SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
September 30, 1994 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-12024
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MAXICARE HEALTH PLANS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-3615709
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1149 South Broadway Street, Los Angeles, California 90015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 765-2000
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ X ] No [ ]
Common Stock, $.01 par value - 10,829,607 shares outstanding as of
November 2, 1994, of which 790,964 shares were held by the
Registrant as disbursing agent for the benefit of holders of
allowed claims and interests under the Registrant's Joint Plan of
Reorganization.
PART I: FINANCIAL INFORMATION
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Item 1: Financial Statements
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MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value)
September 30, December 31,
1994 1993
---------- ---------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents................................. $ 31,121 $ 38,672
Marketable securities..................................... 45,142 19,448
Accounts receivable, net.................................. 17,843 19,174
Deferred tax asset........................................ 6,000 6,000
Prepaid expenses.......................................... 2,861 3,717
Other current assets...................................... 300 406
--------- ---------
TOTAL CURRENT ASSETS.................................... 103,267 87,417
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PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,466 5,466
Furniture and equipment................................... 27,100 36,878
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32,566 42,344
Less accumulated depreciation and amortization.......... 29,748 38,715
--------- ---------
NET PROPERTY AND EQUIPMENT.............................. 2,818 3,629
--------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 2,004 2,004
Statutory deposits........................................ 10,256 13,610
Intangible assets, net.................................... 174 147
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TOTAL LONG-TERM ASSETS.................................. 12,434 15,761
--------- ---------
TOTAL ASSETS............................................ $ 118,519 $ 106,807
========= =========
CURRENT LIABILITIES
Estimated claims and incentives payable................... $ 40,810 $ 38,895
Accounts payable.......................................... 309 401
Deferred income........................................... 3,097 2,682
Accrued salary expense.................................... 2,321 2,732
Payable to disbursing agent............................... 6,248 6,248
Other current liabilities................................. 6,475 2,960
--------- ---------
TOTAL CURRENT LIABILITIES............................... 59,260 53,918
LONG-TERM LIABILITIES....................................... 955 504
--------- ---------
TOTAL LIABILITIES....................................... 60,215 54,422
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SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value - 5,000 shares authorized,
1994 - 2,290 shares and 1993 - 2,400 shares issued and
outstanding............................................. 23 24
Common stock, $.01 par value - 40,000 shares authorized,
1994 - 10,818 shares and 1993 - 10,033 shares issued and
outstanding............................................. 108 100
Additional paid-in capital................................ 245,797 241,151
Accumulated deficit....................................... (187,624) (188,890)
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TOTAL SHAREHOLDERS' EQUITY.............................. 58,304 52,385
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 118,519 $ 106,807
========= =========
See notes to consolidated financial statements.
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
For the three For the nine
months ended months ended
September 30, September 30,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
OPERATING REVENUES................................................... $108,301 $108,986 $322,222 $328,058
-------- -------- -------- --------
OPERATING EXPENSES
Physician services................................................ 43,452 42,598 127,215 126,957
Hospital services................................................. 32,076 39,745 96,102 111,326
Outpatient services............................................... 15,714 16,608 47,703 46,238
Other health care services........................................ 3,953 4,207 12,011 10,736
-------- -------- -------- --------
TOTAL HEALTH CARE EXPENSES - Note 2............................. 95,195 103,158 283,031 295,257
Marketing, general and administrative expenses.................... 10,371 10,130 31,046 30,621
Depreciation and amortization..................................... 439 1,033 1,747 3,182
Litigation expense - Note 3....................................... 3,000
-------- -------- -------- --------
TOTAL OPERATING EXPENSES........................................ 106,005 114,321 318,824 329,060
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS........................................ 2,296 (5,335) 3,398 (1,002)
Investment income, net of interest expense........................ 893 570 2,130 2,074
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.................................... 3,189 (4,765) 5,528 1,072
INCOME TAX BENEFIT (PROVISION)....................................... (86) 76 (270) (160)
-------- -------- -------- --------
NET INCOME (LOSS).................................................... 3,103 (4,689) 5,258 912
PREFERRED STOCK DIVIDENDS............................................ (1,292) (1,350) (3,992) (4,050)
-------- -------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS................... $ 1,811 $ (6,039) $ 1,266 $ (3,138)
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE - Note 1
Net Income (Loss) Available to Common Shareholders................ $ .16 $ (0.60) $ .12 $ (0.31)
======== ======== ======== ========
Weighted average number of common and common equivalent
shares outstanding - Note 1....................................... 11,116 10,023 10,906 10,022
======== ======== ======== ========
See notes to consolidated financial statements.
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the nine months ended September 30,
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 5,258 $ 912
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense........................................... 1,717 3,161
Amortization expense........................................... 30 21
(Gain) loss on dispositions of property and equipment.......... (10) 22
Net cash provided by (used for) changes in assets and
liabilities:
Decrease in accounts receivable.............................. 1,331 2,382
Increase in estimated claims and incentives payable.......... 1,915 7,359
Changes in other miscellaneous assets and
liabilities................................................ 4,219 (2,587)
-------- --------
Net cash provided by operating activities........................ 14,460 11,270
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment......................... 14 3
Purchases of property and equipment............................ (268) (427)
Decrease (increase) in statutory deposits...................... 3,354 (559)
Proceeds from sales of marketable securities................... 42,022 22,750
Purchases of marketable securities............................. (67,716) (17,815)
Decrease in long-term receivables.............................. 24
-------- --------
Net cash (used for) provided by investing activities............. (22,594) 3,976
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash transferred to disbursing agent........................... (971)
Payments on capital lease obligations.......................... (78) (314)
Payment of preferred stock dividends........................... (3,992) (4,050)
Stock options exercised........................................ 460 55
Warrants exercised............................................. 4,193
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Net cash provided by (used for) financing activities............. 583 (5,280)
-------- --------
Net (decrease) increase in cash and cash equivalents............. (7,551) 9,966
Cash and cash equivalents at beginning of period................. 38,672 21,527
-------- --------
Cash and cash equivalents at end of period....................... $ 31,121 $ 31,493
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest..................................................... $ 21 $ 26
Income taxes................................................. $ 66 $ 284
Supplemental schedule of non-cash investing and financing
activities:
Capital leases incurred for purchase of property and equipment
and intangible assets........................................ $ 658
Book value of assets exchanged for assets.................... $ 40
Fair value of assets exchanged............................... (25)
--------
Loss on assets exchanged..................................... $ 15
========
See notes to consolidated financial statements.
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
---------------------
Maxicare Health Plans, Inc., a Delaware corporation ("MHP"), is a
holding company which owns various subsidiaries, primarily health
maintenance organizations ("HMOs"). The accompanying unaudited
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all
adjustments considered necessary for a fair presentation, which
consist solely of normal recurring adjustments, have been
included. All significant inter-company balances and
transactions have been eliminated. Certain amounts for 1993 have
been reclassified to conform to the 1994 presentation.
For further information on MHP and subsidiaries (collectively the
"Company") refer to the consolidated financial statements and
accompanying footnotes included in the Company's annual report on
Form 10-K as filed with the Securities and Exchange Commission
for the year ended December 31, 1993.
Net Income (Loss) Per Common and Common Equivalent Share
--------------------------------------------------------
Primary earnings per share is computed by first subtracting the
preferred stock dividends from net income (loss) to determine net
income (loss) attributable to common shareholders. This amount
is then divided by the weighted average number of common shares
and common equivalent shares for stock options and warrants (when
dilutive) outstanding during the period. Earnings per share
assuming full dilution is reported when the assumption that the
preferred stock is converted to common stock is dilutive.
Earnings per share assuming full dilution is determined by
dividing net income (loss) by the weighted average number of
common shares and common stock equivalents for stock options and
warrants (when dilutive) and for preferred stock assumed
converted to common stock.
NOTE 2 - HEALTH CARE EXPENSES:
Total health care expenses for the three and nine month periods
ended September 30, 1994 were $95.2 million and $283.0 million,
respectively. Total health care expenses for the three and nine
month periods ended September 30, 1993 include a one-time charge
of $7.0 million for actual and projected health care costs, not
previously anticipated, primarily resulting from changes in the
Indiana marketplace. This charge resulted from the restructuring
of relationships among the Company and its health care providers
as well as unanticipated increases in high cost health care
procedures. The provider network restructuring which began in
mid 1992 was substantially completed in the first quarter of
1994. Prior estimates of health care costs have accordingly been
adversely affected by these market conditions and structural
changes.
NOTE 3 - LITIGATION EXPENSE:
A $3.0 million litigation charge was recorded in the second
quarter of 1994 as a result of a judgment awarding financing fees
and accrued interest to the plaintiff in Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") vs. Maxicare Health
Plans, Inc. The DLJ claim was for breach of contract and unjust
enrichment by the Company arising out of an engagement letter
entered into between DLJ and the Company in 1991 for DLJ's
assistance in arranging for a private placement of the Company's
Series A Cumulative Convertible Preferred Stock (the "Series A
Stock") which was issued in 1992. The Company is appealing the
judgment and believes it has meritorious defenses and
counterclaims against DLJ in this matter, but has accrued the
liability pending a final ruling.
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
The Company reported net income of $3.1 million for the three
months ended September 30, 1994, compared to a net loss of $4.7
million for the same period in 1993. Net income per common share
available to common shareholders was $.16 for the third quarter of
1994, compared to a net loss per common share of $.60 for the same
quarter in 1993.
The Company's revenues for the three months ended September 30,
1994 declined slightly to $108.3 million from $109.0 million for
the same period in 1993. This decrease is a result of a 19%
decrease in revenues of the Company's Indiana HMO partially offset
by a 9% increase in revenues in the other operating plans. The
decline in the revenues of the Indiana HMO is due to a 26%
decrease in membership, resulting from the restructuring of the
Indiana provider network, partially offset by a 9% increase in
premium revenue per member per month. The Company's overall
membership decreased only 2%, quarter to quarter, because the
other operating plans' membership increased 9%.
Health care expenses for the third quarter of 1994 decreased to
$95.2 million from $103.2 million for 1993. Health care expenses
as a percentage of operating revenues (the "medical loss ratio")
was 87.9% for the three months ended September 30, 1994 as
compared to 94.7% for the same period in 1993. This decrease
resulted from the decline in membership in Indiana and a $7.0
million one-time charge recorded in the third quarter of 1993.
The 1994 third quarter medical loss ratio for the Indiana plan
decreased 10.4% and the medical loss ratio for the other operating
plans decreased 4.7% as compared to the 1993 third quarter.
Depreciation and amortization expense for the three months ended
September 30, 1994 decreased $594,000 to $439,000, as compared to
the same period in 1993, because of the expiration of capital
leases and certain equipment that became fully depreciated in the
first quarter of 1994.
Net investment income for the third quarter of 1994 increased to
$893,000 from $570,000 in the third quarter of 1993. This was due
to higher interest rates and greater cash balances attributable to
both the results of operations and the $4.2 million in net
proceeds from the exercise of outstanding warrants of the
Company's common stock in July 1994. In June, 1994 the Company
issued a redemption notice on all 555,555 warrants outstanding.
Warrantholders who wished to exercise their warrants had to do so
by July 29, 1994. Any warrantholder who did not exercise their
warrants was entitled to receive the redemption price of $.05 per
warrant. A total of 420,178 warrants were exercised as a result of
this notice.
For the nine months ended September 30, 1994, the Company reported
net income of $5.3 million as compared to $912,000 for the same
period in 1993. This $4.3 million increase is primarily due to
the $7.0 million one-time charge recorded in 1993 partially offset
by a $3.0 million litigation charge recorded in the second quarter
of 1994.
Liquidity and Capital Resources
Certain of MHP's operating subsidiaries are subject to state
regulations which require compliance with certain statutory net
worth, reserve and deposit requirements. To the extent the
operating subsidiaries must comply with these regulations, they
may not have the financial flexibility to transfer funds to MHP in
the form of a dividend or loan. MHP's proportionate share of net
assets (after inter-company eliminations) which, at September 30,
1994, may not be transferred to MHP by subsidiaries in the form of
loans, advances or cash dividends without the consent of a third
party is referred to as "Restricted Net Assets". Total Restricted
Net Assets of these operating subsidiaries was $19.2 million at
September 30, 1994, with deposit and reserve requirements
representing $10.3 million of the Restricted Net Assets and net
worth requirements, in excess of deposit and reserve requirements,
representing the remaining $8.9 million. The Company's total
Restricted Net Assets at September 30, 1994 was $19.5 million.
In addition to the $18.1 million in cash, cash equivalents and
marketable securities held by MHP, approximately $15.4 million
could be considered available to transfer to MHP from operating
subsidiaries.
All of MHP's operating subsidiaries are direct subsidiaries of
MHP. All of the Company's HMOs are federally qualified, and,
with the exception of the Company's South Carolina HMO, all of the
Company's operating HMOs are licensed by pertinent state
authorities. The operations of the South Carolina HMO are
currently under Bankruptcy Court jurisdiction pending a
reorganization of that entity to operate as a licensed HMO in the
state of South Carolina. The Company believes that it will be
able to ultimately resolve the South Carolina HMO's licensing
situation with the state of South Carolina as a separately
licensed HMO in such state or, alternatively, as a division of one
of its other operating HMOs to be licensed to do business in the
state of South Carolina. The Company can not predict at this time
the required capital infusion, if any, which may result from the
separate licensing of the South Carolina HMO in the state of South
Carolina or operating it as a division of one of the Company's
operating HMOs. If infusion of additional cash resources is
required to ensure compliance with statutory deposit and net worth
requirements, the Company does not believe such an infusion will
have a material adverse effect on its operations taken as a whole.
The operating HMOs currently pay monthly fees to MHP pursuant to
administrative services agreements for various management,
financial, legal, computer and telecommunications services. The
Company believes that for the foreseeable future, it will have
sufficient resources to fund ongoing operations, meet the final
preferred stock dividend requirement of $.56 per share accruing
December 31, 1994 annually and remain in compliance with statutory
financial requirements.
Pursuant to the Company's plan of reorganization (the
"Reorganization Plan"), the Company is required to make
distributions based on its consolidated net worth in excess of
$2.0 million at December 31, 1991 and 1992 (the "Consolidated Net
Worth Distribution"). In March 1992, the Company consummated the
sale of $60 million of Series A Stock. The proceeds from this
sale, plus internally generated cash, were utilized to redeem in
April 1992 the entire outstanding Senior Notes. The sale of the
Series A Stock had the effect of significantly increasing the net
worth of the Company. The Company does not believe the
Reorganization Plan contemplated either the issuance of the Series
A Stock or the redemption of the Senior Notes, and accordingly,
the Company believes the Consolidated Net Worth Distribution
required by the Reorganization Plan should be calculated on a
basis as if the sale of the Series A Stock had not been
consummated and the Senior Notes had not been redeemed. As a
result of the foregoing, the Company calculated the December 31,
1992 Consolidated Net Worth Distribution amount to be
approximately $971,000, which was deposited for distribution to
certain creditors under the Reorganization Plan in March 1993. In
addition, the Company believes that any Consolidated Net Worth
Distribution which under the Reorganization Plan was to be
utilized to redeem the Senior Notes is not required since the
Senior Notes were fully redeemed. The committee representing the
creditors (the "New Committee") has stated it does not agree with
the Company's interpretation of the Reorganization Plan and
believes that additional amounts may be due under the Consolidated
Net Worth Distribution provision of the Reorganization Plan. The
Company has, on a number of occasions, responded to various
questions raised by and inquiries of the New Committee regarding
this matter. Notwithstanding the foregoing, the Company elected
to accrue in its consolidated financial statements for the year
ended December 31, 1992 the maximum potential liability of $7.2
million on this matter. The amount that may be ultimately payable
pursuant to this Reorganization Plan provision, if any, could be
less than the amount accrued.
Although, the Company does not believe that it needs additional
working capital at this time, it has from time to time had
discussions with lenders concerning a possible standby working
capital line. The Company cannot state with any degree of
certainty at this time whether additional equity capital or
working capital would be available to the Company, and if
available, would be at terms and conditions acceptable to the
Company.
PART II: OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
-----------------
The information contained in "Part I, Item 3. Legal Proceedings"
of the Company's 1993 Annual Report on Form 10-K and "Part II,
Item 1. Legal Proceedings" of the Company's Reports on Form 10-Q
for the quarterly periods ended March 31, 1994 and June 30, 1994
are hereby incorporated by reference and the following information
updates the information contained in the relevant subparts
thereof.
a. JURISDICTIONAL CHALLENGES AND APPEALS TO THE CHAPTER 11
REORGANIZATION PROCEEDINGS
On July 9, 1992, the United States District Court for the Central
District of California ("District Court") entered its Ruling on
Appeal (the "Ruling") and held that Maxicare Health Insurance
Company ("MHIC") is a domestic insurance company under Wisconsin
law and not eligible for relief under the Bankruptcy Code. The
Company's appeal of the Ruling and of the District Court's denial
of the Company's and MHIC's motion for rehearing (the "Appeal") is
pending before the United States Court of Appeals for the Ninth
Circuit (the "Court of Appeals").
The Company and the State of Wisconsin executed a definitive
settlement agreement dated June 17, 1994 (the "Agreement"). In
accordance with the Agreement, a reorganization plan providing for
the reorganization of MHIC on fundamentally the same terms and
conditions as the Reorganization Plan confirmed by the Bankruptcy
Court, with respect to liabilities which arose on or before March
15, 1989, was submitted by the State of Wisconsin for approval by
the Wisconsin State Court. On July 22, 1994 the Wisconsin State
Court entered orders approving and confirming the state court
reorganization plan and terminating the reorganization proceedings
(the "Termination Orders"). On August 12, 1994 the Bankruptcy
Court entered an order approving the Agreement (the "Approval
Order"). No creditor or party in interest has appealed the
Termination Orders or the Approval Order which have become final
and nonappealable.
On October 11, 1994 the District Court entered an order approving
a stipulation between the Company, MHIC and the State of Wisconsin
withdrawing the Company's and MHIC's motion to stay the Ruling
while the Ruling is on appeal. As required by the Agreement, the
parties will shortly file a stipulation with the Court of Appeals
dismissing the Appeal. Following entry of an order approving the
stipulation dismissing the Appeal MHIC will move the Bankruptcy
Court for an order dismissing its bankruptcy case.
The Agreement will be fully implemented and consummated following
dismissal of the Appeal and MHIC's bankruptcy case.
Implementation and consummation of the Agreement will have no
material adverse impact on the Company's business and its
operations.
c. PENN HEALTH
On February 27, 1991 the Company filed a petition against the
Commonwealth of Pennsylvania, Department of Public Welfare ("DPW")
with the Pennsylvania Board of Claims (the "Board") seeking
damages in excess of $24 million (the "Verified Claim"). The trial
before the Board of contractual issues pertaining to DPW's
liability to Penn Health Corporation ("Penn Health") on the
Verified Claim and Penn Health's liability to DPW on DPW's
counterclaim concluded on July 25, 1994. The parties are presently
engaged in the preparation and submission of post trial briefs to
the Board on issues of contractual liability.
The Company believes that it has meritorious defenses to DPW's
counterclaim and that any recovery by DPW will not have a material
adverse impact on the Company's business or operations. A trial to
determine damages has been scheduled by the Board to commence on
December 12, 1994.
DPW has appealed the Bankruptcy Court's determination that DPW
waived its sovereign immunity by asserting an offset against Penn
Health, to the Ninth Circuit Bankruptcy Appellate Panel (the
"BAP"). On September 7, 1994 the BAP entered an order which
dismissed DPW's appeal for lack of ripeness and granted DPW leave
to file a motion to reinstate the appeal after the Board rules on
issues of contractual liability.
d. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
On May 4, 1992, Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") commenced an action in the Supreme Court of
the state of New York, located in New York County. In the
complaint, DLJ asserted claims for breach of contract and unjust
enrichment by the Company arising out of an alleged engagement
letter entered into between DLJ and the Company on or about August
8, 1991. On June 19, 1992, the Company served an answer to DLJ's
complaint denying that any amounts were due to DLJ and filed
courterclaims asserting misrepresentation by DLJ and, in the event
the Court determined that there was an enforceable contract
between the Company and DLJ, a separate counterclaim for breach of
contract. The Court dismissed the Company's courterclaims.
Following a jury trial, the court entered a judgement in DLJ's
favor, which awarded DLJ damages, interest and costs of
approximately $3.0 million.
On August 19, 1994 the Company filed an appeal of the judgment
with the Supreme Court of the State of New York, Appellate
Division, First Department. The appellate court has appointed a
special master to conduct a settlement conference between the
parties, but has not set a briefing schedule for the filing of
appellate briefs.
The Company believes that it has meritorious defenses and
courterclaims against DLJ and will prevail on its appeal of the
trial court's judgment. The Company has accrued the liability for
the judgment pending a final ruling on its appeal.
e. OTHER LITIGATION
On May 12, 1992, a complaint captioned Robert Roe v Maxicare
Indiana Inc., was filed in the Superior Court of the State of
Indiana, County of Marion, Case NO: 49-D01-9205-CT-0515. In the
action, Robert Roe, a member of the health maintenance
organization plan operated by Maxicare Indiana Inc., ("Indiana"),
sought a declaratory judgment that he was entitled to certain
health care benefits as an HMO plan member. A claim for bad faith
was also asserted against Indiana seeking punitive damages based
on Indiana's determination that Mr. Roe was not entitled to
certain health care benefits under the terms of Indiana's HMO
health care plan. Indiana moved the court for, and the court
entered an order which, stayed proceedings in the action and
compelled Mr. Roe to arbitrate the matter as mandated by the group
subscription agreement that governs Mr. Roe's HMO plan membership.
On June 2, 1992 Mr. Roe submitted a demand for arbitration to the
American Arbitration Association of his dispute with Indiana
concerning the provision of health care benefits. In January
1993, the arbitrators awarded Mr. Roe compensation for health care
and medical service charges he had incurred, attorney's fees, and
costs of the arbitration, which amounted to approximately $29,000.
On March 15, 1994, Joyce Roe filed a third amended complaint in
the action on her behalf and on behalf of the estate of Robert Roe
which added the Company, a former employee, Indiana's medical
director and an independent practice association as additional
defendants. In the third amended complaint compensatory and
punitive damages are sought for battery, fraud, misrepresentation,
coercion, invasion of privacy and bad faith in connection with the
determination concerning Mr. Roe's entitlement to health care
benefits. The parties are presently engaged in discovery.
The Company and Indiana believe that they have meritorious
defenses in the action. If an adverse determination is rendered
in the action, the Company does not believe it will have a
material adverse effect on the Company's or Indiana's business or
operations.
The Company is a defendant in a number of other lawsuits arising
in the ordinary course from the operations of the HMOs, including
cases in which the plaintiffs assert claims against the Company or
third parties that might assert indemnity or contribution claims
against the Company for malpractice, negligence, bad faith in the
failure to pay claims on a timely basis or denial of coverage.
The Company does not believe that an adverse determination in any
one or more of these cases would have a material, adverse effect
on the Company's business and operations.
Item 2: Change in Securities
--------------------
None.
Item 3: Defaults Upon Senior Securities
-------------------------------
None.
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On August 17, 1994, the Company held its 1994 Annual
Meeting of Stockholders for the purpose of electing two
directors to the Board. Claude S. Brinegar and Charles
E. Lewis were elected as directors at the meeting, to
serve for a period of three years and until their
successors are duly qualified and elected. Of the
11,472,949 votes cast on this matter, 11,440,328 were
cast for the election of Mr. Brinegar and Dr. Lewis and a
total of 32,621 votes were withheld. Following the
meeting, Florence F. Courtright, Thomas W. Field, Jr.,
Eugene L. Froelich, Alan S. Manne and Peter J. Ratican
continued to serve as directors of the Company.
Item 5: Other Information
-----------------
None.
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 10.68. Lease by and between Maxicare Health
Plans, Inc. and Transamerica Occidental Life
Insurance Company, dated as of June 1, 1994
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
On August 5, 1994 the Company filed a report on Form
8-K with respect to Item 5. Other Events -
Redemption of Warrants dated July 29, 1994 and with
respect to Item 4. Change in Registrant's
Certifying Accountants dated August 1, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MAXICARE HEALTH PLANS, INC.
---------------------------
(Registrant)
/s/ EUGENE L. FROELICH
---------------------------
November 4, 1994 Eugene L. Froelich
Chief Financial Officer and
Executive Vice President -
Finance and Administration
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
------ ---------------------------------------- -----------
10.68 Lease by and between Maxicare Health Plans, 17 of 94
Inc. and Transamerica Occidental Life
Insurance Company, dated as of June 1, 1994
27 Financial Data Schedule 93 of 94