Item 1. Business --------
General -------
Maxicare Health Plans, Inc., a Delaware corporation ("MHP""), is a holding company which owns various subsidiaries primarily in the field of managed health care. MHP and subsidiaries (the "Company") have a combined enrollment of approximately 298,000 as of February 1, 1995. MHP owns and operates a system of seven health maintenance organizations ("HMOs") in California, Indiana, Illinois, Louisiana, North Carolina, South Carolina, and Wisconsin and additionally operates Maxicare Life and Health Insurance Company ("MLH") and HealthAmerica Corporation. Through these subsidiaries, the Company offers an array of employee benefit packages including traditional HMO, preferred provider organizations ("PPOs"), exclusive provider organization, life and accidental death and dismemberment policies as well as administrative services only, wellness programs, outcomes measures and high dollar claims audits. In addition, the Company offers a number of pharmacy programs including benefit design, formulary management, claims processing and mail order services for employers and their employees.
Through the HMO operations, the Company arranges for comprehensive health care services to its members for a predetermined prepaid fee. The Company provides these services by contracting on a prospective basis with physician groups for a fixed fee per member per month regardless of the extent and nature of services, and with hospitals and other providers under a variety of fee arrangements. The Company believes that an HMO offers certain advantages over traditional health insurance:
- To the member, an HMO offers comprehensive and coordinated health care programs, including preventive services, generally without requiring claims forms.
- To the employer, an HMO offers an opportunity to improve the breadth and quality of health benefit programs available to employees and their families without a significant increase in cost or administrative burdens.
- To the health care provider, such as physician groups and hospitals, an HMO provides a more predictable revenue source.
The Company's executive offices are located at 1149 South Broadway Street, Los Angeles, California 90015, and its telephone number is (213)765-2000.
History -------
The HMO business of the Company originated in California in 1973. The Company began multi-state operations in June 1982 by purchasing 100% of CNA Health Plans, Inc. As part of its expansion strategy, the Company acquired all of the stock of HealthCare USA Inc. ("HealthCare") and HealthAmerica Corporation ("HealthAmerica") in the fourth quarter of 1986. At that time, HealthCare owned or managed HMOs in three states and HealthAmerica owned or managed HMOs in 17 states, including 11 states not previously serviced by the Company.
The acquisitions of HealthCare and HealthAmerica were highly leveraged and resulted in a substantial increase in the Company's long-term debt. These acquisitions, combined with adverse industry conditions and inadequate pricing policies, produced a dramatic deterioration in the Company's operating performance and financial condition.
These financial difficulties ultimately caused certain of the Company's HMOs to fall out of compliance with state regulations and its loan agreement with various banks (the "Bank Group") and to default under the terms of its public indebtedness.
As a result of deteriorating financial, operational and regulatory situations, MHP and forty-seven affiliated entities filed for protection under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in March and April of 1989 (the "Petition Dates"). Hereinafter, all 48 entities which filed bankruptcy petitions may from time to time be referred to as the "Debtors".
Under the Bankruptcy Code, substantially all pre-petition liabilities, contingencies and other contractual obligations of the Debtors, except those expressly assumed by them, were discharged upon emergence from Chapter 11 on December 5, 1990, the "Effective Date" of the plan of reorganization (the "Reorganization Plan"). On or shortly after the Effective Date, the Company transferred approximately $85.4 million of cash to be distributed under the Reorganization Plan to segregated interest bearing bank accounts and issued global certificates evidencing $67.0 million principal amount of 13.5% Senior Notes due December 5, 2000 (the "Senior Notes"), 10,000,000 shares of Common Stock and warrants to purchase an additional 555,555 shares of Common Stock (the "Warrants") to be distributed to holders of allowed claims and interests under the Reorganization Plan.
As of January 31, 1995, approximately $87.3 million in cash, $39.7 million principal amount of Senior Notes, $19.0 million of cash in lieu of the now redeemed Senior Notes (see "Item 8. Financial Statements and Supplementary Data - Note 3 to the Company's Consolidated Financial Statements"), 9.7 million shares of Common Stock (including approximately 420,000 shares of Common Stock issued pursuant to the exercise of Warrants as discussed below) had been
distributed to holders of allowed claims. The remaining amounts of cash and securities will be distributed to holders of allowed claims upon adjudication of the remaining disputed claims pursuant to a formula set forth in the Reorganization Plan.
In addition to the foregoing, certain assets of the Debtors which were not retained by the reorganized Company were transferred to a distribution trust for liquidation on behalf of the creditors (the "Distribution Trust") after reimbursement of expenses of the Distribution Trust. As of January 31, 1995, $8.9 million has been disbursed by the Distribution Trust to the disbursing agent. The Company anticipates that future distributions will be made from the Distribution Trust.
Pursuant to the Reorganization Plan, the Company was 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"). Such distributions were allocated sixty percent (60%) to redeem outstanding Senior Notes and forty percent (40%) to the Distribution Trust for the benefit of certain classes of creditors. As a result of the foregoing, the Company made a Consolidated Net Worth Distribution of $2.0 million in 1992 based on the Company's net worth at December 31, 1991. In March 1992, the Company consummated the sale of $60 million of Series A Cumulative Convertible Preferred Stock (the "Series A Stock") (see "Item 8. Financial Statements and Supplementary Data - Note 6 to the Company's Consolidated Financial Statements"). The proceeds from this sale, plus internally generated cash, were utilized to redeem in April 1992 the entire outstanding principal amount and accrued interest on the 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 and believes that its position in this matter will ultimately prevail. 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 related to this matter (see "Item 8. Financial Statements and Supplementary Data").
In June, 1994 the Company issued a redemption notice on the Warrants whereby warrantholders who wished to exercise their Warrant had to do so by July 29, 1994. Any warrantholder who did not exercise their Warrant by tendering the Warrant certificate for redemption has received or is entitled to receive the redemption price of $.05 per Warrant. The Company realized net proceeds of approximately $4.2 million from the exercise of 420,178 outstanding Warrants. The remaining 135,377 Warrants were redeemed by the Company.
The United States Bankruptcy Court (the "Bankruptcy Court") retains jurisdiction over implementation and interpretation of the Reorganization Plan and, pursuant to a stipulation with the South Carolina Department of Insurance, over the operations of the South Carolina HMO, until all regulatory approvals regarding this HMO have been obtained (see "Item 1. Business - Government Regulation").
Preferred Stock Redemption --------------------------
On February 13, 1995 the Company announced that it would redeem all of its 2.29 million outstanding shares of Series A Stock on March 14, 1995. Holders of Series A Stock were entitled to either have their shares redeemed by the Company at $25.4625 per share (the "Redemption Price"), which represents the redemption price of $25.00 per share plus accrued and unpaid dividends of $.4625 per share, or convert their Series A Stock into 2.7548 shares of the Company's Common Stock for each share of Series A Stock converted. Holders of Series A Stock who wished to convert their shares into Common Stock were required to deliver written notice of their election to convert and tender the Series A Stock certificates properly endorsed to the Redemption Agent, American Stock Transfer & Trust Company, no later than 5:00 P.M. (Eastern Standard Time) on March 9, 1995. Holders of approximately 2.27 million shares of Series A Stock converted their shares into approximately 6.25 million shares of Common Stock. As of March 14, 1995, the remaining 21,000 shares of Series A Stock are no longer deemed to be outstanding and holders of Series A Stock certificates are entitled to receive only the Redemption Price without additional interest thereon when they surrender the Series A Stock Share certificates properly endorsed to the Redemption Agent.
Overview of Managed Health Care Services ----------------------------------------
HMO. The Company owns and operates a multi-state system of HMOs. An HMO is an organization that arranges for health care services to its members. For these services, the members' employers pay all or most of the predetermined fee that does not vary with the nature or extent of health care services provided to the member, and the member pays a relatively small copayment or deductible for certain services. The fixed payment distinguishes HMOs from conventional health insurance plans that contain customary copayment and deductible features and also require the submission of claim forms.
An HMO receives a fixed amount from its members regardless of the nature and extent of health care services provided, and as a result, an HMO has an incentive to keep its members healthy and to manage its costs through strategies such as monitoring hospital admissions and reviewing specialist referrals by primary care physicians. The goal is to combine the delivery of and access to quality health care services with effective management controls to make the most cost- effective use of health care resources.
Although HMOs have been operating in the United States for half a century, their popularity began increasing in the 1970's in response to rapidly escalating health care costs and enactment of the Federal Health Maintenance Organization Act of 1973, a federal statute designed to promote the establishment and growth of HMOs (see "Item 1. Business - Government Regulation").
There are four basic organizational models of HMOs which are the staff, group, independent practice association and network models. The distinguishing feature between models is the HMO's relationship with its physicians. In the staff model, the HMO employs the physicians directly at an HMO facility and compensates the physicians by salary and other incentive plans. In the group model, the HMO contracts with a multi-specialty physician group which provides services primarily for HMO members and receives a fixed monthly fee, known as capitation, for each HMO member, regardless of the number of physician visits. Under the independent practice association model, the HMO either contracts with a physicians' association, which in turn contracts directly with individual physicians, or contracts directly with individual physicians. In either case, these physicians provide care in their own offices. Under the network model of organization, the HMO contracts with numerous community multi-specialty physician groups, hospitals and other health care providers. The physician groups are paid on a capitation basis, as in the group model, but medical care is usually provided in the physician's own facilities. The Company's HMOs include only network, group and independent practice association models. For the year ended December 31, 1994, 59% of the Company's health care expenses represented capitation payments to providers.
PPO. PPOs are generally a network of health care providers which offer their services to health care purchasers, such as employers. PPO members choose from among the various contracting physician groups and independent practice associations (the "Physician Groups") the particular group from which they desire to receive their medical care, or choose a noncontracting physician and are reimbursed on a traditional indemnity plan basis after reaching an annual deductible. Payment is based on some variation of fee-for- service reimbursement and health care services are determined by the terms of the contract. The Company's PPO business began in Indiana in the fourth quarter of 1989 and has expanded to California, Louisiana, Illinois and North Carolina. In the third quarter of 1993 the Company introduced a primary care physician network product ("PCPN") to a Louisiana employer group with a health care plan which is self-insured. Under a PCPN, eligible members of the employer group may choose the Company's contracted physician network for
their primary care services. The Company's PPO and PCPN lines of business comprise less than one percent (1%) of the Company's combined enrollment at December 31, 1994. The Company believes that the PPO and PCPN products, as well as the life, accidental death and dismemberment insurances offered by MLH expand the options for members, while maintaining the concept of managed health care. MLH is exploring the possibility of offering the PPO business and additional products and indemnity services in other markets.
Medicaid. In November 1994, the Company began providing HMO services to Medicaid recipients pursuant to a one year contract with the state of California. In addition, the Company has contracted for two years with the state of Indiana to provide HMO services to Medicaid recipients beginning in 1995. The Company has been contracted for one year terms with the state of Wisconsin to provide HMO services to that state's Medicaid recipients since 1984. Medicaid beneficiaries do not pay any premiums, deductibles or co- payments. As of February 1995, the Medicaid programs comprised approximately nine percent (9%) of the Company's total enrollment.
Medicare. The Company has entered into federally sponsored one year Medicare contracts to provide HMO services to Medicare beneficiaries in California and Indiana. The programs, known as MAX 65 Plus, provide Medicare recipients with a choice between standard Medicare coverage or MAX 65 Plus which has no deductibles and minimal copayments. The MAX 65 Plus programs comprised approximately one percent (1%) of the Company's total enrollment as of February 1995.
Health Care Services --------------------
In exchange for a predetermined monthly payment, an HMO member is entitled to receive a broad range of health care services. Various state and federal regulations require an HMO to offer its members physician and hospital services, and permit an HMO to offer certain supplemental services such as dental care and prescription drug services at an additional cost (see "Item 1. Business - Government Regulation"). As of December 31, 1994, the Company's HMOs had contracts with approximately 350 hospitals in 7 states and the Company owns and operates 3 pharmacies in California.
The Company's members generally receive the following range of health care services:
Primary Care Physician Services - medical care provided by primary care physicians (typically family practitioners, general internists and pediatricians). Such care generally includes periodic physical examinations, well-baby care and other preventive health services, as well as the treatment of illnesses not requiring referral to a specialist.
Specialist Physician Services - medical care provided by specialist physicians on referral from the responsible primary care physicians. The most commonly used specialist physicians
include obstetrician-gynecologists, cardiologists, surgeons and radiologists.
Hospital Care - inpatient and outpatient hospital care including room and board, diagnostic tests, and medical and surgical procedures.
Diagnostic Laboratory Services - inpatient and outpatient laboratory tests.
Diagnostic and Therapeutic Radiology Services - X-ray and nuclear medicine services, including CT scans and therapeutic radiological procedures.
Home Health Services - medical and surgical procedures performed on an outpatient basis, including emergency room services where such services are medically necessary, outpatient surgical procedures, evaluation and crisis intervention, mental health services, physical therapy and other similar services in which hospitalization is not medically necessary or appropriate.
Other Services - other related health care services such as ambulance, family planning and infertility services and health education (including prenatal nutritional counseling, weight- loss and stop-smoking programs).
Additional optional services include inpatient psychiatric care, hearing aids, durable medical supplies and equipment, dental care, vision care, chiropractic care and prescription drug services.
Delivery of Health Care Services --------------------------------
The Company's HMOs provide for a portion of the health care services to its members by contracting on a prepaid basis with physician groups. The Company's HMOs typically pay to the physician groups a monthly capitation fee for each member assigned to the group. The amount of the capitation fee does not vary with the nature or extent of services utilized. In exchange for the capitation fee, the physician groups provide professional services to members, including laboratory services and X-rays. Members choose from among the various contracting physician groups the particular group from which they desire to receive their medical care.
Members select a primary care physician to serve as their personal physician from the physician group. This physician will oversee their medical care and refer them to a specialist when medically necessary. In order to attract new members and retain existing members, the Company's HMOs must retain a network of quality physician groups and develop agreements with new physician groups.
The Company's HMOs contract for hospital services with various hospitals under a variety of arrangements, including fee-for- service, discounted fee-for-service, per diem and capitation. Hospitalization costs are not generally included in the capitation fee paid by the Company's HMOs to physician groups. Except in emergency situations, a member's hospitalization must be approved in advance by the utilization review committee of the member's physician group and must take place in hospitals affiliated with the Company's HMOs. When emergency situations arise, however, which require medical care by physicians or hospitals not affiliated with the Company's HMOs, the Company's HMOs assume financial responsibility for the cost of such care.
Quality Assurance -----------------
As required by federal and state law, the Company evaluates the quality and appropriateness of the medical care delivered to its members by its independently contracted providers in a number of ways including performing periodic medical care evaluation studies, analyzing monthly utilization of certain services, conducting periodic member satisfaction studies and reviewing and responding to member and physician grievances.
The Company compiles a variety of statistical information concerning the utilization of various services, including emergency room care, outpatient care, out-of-area services, hospital services and physician visits. Under-utilization as well as over- utilization is closely evaluated in an effort to monitor the quality of care provided to the Company's members by physician groups.
The Company has a member services department which deals directly with members concerning their health care questions, comments, concerns or grievances. The Company conducts annual surveys questioning members about their level of satisfaction with the services they receive. Management reviews any problems that are presented by members concerning the delivery of medical care and receives periodic reports summarizing member grievances.
Premium Structure and Cost Control ----------------------------------
The Company generally sets its membership fees, or premiums, pursuant to a community rating system which means that it charges the same nominal premium per class of subscriber within a geographic area for like services; however, groups which meet certain enrollment requirements are charged premiums based on prior cost experience (see "Item 1. Business - Government Regulation").
The Company has attempted to develop uniform procedures and guidelines to monitor the appropriateness of medical care. These procedures and guidelines include the annual negotiation of the capitation fee paid to physician groups, hospitals, dentists and pharmacies, the negotiation of discount contracts with other health care providers and the placement of financial responsibility on the
primary care physician for the initiation of specialist referrals and hospital utilization. In order to manage costs in situations where the Company assumes the financial responsibility for specialist referrals and hospital utilization, the Company provides additional incentives to health care providers for appropriate utilization of these services.
In addition to directing the Company's health care providers toward capitation arrangements, the Company has a variety of programs and procedures in place to effect appropriate utilization. These programs are intended to address utilization of inpatient services, outpatient services and referral services which: (i) verify the medical necessity of inpatient nonemergency treatment or surgery, (ii) establish whether services must be performed in an inpatient setting or could be done on an outpatient basis; and (iii) determine the appropriate length of stay for inpatient services, which may involve concurrent and/or retrospective review. In addition, the Company monitors the terms and procedures of its pharmacy plan which incorporates such cost containment features as drug formularies (a Company-developed listing of preferred, cost- effective drugs).
The Company establishes an annual budget for each geographic area and determines the expected costs of providing services in such areas. The budget is calculated on a per member per month basis for specific components. These components include professional care by the contracting Physician Groups; hospitals; prescription drug and dental care services; emergency care; other health care services; and administration. The Company budgets hospital costs on the basis of utilization experience, actual cost per member per month, expected inflation and anticipated changes in health care delivery.
For further information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data-Consolidated Statements of Operations" included herein.
Marketing ---------
Primary responsibility for the Company's marketing efforts rests with a marketing director and sales representatives for each HMO operated by the Company. Members typically join the Company's HMOs through an employer, who pays all or most of the monthly premium. In most instances, employers offer employees a choice of traditional health insurance or membership with HMOs such as those operated by the Company. The Company's HMOs' agreements with employers are generally for a term of 12 months subject to renewal annually. Once the Company's relationship with the employer is established, marketing efforts are then focused on employees.
During an annual "open enrollment period", employees may select their desired health care coverage. The primary annual open enrollment period occurs in the month of January. By the end of January, approximately 57% of the Company's members select their desired health care coverage for the ensuing annual period. New employees make their choices at the time of employment. The Company's HMO membership is widely diverse, with no employer group comprising 10% or more of the Company's total enrollment. As of December 31, 1994, the Company's HMOs were offered by approximately 1,200 employer groups.
The Company markets its medicaid and medicare programs to eligible individuals through direct mail, door to door solicitation, radio and cooperative advertising with participating medical groups. Medicaid and medicare beneficiaries may disenroll for any reason upon 30 days notice.
The Company has also developed a multi-state account program which offers employers having multiple locations in areas served by the Company's HMOs the opportunity to deal with one primary account manager. Billing and enrollment procedures are handled at a plan level giving the multi-state employer the opportunity to monitor individual areas within his employer group. For certain multi- state employers, the Company develops individual marketing and benefit programs for separate divisions, locations or benefit classes within the same employer.
The Company believes that attracting employers is only the first step toward increasing enrollment at each of its HMOs; ultimately, the Company's ability to retain and increase membership will depend upon how users of the health care system assess its benefit package, rates, quality of service, financial condition and responsiveness to user demands.
Management Information Systems ------------------------------
All of the Company's HMOs are currently linked through a network of data lines to the corporate data center, allowing the Company to prepare and make available management and accounting reports including eligibility, billing, capitation and claims information on an ongoing basis. System generated reports contain budgeted and actual monthly cost and utilization statistics relating to physician initiated services and hospitalization. Hospital reports, which are available on a daily basis, are further analyzed by the type of service, days paid, and actual and average length and cost of stay by type of admission. The corporate data center is located in Los Angeles.
Competition -----------
The health care industry is highly competitive and the managed health care industry is becoming increasingly competitive in all markets. The HMO industry continues to gain market share,
particularly at the expense of the indemnity carriers. The Company competes in its regional markets for employers and members with other HMOs, conventional health insurers and PPOs as well as employers who elect to self-insure, and for quality physician groups with other HMOs and PPOs. Many of these competitors are larger or have greater financial resources than the Company. The level of competition varies from state to state depending on the variety and size of other conventional insurance, HMO and PPO health care services offered in each state. Competitors of the Company include such well known entities as Kaiser, FHP, Foundation, Health Systems International and PacifiCare (in California), MetroHealth (in Indiana), and HMO Illinois, Partners National Health Plan, Humana and Chicago HMO (in Illinois).
The Company believes the principal competitive factors it faces are premium rates, the quality of contracted providers, the variety of health care coverage options offered and the quality of service to members and providers. Competition may result in pressure to reduce rates or limit the growth potential of HMOs in any particular market. Employers, for example, are increasingly cost sensitive in selecting health care providers for their employees, which provides an incentive for the Company to keep its rates competitive. In addition to the above, the Company has recently faced increased competition from health care providers which offer not only HMO services but PPO and indemnity health care services to employer groups. In an effort to remain competitive, the Company has begun to offer a variety of health care services, including PPOs, and is actively exploring offering additional PPO and indemnity services through joint ventures or other arrangements.
Competition may also be affected by mergers and acquisitions in the managed care and general health care industries as companies respond to proposed health care reform and seek to expand their operating territories to gain economies of scale and market share.
Government Regulation ---------------------
The federal government and each of the states in which the Company conducts its HMO and other businesses have adopted laws and regulations that govern the business activities of the Company to varying degrees. The most important laws affecting the Company are the Federal Health Maintenance Organization Act of 1973, as amended (the "HMO Act"), and the regulations thereunder promulgated by the Secretary of Health and Human Services, and the various state regulations mandating compliance with certain net worth and other financial tests.
Federal Regulations. All of the Company's HMOs are federally qualified under the HMO Act. The HMO Act and regulations provide that, with certain exceptions, each employer of at least 25 employees must permit two "qualified" HMOs to market a health benefits plan to its employees, with the employer contributing the same amount toward the employee's HMO enrollment fee as it would
otherwise have paid for conventional health care insurance. Under federal regulations, services to members must be provided substantially on a fixed prepaid monthly basis, without regard to the actual level of utilization of services. Premiums established by HMOs may vary from employer to employer through composite rate factors and special treatment of certain broad classes of members, including geographical location ("community rating"). Experience rating of accounts (i.e., setting premiums for a group account based on that group's past use of health care services) is also permitted under federal regulations in certain circumstances. From time to time, modifications to the HMO Act have been considered by Congress. The Company is unable to predict what, if any, modifications to the HMO Act will be passed into law or what effect, if any, such legislation would have upon the operations, profitability or business prospects of the Company.
Among other areas regulated by federal and state law, although not necessarily by each state, are the scope of benefits available to members, the manner in which premiums are structured, procedures for review of quality assurance, enrollment requirements, the relationship between the HMO and its health care providers, procedures for resolving grievances, licensure, expansion of service area, and financial condition. The HMOs are subject to periodic review by the federal and state licensing authorities which regulate the HMOs.
State Regulations. With the exception of the Company's South Carolina HMO, all of the Company's operational HMOs are licensed by pertinent state authorities. Since the confirmation of the Company's Chapter 11 Bankruptcy proceedings the Company's South Carolina HMO has been operating under the jurisdiction of the Bankruptcy Court while it has been negotiating jurisdictional and licensing issues with various state regulatory bodies. The Company believes that it will be able to ultimately resolve the South Carolina HMO's licensing situation by changing its legal structure as a separately licensed HMO in the state of South Carolina or that of a division of another one of its operating HMOs. In any event, the Company does not believe that the resolution of this situation will have a materially adverse effect on the Company taken as a whole.
All of the Company's HMOs are subject to extensive state regulations which require the HMO to comply with certain net worth and other financial tests. A number of states have recently enacted legislation which increases these financial tests. To the extent an HMO fails to satisfy these regulatory requirements, MHP may need to infuse the HMO with additional capital in order to maintain the good standing of the HMO in the state. Under the HMO's business plans and in order to ensure financial compliance with state regulators, the Company is currently operating under a decentralized and segregated cash management system. The Company has implemented administrative services agreements which provide for MHP to furnish various management, financial, legal, computer and telecommunication services to the HMOs pursuant to the terms of the agreement with each HMO.
The Company believes that it is currently operating in compliance with the state regulations and has obtained regulatory approval of the operational and financial plans and related administrative services agreements for its HMOs.
The issue of health care reform continues to undergo intense discussion and examination by the public and private sectors. Though the role of managed care appears to be an integral part in most proposals, the Company cannot determine the effect, if any, these proposals may have on the business or operations of the Company, if adopted.
Employees ---------
As of December 31, 1994, the Company employed approximately 443 full-time employees. None of the Company's employees are represented by a labor union or covered by a collective bargaining arrangement and the Company believes its employee relations are good.
Directors and Executive Officers of the Registrant --------------------------------------------------
The directors and executive officers of the Company at December 31, 1994 were as follows:
Peter J. Ratican was appointed Chairman of the Board of Directors, Chief Executive Officer and President of the Company in August 1988. He is a member of the California Knox-Keene Health Care Services Advisory Committee, which assists the California Department of Corporations in regulating prepaid health plans (HMOs). Mr. Ratican has been a director of the Company since August 1983. He received a Bachelor of Science degree in Accounting from the University of California at Los Angeles and is a certified public accountant.
Eugene L. Froelich was appointed Chief Financial Officer, Executive Vice President - Finance and Administration and director in March 1989. Mr. Froelich graduated from Adelphi University and is a certified public accountant.
Alan D. Bloom has been Senior Vice President - Secretary and General Counsel to the Company since July 1987. Mr. Bloom joined the Company as General Counsel in 1981. Mr. Bloom received a Bachelor's degree in Biology from the University of Chicago, a Master of Public Health from the University of Michigan, and a J.D. degree from American University.
Aivars L. Jerumanis was appointed Senior Vice President - Management Information Systems and Chief Information Officer of the Company in January 1990. From May 1989 to January 1990, Mr. Jerumanis was a private consultant in advising companies on management information services matters. He received a Masters in Business Administration from Columbia University, a Masters in Civil Engineering from Rensselaer Polytechnic Institute and a Bachelor's degree in Civil Engineering from Lafayette College.
Richard A. Link was appointed Chief Accounting Officer and Senior Vice President - Accounting of the Company in September 1988. He has a Bachelor's degree in Business Administration from the University of Southern California and is a certified public accountant.
William B. Caswell was appointed Vice President, General Manager of the California HMO in February 1992. From March 1988 to January 1992 Mr. Caswell served as President of VertiHealth, a subsidiary of UniHealth. Mr. Caswell serves on the board of directors of the University of Southern California School of Nursing as well as the Southern California Chapter of the Arthritis Foundation. He received a Master's degree in Business Administration and a Master of Public Health from the University of California at Los Angeles.
David J. Hammons was appointed Vice President - Administrative Services and Chief Actuary of the Company in August 1993. From January 1988 to July 1993 Mr. Hammons was Vice President and Chief Actuary of the Company. He has a Bachelor's degree in Mathematics from the State University of New York - Brockport and is a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries.
Robert J. Landis has served as Treasurer of the Company since November 1988. Mr. Landis received a Bachelor's degree in Business Administration from the University of Southern California, a Master's degree in Business Administration from California State University at Northridge and is a certified public accountant.
Vicki F. Perry was appointed Vice President, General Manager of Maxicare Indiana, Inc. in January 1992. From January 1990 to December 1991 she served as Executive Vice President - Plan Operations Support of the Company. Ms. Perry has been with the Company since 1982. Ms. Perry is a graduate of Indiana University.
Claude S. Brinegar is currently Vice Chairman of the board of directors of Unocal Corporation and served as Executive Vice President of Administration and Planning until May 1992. In 1989, Mr. Brinegar was elected as Vice Chairman of Unocal and has been a director of the Company since December, 1991. He is also a member of the board of directors of Consolidated Rail Corporation and a visiting scholar at Stanford University.
Florence F. Courtright has been a private investor for the last five years and was elected a director of the Company in November, 1993. She is a founding Limited Partner of Bainco International Investors, 1.p and a Trustee of Loyola Marymount University. Further, Ms. Courtright is a former co-owner of the Beverly Wilshire Hotel and the Beverly Hills Hotel.
Thomas W. Field, Jr. was appointed the Chairman of the Board of ABCO Markets in December 1991. ABCO Markets is in the grocery business. He has been President of Field & Associates, a management consulting firm, since October 1989. Mr. Field has been a director of the Company since April, 1992. Mr. Field also holds directorships at Campbell Soup Company, Bromar Inc., ABCO Markets Foods and Stater Bros. Market.
Charles E. Lewis has been a Professor of Medicine, Public Health and Nursing at the University of California at Los Angeles, since 1970. As of July 1993, he was appointed Director of the Center of Health Promotion and Disease Prevention. He is a member of the Institute of Medicine, National Academy of Sciences and is a graduate of the Harvard Medical School and of the University of Cincinnati School of Public Health where he received a Doctorate of Science degree. Dr. Lewis is a Regent of the American College of Physicians and a member of the Board of Commissioners of the Joint Commission on Accreditation of Health Care Organizations. Dr. Lewis has been a director of the Company since August, 1983.
Alan S. Manne is currently a professor emeritus and from 1961 to 1992 was a professor of operations research at Stanford University. He is an author or co-author of seven books and received his Ph.D. in economics from Harvard University. He is co-organizer of the International Energy Workshop. Mr. Manne has been a director of the Company since January, 1994.
The Board of Directors (the "Board") is classified into Class I, Class II and Class III directors. Class I directors include Dr. Lewis and Mr. Brinegar and they will serve until the 1997 annual meeting of stockholders and until their successors are duly qualified and elected. Class II directors include Mr. Froelich and Ms. Courtright and they will serve until the 1995 annual meeting of stockholders and until their successors are duly qualified and elected. Class III directors include Mr. Ratican, Mr. Field and Mr. Manne and they will serve until the 1996 annual meeting of stockholders and until their successors are duly qualified and elected. Officers are elected annually and serve at the pleasure of the Board, subject to all rights, if any, under certain contracts of employment (see "Item 11. Executive Compensation").
Item 2.
Item 2. Properties ----------
The Company's operating facilities are held through leaseholds. At December 31, 1994, the Company or its HMOs leased approximately 226,000 square feet at 24 locations with an aggregate current monthly rental of approximately $210,000. These leases have remaining terms of up to seven years.
In June 1994, the Company entered into a lease for new corporate office space in Los Angeles. The lease commenced in June 1994 and is for a term of seventy-two (72) months. The lease is for approximately 83,000 square feet with a monthly base rental expense of approximately $72,600 excluding the Company's percentage share of all increases in the landlord's operating cost of the building.
At December 31, 1994, the Company leased other properties including administrative locations, 3 pharmacies, and other miscellaneous facilities. The Company has subleased approximately 16,000 square feet to contracting medical groups, with current monthly rentals totaling $23,678 and monthly subrental revenue of $23,632.
Item 3.
Item 3. Legal Proceedings -----------------
a. JURISDICTIONAL CHALLENGES AND APPEALS TO THE CHAPTER 11 REORGANIZATION PROCEEDINGS
Immediately after the filing of the voluntary Chapter 11 petitions, the Debtors were faced with several motions challenging the jurisdiction of the Bankruptcy Court over the Debtors' Chapter 11 cases. The Bankruptcy Court denied these motions and retained jurisdiction over the Debtors' cases. Appeals were taken of the Bankruptcy Court's ruling that it had jurisdiction over the Debtors' bankruptcy cases. With the exception of the appeals filed by the State of Wisconsin (the "Wisconsin Appeals") all other jurisdictional appeals were withdrawn or dismissed before the appellate court ruled on the appeals.
The Wisconsin Appeals challenged the Maxicare Health Insurance Company's ("MHIC") eligibility to be a debtor under the Bankruptcy Code. After the Wisconsin Appeals had been filed, the Bankruptcy Court confirmed the Debtors' Reorganization Plan. The State of Wisconsin's motions to stay consummation of the Reorganization Plan pending determination of the Wisconsin Appeals were denied by the Bankruptcy Court, the United States District Court for the Central District of California ("District Court") and the United States Court of Appeals for the Ninth Circuit ("Court of Appeals").
On July 9, 1992, the District Court entered a Ruling on Appeal (the "Ruling") which addressed the merits of the Wisconsin Appeals. In the Ruling, the District Court held that MHIC is a domestic insurance company under Wisconsin state law and was therefore ineligible for relief under the Bankruptcy Code, which excludes domestic insurance companies from entities eligible for relief thereunder. The District Court remanded back to the Bankruptcy Court and ordered the Bankruptcy Court to take action consistent with the Ruling.
The Company, MHIC and other affiliates filed a motion for rehearing of the Ruling which was denied by the District Court on August 27, 1992. The Ruling and the order denying the motion for rehearing were appealed by the Company and MHIC to the Court of Appeals (the "Appeal"). In addition the Company, MHIC, and other affiliates also filed a motion with the District Court to stay implementation of the Ruling while the Appeal was pending. The hearing on the motion to stay was subsequently continued by the parties because of ongoing settlement negotiations.
The Company and the State of Wisconsin reached a settlement resolving the Appeal and the jurisdictional dispute between the parties in a settlement agreement dated June 17, 1994 (the "Agreement"). In accordance with the Agreement, a reorganization plan providing for the reorganization of MHIC under Wisconsin state law 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, (the "State Plan"), 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 Plan and terminating the state court 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 appealed the Termination Orders or the Approval Order which have become final and nonappealable.
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 due to MHIC Creditors 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.
In accordance with the agreement the parties filed a stipulation with the Court of Appeals dismissing the Appeal, which was approved by the Court pursuant to an order entered on November 2, 1994. On February 27, 1995 the Bankruptcy Court granted MHIC's motion to dismiss MHIC's bankruptcy case, as required by the Agreement. With the approval of the State Plan, dismissal of the Appeal and dismissal of MHIC's bankruptcy case, the Agreement has been implemented and consummated without any material adverse impact on the Company's business and its operations. Accordingly, the Company will no longer be reporting on the Wisconsin Appeals.
In addition to the Wisconsin Appeals, twenty-four appeals were filed challenging various aspects of the Reorganization Plan's confirmation order. As of March 1, 1995, twenty-one of these appeals were withdrawn or dismissed. Of the three remaining appeals two were stayed subject to Bankruptcy Court and District Court approval of settlement agreements with the class action representative discussed immediately below. The remaining appeal was stayed subject to Bankruptcy Court and District Court approval of the class action settlement agreements and the non-occurrence of certain other conditions.
The class action settlement agreements pertain to settlements of pre-petition actions commenced in the federal and state courts against the Company, former and current officers and directors, and others, including the Company's former accountants and investment bankers, alleging violations of federal and state securities laws, California state common law and the California Corporations Code in connection with the purchase and sale of the Company's old common stock or the Company's 11 3/4% Senior Subordinated Notes. Mirkin
and Millers, et al. V. Fred Wasserman, et al. (Superior Court, Los Angeles County, CA) (Consolidated Case No. CA 01122)); 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 class action settlement agreements were approved by separate orders entered by the Bankruptcy Court and the District Court on January 27, 1992 and March 4, 1992, respectively. With these orders now final and nonappealable and the non-occurence of certain conditions upon which one of the appeals was stayed, all conditions for dismissal of the three remaining appeals have been satisfied. Accordingly, the Company will no longer be reporting on any jurisdiction or confirmation order appeals.
b. PENN HEALTH
During the period from March 1, 1986 through June 30, 1989, Penn Health Corporation ("Penn Health"), a subsidiary of the Company, contracted with the Commonwealth of Pennsylvania through the Pennsylvania Department of Public Welfare (the "DPW") to provide a full range of health care services to Medicaid enrollees under the Pennsylvania Medical Assistance Program known as the HealthPass Program. The DPW was the sole subscriber group of Penn Health. These services were rendered by providers pursuant to contracts with Penn Health ("Penn Health Providers"). In consideration for these services, subject to certain adjustments, the DPW was obligated to pay to Penn Health a fixed monthly fee per enrollee based upon Penn Health's fee-for-service costs and a charge for administration. In addition, for the first two years of the contract, the DPW agreed to reimburse Penn Health for any financial losses in excess of $2 million. Under the applicable provisions of the contract, at the Petition Dates, the Company believes that the DPW owed Penn Health in excess of $24 million plus accrued interest, for reimbursement and adjustment of the cost of pre- petition services, an amount which the DPW disputes.
After the Petition Dates, the DPW advanced funds directly to the Penn Health Providers for pre-petition services performed under the contracts with Penn Health. In certain cases the amount of the advanced funds may have been in excess of the amounts due to the Penn Health Providers for such services. The payments made by the DPW approximated $16 million. The Penn Health Providers filed proofs of claim against Penn Health and other subsidiaries of the Company, without making deductions for the payments made by the DPW, although they noted receipt of such funds on their proofs of claim. In February, 1990, the Company filed a proceeding in the Bankruptcy Court against the DPW and the major Penn Health Providers to recover preferential transfers, to compel the turnover of property and to raise all objections to the proofs of claim of the Penn Health Providers, including that the claims asserted therein were overstated (the "Bankruptcy Action"). The disputes with the DPW and the major Penn Health Providers, in the Bankruptcy Action constitute the majority of the claims filed against Penn Health.
On December 13, 1990, the Bankruptcy Court entered an order dismissing the Bankruptcy Action as against the DPW on jurisdictional grounds (the "Dismissal Order"). The Company filed an appeal of the Dismissal Order to the United States District Court for the Central District of California, which was subsequently resolved by a stipulation approved by the District Court. Pursuant to the stipulation, the jurisdictional issue was remanded to the Bankruptcy Court for redetermination in light of developments in the case law.
On February 27, 1991 the Company filed a petition against the DPW in the Pennsylvania Board of Claims, seeking damages in excess of $24 million (the "Board Action"). In July 1992, the Pennsylvania Board of Claims (the "Claims Board") denied DPW's preliminary objections to the Company's petition. In August 1992, the DPW answered the Company's petition and asserted counterclaims to recover (i) $16 million of payments that the DPW made to HealthPass healthcare providers purportedly to satisfy Penn Health's obligations to the providers; (ii) the costs the DPW incurred in processing and mailing the payments to the healthcare providers; and (iii) $6 million which the DPW alleges was distributed by Penn Health to the Company, but should have been retained by Penn Health to satisfy healthcare providers' claims. In the Company's October 14, 1992 answer to the counterclaim, the Company denied the allegations set forth in the counterclaim. The Company also asserted as an affirmative defense that Penn Health's discharge in bankruptcy under the Reorganization Plan is a complete bar to the DPW's counterclaim. In the event the DPW is successful in its counterclaims, all of which arose out of pre-petition activities of the Company and Penn Health, any recovery would be paid out of the Reorganization Plan funds and there will be no impact on the Company's cash resources. The Company believes that it has a meritorious defense to the counterclaim and will prevail on the counterclaim.
On October 4, 1993 Penn Health filed a remand motion with the Bankruptcy Court for a determination that the DPW waived its sovereign immunity by asserting an offset against Penn Health. DPW opposed the remand motion and subsequently filed a motion with the Bankruptcy Court requesting that the Court abstain from adjudicating the Bankruptcy Action and require that Penn Health's claims against DPW be adjudicated by the Claims Board in the Board Action. Pursuant to an order of the Bankruptcy Court entered on February 24, 1994, Penn Health's remand motion was granted in all respects and the Dismissal Order was vacated. Under an order entered by the Bankruptcy Court on January 24, 1994, the Court abstained on a preliminary basis from adjudicating the Bankruptcy Action and stayed all proceedings in the action until September 1, 1994 to allow the Claims Board an opportunity to adjudicate the Board Action. Pursuant to a stipulation between the parties, the Bankruptcy Court continues to retain jurisdiction over the Bankruptcy Action in the event the Board Action is not fully tried or heard by May 30, 1995.
In an order dated December 21, 1993 the Claims Board consolidated the Board Action and two separate actions filed by Penn Health hospital providers and Penn Health primary care physicians against DPW to recover payment from DPW for services rendered to HealthPass members (the "Provider Actions") and set the matter for trial in two phases; a liability phase and a damages phase. Before trial was held on the liability phase, the hospital providers settled their claims against DPW for approximately $23.3 million (the "Provider Settlement"). Contractual issues pertaining to DPW's liability to Penn Health, DPW's liability to the primary care physicians and Penn Health's liability on DPW's counterclaim, were tried before the Claims Board in a trial which concluded on July 25, 1994 (the "Liability Phase").
In the Liability Phase, DPW contended that Penn Health had materially breached the contract with DPW and that DPW was entitled to set-off the amount of the Provider Settlement against the amount of any judgment rendered in Penn Health's favor. DPW contended it was entitled to a set-off because DPW was required to make payments to Penn Health Providers as a result of Penn Health's contractual breaches, DPW had a nondelegable duty to pay Penn Health Providers, Penn Health was DPW's agent and remained liable in the event of Penn Health's nonperformance, and Penn Health Providers are third party beneficiaries of the Contract with DPW. Following the submission of post-trial briefs, the Claims Board issued an order on December 2, 1994 which found that: (i) a contract exists between Penn Health and DPW; (ii) DPW breached the contract; and (iii) Penn Health is an independent general contractor and not an agent of DPW. The trial to determine damages which was originally scheduled to commence before the Claims Board on December 12, 1994 has been tentatively scheduled to commence in March, 1995. The parties are waiting for the Claims Board to confirm the trial dates. The Company believes that its claims against DPW are meritorious and that it will prevail in the Board Action.
The Company is currently and has in the past, engaged in settlement discussions with DPW and representatives of the major Penn Health Providers; however to date no agreement has been reached. The pre-petition amounts due to Penn Health Providers will be treated as unsecured claims under the Reorganization Plan. The Company is currently holding approximately $250,000 in an escrow account, which the Company believes will be sufficient to satisfy any remaining post-petition claims of Penn Health Providers.
c. 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 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. The Court dismissed the Company's counterclaims. Following a jury trial, the court entered a judgment in DLJ's favor, which awarded DLJ damages, interest and costs of approximately $3.0 million (the "Judgment"). 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 Company has reached a settlement with DLJ which is memorialized in a settlement agreement dated December 30, 1994 (the "DLJ Agreement"). Pursuant to the DLJ agreement, the Company has paid DLJ the approximate sum of $2.1 million in full satisfaction of the Judgment and has withdrawn its appeal. The Company previously accrued a liability in the full amount of the Judgment. Accordingly, the Company will no longer be reporting on this matter.
d. OTHER LITIGATION
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 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 seeking compensatory and, in certain instances, punitive damages in an indeterminate amount which may be material. The Company does not believe that the ultimate determination of these cases will either individually or in the aggregate have a material, adverse effect on the Company's business or operations.
Item 4.
Item 4. Changes in Registrant's Certifying Accountants.
(a) Previous independent accountants
On August 1, 1994 Maxicare Health Plans, Inc. ("Maxicare") dismissed Price Waterhouse LLP as its independent accountants.
The reports of Price Waterhouse LLP on the consolidated financial statements for the past two years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
Maxicare's Audit Committee participated in and approved the decision to change independent accountants.
In connection with its audits for the two most recent years and through August 1, 1994, there have been no disagreements with Price Waterhouse LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Price Waterhouse LLP, would have caused them to make reference to the subject matter of the disagreements(s) in connection with their reports.
Price Waterhouse LLP furnished the Securities and Exchange Commission with a letter stating they agree with the above statements.
(b) New independent accountants
Maxicare engaged Ernst & Young LLP as its new independent accountants as of August 5, 1994. During the two most recent fiscal years and through August 1, 1994 Maxicare has not consulted with Ernst & Young LLP regarding the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on Maxicare's financial statements, and neither a written report was provided to Maxicare nor oral advice provided that Ernst & Young LLP concluded was an important factor considered by Maxicare in reaching a decision as to the accounting, auditing or financial reporting issue; or any matter that was either the subject of a disagreement (as defined in Regulation S-K Item 304(a)(1)(iv) and the related instructions to this item) or a reportable event (as described in Regulation S-K Item 304(a)(1)(v)).
PART III --------
Item 10. Directors, Executive Officers, Promoters and Control ---------------------------------------------------- Persons of the Registrant -------------------------
The information set forth in the table, the notes thereto and the paragraphs thereunder, in Part I, Item 1. of this Form 10-K under the caption "Directors and Executive Officers of the Registrant" is incorporated herein by reference.
During 1994, a report required by Section 16(a) of the Securities Exchange Act of 1934 covering one transaction in the Company's common stock by Charles E. Lewis, M.D. was not filed on a timely basis; however, such report was subsequently filed. In making this statement, the Company has relied on the written representations of its incumbent directors and officers and copies of the reports that they have filed with the Securities and Exchange Commission.
Item 11. Executive Compensation ----------------------
Shown below is information concerning the annual and long-term compensation for services in all capacities to the Company for the years ended December 31, 1994, 1993 and 1992, of those persons who were, at December 31, 1994 (i) the chief executive officer and (ii) the other four most highly compensated executive officers of the Company (collectively the "Named Officers"):
Option Grants -------------
Shown below is further information on grants of stock options pursuant to the 1990 Incentive Stock Option Plan during the year ended December 31, 1994, to the Named Officers which are reflected in the Summary Compensation Table.
Option Exercises and Fiscal Year-End Values -------------------------------------------
Shown below is information with respect to the unexercised options to purchase the Company's Common Stock granted in fiscal 1994 and prior years under employment agreements and the 1990 Incentive Stock Option Plan to the Named Officers and held by them at December 31, 1994. None of the Named Officers exercised any stock options during 1994.
Employment Agreements ---------------------
As of January 1, 1992, the Company has entered into five-year employment agreements with Peter J. Ratican and Eugene L. Froelich ("Senior Management"). These employment agreements provide for annual base compensation of $425,000 for Mr. Ratican and $325,000 for Mr. Froelich, subject to increases and bonuses, as may be determined by the Board based on annual reviews. The employment agreements provide that upon the termination of either member of Senior Management by the Company without Cause or reasons other than death or incapacity or the voluntary termination by either member of Senior Management for certain reasons as set forth in their employment agreements, the terminated member will be entitled to receive (i) a payment equal to the balance of the terminated member's annual base salary which would have been paid over the remainder of the term of the employment agreement; (ii) an additional one year's annual base salary; (iii) payment of any performance bonus amounts which would have otherwise been payable over the remainder of the term of the agreement; (iv) immediate vesting of all stock options; (v) the continuation of the right to participate in any profit sharing, bonus, stock option, pension, life, health and accident insurance, or other employee benefits plans including a car allowance through December 31, 1996. Cause is defined as: (i) the willful or habitual failure to perform requested duties commensurate with his employment without good cause; (ii) the willful engaging in misconduct or inaction materially injurious to the Company; or (iii) the conviction for a felony or of a crime involving moral turpitude, dishonesty or theft. In the event of a Change in Control of the Company, either member may elect to terminate the employment contract in which case the electing member will be entitled to receive a payment equal to 2.99 times that member's average annualized compensation from the Company over a certain period. Change of Control is defined as: (i) any transaction or occurence which results in the Company ceasing to be publically owned with at least 300 stockholders; (ii) any person or group becoming beneficial owner of more than forty percent (40%) of the combined voting power of the Company's outstanding securities; (iii) a change in the composition of the Board, as set forth in the employment agreement; (iv) the merger or consolidation of the Company with or into any other non-affiliated entity whereby the Company's equity security holders, immediately prior to such transaction, own less than sixty percent (60%) of the equity; or (v) the sale or transfer of all or substantially all of its assets. In the event of death or incapacity, the member, or his estate, shall receive the equivalent of ninety (90) days base salary and in the case of incapacity, the continuation of health and disability benefits. The employment agreements also provide that in the event either member of Senior Management does not receive an offer for a new employment agreement containing terms at least as favorable as those contained in the existing employment agreements before the expiration of such employment agreements, such member will be entitled to receive a payment equal to one year's base salary under the terminating agreement. Under these agreements, each member of Senior Management will be entitled to receive an annual performance
bonus calculated using a formula, as set forth in the employment agreements, which is based on the Company's annual pre-tax earnings, before extraordinary items, over $10 million. In addition, upon the sale of the Company, a sale of substantially all of its assets or a merger where the Company shareholders cease to own a majority of the outstanding voting capital stock, Senior Management will be entitled to a sale bonus calculated using a formula which is based on a percentage of the excess value of the Company over an initial value as set forth in the employment agreements.
In addition, Senior Management remains entitled to receive certain additional compensation out of funds set aside for distribution under the Reorganization Plan on the Effective Date or from the proceeds of assets liquidated on behalf of pre-petition creditors under the Reorganization Plan.
As of January 1, 1995 the Company entered into an employment agreement, effective through December 31, 1998, with Alan D. Bloom and Richard A. Link. As of January 1, 1994, the Company entered into an employment agreement, effective through December 31, 1995, with William B. Caswell. The contracts provide a minimum base salary of $208,000, $205,000 and $195,000 for Messrs. Bloom, Link and Caswell, respectively, subject to increases and bonuses, as may be determined from time to time by the Chief Executive Officer of the Company. The contract with Mr. Caswell also provides that: (i) should he die, his estate shall receive the equivalent of thirty (30) days base salary; (ii) should the Company terminate his employment prior to the first anniversary of the contract for any reason other than death, incapacity, or Cause, he shall receive the equivalent of his annual base salary; (iii) should the Company terminate his employment on or after the first anniversary of the contract for any reason other than death, incapacity, or Cause, he shall receive the amount of the remainder of his annual base salary as would have been paid had the contract not been terminated which amount shall in no event be less than the equivalent of six (6) months base salary; and (iv) should his employment be terminated for any reason other than death, voluntary resignation, incapacity or Cause within six (6) months of a Change of Control, he shall receive the equivalent of his annual base salary. Cause is defined as (i) the willful and continued failure to perform duties pursuant to the employment agreement without good cause; (ii) the willful engaging in misconduct or inaction materially injurious to the Company; or (iii) the conviction of a felony or of a crime involving moral turpitude. Change of Control is defined as (i) the merger or consolidation of the Company with or into any other non-affiliated entity whereby the Company's equity security holders, immediately prior to such transaction, own less than fifty percent (50%) of the equity; or (ii) the sale or transfer of all or substantially all of its assets. The contracts with Messrs. Link and Bloom provide that should their employment be terminated under certain circumstances, they would receive up to the equivalent of four (4) months base salary.
Compensation of Directors -------------------------
During 1994, certain members of the Board received compensation for their services as directors. These members included Claude S. Brinegar, Leon M. Clements, Florence F. Courtright, Thomas W. Field, Jr., Charles E. Lewis and Alan S. Manne and they received cash payments of $30,750, $6,000, $27,000, $30,750, $31,500 and $29,250, respectively. During 1995, current directors, excluding directors who are also officers of the Company, will receive compensation for their services in the amount of $24,000 per year, plus $750 per meeting. In addition, these directors are entitled to be reimbursed for all of their reasonable out-of-pocket expenses incurred in connection with their services as directors of the Company.
Non-employee directors of the Company have received options to purchase shares of Common Stock which are immediately exercisable at an exercise price equal to the market price at the date of grant. Set forth below is a schedule of the outstanding options at December 31, 1994 held by each of the current and former directors, the date of grant and the exercise price of such options:
Provided these directors continue to serve as directors of the Company, the exercise term of these options is five years. If the directorship is terminated, the options expire thirty (30) days from the date of such termination. In October 1994, Dr. Lewis exercised the 10,000 options granted to him on May 20, 1991.
Compensation Committee Interlocks and Insider Participation -----------------------------------------------------------
Peter J. Ratican, the Company's President and Chief Executive Officer, served as an ex-officio member of the Compensation Committee of the Company for the year ended December 31, 1994. Although Mr. Ratican served as an ex-officio member of this Compensation Committee, he did not participate in any decisions regarding his own compensation as an executive officer. The Company's Board of Directors as a whole determines Mr. Ratican's total compensation package.
Item 12. Security Ownership of Certain Beneficial Owners and --------------------------------------------------- Management ----------
The following table sets forth the number and percentage of the outstanding shares of Common Stock and Series A Stock owned beneficially as of December 31, 1994 by each director, by the Company's chief executive officer ("CEO"), by the four other most highly compensated executive officers other than the CEO, by all directors and executive officers as a group, and by each person who, to the knowledge of the Company, beneficially owned more than 5% of any class of the Company's voting stock on such date.
(1) Except as otherwise set forth herein, all information pertaining to the holdings of persons who beneficially own more than 5% of any class of the Company's voting stock (other than the Company or its executive officers and directors) is based on filings with the Securities and Exchange Commission and information provided by the record holders.
(2) In setting forth "beneficial" ownership, the rules of the Securities and Exchange Commission require that shares underlying currently exercisable options or issuable upon conversion of the Series A Stock, including options which become exercisable within 60 days, held by a described person be treated as "beneficially" owned and further require that every person who has or shares the power to vote or to dispose of shares of stock be reported as a "beneficial" owner of all shares as to which any such sole or shared power exists. As a consequence, shares which are not yet outstanding are, if obtainable upon exercise of an option which is exercisable or will become exercisable within sixty (60) days or upon conversion of the Series A Stock, nevertheless treated as "beneficially" owned by the designated person, and several persons may be deemed to be the "beneficial" owners of the same securities if they share the power to vote or dispose of them.
(3) On February 13, 1995 the Company announced that it will redeem all of the outstanding shares of Series A Stock on March 14, 1995 (see "Item 1. Business - Preferred Stock Redemption").
(4) Assumes 10,849,607 shares of Common Stock outstanding, the conversion of 2,290,000 shares of Series A Stock outstanding (or 6,308,492 shares) and, with respect to each listed beneficial owner, the exercise or conversion of any option, warrant or right held by each such owner exercisable or convertible within 60 days.
(5) These shares are held by the Company, as disbursing agent for the benefit of holders of Reorganization Plan classes 5A through 5H, 7 and 8A through 8D allowed claims and Reorganization Plan class 12 allowed interests and equity holder claims. The Company disclaims beneficial ownership of these shares. For information concerning the voting of these shares, see "Item 5.
Item 13. Certain Relationships and Related Transactions ----------------------------------------------
None.
PART IV -------
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on ------------------------------------------------------- Form 8-K --------
(a) 1. Financial Statements The following consolidated financial statements of Maxicare Health Plans, Inc. are included in this report in response to Item 8.
Report of Independent Auditors - Ernst & Young LLP
Consolidated Balance Sheets - At December 31, 1994 and 1993 Consolidated Statements of Operations - Years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Changes in Shareholders' Equity - Years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Schedule I - Condensed Financial Information of Registrant - Condensed Balance Sheets at December 31, 1994 and 1993, Condensed Statements of Operations and Condensed Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992, Notes to Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1994, 1993 and 1992
(a) 3. Exhibits
2.1 Joint Plan of Reorganization dated May 14, 1990, as modified on May 24 and July 12, 1990 (without schedules)*
2.2 Order Confirming Joint Plan of Reorganization dated May 14, 1990, as Modified, entered on August 31, 1990 (without exhibits or schedules)*
2.3 Amendment to Order Confirming Joint Plan of Reorganization dated May 14, 1990, as Modified, entered on August 31, 1990*
2.4 Stipulation and Order Re Conditions to Effectiveness of the Plan, entered on December 3, 1990*
2.5 Notice That The Conditions to Effectiveness of the Plan Have Been Met or Waived, filed on December 4, 1990*
2.6 Agreement and Plan of Merger of Maxicare Health Plans, Inc. and HealthCare USA Inc., dated as of December 5, 1990 (without exhibits or schedules)*
3.1 Charter of Maxicare Health Plans, Inc., a Delaware corporation*
3.3 Amendment to Charter of Maxicare Health Plans, Inc., a Delaware corporation@
3.4 Amended Bylaws of Maxicare Health Plans, Inc., a Delaware corporation@@@
4.1 Form of Certificate of New Common Stock of Maxicare Health Plans, Inc.*
4.2 Form of Certificate of Warrant of Maxicare Health Plans, Inc.*
4.4 Warrant Agreement by and between Maxicare Health Plans, Inc. and American Stock Transfer & Trust Company, dated as of December 5, 1990*
4.5 Stock Transfer Agent Agreement by and between Maxicare Health Plans, Inc., and American Stock Transfer & Trust Company, dated as of December 5, 1990*
4.6 Registration Undertaking by Maxicare Health Plans, Inc., dated as of December 5, 1990*
4.8 Portions of Charter of Maxicare Health Plans, Inc., relating to the rights of holders of the New Common Stock, the Warrants, or the New Senior Notes*
4.9 Portions of Bylaws of Maxicare Health Plans, Inc., relating to the rights of holders of the New Common Stock, the Warrants, or the New Senior Notes*
4.10 Series A Cumulative Convertible Preferred Stock Purchase Agreement dated as of December 17, 1991**
4.11 Series A Cumulative Convertible Preferred Stock Purchase Agreement dated as of January 31, 1992**
4.12 Form of Certificate of Preferred Stock of Maxicare Health Plans, Inc.@
10.1 Management Incentive Program*
10.2 Incentive Compensation Agreement*
10.3b Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of January 1, 1992@
10.3c Amendment No. 1 to the Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of January 1, 1992
10.4b Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Eugene L. Froelich, dated January 1, 1992@
10.4c Amendment No. 1 to the Employment and Indemnification Agreement by and between Maxicare Health Plan, Inc. and Eugene L. Froelich, dated January 1, 1992
10.7e Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Vicki F. Perry, dated as of January 1, 1995
10.8d Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Alan D. Bloom, dated as of January 1, 1995
10.9d Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Richard A. Link, dated as of January 1, 1995
10.12e Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of January 1, 1995
10.14 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of December 5, 1990*
10.15 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Eugene L. Froelich, dated as of December 5, 1990*
10.18 Form of Stock Option Agreement by and between Maxicare Health Plans, Inc. and Vicki F. Perry, dated as of December 5, 1990*
10.19 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Alan D. Bloom, dated as of December 5, 1990*
10.20 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Richard A. Link, dated as of December 5, 1990*
10.23 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of December 5, 1990*
10.28 Form of Distribution Trust Agreement*
10.30 Maxicare Health Plans, Inc. 401(k) Plan*
10.35 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Charles E. Lewis, dated as of May 20, 1991@
10.36 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Claude S. Brinegar, dated as of July 18, 1991@
10.38 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Richard A. Link, dated as of December 20, 1991@
10.40 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of December 20, 1991@
10.42 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of February 25, 1992@
10.43 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Eugene L. Froelich, dated as of February 25, 1992@
10.44 Amended Maxicare Health Plans, Inc. 1990 Stock Option Plan@
10.48a Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and William B. Caswell, dated as of January 1, 1994@@@
10.49 Stock Option Agreement by and between Maxicare Health Plans, Inc. and William B. Caswell, dated as of February 3, 1992@@
10.50 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Thomas W. Field, Jr., dated as of April 1, 1992@@
10.51d Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of January 1, 1995
10.52 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of December 5, 1990@@
10.53 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of December 20, 1991@@
10.54 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Florence Courtright, dated as of November 5, 1993@@@
10.55 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Vicki F. Perry, dated as of December 20, 1993@@@
10.56 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Alan D. Bloom, dated as of December 20, 1993@@@
10.57 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Richard Link, dated as of December 20, 1993@@@
10.58 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of December 20, 1993@@@
10.59 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of December 20, 1993@@@
10.60 Stock Option Agreement by and between Maxicare Health Plans, Inc. and William Caswell, dated as of December 20, 1993@@@
10.61 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Thomas W. Field, Jr., dated as of December 20, 1993@@@
10.62 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Dr. Charles E. Lewis, dated as of December 20, 1993@@@
10.63 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Claude S. Brinegar, dated as of December 20, 1993@@@
10.64a Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and David Hammons, dated as of January 1, 1995
10.65 Stock Option Agreement by and between Maxicare Health Plans, Inc. and David J. Hammons, dated as of May 20, 1991@@@
10.66 Stock Option Agreement by and between Maxicare Health Plans, Inc. and David J. Hammons, dated as of December 20, 1991@@@
10.67 Stock Option Agreement by and between Maxicare Health Plans, Inc. and David Hammons, dated as of December 20, 1993@@@
10.68 Lease by and between Maxicare Health Plans, Inc. and Transamerica Occidental Life Insurance Company, dated as of June 1, 1994#
10.69 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Alan Manne, dated as of January 28, 1994
10.70 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Alan Bloom, dated as of December 8, 1994
10.71 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of December 8,
10.72 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Richard Link, dated as of December 8,
10.73 Stock Option Agreement by and between Maxicare Health Plans, Inc. and David Hammons, dated as of December 8,
10.74 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of December 8,
10.75 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Vicki Perry, dated as of December 8, 1994
10.76 Restricted Stock Grant Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of February 27, 1995
10.77 Restricted Stock Grant Agreement by and between Maxicare Health Plans, Inc. and Eugene L. Froelich, dated as of February 27, 1995
21 List of Subsidiaries
23.2 Consent of Independent Accountants - Ernst & Young LLP
23.3 Consent of Independent Accountants - Price Waterhouse LLP
27 Financial Data Schedule for the year ended December 31,
28.1 Notice That The Conditions to Effectiveness of the Plan Have Been Met or Waived***
28.2 Stipulation and Order Regarding Conditions to Effectiveness of Joint Plan of Reorganization***
99 Report of Price Waterhouse LLP
-------------------
* Incorporated by reference from the Company's Registration Statement on Form 10, declared effective March 18, 1991, in which this exhibit bore the same exhibit number.
** Incorporated by reference from the Company's Reports on Form 8-K dated December 17, 1991 and January 31, 1992, in which this exhibit bore the same exhibit number.
*** Incorporated by reference from the Company's Report on Form 8-K dated December 5, 1990, in which this exhibit bore the same exhibit number.
@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1991, in which this exhibit bore the same exhibit number.
@@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1992, in which this exhibit bore the same exhibit number.
@@@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1993, in which this exhibit bore the same exhibit number.
# Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994, in which this exhibit bore the same exhibit number.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 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.
March 14, 1995 /s/ PETER J. RATICAN -------------- ------------------------ Date Peter J. Ratican Chief Executive Officer
March 14, 1995 /s/ EUGENE L. FROELICH -------------- ------------------------ Date Eugene L. Froelich Chief Financial Officer
March 14, 1995 /s/ RICHARD A. LINK -------------- ------------------------ Date Richard A. Link Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ----
/s/ PETER J. RATICAN Chairman and Director March 14, 1995 -------------------- Peter J. Ratican
/s/ EUGENE L. FROELICH Director March 14, 1995 ---------------------- Eugene L. Froelich
/s/ CLAUDE S. BRINEGAR Director March 6, 1995 ----------------------- Claude S. Brinegar
/s/ FLORENCE F. COURTRIGHT Director March 10, 1995 -------------------------- Florence F. Courtright
/s/ THOMAS W. FIELD, JR. Director March 10, 1995 ------------------------ Thomas W. Field, Jr.
/s/ CHARLES E. LEWIS Director March 10, 1995 -------------------- Charles E. Lewis
/s/ ALAN S. MANNE Director March 5, 1995 ----------------- Alan S. Manne
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(Amounts in thousands)
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands)
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
MAXICARE HEALTH PLANS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE 1 - GENERAL
The condensed financial information of the registrant ("MHP") should be read in conjunction with the consolidated financial statements and the notes to consolidated financial statements which are included elsewhere herein.
Certain amounts for 1993 and 1992 have been reclassified to conform to the 1994 presentation.
NOTE 2 - COMMITMENTS AND OTHER CONTINGENCIES
MHP's assets held under capital leases at December 31, 1994 and 1993 of $378,000 and $145,000, respectively, (net of $106,000 and $1.6 million, respectively, of accumulated amortization) are comprised primarily of equipment leases. Amortization expense for capital leases is included in depreciation expense.
Future minimum lease commitments for noncancelable leases at December 31, 1994 were as follows:
MAXICARE HEALTH PLANS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
For the Year Ended December 31, 1994
For the Year Ended December 31, 1993
MAXICARE HEALTH PLANS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
For the Year Ended December 31, 1992
INDEX TO EXHIBITS
Exhibit Sequential Number Description Page Number ------ ---------------------------------------- ----------- 2.1 Joint Plan of Reorganization dated May 14, 1990, as modified on May 24 and July 12, 1990 (without schedules)*
2.2 Order Confirming Joint Plan of Reorganization dated May 14, 1990, as Modified, entered on August 31, 1990 (without exhibits or schedules)*
2.3 Amendment to Order Confirming Joint Plan of Reorganization dated May 14, 1990, as Modified, entered on August 31, 1990*
2.4 Stipulation and Order Re Conditions to Effectiveness of the Plan, entered on December 3, 1990*
2.5 Notice That The Conditions to Effectiveness of the Plan Have Been Met or Waived, filed on December 4, 1990*
2.6 Agreement and Plan of Merger of Maxicare Health Plans, Inc. and HealthCare USA Inc., dated as of December 5, 1990 (without exhibits or schedules)*
3.1 Charter of Maxicare Health Plans, Inc., a Delaware corporation*
3.3 Amendment to Charter of Maxicare Health Plans, Inc., a Delaware corporation@
3.4 Amended Bylaws of Maxicare Health Plans, Inc., a Delaware corporation@@@
------------------------- * Incorporated by reference from the Company's Registration Statement on Form 10, declared effective March 18, 1991, in which this exhibit bore the same exhibit number.
@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1991, in which this exhibit bore the same exhibit number.
@@@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1993, in which this exhibit bore the same exhibit number.
Exhibit Sequential Number Description Page Number ------ ---------------------------------------- ----------- 4.1 Form of Certificate of New Common Stock of Maxicare Health Plans, Inc.*
4.2 Form of Certificate of Warrant of Maxicare Health Plans, Inc.*
4.4 Warrant Agreement by and between Maxicare Health Plans, Inc. and American Stock Transfer & Trust Company, dated as of December 5, 1990*
4.5 Stock Transfer Agent Agreement by and between Maxicare Health Plans, Inc., and American Stock Transfer & Trust Company, dated as of December 5, 1990*
4.6 Registration Undertaking by Maxicare Health Plans, Inc., dated as of December 5, 1990*
4.8 Portions of Charter of Maxicare Health Plans, Inc., relating to the rights of holders of the New Common Stock, the Warrants, or the New Senior Notes*
4.9 Portions of Bylaws of Maxicare Health Plans, Inc., relating to the rights of holders of the New Common Stock, the Warrants, or the New Senior Notes*
4.10 Series A Cumulative Convertible Preferred Stock Purchase Agreement dated as of December 17, 1991**
4.11 Series A Cumulative Convertible Preferred Stock Purchase Agreement dated as of January 31, 1992**
4.12 Form of Certificate of Preferred Stock of Maxicare Health Plans, Inc.@
------------------------- * Incorporated by reference from the Company's Registration Statement on Form 10, declared effective March 18, 1991, in which this exhibit bore the same exhibit number.
** Incorporated by reference from the Company's Reports on Form 8-K dated December 17, 1991 and January 31, 1992, in which this exhibit bore the same exhibit number.
@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1991, in which this exhibit bore the same exhibit number.
Exhibit Sequential Number Description Page Number ------ ---------------------------------------- ----------- 10.1 Management Incentive Program*
10.2 Incentive Compensation Agreement*
10.3b Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of January 1, 1992@
10.3c Amendment No. 1 to the Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of January 1, 1992 95 of 201
10.4b Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Eugene L. Froelich, dated January 1, 1992@
10.4c Amendment No. 1 to the Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Eugene L. Froelich dated, January 1, 1992 97 of 201
10.7e Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Vicki F. Perry, dated as of January 1, 1995 99 of 201
10.8d Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Alan D. Bloom, dated as of January 1, 1995 107 of 201
10.9d Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Richard A. Link, dated as of January 1, 1995 114 of 201
10.12e Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of January 1, 1995 121 of 201
------------------------- * Incorporated by reference from the Company's Registration Statement on Form 10, declared effective March 18, 1991, in which this exhibit bore the same exhibit number.
@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1991, in which this exhibit bore the same exhibit number.
Exhibit Sequential Number Description Page Number ------ ---------------------------------------- ----------- 10.14 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of December 5, 1990*
10.15 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Eugene L. Froelich, dated as of December 5, 1990*
10.18 Form of Stock Option Agreement by and between Maxicare Health Plans, Inc. and Vicki F. Perry, dated as of December 5, 1990*
10.19 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Alan D. Bloom, dated as of December 5, 1990*
10.20 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Richard A. Link, dated as of December 5, 1990*
10.23 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of December 5, 1990*
10.28 Form of Distribution Trust Agreement*
10.30 Maxicare Health Plans, Inc. 401(k) Plan*
10.35 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Charles E. Lewis, dated as of May 20, 1991@
10.36 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Claude S. Brinegar, dated as of July 18, 1991@
10.38 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Richard A. Link, dated as of December 20, 1991@
------------------------- * Incorporated by reference from the Company's Registration Statement on Form 10, declared effective March 18, 1991, in which this exhibit bore the same exhibit number.
@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1991, in which this exhibit bore the same exhibit number.
Exhibit Sequential Number Description Page Number ------ ---------------------------------------- ----------- 10.40 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of December 20, 1991@
10.42 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of February 25, 1992@
10.43 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Eugene L. Froelich, dated as of February 25, 1992@
10.44 Amended Maxicare Health Plans, Inc. 1990 Stock Option Plan@
10.48a Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and William B. Caswell, dated as of January 1, 1994@@@
10.49 Stock Option Agreement by and between Maxicare Health Plans, Inc. and William B. Caswell, dated as of February 3, 1992@@
10.50 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Thomas W. Field, Jr., dated as of April 1, 1992@@
10.51d Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of January 1, 1995 129 of 201
10.52 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of December 5, 1990@@
-------------------------
@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1991, in which this exhibit bore the same exhibit number.
@@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1992, in which this exhibit bore the same exhibit number.
@@@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1993, in which this exhibit bore the same exhibit number.
Exhibit Sequential Number Description Page Number ------ ---------------------------------------- ----------- 10.53 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of December 20, 1991@@
10.54 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Florence Courtright, dated as of November 5, 1993@@@
10.55 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Vicki F. Perry, dated as of December 20, 1993@@@
10.56 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Alan D. Bloom, dated as of December 20, 1993@@@
10.57 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Richard Link, dated as of December 20, 1993@@@
10.58 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of December 20, 1993@@@
10.59 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of December 20, 1993@@@
10.60 Stock Option Agreement by and between Maxicare Health Plans, Inc. and William Caswell, dated as of December 20, 1993@@@
10.61 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Thomas W. Field, Jr., dated as of December 20, 1993@@@
10.62 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Dr. Charles E. Lewis, dated as of December 20, 1993@@@
10.63 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Claude S. Brinegar, dated as of December 20, 1993@@@
-------------------------
@@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1992, in which this exhibit bore the same exhibit number.
@@@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1993, in which this exhibit bore the same exhibit number.
Exhibit Sequential Number Description Page Number ------ ---------------------------------------- ----------- 10.64a Employment and Indemnification Agreement by and between Maxicare Health Plans, Inc. and David Hammons, dated as of January 1, 1995 136 of 201
10.65 Stock Option Agreement by and between Maxicare Health Plans, Inc. and David J. Hammons, dated as of May 20, 1991@@@
10.66 Stock Option Agreement by and between Maxicare Health Plans, Inc. and David J. Hammons, dated as of December 20, 1991@@@
10.67 Stock Option Agreement by and between Maxicare Health Plans, Inc. and David Hammons, dated as of December 20, 1993@@@
10.68 Lease by and between Maxicare Health Plans, Inc. and Transamerica Occidental Life Insurance Company, dated as of June 1, 1994#
10.69 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Alan Manne dated as of January 28, 1994 143 of 201
10.70 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Alan Bloom, dated as of December 8, 1994 148 of 201
10.71 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Aivars Jerumanis, dated as of December 8, 1994 154 of 201
10.72 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Richard Link, dated as of December 8, 1994 160 of 201
10.73 Stock Option Agreement by and between Maxicare Health Plans, Inc. and David Hammons, dated as of December 8, 1994 166 of 201
10.74 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Robert Landis, dated as of December 8, 1994 172 of 201
------------------------- @@@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1993, in which this exhibit bore the same exhibit number.
# Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994, in which this exhibit bore the same exhibit number.
Exhibit Sequential Number Description Page Number ------ ---------------------------------------- ----------- 10.75 Stock Option Agreement by and between Maxicare Health Plans, Inc. and Vicki Perry, dated as of December 8, 1994 178 of 201
10.76 Restricted Stock Grant Agreement by and between Maxicare Health Plans, Inc. and Peter J. Ratican, dated as of February 27, 1995 184 of 201
10.77 Restricted Stock Grant Agreement by and between Maxicare Health Plans, Inc. and Eugene L. Froelich, dated as of February 27, 1995 190 of 201
21 List of Subsidiaries@@@
23.2 Consent of Independent Accountants - Ernst & Young LLP 197 of 201
23.3 Consent of Independent Accountants - Price Waterhouse LLP 198 of 201
27 Financial Data Schedule for the year ended December 31, 1994 199 of 201
28.1 Notice That The Conditions to Effectiveness of the Plan Have Been Met or Waived***
28.2 Stipulation and Order Regarding Conditions to Effectiveness of Joint Plan of Reorganization***
99 Report of Price Waterhouse LLP 201 of 201
------------------------- *** Incorporated by reference from the Company's Report on Form 8-K dated December 5, 1990, in which this exhibit bore the same exhibit number.
@@@ Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1993, in which this exhibit bore the same exhibit number.