one year after the optionee's
termination because of disability, but in any event no later than the expiration
date of the option. In general, if the optionee's employment is terminated by
his or her death, such employee's beneficiary is entitled to exercise any
options that were vested at the date of the employee's date until the initial
expiration date of such options. Notwithstanding the above, if the employee at
the time of death had been an employee of the Company or a Subsidiary for a
period of ten years, 50% of the employee's unvested options becomes vested and
subject to exercise as stated above and, if the employee at the time of death
had been an employee of the Company or a Subsidiary for a period of fifteen
years, all of the employee's unvested options become vested and subject to
exercise as stated above. Each Committee may, however, in its discretion provide
for shorter periods of time in an option agreement.
With respect to grants to non-employee directors, unless a Committee,
in its sole and absolute discretion provides for a shorter or longer period of
time in an option agreement, or otherwise provides for a longer period of time,
if a non-employee director's service terminates for any reason, or if such
person ceases to be a non-employee director, such option may be exercised, to
the extent it was exercisable on the date of such termination of service, until
the expiration of the stated term of the option, but only to the extent it was
not previously exercised.
In addition, each Committee may permit the purchase of Common Stock
subject to any option granted to a 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 a participant to be
exercised after its expiration date. However, no option may be exercised more
than ten years after its date of grant.
Exercise of Options
In general, 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). If and to the
extent the Committee determines in its discretion, a participant 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 of 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 2000 Plan are transferable only by
will, by the laws of descent and distribution, or pursuant to a qualified
domestic relations order.
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 limit on the
number of options that may be granted to an employee participant and the number
and kind of shares available for options subsequently granted under the 2000
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 2000 Plan or the
options granted under the 2000 Plan. The 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
2000 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
2000 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 ten years following its date of grant. For purposes of this provision, the
Company refers to Mid Atlantic Medical Services, Inc., MD-IPA, OCI and/or
PHP-MD, jointly or separately. The Committee determines the date on which
options may become exercisable pursuant to this provision.
Amendment and Termination of the 2000 Plan
Amendment. The Board has complete power and authority to amend the 2000
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 2000 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 2000 Plan will terminate on May 7, 2010; however the
Board has the right and the power to terminate the 2000 Plan at any time. No
option may be granted under the 2000 Plan after the termination of the 2000
Plan. The termination of the 2000 Plan will not have any other effect and any
option outstanding at the time of the termination of the 2000 Plan may be
amended and exercised and may vest after the termination of the 2000 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 2000
Plan not terminated.
Options Currently Outstanding
No options have been granted at this time under the 2000 Plan. The
total market value as of February 18, 2000 of 2 million reserved shares was
$15,875,000 (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 grant and exercise of options
issued pursuant to the 2000 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 2000 Plan. Upon the exercise 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 2000 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 stockholders.
Under the 2000 Plan, each optionee who is an officer or employee of the
Company 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 2000 Plan. Such amounts may be paid, at the election of the
optionee, either (i) in cash withheld from the optionee'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 optionee 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, and/or (iii) cash paid to the Company by the optionee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF
ADOPTION OF THE 2000 PLAN.
RATIFICATION OF ADOPTION OF THE SENIOR MANAGEMENT BONUS PLAN
(Proposal 3)
Section 162(m) of the Code limits the tax deduction available to a
public company for compensation paid to certain executive officers, unless the
compensation qualifies as "performance based." The Board of Directors believes
that, in light of Section162(m), it is desirable to adopt an incentive bonus
plan to provide for objective performance goals, and to submit the plan for
stockholder approval. This will enable the executives' bonuses to qualify as
"performance based" compensation for purposes of Section 162(m), and thereby
continue to be deductible by the Company without regard to the deduction limit
otherwise imposed by that Section.
The Board of Directors has adopted the Senior Management Bonus Plan
(the "Plan") and is submitting the Plan to the stockholders for approval.
Approval of this proposal requires the affirmative vote of a majority of the
shares of Common Stock represented in person or by proxy and casting votes on
the proposal at the Annual Meeting. If approved by the stockholders, the Plan
will become effective as of January 1, 2000.
The following is a general summary of the Plan. The Plan is
substantially similar to the 2000 Key Management Bonus Plan, in which all
full-time non-sales level personnel levels 10-17 participate, except that the
percentage payments are lower.
Purpose. The purpose of the Plan is to increase incentives for
employees to attain and maintain high standards of performance, to attract and
retain employees of outstanding competence and ability, to stimulate the active
interest of employees in the development and financial success of the Company,
to further the aligning of interests of employees with those of the stockholders
and to reward employees for outstanding performance when certain objectives are
achieved.
Administration. The Compensation Committee has been designated to
administer the Plan. The Compensation Committee will interpret the Plan,
prescribe, amend, and rescind rules relating to it, select eligible
participants, and take all other actions necessary for its administration, which
actions will be final and binding upon all participants.
Selection of Participants. For each calendar year, the Compensation
Committee will determine in writing the participants who will be eligible to
receive a bonus under the Plan for such period. Only full time employees
classified in level 18 or above are eligible to participate in the Plan
(approximately 24 individuals as of February 18, 2000). The Compensation
Committee will make its determination of participants prior to the commencement
of the calendar year, or at such other time as permitted by Section 162(m) of
the Code.
Performance Objectives. For each calendar year, the Compensation
Committee will establish the applicable performance objectives in writing prior
to the commencement of the calendar year, or at such other time as permitted by
Section 162(m) of the Code. The performance objectives selected will be relative
or absolute measures of any one or more of the Business Criteria. The
performance objectives will, subject to the required certification described
below, state an objective method for computing the amount of bonus payable to
the participant upon attainment of the performance objectives. The formula will
set the target level(s) of performance required for the performance objectives
to be attained.
Business Criteria. The Business Criteria for purposes of the Plan are
specified levels of one or more of Operating Income, Net Income, Pre-Tax Income
(defined as pre-tax income before expansion or acquisition costs, charges or
credits not related to current year operations and prior to return of
physicians' withhold and physicians' bonuses), Earnings Per Share, Cash Flow,
Return on Investment, Return on Capital, Revenue, Return on Equity, Total
Shareholder Return, Return on Assets, Membership in Company Products, Membership
in HMO Product, Membership in ASO Product, Membership in Medicare Product,
Membership in Medicaid Product, Membership in Indemnity Product and Membership
in PPO Product.
The above terms shall have the same meaning as in the Company's
financial statements, or if the terms are not used in the Company's financial
statements, as applied pursuant to generally accepted accounting principles, or
as used in the industry, as applicable. As determined by the Compensation
Committee, the Business Criteria will be applied (i) in absolute terms or
relative to one or more other companies or indices and (ii) to a business unit,
geographic region, one or more separately incorporated entities, or the Company
as a whole.
Bonus Certification. The Compensation Committee will certify in writing
prior to payment of the bonus that the Performance Objective has been attained
and the bonus is payable. With respect to Compensation Committee certification,
approved minutes of the meeting in which the certification is made will be
treated as written certification.
Maximum Bonus Payable. The maximum bonus payable under the Plan to any
participant for any calendar year is $1 million. The total bonuses payable to
all participants for any calendar year may not be greater than 10% of the
Company's average annual income before taxes for the preceding five years (such
calculation shall be in accordance with Rule 452 of the New York Stock
Exchange).
Discretion to Reduce Rewards. The Compensation Committee, in its sole and
absolute discretion, may reduce the amount of any reward otherwise payable to a
participant.
Active Employment Requirement. A bonus will be paid for a calendar year
only to a participant who is actively employed by the Company (or on approved
vacation or other approved leave of absence) throughout the calendar year and
who is employed by the Company on the date the bonus is paid. To the extent
consistent with the deductibility of awards under Section 162(m) of the Code and
regulations thereunder, the Compensation Committee may in its sole discretion
grant a bonus for the calendar year to a participant who is first employed or
who is promoted to position eligible to become a participant under the Plan
during the calendar year, or whose employment is terminated during the calendar
year because of the participant's retirement with entitlement to immediate
pension benefits under the Company's retirement plan, death, or because of
disability as defined in Section 22(e)(3) of the Code. In such cases of partial
active employment, a pro rata bonus may be paid for the calendar year.
Payment of Bonuses. Bonuses will be paid to participants for a calendar
year in lump sum cash payments as soon as administratively practicable after the
calendar year and after the Compensation Committee certifies that the bonuses
are payable.
Stockholder Approval. No bonus will be payable under the Plan unless
the Plan is approved by the stockholders in accordance with Section 162(m) of
the Code and regulations thereunder.
Amendment and Termination of the Plan. The Compensation Committee may
amend or terminate the Plan at any time, except that no amendment or termination
shall be made that would impair the rights of any participant to a bonus that
would be payable were the participant to terminate employment on the effective
date of such amendment or termination, unless the participant consents to such
amendment or termination. The Plan will automatically terminate on January 1,
2005 unless sooner terminated by action of the Compensation Committee.
The following table sets forth the amounts that would be paid under the
Plan for fiscal year 2000, based on the assumptions that each employee's base
salary for fiscal year 2000 will equal his or her annual rate of base salary as
in effect on March 1, 2000 and that all performance objectives are attained at
the maximum level for such year.
NAME AND PRINCIPAL POSITION DOLLAR VALUE ($)(1)
Mark D. Groban, M.D. $279,248
Chairman of the Board
Thomas P. Barbera $279,248
President and Chief Executive Officer
Robert E. Foss $179,664
Senior Executive Vice President and Chief
Financial Officer
Vera C. Dvorak $83,440
Executive Vice President and
Medical Director
Debbie J. Hulen $63,840
Senior Vice President
George T. Jochum None
Former Chairman of the Board,
President and Chief Executive Officer
J. Stevens Dufresne None
Former Executive Vice President of Provider
Networks
All executive officers as a group................................... $1,202,720
All non-executive directors as a group.....................................None
All non-executive officer employees as a group(2)..................... $680,540
- ---------------------
(1) The calculation is based on salaries as of March 1, 2000. No adjustments
have been made for promotions, salary adjustments, terminations or new
hires that may occur in 2000.
(2) Payable under the 2000 Bonus Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF
ADOPTION OF THE SENIOR MANAGEMENT BONUS PLAN.
INDEPENDENT AUDITORS
Ernst & Young LLP has been the Company's independent auditors 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 2001
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 2, 2000. 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 Company's Bylaws provide that only such business shall be conducted
at an annual meeting of the Company's stockholders as shall have been brought
before the meeting (1) by or at the direction of the Board of Directors, or (2)
by any stockholder of the Company who is entitled to vote with respect thereto
and who meets the requirements of Regulation 14A of the 1934 Act. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company. To be timely, a stockholder's notice must be personally delivered
or mailed to and received at the principal executive offices of the Company not
less than 120 days in advance of the first anniversary of the date the Company's
proxy statement was released to stockholders in connection with the previous
year's annual meeting. However, if the date of the annual meeting changes by
more than 30 days from the date of the previous year's meeting, to be timely, a
stockholder's notice must be personally delivered or mailed to and received at
the principal executive offices of the Company in the manner required by
Regulation 14A promulgated under the 1934 Act.
A stockholder's notice to the Secretary must set forth as to each
matter such stockholder proposes to bring before the annual meeting (1) the name
and address of the stockholder who intends to make the proposal and the text of
the proposal to be introduced; (2) the class and number of shares of the
Company's stock held of record or owned beneficially by such stockholder as well
as the other information with respect to the ownership of the Company's stock
required by Regulation 14A promulgated under the 1934 Act as of the record date
for the meeting (if such date shall have been made publicly available) and as of
the date of such notice; (3) a representation that the stockholder intends to
appear in person or by proxy at the meeting to introduce the proposal specified
in the notice; (4) such other information as may be required by Regulation 14A
promulgated under the 1934 Act; and (5) if the proposal relates to the
nomination of a director, the information described in the next paragraph.
If the proposal relates to the nomination of a director, a
stockholder's notice must set forth, 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 promulgated 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).
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,
Chairman or President.
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, 2000
<PAGE>
MID ATLANTIC MEDICAL SERVICES, INC.
P.O. BOX 11176
NEW YORK, N.Y. 10203-0176
MID ATLANTIC MEDICAL SERVICES, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD May 1, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby authorizes Thomas P. Barbera and Mark D. Groban, M.D. and
each of them indi-vidually, 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, May 1, 2000 at 10:00 a.m, Rockville time, and any
adjourn-ment 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: Howard M. Arnold, John W. Dillon, Mark D. Groban, M.D. and John P.
Mamana, M.D.
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee, mark the "Exceptions" box and write that nominee's name in the space
provided below.)
*Exceptions____________________________________________________________________
(2) To ratify the adoption of the 2000 Non-Qualified Stock Option Plan.
FOR ____
AGAINST___
ABSTAIN___
(3) To ratify the adoption of the Senior Management Bonus Plan.
FOR ____
AGAINST___
ABSTAIN___
(4) In their discretion upon such other business and other matters and
pro-posals as may properly come before the Annual Meeting or any adjourn-ment or
adjournments thereof.
x Change of Address
or Comments Mark Here _____
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
Votes must be indicated (x) in Black or Blue ink.
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)
<PAGE>
Appendix A
MID ATLANTIC MEDICAL SERVICES, INC.
SENIOR MANAGEMENT BONUS PLAN
1. Purpose. The Mid Atlantic Medical Services, Inc. Senior Management Bonus
Plan is intended to increase incentives for eligible executives to attain
and maintain the highest standards of performance, to attract and retain
key executives of outstanding competence and ability, to stimulate the
active interest of key executives in the development and financial success
of the Company, to further the identity of interests of employees with
those of the Company's stockholders generally and to reward executives for
outstanding performance when certain objectives are achieved.
2. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
(a) "Board" means the Board of Directors of the Company.
(b) "Bonus" means an award payable under this Plan.
(c) "Bonus Period" means the calendar year beginning on or after the Effective
Date with respect to which the Bonus is to be paid.
(d) "Business Criteria" means the business criteria listed in Section 6 of this
Plan.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" means the Committee appointed by the Board to administer the
Plan. The Committee shall be constituted at all times so as to meet the
outside director requirements of Section 162(m) of the Code.
(g) "Company" means Mid Atlantic Medical Services, Inc. and its subsidiaries.
(h) "Effective Date" means January 1, 2000.
(i) "Eligible Executives" means all employees of the Company classified in
Level 18 or above or any successor designation.
(j) "Participant" means, with respect to a Bonus Period, the Eligible
Executives selected by the Committee to be eligible to receive a Bonus for
such Bonus Period as provided in Section 5 of this Plan.
(k) "Performance Objective" means the performance objective or objectives
established pursuant to Section 5 of the Plan.
(l) "Plan" means the Mid Atlantic Medical Services, Inc. Senior Management
Bonus Plan.
(m) "Restricted Officers" means the Chief Executive Officer of the Company and
its four highest compensated officers (other than the Chief Executive
Officer) as defined in Treasury Regulation 1.162-27(c)(2).
3. Administration. The Committee shall interpret the Plan, prescribe, amend,
and rescind rules relating to it, select eligible Participants, and take
all other actions necessary for its administration, which actions shall be
final and binding upon all Participants.
4. Compliance with Section 162(m). The Plan shall be administered to comply
with Section 162(m) of the Code and regulations promulgated thereunder, and
if any Plan provision is found not to be in compliance with Section 162(m)
of the Code, the provision shall be deemed modified as necessary to meet
the requirements of Section 162(m) of the Code. Notwithstanding anything in
the Plan to the contrary, the Committee, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit, or condition the applicability
of any provision of the Plan to Restricted Officers without so restricting,
limiting, or conditioning the Plan with respect to other Participants.
5. Selection of Participants and Performance Objective. Prior to the
commencement of each Bonus Period, or at such later time as permitted by
Section 162(m) of the Code and regulations thereunder, the Committee shall
determine in writing (i) the Participants who shall be eligible to receive
a Bonus for such Bonus Period, (ii) the Performance Objective, which shall
be a relative or absolute measure of any one or more of the Business
Criteria, and (iii) the formula for computing the amount of Bonus payable
to each Participant if the Performance Objective is achieved (such formula
shall comply with the requirements applicable to performance-based
compensation plans under Section 162(m) of the Code).
6. Business Criteria. The Business Criteria will include specified levels of
one or more of the following:
Operating Income Net Income
Pre-Tax Income(1) Earnings Per Share
Cash Flow Return on Investment
Return on Capital Revenue
Return on Equity Total Shareholder Return
Return on Assets Membership in Company Products
Membership in HMO Product Membership in ASO Product
Membership in Medicare Product Membership in Medicaid Product
Membership in Indemnity Product Membership in PPO Product
The above terms shall have the same meaning as in the Company's financial
statements, or if the terms are not used in the Company's financial statements,
as applied pursuant to generally accepted accounting principles, or as used in
the industry, as applicable. As determined by the Committee, the Business
Criteria shall be applied (i) in absolute terms or relative to one or more other
companies or indices and (ii) to a business unit, geographic region, one or more
separately incorporated entities, or the Company as a whole).
7. Bonus Certification. The Committee shall certify in writing prior to
payment of the Bonus that the Performance Objective has been attained and
the Bonus is payable. With respect to Committee certification, approved
minutes of the meeting in which the certification is made shall be treated
as written certification.
8. Maximum Bonus Payable. The maximum Bonus payable under this Plan to any
Participant for any Bonus Period shall be $1 million. In no event shall the
aggregate Bonuses payable to all Participants for any Bonus Period exceed
10% of the Company's average annual income before taxes for the preceding
five years (such calculation shall be in accordance with Rule 452 of the
New York Stock Exchange).
9. Discretion to Reduce Awards. The Committee, in its sole and absolute
discretion, may reduce the amount of any award otherwise payable to a
Participant.
10. Active Employment Requirement. Except as provided below, a Bonus shall be
paid for a Bonus Period only to a Participant who is actively employed by
the Company (or on approved vacation or other approved leave of absence)
throughout the Bonus Period and who is employed by the Company on the date
the Bonus is paid. To the extent consistent with the deductibility of
awards under Section 162(m) of the Code and regulations thereunder, the
Committee may in its sole discretion grant a Bonus for the Bonus Period to
a Participant who is first employed or who is promoted to a position
eligible to become a Participant under this Plan during the Bonus Period,
or whose employment is terminated during the Bonus Period because of the
Participant's retirement with entitlement to immediate pension benefits
under the Company's retirement plan, death, or because of disability as
defined in Section 22(e)(3) of the Code. In such cases of active employment
for part of a Bonus Period, a pro rata Bonus may be paid for the Bonus
Period.
11. Payment of Bonus. A Bonus shall be paid to the Participant for the Bonus
Period as provided in this Plan. The Company shall pay the Bonus to the
Participant in a single cash payment as soon as administratively
practicable after the Bonus Period and after the Committee certifies that
the Bonus is payable as provided in Section 7. In the event of the
Participant's incompetency, the Company in its sole discretion may pay any
Bonus to the Participant's guardian or directly to the Participant. In the
event of the Participant's death, any Bonus shall be paid to the
Participant's spouse or, if there is no surviving spouse, the Participant's
estate. Payments under this Section shall operate as a complete discharge
of the Committee and the Company. The Company shall deduct from any Bonus
paid under the Plan the amount of any taxes required to be withheld by the
federal or any state or local government.
12. Stockholder Approval. No Bonus shall be payable under this Plan unless the
Plan is disclosed to and approved by the stockholders of the Company in
accordance with Section 162(m) of the Code and regulations thereunder.
13. Limitation of Rights. Nothing in this Plan shall be construed to (a) give
any employee of the Company any right to be awarded any Bonus other than
that set forth herein, as determined by the Committee; (b) give a
Participant any rights whatsoever with respect to shares of common stock of
the Company; (c) limit in any way the right of the Company to terminate an
employee's employment with the Company at any time; (d) give a Participant
or any other person any interest in any fund or in any specific asset or
assets of the Company; or (e) be evidence of any agreement or
understanding, express or implied, that the Company will employ an employee
in any particular position or at any particular rate of remuneration.
14. Nonassignment. The right of a Participant to the payment of any Bonus under
the Plan may not be assigned, transferred, pledged, or encumbered, nor
shall such right or other interests be subject to attachment, garnishment,
execution, or other legal process.
15. Amendment or Termination of the Plan. The Committee may amend or terminate
the Plan at any time, except that no amendment or termination shall be made
that would impair the rights of any Participant to a Bonus that would be
payable were the Participant to terminate employment on the effective date
of such amendment or termination, unless the Participant consents to such
amendment or termination. The Plan shall automatically terminate on January
1, 2005 unless sooner terminated by action of the Committee.
16. Governing Law. The Plan shall be governed by the laws of the State of
Delaware other than the conflict of laws provisions thereof.
(1) Defined as pre-tax income before expansion or acquisition costs, charges or
credits not related to current year operations and prior to return of
physicians' withhold and physicians' bonuses.
<PAGE>
Appendix B
MID ATLANTIC MEDICAL SERVICES, INC.
2000 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.
2000 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 8, 2000,
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
8, 2010, 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 2000 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 "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.
2.04 "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 2.04(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.
2.05 "Common Stock" means the Common Stock, par value $.01 per share, of
the Company.
2.06 "Company" means Mid Atlantic Medical Services, Inc., a corporation
organized under the laws of the State of Delaware, and its successors.
2.07 "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.
2.08 "Disability" has the meaning specified in Section 22(e)(3) of the
Code.
2.09 "Disability Date" means the date as of which an Employee Participant
is determined by the Committee to have a Disability.
2.10 "Employee Participant" means a Participant who is not a Non-Employee
Director.
2.11 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.13 "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. If 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.
2.14 "Non-Employee Director" means each member of the Board or of the
Board of Directors of a Subsidiary, in each case who is not an employee of the
Company or of any of its Subsidiaries.
2.15 "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.
2.16 "Option" means any option to purchase Common Stock granted under
the Plan to an Employee Participant or to a Non-Employee Director. All Options
granted under the Plan shall be Options that do not qualify as incentive stock
options under Section 422 of the Code.
2.17 "Participant" means any employee or Non-Employee Director 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/or VI.
2.18 "Plan" means the Mid Atlantic Medical Services, Inc. 2000
Non-Qualified Stock Option Plan as set forth herein, andas the same may be
amended from time to time.
2.19 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under Section 16
of the Exchange Act and any successor rule.
2.20 "SEC" means the Securities and Exchange Commission.
2.21 "Section 162(m)" means Section 162(m) of the Code and the regulations
thereunder.
2.22 "Subsidiary" means a company more than 50% of the equity interests of
which are beneficially owned, directly or indirectly, by the Company.
2.23 "Termination of Employment" means, with respect to an Employee
Participant, the voluntary or involuntary termination of a Participant's
employment with the Company or any of its Subsidiaries for any reason,
including, 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 Non-Employee Directors,
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 2.04(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 7.05, 2,000,000 shares of Common Stock shall be available
for Options under the Plan. Any and all of such shares may be issued pursuant to
Options granted to Employee Participants or to Non-Employee Directors. The
Common Stock to be offered under the Plan shall be authorized and unissued
Common Stock, or issued Common Stock that shall have been reacquired by the
Company and held in its treasury.
4.02 Number of Shares of Common Stock Awarded to any Participant. In
the event the purchase price of an Option is paid, or related tax or withholding
payments are satisfied, in whole or in part through the delivery of shares of
Common Stock issuable in connection with the exercise of the Option, a
Participant will be deemed to have received an Option with respect to those
shares of Common Stock.
4.03 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 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. Non-Employee Director Participants
shall be such Non-Employee Directors 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, key employees and Non-Employee Directors, their present and potential
contributions to the success of the Company and its Subsidiaries, and such other
factors as the Committee, in its sole and absolute discretion, may deem
relevant. The Committee's designation of a 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 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 1,000,000 shares of Common Stock under the Plan.
Article VI. Stock Options
6.01 Grant of Option. Any Option granted under the Plan shall have such
terms as the Committee may, from time to time, approve, and the terms and
conditions of Options need not be the same with respect to each Participant.
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 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 ten 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), (g) and (h).
(d) Method of Exercise. Subject to whatever installment exercise and
waiting period provisions that apply under Section 6.02(c) and subject to
Sections 6.02(b), (f), (g) and (h), 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 domestic relations order.
(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 a 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 a
Participant to be exercised after the day the Option would otherwise
expire, 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 an 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 90 days 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 an 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 period of time in an
Option Agreement, in the event of the
death of an Employee Participant while
employed by the Company or a Subsidiary,
the Employee Participant's Beneficiary
shall be entitled to exercise any
Options that were vested at the date of
the Employee Participant's death until
the initial expiration date of such
Option determined pursuant to Section
6.02(b). Notwithstanding the above, if
the Employee Participant at the time of
death had been an employee of the
Company or a Subsidiary for a period of
ten years, 50% of the Employee
Participant's unvested Option would
become vested and subject to exercise as
stated above and if the Employee
Participant at the time of death had
been an employee of the Company or a
Subsidiary for a period of fifteen
years, all of the Employee Participant's
unvested Options would become vested and
subject to exercise as stated above and
shall expire on the date of expiration
of the Option determined pursuant to
Section 6.02(b).
(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.
(h) Exercise of Options Upon Termination of Service. Unless
the Committee, in its sole and absolute discretion, provides for a shorter or
longer period of time in an Option Agreement or a longer period of time in
accordance with Section 6.02(f), if a Non-Employee Director's service with the
Company or a Subsidiary terminates for any reason or if such person ceases to be
a Non-Employee Director, such Option may be exercised to the extent it was
exercisable on the date of such termination of service until the expiration of
the stated term of the Option, but only to the extent it was not previously
exercised.
Article VII. Terms Applicable to All Options Granted Under the Plan
7.01 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. If any provision of any Option granted
under the Plan conflicts 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.
7.02 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.
7.03 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 7.05, 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.
7.04 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).
7.05 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
limit set forth in the last sentence 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 Section 6.02(b). For purposes
of this Section 7.05(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 7.05(d).
7.06 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.
7.07 No Right to Option; No Right to Employment. 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.
7.08 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.
7.09 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.
7.10 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.
7.11 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.
7.12 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.
7.13 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.
7.14 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.
7.15 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.
7.16 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.
7.17 Costs and Expenses. All costs and expenses incurred in administering
the Plan shall be borne by the Company.
7.18 Unfunded Plan. 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.
