THE
WELLCARE
MANAGEMENT GROUP, INC.
PARK WEST/HURLEY AVENUE EXTENSION
KINGSTON, NEW YORK 12401
914-338-4110
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on July 23, 1996
To the Shareholders of
The WellCare Management Group, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Annual
Meeting") of The WellCare Management Group, Inc. (the "Company") will be held at
the Company's corporate headquarters, Park West/Hurley Avenue Extension,
Kingston, New York 12401, on Tuesday, July 23, 1996, at 10:00 a.m., local
time, for the following purposes:
1) To elect three (3) Class III Directors to serve until the 1999 Annual
Meeting of Shareholders and to elect two (2) Class II Directors to serve until
the 1998 Annual Meeting of Shareholders;
2) To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the year ending December 31, 1996; and
3) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Only holders of record of the Company's Common Stock and Class A Common
Stock at the close of business on June 7, 1996, the record date for the Annual
Meeting, are entitled to notice of and to vote at the Annual Meeting or any
adjournment or postponement thereof.
The Company's 1995 Annual Report to Shareholders accompanies this Notice of
Annual Meeting.
By Order of the Board of Directors,
Nancy L. Lavallee
Secretary
Kingston, New York
June 26, 1996
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETING
ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.<PAGE>
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<PAGE>
THE
WELLCARE
MANAGEMENT GROUP, INC.
PARK WEST/HURLEY AVENUE EXTENSION
KINGSTON, NEW YORK 12401
914-338-4110
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on July 23, 1996
General
This Proxy Statement is being furnished to holders of record of Common
Stock and Class A Common Stock of The WellCare Management Group, Inc., a New
York corporation ("WellCare" or the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Shareholders ("Annual Meeting") to be held at the Company's
corporate headquarters, Park West/Hurley Avenue Extension, Kingston, New York
12401, on Tuesday, July 23, 1996, at 10:00 a.m., local time, and at any and
all adjournments or postponements thereof. Only holders of record of Common
Stock and Class A Common Stock at the close of business on June 7, 1996 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting.
On the Record Date, there were outstanding 4,848,089 shares of Common Stock,
$.01 par value, each share being entitled to one vote, and 1,450,087 shares
of Class A Common Stock, $.01 par value, each share being entitled to ten
votes. This Proxy Statement and enclosed proxy card are being mailed to the
Company's shareholders on or about June 26, 1996.
Matters to be Considered at the Annual Meeting
At the Annual Meeting, the shareholders will be asked to consider and vote
upon the following proposals:
1) To elect three (3) Class III Directors to serve until the 1999 Annual
Meeting of Shareholders and to elect two (2) Class II Directors to serve until
the 1998 Annual Meeting of Shareholders; and
2) To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the year ending December 31, 1996,
both as more fully described in this Proxy Statement.
Voting at the Annual Meeting
Each holder of record of Common Stock on the Record Date is entitled to one
vote per share and each holder of record of Class A Common Stock on the
Record Date is entitled to ten votes per share on each matter presented. On
the Record Date, there were 4,848,089 shares of Common Stock issued and
outstanding and 1,450,087 shares of Class A Common Stock issued and
outstanding. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of Common Stock and Class A
Common Stock at the Annual Meeting (3,149,089 shares of the 6,298,176
aggregate shares of Common Stock and Class A Common Stock outstanding) is
necessary to constitute a quorum at the Annual Meeting.
If a quorum is present, a plurality vote of the total votes cast by the
holders of Common Stock and Class A Common Stock voting as one class is required
to elect the two (2) Class II Directors and the three (3) Class III
Directors. The affirmative vote of a majority of the total votes cast by the
holders of the outstanding shares of Common Stock and Class A Common Stock
present in person or represented by proxy at the Annual Meeting voting as one
class is required to ratify the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the year ending December 31, 1996.
If the enclosed proxy card is properly executed and returned to the Company
prior to the voting at the Annual Meeting, the shares represented thereby
will be voted in accordance with the instructions marked thereon. Shares
represented by proxies which are marked "WITHHOLD AUTHORITY" to vote for (i) all
five (5) nominees or (ii) any individual nominee(s) for election as directors
and are not otherwise marked "FOR" the other nominees, will not be counted in
determining whether a plurality vote has been received for the election of
directors. Similarly, shares represented by proxies which are marked "ABSTAIN"
on any other proposal will not be counted in determining whether the
requisite vote has been received for such proposal. In the absence of
instructions, the shares will be voted FOR all the proposals set forth in the
Notice of Annual Meeting. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned
proxies (so called "broker non-votes"), those shares will be disregarded and
therefore have no effect on the outcome of the vote. At any time prior to
its exercise, a proxy may be revoked by the holder of the Class A Common Stock
or Common Stock granting such proxy delivering written notice of revocation or
a duly executed proxy bearing a later date to the Secretary of the Company at
the address of the Company set forth on the first page of this Proxy
Statement or by attending the Annual Meeting and voting in person.
Proxies may be solicited on behalf of the Board by mail, telephone,
telecopy or in person and solicitation costs will be paid by the Company.
Directors, officers and regular employees of the Company may solicit proxies
by such methods without additional compensation. Banks, brokerage houses and
other institutions, nominees and fiduciaries will be requested to forward the
soliciting material to their principals and to obtain authorizations for the
execution of proxy cards and, upon request, will be reimbursed by the Company
for their reasonable expenses.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date certain information
with regard to the beneficial ownership of the Common Stock of the Company by
(i) each shareholder who is known by the Company to beneficially own in
excess of five percent (5%) of the outstanding shares of Common Stock or Class A
Common Stock, (ii) each director, (iii) each of the executive officers named in
the Summary Compensation Table on page 11 of this Proxy Statement and (iv)
all executive officers and directors as a group.
Shares Owned (12) Percent of Total
Class A Class A Percent
Name Common Common Common Common of Total
Vote
Robert W. Morey (1) 281,956 503,201 19.4% 10.3% 17.2%
Edward A. Ullmann (2)(3) 750,110 24,114 51.7 * 38.8
The 1818 Fund II,
LP (4)(5) - 689,655 * 12.4 3.4
Brown Brothers Harriman
& Co(4)(5) - 689,655 * 12.4 3.4
T. Michael Long (4)(5) - 689,655 * 12.4 3.4
Robert E. Goff 29,168 52,751 2.0 1.1 1.8
G. William Strein (6) 14,585 45,427 1.0 * *
Patrick P. Arlantico
(7)(8) 9,723 7,592 * * *
Marystephanie Corsones - 2,568 * * *
Charles E. Crew, Jr. 43,752 50,194 3.0 1.0 2.5
Mark D. Dean (9)(10) 121,534 178,631 8.4 3.7 7.2
John E. Ott - 300 * * *
Lawrence C. Tucker (4)(5) - 689,655 * 12.4 3.4
Eileen H. Wilson - 610 * * *
Daniel M. Zeichner (11) 38,891 63,721 2.7 1.3 2.3
All executive officers
and directors as a
group (12 persons)
(2)(5)(6)(7)(10)(11) 1,293,581 1,628,876 89.2 29.2 72.5
________________________________
* Less than 1%
(1) Address is 55 Main Street, Tiburon, California 94920.
(2) Address is Park West/Hurley Avenue Extension, Kingston, New York 12401.
(3) Includes 11,045 shares of Common Stock owned by a not-for-profit
corporation of which Mr. Ullmann is President. Mr. Ullmann disclaims beneficial
ownership of the shares owned by the not-for-profit corporation.
(4) Address is 59 Wall Street, New York, New York 10005.
(5) On January 19, 1996, the Company issued to The 1818 Fund II, L.P. (the
"Fund"), a 6.0% Subordinated Convertible Note in the principal amount of
$20,000,000 due December 31, 2002 (the "Note"), entitling the holder thereof to
convert such Note into 689,655 shares of the Company's Common Stock. Brown
Brothers Harriman & Co. ("BBH & Co."), a general partner of the Fund, have
designated Messrs. T. Michael Long and Lawrence C. Tucker, either
individually or jointly, as the sole and exclusive partners of BBH & Co. having
voting and investment power with respect to the Note, and the Common Stock
issuable upon conversion of the Note. Giving effect to the conversion of the
Note, the Fund beneficially owns 689,655 shares of Common Stock. By virtue
of BBH & Co.'s relationship with the Fund, BBH & Co. may be deemed to
beneficially own 689,655 shares of Common Stock. By virtue of the resolution
adopted by BBH & Co. designating Messrs. Long and Tucker, either individually
or jointly, as the sole and exclusive partners of BBH & Co. having voting and
investment power with respect to the Note, and the Common Stock issuable
upon conversion of the Note, Messrs. Long and Tucker may each be deemed to
beneficially own 689,655 shares of Common Stock.
(6) Includes 15,000 shares of Common Stock owned by Mr. Strein's wife. Mr.
Strein disclaims beneficial ownership of the shares owned by his wife.
(7) Includes 2,431 shares owned by Mr. Arlantico's wife. Mr. Arlantico
disclaims beneficial ownership of the shares owned by his wife.
(8) Mr. Arlantico resigned from his position as Senior Vice President with the
Company effective March 1, 1996.
(9) Address is 62 Riverview, Port Ewen, New York 12466,
(10)Includes 68,059 shares of Class A Common Stock and 118,172 shares of Common
Stock owned by Pine Street Dental Associates, P.C., a retirement plan in
which Dr. Dean has a 48% interest, 4,862 shares of Class A Common Stock and
14,584 shares of Common Stock owned by Dr. Dean's wife and 6,362 shares of
Common Stock owned by Dr. Dean's son. Dr. Dean disclaims beneficial
ownership of the shares owned by his wife and son.
(11)Includes 4,862 shares of Common Stock in Dr. Zeichner's Defined
Contribution Pension Plan and 5,262 shares of Common Stock owned by Dr.
Zeichner's wife. Dr. Zeichner disclaims beneficial ownership of the shares
owned by his wife.
(12)Includes shares of Common Stock from stock options exercisable on or before
August 6, 1996 as follows:
Exercise Number
Name Price of Shares
Edward A. Ullmann $23.50 5,000
Edward A. Ullmann 24.50 2,500
Robert E. Goff 11.75 3,500
G. William Strein 11.75 6,000
Marystephanie Corsones 11.75 500
Marystephanie Corsones 17.25 1,500
Marystephanie Corsones 24.50 500
________________________________________________
ELECTION OF DIRECTORS
The Board of Directors currently consists of eleven directors, nine of whom
have been classified into three classes, designated Class I, Class II and
Class III, each consisting of three directors. As a result of this
classification of directors, one class of directors is elected each year for a
three-year term. In October 1995, John E. Ott, M.D. was appointed as a Class
II Director to fill the vacancy created by the death of Francis W. Casey in
July 1995. Mr. Casey had served as a Class II Director. Under New York law, a
director who fills a vacancy, unless elected by the shareholders, serves
until the next meeting of shareholders at which the election of directors
is in the ordinary course of business. Accordingly, Dr. Ott's current term
as a Class II Director expires at this Annual Meeting.
The remaining two directors, Messrs. Robert W. Morey and Lawrence C. Tucker,
have not been classified since they were appointed by the Board as a result of
an increase in the number of directors comprising the entire Board and,
accordingly, their terms expire at this Annual Meeting.
Commencing with this Annual Meeting of Shareholders, the Board of Directors
will consist of ten (10) directors divided into three Classes, Classes I and
III consisting of three (3) directors and Class II consisting of four (4)
directors. The Class I Directors will serve terms expiring at the 1997 Annual
Meeting of Shareholders, the Class II Directors will serve terms expiring at
the 1998 Annual Meeting of Shareholders, and the Class III Directors will
serve terms expiring at the 1999 Annual Meeting of Shareholders. Directors
whose terms expire are eligible for renomination.
At this Annual Meeting, three (3) Class III Directors (constituting the entire
class of Class III Directors) are to be elected and to hold office until the
1999 Annual Meeting of Shareholders and two (2) Class II Directors (out of a
class of four (4) Class II Directors) are to be elected to hold office until the
1998 Annual Meeting of Shareholders. Two of the three nominees for Class III
Directors, Messrs. Edward A. Ullmann and Charles E. Crew, currently serve as
Class III Directors and the third nominee, Robert W. Morey, Jr., currently
serves as an unclassified director. One of the two nominees for Class II
Director, John E. Ott, M.D., currently serves as a Class II Director and the
second nominee, Lawrence C. Tucker, currently serves as an unclassified
director. Robert E. Goff, a current Class III Director and Executive Vice
President of the Company, is not standing for re-election as a director. Unless
otherwise specifically directed by shareholders executing proxies, it is
intended that all proxies in the accompanying form received in time for the
Annual Meeting will be voted at the Annual Meeting FOR the election of the
five (5) nominees named below.
In the event any nominee should become unavailable for reelection for any
presently unknown reason, it is intended that the proxies will be voted for
such substitute nominee as may be designated by the present Board of
Directors. If a quorum is present, a plurality vote of the total votes cast by
the holders of the Common Stock and Class A Common Stock voting as one class
is required to elect the three (3) Class III Directors and two (2) Class
II Directors.
Each nominee's name, age, the year first elected or appointed as a director
and positions(s) with the Company are set forth below:
Year First
Name Class Age Served as a Director Position(s)
Nominees for Class III Directors
Robert W. Morey, Jr. (1) III 59 1996 Director, Chief
Executive
Officer
Edward A. Ullmann (1) III 44 1987 Director, President
with the
function of
chief operating
officer
Charles E. Crew (2)(3) III 43 1987 Director
Nominees for Class II Directors
John E. Ott, M.D. (1) II 59 1995 Director,
Executive
Vice President
Lawrence C. Tucker (2)(3) II 53 1996 Director
_____________________________
(1) Member of Executive Committee
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Mr. Tucker, a designee of The 1818 Fund II, L.P., has been nominated in
accordance with the Note Purchase Agreement dated January 19, 1996 between
the Company and The 1818 Fund II, L.P. and Messrs. Morey and Ullmann have
agreed to vote their shares for Mr. Tucker's election.
CLASS III
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 1999
Robert W. Morey, Jr., age 59, became Chairman of the Board, Chief Executive
Officer and a director of the Company on April 30, 1996. Mr. Morey
previously has served as President and Chairman of R.W. Morey, Inc.,
a management firm founded by Mr. Morey in 1972 which was engaged in, among
other things, financial counseling and reinsurance underwriting of
catastrophic health coverage for the managed care industry. Mr. Morey was
engaged in corporate banking, investment banking and the institutional brokerage
business from 1962 to 1972. Mr. Morey received a B.A. in Economics from Yale
University in 1958 and an M.B.A. from Harvard Graduate School of Business in
1962.
Edward A. Ullmann, age 44, the founder of the Company, served as its Chairman
of the Board, President and Chief Executive Officer from WellCare's formation
in August 1983 until April 30, 1996, and remains President of the Company.
Mr. Ullmann previously served as Director of Administration for Ulster County
Mental Health Services, was a county legislator, and was a practicing
pharmacist. Mr. Ullmann received a B.S. from Albany College of Pharmacy,
Union University in 1973, an M.P.A. from the Maxwell School at Syracuse
University in 1979, and is a 1981 graduate of the National HMO Management
Fellowship Program, Georgetown University. Mr. Ullmann is Chairman of the
New York State HMO Conference's Medicaid Committee, serves on the Managed
Care Study Group of the New York State Council on Health Care Financing and
serves on the editorial advisory board of Medical Interface, a national
managed care magazine. Mr. Ullmann is the brother of Mr. Peter Kraft,
WellCare's Vice President of Marketing.
Charles E. Crew, Jr., age 43, has been a director of the Company since
September 1987. Mr. Crew has been employed with General Electric since 1977,
having served as General Manager of the Mid-Western Region Plastic Sales
Division since 1987. Mr. Crew received a B.S. in Marketing from Villanova
University in 1973.
CLASS II
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 1998
John E. Ott, M.D., age 59, joined the Company as an Executive Vice President
in June 1996. Dr. Ott is the former Chief Executive Officer of The George
Washington University Health Plan, a member of the American College of
Physician Executives, and a Diplomate of the American Board of Medical
Management. Dr. Ott currently serves on the Ethics Committee of the Group
Health Association of America ("GHAA"). Dr. Ott is a former President of the
American Academy of Clinical Toxicology and Co-Chairman of the Medical Director
Committee for the Maryland Association of HMOs. He is also board certified in
Pediatrics and Medical Toxicology. Dr. Ott received his B.S. and M.D. degrees
at the University of Pittsburgh, and completed a pediatric residency and
fellowship in clinical genetics and biophysics at the University of Colorado
Medical Center.
Lawrence C. Tucker, age 53, co-founded and co-manages The 1818 Fund, L.P. and
the 1818 Fund II, L.P., (the "Funds"), private equity investing partnerships
with committed capital of $800 million. He joined Brown Brothers Harriman
and Co. ("BBH & Co."), a general partner of the Funds in 1966; was named a
general partner of the firm in 1979; and is the senior partner supervising
the firm's corporate financial advisory practice which is concerned primarily
with mergers, acquisitions, corporate restructurings and private equity
investing through the Funds. Mr. Tucker is a member of BBH & Co.'s Steering
Committee. He also serves as a director of WorldCom, Inc., Blenheim Group
PLC, and Riverwood International Corporation. Mr. Tucker received a B.S.
degree in engineering from Georgia Institute of Technology in 1964 and an
M.B.A. from the Wharton School of the University of Pennsylvania in 1966.
CLASS II
OTHER DIRECTORS WHOSE TERMS EXPIRE IN 1998
Marystephanie Corsones, age 46, joined the Company as Finance Director in July
1993, was appointed its Chief Financial Officer, Vice President of Finance in
May 1994 and was appointed to the Board of Directors in November 1994. Ms.
Corsones was senior director of U.S. International Operations at Coopers &
Lybrand in Paris, France, for more than five years, prior to joining the
Company. Ms. Corsones received an M.B.A. in Finance and Economics from the
University of Washington.
G. William Strein, age 52, has been a director of the Company since January
1989. Mr. Strein joined the Company in 1985 as Vice President of Planning and
Development, and since 1989 has served as President and Chief Executive
Officer of WellCare Administration, Inc., a wholly-owned subsidiary of the
Company responsible for WellCare's specialty benefit programs, new product
development and quality assurance. From 1979 to 1985, Mr. Strein served as
Administrative Director for various health care programs. Mr. Strein received a
B.S. in Pharmacy from the University of Illinois in 1968, an M.S. from the
University of Illinois in 1972, and an M.S.P.H. in Public Health from the
University of North Carolina in 1979.
CLASS I
DIRECTORS WHOSE TERMS EXPIRE IN 1997
Mark D. Dean, D.D.S., age 55, has been a director of the Company since May
1984, presently serves as Vice Chairman of the Board, and is Dental Director
for the WellCare benefit programs. Dr. Dean has been a dentist in private
practice since 1966 and serves on the Board of Directors of the Ulster County
Chamber of Commerce. Dr. Dean attended Cornell University and graduated from the
New York University College of Dentistry in 1965.
Eileen H. Wilson, age 50, has been a director of the Company since September
1993. Ms. Wilson is President of Eileen Wilson Associates, a Rochester
consulting firm specializing in management development and training for the
managed care industry and has more than 13 years experience in the insurance
industry and 14 years in the managed care industry.
Daniel M. Zeichner, M.D., age 48, has been a director of the Company since May
1984. Dr. Zeichner is a board certified plastic and reconstructive surgeon and
has been in private practice since 1982. Dr. Zeichner received a Bachelors
degree in Chemistry from Ithaca College in 1969, a Licentiate in Medical
Sciences from Catholic University of Louvain, Belgium in 1972, and a Doctorate
in Medicine from the Free University of Brussels, Belgium in 1976.
Meetings and Committees
There were six meetings of the Board of Directors during 1995. During 1995,
no director attended less than 75% of the total number of meetings of the
Board of Directors and any committee of which such director is a member.
The Executive Committee, established in May 1996, and comprised of Messrs.
Morey and Ullmann and Dr. Ott, has all of the powers of the Board not otherwise
delegated to the Audit or Compensation Committees.
The Audit Committee, comprised of three independent directors, Messrs. Crew
and Tucker and Dr. Dean, meets with the Company's independent auditors to review
the scope of their annual audit, the adequacy of the Company's system of
internal controls, and the sufficiency of its financial reporting. There were
six meetings of the Audit Committee during 1995.
The Compensation Committee, comprised of three independent directors, Messrs.
Crew and Tucker and Dr. Dean, establishes the compensation program for Mr.
Edward A. Ullmann, the Company's President, recommends to the Board of
Directors, in consultation with Mr. Ullmann, a general compensation program for
all officers and administers the Company's 1993 Incentive and Non-Incentive
Stock Option Plan. There were six meetings of the Compensation Committee
during 1995.
The Company does not have a standing nominating committee.
Compensation of Directors
During 1995, all directors who were not employees of the Company, with the
exception of the Vice Chairman of the Board and the Chairman of the Audit and
Compensation Committees, received a fee of $500 for each meeting of the Board
of Directors attended, plus reimbursement of their expenses, and an additional
$300 for each meeting of the Compensation Committee or Audit Committee attended.
The Vice Chairman of the Board and the Chairman of the Audit and Compensation
Committees receive fixed annual stipends of $12,000 each. Effective May 11,
1996 all directors who are not employees of the Company receive a fee of $500
for each meeting of the Board of Directors attended, plus reimbursement of their
expenses, and no additional compensation is paid for attendance of committee
meetings or for serving as a committee Chairman or Vice Chairman of the Board.
Directors who are not full-time employees of the Company, on the date of
their election or re-election, receive automatic grants of non-incentive
stock options to purchase 3,000 shares at an exercise price equal to 75% of
the fair market value on the date of grant, which vest at the rate of 33% per
annum.
<PAGE>
EXECUTIVE OFFICERS
The executive officers whose biographical information was not included under
the caption "Election of Directors" above are as follows:
Name Age Position
Robert E. Goff 43 Executive Director of WellCare of New York,
Inc. and Executive Vice President
Douglas A. Hayward 45 President and Chief Executive Officer
of WellCare of Connecticut, Inc.
Peter G. Kraft 35 Vice President of Marketing
Robert E. Goff joined the Company in 1985 as Executive Director of WellCare of
New York, Inc., the Company's wholly-owned New York health maintenance
organization ("HMO") subsidiary, and became Executive Vice President of the
Company in 1992. Mr. Goff was Vice President of Good Samaritan Hospital from
1983 to 1985, and Vice President of Northern Metropolitan Hospital Association
from 1980 to 1983. He received a B.S. in Business Administration from
Northeastern University in 1976 and an M.B.A. from Babson College in 1978.
Mr. Goff has been a director of the Company since March 1991, and is not
standing for re-election as a director.
Douglas A. Hayward joined the Company in 1996 as the President and Chief
Executive Officer of WellCare of Connecticut, Inc., the Company's wholly-owned
Connecticut HMO subsidiary. Mr. Hayward was formerly the Chief Executive
Officer and President of M.D. Health Plan, a Connecticut HMO, from 1987 to
1995. Previously, he served as Executive Vice President and Director of Finance
and Administration for IPM Health Plan, a California HMO, from 1982 to 1987.
Mr. Hayward received a B.A. from the University of Michigan in 1973, an M.S.
in Health Services Administration from the University of Michigan in 1976, and
is a 1981 graduate of the National HMO Management Fellowship Program, Georgetown
University.
Peter G. Kraft joined the Company in 1984 as an Enrollment Representative,
served as Senior Enrollment Representative from 1985 to 1986, Associate
Marketing Director from 1986 to 1989, Regional Sales Manager from 1989 to
1991, and was appointed Vice President of Marketing in 1991. Mr. Kraft received
an A.S. from SUNY at Cobleskill in 1980 and is a 1993 graduate of the Managed
Care Training Program at the University of Missouri, Kansas City. Mr. Kraft
is the brother of Mr. Ullmann, WellCare's President.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Introduction
Decisions on executive compensation are made by the Compensation Committee
of the Board of Directors which is composed of three independent non-employee
directors. All decisions by the Compensation Committee are reviewed by the
full Board except for decisions with respect to the Company's stock based plans,
which are made solely by the Compensation Committee.
Executive Compensation Philosophy
The Compensation Committee's philosophy with respect to the Company's
executive officers, including the President, is designed to (i) maintain a
compensation program that is equitable in a competitive marketplace, (ii)
provide compensation opportunities that integrate pay with the Company's annual
and long-term performance goals which reinforce growth in shareholder value,
(iii) recognize and reward individual initiative and achievements, and (iv)
allow the Company to attract, retain, and motivate qualified executives who are
critical to the Company's success.
The Compensation Committee endorses the position that stock ownership by
management is beneficial in aligning management's and shareholders' interests in
the enhancement of shareholder value. Thus, the Committee has utilized stock
options in the compensation program for the executive officers with a goal of
increasing stock ownership over time.
The compensation policy of the Compensation Committee is that executive
compensation, including compensation of the President, should consist of base
salary and incentive compensation.
Executive Compensation Program
The Company's executive compensation program consists of three main
components: (i) base salary, (ii) potential for an annual bonus based on
overall Company financial performance as well as individual performance,
and (iii) the opportunity to earn long-term cash and/or stock based
incentives which are intended to encourage the achievement of superior
results over time and to align executive officer and shareholder interests.
The second and third elements constitute the "at risk" portion of the
compensation program and are designed to link the interests of the executive
with those of the shareholders. This means that total compensation for each
executive is variable and may fluctuate significantly from year to year
depending on the short-term and long-term financial performance of the
Company.
The Compensation Committee reviews the compensation levels of members of
management, evaluates the performance of management, and considers management
succession and related matters. In addition, the Committee administers the
Company's incentive plans, which include an annual incentive plan and a
long-term performance plan.
Base Salaries
From July 1, 1993 through January 1996, the Company negotiated and entered
into employment agreements with each of its executive officers, including the
President. In negotiating and fixing the base salaries of each of its
executive officers, the Compensation Committee considered a number of important
factors. These factors were, in order of relative importance, that the Company
has emerged as the leading HMO in the Hudson River Valley, and also was
successful in introducing a bold initiative to organize primary care physicians
into efficient health networks. The Committee's decisions were also influenced
by the performance of the Company's Common Stock in terms of cumulative total
shareholder return.
The above factors were considered subjectively, together with the policy of
the Committee, that, in general, executive officers of the Company should be
compensated at competitive levels to attract, motivate and retain talented
executives.
Mr. Ullmann's 1994 base salary was determined through the Committee's
overall evaluation of his performance during the three preceding years. The
Committee took particular note of Mr. Ullmann's dedication in leading the
Company to strong financial and operating results, and in positioning the
Company to successfully meet the challenges posed by competition in the health
care industry. The Committee was also influenced by Mr. Ullmann's strong
record in the areas of customer service, relations with regulatory agencies and
work simplification program. This evaluation is subjective in nature and
takes into account all aspects of his responsibilities at the total
discretion of the Committee. The Committee utilizes competitive compensation
references from other companies in its geographic location which are similar
in size and marketplace orientation. Based on the salary ranges utilizing
similar company data and the Committee's overall evaluation of Mr. Ullmann's
performance during 1992 and 1993, Mr. Ullmann's base salary was raised from
a 1994 annual rate of $180,000 to a 1995 annual rate of $187,061.
Bonuses
The Company's executive compensation program also consists of potential
annual cash bonuses based on the Company's overall financial performance.
Pursuant to each individual employment agreement, an executive is entitled
to receive an amount represented by a percentage ranging from 0.25% to 2% of
the net after-tax earnings of the Company for any given year up to a maximum
dollar amount, such percentage and maximum dollar amount in the case of Mr.
Ullmann being up to 2% of the net after-tax earnings or a maximum dollar amount
of $200,000. Additional bonuses may also be paid to such executives at the
Board's discretion.
Stock Options
The Committee can grant non-incentive stock options and incentive stock
options. After reviewing the total amount of stock options available for
distribution to the Company's management team, as well as reviewing
competitive compensation references from other companies who are similar in size
and marketplace orientation, Mr. Ullmann was granted options to purchase
10,000 shares of Common Stock per year for each effective contract year
exercisable at a rate of 2,500 shares per year in his four-year employment
contract effective January 1, 1994.
Phantom Shares
The Committee has also established a long-term cash incentive program
through the granting of phantom shares, pursuant to which an executive can
receive cash based upon the appreciation in the market price of the Common
Stock during such executive's term of employment. After reviewing competitive
compensation references from other companies who are similar in size and
marketplace orientation, Mr. Ullmann was granted 15,000 shares of phantom
shares for each effective contract year in his four-year employment contract
effective January 1, 1994.
Other Compensation Plans
At various times in the past, the Company has adopted certain broad-based
employee benefit plans and has adopted certain executive retirement and life
insurance plans in which its named executive officers participate.
In the event of death during active employment, the Company also provides
Mr. Ullmann with $1,000,000 term life insurance. The Company also provides
other executive officers with $250,000 term life insurance.
Finally, the Committee has reviewed the provisions of Section 162(m) of the
Code, which was enacted in 1993, relating to the $1 million deduction cap for
executive salaries and believes that no compensation for the three highest
paid named executives will be governed by this regulation during 1995.
Compensation alternatives to comply with Section 162(m) are currently under
review by the Committee.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Dated: June 26, 1996
Charles E. Crew, Jr., Chairman
Mark D. Dean
Lawrence C. Tucker
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation for 1995 earned
by the Company's Chief Executive Officer and by each other executive officer
whose compensation during such year exceeded $100,000, as well as similar
summary information for such individuals for 1994 and 1993:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Common Stock All Other
Name and Salary Bonus Other Annual Underlying Compensation
Principal Position Year ($) ($) Compensation ($) Options (#) ($)
<S> <C> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C>
EDWARD A. ULLMANN (1) 1995 $187,061 $103,902 (2) --- 10,000 (3) $ 8,605 (5)(6)
President with the 1994 180,000 124,764 --- 25,000 (4) 6,007 (5)(6)
function of chief 1993 138,241 125,046 --- --- 5,005 (5)(6)
operating officer
ROBERT E. GOFF 1995 $114,315 $ 23,513 (2) --- 1,000 (3) $ 3,580 (6)
Executive Director 1994 110,000 40,331 --- --- 3,000 (6)
Executive Vice President 1993 103,065 36,430 --- 10,000 (3) 1,690 (6)
G. WILLIAM STREIN 1995 $ 86,019 $ 24,234 (2) --- --- $ 2,714 (6)
President, WellCare 1994 82,000 36,191 --- --- 2,475 (6)
Administration, Inc. 1993 72,304 22,671 --- 10,000 (3) 1,728 (6)
PATRICK ARLANTICO (7) 1995 $ 79,604 $ 19,666 (2) --- 2,000 (3) ---
Senior Vice President 1994 75,000 30,506 --- 2,000 (3) ---
1993 57,759 30,577 --- 10,000 (3) ---
(1) Effective April 30, 1996, Mr. Ullmann resigned as Chairman and Chief
Executive Officer, but continues as President with functions of chief
operating officer.
(2) Represents the fair market value of Treasury Stock issued as bonuses in
lieu of cash. For Messrs. Ullmann and Arlantico, also includes cash bonuses of
$30,921 and $320, respectively.
(3) Represents options to purchase Common Stock.
(4 ) Consists of options to purchase 10,000 shares of Common Stock and
phantom shares with respect to 15,000 shares of Common Stock. Phantom
shares vest, subject to Mr. Ullmann's continued employment with the Company,
25% per year on December 31st of each year, commencing December 31, 1994,
and are payable in cash only in January 1998 in an amount equal to the
product of (A) and (B), where (A) equals the total number of phantom shares
vested in the executive, and (B) equals the sum of (I), (ii), (iii), and (iv)
equal to the following:
Difference between the closing sales price of the Common Stock, as reported
by The Nasdaq Stock Market (National Market) on December 31,
(i) 1994 and 1993
(ii) 1995 and 1994
(iii) 1996 and 1995
(iv) 1997 and 1996
(5) Includes $3,985, $3,007 and $1,802 paid by WellCare in 1995, 1994 and 1993,
respectively, for a $1,000,000 life insurance policy on Mr. Ullmann's life,
50% of which is payable to WellCare and the balance to Mr. Ullmann's wife.
(6) Consists (or with respect to Mr. Ullmann, included $4,620, $3,000 and
$3,203 in 1995, 1994 and 1993, respectively) of matching contributions made
by the Company pursuant to the Company's 401(k) Plan.
(7) Mr. Arlantico resigned from his position as Senior Vice President of the
Company effective March 1, 1996.
</TABLE>
<TABLE>
The following table sets forth certain information concerning options granted
in 1995 to the individuals names in the Summary Compensation Table:
<CAPTION>
OPTION GRANTS IN 1995
Individual Grants
Potential
Realizable Value
Number of % of Total at Assumed Annual
Securities Options Exercise Rates of Stock Price
Underlying Granted to or Base Appreciation for
Options Employees Price Expiration Option Term
Name Granted (#) In 1995 ($/Share) Date 5% ($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward A. Ullmann 10,000 (1) 9.5% $24.50 01/01/2000 $ 16,500 $ 69,800
Robert E. Goff 1,000 (1) 0.9% $19.75 08/10/2000 $ 7,200 $ 12,690
Patrick P. Arlantico 2,000 (1) 1.9% $19.75 08/10/2000 $ 14,400 $ 25,380
(1) Exercisable at the cumulative annual rate of 25% of the total number for
shares underlying the option commencing one year from the date of grant.
</TABLE>
<TABLE>
The following table presents certain information concerning options exercised
during 1995 and the value of unexercised options held at December 31, 1995 by
the individuals named in the Summary Compensation Table:
<CAPTION>
OPTION EXERCISES IN 1995 AND OPTION VALUES AT DECEMBER 31, 1995
Number of Value (2) of Unexercised
Unexercised Options In-the-Money Options
Name Shares at December 31, 1995 (#) at December 31, 1995 ($)
Acquired Value (1) Exercisable (E)/ Exercisable (E)/
on Exercise(#) Realized ($) Unexercisable (U) Unexerciable (U)
<S> <C> <S> <C> <C> <C> <C>
Edward A. Ullmann - $ - 10,000 (U) $ 10,000
Robert E. Goff 4,000 $ 51,250 2,500 (E) $ 31,875 (E)
7,500 (U) 95,625 (U)
G. William Strein 1,500 $ 22,875 2,500 (E) $ 31,875 (E)
7,500 (U) 95,625 (U)
Patrick P. Arlantico - $ - 2,500 (E) $ 31,875 (E)
9,500 (U) 110,125 (U)
(1) Values are calculated by subtracting the exercise or base price from the
closing sales price of the Common Stock on the date the option was exercised.
(2) Values are calculated by subtracting the exercise or base price from the
closing sales price of the Common Stock on December 31, 1995 of $21.50 per
share.
</TABLE>
In 1996, the Board approved a one-time lump sum cash bonus for Mr. Ullmann and
Ms. Corsones. The amounts of the bonuses, paid in 1996, are $164,850 (or
$100,000 after the application of appropriate payroll withholdings) and
$50,000 (gross, or before the application of withholdings) for Mr. Ullmann and
Ms. Corsones, respectively.
Employment Agreements
Mr. Ullmann is employed under an agreement with the Company effective
January 1, 1994 which expires December 31, 1997, and which was subsequently
amended as of January 1, 1996. The agreement provides for a base salary of
$225,000 for 1996, with annual increases of four percent, plus an annual bonus
equal to two percent (2%) of the Company's net (after tax) profit up to a
maximum of $200,000 per annum, and such additional bonus as the Board of
Directors may determine. In January 1996, the Board of Directors granted
an additional bonus to Mr. Ullmann in the amount of $164,850 (or $100,000
after the application of appropriate payroll withholdings). Under the
agreement, Mr. Ullmann is entitled to receive incentive or non-incentive
options to purchase 10,000 shares of the Company's Common Stock on January 1st
of each year during his term of employment at an exercise price (a) with respect
to an incentive option, not less than 110% of the fair market value of the
Common Stock on the date of grant, and (b) with respect to a non-incentive
option, not less than 75% of the fair market value of the Common Stock on the
date of grant. The options will be exercisable cumulatively at the rate of 25%
of the underlying shares each year commencing one year from the date of
grant. The agreement further provides for a grant of 15,000 phantom shares,
the terms of which are described above in the "Executive Compensation" table
under footnote (4).
Under the agreement, WellCare maintains a $1,000,000 term life insurance
policy on the life of Mr. Ullmann, 50% of which is payable to WellCare and
the balance to Mr. Ullmann's wife, and also provides Mr. Ullmann with a
Company automobile. In the event of termination for any reason, Mr. Ullmann is
entitled to continued salary and insurance benefits for one year. The agreement
also provides for a one-time, lump sum severance payment in the amount of
$500,000 in the event of termination of employment prompted by the Company,
and as a result of a change of ownership or Board composition of over
twenty-five percent (25%).
Mr. Goff is employed under an agreement with the Company effective
January 1, 1994 which expires December 31, 1996, and provides for a base
salary of $118,976 for 1996, with annual increases of four percent (4%), and
such additional bonus as the Board of Directors or the Company's President may
determine. Under the agreement, WellCare provides Mr. Goff with a Company
automobile. In the event of termination for any reason, Mr. Goff is entitled
to continued salary and insurance benefits for 90 days and a severance
payment equal to two weeks' salary for every year of service with the Company in
excess of six years.
Mr. Strein is employed under an agreement with the Company effective July 1,
1993 which expires June 30, 1996, and provides for an annualized base salary
of $92,610 for 1996, with annual increases of five percent (5%), and such
additional bonus as the Board of Directors or the Company's President may
determine. Under the agreement, WellCare provides Mr. Strein with a Company
automobile. In the event of termination for any reason, Mr. Strein is
entitled to continued salary and insurance benefits for 90 days and a
severance payment equal to two weeks' salary for every year of service with the
Company in excess of six years.
Ms. Corsones is employed under an agreement with the Company effective May 23,
1994 which expires May 22, 1998, and which was subsequently amended as of
January 1, 1996. The agreement provides for a base salary of $125,000 for
1996, with annual increases of four percent (4%) on January 1st of each of the
remaining contract years, plus an annual bonus equal to one percent (1%) of
the annual net (after tax) profit of the Company up to $100,000 and such
additional bonus as the Board of Directors or the Company's President may
determine. In January 1996, the Board of Directors granted an additional bonus
to Ms. Corsones in the amount of $50,000. Under the agreement, Ms. Corsones is
entitled to receive incentive or non-incentive options to purchase 2,000
shares of Common Stock on January 1st of each year during her term of
employment at an exercise price (a) with respect to an incentive option, at the
fair market value of the Common Stock on the date of grant, and (b) with
respect to a non-incentive option, not less than 75% of the fair market value
of the Common Stock on the date of grant. The options will be exercisable at
the rate of 25% of the underlying shares each year commencing one year from
the date of grant. The agreement further provides for the grant of 5,000
phantom shares, the terms of which are described above in the "Executive
Compensation" table under footnote (4).
Under the agreement, WellCare provides Ms. Corsones with a Company automobile.
Additionally, the Company is required to make contributions in the amounts of
$14,000 per annum for a period of seven years into a tax deferred annuity
with a retirement benefit of $500,000 at age 65. In the event of termination
for any reason, Ms. Corsones is entitled to continued salary and insurance
benefits for one year. However, in the event of termination prompted by the
Company, and as a result of a change of ownership or Board composition of
over twenty-five percent (25%), Ms. Corsones is entitled to a one-time lump sum
severance payment in the amount of $250,000.
Mr. Hayward is employed under an agreement with the Company effective May 29,
1996, which expires May 28, 2001, and provides for an annualized base salary
of $190,000. Additionally, under the agreement, Mr. Hayward is entitled to
receive annually an incentive bonus equal to ten percent (10%) of the earnings
before income taxes of WellCare of Connecticut, Inc. Under the agreement,
Mr. Hayward was granted non-incentive options to purchase 35,000 shares of the
Company's Common Stock at an exercise price equal to $12.87, the fair market
value on May 29, 1996, the date of grant. The options are exercisable at an
annual cumulative rate of 50% of the underlying shares commencing one year
from the date of grant; such options will become fully exercisable upon a
change in ownership of the Company. Additionally, Mr. Hayward is entitled to
receive non-incentive options to purchase 5,000 shares of the Company's Common
Stock on May 29th of each year during his term of employment at an exercise
price equal to the fair market value on the date of grant. These options
will be exercisable at the same annual cumulative rate as outlined above.
Under the agreement, in the event of termination for any reason without cause,
Mr. Hayward is entitled to the greater of continued salary for one year or
salary payable to him through the Expiration Date of this agreement. The
agreement also provides for a one-time lump sum severance payment in the amount
of the lesser of two years' salary or the salary payable to him through the
Expiration Date of the agreement, as a result of a termination of employment by
the Company without cause within ninety (90) days of a change in ownership of
the Company.
Mr. Kraft is employed under an agreement with the Company effective January 1,
1995 which expires December 31, 1998, and provides for a base salary of
$72,800 for 1996, with annual increases of four percent (4%), an annual bonus
equal to a minimum of 30% of his base salary for achieving or exceeding the
annual enrollment target goal established by the Board and such additional
bonus as the Board of Directors or the Company's President may determine.
Under the agreement, WellCare provides Mr. Kraft with a Company automobile.
In the event of termination for any reason, Mr. Kraft is entitled to continued
salary and insurance benefits for six months.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 19, 1996, the Company entered into an agreement for the private
placement of a 6% subordinated convertible note in the principal amount of
$20,000,000 (the "Note") due December 31, 2002, with The 1818 Fund II, L.P.
(the "Fund"), a private equity fund managed by Brown Brothers Harriman &
Co. ("BBH & Co.").
Pursuant to the Note dated January 19, 1996, in the principal amount of
$20,000,000 issued by the Company and payable to the order of the Fund or its
registered assignees, the Note accrues interest at an interest rate of six
percent (6%) per annum, which interest is payable quarterly by the Company.
The principal amount of the Note is payable in one amount on December 31, 2002.
The Note is subject to certain mandatory redemption at the option of the holder
of the Note upon certain changes in control of the Company. In addition, the
Note is subject to certain optional redemptions at the option of the Company
after the fourth anniversary of the date of the Note. By its terms, the Note is
subordinated to all senior indebtedness of the Company. The holder of the
Note has the right to convert the then outstanding principal amount of the
Note into that number of shares of common stock of the Company at a conversion
price of Twenty-Nine Dollars ($29.00) per share, subject to adjustment.
Under the Note, the conversion price granted to the holder of the Note is
adjusted, inter alia, if the Company issues shares of its common stock or
options, warrants or other rights to acquire shares of common stock of the
Company at a price per share less than the then current market price.
Pursuant to the terms of the Note Purchase Agreement dated January 19, 1996
(the "Agreement") entered into between the Company and the Fund, as of such
date, the Company has caused one (1) vacancy to be created on its Board of
Directors and has caused Lawrence C. Tucker, as a designee of the Fund, to be
appointed to the Board. Mr. Tucker's directorship does not have any
classification. Mr. Tucker has been nominated for election as a Class II
Director at this Annual Meeting. In addition, under the terms of the
Agreement, at the next annual meeting of the shareholders of the Company and
at each subsequent annual meeting of the shareholders of the Registrant where
Class II Directors are to be elected, provided the Fund owns at least three
percent (3%) of the common stock outstanding of the Company (after giving affect
to the issuance of the shares issuable upon conversion of the Note), the Fund
has the contractual right to nominate that number of directors, but in no
event less than one (1) director or more than two (2) directors, equal to
the Fund's proportionate share of the total number of common stock then
outstanding of the Company, upon giving effect to the conversion of the Note;
provided, however, that if the Fund owns three percent (3%) or more but less
than five percent (5%) of the common stock outstanding of the Company (after
giving effect to the issuance of the shares issuable upon conversion of the
Note), the foregoing right will be limited to the nomination of one (1)
director. Such directors will be classified as Class II Directors. The two (2)
principal shareholders of the Company, Edward A. Ullmann and Robert W. Morey,
Jr., have agreed in the Agreement to vote their shares of the Company in
favor of the nominees of the Fund. Pursuant to the Agreement, the Fund may
purchase shares of common stock of the Company (in addition to the shares,
issuable upon conversion of the Note), provided that such purchases do not,
in total, exceed Ten Million Dollars ($10,000,000). Finally, provided the
Fund holds at least fifty percent (50%) of the shares issued or issuable
upon conversion of the Note, the Fund, under certain conditions, may sell
shares issuable upon conversion of the Note in certain private placements of
common stock by the Company.
Pursuant to the terms of the Registration Rights Agreement dated January 19,
1996 between the Company and the Fund, the holder of the Note and the holder
of the shares issued upon conversion of the Note have been granted two (2)
demand registration rights and unlimited incidental registration rights. The
Company is also required, within eighteen (18) months of January 19, 1996, to
file with the Securities and Exchange Commission, an "evergreen" shelf
registration statement with respect to the Note and any shares issued upon
conversion of the Note. As of June 19, 1996, the Company was in negotiation
with the holder of this Note to amend certain terms, including the conversion
price.
WellCare has an agreement with Park West Entertainment, Inc. ("Park West"),
a corporation wholly-owned by Mr. Ullmann, pursuant to which Park West
provides catering, conferencing and related administrative services in return
for fixed monthly fee. In 1993, 1994 and 1995, Park West received aggregate
fees of approximately $211,000, $276,000 and $276,000 respectively, collectively
from WellCare, and its subsidiaries. On December 31, 1994, WellCare and its
subsidiaries consolidated certain amounts due from Park West. As a result,
Park West owed WellCare, and its subsidiaries, approximately $198,000,
evidenced by promissory notes bearing interest at a rate of 7.5% per annum
and payable in monthly installments over a five year period commencing
January 1, 1995. During 1995, Park West incurred additional amounts due to
the Company of approximately $60,000. This additional debt along with the
outstanding balance of the December 31, 1994 promissory notes were refinanced.
As a result, promissory notes of approximately $223,000 at 7.5% per annum,
payable in monthly installments and due by December 31, 1999, were
outstanding at December 31, 1995. The Company believes that the interest
rate charged to Park West is comparable to that which could be obtained by
Park West from an unaffiliated party.
In June 1995, the Company sold WCMM, its then wholly-owned subsidiary, to a
newly formed corporation for cash of $.6 million and a note receivable of
$5.1 million. As of May 14, 1996, approximately 11% of the Buyer's equity
was directly or indirectly held by current or recent directors, officers or
employees of the Company. The Buyer ("Buyer") is seeking additional financing,
and is contractually obligated to pay the note receivable from such proceeds.
In view of the Buyer's operating losses, the Company has obtained from
certain of the Buyer's equity holders personal guarantees of the notes and
pledges of collateral to service these guarantees. As of May 14, 1996, Dr.
Dean, a director of the Company, guaranteed $1.0 million of the $5.1 note
receivable. Dr. Dean also owns (directly and indirectly) 4.3% of Buyer's
equity. Mr. Goff, Executive Vice President and a director of the Company,
guaranteed $.5 million of the $5.1 note receivable. Mr. Goff owns 2.5% of
Buyer's equity. Mr. Kraft, Vice President of Marketing of the Company,
guaranteed $.25 million of the $5.1 note receivable. Mr. Kraft owns .5% of
the Buyer's equity. Mr. Strein, President of WellCare Administration, Inc.
and a director of the Company, guaranteed $.25 million of the $5.1 note
receivable.
In addition, a $3 million bank line of credit was entered into by the Buyer on
December 28, 1995, which was guaranteed by Mr. Ullmann in his personal capacity.
WCNY has an agreement with Alliances to provide medical care of its members.
Mr. Ullmann has personally guaranteed in his individual capacity loans to two
entities which were predecessors to the Alliances. Each loan was in the
amount of $2.7 million.
On December 4, 1995, WellCare entered into a Note Agreement with Cost
Management Technologies, Inc. ("CMT"), whereby WellCare agreed to loan CMT
$320,000, at a fixed interest rate of six percent (6%) per annum. The loan
was originally due on March 2, 1996. The term of the loan was extended through
June 30, 1996. The Company is in the process of re-negotiating the terms of
this Note Agreement. As of May 14, 1996, Mr. Morey owned 60.9% of the equity
of CMT.
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return to the
Company's (WELL) shareholders during the period extending from August 12, 1993
through December 31, 1995, as well as an overall stock market index (the
Nasdaq stock market (US) composite index) and WELL's peer group index (SIC
Code Index 80-Nasdaq Health Services Stocks):
Compare Cumulative Total Return Among The WellCare Management
Group, Inc., Nasdaq (US) Composite Index and SIC Code Index
Seven-line graph with dollars going up the left edge from 75, 100, 125,
150, 175, 200 and 225.
Four-item indicator on the bottom edge reflecting prices at 8/12/93 of 100;
12/31/93 of WELL 200, SIC 123, Nasdaq 108; 12/31/94 of WELL 209, SIC 132,
Nasdaq 106; and 12/31/95 of WELL 183, SIC 168 and Nasdaq 153.
ASSUMES $100 INVESTED ON AUGUST 12, 1993 AND REINVESTMENT OF DIVIDENDS
FISCAL YEAR ENDING DECEMBER 31, 1995
(1) Does not reflect the impact on the closing stock price of WELL at December
31, 1994 and 1995 that may have occurred had the results of operations during
1994 and 1995 been reported originally in a manner consistent with the prior
period restatement as reflected in the Company's audited financial statements
for the year ended December 31, 1995.
<PAGE>
SECTION 16 PROXY STATEMENT DISCLOSURE
Section 16 of the Securities Exchange Act of 1934, as amended, requires that
officers, directors and holders of more than 10% of the Common Stock ("Reporting
Persons") file reports of their trading in Company equity securities with the
Securities and Exchange Commission. Based on a review of Section 16 forms
filed by the Reporting Persons during the last fiscal year, the Company believes
that the Reporting Persons complied with all applicable Section 16 filing
requirements.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Deloitte & Touche LLP currently serve as the Company's independent auditors.
They have served in that capacity since 1992. On May 11, 1996, subject to
ratification by the shareholders, the Company's Board of Directors appointed
Deloitte & Touche LLP as independent auditors of the Company for 1996. The
shareholders are asked to ratify this action of the Board. The affirmative
vote of a majority of the total votes cast by the holders of Common Stock and
Class A Common Stock present in person or represented by proxy at the Annual
Meeting voting as one class is required to ratify the appointment of Deloitte &
Touche LLP as independent auditors of the Company for 1996. Unless marked to
the contrary, proxies received will be voted "FOR" ratification of the
appointment of Deloitte & Touche LLP as independent auditors of the Company for
1996. It is anticipated that a representative of Deloitte & Touche LLP will be
present at the Annual Meeting to answer appropriate questions within such
firm's field of expertise. Such representative will have the opportunity to
make a statement if he/she desires to do so.
The ratification of the appointment of Deloitte & Touche LLP as independent
auditors of the Company is being submitted to the shareholders because the
Board believes that such action follows sound corporate practice and is in
the best interest of the shareholders. If the shareholders do not ratify the
appointment by the requisite vote at the Annual Meeting, the appointment of
independent auditors will be reconsidered by the Board. If the shareholders
ratify the appointment, the Board, in its discretion, may still direct the
appointment of new independent auditors at any time during the year if the
Board believes that such change would be in the best interest of the Company
and its shareholders.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR 1996.
OTHER BUSINESS
Management does not know of any matter to be brought before the Annual
Meeting other than as described above. In the event any other matter
properly comes before the Annual Meeting, the persons named in the
accompanying form of proxy have discretionary authority to vote on such matters.
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered for inclusion in the Company's
proxy solicitation material for the next Annual Meeting of Shareholders must
be received by the Company at its principal office by December 31, 1996.
Dated: June 26, 1996
<PAGE>
PROXY
THE WELLCARE MANAGEMENT GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert W. Morey, Jr. and Nancy L. Lavallee and
each of them, proxies, each with the power of substitution to vote the shares of
the undersigned at the Annual Meeting of Shareholders of The WellCare
Management Group, Inc. (the "Company") on July 23, 1996, and any adjournments
or postponements thereof, upon all matters as may properly come before the
Annual Meeting. Without otherwise limiting the foregoing general
authorization, the proxies are instructed to vote as indicated herein.
(CONTINUED ON OTHER SIDE)
<PAGE>
Please mark your
X votes as in this
example.
This proxy, which is solicited on behalf of the Board of Directors, will be
voted FOR the matters described in paragraphs (1), (2) and (3) unless the
shareholder specifies otherwise, in which case, it will be voted as specified.
FOR all nominees listed at WITHHOLD AUTHORITY
right (except as marked to to vote for three (3) and
contrary below) three (3) two (2) nominees listed at
nominees and two (2) nominees right.
listed at right.
(1) TO ELECT THREE (3) Nominees for Class III Directors:
CLASS III DIRECTORS Robert W. Morey, Jr.
AND TWO (2) CLASS Edward A. Ullmann
II DIRECTORS TO THE Charles E. Crew, Jr.
BOARD OF DIRECTORS. Nominees for Class II Directors:
John E. Ott, M.D.
Lawrence C. Tucker
FOR AGAINST ABSTAIN
(2) To ratify the appointment of Deloitte & Touche LLP
as independent auditors of the Company for the year
ending December 31, 1996.
FOR AGAINST ABSTAIN
(3) Upon any and all other business that may come before
the Annual Meeting.
PLEASE SIGN AND RETURN THE
CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
SIGNATURE(S): DATE:
Note: [Executors, Administrators, etc. should give full title.]
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WELLCARE PROFILE
The WellCare Management Group, Inc. (WellCare) , through its wholly-owned
subsidiaries, WellCare of New York, Inc. and WellCare of Connecticut, Inc.,
provides health care services to 100,054 members in a service area that
extends from New York City north through the Hudson River Valley to the
Capital Region and Southern Adirondacks, west into the Mohawk River Valley
and Southern Tier and east into contiguous areas of Connecticut.
WellCare is an IPA/direct contract mixed model HMO with a provider
network organized into capitated, risk-sharing regional physician alliances
covering more than 80 percent of the WellCare membership. WellCare also has
arrangements with several area PHOs and physician professional corporations.
WellCare is the largest HMO in its core Hudson River Valley service
area and has been recognized as one of the most progressive HMOs in the
region with a rich history of leadership, innovation and dedication to the
ideals of quality in health care. Rather than just reacting to the dramatic
changes of recent years, WellCare has developed managed care programs and
products that are helping to define the emerging shape of health care in
America.
WellCare's significant health care initiatives have included: Healthy
Choice, a managed care plan for Medicaid recipients; the Bienestar Total
Wellness Program, a national model for integrative health care; WellCare
Senior Health, a managed care program for Medicare beneficiaries that is the
only Medicare-risk program in most of its eight-county service area, and
WellCare University, an HMO training facility, managed care R&D facility and
center for strategic planning.
Through its subsidiaries, WellCare also offers a comprehensive package of
health plans and riders, including point-of-service plans, and stand-alone
products such as the WellCare Rx and the WellCare Vision Plan for self-funded
groups.
WellCare became a public company in August of 1993. Its common stock is
traded over-the-counter on The Nasdaq National Market System under the symbol
"WELL".
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CEO's Letter to the WellCare Shareholders:
On April 30, 1996, I was appointed Chairman of the Board and Chief
Executive Officer of WellCare. After two months of working with my old
friend, Ed Ullmann, and the management team, I am developing my understanding
of WellCare, past and present, as well as where we should be in the future.
The following briefly describes my thoughts.
First, the competitive environment in WellCare's core market in the Hudson
River Valley has changed dramatically in the past 18 months. The regulatory
parameters for marketing and pricing commercial products have been altered by
the Department of Insurance of the State of New York, changes have been made
in Medicaid and several strong HMO competitors have expanded into the Hudson
River Valley market. As a result of these changes, it has been necessary for
the Company to enhance its competitive position by reducing and restructuring
its administrative and provider costs to meet the new challenges and be
positioned to respond to new opportunities for probable growth.
Balancing the challenge in our core markets are the opportunities for
growth in Connecticut and New York City, jurisdictions in which WellCare
recently became licensed. We must capitalize on these growth opportunities,
be cost competitive in these markets and have appropriate health plans to
offer. We must, however, make certain that such growth is profitable.
We are attempting to meet the twin challenges of cost competitiveness
and profitable growth in a timely and vigorous manner. We are seeking to
restore the basic earning power of our existing business and to expand
profitably in our new markets.
What this all means to the WellCare family is the challenge of
transitioning to a new culture of accelerating change, increasing
productivity, and a focus on generating reasonable returns on the invested
capital of stockholders. I am fully confident that the WellCare family will
meet the challenge and achieve its goals because of the inherent talents and
dedication of those individuals who are joined together in this common
effort.
Sincerely,
/s/ Robert W. Morey
Robert W. Morey
Chairman and CEO
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President's Letter to the WellCare Shareholders:
WellCare's goal is simple: To build a health care system that works for our
members and for the community and creates value for our shareholders. Building
this system necessitates an integrated approach encompassing every aspect of
health care: primary care access, health maintenance, quality assurance,
training, education, information systems, and much more.
In 1995, WellCare moved ahead on virtually every front to create the
systems that will improve the health of our members, build mutually
respectful partnerships with physicians and control costs. It was a year in
which we vastly strengthened our information systems, deepened our Quality
Assurance processes, planned our innovative new wellness product, Bienestar, for
introduction in 1996; developed a strategic planning, training and R&D center
at WellCare University; and brought in new HMO members through Senior Health
(a new Medicare-risk contract) and geographic expansions that have increased
our service area population from 2.6 million to 11 million people.
One of the challenges of building a health care system for the 21st Century
is the difficulty of dealing with the new kinds of financing arrangements
that have accompanied the changes in health care, in particular, risk-sharing
arrangements with physicians. In early 1996, WellCare conducted, in full
cooperation with our auditors, Deloitte and Touche, LLP, a comprehensive
review of our past accounting practices, principally with respect to these
risk-sharing arrangements. This review resulted in a revision of previously
announced earnings for 1995 and a restatement of earnings for 1994 which are
described below.
REVISED FINANCIAL RESULTS FOR 1995 AND RESTATED RESULTS FOR 1994
Revised net income for the year ended December 31, 1995 was $1.7 million,
or $.27 per share, on revised revenue of $152.9 million. The revisions from
the previously reported 1995 preliminary results of net income of $7.8
million, or $1.25 per share, on revenue of $156.2 million, are principally
attributable to the reversal of $2.0 million of licensing revenue, which will
be recognized as received, and the establishment of a reserve equal to the
total amount of a $5.1 million note receivable, as well as a $1.7 million
reduction in medical expense as a result of the 1994 restatement. WellCare
provided additional $.7 million reserves relating to other advances, $.6
million relating to other miscellaneous revenue and $3.5 million to
strengthen other balance sheet reserves.
For 1994, audited financial statements have been restated to reflect a
$4.7 million increase in medical expenses as described more fully below.
Revenue of $122.6 million recorded in 1994 has not been affected, while net
income, which had previously been reported as $6.2 million, or $1.00 per share,
has been reduced by $2.8 million to $3.4 million, or $.56 per share.
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FINDINGS RELATED TO THE 1994 AND 1995 RESULTS
The earnings and revenue revisions and restatements by WellCare relate
primarily to three accounting issues identified in the course of the
Company's and auditor's comprehensive review.
- - Payments aggregating $4.7 million made in 1994 by two physician practice
groups to WellCare and to providers from loans and recorded as a reduction in
WellCare's medical expense during such year as the loans are repaid.
From inception through September 30, 1994, WellCare contracted directly
with each of its primary care physicians (PCPs) on a capitation basis. During
the fourth quarter of 1994, the Company restructured its arrangements with a
majority of its PCPs and specialists by contracting with physician alliances.
Each physician alliance contracted with individual PCPs and specialists to
provide the requisite health care services. The Company's contract with each
physician alliance provides for payment of a fixed monthly capitation payment
for each HMO member selecting an alliance PCP, designed to cover
substantially all of the member's health care services. WellCare elected to
contract with these alliances in order to provide risk sharing among all
physicians within the respective alliance.
In anticipation of the formation of the physician alliances, two
physician practice groups paid outstanding physician capitation deficits to
WellCare on behalf of individual PCPs and also paid other health care
providers certain claims that WellCare had disputed, which payments aggregated
$4.7 million.
These entities were each separately funded with a $2.7 million loan from a local
commercial bank. The Company and its auditors have elected to recognize the
$4.7 million reduction in medical expenses resulting from such payments as
the loans are repaid to the banks by the two entities. Accordingly, the
1994 audited financial statement has been restated to increase medical
expense by $4.7 million. As a result, a $1.7 million reduction in medical
expense has been recognized in the revised 1995 financial statements to
reflect the amount of the loans that were repaid to the banks through December
1995. The remaining $3.0 million will be reflected as a reduction of medical
expense by the Company as and when the loans are repaid. The loans are
current, have been repaid on an orderly basis and are scheduled to be
repaid in full by December 1996.
- - WellCare's 1995 financial statements have been adjusted to fully reserve a
note receivable of $5.1 million in light of the debtor's financial condition.
In June 1995, WellCare contributed approximately $5.1 million to its then
wholly-owned subsidiary, WellCare Medical Management ("WMM"), a physician
practice management company.
Thereafter, WellCare sold WMM's business to an unrelated third party, formed to
acquire WMM's business, for cash of $.6 million and a note receivable of $5.1
million. Notwithstanding personal guarantees by certain shareholders of the
buyer, in light of the buyer's financial condition, WellCare has elected to
reserve the full value of the note, resulting in a charge to operations of $5.1
million in 1995. To the extent the note is repaid in subsequent periods, the
repayments will be recognized as revenue when received.
- - A $2.0 million licensing fee, recorded by WellCare as fourth quarter 1995
revenue, will be recognized as revenue when received.
In the fourth quarter of 1995, WellCare entered into a licensing agreement
with a company under which the licensee obtained the right to use the
WellCare and Bienestar names overseas for $2.0 million.
In December 1995, WellCare recorded the full $2.0 million as licensing revenues,
although no payment had been received. In light of the buyer's financial
condition, WellCare will recognize this amount as revenue when received.
WellCare's cash position remains strong. As of December 31, 1995, the
Company held $6.7 million of cash or short term investments, increased in
January 1996 by the proceeds from the private placement of a 6% subordinated
convertible note in the principal amount of $20 million with The 1818 Fund
II, L.P., a private equity fund managed by Brown Brothers Harriman & Co.
Despite the restatement and the revision, which are described in greater
detail in the Management's Discussion and Analysis section of this Annual
Report, WellCare remained profitable for both 1994 and 1995. The Company
believes that the revision and restatement will not adversely affect
future operations.
We are now in the process of strengthening internal and external cost
controls and disciplines in order to better position the Company for
competitive and profitable long-term growth. We also continue to expand our
New York City, Southern Tier and Connecticut operations.
Notwithstanding the recent accounting adjustments, 1995 was a year of
progress for WellCare.
Here are some highlights:
- - In March 1995, WellCare of Connecticut, Inc. received licensure from the
Connecticut Department of Insurance to operate an HMO in that state which is
contiguous to the company's Hudson River Valley service area.
- - In March 1995, WellCare improved its information systems with the opening of
the WellCare Information Center which brings state-of-the-art information
technology to bear on every business function from claims processing, to
physicians payments, to utilization reports, to the Company's internal and
external communications. WellCare information systems were also significantly
advanced in 1995 by the implementation of a new IBM RISC System/6000
computer. The RISC system installation was featured in PC Week.
- - In March 1995, the WellCare Foundation, Inc., an independent not-for-profit
corporation, was established to maintain a grant giving program for community
organizations dedicated to charitable, educational and scientific purposes.
Its goal is to improve the quality of life in the communities served by
WellCare.
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- - In March 1995, WellCare acquired the assets of Managed Care Administrators,
Inc. (MCA), marking WellCare's entry into the managed care market in New York
City. MCA managed PrimeCare of New York and PrimeCare of Brooklyn and Queens,
physicians' networks that provided primary care health services to Medicaid
recipients.
- - In April 1995, WellCare executed an agreement with ExcelCare, a consortium of
more than 600 Westchester County physicians and four hospitals, to develop
WellCare's provider network there.
WellCare anticipates licensure to expand into Westchester County in late 1996.
- - In April 1995, Healthy Choice, WellCare's managed care program for Medicaid
recipients, won the prestigious Astra Merck-National Managed Health Care
Congress (NMHCC) Partnership Award for its model program in partnership with
Ulster County, N.Y., which was one of the state's first Medicaid managed
care programs.
- - In June 1995, WellCare sold WellCare Medical Management, Inc., its practice
management subsidiary, to a new, independent company, for $.6 million and a
note receivable of $5.1 million. The purchasing company offers practice
management, alliance management, consulting and group purchasing services.
- - In July 1995, WellCare received approval from the New York State Department
of Health to expand its service area into the New York City boroughs of
Manhattan, Queens, Brooklyn and the Bronx.
In August, WellCare received regulatory approvals to offer Healthy Choice, the
Company's managed care product for Medicaid recipients in those boroughs.
- - In August 1995, WellCare received approval from the federal Health Care
Financing Administration to offer WellCare Senior Health, a managed care risk
program for Medicare beneficiaries, in eight counties of the WellCare service
area. The program is offered in Albany, Rensselaer, Greene, Columbia, Ulster,
Dutchess, Orange and Rockland Counties of New York State, a service area with
more than 200,000 Medicare beneficiaries.
- - In August 1995, WellCare received One-Year Accreditation from the National
Committee for Quality Assurance (NCQA), an independent not-for-profit
organization that accredits managed care organizations.
- - In October 1995, WellCare increased revenues with a 4.7 percent weighted
average premium rate increase.
- - In October 1995, WellCare executed new three-year risk-sharing agreements
with physician alliances in its Hudson Valley service area. These alliances
provide health care services to more than 80 percent of WellCare's membership.
- - During 1995, WellCare University became operational as a center for strategic
planning and managed care R&D. An early contribution of WellCare University
was the development of Bienestar, a new package of wellness benefits for 1996
which includes coverage for chiropractic care, acupuncture and nutrition
counseling and incorporates a proactive approach to member care. In 1996,
WellCare University is planning a number of important R&D projects in
partnership with corporate sponsors such as SmithKline Beecham, Astra Merck
Inc., Allianz Life Insurance Company of North America, Apria Healthcare,
Block Vision and Diversified Pharmaceutical Services.
- - WellCare of New York achieved a 0.00 complaint ratio and was one of the top
two of New York State's 71 health insurers, according to the New York State
Insurance Department's 1994 rankings announced in December. WellCare had no
complaints upheld by the Insurance Department.
Overall, 1995 was a year of real progress for WellCare as we continued
building our organization and its ability to realize our vision of a high
quality, compassionate healthcare system. All of us at WellCare look forward
eagerly to 1996 as a year of stabilization and growth and of renewed commitment
to continue our mission to build a better healthcare system for tomorrow.
Sincerely,
/s/ Edward A. Ullmann
Edward A. Ullmann
President
