SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
February 11, 1999
Date of Report (Date of earliest event reported): (February 10, 1999)
RIGHTCHOICE MANAGED CARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
MISSOURI
(State or Other Jurisdiction of Incorporation)
1-13248 43-1674052
(Commission File Number) (I.R.S. Employer Identification No.)
1831 Chestnut Street, St. Louis, Missouri 63103-2275
(Address of principal executive offices) (Zip Code)
314-923-4444
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Items 1. Changes in Control of Registrant.
Not applicable.
Item 2. Acquisition or Disposition of Assets.
Not applicable.
Item 3. Bankruptcy or Receivership.
Not applicable.
Item 4. Changes in Registrant's Certifying Account.
Not applicable.
Item 5. Other Events.
On February 10, 1999, the Special Master appointed by the Circuit
Court of Cole County, Missouri (the "Circuit Court") issued a
Report (the "Special Master's Report") wherein the Special Master
recommended that the proposed Settlement Agreement (described
below) among RightCHOICE Managed Care, Inc. (the "Company"), Blue
Cross and Blue Shield of Missouri ("BCBSMo"), the parent company
of the Company, the Attorney General of Missouri and the Missouri
Department of Insurance "not be approved in its present form."
The Special Master recommended that the Circuit Court "withhold a
ruling on the Settlement Agreement to give the parties and the
amici curiae an opportunity to meet and confer, and engage in a
good faith effort to address" concerns that were noted by the
Special Master in the Special Master's Report.
While the Special Master stated that "there are many things to
commend the Settlement Agreement for the [Circuit] Court's
approval," he has "serious concerns" with its terms that prevent
him from recommending approval. Among the concerns he identified
in the Special Master's Report are:
(1) Whether the public health foundation (the "Foundation")
that would be created if the settlement were implemented would
receive full value of the present assets of BCBSMo;
(2) Whether a contemplated method of divestiture of the
RightCHOICE shares to be held by the Foundation -- sale of the
shares over time pursuant to a Voting Trust and Divestiture
Agreement and Registration Rights Agreement--would yield full
value for the shares;
(3) Whether the proposed provisions for governance of the
Foundation are reasonable; and
(4) Whether the provisions for the purposes of the Foundation
are justified.
The parties have 30 days within which to file in the Circuit
Court objections to the Special Master's Report, at which time
the Settlement Agreement would be before the Circuit Court for a
ruling on whether the Settlement Agreement should be approved.
The underlying litigation giving rise to the Settlement Agreement
(described below) remains pending in the Supreme Court of
Missouri on appeal from prior partial summary judgments in the
case. The Supreme Court has stayed the briefing schedule before
it and the parties are to report to it on the status of the
settlement proceedings in the Circuit Court by February 15, 1999.
The Company's Press Release announcing the issuance of the
Special Master's Report is attached hereto as Exhibit 99(a).
The following is a summary of the events regarding the litigation
related to the Reorganization and Public Offering (as described
below), and related matters, that have preceded the Special
Master's Report described above and which gave rise to the
Settlement Agreement.
In August 1994, BCBSMo transferred certain assets to the Company
in connection with an offering to the public of 20 percent of the
common stock of the Company (such events are referred to
collectively as the "Reorganization and Public Offering").
Although the Director (the "Director") of the Missouri Department
of Insurance (the "DOI") formally approved the Reorganization and
Public Offering on April 14, 1994, the Director and the DOI
subsequently claimed that the Reorganization and Public Offering
violated state laws and that BCBSMo was obligated to transfer all
of its assets, including all of its stock of the Company, to the
State of Missouri or a charity designated by the State of
Missouri. The Director and the DOI threatened to bring legal
action, seek a receivership or terminate BCBSMo's insurance
license unless BCBSMo gave up its assets.
BCBSMo's extensive efforts to resolve the dispute without
litigation were unsuccessful. On May 13, 1996, BCBSMo filed a
declaratory judgment action in the Circuit Court against the
Director, the DOI and the Missouri Attorney General (the Missouri
Attorney General was a necessary party due to his sole authority
to enforce nonprofit corporation laws).
On June 13, 1996, the Director and the DOI filed an answer and
counterclaims. The answer set forth several affirmative
defenses, including alleged fraud and negligent misrepresentation
with respect to the application filed by BCBSMo seeking approval
of the Reorganization and Public Offering. The counterclaims
alleged violations of certain health services corporation and
nonprofit corporation statutes. The Director's and the DOI's
counterclaims sought, among other things: (i) permanent
injunctions against BCBSMo; (ii) imposition of a trust on
BCBSMo's assets for public benefit purposes; (iii) return of
profits from Medigap policies reinsured with a subsidiary; and
(iv) an accounting of all assets transferred by BCBSMo.
On June 20, 1996, the Missouri Attorney General filed an answer
and counterclaim alleging that the Reorganization and Public
Offering, and the continued operations through the Company and
its subsidiaries, exceeded BCBSMo's statutory purposes. The
Missouri Attorney General requested a declaration that BCBSMo
exceeded its lawful authority and sought such relief as the
Circuit Court would determine to be appropriate under the
circumstances based on a statute that authorizes judicial
dissolution or less drastic alternative relief in the Circuit
Court's discretion.
On September 9, 1996 (the "September 9 Order"), the Circuit Court
granted BCBSMo's motion for summary judgment against the Director
and the DOI, rejected all of the Director's and the DOI's
affirmative defenses (including allegations of fraud), issued a
permanent injunction against the Director and the DOI and
declared that: (i) under Missouri law the Director and the DOI
had no authority to demand that BCBSMo make a payment as a result
of the Reorganization and Public Offering; (ii) under Missouri
law the Director and the DOI had no jurisdiction to take any
action, the practical effect of which would be to amend, modify
or reverse the Director's April 14, 1994 final administrative
approval of the Reorganization and Public Offering; (iii) under
Missouri law the Director and the DOI had no jurisdiction to take
any administrative action, including but not limited to,
revoking, suspending or refusing to renew BCBSMo's Certificate of
Authority based in any way on the Reorganization and Public
Offering and the consequences thereof or BCBSMo's refusal to make
payment as the Director and the DOI had demanded; and (iv) (A)
BCBSMo was a mutual benefit type of nonprofit corporation rather
than a public benefit type of nonprofit corporation; (B) the
Reorganization and Public Offering were authorized under all laws
applicable to nonprofit health services corporations; and (C)
BCBSMo did not owe the State of Missouri or any person or entity
a "toll charge," "charitable asset settlement" or any other
payment as a result of the August 1994 Reorganization and Public
Offering. On December 30, 1996, the Circuit Court issued orders
(the "December 30 Orders") modifying the findings and
declarations set forth in (iv) above, on the grounds that it was
legally unnecessary to resolve such issues since the Circuit
Court had already ruled against the Director and the DOI for
other reasons.
The September 9 Order permanently enjoined the Director and the
DOI from, among other things, (i) revoking, suspending or
refusing to renew BCBSMo's insurance license based in any part
upon the Reorganization and Public Offering; (ii) commencing a
valuation of BCBSMo's assets and demanding a payment as a result
of the Reorganization and Public Offering; (iii) commencing any
administrative hearing or making any administrative determination
based in any part upon the Reorganization and Public Offering;
(iv) instituting any seizure, receivership, conservatorship or
similar action or proceeding against BCBSMo based in any part
upon the Reorganization and Public Offering; and (v) taking any
other action, however denominated, against BCBSMo based in any
part upon the Reorganization and Public Offering. Although the
injunctive relief described above remains in place, the Circuit
Court's December 30 Orders (described below) clarify that the
injunction does not prohibit the Director and the DOI from
asserting that the post-Reorganization and Public Offering
operations of BCBSMo may violate the health services corporation
laws (even though such operations may have been affected by the
Reorganization and Public Offering).
On August 28, 1996, the Director and the DOI filed an amended
answer asserting a new counterclaim that the Reorganization and
Public Offering were not reasonably designed to serve any of
BCBSMo's purposes as a health services corporation and sought a
declaration that BCBSMo had exceeded or abused the authority
conferred upon it by law. Under this counterclaim, the Director
and the DOI sought an order to rehabilitate BCBSMo or, in the
alternative, injunctive relief.
On October 18, 1996, the Missouri Attorney General filed a motion
for leave to file an amended counterclaim against BCBSMo that
sought a declaration that BCBSMo was a public benefit
corporation, not a mutual benefit corporation, and requested an
order that BCBSMo amend its Articles of Incorporation
accordingly. The Circuit Court granted the Missouri Attorney
General's motion for leave to file the amended counterclaim,
which remains pending.
On December 30, 1996, the Circuit Court issued five orders (the
December 30 Orders): (i) denying BCBSMo's motion for summary
judgment against the Missouri Attorney General; (ii) granting the
Missouri Attorney General's motion for partial summary judgment
against BCBSMo; (iii) denying BCBSMo's supplemental motion for
summary judgment against the Director and the DOI on their
amended counterclaim; (iv) granting the Director's and the DOI's
motion for summary judgment against BCBSMo on their amended
counterclaim; and (v) modifying, in part, the Circuit Court's
previous September 9 Order as described above. The December 30
Orders declared that (i) BCBSMo had continued to exceed or abuse
its statutorily permissible purposes and the authority conferred
on it by law; and (ii) BCBSMo is subject to judicial dissolution
proceedings, but that prior to ordering dissolution, the Circuit
Court is required to consider whether there are alternatives to
dissolution and whether dissolution is in the public interest or
is the best way of protecting the interests of its members.
The Circuit Court also (i) certified the December 30 Orders and
the September 9 Order, as modified, for immediate appeal; (ii)
held in abeyance further proceedings on the Missouri Attorney
General's counterclaim pending appeal; and (iii) stayed the legal
effect of the order granting the Director and the DOI summary
judgment pending the filing of an appeal bond (which BCBSMo
promptly filed).
On January 9, 1997, BCBSMo filed a notice of appeal of the
December 30 Orders. On January 21, 1997, the Director and the DOI
filed a notice of appeal of the September 9 Order, as modified.
Oral arguments were heard by the Missouri Court of Appeals on
February 24, 1998. On August 4, 1998, the Missouri Court of
Appeals entered its opinion affirming the judgments entered
December 30, 1996.
On September 20, 1998, the Company and certain of its affiliates
entered into various settlement agreements with certain state
agencies, including the Missouri Attorney General and the DOI
(the "Settlement Agreement"), which, if consummated, would
resolve the outstanding litigation and regulatory disputes
between the Company and its affiliates and the State of Missouri,
including the litigation related to the Reorganization and the
Public Offering, and create an independent health care
foundation. The terms of the Settlement Agreement are described
further under Note 2, "Contingencies - Litigation with DOI and
Attorney General - Status of Proposed Settlement Agreements" of
Part I, Financial Information, of the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998 (the "Third
Quarter 10-Q"), and such description is incorporated by reference
in its entirety herein.
On September 22, 1998, the application of BCBSMo in the Missouri
Court of Appeals for rehearing and alternatively for transfer of
the case to the Supreme Court of Missouri was denied. On October
7, 1998, BCBSMo requested that the Supreme Court of Missouri
accept transfer of the case.
On November 4, 1998, the Circuit Court appointed the Special
Master for the purpose of, among other things, collecting and
analyzing information related to options and alternatives for the
disposition of the remaining issues in the litigation described
above, including the proposed Settlement Agreement. The
appointment of the Special Master is described further in Note 2,
"Contingencies - Litigation with DOI and Attorney General -
Appointment of Special Master" of the Third Quarter 10-Q, which
description is incorporated by reference in its entirety herein.
On November 24, 1998, the Supreme Court of Missouri granted the
motion of BCBSMo to accept transfer of the litigation related to
the Reorganization and Public Offering (described above (the
"November 24 Transfer Order"). As a result of this action, the
opinion of the Missouri Court of Appeals dated August 4, 1998
(described above) has been vacated. The Missouri Supreme Court
will now decide the appeals as if they were original appeals in
that Court. If the Missouri Supreme Court had denied the request
for transfer, the opinion of the Missouri Court of Appeals dated
August 4, 1998 would have become final without modification and
the case would have been remanded to the Circuit Court for
further proceedings to determine the remedy for the violation of
BCBSMo's statutory purposes that, as described above, the Circuit
Court previously found to have occurred.
The Supreme Court of Missouri subsequently stayed briefing
schedule in the proceedings before it in order to permit the
proceedings in the circuit court concerning review of the
Settlement Agreement to go forward.
The Special Master conducted hearings on December 4, December 16
and December 22, 1998, and on February 4, 1999, at which evidence
related to the proposed settlement and other subjects was
adduced.
On February 10, 1999, as described above, the Special Master
issued the Special Master's Report.
There can be no assurance that the transactions contemplated by
the Settlement Agreement will be consummated. The failure to
consummate the transactions contemplated by the Settlement
Agreement or to otherwise resolve the litigation related to the
Reorganization and Public Offering in a manner satisfactory to
the Company could have a material adverse effect on the Company
and the market for its stock.
Item 6. Resignations of Registrant's Directors.
Not applicable.
Item 7. Financial Statements
Pro Forma Financial Statements and Exhibits.
(a) - (b) Not applicable.
(c) Exhibits Required by Item 601 of Regulation S-K:
99(a) Press Release of Registrant, dated
February 10, 1999.
Item 8. Change in Fiscal Year.
Not applicable.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: February 11, 1999.
RIGHTCHOICE MANAGED CARE, INC.
By: /s/ Sandra A. Van Trease
Sandra A. Van Trease
Chief Financial Officer, Senior
Executive Vice President and
Chief Operating Officer
EXHIBIT INDEX
Exhibit No. Description
99(a) Press Release of RightCHOICE Managed Care,
Inc., dated February 10, 1999.
Exhibit 99(a)
RIGHTCHOICE MANAGED CARE, INC. LETTERHEAD
For Further Information:
Clara Kinner (314) 923-6268
Deb Wiethop (314) 923-4767
COURT ADVISOR RECOMMENDS MISSOURI BLUE CROSS SETTLEMENT AGREEMENT
NOT BE APPROVED IN ITS PRESENT FORM, BUT ASKS COURT TO WITHHOLD
RULING, URGES FURTHER DISCUSSION
ST. LOUIS, February 10, 1999 -- Blue Cross and Blue Shield of
Missouri, parent company of RightCHOICE Managed Care, Inc.
(NYSE:RIT), today announced that a Special Master appointed by
the Circuit Court of Cole County, Missouri, had recommended that
the proposed Settlement Agreement among Blue Cross and Blue
Shield of Missouri, RightCHOICE Managed Care, Inc., the Attorney
General of Missouri and the Missouri Department of Insurance "not
be approved in its present form." The Special Master recommended
that the Circuit Court "withhold a ruling on the Settlement
Agreement to give the parties and the amici curiae an opportunity
to meet and confer, and engage in a good faith effort to address"
concerns that were noted by the Special Master in a 47-page
report.
John A. O'Rourke, chairman, president and chief executive
officer, said "Blue Cross and Blue Shield of Missouri and
RightCHOICE are giving careful consideration to our options in
light of the Special Master's report, including those options
related to the future course of the litigation as well as the
Special Master's suggestion that the parties meet and engage in
further joint efforts to address the concerns noted in the
report."
The settlement agreement, finalized in September 1998, calls
for Blue Cross and Blue Shield of Missouri to reorganize and be
merged with RightCHOICE Managed Care and for the creation of what
would be the state's largest health care foundation. The
foundation would become the owner of approximately 80 percent of
the stock of the new RightCHOICE, most of which it would
liquidate over a period of time not to exceed five years under a
divestiture plan. The proceeds would be used to meet the health
care needs of under- and un-insured Missourians. As a result of
the reorganization, RightCHOICE or its subsidiaries would absorb
the remaining assets and related liabilities of Blue Cross and
Blue Shield of Missouri and would become a consolidated, fully
for-profit company and the direct licensee for the Blue Cross and
Blue Shield names and trademarks.
While the Special Master stated that "there are many things
to commend the Settlement Agreement for the Court's approval," he
has "serious concerns" with its terms that prevent
- More -
him from recommending approval. Among the concerns he identifies
in his report are:
(1) Whether the public health foundation that would be
created if the settlement were implemented would receive
full value of the present assets of Blue Cross and Blue
Shield of Missouri;
(2) Whether a contemplated method of divestiture of the
RightCHOICE shares to be held by the Foundation -- sale of
the shares over time pursuant to a Voting Trust and
Divestiture Agreement and Registration Rights Agreement--
would yield full value for the shares;
(3) Whether the proposed provisions for governance of the
Foundation are reasonable; and
(4) Whether the provisions for the purposes of the
Foundation are justified.
The parties have 30 days within which to file in the Circuit
Court objections to the Report of the Special Master, at which
time the Settlement Agreement would be before the circuit court
for a ruling on whether the Settlement Agreement should be
approved.
The underlying litigation giving rise to the Settlement
Agreement remains pending in the Supreme Court of Missouri on
appeal from prior partial summary judgments in the case. The
Supreme Court has stayed the briefing schedule before it and the
parties are to report to it on the status of the settlement
proceedings in the circuit court by February 15, 1999.
SAFE HARBOR STATEMENT
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995: Estimates and other statements set
forth herein that are not historical facts are forward-looking
statements that involve risks and uncertainties. These risks and
uncertainties include, but are not limited to: the possibility
that court approval of the final settlement agreement, referenced
above, would not be obtained, or if obtained, could include
conditions that are not acceptable to the parties; the
possibility that all remaining contingencies and conditions to
the parties' obligations to effect the proposed settlement
transaction would not be met or otherwise satisfied; governmental
and regulatory action or legislation; pending litigation; actions
by the Blue Cross and Blue Shield Association relating to the
license to use the Blue Cross and Blue Shield names, trademarks
and service marks; market competition and consolidation;
escalating health care costs; dependence on sales to individuals;
recontracting efforts and potential of non-renewal of subscriber
and provider agreements; voting control by the parent company;
variability of operating results and stock price; and additional
factors and other risks detailed in the company's Securities and
Exchange Commission filings.
RightCHOICE, the publicly held subsidiary of Blue Cross and
Blue Shield of Missouri, is the state's largest provider of
health care benefits. The company serves 2.1 million members in
seven states in the Central United States through its
underwritten and self-funded managed care plans, HealthLink
network rental subsidiary and administrative services programs.
##
