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
June 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.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3615709
------------------------------ -------------------------
(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
---------------
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 [ ]
<PAGE>
Common Stock, $.01 par value - 10,534,872 shares outstanding as of
August 5, 1994, of which 811,911 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.
<PAGE>
PART I: FINANCIAL INFORMATION
---------------------
Item 1: Financial Statements
--------------------
<TABLE>
<CAPTION>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value)
June 30, December 31,
1994 1993
----------- ------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents................................. $ 35,678 $ 38,672
Marketable securities..................................... 29,363 19,448
Accounts receivable, net.................................. 18,926 19,174
Deferred tax asset....................................... 6,000 6,000
Prepaid expenses.......................................... 3,500 3,717
Other current assets...................................... 293 406
--------- ---------
TOTAL CURRENT ASSETS.................................... 93,760 87,417
--------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,466 5,466
Furniture and equipment................................... 29,690 36,878
--------- ---------
35,156 42,344
Less accumulated depreciation and amortization.......... 31,988 38,715
--------- ---------
NET PROPERTY AND EQUIPMENT.............................. 3,168 3,629
--------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 2,004 2,004
Statutory deposits........................................ 10,264 13,610
Intangible assets, net.................................... 178 147
--------- ---------
TOTAL LONG-TERM ASSETS.................................. 12,446 15,761
--------- ---------
TOTAL ASSETS............................................ $ 109,374 $ 106,807
========= =========
CURRENT LIABILITIES
Estimated claims and incentives payable................... $ 39,612 $ 38,895
Accounts payable.......................................... 268 401
Deferred income........................................... 963 2,682
Accrued salary expense.................................... 2,950 2,732
Payable to disbursing agent............................... 6,248 6,248
Other current liabilities................................. 6,174 2,960
--------- ---------
TOTAL CURRENT LIABILITIES............................... 56,215 53,918
LONG-TERM LIABILITIES....................................... 804 504
--------- ---------
TOTAL LIABILITIES....................................... 57,019 54,422
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value - 5,000 shares authorized,
2,400 shares issued and outstanding..................... 24 24
Common stock, $.01 par value - 40,000 shares authorized,
1994 - 10,094 shares and 1993 - 10,033 shares issued
and outstanding......................................... 101 100
Additional paid-in capital................................ 241,665 241,151
Accumulated deficit....................................... (189,435) (188,890)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 52,355 52,385
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 109,374 $ 106,807
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
For the three For the six
months ended months ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES................................................... $106,996 $109,897 $213,921 $219,072
-------- -------- -------- --------
OPERATING EXPENSES
Physician services................................................ 42,667 42,566 83,763 84,359
Hospital services................................................. 31,652 35,744 64,026 71,581
Outpatient services............................................... 15,746 15,010 31,989 29,630
Other health care services........................................ 3,831 3,253 8,058 6,529
-------- -------- -------- --------
TOTAL HEALTH CARE EXPENSES...................................... 93,896 96,573 187,836 192,099
Marketing, general and administrative expenses.................... 10,255 10,257 20,675 20,491
Depreciation and amortization..................................... 545 1,055 1,308 2,149
Litigation expense - Note 2....................................... 3,000 3,000
-------- -------- -------- --------
TOTAL OPERATING EXPENSES........................................ 107,696 107,885 212,819 214,739
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS........................................ (700) 2,012 1,102 4,333
Investment income, net of interest expense........................ 673 679 1,237 1,504
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.................................... (27) 2,691 2,339 5,837
INCOME TAX PROVISION................................................. 99 126 184 236
-------- -------- -------- --------
NET INCOME (LOSS).................................................... (126) 2,565 2,155 5,601
PREFERRED STOCK DIVIDENDS............................................ 1,350 1,350 2,700 2,700
-------- -------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS................... $ (1,476) $ 1,215 $ (545) $ 2,901
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE - Note 1
Net Income (Loss) Available to Common Shareholders................ $ (.14) $ .12 $ (.05) $ .28
======== ======== ======== ========
Weighted average number of common and common equivalent shares
outstanding........................................................ 10,835 10,423 10,802 10,480
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the six months ended June 30,
1994 1993
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income....................................................... $ 2,155 $ 5,601
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense........................................... 1,288 2,133
Amortization expense........................................... 20 16
(Gain) loss on dispositions of property and equipment.......... (3) 22
Net cash provided by (used for) changes in assets and
liabilities:
Decrease in accounts receivable.............................. 248 683
Increase (decrease) in estimated claims and incentives
payable.................................................... 717 (1,226)
Changes in other miscellaneous assets and
liabilities.................................................. 1,537 (1,449)
-------- --------
Net cash provided by operating activities........................ 5,962 5,780
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment......................... 7 3
Purchases of property and equipment............................ (189) (149)
Decrease (increase) in statutory deposits...................... 3,346 (480)
Proceeds from sales of marketable securities................... 29,284 15,705
Purchase of marketable securities.............................. (39,199) (11,748)
Decrease in long-term receivables.............................. 16
-------- --------
Net cash (used for) provided by investing activities............. (6,751) 3,347
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash transferred to disbursing agent........................... (971)
Payments on capital lease obligations.......................... (20) (187)
Payment of preferred stock dividends........................... (2,700) (2,700)
Stock options exercised........................................ 463 55
Warrants exercised............................................. 52
-------- --------
Net cash used for financing activities........................... (2,205) (3,803)
-------- --------
Net (decrease) increase in cash and cash equivalents............. (2,994) 5,324
Cash and cash equivalents at beginning of period................. 38,672 21,527
-------- --------
Cash and cash equivalents at end of period....................... $ 35,678 $ 26,851
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest..................................................... $ 7 $ 21
Income taxes................................................. $ 284
Supplemental schedule of non-cash investing and financing
activities:
Capital lease 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
========
Liability incurred for purchase of property and equipment.... $ 255
See notes to consolidated financial statements.
</TABLE>
<PAGE>
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.
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 adjusting the net
income (loss) by the preferred stock dividends in order 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 - 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.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
The Company reported a net loss of $126,000 for the three months
ended June 30, 1994 compared to $2.6 million in net income for the
same period of 1993. Net loss per common share available to
common shareholders was $.14 for the second quarter of 1994
compared to net income per common share available to common
shareholders of $.12 for the second quarter of 1993. Excluding a
$3.0 million litigation charge, the Company would have reported
net income of $2.9 million for the three months ended June 30,
1994 and net income per common share available to common
shareholders of $.14.
The litigation charge was recorded in the second quarter of 1994
as a result of a judgment awarding additional financing fees and
accrued interest in connection with the Company's Series A Stock
offering (see "PART II, Item 1. Legal Proceedings - d. Donaldson,
Lufkin and Jenrette Securities Corporation"). The Company is
appealing the judgment and believes it has meritorious defenses
and counterclaims in this matter, but has accrued the liability
pending a final ruling.
The Company reported $107.0 million in operating revenues for the
three months ended June 30, 1994 as compared to $109.9 million
reported for the same period in 1993. This decline is primarily
due to a 1.7% decrease in cumulative monthly membership for these
time periods attributable to the expected decline in membership in
the Indiana HMO because of a restructuring of the provider network
partially offset by membership increases in the Illinois HMO and
Louisiana self-funded one year pilot program which began in
September 1993. Second quarter 1994 operating revenues were also
favorably impacted by modest Company-wide premium rate increases
which went into effect for the January 1994 open enrollment
period.
Health care expenses for the second quarter of 1994 decreased to
$93.9 million from $96.6 million for 1993. This decrease in health
care expenses resulted from the aforementioned decline in
membership. The positive impact on health care expenses as a
percentage of operating revenues (the "medical loss ratio") of the
self-funded program, which is a higher margin product, was
partially offset by a 3.5% increase in health care expenses per
member per month on the Company's other products resulting in a
medical loss ratio of 87.8% for the three months ended June 30,
1994 as compared to 87.9% for the same period in 1993.
Marketing, general and administrative expenses for the second
quarter of 1994 remained constant with that of the second quarter
of 1993 at $10.3 million. For both periods these expenses as a
percentage of operating revenues remain below 10%. Depreciation
and amortization expenses of $500,000 for the second quarter of
1994 decreased by $500,000 as compared to the same period in 1993.
<PAGE>
For the six months ended June 30, 1994, the Company reported net
income of $2.2 million as compared to $5.6 million for the same
period in 1993. This $3.4 million decrease is primarily due to the
second quarter litigation charge and a 1.9% decline in membership
partially offset by a reduction in depreciation and amortization
expenses. As set forth above, the positive impact of the self-
funded program on the medical loss ratio was partially offset by a
4.2% increase in health care expenses per member per month on the
Company's other products resulting in a medical loss ratio of
87.8% for the six months ended June 30, 1994 as compared to 87.7%
for the same period in 1993. Excluding the $3.0 million
litigation charge, the Company would have reported net income of
$5.2 million and net income per share available to common
shareholders of $.23.
In comparing the second quarter to the first quarter of 1994 and
excluding the litigation charge, the Company reported a $600,000
increase in net income as a result of slight increases to the
gross margin and investment income as well as expense reductions
in marketing, general and administrative and depreciation and
amortization. Net income per common share available to common
shareholders was $.14 for the second quarter of 1994, excluding
the $3.0 million litigation charge, as compared to $.09 for the
first quarter of 1994.
Liquidity and Capital Resources
Certain of MHP's operating subsidiaries are subject to state
regulations which require compliance with certain statutory
deposit, reserve and net worth requirements. To the extent the
operating subsidiaries must comply with these regulations, they
may not have the financial flexibility to transfer funds to MHP.
MHP's proportionate share of net assets (after inter-company
eliminations) which, at June 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 $22.5 million at June 30, 1994, with
deposit and reserve requirements representing $10.1 million of the
Restricted Net Assets and net worth requirements, in excess of
deposit and reserve requirements, representing the remaining $12.4
million. The total Restricted Net Assets of $22.7 million
includes the restricted cash and marketable securities for MHP and
all subsidiaries. Because of the aforementioned deposit, reserve
and net worth requirements, approximately $11.8 million of the
$52.1 million in cash, cash equivalents and marketable securities
held by subsidiaries of MHP could be considered available to
transfer to MHP.
All of MHP's operational subsidiaries are direct subsidiaries of
MHP. With the exception of the Company's South Carolina HMO, all
of the Company's operational HMOs are licensed by pertinent state
authorities; all of the Company's HMOs are federally qualified.
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
<PAGE>
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 preferred
stock dividend requirements of $2.25 per share 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 is to be utilized
to redeem the Senior Notes is no longer due as the Senior Notes
have been 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 responded to various inquiries of the New Committee
and may engage in future discussions in an attempt to resolve any
disputed items. 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.
<PAGE>
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.
<PAGE>
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 March 31, 1994 Quarterly Report
on Form 10-Q is 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 have executed a definitive
settlement agreement dated June 17, 1994 (the "Agreement").
Pursuant to the Agreement, a reorganization plan providing for the
reorganization of MHIC in accordance with Wisconsin law (the "State
Plan") was submitted by the State of Wisconsin for approval by the
Wisconsin State Court, without prejudice to MHIC or the Company's
rights to contest the Wisconsin State Court's jurisdiction or to
pursue the Appeal. The State Plan provides for MHIC's
reorganization only with respect to liabilities which arose on or
before March 15, 1989 on fundamentally the same terms and
conditions as, and is consistent with, the Reorganization Plan
confirmed by the Bankruptcy Court. Under the State Plan creditors
holding claims that were allowed in MHIC's bankruptcy proceeding
pertaining to liabilities which arose on or before March 15, 1989
("MHIC Creditors") will retain the distributions made to them under
the Reorganization Plan and will continue to receive the
distributions which would otherwise have been made to them pursuant
to the Reorganization Plan. Future distributions to MHIC Creditors
due under the State Plan will be made from the separate
Reorganization Plan assets allocated for the satisfaction of
creditors' bankruptcy claims and not from MHIC's or the Company's
post bankruptcy assets or operations. The State Plan does not
affect MHIC's ongoing business operations or its ability to conduct
business, write new business or renew old business. When the order
terminating the state court reorganization becomes final and
nonappealable, MHIC, the Company, and the State of Wisconsin will
file a stipulation with the Court of Appeals dismissing the Appeal
and MHIC will move the Bankruptcy Court to dismiss MHIC's
bankruptcy case.
The Agreement was approved by the Bankruptcy Court at a hearing
held on July 21, 1994. Approval and confirmation of the State Plan
was not opposed or contested by MHIC's creditors or any interested
party. Accordingly, on July 22, 1994 the Wisconsin State Court
<PAGE>
entered orders approving and confirming the State Plan and
terminating MHIC's reorganization proceedings. Implementation and
consummation of the Agreement will have no material adverse impact
on the Company's business and its operations.
b. CLASS ACTION LITIGATIONS
On May 4, 1988, a class action complaint alleging violations of
federal and state securities laws was filed by Murray Zucker on
behalf of himself and other Company shareholders in the United
States District Court for the Central District of California
("District Court"). Murray Zucker, et al v. Maxicare Health Plans,
Inc., et al. (United States District Court, Central District of CA)
(Case No. 88 02499 LEW (TX)) (the "Zucker Action"). The Company
and certain of its current and former directors and officers who
are named defendants entered into a settlement agreement with
respect to all of the claims asserted in the Zucker Action. Amounts
required to be paid under the settlement agreement have been funded
entirely by the Company's directors and officers insurance policy
with First State Insurance Company. The settlement agreement has
been approved by the District Court, the Bankruptcy Court and the
class members.
The District Court's order:(i) approving the settlement between the
Company and certain of its current and former directors and
officers on the one side and the class action plaintiffs on the
other side; (ii) precluding the non-settling defendants from
seeking indemnification or contribution from the settling
defendants; and (iii) excluding the investment banker defendants
from membership in the settling class has become a final and
nonappealable order. Accordingly, the Company will no longer be
reporting on this matter.
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 will be submitting post trial briefs to
the Board on issues of contractual liability.
The Company believes that it has meritorious defenses to DPW's
counterclaim and 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"). The parties have filed a stipulation with the BAP staying
the appeal and deferring the filing of briefs in connection with
the appeal until after the Board issues its ruling on whether DPW
is liable to Penn Health.
<PAGE>
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. The
engagement contemplated DLJ's assistance in arranging a private
placement of the Company's securities. This engagement was
subsequently terminated by the Company because the Company believed
that DLJ had materially breached its obligations to the Company.
The Company subsequently engaged Smith Barney, Harris Upham & Co.,
to assist in the private placement financing and the Company
subsequently entered into agreements for and consummated the sale
of $60 million of Series A Stock. In the complaint, DLJ sought
payment of approximately $2.4 million for a commission DLJ
contended was due and $41,000 in out-of-pocket expenses, together
with interest and other costs as a result of the sale of the Series
A Stock.
On June 19, 1992, the Company served an answer to DLJ's complaint
denying that any amounts were due to DLJ and filed counterclaims
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.
DLJ filed a motion in limine with the Court requesting that the
Court preclude the Company from introducing evidence on DLJ's
conduct on the grounds that the indemnification provision of the
purported engagement letter operated as a release by the Company of
its claims against DLJ. The Court ruled in DLJ's favor and
dismissed the Company's counterclaims. The Court entered a
judgment which awarded DLJ damages, interest and costs of
approximately $3.0 million.
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.
e. OTHER LITIGATION
On March 12, 1993, MH Healthcare, Affiliate of Methodist Hospital
of Indiana, Inc. ("MH") submitted a demand to the American
Arbitration Association for the arbitration of a contractual
dispute between MH and Maxicare Indiana, Inc. concerning
interpretation of the provisions of a Master Agreement dated
February 8, 1994 between the parties. The arbitrator awarded MH
approximately $260,000 of damages on ancillary issues in a ruling
dated June 3, 1994, but denied MH's major claim for $7.9 million of
damages ruling that MH's approach to calculating the amounts due to
MH was not a correct interpretation of the Master Agreement. The
arbitrator's award does not have a material adverse effect on the
Company's business and operations. The Company will no longer be
reporting on this matter.
<PAGE>
Item 2: Change in Securities
--------------------
None.
Item 3: Defaults Upon Senior Securities
-------------------------------
None.
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5: Other Information
-----------------
None.
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
-------------------
None.
<PAGE>
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)
August 9, 1994 /s/ EUGENE L. FROELICH
---------------------------
Eugene L. Froelich
Chief Financial Officer and
Executive Vice President -
Finance and Administration
<PAGE>
