<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-21684
THE WELLCARE MANAGEMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 14-1647239
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
PARK WEST, HURLEY AVENUE EXTENSION, KINGSTON, NY 12401
(Address of principal executive offices) (Zip Code)
(914) 338-4110
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
The number of Registrant's shares outstanding on August 2, 1996
was 4,871,878 shares of Common Stock, $.01 par value, and
1,440,364 shares of Class A Common Stock, $.01 par value.
Page 1 of 92 Pages
Exhibit Index on Page 24
<PAGE>
<PAGE>2
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
Part I - Consolidated Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1996 and 1995 6
Consolidated Statement of Shareholders'
Equity for the Six Months Ended
June 30, 1996 8
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis
of Financial Condition and
Results of Operations 15
Part II - Other Information
Item 1 Legal Proceedings 20
Item 2 Changes in Securities 21
Item 3 Defaults Upon Senior Securities 21
Item 4 Submission of Matters to a
Vote of Security Holders 21
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 22
Signatures 23
Index to Exhibits 24
<PAGE>
<PAGE>3
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
June 30, December 31,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,692 $ 5,456
Short-term investments -
available for sale 3,751 1,261
Accounts receivable (net
of allowance for doubtful
accounts of $1,950 in 1996
and $1,166 in 1995) 11,894 13,941
Due from affiliates - net 71 50
Advances to participating providers 1,258 3,078
Other receivables (net of allowance
for doubtful accounts of $744 in
1996 and 1995) 7,170 4,645
Prepaid expenses and other
current assets (net of allowance
for doubtful accounts of $1,176 in
1996 and $534 in 1995) 11,853 5,109
TOTAL CURRENT ASSETS 42,689 33,540
PROPERTY AND EQUIPMENT (net
of accumulated depreciation
and amortization of $4,425 in
1996 and $3,711 in 1995) 12,561 12,993
OTHER ASSETS:
Restricted cash 8,241 8,241
Notes receivable (net of allowance
for doubtful accounts of $3,954 in
1996 and $4,596 in 1995) 1,295 1,389
Preoperational costs (net of
accumulated amortization of
$795 in 1996 and $349 in 1995) 2,940 3,232
Other non-current assets (net
of allowance for doubtful
accounts of $348 in 1996 and 1995
and accumulated amortization of
$440 in 1996 and $301 in 1995) 4,026 3,817
Due from affiliates 147 173
Goodwill (net of accumulated
amortization of $1,388 in 1996
and $1,066 in 1995) 8,342 8,626
TOTAL $80,241 $72,011
<PAGE>
<PAGE>4
June 30, December 31,
1996 1995
(Unaudited)
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Notes payable $ 4,004 -
Current portion of long-term debt 882 1,547
Medical costs payable 13,361 14,030
Accounts payable 1,345 702
Accrued expenses 1,529 1,453
Other current liabilities 221 15
Unearned income 3,091 3,060
TOTAL CURRENT LIABILITIES 24,433 20,807
LONG-TERM LIABILITIES:
Long-term debt 26,661 19,209
Other liabilities 2 191
TOTAL LIABILITIES 51,096 40,207
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Class A Common Stock ($.01 par value;
1,555,354 and 1,599,109 shares authorized
1,440,364 and 1,484,119 shares issued
and outstanding at June 30, 1996 and
December 31, 1995, respectively) 14 15
Common Stock ($.01 par value;
20,000,000 shares authorized,
4,871,878 and 4,807,725 shares
issued at June 30, 1996 and
December 31, 1995, respectively) 49 48
Additional paid-in capital 26,624 26,371
(Accumulated deficit) Retained earnings (1,673) 1,233
Statutory reserve 4,360 4,360
29,374 32,027
Unrealized (loss) gain on
short-term investments (5) 5
Less:
Notes receivable from shareholders 17 17
Treasury stock (at cost; 14,066 and
14,266 shares of Common Stock at
June 30, 1996 and December 31, 1995,
respectively) 207 211
TOTAL SHAREHOLDERS' EQUITY 29,145 31,804
TOTAL $80,241 $72,011
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>5
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(Restated) (Restated)
REVENUE:
Premiums earned $39,712 $35,078 $79,763 $68,918
Administrative fee income 597 580 1,363 765
Income from affiliates 62 53 130 116
Interest and investment
income 354 208 714 416
Other income 468 983 790 1,562
TOTAL REVENUE 41,193 36,902 82,760 71,777
EXPENSES:
Medical expenses 35,855 26,721 68,393 53,070
General and administrative
expenses 8,777 5,667 16,279 10,478
Depreciation and
amortization expense 802 500 1,620 967
Interest expense 559 340 1,109 594
Expenses paid to affiliates 90 82 203 190
Other expenses - net (1) (6) (1) 41
TOTAL EXPENSES 46,082 33,304 87,603 65,340
(LOSS) INCOME BEFORE
INCOME TAXES (4,889) 3,598 (4,843) 6,437
PROVISION FOR INCOME TAXES (1,955) 1,475 (1,937) 2,639
(LOSS) NET INCOME ($2,934) $2,123 ($2,906) $3,798
NET (LOSS) INCOME PER SHARE ($0.47) $0.34 ($0.46) $0.61
Weighted average shares of
common and common stock
equivalents outstanding 6,298 6,243 6,294 6,239
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>6
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended June 30,
1996 1995
(Restated)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net (loss) income ($2,906) $3,798
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,620 967
(Increase) decrease in deferred taxes (305) 301
Loss on sale of assets and others - 22
Changes in assets and liabilities -
net of effects of acquisition:
Decrease (increase) in accounts
receivable - net 2,047 (2,416)
Decrease in medical costs payable (669) (2,433)
Decrease in due to/from affiliates - net 5 7
Increase in other receivables (2,189) (2,651)
Increase in accounts payable, accrued
expenses and other current liabilities 945 168
Increase in prepaid expenses and other (6,004) (522)
Increase in unearned income 31 850
Decrease (increase) in advances to
participating providers 1,820 (823)
Increase in other non-current assets -
excluding preoperational costs and
accounts and other receivables (874) (12)
Other - net (328) (95)
NET CASH USED IN OPERATING ACTIVITIES (6,807) (2,839)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (282) (1,201)
Decrease in notes receivable (70) (4,468)
Sale of investments 4,010 3,766
Purchase of investments (6,500) (628)
Increase in preoperational costs (154) (1,101)
Payments to acquire MCA, net of
cash acquired - (215)
Other investing activities (10) 66
NET CASH USED IN INVESTING ACTIVITIES (3,006) (3,781)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock and
treasury stock - net 5 -
Proceeds from exercise of stock options 252 167
Proceeds from notes payable and
long-term debt 21,239 10,349
Repayment of notes payable and
long-term debt (10,447) (2,136)
Other financing activities - 14
NET CASH PROVIDED BY
FINANCING ACTIVITIES 11,049 8,394
<PAGE>7
Six Months Ended June 30,
1996 1995
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,236 1,774
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 5,456 2,293
CASH AND CASH EQUIVALENTS,
END OF PERIOD $6,692 $4,067
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Income taxes paid $1,792 $ 607
Interest paid 1,161 2,519
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>8
<TABLE>
<CAPTION>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
For the Six Months Ended June 30, 1996
(in thousands)
(Unaudited)
Part 1 of 1
Retained
Additional Earnings
Common Common Paid-in (Accumulated Statutory
Stock Stock Capital Deficit) Reserve
<S> <C> <S>
BALANCE,
DECEMBER 31, 1995 $15 $48 $26,371 $1,233 $4,360
Issuance of
treasury stock 1
Exercise of
stock options 252
Net change of
valuation allowance
on short-term
investments
Net income 28
BALANCE,
MARCH 31, 1996 15 48 26,624 1,261 4,360
Conversion of Class A
Common shares to
Common shares (1) 1
Net change of
valuation allowance
on short-term
investments
Net loss (2,934)
BALANCE,
JUNE 30, 1996 $14 $49 $26,624 ($1,673) $4,360
</TABLE>
Part 2 of 2
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Notes Total
on Short-term Receivable Treasury Shareholders'
Investments Shareholders' Stock Equity
<S> <C> <S>
BALANCE,
DECEMBER 31, 1995 $5 ($17) ($211) $31,804
Issuance of
treasury stock 4 5
Exercise on
stock options 252
Net change of valuation
allowance on short-term
investments (7) (7)
Net income 28
BALANCE,
MARCH 31, 1996 (2) (17) (207) 32,082
Conversion of Class A
Common shares to Common
shares 0
Net change of valuation
allowance on short-term
investments (3) (3)
Net loss (2,934)
BALANCE,
JUNE 30, 1996 ($5) ($17) ($207) $29,145
</TABLE>
<PAGE>
<PAGE>9
The WellCare Management Group, Inc. and Subsidiaries
Noted to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q
and, accordingly, do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction
with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. In the opinion of management,
the accompanying unaudited interim financial statements contain
all adjustments necessary to present fairly the financial position
at June 30, 1996, and the results of operations and cash flows for
the interim periods presented. Operating results for the interim
period are not necessarily indicative of results that may be
expected for the year ending December 31, 1996. Certain amounts
in the 1995 financial statements have been reclassified to conform
to the 1996 presentation.
2. Prior Period Restatement
In the second quarter of 1994, two entities which were
predecessors to the regional health care delivery networks
contracted by WellCare of New York, Inc. ("WCNY") to provide
health care services to WCNY's members (the "Alliances"), made
payments of approximately $2,879,000 to providers in connection
with the close out of the 1993 group risk accounts and to resolve
certain disputed amounts between the Company and certain
providers, which payments might otherwise have been made by the
Company. Additionally, these entities paid approximately
$1,833,000 directly to the Company in payment of 1993 provider
deficits which would otherwise have been due to the Company
directly from the providers. As originally reported in its 1994
financial statements, the Company recorded the $1,833,000 received
as a reduction of medical expense, and the Company did not record
as medical expense, the $2,879,000 paid directly to the providers
by these entities.
In March 1996, accounting personnel of the Company were informed
that Mr. Edward A. Ullmann, then Chairman of the Board, Chief
Executive Officer and President of the Company, (Mr. Ullmann
resigned as Chairman and Chief Executive Officer on April 30,
1996), personally had guaranteed in his individual capacity two
loans, each in the amount of $2,700,000, made by banks to these
two entities, the proceeds of which were used to fund the
aggregate payments of approximately $4,712,000 referred to above.
After a review of the relevant circumstances, the Company elected
to restate its 1994 financial statements by recording an
additional $4,712,000 in medical expense and establishing an
additional medical expense accrual. Since there are no specific
amounts payable by the Company as a result of these transactions,
the additional medical expense accrual will be accounted for as an
offset to medical expense in future periods as these bank loans
are paid down. A reduction of medical expense of approximately
$1,307,000 and $735,000 was recorded in the first six months of
1996 and 1995, respectively, as a result of the reductions in the
amounts of these bank loans.
<PAGE>
<PAGE>10
3. Short-Term Investments
The Company has determined that its short-term investments,
consisting primarily of state and municipal obligations might be
sold prior to maturity to support the Company's investment
strategies. Such investments have, therefore, been classified as
available for sale. The basis for available for sale securities
is market value. The separate component of shareholders' equity
representing unrealized gains or losses on investments available
for sale was approximately a $5,000 loss at June 30, 1996 and a
$5,000 gain at December 31, 1995.
4. Acquisition of Managed Care Administrators, Inc.
On March 31, 1995, pursuant to an option for which it had paid
$200,000 in November 1994, the Company acquired the assets and
assumed certain liabilities of Managed Care Administrators, Inc.
("MCA"), a company engaged in managing a network of primary care
physicians who provide health care services to Medicaid recipients
in New York City. The purchase price consisted of $500,000 in
cash, the assumption of certain liabilities and WellCare's
agreement to pay an earn-out not to exceed $1,500,000, whereby MCA
is to be paid each calendar year an amount equal to twenty percent
(20%) of the pre-interest, pre-tax net income generated by the
option assets and liabilities. The excess of $668,750,
representing the sum of the $500,000 cash portion of the purchase
price and the unamortized portion of the option at March 31, 1995,
over the $1,055,100 fair value of the net liabilities assumed was
approximately $1,724,000 at December 31, 1995. In the first
quarter of 1996, additional goodwill in the amount of
approximately $38,000 was recognized as a result of obtaining
necessary additional information which allowed the Company to more
accurately quantify the net realizable value of certain assets
purchased from MCA.
5. Sale of WellCare Medical Management, Inc.
In June 1995, the Company contributed approximately $5.1 million
to its then wholly-owned subsidiary, WellCare Medical Management,
Inc. ("WCMM") which was engaged in managing physician practices,
and then sold WCMM for cash of $.6 million and a note receivable
of $5.1 million. A gain of approximately $144,000 was deferred
pending the repayment of the note. The Company has a five-year
option to acquire the Buyer at any time at a price determined by a
formula based on the Buyer's results of operations. The Company
is in the process of re-negotiating the terms of this option.
The note receivable bears interest at a rate equal to prime plus
2% (10.25% at June 30, 1996) with interest payable monthly through
July 31, 1996 and, thereafter, principal and interest monthly
through July 31, 2000. The Buyer is seeking additional financing,
and is contractually obligated to pay the note receivable from
such proceeds. Through August 14, 1996 such financing has not
taken place. In view of the Buyer's operating losses and advances
to the Alliances, the Company has obtained from certain of the
Buyer's equity holders personal guarantees of the notes and
pledges of collateral to secure these guarantees. Nevertheless,
in view of the Buyer's financial condition and difficulties
inherent in the collection of personal guarantees and realization
of collateral, the Company had elected to fully reserve the note
receivable in 1995.
<PAGE>
<PAGE>11
6. Income Taxes
The (benefit)/provision for Federal and State income taxes is at
an effective rate of 40.0% for the six months ended June 30, 1996
and 41.0% for the six months ended June 30, 1995.
7. Stock Options
The Company's stock option plan (the "Plan"), as amended, has
446,362 shares reserved for issuance, as of June 30, 1996, upon
exercise of options granted thereunder, Incentive stock options,
as defined in Section 422 of the Internal Revenue Code, may be
granted to employees and non-incentive stock options may be
granted to employees, directors and such other persons as the
Compensation Committee appointed by the Board of Directors (the
"Committee") determines will contribute to the Company's success,
at exercise prices equal to (i) in the case of incentive options,
not less than 100% of the fair market value of the Common Stock on
the date of grant, and (ii) in the case of non-incentive options,
not less than 75% of such fair market value. In addition to
selecting the optionee, the Committee determines the number of
shares of Common Stock subject to each option, the term thereof,
which may not exceed ten (10) years, the time or times when the
non-incentive option becomes exercisable and otherwise administers
the Plan. Incentive stock options are exercisable cumulatively at
the rate of 25% per year commencing one (1) year from the date of
grant. Incentive options expires six (6) months after the date of
termination of a holder's employment by reason of death,
disability or retirement at or after the age of 65 (or such
earlier date as the option by its terms would have expired) and on
the date of termination of the holder's employment for any other
reason.
The Plan also provides for the grant of non-incentive stock
options to outside directors upon their election, re-election or
appointment to the Board of Directors to purchase 3,000 shares of
Common Stock at an exercise price equal to 75% of the fair market
value of the Common Stock on the date of grant. Such options are
for a term of five (5) years from the date of grant and expire
three (3) months following the date on which such holder ceases to
be a director or such earlier date as the option by its terms
would have expired.
Options to purchase 453,638 shares of Common Stock at exercise
prices ranging from $11.75 to $24.50 per share were outstanding
under the Plan on June 30, 1996, of which options to purchase
120,000 shares at exercise prices ranging from $12.63 to $12.87
per share had been granted in the second quarter of 1996. Of the
total options outstanding at June 30, 1996, options to purchase
64,979 shares were exercisable.
In connection with their employment contracts, the Company's
President and its Chief Financial Officer were granted 15,000 and
5,000 phantom shares, respectively, payable in cash only. These
phantom shares vest, subject to the executive's continued
employment with the Company, 25% per year on December 31st of each
year, commencing December 31, 1994, and are payable in January
1998 in an amount equal to the product of the number of phantom
shares vested in the executive, and the difference between the
closing sales prices of the Company's Common Stock as reported by
<PAGE>
<PAGE>12
the Nasdaq Stock Market (National Market) at various points in
time, as specified in their employment contracts.
8. Notes Payable and Long-Term Debt
On January 19, 1996, the Company announced the completion of a
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., a private equity fund managed by
Brown Brothers Harriman & Co. The Note accrues interest at the
rate of 6% per annum, 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.
As of August 14, 1996, the Company was in negotiation with the
holder of this Note to amend certain terms, including the
conversion price. The Company is in default of certain provisions
of its loan agreement with The 1818 Fund II, L.P., a private
equity fund managed by Brown Brothers Harriman & Co., including
the requirement to maintain a minimum tangible net worth as
defined in the loan agreement. The Company is currently
renegotiating amendments of certain terms, including a change in
the conversion price and other terms which it believes will cure
any default provisions.
In response to the Company's late filing of its Annual Report on
Form 10-K with the Securities and Exchange Commission, during
April 1996, Key Bank froze all borrowings under the Company's
$15,000,000 revolving line-of-credit pending submission of the
Company's audited financial statements. In addition, Key Bank
granted the Company a waiver of any and all financial covenants
for the periods ending December 31, 1995 and March 31, 1996. The
Company is in the process of renegotiating the line-of-credit with
Key Bank. Management anticipates that the new terms will be
finalized by September 15, 1996. As of August 14, 1996, the
outstanding borrowing on the line was $3.1 million.
In February 1996, the Company's wholly-owned subsidiary, WellCare
Development, Inc. ("WCD") incurred additional mortgage
indebtedness on a building to be used primarily for office space
for the Company. The additional indebtedness of $335,000 is due
on March 1, 2001, with a fixed interest rate of 8.25%.
9. Commitments and Contingencies
a. The Alliances commenced operations in the fourth quarter of
1994. Based on information furnished to the Company by the
Alliances, the Alliances have operated at a deficit since
inception. This deficit resulted from medical expense obligations
assumed from WellCare by the Alliances upon their formation,
medical expenses for incurred but not reported losses which were
in excess of amounts estimated at the time of their formation, and
operating losses since their formation. The deficit is
approximately $16,000,000 at December 31, 1995, based on unaudited
financial results of the Alliances. The Alliances have financed
these deficits through a combination of the lags inherent in the
receipt, adjudication and payment of claims, as well as further
deferral of claim payments and borrowings from the Buyer referred
<PAGE>
<PAGE>13
to in Note 5. In addition, a $3,000,000 bank line-of-credit was
entered into by the Buyer on December 28, 1995, which was
guaranteed by Mr. Ullmann in his personal capacity. In May 1996,
the Alliances committed to the institution of a fee withhold
program, effective July 1, 1996, as permitted under its contracts
with physicians, to withhold payments otherwise payable to
referral physicians by approximately 15% to 22% depending on the
geographic location of the physician. Management of the Alliances
and WellCare believe that this withhold program will enable the
Alliances to maintain their operations and reduce their
accumulated deficits in 1996 and substantially eliminate them in
1997.
The Company has been advised by counsel that it would have no
financial liability to providers for past services rendered in the
event the Alliances were unable to maintain their operations.
Further, the Company has direct contracts with providers which
would require the providers to continue to provide medical care to
members on the financial terms similar to those in the Alliances'
agreements with providers, in the event that the Alliance were
unable to maintain their operations. Nevertheless, in the event
of continuing losses or increasing deficits by the Alliances, the
Alliances could request increased capitation rates from the
Company.
Management of the Company does not believe that such additional
financial or increased contractual capitation rates should be
required by the Alliances and has no intention to agree to such
terms if requested by the Alliances. However, as outlined in Note
9c below, the Company agreed to record a one-time additional
charge to medical expense based on the strong recommendation of
the State of New York Insurance Department.
b. Class Action Litigation - Between April 1, 1996 and June 6,
1996, the Company as well as two of its officers who are also
directors, were named as defendants in twelve separate actions
(the "Securities Litigations"). An additional three directors
were also named in one of those actions. Of the twelve separate
actions, ten were filed in the United States District Court for
the Northern District of New York and the other two were filed in
the United States District Court for the Southern District of New
York. The claims asserted in the Securities Litigations are
substantially similar to one another and essentially seek the same
relief. Plaintiffs seek to recover damages allegedly caused by
defendants' (including WellCare's) violations of federal security
laws with regard to the preparation and dissemination to the
investing public of false and misleading information concerning
WellCare's financial condition. Plaintiffs allege that as a
result of their reliance on these alleged misrepresentations, they
purchased stock in WellCare at artifically inflated prices.
Plaintiffs are seeking compensatory damages in an amount to be
determined at trial.
On July 3, 1996, by Order of Magistrate Judge David R. Homer, the
Securities Litigations were consolidated and an amended
consolidated complaint is due to be served on August 21, 1996.
Because the Securities Litigations were only recently
consolidated, discovery has not yet begun. The Company's counsel
is currently negotiating with plaintiffs' counsel to effect a
dismissal, without prejudice, of the three additional directors
who were named in one of the pre-consolidation actions and expects
to effect a dismissal of these parties before the amended
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<PAGE>14
consolidated complaint is served. Although management is unable
to predict the likelihood of success on the merits of the
consolidated class action, it has instructed its counsel to
vigorously defend its interests. The Company has insurance in
effect which may, at least in part, offset any costs to be
incurred in these litigations.
c. Regulatory Matters - In connection with a comprehensive review
of its arrangements with Alliances and the financing of Alliances
as discussed further in Notes 2 and 9a, the Company delayed the
filing of its Annual Report on Form 10-K with the Securities and
Exchange Commission. Also, the State of New York Insurance
Department accelerated its normal statutory audit of the Company
and is expected to consider the same issues which were reviewed by
the Company, as well as other matters. It is not possible to
predict the actions, if any, which may be taken by these or other
regulatory bodies or the effects of those actions, if any, on the
business operations or financial statements of the Company.
Nonetheless, on August 8, 1996, in a meeting with the State of New
York Departments of Insurance and Health, the Insurance Department
strongly recommended that the Company record a one-time additional
charge of $3.7 million resulting from assuming the cost of
hospital inpatient care for members, the cost of which had
previously been assumed by the Alliances and for which the Company
had no contractual obligation to pay.
d. Other - The Company is involved in litigation and claims which
are considered normal to the Company's business. In the opinion
of the management, the amount of loss that might be sustained, if
any, would not have a material effect on the Company's
consolidated financial statements.
10. Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and
cash equivalents, short-term investments, due from affiliates -
net, advances to participating providers, other receivables - net,
restricted cash, other non-current assets, accounts payable and
accrued expenses approximate their fair value.
The fair value of notes receivable consisting primarily of
advances to medical practices, is not materially different from
the carrying value for financial statement purposes. In making
this determination, the Company used interest rates based on an
estimate of the credit worthiness of the medical practice.
The carrying amount of long-term debt, the majority of which bears
interest at floating rates, are also assumed to approximate their
fair value.
11. Earnings Per Share
Earnings per share calculations are based on a weighted average
number of shares outstanding for the applicable period and give
effect to all outstanding stock options. No material dilutive
securities existed at June 30, 1996 or 1995.
<PAGE>
<PAGE>15
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and notes
thereto, included in the quarterly report and with the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
As a result of the restatement of prior period operating results,
the medical expense for the three and six months period ended June
30, 1995 has been reduced from the previously reported amounts
(See Note 2 of "Notes to Consolidated Financial Statements").
The Company's results of operations depend in large part on
accurately predicting and effectively managing medical costs and
other operating expenses. A variety of factors and risks,
including competition, changes in health care practices, changes
in federal or state laws and regulations or the interpretations
thereof, inflation, provider contract changes, new technologies,
government imposed surcharges, taxes or assessments, reductions in
provider payments by governmental payors (including Medicare,
whereby such reductions may cause providers to seek high payments
from private payor), major epidemics, disasters and numerous other
factors affecting the delivery and cost of health care, may in the
future affect the Company's ability to control its medical costs
and other operating expenses.
The following table provides certain statement of operations data
expressed as a percentage of total revenue and other statistical
data for the periods indicated.
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(Restated) (Restated)
Revenue:
Premium earned 96.4% 95.1% 96.4% 96.0%
Interest and
other income 3.6 4.9 3.6 4.0
TOTAL REVENUE 100.0 100.0 100.0 100.0
Expenses:
Hospital services 30.3 21.3 24.7 19.5
Physician services 57.2 49.3 56.5 51.3
Other medical services (0.5) 1.8 1.4 3.2
TOTAL MEDICAL SERVICES 87.0 72.4 82.6 74.0
General and administrative 21.3 15.4 19.7 14.6
Depreciation and amortization 2.0 1.3 2.0 1.3
Interest and other expenses 1.6 1.1 1.5 1.1
TOTAL EXPENSES 111.9 90.2 105.8 91.0
Income before income taxes (11.9) 9.8 (5.8) 9.0
Provision for income taxes (4.8) 4.0 (2.3) 3.7
Net Income (7.1)% 5.8% (3.5)% 5.3%
Statistical Data:
HMO member months enrollment 273,420 254,540 548,734 501,620
Medical loss ratio (1) 90.3% 76.2% 85.7% 77.0%
General and administrative
ratio (2) 21.3% 15.4% 19.7% 14.6%
<PAGE>
<PAGE>16
(1) Medical expenses as a percentage of premiums earned;
reflects the combined rates for commercial, Medicaid, full-risk
Medicare and Medicare supplemental members.
(2) General and administrative ratio as percentage of total
revenue.
Three Months Ended June 30, 1996 Compared to Three Months
Ended June 30, 1995 (Restated)
Premiums earned in the second quarter of 1996 increased by 13.2%,
or $4.6 million, to $39.7 million from $35.1 million in the second
quarter of 1995. This increase is attributable to increases in
HMO membership and in premium rates. Total member months
increased by 7.4% in the second quarter of 1996 to 273,420, which
accounted for $2.5 million of the $4.6 million increase in
premiums earned. Premium rates increased 3.4% for commercial
members, decreased 4.7% for Medicaid members, included premium
rates earned for full-risk Medicare members; taken collectively,
there was a 5.2% total weighted average increase which accounted
for the $2.1 million balance of the increase in premiums earned.
Interest and other income decreased by 18.8%, or $.3 million, to
$1.5 million in the second quarter of 1996. This decrease is
primarily due to reductions in consulting revenue and insurance
reimbursements offset, in part, by an increase in interest income.
Medical expenses increased 34.2%, or $9.1 million, to $35.9
million in the second quarter of 1996, representing a 25.4%
increase on a per member per month basis and increased as a
percentage of premiums earned (the "medical loss ratio") from
76.2% in the second quarter of 1995 to 90.3% in the second quarter
of 1996. This increase in medical expenses is due, in the large
part, to the Company agreeing to record a one-time additional
liability in the amount of approximately $3.7 million resulting
from assuming, at the strong recommendation of the State of New
York Insurance Department at a meeting on August 8, 1996, the cost
of hospital inpatient care for members, the cost of which had
previously been assumed by the regional health care delivery
networks (the "Alliances") and for which the Company had no
contractual obligation to pay. The increase in medical expenses
is also due to an increase in the contractual capitation rate paid
to the Alliances. As a result of the restatement of prior period
operating results, the medical expenses for the three month period
ended June 30, 1995 has been reduced by approximately $.6 million
from the previously reported amounts (See Note 2 of "Notes to
Consolidated Financial Statements").
Effective October 1, 1994, WCNY changed its capitation
arrangements from capitating primary care physicians with
attendant risk-sharing to capitating the Alliances comprised of
the specialists and previously-capitated primary care physicians.
The Alliances have operated at a deficit since inception and have
recently instituted measures to reduce these deficits and achieve
profitability. The Alliances could request additional funding
from the Company, although management does not believe that such
additional funding should be required and does not intend to agree
to such additional funding, if requested (See Note 9a of "Notes to
Consolidated Financial Statements").
General and administrative ("G&A") expenses increased 54.9%, or
$3.1 million, from $5.7 million in the second quarter of 1995 to
<PAGE>
<PAGE>17
$8.8 million in the second quarter of 1996. The increase in G&A
expenses resulted primarily from an increase of approximately $.8
million in extraordinary legal and other professional services
related specifically to the class action litigation; increased
staffing related to service area and product line expansion; and
an additional increase of approximately $.5 million in the
doubtful account reserve for trade accounts receivable which
reflects a change in business methodology.
Depreciation and amortization increased by 60.4%, or $.3 million,
in the second quarter of 1996 due primarily to amortization of
preoperational costs associated with service area and product line
expansion.
Interest and other expenses increased by 55.8%, or $.2 million, in
the second quarter of 1996 due primarily to interest expense
associated with the private placement of a subordinated
convertible note (See "Liquidity and Capital Resources").
Six Months Ended June 30, 1996 Compared to Six Months
Ended June 30, 1995 (Restated)
Premiums earned in the first six months of 1996 increased by
15.7%, or $10.9 million, to $79.8 million from $68.9 million in
the first six months of 1995. This increase is attributable to
increases in HMO membership and in premium rates. Total member
months increased by 9.3% in the first six months of 1996 to
548,734, which accounted for $6.2 million of the $10.9 million
increase in premiums earned. Premium rates increased 4.5% for
commercial members, decreased 1.0% for Medicaid members and
including the premiums rates earned for full-risk Medicare members
resulted in a 5.8% total weighted average increase and accounted
for the $4.7 million balance of the increase in premiums earned.
Interest and other income increased by 4.8%, or $.1 million, to
$3.0 million in the first six months of 1996. This increase is
primarily due to increases in management fees and interest income
offset, in part, by decreases in consulting revenue and insurance
reimbursements.
Medical expenses increased 28.9%, or $15.3 million, to $68.4
million in the first six months of 1996, representing an 18.4%
increase on a per member per month basis and increased as a
percentage of premiums earned (the "medical loss ratio") from
77.0% in the first six months of 1995 to 85.7% in the first six
months of 1996. This increase in medical expenses is due, in
part, to an increase in the contractual capitation rate paid to
the Alliances. The increase in medical expenses is also due to
the Company agreeing to record a one-time additional liability in
the amount of approximately $3.7 million resulting from assuming,
at the strong recommendation of the State of New York Insurance
Department at a meeting on August 8, 1996, the cost of hospital
inpatient care for members, the cost of which had previously been
assumed by the Alliances and for which the Company had no
contractual obligation to pay. As a result of the restatement of
prior period operating results, the medical expenses for the three
month period ended June 30, 1995 has been reduced by approximately
$.7 million from the previously reported amounts (See Note 2 of
"Notes to Consolidated Financial Statements").
<PAGE>
<PAGE>18
Effective October 1, 1994, WCNY changed its capitation
arrangements from capitating primary care physicians with
attendant risk-sharing to capitating the Alliances comprised of
the specialists and previously-capitated primary care physicians.
The Alliances have operated at a deficit since inception and have
recently instituted measures to reduce these deficits and achieve
profitability. The Alliances could request additional funding
from the Company, although management does not believe that such
additional funding should be required and does not intend to agree
to such additional funding, if requested (See Note 9a of "Notes to
Consolidated Financial Statements").
General and administrative ("G&A") expenses increased 55.4%, or
$5.8 million, from $10.5 million in the first six months of 1995
to $16.3 million in the first six months of 1996. The increase in
G&A expenses resulted primarily from an increase of approximately
$.8 million in extraordinary legal and other professional services
related to class action litigation; an additional increase of
approximately $.5 million in the doubtful account reserve for
trade accounts receivable reflecting a change in business
methodology; increased staffing related to service area and
product line expansion; and marketing and telecommunications
activities.
Depreciation and amortization increased by 67.5%, or $.7 million,
in the first six months of 1996 due primarily to amortization of
preoperational costs associated with service area and product line
expansion.
Interest and other expenses increased by 58.9%, or $.5 million, in
the first six months of 1996 due primarily to interest expense
associated with the private placement of a subordinated
convertible note (See "Liquidity and Capital Resources").
Liquidity and Capital Resources
On January 19, 1996, the Company announced the completion of a
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., a private equity fund managed
by Brown Brothers Harriman & Co. The Company has utilized a part
of the net proceeds of this private placement to retire a portion
of the Company's debt. The Company anticipates utilizing the
balance of the proceeds for general corporate purposes. As of
August 14, 1996, the Company was in negotiation with the holder of
this Note to amend certain terms, including the conversion price.
The Company's requirements for working capital are principally to
fund geographic and product expansion for HMO operations,
maintenance of necessary regulatory reserves, potential
acquisitions and strategic partnerships, and marketing and product
expansion of other managed care operations. Management believes
that these requirements can be met through the net proceeds from
the Note, together with cash on hand, cash generated from
operations and any available borrowings.
Net cash used in operating activities was $6.8 million during the
first six months of 1996, as compared to net cash used by
operations of $2.8 million for the first six months of 1995. The
cash used in operations in the first six months of 1996 resulted
from a reduction of medical costs liabilities primarily due to
<PAGE>
<PAGE>19
increased levels of disbursements offset, in part, by the
recording of a $3.7 million liability as requested by the State of
New York Insurance Department and increases in amounts expected to
be recovered and deferred expense related to corporate income
taxes. The cash used in operations in the first six months of
1995 resulted from an increase in receivables attributable, in
part, to increases in HMO membership and premium rates, and a
decrease in the level of medical costs payable attributable
primarily to the prepayment of costs for specialists' care on a
monthly basis under the new contractual capitation arrangements
with the then recently established Alliances. Cash used for
capital expenditures was approximately $.3 million during the
first six months of 1996, as compared to $1.2 million for the same
period in 1995.
New York State certified HMOs are required to maintain a cash
reserve equal to the greater of 5% of expected annual medical
costs or $100,000. Additionally, WCNY is required to maintain a
contingent reserve equal to at least 1% of premiums earned
limited, in total, to a maximum of 5% of premiums earned for the
most recent calendar year and which may be offset by the cash
reserve. The cash reserve is calculated at December 31st of each
year and is maintained throughout the following calendar year. At
June 30, 1996, WellCare has required cash reserves of $8.2 million
and a contingent reserve of $4.4 million, which was fully offset
by the cash reserve. In the event the contingent reserve exceeds
the required cash reserve, the excess of the contingent reserve
over the required cash reserve would be required to be maintained.
At June 30, 1996, the Company has working capital of $18.3
million, excluding the $8.2 million cash reserve required by New
York State which is classified as a non-current asset, compared to
working capital of $12.7 million at December 31, 1995; the
increase is attributable primarily to the net proceeds from the
Note which is classified as a long-term liability.
In June 1995, Key Bank of New York increased the limit on an
unsecured working capital line-of-credit to $15.0 million, $3.1
million of which was outstanding at August 14, 1996. The line
expires on May 31, 1997. In response to the Company's late filing
of its Annual Report on Form 10-K with the Securities and Exchange
Commission, during April 1996, Key Bank froze all borrowing under
the Company's $15.0 million revolving line-of-credit pending
submission of the Company's audited financial statements. In
addition, Key Bank granted the Company a waiver of any and all
financial covenants for the period ending December 31, 1995, and
March 31, 1996. The Company is in the process of renegotiating
the line-of-credit with Key Bank. It is anticipated that the new
terms will be finalized prior to September 15, 1996.
At June 30, 1996, the Company had total mortgage indebtedness of
$6.3 million outstanding on five of its office buildings, of which
approximately $800,000 is due February 1, 1999, approximately $4.4
million is due on January 1, 2000, approximately $800,000 is due
March 1, 2000, and approximately $335,000 due on March 1, 2001.
Between April 1, 1996 and June 6, 1996, the Company as well as two
of its officers who are also directors, were named as defendants
in twelve separate actions (the "Securities Litigations"). An
additional three directors were also named in one of those
actions. Of the twelve separate actions, ten were filed in the
United States District Court for the Northern District of New York
<PAGE>
<PAGE>20
and the other two were filed in the United States District Court
for the Southern District of New York. The claims asserted in the
Securities Litigations are substantially similar to one another
and essentially seek the same relief. Plaintiffs seek to recover
damages allegedly caused by defendants' (including WellCare's)
violations of federal security laws with regard to the preparation
and dissemination to the investing public of false and misleading
information concerning WellCare's financial condition. Plaintiffs
allege that as a result of their reliance on these alleged
misrepresentations, they purchased stock in WellCare at
artifically inflated prices. Plaintiffs are seeking compensatory
damages in an amount to be determined at trial.
On July 3, 1996, by Order of Magistrate Judge David R. Homer, the
Securities Litigations were consolidated and an amended
consolidated complaint is due to be served on August 21, 1996.
Because the Securities Litigations were only recently
consolidated, discovery has not yet begun. The Company's counsel
is currently negotiating with plaintiffs' counsel to effect a
dismissal, without prejudice, of the three additional directors
who were named in one of the pre-consolidation actions and expects
to effect a dismissal of these parties before the amended
consolidated complaint is served. Although management is unable
to predict the likelihood of success on the merits of the
consolidated class action, it has instructed its counsel to
vigorously defend its interests. The Company has insurance in
effect which may, at least in part, offset any costs to be
incurred in these litigations.
Inflation
Medical costs have been rising as a higher rate than consumer
goods as a whole. The Company believes its premium increases,
capitation arrangements and other cost controls measures mitigate,
but do not wholly offset, the effects of medical cost inflation on
its operations and its inability to increase premiums could
negatively impact the Company's future earnings.
PART II - Other Information
Item 1 Legal Proceedings
Between April 1, 1996 and June 6, 1996, the Company as well as two
of its officers who are also directors, were named as defendants
in twelve separate actions (the "Securities Litigations"). An
additional three directors were also named in one of those
actions. Of the twelve separate actions, ten were filed in the
United States District Court for the Northern District of New York
and the other two were filed in the United States District Court
for the Southern District of New York. The claims asserted in the
Securities Litigations are substantially similar to one another
and essentially seek the same relief. Plaintiffs seek to recover
damages allegedly caused by defendants' (including WellCare's)
violations of federal security laws with regard to the preparation
and dissemination to the investing public of false and misleading
information concerning WellCare's financial condition. Plaintiffs
allege that as a result of their reliance on these alleged
misrepresentations, they purchased stock in WellCare at
artifically inflated prices. Plaintiffs are seeking compensatory
damages in an amount to be determined at trial.
<PAGE>
<PAGE>21
On July 3, 1996, by Order of Magistrate Judge David R. Homer, the
Securities Litigations were consolidated and an amended
consolidated complaint is due to be served on August 21, 1996.
Because the Securities Litigations were only recently
consolidated, discovery has not yet begun. The Company's counsel
is currently negotiating with plaintiffs' counsel to effect a
dismissal, without prejudice, of the three additional directors
who were named in one of the pre-consolidation actions and expects
to effect a dismissal of these parties before the amended
consolidated complaint is served. Although management is unable
to predict the likelihood of success on the merits of the
consolidated class action, it has instructed its counsel to
vigorously defend its interests. The Company has insurance in
effect which may, at least in part, offset any costs to be
incurred in these litigations.
On August 2, 1996, the Company announced that the Securities and
Exchange Commission ("SEC") had issued a Formal Order of Private
Investigation of the Company. The Formal Order enables the SEC to
utilize its subpoena powers to obtain relevant information from
third parties as well as the Company. In its letter to the
Company, the SEC stated that this investigation is confidential
and should not be construed as an indication by the Commission or
its staff that any violations of the federal securities laws have
occurred. The Company intends to comply with all requests from
and cooperate fully with the SEC. The Company is not aware of any
unlawful conduct with respect to these matters.
Item 2 Changes in Securities
Not Applicable
Item 3 Defaults Upon Senior Securities
The Company is in default of certain provisions of its loan
agreement with The 1818 Fund II, L.P., a private equity fund
managed by Brown Brothers Harriman & Co., including the
requirement to maintain a minimum tangible net worth as defined in
the loan agreement. The Company is currently renegotiating
amendments of certain terms, including a change in the conversion
price and other terms which it believes will cure any default
provisions.
Item 4 Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 Other Information
On April 30, 1996, Mr. Robert W. Morey, Jr. was appointed Chairman
of the Board, Chief Executive Officer and a director of the Board.
Mr. Edward A. Ullmann remained President and assumed the functions
of Chief Operating Officer as of said date.
On May 29, 1996, Mr. Douglas A. Hayward joined the Company as
President and Chief Executive Officer of WellCare of Connecticut,
Inc., a wholly-owned subsidiary of the Company.
<PAGE>
<PAGE>22
On June 1, 1996, John E. Ott, M.D. was named as Executive Vice
President of the Company.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.2b Copy of Registrant's Amended By-Laws
Exhibit 10.50 Copy of Employment Contract and Stock
Option Agreements between Registrant
and Douglas A. Hayward
Exhibit 10.51 Copy of Employment Contract and Stock Option
Agreements between Registrant and
John E. Ott, M.D.
Exhibit 11 Computation of Net Income Per Share of
Common Stock
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
<PAGE>
<PAGE>23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The WellCare Management Group, Inc.
By: /s/ Robert W. Morey, Jr.
Robert W. Morey, Jr.
Chairman of the Board and
Chief Executive Officer (was appointed 4/30/96)
By: /s/ Marystephanie Corsones
Marystephanie Corsones
Vice President of Finance/
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 14, 1996
<PAGE>
<PAGE>24
INDEX TO EXHIBITS
All exhibits listed below are filed with this Quarterly Report on
Form 10-Q:
Exhibit Number Page Number
3.2b Copy of Registrant's 25
Amended By-Laws
10.50 Copy of Employment Contract 35
dated May 29, 1996 and Stock Option
Agreements between Registrant and
Douglas A. Hayward
10.51 Copy of Employment Contract 59
dated June 1, 1996 and Stock Option
Agreements between Registrant and
John E. Ott, M.D.
11 Computation of Net Income 90
Per Share of Common Stock
27 Financial Data Schedule 91
<PAGE>
<PAGE>25
[TYPE] EX-3.(ii)
[DESCRIPTION] BY-LAWS
10.3.2b Copy of Registrant's Amended By-Laws
BY-LAWS
OF
THE WELLCARE MANAGEMENT GROUP, INC.
(AS AMENDED MAY 24, 1996)
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the
shareholders of The WellCare Management Group, Inc. (the
"Corporation") shall be held either within or without the State of
New York, at such place and at such time as the Board of Directors
may designate and set forth in the call or in a waiver of notice
thereof, for the purpose of electing directors and for the
transaction of such other business as may properly be brought
before the meeting, and except as otherwise designated by the
Board of Directors and stated in the notice of the meeting, the
annual meeting of the shareholders shall be held on the first
Monday in June in each year, if not a legal holiday, and if a
legal holiday, then on the next business day following, at 6:00
p.m., at which meeting the shareholders shall elect a Board of
Directors for the ensuing year and transact such other business as
may properly be brought before the meeting.
Section 2. Proposed Business at Annual Meeting. No
business may be transacted at an annual meeting of shareholders,
other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction
of the Board of Directors (or any duly authorized committee
thereof), which shall include shareholder proposals contained in
the Corporation's proxy statement made in accordance with
Rule 14a-8 of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), or any successor thereto, or (b) otherwise
properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized
committee thereof).
Section 3. Special Meetings. Special Meetings of the
shareholders, for any purpose or purposes, may be called at any
time by resolution of the Board of Directors or by the President,
and shall be called by the President or by the Secretary upon the
written request of the holders of record of the issued and
outstanding shares entitled to cast at least twenty percent (20%)
of the total number of votes entitled to be cast by shareholders
at such meeting, at such times and at such place either within or
without the State of New York as may be stated in the call or in a
waiver of notice thereof. Business transacted at any special
meeting shall be limited to the purposes stated in the notice.
Section 4. Notice of Meetings. Notice of the time, place
and purpose of every meeting of shareholders shall be delivered
personally or by first class mail, not less than ten
<PAGE>
<PAGE>26
(10) days nor more than fifty (50) days previous thereto, or by
third class mail, not less than twenty-four (24) days nor more
than fifty (50) days before the meeting, to each shareholder of
record entitled to vote, at his post office address appearing upon
the records of the Corporation or at such other address as shall
be furnished in writing by him to the Corporation for such
purpose. Such further notice shall be given as may be required by
law or by these By-Laws. Any meeting may be held without notice
if all shareholders entitled to vote are present in person or by
proxy, or if notice is waived in writing, either before or after
the meeting, by those not present. The attendance of any
shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting lack of notice
of such meeting, shall constitute a waiver of notice by such
shareholder.
Section 5. Quorum. The holders of record of at least a
majority of the shares of the stock of the Corporation, issued and
outstanding and entitled to vote, present in person or by proxy,
shall, except as otherwise provided by law or by these By-Laws,
constitute a quorum at all meetings of the shareholders; if there
be no such quorum, the holders of a majority of such shares so
present or represented may adjourn the meeting from time to time
until a quorum shall have been obtained.
Section 6. Organization of Meetings. Meetings of the
shareholders shall be presided over by the Chairman of the Board,
if there be one, of if he is not present by the President, or if
he is not present by a chairman to be chosen at the meeting. The
Secretary of the Corporation, or in his absence an Assistant
Secretary, shall act as Secretary of the meeting, if present.
Section 7. Voting. At each meeting of shareholders, except
as otherwise provided by statute, every holder of record of stock
entitled to vote shall be entitled to cast the number of votes to
which shares of such class or series are entitled as set forth in
the Certificate of Incorporation or any Certificate of Amendment
with respect to any preferred stock, in person or by proxy for
each share of such stock standing in his name on the records of
the Corporation. Elections of directors shall be determined by a
plurality of the votes cast thereat and, except as otherwise
provided by statute, the Certificate of Incorporation, or these
By-Laws, all other action shall be determined by a majority of the
votes cast at such meeting. Each proxy to vote shall be in
writing and signed by the shareholder or by his duly authorized
attorney.
At all elections of directors, the voting shall be by ballot
or in such other manner as may be determined by the shareholders
present in person or by proxy entitled to vote at such election.
With respect to any other matter presented to the shareholders for
their consideration at a meeting, any shareholder entitled to vote
may, on any question, demand a vote by ballot.
A complete list of the shareholders as of the record date,
certified by the Secretary or the transfer agent of the
Corporation, shall be produced at any meeting of shareholders upon
the request thereat or prior thereto of any shareholder.
Section 8 Action by Consent. Any action required or
permitted to be taken at any meeting of shareholders may be taken
without a meeting, if, prior to such action, a written consent or
<PAGE>
<PAGE>27
consents thereto setting forth such action, is signed by the
holders of record of all of the shares of the stock of the
Corporation, issued and outstanding and entitled to vote.
ARTICLE II
DIRECTORS
Section 1. Number, Quorum, Term, Vacancies, Removal. The
number of directors of the Corporation shall be fixed in the
manner provided in the Certificate of Incorporation.
A majority of the members of the Board of Directors then
holding office shall constitute a quorum for the transaction of
business, but if at any meeting of the Board there shall be less
than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum shall have been obtained.
Except as otherwise provided in the Certificate of
Incorporation, directors shall hold office until the next annual
election at which the class to which a director shall have been
elected is scheduled to stand for reelection and shall have
qualified, unless sooner displaced.
Except as otherwise required by the Certificate of
Incorporation, newly created directorships resulting from an
increase in the number of directors and vacancies occurring in the
Board, by reason of death, resignation, or otherwise, including
the removal of a director as provided in the Certificate of
Incorporation, shall be filled by a vote of the Board or, if the
number of directors then in office is less than a quorum, by vote
of a majority of the directors then in office. A director so
elected to fill a vacancy, other than a vacancy arising through an
increase in the number of authorized directors, shall serve for
the remainder of the term of the class of directors in which the
vacancy occurred and until such director's successor shall have
been duly elected and qualified. A director so elected to fill a
vacancy arising through an increase in the number of authorized
directors shall serve for the remainder of the term of the class
of directors into which such director has been placed by the Board
of Directors pursuant to this Article. When a vacancy is created
as a result of the resignation of a director from the Board of
Directors, which resignation is not effective until a future date,
such director shall not have the power to vote to fill such
vacancy.
Section 2. Nomination of Directors. Only persons who are
nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation, except as
may be otherwise provided in any Certificate of Amendment of the
Corporation with respect to the right of holders of certain
specified classes of preferred stock of the Corporation to
nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of shareholders, or
at any special meeting of shareholders called for the purpose of
electing directors, (a) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (b) by any
shareholder of the Corporation who is a shareholder of record on
the record date for the determination of shareholders entitled to
vote at such meeting.
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<PAGE>28
Section 3. Meetings, Notice. Meetings of the Board of
Directors shall be held at such place either within or without the
State of New York, as may from time to time be fixed by resolution
of the Board, or as may be specified in the call or in a waiver of
notice thereof. Regular meetings of the Board of Directors shall
be held at such times as may from time to time be fixed by
resolution of the Board, and special meetings may be held
at any time upon the call of one director, the Chairman of the
Board, if one be elected, or the President, by oral, telegraphic
or written notice, duly served on or sent or mailed to each
director not less than two days before such meeting. A meeting of
the Board may be held without notice immediately after the annual
meeting of shareholders at the same place at which such meeting
was held. Notice need not be given of regular meetings of the
Board. Any meeting may be held without notice, if all directors
are present, or if notice is waived in writing, either before or
after the meeting, by those not present.
Section 4. Committees. The Board of Directors may, in its
discretion, by resolution passed by a majority of the entire
Board, designate from among its members one or more committees
which shall consist of three or more directors. The Board may
designate one or more directors as alternate members of any such
committee, who may replace any absent or disqualified member at
any meeting of the committee. Such committees shall have and may
exercise such powers as shall be conferred or authorized by the
resolution appointing them, provided, however, that no such
committee shall have authority as to the following matters: (i)
the submission to shareholders of any action that needs
shareholders' approval under the New York Business Corporation
Law, (ii) the filling of vacancies in the Board of Directors or in
any committee, (iii) the fixing of compensation of the directors
for serving on the Board or on any committee, (iv) the amendment
or repeal of the By-Laws, or the adoption of new By-Laws, and (v)
the amendment or repeal of any resolution of the Board which by
its terms shall not be so amendable or repealable. A majority of
any such committee may determine its action and fix the time and
place of its meetings, unless the Board of Directors shall
otherwise provide. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when
required. The Board shall have power at any time to change the
membership of any such committee, to fill vacancies in it, or to
dissolve it.
Section 5. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors, of
any committee thereof, may be taken without a meeting, if prior to
such action a written consent or consents thereto is signed by all
members of the Board, or of such committee as the case may be,
and such written consent or consents is filed with the minutes of
proceedings of the Board or committee.
Section 6. Telephonic Meetings. Any or all members of the
Board or any committee thereof may participate in a meeting of
such Board or committee by means of a conference telephone or
similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at
a meeting.
Section 7. Compensation. The Board of Directors may
determine, from time to time, the amount of compensation which
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<PAGE>29
shall be paid to its members. The Board of Directors shall also
have power, in its discretion, to allow a fixed sum and expenses
for attendance at each regular or special meeting of the Board, or
of any committee of the Board; the Board of Directors shall also
have power, in its discretion, to provide for any pay to directors
rendering services to the Corporation not ordinarily rendered by
directors, as such, special compensation appropriate to the value
of such services, as determined by the Board from time to time.
ARTICLE III
OFFICERS
Section 1. Titles and Election. The officers of the
Corporation, who shall be chosen by the Board of Directors at its
first meeting after each annual meeting of shareholders, shall be
a President, a Treasurer and a Secretary. The Board of Directors
from time to time may elect a Chairman of the Board, a Vice
Chairman of the Board, one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and such other officers and
agents as it shall deem necessary, and may define their powers and
duties. Any number of offices may be held by the same person,
except that the office of President and Secretary may not be held
by the same person.
Section 2. Terms of Office. The officers shall hold
office until their successors are chosen and qualify.
Section 3. Removal. Any officer may be removed, either
with or without cause, at any time, by the affirmative vote of a
majority of the Board of Directors.
Section 4. Resignations. Any officer may resign at any
time giving written notice to the Board of Directors or to the
Secretary. Such resignation shall take effect at the time
specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
Section 5. Vacancies. If the office of any officer or
agent becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office or otherwise, the directors
may choose a successor, who shall hold office for the unexpired
term in respect of which such vacancy occurred.
Section 6. Chairman of the Board and Vice Chairman of the
Board. (a) The Chairman of the Board of Directors, if one be
elected, shall be a member of the Board and shall preside at all
meetings of the Board of Directors and of the shareholders, and
shall have and perform such other duties as from time to time the
Board of Directors may prescribe, including, if the Board of
Directors so directs, the duties and title of chief executive
officer of the Corporation.
(b) The Vice Chairman of the Board of Directors, if
one be elected, shall be a member of the Board and shall perform
the duties of the Chairman of the Board in the latter's absence
and shall have and be assigned such other duties as the Board of
Directors may from time to time prescribe.
Section 7. President. The President shall be the chief
executive officer of the Corporation unless the Board of
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<PAGE>30
Directors appoints the Chairman of the Board to act in such
capacity and, in the absence of the Chairman, shall preside at all
meetings of the Board of Directors, and of the shareholders.
Unless the Chairman of the Board is appointed chief executive
officer, the President shall exercise the powers and perform the
duties usual to the chief executive officer and, subject to the
control of the Board of Directors, shall have general management
and control of the affairs and business of the Corporation; the
President shall appoint and discharge employees and agents of the
Corporation (other than officers elected by the Board of
Directors) and fix their compensation; and shall see that all
orders and resolutions of the Board of Directors are carried into
effect. The President shall have the power to execute bonds,
mortgages and other contracts, agreements and instruments of the
Corporation, and shall do and perform such other duties as the
Board of Directors may from time to time prescribe.
Section 8. Vice Presidents. If chosen, the Vice
Presidents, in the order of their seniority, shall, in the absence
or disability of the President, exercise all of the powers and
duties of the President. Such Vice Presidents shall have the
power to execute bonds, notes, mortgages and other contracts,
agreements and instruments of the Corporation, and shall do and
perform such other duties incident to the office of Vice President
and as the Board of Directors or the President shall direct.
Section 9. Secretary and Assistant Secretary. (a) The
Secretary shall attend all sessions of the Board and all meetings
of the shareholders and record all votes and the minutes of the
proceedings in a book to be kept for that purpose. The Secretary
shall give, or cause to be given, notice of all meetings of the
shareholders and of the Board of Directors, and shall perform such
other duties as may be prescribed by the Board of Directors. The
Secretary shall affix the seal of the Corporation to any
instrument requiring it, and when so affixed, it shall be attested
by the signature of the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer who may affix the seal to
any such instrument in the event of the absence or disability of
the Secretary. The Secretary shall have and be the custodian of
the stock records and all other books, records and papers of the
Corporation (other than financial) and shall see that all books,
reports, statements, certificates and other documents and records
required by law are properly kept and filed.
(b) The Assistant Secretary, if there be one, shall,
in the absence of the Secretary or in the event of the Secretary's
inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors may from time to
time prescribe.
Section 10. Treasurer and Assistant Treasurer. (a) The
Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall
deposit all moneys, and other valuable effects in the name and to
the credit of the Corporation, in such depositories as may be
designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the
Board, taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board and the President and the
Board of Directors, at its regular meetings, or when the Board of
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<PAGE>31
Directors so requires, an account of all of the Treasurer's
transactions and of the financial condition of the Corporation.
(b) The Assistant Treasurer, if there be one, shall,
in the absence of the Treasurer of in the event of the Treasurer's
inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to
time prescribe.
Section 11. Duties of Officers may be Delegated. In case of
the absence or disability of any officer of the Corporation, or
for any other reason that the Board may deem sufficient, the
Board may delegate, for the time being, the powers or duties, or
any of them, of such officer to any other officers, or to any
director.
ARTICLE IV
INTERESTED DIRECTORS
Section 1. Contracts or Transactions. (a) No contract or
other transaction between the Corporation and one or more of its
directors, or between the Corporation and any other corporation,
firm, association or other entity in which one or more of its
directors are directors or officers, or have a substantial
financial interest, shall be either void or voidable for this
reason alone or by reason alone that such director or directors
are present at the meeting of the Board, or of a committee
thereof, which approves such contract or trans-action, or that the
votes of such director or directors are counted for such purposes:
(i) If the facts of such common directorship,
officership or substantial financial interest are disclosed or
known to the Board of committee, and the Board or committee
approves such contract or transaction by a vote sufficient for
such purpose without counting the vote or votes of such interested
director or directors or, if the votes of the disinterested
directors are insufficient to constitute an act of the Board, by
unanimous vote of the disinterested directors; or
(ii) If such common directorship, officership or
substantial financial interest is disclosed or known to the
shareholders entitled to vote thereon, and such contract or
transaction is approved by vote of the shareholders.
(b) If the facts of such common directorship,
officership or substantial financial interest are disclosed to the
directors or shareholders, or known to the Board or committee or
shareholders entitled to vote thereon, the contract or transaction
may not be avoided by the Corporation for the reason set forth in
Section 1(a). If there was no such disclosure or knowledge, or if
the vote of such interested director or directors was necessary
for approval of a contract or transaction at a meeting of the
Board or committee at which it was approved, the Corporation may
avoid the contract or transaction unless the parties thereto shall
establish affirmatively that the contract or transaction was fair
and reasonable as to the Corporation at the time it is approved by
the Board or committee or the shareholders.
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<PAGE>32
ARTICLE V
CAPITAL STOCK
Section 1. Certificates. The interest of each shareholder
of the Corporation shall be evidenced by certificates for shares
of stock in such form as the Board of Directors may from time to
time prescribe. The certificates of stock shall be signed by the
President or a Vice President and by the Secretary or the
Treasurer or an Assistant Secretary or an Assistant Treasurer,
sealed with the seal of the Corporation or a facsimile thereof,
and countersigned and registered in such manner, if any, as the
Board of Directors may by resolution prescribe. Where any such
certificate is countersigned by a transfer agent other than the
Corporation or its employee, or registered by a registrar other
than the Corporation or its employee, the signature of any such
officer may be a facsimile signature. In case any officer or
officers who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or
certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered
by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or
signatures shall have been used thereon had not ceased to be such
officer or officers of the Corporation.
Section 2. Transfer. Subject to any restrictions on
transfer of shares of stock of the Corporation of any class,
series or designation contained in the Certificate of
Incorporation, the shares of stock of the Corporation shall be
transferred only upon the books of the Corporation by the holder
thereof in person or by such person's attorney, upon surrender for
cancellation of certificates for the same number of shares, with
an assignment and power of transfer endorsed thereon or attached
thereto, duly executed, with such proof of the authenticity of the
signature as the Corporation or its agents may reasonably require.
Section 3. Record Dates. The Board of Directors may fix in
advance a date, not less than ten (10) nor more than fifty (50)
days preceding the date of any meeting of shareholders, or the
date for the payment of any dividend, or the date for the
distribution or allotment of any rights, or the date when any
change, conversion or exchange of capital stock shall go into
effect, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of any such dividend, or to receive
any distribution or allotment of such rights, or to exercise the
rights in respect of any such change, conversion or exchange of
capital stock, and in such case only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting, or to receive
payment of such dividend, or to receive such distribution or
allotment of rights or to exercise such rights, as the case may
be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid.
Section 4. Lost Certificates. In the event that any
certificate of stock is lost, stolen, destroyed or mutilated, the
Board of Directors may authorize the issuance of a new certificate
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<PAGE>33
of the same tenor and for the same number of shares in lieu
thereof. The Board may in its discretion, before the issuance of
such new certificate, require the owner of the lost, stolen,
destroyed or mutilated certificate, or the legal representative of
the owner to make an affidavit or affirmation setting forth such
facts as to the loss, destruction or mutilation as it deems
necessary, and to give the Corporation a bond in such reasonable
sum as it directs to indemnify the Corporation.
ARTICLE VI
CHECKS, NOTES, ETC.
Section 1. Checks, Notes, Etc. All checks and drafts on
the Corporation's bank accounts, and all bills of exchange and
promissory notes, and all acceptances, obligations and other
instruments for the payment of money, may be signed by the
President or any Vice President and may also be signed by such
other officer or officers, agent or agents, as shall be thereunto
authorized from time to time by the Board of Directors.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation
shall end on December 31st of each year unless otherwise fixed by
resolution of the Board of Directors.
Section 2. Corporate Seal. The seal of the Corporation
shall be circular in form and contain the name of the Corporation,
and the year and state of its incorporation. Such seal may be
altered from time to time at the discretion of the Board of
Directors.
Section 3. Books. There shall be kept at such office of
the Corporation as the Board of Directors shall determine, within
or without the State of New York, correct books and records of
account of all its business and transactions, minutes of the
proceedings of its shareholders, Board of Directors and
committees, and the stock book, containing the names and addresses
of the shareholders, the number of shares held by them and the
class or series thereof, respectively, and the dates when they
respectively became the owners of record thereof, and in which the
transfer of stock shall be registered, and such other books and
records as the Board of Directors may from time to time determine.
ARTICLE III
AMENDMENTS
Section 1. Amendments. These By-Laws may be amended or
repealed, or new By-Laws may be adopted, by the majority of the
votes cast at a meeting of shareholders by the holders of shares
entitled to vote thereon. The vote of the holders of at least a
majority of the voting power of the Corporation, of the shares
that are issued and outstanding and entitled to vote, shall be
necessary at any meeting of shareholders to amend or repeal these
By-Laws or to adopt new by-laws. The By-Laws may also be amended
or repealed, or new by-laws adopted, at any meeting of the Board
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<PAGE>34
of Directors by the vote of at least a majority of the entire
Board, provided that any by-law adopted by the Board may be
amended or repealed by the shareholders.
Any proposal to amend or repeal these By-Laws or to adopt
new by-laws shall be stated in the notice of the meeting of the
Board of Directors or the shareholders, or in the waiver of notice
thereof, as the case may be, unless all of the directors or the
holders of record of all of the shares of the Corporation, issued
and outstanding and entitled to vote, are present at such meeting.
<PAGE>
<PAGE>35
[TYPE] EX-10
[DESCRIPTION] MATERIAL CONTRACTS
10.50 Copy of Employment Contract dated
May 29, 1996 between Registrant and
Douglas A. Hayward
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated May 29, 1996 (the "Employment
Agreement"), by and among THE WELLCARE MANAGEMENT GROUP, INC., a
New York corporation with its principal place of business at Park
West/Hurley Avenue Extension, Kingston, New York 12401 (the
"Company"), and Douglas A. Hayward residing at 2788 Long Hill
Road, Guilford, Connecticut 06437 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee and the
Employee desires to be employed by the Company; and
WHEREAS, the Company desires to restrain the Employee from
competing with it.
NOW, THEREFORE, in consideration of the foregoing premises and
the representations, warranties, covenants, and agreements herein
contained, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by the parties
hereto, the parties hereto, intending to be legally bound, agree
as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to employ the
Employee, and the Employee hereby accepts such employment with the
Company, upon the terms and conditions set forth in this
Employment Agreement, for the period commencing on the date hereof
(the "Effective Date") and ending May 28, 2001, (the "Expiration
Date"), unless sooner terminated in accordance with the provisions
of Section 4 (such period being referred to herein as the
"Employment Period").
2. EMPLOYEE'S RESPONSIBILITY AND PERFORMANCE.
2.a During the Employment Period, the Employee shall serve
in the capacity of and hold the title of President and Chief
Executive Officer of WellCare of Connecticut, Inc., a Connecticut-certified
health maintenance organization and a wholly-owned
subsidiary of the Company (the "CT HMO") and shall be subject to
the supervision of, and shall have such authority as is delegated
to him by, the Board of Directors of the Company (the "Board")
consistent with such position. The Employee hereby accepts such
employment and agrees to undertake the duties and responsibilities
normally inherent in such position and such other duties and
responsibilities as the Board shall from time to time reasonably
assign to him consistent with such position.
2.b During the Employment Period, the Employee shall
devote his full business time and attention to the discharge of
his duties and responsibilities hereunder and shall be based in
Connecticut. The Employee agrees to abide by the reasonable
rules, regulations, instructions, personnel practices and policies
of the Company, and any reasonable changes therein which may be
adopted form time to time by the Company, as such rules,
regulations, instructions, personnel practices and policies may
reasonably be applied to employees of the Company.
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<PAGE>36
2.c During the Employment Period and for a period
thereafter, as set forth in Section 6.1, the Employee shall not
compete with the Company, as specifically provided for in Section
6.
3. COMPENSATION; BONUS; BENEFITS.
3.a Salary. During the Employment Period, the Company
shall pay the Employee, in installments consistent with the
Company's usual payroll practices, an annual base salary of
$190,000. In the event that the Employee is, or is to be,
employed for less than a full payroll installment period, such
installment of the annual base salary shall be appropriately
adjusted.
3.b Stock Options.
(1) To provide the Employee with an incentive to
become employed by the Company, which incentive provides the
Employee with a proprietary interest in the Company through
ownership of Common Stock, $.01 par value, of the Company (the
"Common Stock"), subject to approval of the Compensation Committee
which is charged with administering the Company's 1993 Incentive
and Non-Incentive Stock Option Plan (the "Plan"), which approval
the Company will recommend and use its best efforts to cause, and
subject to the execution and delivery of Stock Option Agreements
(as such term is defined herein), the Company shall grant
Employee:
(A) promptly following the execution and
delivery of this Employment Agreement a
five-year non-incentive option to purchase
35,000 shares of Common Stock under the
Plan, at an exercise price equal to the
fair market value of the Common Stock on
the date of grant, such option to be
exercisable at the annual cumulative rate
of 50% of the shares underlying such
option commencing one year from the date
of grant, such options to be exercisable
in full upon a Change in Control (as
defined in the Stock Option Agreements) or
upon notice of termination of employment
under Section 4.3 hereof; and
(B) on each of May 29, 1996, May 29, 1997, and
May 29, 1998, provided the Employee is
then employed under this Employment
Agreement, a five-year non-incentive
option to purchase 5,000 shares of Common
Stock under the Plan, at an exercise price
equal to the fair market value of the
Common Stock on the date of grant, such
option to be exercisable at the annual
cumulative rate of 50% of the shares
underlying such option commencing one year
from the date of grant, such options to be
exercisable in full upon a Change in
Control (as defined in the Stock Option
Agreements) or upon notice of termination
of employment under Section 4.3 hereof;
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<PAGE>37
provided that in no event shall the exercise date of any option
granted under clause (i) or (ii) be accelerated prior to the date
six months from the date of grant. The foregoing options shall be
subject to the terms and conditions of the Stock Option Agreement
covering such options, in the form annexed hereto as Exhibit A
hereto (the "Stock Option Agreements") and the Plan.
3.c Bonuses.
(1) As a special bonus reported as additional
compensation income, the Company shall pay to the Employee the
Employee's Share (as defined below) of the Incentive Amounts as
defined in Section 3.3 (e). For purposes of this Employment
Agreement, "Employee's Share" shall mean the Employee's share of
the aggregate Incentive Amounts with respect to a calendar year.
The Employee's Share shall be fifty percent (50%) of the twenty
percent (20%) as defined in Section 3.3 (e).
(2) In the event of the Employee's termination of
employment with the Company, Employee shall receive his Employee's
Share of any Incentive Amounts earned through the last day of his
actual employment by the Company.
(3) In the event of a "Change in Control," the
Employee shall receive his Employee's Share of any Incentive
Amounts earned through the last day of his actual employment by
the Company. For purposes of this Section 3.3, a "Change in
Control" shall have the meaning set forth on Schedule 3.3(c)
annexed hereto. In the event of a change of control without
termination, the new employer or company should negotiate
incentive amounts.
(4) In no event shall any payment of any portion of
the Incentive Amounts be taken into account for any purpose under
any pension, retirement or other benefit plan or program offered
by the Company or any of its affiliates.
(5) For purposes of this Employment Agreement, the
term "Incentive Amounts" shall mean amounts payable by the Company
within 90 days following the end of each of the five calendar
years following the Effective Date calculated as follows: twenty
percent (20%) of the earnings before income taxes ("EBT") of CT
HMO as reflected on its annual income statement which shall have
been prepared by the Company in accordance with generally accepted
accounting principles consistently applied, adjusted as set forth
in Section 3.3(f) below, subject, at the Company's option, to
audit by an independent public accounting firm selected by the
Company.
(6) The calculation of EBT for purposes of
determining Incentive Amounts only shall be subject to adjustment
as follows:
(A) State and local taxes computed on income
shall not be deducted;
(B) The administrative costs (in contrast to
medical costs) of CT HMO shall be imputed
to be the lesser of an amount equal to (A)
fifteen percent (15%) of CT HMO's annual
total revenues and (B) the product of (x)
CT HMO's annual total revenues and (y) the
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<PAGE>38
ratio of the administrative costs of the
Company and its subsidiaries taken as a
whole (in contrast to medical costs of
such entities taken as a whole) to total
revenues of the Company and its
subsidiaries taken as a whole. Both
parties agree to review formula for
defining administrative costs within six
(6) months after CT HMO achieves
profitability;
(C) Any interest or dividend income earned by
CT HMO shall not be reflected;
(D) There shall not be reflected as an expense
the payments of the Incentive Amounts; and
(E) CT HMO shall not be charged with interest
expense on intercompany borrowings of
working capital necessary in the ordinary
course of business, but the financing
costs of acquisitions of real estate,
major capital equipment, business
entities, product rights or technologies
or other significant transactions financed
by the Company will be reflected in
appropriate intercompany charges against
EBT.
3.d Benefits: Vacation; Sick Leave.
(a) As of the Effective Date and during the
Employment Period, the Employee shall be entitled to participate
in the benefit programs available to employees in senior
management positions at the Company (the "Executive Benefit
Plans") from time to time in a manner and amount consistent with
the Company's employment policies in effect from time to time.
Such Executive Benefit Plans are listed on Schedule 3.4. The
Employee shall be entitled to participate in, and receive the
benefits of, any Executive Benefit Plan as of the Effective Date,
and shall not be subject to any eligibility or waiting periods
with respect thereto unless otherwise indicated on Schedule 3.4.
(b) During the Employment Period, the Employee shall
be entitled to such number of weeks paid vacation during each
twelve-month period and to sick leave as is consistent with the
Company's employment policies in effect from time to time.
3.e Reimbursement of Expenses. The Company shall
reimburse the Employee for all reasonable travel, entertainment,
and other expenses incurred or paid by the Employee in connection
with, or related to, the business of the Company and the
performance of his duties, responsibilities or services under this
Employment Agreement, upon presentation by the Employee of
documentation, expense statements, vouchers and/or such other
supporting information as the Company may reasonably request.
4. EMPLOYMENT TERMINATION. The employment of the Employee by
the Company pursuant to this Employment Agreement may be
terminated by the Company upon the occurrence of any of the
following:
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<PAGE>39
4.a Expiration of the Employment Period in accordance with
Section 1.
4.b At the election of the Company, for Cause, immediately
upon written notice by the Company to the Employee. For the
purposes of this Section 4.2, "Cause" for termination shall be
deemed to exist solely in the event of:
(a) the Employee's engaging in any act, including
but not limited to any act of "Moral Turpitude" (as defined
below), that is materially damaging or detrimental to, or that
could be materially damaging or detrimental to, the Company or any
of its subsidiaries (including CT HMO) or affiliates or the
business or reputation of the Company or any of its subsidiaries
(including CT HMO) or its affiliates;
(b) any material breach of the Employment Agreement
by the Employee which is not cured by the Employee (to the extent
curable without adverse effect on the Company) within 30 days
after written notice by the Company to the Employee setting forth
a description of such material breach;
(c) the conviction, nolo contendere, or guilty pleas
of the Employee for any felony; or
(d) the unjustifiable neglect by the Employee in
performing his material duties under this Employment Agreement
which is not cured by the Employee within 30 days after written
notice by the Company to the Employee setting forth a description
of such neglect.
For purposes hereof, "Moral Turpitude" shall mean (A) a knowing
breach or violation of any applicable law, (B) a civil fraud or
deceit, (C) a material misstatement or omission of fact or (D)
intentional misconduct.
4.c At the election of the Company, without Cause, upon
sixty (60) days' prior written notice to the Employee.
4.d Immediately upon the death or Disability of the
Employee. As used in this Employment Agreement, "Disability"
shall mean the complete inability to perform the material services
contemplated under this Employment Agreement for a period of
ninety (90) consecutive days or one hundred twenty (120) days in
any calendar year. A determination of Disability shall be made by
a physician satisfactory to the Company.
4.e At the election of the Employee, for any reason, upon
60 days' prior written notice to the Company.
5. EFFECT OF TERMINATION.
5.a Termination by the Company for Cause or Disability.
In the event the Employee's employment is terminated by the
Company pursuant to Section 4.2 or pursuant to Section 4.4 by
reason of Disability, the following shall occur:
(a) the Options granted pursuant to Section 3.2
shall terminate on the date of termination of employment and
Employee shall forfeit any right to the grant of any additional
Options under Section 3.2 and his Employee's Share of Incentive
Amounts to be paid pursuant to Section 3.3; and
<PAGE>
<PAGE>40
(b) the Company shall pay to the Employee the
compensation and benefits otherwise payable to him under Section 3
through the last day of his actual employment by the Company.
5.b Termination by the Company Without Cause. In the
event the Employee's employment is terminated by the Company
pursuant to Section 4.3, the following shall occur:
(a) the Options granted pursuant to Section 3.2
shall become immediately exercisable in full on the date of notice
of such termination, providing the Employee the opportunity to
exercise such Options in full on or prior to the date of
termination of employment, and Employee shall forfeit any right to
the grant of any additional Options under Section 3.2;
(b) within sixty (60) days, the Company shall pay to
the Employee the Employee's Share of Incentive Amounts earned
through the last day of actual employment by the Company;
(c) the Company shall pay to the Employee the
greater of one (1) year's salary or the salary otherwise payable
to him under Section 3 through the Expiration Date. If, however,
a "Change in Control," as defined in Section 5.5, occurs within
three (3) months after said termination without cause, the Company
shall pay to the Employee, within sixty (60) days thereafter, an
amount equal to the lesser of his base salary for twenty-four
(24) months or the number of months remaining in this Agreement;
and
(d) maintain the benefits otherwise payable to the
Employee under Section 3 through the last day of his actual
employment by the Company.
5.c Termination by the Employee. In the event the
Employee's employment is terminated by the Employee pursuant to
Section 4.5, the following shall occur:
(a) the Options granted pursuant to Section 3.2
shall terminate on the date of termination of employment and
Employee shall forfeit any right to the grant of any additional
Options under Section 3.2; and
(b) the Company shall pay to the Employee the
salary, benefits, and any earned Incentive Amounts otherwise
payable to him under Section 3 through the last day of his actual
employment by the Company.
5.d Termination for Death. In the event that the
Employee's employment is terminated by the Company pursuant to
Section 4.4 by reason of death of the Employee:
(a) the Options granted pursuant to Section 3.2
shall terminate on the date of termination of employment and the
Company shall have no further obligation to grant any additional
Options under Section 3.2; and
(b) the Company shall pay to the estate or
designated beneficiaries of the Employee, the salary, benefits,
and any earned Incentive Amounts to which the employee would
otherwise be entitled under Section 3 through the last day of his
actual employment.
<PAGE>
<PAGE>41
5.5 Termination Due to "Change in Control". In the event
that the Employee's employment is terminated due to a "Change in
Control," the Company shall pay to the Employee, within sixty (60)
days thereafter, an amount equal to the lesser of his base salary
for twenty-four (24) months or the number of months remaining in
this Agreement and any earned Incentive Amounts otherwise payable
to him under Section 3 through the last day of his actual
employment by the Company.
6. NON-COMPETE
6.a The Employee, whether as employee, partner, joint
venturer, officer, director, manager, consultant, advisor, owner
(direct or indirect) of more than one percent (1%) of the stock or
equity interest of a corporation or other entity or otherwise,
shall not, during the Employment Period and for a period of two
(2) years after the Expiration Date:
(a) engage directly or indirectly in, or permit any
entity controlled by such person or entity to engage directly or
indirectly in, any managed health care or health insurance
business or venture (including, without limitation, a self-insured
employer, insurer, employee welfare benefit plan, health service
corporation or other managed care payor organization, a health
maintenance organization, preferred provider organization,
physician-hospital organization or provider organization or
network, a third-party administrator, an independent practice
association, a health care alliance, a hospital or other health
care facility, or another individual or entity that, directly or
indirectly, provides, manages or administers health care services)
in the State of Connecticut; or
(b) recruit or otherwise solicit or induce any
employee of the Company or any of its subsidiaries (including CT
HMO) or affiliates to terminate his employment with, or otherwise
terminate his relationship with, the Company or any of its
subsidiaries (including CT HMO) or affiliates, as the case may be.
6.b If any restriction set forth in this Section 6 is
found by any court of competent jurisdiction to be unenforceable
because it extends for too long a period of time, over too great a
range of activities, in too broad a geographic area or for any
other reason, it shall be interpreted to extend only to the
maximum extent, whether period of time, range of activities,
geographic area or other terms, as to which it may be enforceable.
7. PROPRIETARY INFORMATION
7.a The Employee acknowledges that his relationship with
the Company is one of high trust and confidence and that in the
course of his employment by the Company he will have access to and
contact with "Proprietary Information" (as defined below). The
Employee agrees that he will not (except in the performance of his
duties for the Company), during the Employment Period or at any
time thereafter, disclose, communicate or divulge, in whole or in
part, to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever, or use for his
benefit or the benefit of any such other person, firm,
corporation, association or entity, any Proprietary Information.
For purposes of this Employment Agreement, "Proprietary
Information" shall mean (i) any and all (A) methods, processes,
manuals, trade secrets, know-how, inventions and other proprietary
<PAGE>
<PAGE>42
information used by the Company or any of its subsidiaries or
affiliates in the conduct of their respective businesses, (B)
software owned or used by the Company or any of its subsidiaries
or affiliates, and (C) improvements, enhancements, modifications,
updates and corrections with respect to any of the foregoing, as
and when same are released, (ii) any and all information, data,
forms, policies, procedures, manuals, customer lists, documents,
files, surveys and materials of any kind created, owned or
provided by the Company or any of its subsidiaries or affiliates,
(iii) any and all information or data affecting or relating to the
business or financial affairs of, or other information relating
to, the Company or any of its subsidiaries or affiliates or any
customer or client thereof (including, without limitation, the
names of its customers, prices and rates, and any health care
information pertaining to subscribers thereof), and (vi) any
derivative works based on any of the foregoing information, data
or materials described in subclauses (i) through (iii) above.
7.b The Employee's obligations under Section 7.1 shall not
apply to any information that:
(a) is or becomes known to the general public under
circumstances involving no breach by the Employee of the terms of
Section 7.1;
(b) is generally disclosed to third parties by the
Company without restriction on such third parties; or
(c) is approved for release by written authorization
of the Board; provided, however, that a breach of any obligation
under Section 7.1 shall not be cured by the subsequent occurrence
of any of the foregoing exceptions.
7.c Upon termination of this Employment Agreement or at
any other time upon request by the Company, the Employee shall
promptly deliver to the Company all Proprietary Information,
including all records, files, memoranda, notes, reports, price
lists, customer lists, drawings, plans, sketches, laboratory and
research notebooks, tapes, discs and any other documents (and all
copies or reproductions of such materials in his possession or
control) relating to the business of the Company and its
subsidiaries and affiliates.
8. INJUNCTIVE RELIEF. The restrictions contained in Sections 6
and 7 are necessary for the protection of the business and
goodwill of the Company and are considered by the Employee to be
reasonable for such purpose. The Employee agrees that any breach
or threatened breach of those Sections 6 and 7 will cause the
Company substantial and irreparable damage and therefore, in the
event of any such breach, the remedies at law will be inadequate,
and in addition to such other remedies which may be available, the
Company shall be entitled to equitable remedies (including an
injunction) and other such relief as a court may deem appropriate.
Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies for such breach or threatened breach.
9. REPRESENTATIONS.
9.a The Employee hereby represents to the Company that he
is legally entitled to enter into this Employment Agreement and to
perform the services contemplated herein.
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<PAGE>43
9.b The Company hereby represents to the Employee that the
Company has the requisite corporate power and authority to execute
and deliver this Employment Agreement. The execution and delivery
of this Employment Agreement by the Company has been duly
authorized by all necessary corporate action on the part of the
Company and no other or further corporate proceedings will be
necessary for the execution and delivery of this Employment
Agreement by the Company and the performance by the Company of its
obligations hereunder. This Employment Agreement has been duly
executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, moratorium, reorganization
or other laws of general applicability relating to or affecting
the enforcement of creditors' rights.
10. NOTICES. All notices and communications hereunder
shall be in writing and shall be deemed to be duly given if
delivered personally, mailed by certified mail (return receipt
requested) or sent by telecopier (confirmed thereafter by such
certified mail) to the parties at the following addresses or such
other addresses as shall be specified by the parties by like
notice;
(1) if to the Company:
The WellCare Management Group, Inc.
Park West/Hurley Avenue Extension
Kingston, NY 12401
Attention: Robert W. Morey, Chief Executive Officer
Telecopier Number: (914) 338-0566
(2) if to the Employee:
Douglas A. Hayward
2788 Long Hill Road
Guilford, CT 06437
Notice so given shall (in case of notice so given by mail) be
deemed to be given and received on the fifth calendar day after
posting and (in case of notice so given by telecopier or personal
delivery) on the date of actual transmission or (as the case may
be) personal delivery.
11. INDEMNIFICATION. Employer shall, to the maximum
extent permitted by New York State Corporate Law, indemnify
Employee against judgements, fines, penalties, amounts paid in
settlement and reasonable expenses actually incurred by him
(including reasonable attorneys' fees) in the event he is made a
party to any proceeding, other than an action by or in the right
of the Company, by reason of the fact that Employee is or was an
employee, officer, director, or agent of the Company. The Company
may also advance to Employee expenses incurred in defending any
such proceedings to the maximum extent permitted by New York State
Corporate Law, contingent upon satisfaction of all requirements of
said New York State Corporate Law, including agreement by Employee
to repay such advanced sums if he is later found not entitled to
be indemnified by the Company pursuant to New York State Corporate
Law. In accordance with the foregoing, no such indemnification
shall be made unless, inter alia, Employee is successful on the
merits in the defense of any preceding referenced above, Employee
<PAGE>
<PAGE>44
acted in good faith and in a manner he reasonably believed to be
in the best interests of the Company and, with respect to any
criminal action or proceeding, Employee had no reasonable cause to
believe his conduct was unlawful. It is hereby agreed that such
rights of indemnification shall be in addition to any other rights
of indemnification Employee may have as an officer of the Company,
pursuant to the Bylaws of the Company or otherwise.
12. SETTLEMENT OF CONTROVERSY OR CLAIM. Any controversy or
claim arising out of or relating to this Employment Agreement, or
breach thereof, shall be settled by arbitration in accordance with
the rules then obtaining of the American Arbitration Association
and the judgement on the award rendered may be entered in any
court having jurisdiction thereof. The prevailing party in any
such proceeding shall be entitled to reimbursement of its costs
and expenses (including reasonable attorney's fees) in connection
with such proceedings.
13. ATTORNEYS' FEES AND COSTS. If any action at law or in
equity is necessary to enforce or interpret the terms of this
Employment Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which he may be entitled.
14. GOVERNING LAW. This Employment Agreement shall be
construed, interpreted and enforced in accordance with the laws of
the State of New York, without giving effect to conflict of laws
provisions.
15. MISCELLANEOUS.
15.1 Assignment. The obligations of the Employee are
personal and may not be assigned by him.
15.2 Headings. The article and section headings of this
Employment Agreement are for convenience of reference only and
shall not be deemed to alter or affect provisions hereof.
15.3 Waivers. Neither the failure nor any delay on the
part of either party hereto in exercising any right, power or
remedy hereunder shall operate as a waiver thereof or preclude any
further or other exercise thereof, or the exercise of any other
right, power or remedy. A waiver or consent given by either party
on any one occasion shall be effective only in that instance and
shall not be construed as a bar or waiver of any right on any
other occasion.
15.4 Binding Effect. Subject to the provisions of Section
15.1, all the terms and provisions of this Employment Agreement
shall be binding upon and inure to the benefit of and be enforced
by the Company and the Employee and the legal representatives of
the Employee and the respective successors and assigns of the
parties hereto. This Employment Agreement shall not run to the
benefit of or be enforceable by any person other than a party to
this Employment Agreement and, subject to the provisions of
Section 15.1, the successors, assigns and legal representatives.
15.5 Entire Agreement. This Employment Agreement
constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, whether
written or oral, relating to the subject matter of this Employment
Agreement.
<PAGE>
<PAGE>45
15.6 Validity. The invalidity, illegality, or
unenforceability of any particular provision of this Employment
Agreement shall not affect any other provisions hereof, and this
Employment Agreement shall be construed in all other respects as
if such invalid, illegal, and unenforceable provisions were
omitted.
15.7 Counterparts. This Employment Agreement may be
executed in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
15.8 No Conflict. Each of the parties does hereby
represent and warrant to the other that nothing herein conflicts
with or shall cause a default under any document, agreement,
instrument or other writing to which said party is a party or by
which said party is bound.
15.9 Publicity. Neither party shall have the right to
disclose to third parties the terms and conditions of this
Employment Agreement, including its existence, without the express
prior written consent of the other party, except as may be
required by applicable law, including United States securities
laws, rules and regulations. Neither party shall originate any
publicity, news release or public announcement, written or oral,
whether to the public or press, stockholders or otherwise,
relating to the terms of this Employment Agreement, including its
existence, subject matter to which it relates, performance under
it, or any of the specific terms or conditions to any amendment
hereto or performance hereunder except such announcements as in
the opinion of the counsel for the party making such announcement
and required by law. If a party decides to make an announcement
which it believes to be required by law with respect to this
Employment Agreement, it will give the other party such notice as
is reasonably practicable and an opportunity to comment upon the
announcement.
15.10 Pronouns. Whenever the context may require, any
pronouns used in this Employment Agreement shall include
corresponding masculine, feminine or neuter forms, and the
singular forms of nouns and pronouns shall include the plural, and
vice versa.
15.11 Amendment. This Employment Agreement may be amended
or modified only by a written instrument executed by both the
Company and the Employee.
15.12 Survival. The provisions contained in Sections 5
through 12 shall survive any expiration or termination of this
Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the day and year set forth above.
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/Edward A. Ullmann
Name:Edward A. Ullmann
Title:President
EMPLOYEE
/s/ Douglas A. Hayward
Douglas A. Hayward
<PAGE>
<PAGE>46
Schedule 3.3(c) to
Employment Agreement
"Change of Control" of the Company shall mean such time as:
(i) Any Person or "group" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) other than the Principal Shareholders or
The 1818 Fund II, L.P., is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of capital stock
of the Company, entitling such Person or Persons to exercise
50% or more of the total votes entitled to be cast at a regular
or special meeting, or by action by written consent, of
shareholders of the Company (the term "beneficial owner" shall
be determined in accordance with Rule 13d-3, promulgated by the
Securities Exchange Commission under the Exchange Act);
(ii) A majority of the Board shall consist of Persons other
than Continuing Directors. The term "Continuing Director"
shall mean any member of the Board on the Effective Date and
any other member of the Board shall be recommended or elected
to succeed or become a Continuing Director by a majority of
Continuing Directors who are then members of the Board.
(iii) The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or
similar transaction, in each case, with respect to which all or
substantially all the Persons who were the respective
beneficial owners of the outstanding shares of capital stock of
the Company immediately prior to such recapitalization,
reorganization, merger or consolidation, beneficially own,
directly or indirectly, less than 50% of the combined voting
power of the then outstanding shares of capital stock of the
Company resulting from such recapitalization, reorganization,
merger, consolidation or similar transactions;
(iv) The shareholders of the Company shall have approved of
the sale or other disposition of all or substantially all the
assets of the Company in one transaction or in a series of
related transactions;
(v) Immediately after any merger, consolidation,
recapitalization or similar transaction, the Principal
Shareholders (A) shall have increased the aggregate percentage
of the outstanding shares of capital stock of the Company they
beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity
surviving such transaction is a corporation, the Principal
Shareholders' ownership in the new entity shall have increased
by 10% or more of their aggregate percentage of ownership of
the Company immediately prior to the transaction) and (B) shall
be the beneficial owners directly or indirectly, of outstanding
shares of stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or
more of the total voting power of shares of capital stock of
the Company (or the surviving Person in such transaction) and,
in anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have
incurred or issued additional Indebtedness such that the total
Indebtedness so incurred or issued equals at least 50% of the
consideration payable in such transaction; provided, however,
that any such transaction shall not be considered a Change of
<PAGE>
<PAGE>47
Control if the holders of Notes shall have participated therein
on no less than a pari passu basis (assuming conversion of all
such holders' Notes into Conversion Shares) with the Principal
Shareholders;
(vi) The shareholders of the Company approve any
transaction (or if no such approval is required, upon the
occurrence of any transaction) the result of which is that the
Common Stock shall no longer be required to be registered under
Section 12 of the Exchange Act and that the holders of shares
of Common Stock do not receive common stock of the Person
surviving such transaction that is required to be registered
under Section 12 of the Exchange Act;
(vii) The Company ceases to be the beneficial owner,
directly or indirectly, of the outstanding shares of capital
stock of CT HMO, entitling the Company to exercise 50% or more
of the total votes entitled to be cast at a regular or special
meeting, or by action by written consent of the shareholders of
CT HMO; or
(viii) The shareholders of CT HMO shall have approved
of the sale or other disposition of all or substantially all
the assets of CT HMO in one transaction or a series of
transactions.
For purposes of this Schedule 3.3(c): (a) "Conversion Shares"
shall mean the Common Stock issued or issuable upon the conversion
of the Notes; (b) "Indebtedness" shall mean as to any Person (i)
all obligations of such Person for borrowed money (including
without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (ii) all obligations
evidenced by notes, bonds, debentures or similar instruments,
(iii) all obligations to pay the deferred purchase price of
property or services, except trade accounts payable and accrued
liabilities arising in the ordinary course of business, (iv) all
interest rate and currency swaps and similar agreements under
which payments are obligated to be made, whether periodically or
upon the happening of a contingency, (v) all indebtedness created
or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or
sale of such property), (vi) all obligations under leases which
have been or should be, in accordance with GAAP, recorded as
capital leases, (vii) all indebtedness secured by any lien on any
property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person,
and (viii) any contingent obligation of the foregoing; (c) "Notes"
shall mean the 6.0% Subordinated Convertible Notes due December
31, 2002 of the Company; (d) "Person" shall mean any individual,
partnership, corporation, business trust, joint stock company,
trust, unincorporated association, joint venture, or other entity
of whatever nature; and (e) "Principal Shareholders" shall mean
Edward A. Ullmann and Robert W. Morey.
<PAGE>
<PAGE>48
Schedule 3.4 to
Employment Agreement
EXECUTIVE BENEFIT PLANS*
Vacation: Twenty (20) days per calendar year
Company Paid Holidays: Ten (10) days per calendar year
Sick Time: Five (5) days per calendar year
Personal Time: Five (5) days per calendar year
Life Insurance: $250,000 term life insurance through The Travelers.
Long-Term Disability Insurance: Group disability provided
through Paul Revere and enhanced by an individual long-term
disability policy. Combined policies provide for up to $5,000
per month disability income after 180-day elimination period.
Health Insurance: Full family coverage provided through
WellCare of Connecticut, Inc.
Auto Allowance: $600 per month.
Mileage: For business-related use of Company automobile,
mileage is reimbursed at the rate of $0.12 per mile.
Dental Insurance: Available the first of the month following
the completion of six (6) months of employment through The
Guardian. Employee shares with WellCare the cost of coverage
as follows:
Single Coverage: $ 2.31 per biweekly payroll
Employee and Spouse: $11.37 per biweekly payroll
Employee and Child/Children: $ 9.92 per biweekly payroll
Family Coverage: $18.98 per biweekly payroll
401(k) Profit Sharing Plan and Trust: Available the first of
the month following the completion of twelve (12) months of
employment and one thousand (1,000) hours of work.
*Please also refer to The WellCare Management Group, Inc.
Personnel Policy and Practices Manual.
<PAGE>
<PAGE>49
Exhibit B
THE WELLCARE MANAGEMENT GROUP, INC.
NON-INCENTIVE STOCK OPTION AGREEMENT
TO: DOUGLAS A. HAYWARD
We are pleased to notify you that by the determination of the
Compensation Committee (hereinafter called the "Committee") a non-incentive
stock option to purchase Thirty-Five Thousand (35,000)
shares of the Common Stock of The WellCare Management Group, Inc.
(hereinafter called the "Company"), at a price of $12.875 per
share, has this 29th day of May 1996 been granted to you under the
Company's 1993 Incentive and Non-Incentive Stock Option Plan, as
amended (hereinafter called the "Plan"). This option may be
exercised only upon the terms and conditions set forth below.
1. Purpose of Option.
The purpose of the Plan under which this non-incentive stock
option has been granted is to further the growth and development
of the Company and its direct and indirect subsidiaries by
encouraging key employees, directors, consultants, agents,
independent contractors and other persons who contribute and are
expected to contribute materially to the Company's success to
obtain a proprietary interest in the Company through the ownership
of stock, thereby providing such persons with an added incentive
to promote the best interests of the Company, and affording the
Company a means of attracting to its service persons of
outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this non-incentive stock option agreement
will indicate your acceptance of and your willingness to be bound
by its terms; it imposes no obligation upon you to purchase any of
the shares subject to the option. Your obligation to purchase
shares can arise only upon your exercise of the option in the
manner set forth in Section 4 hereof.
3. When Option May Be Exercised.
The option granted you hereunder may not be exercised for a
period of six (6) months from the date of its grant by the
Committee as set forth above. Thereafter, this option shall be
exercisable as follows:
(i) at the end of one year from the date of grant,
up to 50% of the total shares subject to the
option; and
(ii) at the end of two years from the date of grant, up
to 100% of the total shares subject to the option.
This option shall become immediately exercisable in full upon a
Change of Control of the Company (as defined below) or upon notice
of termination of employment without cause pursuant to Section 4.3
of your employment agreement dated the date hereof. For purposes
hereof, a "Change of Control" of the Company shall mean such time
as:
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<PAGE>50
(i) Any Person or "group" (within the meaning of Section
13(d) (3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than the Principal Shareholders or
The 1818 Fund II, L.P., is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of capital stock
of the Company, entitling such Person or Persons to exercise
50% or more of the total votes entitled to be cast at a regular
or special meeting, or by action by written consent, of
shareholders of the Company (the term "beneficial owner" shall
be determined in accordance with Rule 13d-3, promulgated by the
Securities Exchange Commission under the Exchange Act);
(ii) A majority of the Board shall consist of Persons other
than Continuing Directors. The term "Continuing Director"
shall mean any member of the Board on the Effective Date and
any other member of the Board shall be recommended or elected
to succeed or become a Continuing Director by a majority of
Continuing Directors who are then members of the Board.
(iii) The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or
similar transaction, in each case, with respect to which all or
substantially all the Persons who were the respective
beneficial owners of the outstanding shares of capital stock of
the Company immediately prior to such recapitalization,
reorganization, merger or consolidation, beneficially own,
directly or indirectly, less than 50% of the combined voting
power of the then outstanding shares of capital stock of the
Company resulting from such recapitalization, reorganization,
merger, consolidation or similar transaction;
(iv) The shareholders of the Company shall have approved of
the sale or other disposition of all or substantially all the
assets of the Company in one transaction or in a series of
related transactions;
(v) Immediately after any merger, consolidation,
recapitalization or similar transaction, the Principal
Shareholders (A) shall have increased the aggregate percentage
of the outstanding shares of capital stock of the Company they
beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity
surviving such transaction is a corporation, the Principal
Shareholders' ownership in the new entity shall have increased
by 10% or more of their aggregate percentage of ownership of
the Company immediately prior to the transaction) and (B) shall
be the beneficial owners directly or indirectly, of outstanding
shares of stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or
more of the total voting power of shares of capital stock of
the Company (or the surviving Person in such transaction) and,
in anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have
incurred or issued additional Indebtedness such that the total
Indebtedness so incurred or issued equals at least 50% of the
consideration payable in such transaction; provided, however,
that any such transaction shall not be considered a Change in
Control if the holders of Notes shall have participated therein
on no less a pari passu basis (assuming conversion of all such
holders' Notes into Conversion Shares) with the Principal
Shareholders;
<PAGE>
<PAGE>51
(vi) The shareholders of the Company approve any
transaction (or if no such approval is required, upon the
occurrence of any transaction) the result of which is that the
Common Stock shall no longer be required to be registered under
Section 12 of the Exchange Act and that the holders of shares
of Common Stock do not receive common stock of the Person
surviving such transaction that is required to be registered
under Section 12 of the Exchange Act;
(vii) The Company ceases to be the beneficial owner,
directly or indirectly, of the outstanding shares of capital
stock of CT HMO, entitling the Company to exercise 50% or more
of the total votes entitled to be cast at a regular or special
meeting, or by action by written consent of the shareholders of
CT HMO; or
(viii) The shareholders of CT HMO shall have approved
of the sale or other disposition of all or substantially all
the assets of CT HMO in one transaction or a series of
transaction.
For purposes of this Agreement (a) "Conversion Shares" shall
mean the Common Stock issued or issuable upon the conversion of
the Notes; (b) "Indebtedness" shall mean as to any Person (i) all
obligations of such Person for borrowed money (including without
limitation, reimbursement and all other obligations with respect
to surety bonds, letters of credit and bankers' acceptances,
whether or not matured), (ii) all obligations evidenced by notes,
bonds, debentures or similar instruments, (iii) all obligations to
pay the deferred purchase price of property or services, except
trade accounts payable and accrued liabilities arising in the
ordinary course of business, (iv) all interest rate and currency
swaps and similar agreements under which payments are obligated to
be made, whether periodically or upon the happening of a
contingency, (v) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property),
(vi) all obligations under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (vii) all
indebtedness secured by any lien on any property or asset owned or
held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is non-recourse
to the credit of that Person, and (viii) any contingent obligation
of the foregoing; (c) "Notes" shall mean the 6.0% Subordinated
Convertible Notes due December 31, 2002 of the Company; (d)
"Person" shall mean any individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature;
and (e) "Principal Shareholders" shall mean Edward A. Ullmann and
Robert W. Morey.
This option may not be exercised for less than ten (10) shares
at any one time (or the remaining shares then purchasable if less
than ten) and expires at the end of five (5) years from the date
of grant whether or not it has been duly exercised, unless sooner
terminated as provided in Section 5.
<PAGE>
<PAGE>52
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices signifying
your election to exercise the option. The notice must state the
number of shares of Common Stock as to which your option is being
exercised, must contain a statement by you (in a form acceptablez
to the Company) that such shares are being acquired by you for
investment and not with a view to their distribution or resale
(unless a registration statement covering the shares purchasable
has been declared effective by the Securities and Exchange
Commission) and must be accompanied by cash or check to the order
of the Company for the full purchase price of the shares being
purchased, plus such amount, if any, as is required for
withholding taxes. No share shall be issued until full payment
therefor has been made.
If notice of the exercise of this option is given by a person
or persons other than you, the Company may require, as a condition
to the exercise of this option, the submission to the Company of
appropriate proof of the right of such person or persons to
exercise this option.
Certificates for shares of the Common Stock so purchased will
be issued as soon as practicable. The Company, however, shall not
be required to issue or deliver a certificate for any shares until
it has complied with all requirements of the Securities Act of
1933, the Securities Exchange Act of 1934, any stock exchange on
which the Company's Common Stock may then be listed and all
applicable state laws in connection with the issuance or sale of
such shares or the listing of such shares on said exchange. Until
the issuance of the certificate for such shares, you or such other
person as may be entitled to exercise this option, shall have none
of the rights of a shareholder with respect to shares subject to
this option.
5. Termination of Employment.
If your employment with the Company (or a subsidiary thereof)
is terminated for any reason, this option shall immediately lapse
and expire; provided, however, if such termination shall be due to
your death or disability, you (or your estate, your legatee or
legatees under your Last Will, or your personal representatives or
distributees) shall be entitled to exercise this option within six
(6) months of the date of termination, but only to the extent
exercisable at the date of termination and in no event after the
expiration date of this option.
6. Nontransferability of Option.
This option shall not be transferable except by Last Will or
the laws of descent and distribution, and may be exercised during
your lifetime only by you.
7. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the
Company shall, by stock dividend, split-up, combination,
reclassification or exchange, or through merger or consolidation,
or otherwise, change its shares of Common Stock into a different
number or kind or class of shares or other securities or property,
then the number of shares covered by this option and the price of
<PAGE>
<PAGE>53
each such share shall be proportionately adjusted for any such
change by the Committee whose determination shall be conclusive.
Any fraction of a share resulting from any adjustment shall be
eliminated and the price per share of the remaining shares subject
to this option adjusted accordingly.
8. Subject to Terms of the Plan.
This non-incentive stock option agreement shall be subject in
all respects to the terms and conditions of the Plan and in the
event of any question or controversy relating to the terms of the
Plan, the decision of the Committee shall be conclusive.
9. Tax Status.
This option does not qualify as an "incentive stock option"
under the provisions of Section 422 of the Internal Revenue Code
of 1986, as amended, and the income tax implications of your
receipt of a non-incentive stock option and your exercise of such
an option should be discussed with your tax counsel.
Sincerely yours,
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Edward A. Ullmann
Name: Edward A. Ullmann
Title: President
Agreed to and accepted this
25 day of June, 1996.
/s/ Douglas A. Hayward
Signature of Optionee
Exhibit B
THE WELLCARE MANAGEMENT GROUP, INC.
NON-INCENTIVE STOCK OPTION AGREEMENT
TO: DOUGLAS A. HAYWARD
We are pleased to notify you that by the determination of the
Compensation Committee (hereinafter called the "Committee") a non-incentive
stock option to purchase Five Thousand (5,000) shares of
the Common Stock of The WellCare Management Group, Inc.
(hereinafter called the "Company"), at a price of $12.875 per
share, has this 29th day of May 1996 been granted to you under the
Company's 1993 Incentive and Non-Incentive Stock Option Plan, as
amended (hereinafter called the "Plan"). This option may be
exercised only upon the terms and conditions set forth below.
1. Purpose of Option.
The purpose of the Plan under which this non-incentive stock
option has been granted is to further the growth and development
of the Company and its direct and indirect subsidiaries by
encouraging key employees, directors, consultants, agents,
independent contractors and other persons who contribute and are
<PAGE>
<PAGE>54
expected to contribute materially to the Company's success to
obtain a proprietary interest in the Company through the ownership
of stock, thereby providing such persons with an added incentive
to promote the best interests of the Company, and affording the
Company a means of attracting to its service persons of
outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this non-incentive stock option agreement
will indicate your acceptance of and your willingness to be bound
by its terms; it imposes no obligation upon you to purchase any of
the shares subject to the option. Your obligation to purchase
shares can arise only upon your exercise of the option in the
manner set forth in Section 4 hereof.
3. When Option May Be Exercised.
The option granted you hereunder may not be exercised for a
period of six (6) months from the date of its grant by the
Committee as set forth above. Thereafter, this option shall be
exercisable as follows:
(i) at the end of one year from the date of grant,
up to 50% of the total shares subject to the
option; and
(ii) at the end of two years from the date of grant, up
to 100% of the total shares subject to the option.
This option shall become immediately exercisable in full upon a
Change of Control of the Company (as defined below) or upon notice
of termination of employment without cause pursuant to Section 4.3
of your employment agreement dated the date hereof. For purposes
hereof, a "Change of Control" of the Company shall mean such time
as:
(i) Any Person or "group" (within the meaning of Section
13(d) (3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than the Principal Shareholders or
The 1818 Fund II, L.P., is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of capital stock
of the Company, entitling such Person or Persons to exercise
50% or more of the total votes entitled to be cast at a regular
or special meeting, or by action by written consent, of
shareholders of the Company (the term "beneficial owner" shall
be determined in accordance with Rule 13d-3, promulgated by the
Securities Exchange Commission under the Exchange Act);
(ii) A majority of the Board shall consist of Persons other
than Continuing Directors. The term "Continuing Director"
shall mean any member of the Board on the Effective Date and
any other member of the Board shall be recommended or elected
to succeed or become a Continuing Director by a majority of
Continuing Directors who are then members of the Board.
(iii) The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or
similar transaction, in each case, with respect to which all or
substantially all the Persons who were the respective
beneficial owners of the outstanding shares of capital stock of
the Company immediately prior to such recapitalization,
<PAGE>
<PAGE>55
reorganization, merger or consolidation, beneficially own,
directly or indirectly, less than 50% of the combined voting power
of the then outstanding shares of capital stock of the Company
resulting from such recapitalization, reorganization, merger,
consolidation or similar transaction;
(iv) The shareholders of the Company shall have approved of
the sale or other disposition of all or substantially all the
assets of the Company in one transaction or in a series of
related transactions;
(v) Immediately after any merger, consolidation,
recapitalization or similar transaction, the Principal
Shareholders (A) shall have increased the aggregate percentage
of the outstanding shares of capital stock of the Company they
beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity
surviving such transaction is a corporation, the Principal
Shareholders' ownership in the new entity shall have increased
by 10% or more of their aggregate percentage of ownership of
the Company immediately prior to the transaction) and (B) shall
be the beneficial owners directly or indirectly, of outstanding
shares of stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or
more of the total voting power of shares of capital stock of
the Company (or the surviving Person in such transaction) and,
in anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have
incurred or issued additional Indebtedness such that the total
Indebtedness so incurred or issued equals at least 50% of the
consideration payable in such transaction; provided, however,
that any such transaction shall not be considered a Change in
Control if the holders of Notes shall have participated therein
on no less a pari passu basis (assuming conversion of all such
holders' Notes into Conversion Shares) with the Principal
Shareholders;
(vi) The shareholders of the Company approve any
transaction (or if no such approval is required, upon the
occurrence of any transaction) the result of which is that the
Common Stock shall no longer be required to be registered under
Section 12 of the Exchange Act and that the holders of shares
of Common Stock do not receive common stock of the Person
surviving such transaction that is required to be registered
under Section 12 of the Exchange Act;
(vii) The Company ceases to be the beneficial owner,
directly or indirectly, of the outstanding shares of capital
stock of CT HMO, entitling the Company to exercise 50% or more
of the total votes entitled to be cast at a regular or special
meeting, or by action by written consent of the shareholders of
CT HMO; or
(viii) The shareholders of CT HMO shall have approved
of the sale or other disposition of all or substantially all
the assets of CT HMO in one transaction or a series of
transaction.
For purposes of this Agreement (a) "Conversion Shares" shall
mean the Common Stock issued or issuable upon the conversion of
the Notes; (b) "Indebtedness" shall mean as to any Person (i) all
obligations of such Person for borrowed money (including without
<PAGE>
<PAGE>56
limitation, reimbursement and all other obligations with respect
to surety bonds, letters of credit and bankers' acceptances,
whether or not matured), (ii) all obligations evidenced by notes,
bonds, debentures or similar instruments, (iii) all obligations to
pay the deferred purchase price of property or services, except
trade accounts payable and accrued liabilities arising in the
ordinary course of business, (iv) all interest rate and currency
swaps and similar agreements under which payments are obligated to
be made, whether periodically or upon the happening of a
contingency, (v) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property),
(vi) all obligations under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (vii) all
indebtedness secured by any lien on any property or asset owned or
held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is non-recourse
to the credit of that Person, and (viii) any contingent obligation
of the foregoing; (c) "Notes" shall mean the 6.0% Subordinated
Convertible Notes due December 31, 2002 of the Company; (d)
"Person" shall mean any individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature;
and (e) "Principal Shareholders" shall mean Edward A. Ullmann and
Robert W. Morey.
This option may not be exercised for less than ten (10) shares
at any one time (or the remaining shares then purchasable if less
than ten) and expires at the end of five (5) years from the date
of grant whether or not it has been duly exercised, unless sooner
terminated as provided in Section 5.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices signifying
your election to exercise the option. The notice must state the
number of shares of Common Stock as to which your option is being
exercised, must contain a statement by you (in a form acceptable
to the Company) that such shares are being acquired by you for
investment and not with a view to their distribution or resale
(unless a registration statement covering the shares purchasable
has been declared effective by the Securities and Exchange
Commission) and must be accompanied by cash or check to the order
of the Company for the full purchase price of the shares being
purchased, plus such amount, if any, as is required for
withholding taxes. No share shall be issued until full payment
therefor has been made.
If notice of the exercise of this option is given by a person
or persons other than you, the Company may require, as a condition
to the exercise of this option, the submission to the Company of
appropriate proof of the right of such person or persons to
exercise this option.
Certificates for shares of the Common Stock so purchased will
be issued as soon as practicable. The Company, however, shall not
be required to issue or deliver a certificate for any shares until
it has complied with all requirements of the Securities Act of
1933, the Securities Exchange Act of 1934, any stock exchange on
<PAGE>
<PAGE>57
which the Company's Common Stock may then be listed and all
applicable state laws in connection with the issuance or sale of
such shares or the listing of such shares on said exchange. Until
the issuance of the certificate for such shares, you or such other
person as may be entitled to exercise this option, shall have none
of the rights of a shareholder with respect to shares subject to
this option.
5. Termination of Employment.
If your employment with the Company (or a subsidiary thereof)
is terminated for any reason, this option shall immediately lapse
and expire; provided, however, if such termination shall be due to
your death or disability, you (or your estate, your legatee or
legatees under your Last Will, or your personal representatives or
distributees) shall be entitled to exercise this option within six
(6) months of the date of termination, but only to the extent
exercisable at the date of termination and in no event after the
expiration date of this option.
6. Nontransferability of Option.
This option shall not be transferable except by Last Will or
the laws of descent and distribution, and may be exercised during
your lifetime only by you.
7. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the
Company shall, by stock dividend, split-up, combination,
reclassification or exchange, or through merger or consolidation,
or otherwise, change its shares of Common Stock into a different
number or kind or class of shares or other securities or property,
then the number of shares covered by this option and the price of
each such share shall be proportionately adjusted for any such
change by the Committee whose determination shall be conclusive.
Any fraction of a share resulting from any adjustment shall be
eliminated and the price per share of the remaining shares subject
to this option adjusted accordingly.
8. Subject to Terms of the Plan.
This non-incentive stock option agreement shall be subject in
all respects to the terms and conditions of the Plan and in the
event of any question or controversy relating to the terms of the
Plan, the decision of the Committee shall be conclusive.
9. Tax Status.
This option does not qualify as an "incentive stock option"
under the provisions of Section 422 of the Internal Revenue Code
of 1986, as amended, and the income tax implications of your
receipt of a non-incentive stock option and your exercise of such
an option should be discussed with your tax counsel.
Sincerely yours,
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Edward A. Ullmann
Name: Edward A. Ullmann
Title: President
<PAGE>58
Agreed to and accepted this
25 day of June, 1996.
/s/ Douglas A. Hayward
Signature of Optionee
<PAGE>
<PAGE>59
[TYPE] EX-10
[DESCRIPTION] MATERIAL CONTRACTS
10.51 Copy of Employment Contract dated
June 1, 1996 between Registrant and
John E. Ott, M.D.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated June 1, 1996 (the "Employment
Agreement"), by and among THE WELLCARE MANAGEMENT GROUP, INC., a
New York corporation with its principal place of business at Park
West/Hurley Avenue Extension, Kingston, New York 12401 (the
"Company"), and John E. Ott, MD residing at 5307 Sherrier Place
NW, Washington DC 20006 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee and the
Employee desires to be employed by the Company; and
WHEREAS, the Company desires to restrain the Employee from
competing with it.
NOW, THEREFORE, in consideration of the foregoing premises and
the representations, warranties, covenants, and agreements herein
contained, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by the parties
hereto, the parties hereto, intending to be legally bound, agree
as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to employ the
Employee, and the Employee hereby accepts such employment with the
Company, upon the terms and conditions set forth in this
Employment Agreement, for the period commencing on the date hereof
(the "Effective Date") and ending May 31, 2001, (the "Expiration
Date"), unless sooner terminated in accordance with the provisions
of Section 4 (such period being referred to herein as the
"Employment Period").
2. EMPLOYEE'S RESPONSIBILITY AND PERFORMANCE.
2.a During the Employment Period, the Employee shall serve
in the capacity of and hold the title of Executive Vice President
with primary responsibility for managing and leading the day-by-day activities
of the Greater New York City area HMO operations of
WellCare of New York, Inc., a New York State certified health
maintenance organization and a wholly-owned subsidiary of the
Company managed by the Company (the "WellCare HMO"), and shall be
subject to the supervision of, and shall have such authority as is
delegated to him by, the Board of Directors of the Company (the
"Board") or the Chief Executive Officer of the Company (the "CEO")
consistent with such position. The Employee hereby accepts such
employment and agrees to undertake the duties and responsibilities
normally inherent in such position and such other duties and
responsibilities as the Board or the CEO shall from time to time
reasonably assign to him consistent with such position.
2.b During the Employment Period, the Employee shall
devote his full business time and attention to the discharge of
his duties and responsibilities hereunder and shall be based in
both Kingston, New York and the region encompassed by the Greater
New York City area. The Employee agrees to abide by the
<PAGE>
<PAGE>60
reasonable rules, regulations, instructions, personnel practices
and policies of the Company, and any reasonable changes therein
which may be adopted from time to time by the Company, as such
rules, regulations, instructions, personnel practices and policies
may reasonably be applied to employees of the Company.
2.c During the Employment Period and for a period
thereafter, as set forth in Section 6.1, the Employee shall not
compete with the Company, as specifically provided for in Section
6.
3. COMPENSATION; BONUS; BENEFITS.
3.a Salary. During the Employment Period, the Company
shall pay the Employee, in installments consistent with the
Company's usual payroll practices, an annual base salary of
$200,000, which amount shall be subject to review as provided in
this Section 3.1. The Company agrees to review the Employee's
annual base salary in May of each year during the Employment
Period commencing in 1997 and to consider a merit increase in such
annual base salary for the ensuing fiscal year based upon the
performance of the Employee during the prior fiscal year. If the
Employee's annual base salary is increased in accordance with the
provisions of this Section 3.1, it shall be effective as of the
June 1 immediately following such review. In the event that the
Employee is, or is to be, employed for less than a full payroll
installment period, such installment of the annual base salary
shall be appropriately adjusted.
3.b Stock Options.
(1) To provide the Employee with an incentive to
become employed by the Company, which incentive provides the
Employee with a proprietary interest in the Company through
ownership of Common Stock, $.01 par value, of the Company (the
"Common Stock"), subject to approval of the Compensation Committee
which is charged with administering the Company's 1993 Incentive
and Non-Incentive Stock Option Plan (the "Plan"), which approval
the Company will recommend and use its best efforts to cause, and
subject to the execution and delivery of Stock Option Agreements
(as such term is defined herein), the Company shall grant
Employee:
(A) promptly following the execution and
delivery of this Employment Agreement a
five-year non-incentive option to purchase
35,000 shares of Common Stock under the
Plan, at an exercise price equal to the
fair market value of the Common Stock on
the date of grant, such option to be
exercisable at the annual cumulative rate
of 50% of the shares underlying such
option commencing one year from the date
of grant, such options to be exercisable
in full upon a Change in Control (as
defined in the Stock Option Agreements) or
upon notice of termination of employment
under Section 4.3 hereof; and
(B) on each of June 1, 1996, June 1, 1997, and
June 1, 1998, provided the Employee is
then employed under this Employment
<PAGE>
<PAGE>61
Agreement, a five-year non-incentive
option to purchase 5,000 shares of Common
Stock under the Plan, at an exercise price
equal to the fair market value of the
Common Stock on the date of grant, such
option to be exercisable at the annual
cumulative rate of 50% of the shares
underlying such option commencing one year
from the date of grant, such options to be
exercisable in full upon a Change in
Control (as defined in the Stock Option
Agreements) or upon notice of termination
of employment under Section 4.3 hereof;
provided that in no event shall the
exercise date of any option granted under
clause (i) or (ii) be accelerated prior to
the date six months from the date of
grant. The foregoing options shall be
subject to the terms and conditions of the
Stock Option Agreement covering such
options, in the form annexed hereto as
Exhibit A hereto (the "Stock Option
Agreements") and the Plan.
3.c Bonuses.
(1) As a special bonus reported as additional
compensation income, the Company shall pay to the Employee the
Employee's Share (as defined below) of the Incentive Amounts as
defined in Section 3.3 (e). For purposes of this Employment
Agreement, "Employee's Share" shall mean the Employee's share of
the aggregate Incentive Amounts with respect to a calendar year.
The Employee's Share shall be fifty percent (50%) of the twenty
percent (20%) as defined in Section 3.3 (e).
(2) In the event of the Employee's termination of
employment with the Company, Employee shall receive his Employee's
Share of any Incentive Amounts earned through the last day of his
actual employment by the Company.
(3) In the event of a "Change in Control," the
Employee shall receive his Employee's Share of any Incentive
Amounts earned through the last day of his actual employment by
the Company. For purposes of this Section 3.3, a "Change in
Control" shall have the meaning set forth on Schedule 3.3(c)
annexed hereto.
(4) In no event shall any payment of any portion of
the Incentive Amounts be taken into account for any purpose under
any pension, retirement or other benefit plan or program offered
by the Company or any of its affiliates.
(5) For purposes of this Employment Agreement, the
term "Incentive Amounts" shall mean amounts payable by the Company
within 90 days following the end of each of the five calendar
years following the Effective Date calculated as follows: twenty
percent (20%) of the earnings before income taxes ("EBT") of the
Greater New York City Division of the WellCare HMO as reflected on
its annual income statement which shall have been prepared by the
Company in accordance with generally accepted accounting
principles consistently applied, adjusted as set forth in Section
3.3(f) below, subject, at the Company's option, to audit by an
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<PAGE>62
independent public accounting firm selected by the Company.
For purposes of this Employment Agreement, the
term "Greater New York City Division of the WellCare HMO" is
defined as the operations of the WellCare HMO for membership
located in all boroughs of New York City and surrounding counties
including northern New Jersey in which WellCare HMO is licensed.
(6) The calculation of EBT for purposes of
determining Incentive Amounts only shall be subject to adjustment
as follows:
(A) State and local taxes computed on income
shall not be deducted;
(B) The administrative costs (in contrast to
medical costs) of the Greater New York
City Division of the WellCare HMO shall be
imputed to be the lesser of an amount
equal to (A) fifteen percent (15%) of the
Greater New York City Division of the
WellCare HMO's annual total revenues and
(B) the product of (x) the Greater New
York City Division of the WellCare HMO's
annual total revenues and (y) the ratio of
the administrative costs of the Company
and its subsidiaries taken as a whole (in
contrast to medical costs of such entities
taken as a whole) to total revenues of the
Company and its subsidiaries taken as a
whole;
(C) Any interest or dividend income earned by
the Greater New York City Division of the
WellCare HMO shall not be reflected; and
(D) There shall not be reflected as an expense
the payments of the Incentive Amounts.
3.d Benefits: Vacation; Sick Leave.
(a) As of the Effective Date and during the
Employment Period, the Employee shall be entitled to participate
in the benefit programs available to employees in senior
management positions at the Company (the "Executive Benefit
Plans") from time to time in a manner and amount consistent with
the Company's employment policies in effect from time to time.
Such Executive Benefit Plans are listed on Schedule 3.4. The
Employee shall be entitled to participate in, and receive the
benefits of, any Executive Benefit Plan as of the Effective Date,
and shall not be subject to any eligibility or waiting periods
with respect thereto unless otherwise indicated on Schedule 3.4.
(b) During the Employment Period, the Employee shall
be entitled to such number of weeks paid vacation during each
twelve-month period and to sick leave as is consistent with the
Company's employment policies in effect from time to time.
3.e Reimbursement of Expenses. The Company shall
reimburse the Employee for all reasonable travel expenses,
including a car and driver, and other expenses incurred or paid by
the Employee in connection with, or related to, the business of
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<PAGE>63
the Company and the performance of his duties, responsibilities or
services under this Employment Agreement, upon presentation by the
Employee of documentation, expense statements, vouchers and/or
such other supporting information as the Company may reasonably
request.
4. EMPLOYMENT TERMINATION. The employment of the Employee by
the Company pursuant to this Employment Agreement may be
terminated by the Company upon the occurrence of any of the
following:
4.a Expiration of the Employment Period in accordance with
Section 1.
4.b At the election of the Company, for Cause, immediately
upon written notice by the Company to the Employee. For the
purposes of this Section 4.2, "Cause" for termination shall be
deemed to exist solely in the event of:
(a) the Employee's engaging in any act, including
but not limited to any act of "Moral Turpitude" (as defined
below), that is materially damaging or detrimental to, or that
could be materially damaging or detrimental to, the Company or any
of its subsidiaries (including WellCare HMO) or affiliates or the
business or reputation of the Company or any of its subsidiaries
(including WellCare HMO) or its affiliates;
(b) any material breach of the Employment Agreement
by the Employee which is not cured by the Employee (to the extent
curable without adverse effect on the Company) within 30 days
after written notice by the Company to the Employee setting forth
a description of such material breach;
(c) the conviction, nolo contendere, or guilty pleas
of the Employee for any felony; or
(d) the neglect by the Employee in performing his
material duties under this Employment Agreement which is not cured
by the Employee within 30 days after written notice by the Company
to the Employee setting forth a description of such neglect.
For purposes hereof, "Moral Turpitude" shall mean (A) a knowing
breach or violation of any applicable law, (B) a civil fraud or
deceit, (C) a material misstatement or omission of fact or (D)
intentional misconduct.
4.c At the election of the Company, without Cause, upon
sixty (60) days' prior written notice to the Employee.
4.d Immediately upon the death or disability of the
Employee. As used in this Employment Agreement, "Disability"
shall mean the complete inability to perform the material services
contemplated under this Employment Agreement for a period of
ninety (90) consecutive days or one hundred twenty (120) days in
any calendar year. A determination of Disability shall be made by
a physician satisfactory to the Company.
4.e At the election of the Employee, for any reason, upon
sixty (60) days' prior written notice to the Company.
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5. EFFECT OF TERMINATION.
5.a Termination by the Company for Cause. In the event
the Employee's employment is terminated by the Company pursuant to
Section 4.2, the following shall occur:
(a) the Options granted pursuant to Section 3.2
shall terminate on the date of termination of employment and
Employee shall forfeit any right to the grant of any additional
Options under Section 3.2 and his Employee's Share of Incentive
Amounts to be paid pursuant to Section 3.3; and
(b) the Company shall pay to the Employee the
compensation and benefits otherwise payable to him under Section 3
through the last day of his actual employment by the Company.
5.b Termination by the Company Without Cause. In the
event the Employee's employment is terminated by the Company
pursuant to Section 4.3, the following shall occur:
(a) the Options granted pursuant to Section 3.2
shall become immediately exercisable in full on the date of notice
of such termination, providing the Employee the opportunity to
exercise such Options in full on or prior to the date of
termination of employment, and Employee shall forfeit any right to
the grant of any additional Options under Section 3.2;
(b) within sixty (60) days, the Company shall pay to
the Employee the Employee's Share of Incentive Amounts earned
through the last day of actual employment by the Company;
(c) the Company shall pay to the Employee the
greater of one (1) year's salary or the salary otherwise payable
to him under Section 3 through the Expiration Date, subject,
however, to the following:
(i) If a "Change in Control," as defined in
Schedule 3.3(c), occurs within three (3)
months after said termination without
cause, in lieu of any other payments under
this Section 5.2(c), the Company shall pay
to the Employee, within sixty (60) days
thereafter, an amount equal to the lesser
of his base salary for twenty-four (24)
months or the number of months remaining
in this Agreement; and
(ii) If the Employee's employment is terminated
by the Company without cause within three
(3) months of a "Change in Control," as
defined in Schedule 3.3(c), in lieu of any
other payments under this Section 5.2(c),
the Company shall pay to the Employee,
within sixty (60) days thereafter, an
amount equal to the lesser of his base
salary for twenty-four (24) months or the
number of months remaining in this
Agreement and any earned Incentive Amounts
otherwise payable to him under Section 3
through the last day of his actual
employment by the Company.
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<PAGE>65
(d) maintain the benefits otherwise payable to the
Employee under Section 3 through the last day on which the Company
is obligated to make payments under Section 5.2(c).
5.c Termination by the Employee. In the event the
Employee's employment is terminated by the Employee pursuant to
Section 4.5, the following shall occur:
(a) the Options granted pursuant to Section 3.2
shall terminate on the date of termination of employment and the
Company shall have no further obligation to grant any additional
Options under Section 3.2; and
(b) the Company shall pay to the Employee the
salary, benefits, and any earned Incentive Amounts otherwise
payable to him under Section 3 through the last day of his actual
employment by the Company.
5.d Termination for Death or Disability. In the event
that the Employee's employment is terminated by the Company
pursuant to Section 4.4 by reason of death or disability of the
Employee:
(a) the Employee or his legal representatives, in
the case of the Employee's disability, or his legal
representatives, in the case of the Employee's death, shall be
entitled to exercise the options granted pursuant to Section 3.2
within six (6) months of the date of termination, but only to the
extent exercisable at the date of termination and in no event
after the expiration date of these options; and
(b) the Company shall pay, in the case of the
Employee's death, to the estate or designated beneficiaries of the
Employee, or, in the case of the Employee's disability, to his
legal representatives, the salary, benefits, and any earned
Incentive Amounts to which the employee would otherwise be
entitled under Section 3 through the last day of his actual
employment.
6. NON-COMPETE
6.a The Employee, whether as employee, partner, joint
venturer, officer, director, manager, consultant, advisor, owner
(direct or indirect) of more than one percent (1%) of the stock or
equity interest of a corporation or other entity or otherwise,
shall not, during the Employment Period and for a period of two
(2) years after the Expiration Date:
(a) except as set forth on Schedule 6.1(a) hereof,
engage directly or indirectly in, or permit any entity controlled
by such person or entity to engage directly or indirectly in, any
managed health care or health insurance business or venture
(including, without limitation, a self-insured employer, insurer,
employee welfare benefit plan, health service corporation or other
managed care payor organization, a health maintenance
organization, preferred provider organization, physician-hospital
organization or provider organization or network, a third-party
administrator, an independent practice association, a health care
alliance, a hospital or other health care facility, or another
individual or entity that, directly or indirectly, provides,
manages or administers health care services) in the State of New
York; or
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(b) recruit or otherwise solicit or induce any
employee of the Company or any of its subsidiaries (including
WellCare HMO) or affiliates to terminate his employment with, or
otherwise terminate his relationship with, the Company or any of
its subsidiaries (including WellCare HMO) or affiliates, as the
case may be.
6.b If any restriction set forth in this Section 6 is
found by any court of competent jurisdiction to be unenforceable
because it extends for too long a period of time, over too great a
range of activities, in too broad a geographic area or for any
other reason, it shall be interpreted to extend only to the
maximum extent, whether period of time, range of activities,
geographic area or other terms, as to which it may be enforceable.
7. PROPRIETARY INFORMATION
7.a The Employee acknowledges that his relationship with
the Company is one of high trust and confidence and that in the
course of his employment by the Company he will have access to and
contact with "Proprietary Information" (as defined below). The
Employee agrees that he will not (except in the performance of his
duties for the Company), during the Employment Period or at any
time thereafter, disclose, communicate or divulge, in whole or in
part, to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever, or use for his
benefit or the benefit of any such other person, firm,
corporation, association or entity, any Proprietary Information.
For purposes of this Employment Agreement, "Proprietary
Information" shall mean (i) any and all (A) methods, processes,
manuals, trade secrets, know-how, inventions and other proprietary
information used by the Company or any of its subsidiaries or
affiliates in the conduct of their respective businesses, (B)
software owned or used by the Company or any of its subsidiaries
or affiliates, and (C) improvements, enhancements, modifications,
updates and corrections with respect to any of the foregoing, as
and when same are released, (ii) any and all information, data,
forms, policies, procedures, manuals, customer lists, documents,
files, surveys and materials of any kind created, owned or
provided by the Company or any of its subsidiaries or affiliates,
(iii) any and all information or data affecting or relating to the
business or financial affairs of, or other information relating
to, the Company or any of its subsidiaries or affiliates or any
customer or client thereof (including, without limitation, the
names of its customers, prices and rates, and any health care
information pertaining to subscribers thereof), and (vi) any
derivative works based on any of the foregoing information, data
or materials described in subclauses (i) through (iii) above.
7.b The Employee's obligations under Section 7.1 shall not
apply to any information that:
(a) is or becomes known to the general public under
circumstances involving no breach by the Employee of the terms of
Section 7.1;
(b) is generally disclosed to third parties by the
Company without restriction on such third parties; or
(c) is approved for release by written authorization
of the Board; provided, however, that a breach of any obligation
under Section 7.1 shall not be cured by the subsequent occurrence
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<PAGE>67
of any of the foregoing exceptions.
7.c Upon termination of this Employment Agreement or at
any other time upon request by the Company, the Employee shall
promptly deliver to the Company all Proprietary Information,
including all records, files, memoranda, notes, reports, price
lists, customer lists, drawings, plans, sketches, laboratory and
research notebooks, tapes, discs and any other documents (and all
copies or reproductions of such materials in his possession or
control) relating to the business of the Company and its
subsidiaries and affiliates.
8. INJUNCTIVE RELIEF. The restrictions contained in Sections 6
and 7 are necessary for the protection of the business and
goodwill of the Company and are considered by the Employee to be
reasonable for such purpose. The Employee agrees that any breach
or threatened breach of those Sections 6 and 7 will cause the
Company substantial and irreparable damage and therefore, in the
event of any such breach, the remedies at law will be inadequate,
and in addition to such other remedies which may be available, the
Company shall be entitled to equitable remedies (including an
injunction) and other such relief as a court may deem appropriate.
Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies for such breach or threatened breach.
9. REPRESENTATIONS.
9.a The Employee hereby represents to the Company that he
is legally entitled to enter into this Employment Agreement and to
perform the services contemplated herein.
9.b The Company hereby represents to the Employee that the
Company has the requisite corporate power and authority to execute
and deliver this Employment Agreement. The execution and delivery
of this Employment Agreement by the Company has been duly
authorized by all necessary corporate action on the part of the
Company and no other or further corporate proceedings will be
necessary for the execution and delivery of this Employment
Agreement by the Company and the performance by the Company of its
obligations hereunder. This Employment Agreement has been duly
executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, moratorium, reorganization
or other laws of general applicability relating to or affecting
the enforcement of creditors' rights.
10. NOTICES. All notices and communications hereunder
shall be in writing and shall be deemed to be duly given if
delivered personally, mailed by certified mail (return receipt
requested) or sent by telecopier (confirmed thereafter by such
certified mail) to the parties at the following addresses or such
other addresses as shall be specified by the parties by like
notice;
(1) if to the Company:
The WellCare Management Group, Inc.
Park West/Hurley Avenue Extension
Kingston, NY 12401
Attention: Robert W. Morey, Chief Executive Officer
<PAGE>68
Telecopier Number: (914) 338-0566
(2) if to the Employee:
John E. Ott, MD
5307 Sherrier Place NW
Washington, DC 20006
Notice so given shall (in case of notice so given by mail) be
deemed to be given and received on the fifth calendar day after
posting and (in case of notice so given by telecopier or personal
delivery) on the date of actual transmission or (as the case may
be) personal delivery.
11. INDEMNIFICATION. Employer shall, to the maximum extent
permitted by New York State Corporate Law, indemnify Employee
against judgements, fines, penalties, amounts paid in settlement
and reasonable expenses actually incurred by him (including
reasonable attorneys' fees) in the event he is made a party to any
proceeding, other than an action by or in the right of the
Company, by reason of the fact that Employee is or was an
employee, officer, director, or agent of the Company. The Company
may also advance to Employee expenses incurred in defending any
such proceedings to the maximum extent permitted by New York State
Corporate Law, contingent upon satisfaction of all requirements of
said New York State Corporate Law, including agreement by Employee
to repay such advanced sums if he is later found not entitled to
be indemnified by the Company pursuant to New York State Corporate
Law. In accordance with the foregoing, no such indemnification
shall be made unless, inter alia, Employee is successful on the
merits in the defense of any preceding referenced above, Employee
acted in good faith and in a manner he reasonably believed to be
in the best interests of the Company and, with respect to any
criminal action or proceeding, Employee had no reasonable cause to
believe his conduct was unlawful. It is hereby agreed that such
rights of indemnification shall be in addition to any other rights
of indemnification Employee may have as an officer of the Company,
pursuant to the Bylaws of the Company or otherwise.
12. SETTLEMENT OF CONTROVERSY OR CLAIM. Any controversy or
claim arising out of or relating to this Employment Agreement, or
breach thereof, shall be settled by arbitration in accordance with
the rules then obtaining of the American Arbitration Association
and the judgement on the award rendered may be entered in any
court having jurisdiction thereof. The prevailing party in any
such proceeding shall be entitled to reimbursement of its costs
and expenses (including reasonable attorney's fees) in connection
with such proceedings.
13. ATTORNEYS' FEES AND COSTS. If any action at law or in
equity is necessary to enforce or interpret the terms of this
Employment Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which he may be entitled.
14. GOVERNING LAW. This Employment Agreement shall be
construed, interpreted and enforced in accordance with the laws of
the State of New York, without giving effect to conflict of laws
provisions.
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<PAGE>69
15. MISCELLANEOUS.
15.1 Assignment. The obligations of the Employee are
personal and may not be assigned by him.
15.2 Headings. The article and section headings of this
Employment Agreement are for convenience of reference only and
shall not be deemed to alter or affect provisions hereof.
15.3 Waivers. Neither the failure nor any delay on the
part of either party hereto in exercising any right, power or
remedy hereunder shall operate as a waiver thereof or preclude any
further or other exercise thereof, or the exercise of any other
right, power or remedy. A waiver or consent given by either party
on any one occasion shall be effective only in that instance and
shall not be construed as a bar or waiver of any right on any
other occasion.
15.4 Binding Effect. Subject to the provisions of Section
12.1, all the terms and provisions of this Employment Agreement
shall be binding upon and inure to the benefit of and be enforced
by the Company and the Employee and the legal representatives of
the Employee and the respective successors and assigns of the
parties hereto. This Employment Agreement shall not run to the
benefit of or be enforceable by any person other than a party to
this Employment Agreement and, subject to the provisions of
Section 12.1, the successors, assigns and legal representatives.
15.5 Entire Agreement. This Employment Agreement
constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, whether
written or oral, relating to the subject matter of this Employment
Agreement.
15.6 Validity. The invalidity, illegality, or
unenforceability of any particular provision of this Employment
Agreement shall not affect any other provisions hereof, and this
Employment Agreement shall be construed in all other respects as
if such invalid, illegal, and unenforceable provisions were
omitted.
15.7 Counterparts. This Employment Agreement may be
executed in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
15.8 No Conflict. Each of the parties does hereby
represent and warrant to the other that nothing herein conflicts
with or shall cause a default under any document, agreement,
instrument or other writing to which said party is a party or by
which said party is bound.
15.9 Publicity. Neither party shall have the right to
disclose to third parties the terms and conditions of this
Employment Agreement, including its existence, without the express
prior written consent of the other party, except as may be
required by applicable law, including United States securities
laws, rules and regulations. Neither party shall originate any
publicity, news release or public announcement, written or oral,
whether to the public or press, stockholders or otherwise,
relating to the terms of this Employment Agreement, including its
existence, subject matter to which it relates, performance under
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<PAGE>70
it, or any of the specific terms or conditions to any amendment
hereto or performance hereunder except such announcements as in
the opinion of the counsel for the party making such announcement
and required by law. If a party decides to make an announcement
which it believes to be required by law with respect to this
Employment Agreement, it will give the other party such notice as
is reasonably practicable and an opportunity to comment upon the
announcement.
15.10 Pronouns. Whenever the context may require, any
pronouns used in this Employment Agreement shall include
corresponding masculine, feminine or neuter forms, and the
singular forms of nouns and pronouns shall include the plural, and
vice versa.
15.11 Amendment. This Employment Agreement may be amended
or modified only by a written instrument executed by both the
Company and the Employee.
15.12 Survival. The provisions contained in Sections 5
through 12 shall survive any expiration or termination of this
Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the day and year set forth above.
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Edward A. Ullmann
Name: Edward A. Ullmann, President
EMPLOYEE
/s/ John E. Ott, MD
John E. Ott, MD
Schedule 3.3(c) to
Employment Agreement
"Change of Control" of the Company shall mean such time as:
(i) Any Person or "group" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) other than the Principal Shareholders or
The 1818 Fund II, L.P., is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of capital stock
of the Company, entitling such Person or Persons to exercise
50% or more of the total votes entitled to be cast at a regular
or special meeting, or by action by written consent, of
shareholders of the Company (the term "beneficial owner" shall
be determined in accordance with Rule 13d-3, promulgated by the
Securities Exchange Commission under the Exchange Act);
(ii) A majority of the Board shall consist of Persons other
than Continuing Directors. The term "Continuing Director"
shall mean any member of the Board on the Effective Date and
any other member of the Board shall be recommended or elected
to succeed or become a Continuing Director by a majority of
Continuing Directors who are then members of the Board.
(iii) The shareholders of the Company shall have approved a
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recapitalization, reorganization, merger, consolidation or
similar transaction, in each case, with respect to which all or
substantially all the Persons who were the respective
beneficial owners of the outstanding shares of capital stock of
the Company immediately prior to such recapitalization,
reorganization, merger or consolidation, beneficially own,
directly or indirectly, less than 50% of the combined voting
power of the then outstanding shares of capital stock of the
Company resulting from such recapitalization, reorganization,
merger, consolidation or similar transactions;
(iv) The shareholders of the Company shall have approved of
the sale or other disposition of all or substantially all the
assets of the Company in one transaction or in a series of
related transactions;
(v) Immediately after any merger, consolidation,
recapitalization or similar transaction, the Principal
Shareholders (A) shall have increased the aggregate percentage
of the outstanding shares of capital stock of the Company they
beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity
surviving such transaction is a corporation, the Principal
Shareholders' ownership in the new entity shall have increased
by 10% or more of their aggregate percentage of ownership of
the Company immediately prior to the transaction) and (B) shall
be the beneficial owners directly or indirectly, of outstanding
shares of stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or
more of the total voting power of shares of capital stock of
the Company (or the surviving Person in such transaction) and,
in anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have
incurred or issued additional Indebtedness such that the total
Indebtedness so incurred or issued equals at least 50% of the
consideration payable in such transaction; provided, however,
that any such transaction shall not be considered a Change of
Control if the holders of Notes shall have participated therein
on no less than a pari passu basis (assuming conversion of all
such holders' Notes into Conversion Shares) with the Principal
Shareholders;
(vi) The shareholders of the Company approve any
transaction (or if no such approval is required, upon the
occurrence of any transaction) the result of which is that the
Common Stock shall no longer be required to be registered under
Section 12 of the Exchange Act and that the holders of shares
of Common Stock do not receive common stock of the Person
surviving such transaction that is required to be registered
under Section 12 of the Exchange Act;
(vii) The Company ceases to be the beneficial owner,
directly or indirectly, of the outstanding shares of capital
stock of WellCare HMO, entitling the Company to exercise 50% or
more of the total votes entitled to be cast at a regular or
special meeting, or by action by written consent of the
shareholders of WellCare HMO; or
(viii) The shareholders of WellCare HMO shall have
approved of the sale or other disposition of all or
substantially all the assets of WellCare HMO in one transaction
or a series of transactions.
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For purposes of this Schedule 3.3(c): (a) "Conversion Shares"
shall mean the Common Stock issued or issuable upon the conversion
of the Notes; (b) "Indebtedness" shall mean as to any Person (i)
all obligations of such Person for borrowed money (including
without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (ii) all obligations
evidenced by notes, bonds, debentures or similar instruments,
(iii) all obligations to pay the deferred purchase price of
property or services, except trade accounts payable and accrued
liabilities arising in the ordinary course of business, (iv) all
interest rate and currency swaps and similar agreements under
which payments are obligated to be made, whether periodically or
upon the happening of a contingency, (v) all indebtedness created
or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or
sale of such property), (vi) all obligations under leases which
have been or should be, in accordance with GAAP, recorded as
capital leases, (vii) all indebtedness secured by any lien on any
property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person,
and (viii) any contingent obligation of the foregoing; (c) "Notes"
shall mean the 6.0% Subordinated Convertible Notes due December
31, 2002 of the Company; (d) "Person" shall mean any individual,
partnership, corporation, business trust, joint stock company,
trust, unincorporated association, joint venture, or other entity
of whatever nature; and (e) "Principal Shareholders" shall mean
Edward A. Ullmann and Robert W. Morey.
Schedule 3.4 to
Employment Agreement
EXECUTIVE BENEFIT PLANS*
Vacation: Twenty (20) days per calendar year
Company Paid Holidays: Ten (10) days per calendar year
Sick Time: Five (5) days per calendar year
Personal Time: Five (5) days per calendar year
Life Insurance: $250,000 term life insurance through The Travelers.
Long-Term Disability Insurance: Group disability provided
through Paul Revere and enhanced by an individual long-term
disability policy.
Health Insurance: Individual coverage provided through WellCare
of New York, Inc.
Dental Insurance: Available the first of the month following
the completion of six (6) months of employment through The
Guardian. Employee shares with WellCare the cost of coverage
as follows:
Single Coverage: $ 2.31 per biweekly payroll
Employee and Spouse: $11.37 per biweekly payroll
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<PAGE>73
Employee and Child/Children: $ 9.92 per biweekly payroll
Family Coverage: $18.98 per biweekly payroll
401(k) Profit Sharing Plan and Trust: Available the first of
the month following the completion of twelve (12) months of
employment and one thousand (1,000) hours of work.
*Please also refer to The WellCare Management Group, Inc.
Personnel Policy and Practices Manual.
EXHIBIT A
THE WELLCARE MANAGEMENT GROUP, INC.
1993 INCENTIVE AND NON-INCENTIVE
STOCK OPTION PLAN
(As Amended and Restated as of March 25, 1995)
1. Purpose of Plan.
The purpose of this 1993 Incentive and Non-Incentive Stock
Option Plan (the "Plan") is to further the growth and development
of The WellCare Management Group, Inc. (the "Company") and any
direct and indirect subsidiaries thereof (collectively,
"Subsidiaries" and each, singly, a "Subsidiary") by encouraging
selected employees, directors, and other persons who contribute
and are expected to contribute materially to the Company's success
to obtain a proprietary interest in the Company through the
ownership of stock, thereby providing such persons with an added
incentive to promote the best interests of the Company and
affording the Company a means of attracting to its service persons
of outstanding ability.
2. Stock Subject to the Plan.
An aggregate of 900,000 shares of the Company's Common Stock,
par value $0.01 per share ("Common Stock"), subject, however, to
adjustment or change pursuant to Section 12 hereof, shall be
reserved for issuance upon the exercise of options which may be
granted from time to time in accordance with the Plan ("Options").
Such shares may be, in whole or in part, as the Compensation
Committee (the "Committee") shall from time to time determine,
authorized but unissued shares or issued shares which have been
reacquired by the Company. If, for any reason, an Option shall
lapse, expire or terminate without having been exercised in full,
the unpurchased shares covered thereby shall again be available
for purposes of the Plan.
3. Administration.
(a) The Board of Directors has appointed the Committee
from among its members to administer and help set
policy for the Company's Stock Option Plan. The
Committee is comprised of three or more Directors,
each of whom shall be "disinterested persons" as
defined by Regulation 240.16b-3 under the Securities
Exchange Act of 1934, as amended. Such Committee
shall have and may exercise any and all of the powers
relating to the administration of the Plan and the
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<PAGE>74
grant of Options thereunder as are set forth in
subsection 3(b) hereof. The Board of Directors shall
have the power at any time to fill vacancies in, to
change the membership of, or to discharge such
Committee. The Committee shall select one of its
members as its chairman and shall hold its meetings at
such time and at such places as it shall deem
advisable. A majority of such Committee shall
constitute a quorum and such majority shall determine
its action. Any action may be taken without a meeting
by written consent of all the members of the
Committee. The Committee shall keep minutes of its
proceedings and shall report the same to the Board of
Directors at the meeting next succeeding.
(b) The Committee shall administer the Plan and , subject
to the provisions of the Plan, shall have sole
authority in its discretion to determine the persons
to whom, and the time or times at which, Options shall
be granted, the number of shares to be subject to each
such Option and whether all or any portion of such
Options shall be incentive stock options ("Incentive
Options") qualifying under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or
stock options which do not so qualify ("Non-Incentive
Options"). Both Incentive Options and Non-Incentive
Options may be granted to the same person at the same
time provided each type of Option is clearly
designated. In making such determinations, the
Committee may take into account the nature of the
services rendered by such persons, their present and
potential contributions to the Company's success and
such other factors as the Committee in its sole
discretion may deem relevant. Subject to the express
provisions of the Plan, the Committee shall also have
the authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating
thereto, to determine the terms and provisions of the
respective Option Agreements, which shall be
substantially in the forms attached hereto as Exhibit
A and Exhibit B, and to make all other determinations
necessary or advisable for the administration of the
Plan, all of which determinations shall be conclusive
and not subject to review.
4. Eligibility for Receipt of Options.
(a) Incentive Options.
Incentive Options may be granted only to employees
(including officers) of the Company and/or any of its
Subsidiaries.
The aggregate Fair Market Value (as defined in Section 5 of
the Plan), determined as of the time the Incentive Option is
granted, of the shares of the Company's Common Stock
purchasable thereunder exercisable for the first time by any
employee during any calendar year may not exceed $100,000.
A director of the Company or any Subsidiary who is not an
employee of the Company or of one of its Subsidiaries is not
eligible to receive Incentive Options under the Plan.
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<PAGE>75
Further, Incentive Options may not be granted to any person
who, at the time the Incentive Option is granted, owns (or is
considered as owning within the meaning of Section 425(d) of
the Code) stock possessing more than 10% of the total combined
voting powers of all classes of stock of the Company or any
Subsidiary (a "10% Owner"), unless at the time the Incentive
Option is granted to a 10% Owner, the option price is at least
110% of the fair market value of the Common Stock subject
thereto and such Incentive Option by its terms is not
exercisable subsequent to five (5) years from the date of
grant.
(b) Non-Incentive Options.
Subject to the provisions of subsection (c) of this Section
4, Non-Incentive Options may be granted to any employee
(including employees who have been granted Incentive
Options), directors, consultants, agents, independent
contractors and other persons whom the Committee determines
will contribute to the Company's success.
(c) Non-Incentive Options to Outside Directors.
Immediately following the election, re-election or
appointment of a director of the Company who is not then a
full-time employee of the Company ("Outside Director")
(unless the appointment occurs during the final six (6)
months of the three-year term of the class of directors in
which such Outside Director is a member, in which event such
Outside Director shall not receive any Option under this
provision until such Outside Director is elected by the
shareholders), the Committee shall grant to such Outside
Director a Non-Incentive Option to purchase the number of
shares of Common Stock set forth below at an exercise price
equal to 75% of the "Fair Market Value" of the Common Stock
on the date of grant (which, if the Common Stock is traded
on The Nasdaq Stock Market, National Market or on a national
securities exchange, shall be the closing sales price of the
Common Stock on The Nasdaq Stock Market, National Market or
such national securities exchange on the business day
immediately preceding the date of such election, re-election
or appointment, as the case may be, or on the next preceding
date on which the Common Stock is traded if no Common Stock
was traded on such immediately preceding business day), each
such Option to be for a term of five (5) years from the date
of grant, provided, however, that such Option shall
terminate three (3) months after such Outside Director
ceases to serve as a director of the Company for any reason.
The number of shares of Common Stock to be subject to a Non-Incentive
Option granted to an Outside Director shall be (i)
in the case of an Outside Director elected or re-elected at
an Annual Meeting of Shareholders, 3,000, and (ii) in the
case of an Outside Director elected or appointed at any time
other than at the Annual Meeting of Shareholders, such
number that is equal to the product of (X) 3,000 multiplied
by (Y) a fraction, the numerator of which shall be the
difference between 1,095 and the number of calendar days
that have elapsed between the date of the most recent Annual
Meeting of Shareholders at which the class of directors of
which such Outside Director constitutes a member was
elected, and the date of election or appointment of such
Outside Director (up to a maximum of 915 elapsed calendar
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days), and the denominator of which shall be 1,095. In the
case of a Non-Incentive Option granted pursuant to clause
(i) of the preceding sentence, one-third of the Non-Incentive Option
shall become first exercisable one (1) year
from the date of grant and the balance shall be exercisable
at the rate of one-third of the total number of shares
subject to the Non-Incentive Option on each of the second
and third anniversaries of the date of grant. In the case
of a Non-Incentive Option granted pursuant to clause (ii) of
the preceding sentence, if the Non-Incentive Option is
granted: (I) within one (1) year after the Annual Meeting of
Shareholders referred to in such clause (ii), the Non-Incentive Option
shall be exercisable in the same manner as
a Non-Incentive Option granted pursuant to clause (i) of the
preceding sentence except that the final one-third of the
Non-Incentive Option shall become exercisable at the next
Annual Meeting of Shareholders at which the class of
directors of which the holder of the Non-Incentive Option is
a member, is subject to election (the "Reelection Meeting");
(II) within two (2) years after the Annual Meeting of
Shareholders referred to in such clause (ii), one-half of
the Non-Incentive Option shall become first exercisable one
(1) year from the date of grant and the other half shall
become exercisable on the date of the Reelection Meeting;
and (III) at any time two (2) years or more after the Annual
Meeting of Shareholders referred to in such clause (ii), the
entire Non-Incentive Option shall become first exercisable
on the date of the Reelection Meeting.
Notwithstanding the forgoing, the maximum aggregate number
of shares with respect to which Options, whether Incentive
or Non-Incentive, may be granted to any person eligible
therefor under the Plan within any one (1) calendar year is
50,000 shares.
5. Option Price.
The purchase price of the shares of Common Stock under each
Option shall be determined by the Committee, which determination
shall be conclusive and not subject to review, but in no event
shall such purchase price be less than (i) 100% of the Fair Market
Value of the Common Stock on the date of grant for Incentive
Options (110% of the Fair Market Value of Common Stock on date of
grant where grant is made to a 10% Owner), and (ii) 75% of the
Fair Market Value of the Common Stock on the date of grant for
Non-Incentive Options.
In determining the Fair Market Value of the Common Stock as of
a specified date (the "Fair Market Value"), the Committee shall
consider, if the Common Stock is: (a) publicly traded and listed
on the New York Stock Exchange or another national securities
exchange or The Nasdaq Stock Market, the closing price of the
Common Stock on the business day immediately preceding the date as
of which the Fair Market Value is being determined, or on the next
preceding date on which such Common Stock is traded if no Common
Stock was traded on such immediately preceding business day, or,
if the Common Stock is not so listed on a national securities
exchange or The Nasdaq Stock Market, but publicly traded, the
representative closing bid price in the over-the-counter market as
quoted by the National Quotation Bureau or a recognized dealer in
the Common Stock, on the date immediately preceding the date as of
which the Fair Market Value is being determined, or on the next
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preceding date on which such Common Stock is traded if no Common
Stock was traded on such immediately preceding business day; or
(b) not publicly traded, the Fair Market Value as determined by
the Committee in good faith based on such factors as it shall deem
appropriate. The Committee may also consider such other factors
as it shall deem appropriate.
For purposes of the Plan, the date of grant of an Option shall
be the date on which the Committee shall by resolution duly
authorize such Option.
6. Term of Options.
The term of each Option shall be such number of years as the
Committee shall determine, subject to earlier termination as
provided for in Sections 9, 10, 11 and 12 hereof (and each
Incentive Option subject to the limitations set forth in Section
4(a) of the Plan with respect to grants to 10% Owners), but in no
event shall the term of any Option be more than ten (10) years
from the date of grant. No Option may be exercised following
termination thereof.
7. Exercise of Options.
(a) (i) Incentive Options. No Incentive Option granted
under the Plan shall be exercisable until at least one
(1) year from the date of grant. Thereafter, each
Incentive Option shall be exercisable as follows: at
the end of one (1) year from the date of grant, up to
25% of the total shares subject to such Option; at the
end of two (2) years from the date of grant, up to
50%; at the end of three (3) years from the date of
grant, up to 75%; and at the end of four (4) years
from the date of grant and until termination of the
Incentive Option, up to 100%.
(ii) Non-Incentive Options. No Non-Incentive Option
granted under the Plan shall be exercisable until such
date or dates (inclusive of the date of grant and
thereafter) as determined by the Committee, but in no
event until at least six (6) months from the date of
grant, with each Non-Incentive Option to be so
exercisable to the extent determined by the Committee.
(b) An Option may not be exercised for fractional shares
of the Company's Common Stock.
(c) Except as provided in Sections 9, 10, 11 and 12
hereof, no Option shall be exercisable unless the
holder thereof shall have been an employee, director,
consultant, agent, independent contractor or other
person employed by or engaged in performing services
for the Company and/or a Subsidiary continuously from
the date of grant to the date of exercise.
(d) The exercise of an Option shall be contingent upon
receipt by the Company from the holder of such Option
of a written representation that at the time of such
exercise it is the optionee's then present intention
to acquire the Option shares for investment and not
with a view to the distribution or resale thereof
(unless a Registration Statement covering the shares
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purchasable upon exercise of the Options shall have
been declared effective by the Securities and Exchange
Commission) and upon receipt by the Company of cash,
or a check to its order, for the full purchase price
of such shares. In addition, the holder of such
Option must agree to refrain from selling or offering
to sell any securities of the Company for such
reasonable period of time after the effective date of
any registration statement relating to an underwritten
offering of securities of the Company, as may be
requested by the managing underwriter of such
underwritten offering, and approved by the Board of
Directors.
(e) The holder of an Option shall have none of the rights
of a shareholder with respect to the shares
purchasable upon exercise of the Option until a
certificate for such shares shall have been issued to
the holder upon due exercise of the Option.
(f) The proceeds received by the Company upon exercise of
an Option shall be added to the Company's working
capital and be available for general corporate
purposes.
8. Non-Transferability of Options.
No Option granted pursuant to the Plan shall be transferable
otherwise than by will or the laws of descent or distribution and
an Option may be exercised during the lifetime of the holder only
by such holder.
9. Termination of Employment of Holder of Incentive Option.
In the event the employment with the Company or a Subsidiary of
the holder of an Incentive Option shall be terminated for any
reason other than by reason of death, disability within the
meaning of Section 22(e)(3) of the Code or retirement at or after
age 65, such holder's Incentive Option shall immediately
terminate, lapse and expire. Absence on leave approved by the
employer corporation shall not be considered an interruption of
employment for any purpose under the Plan.
Nothing in the Plan or in any Option Agreement granted
hereunder shall confer upon any Optionholder any right to continue
in the employ of the Company or any Subsidiary or obligate the
Company or any Subsidiary to continue the engagement of any
Optionholder or interfere in any way with the right of the Company
or any such Subsidiary to terminate such Optionholder's employment
or engagement at any time.
10. Retirement or Disability of Holder of Incentive Option.
If the employment with the Company or a Subsidiary of the
holder of an Incentive Option shall be terminated by reason of
such holder's disability within the meaning of Section 22(e)(3) of
the Code, or retirement at or after age 65, such holder (or such
holder's legal representative on such holder's behalf, if
applicable) may, within six (6) months from the date of such
termination, exercise such Incentive Option, but only to the
extent such Incentive Option was exercisable by such holder at the
date of such termination. Notwithstanding the foregoing, no
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Incentive Option may be exercised subsequent to the date of its
expiration.
11. Termination of Non-Incentive Options.
In the event that a Non-Incentive Optionholder's employment or
engagement with the Company is terminated for any reason other
than the death of the Optionholder, which is provided for in and
shall be governed by Section 12 hereof, such Optionholder's Non-Incentive
Option shall, except as provided for in Section 4(c)
hereof with respect to Outside Directors, terminate, lapse and
expire at such time or times as the Committee provides in such
Optionholder's Non-Incentive Stock Option Agreement.
12. Death of Holder of Options.
If the holder of any Option shall die while in the employ of,
or while performing services for, the Company or one or more of
its Subsidiaries (or within six (6) months following termination
of employment due to disability within the meaning of Section
22(e)(3) of the Code, or retirement at or after age 65), the
Option theretofore granted to such person may be exercised, but
only to the extent such Option was exercisable by such holder at
the date of death (or, with respect to employees, the date of
termination of employment due to disability within the meaning of
Section 22(e)(3) of the Code, or retirement at or after age 65) by
the legatee or legatees of such person under such person's Last
Will, or by such person's personal representative or distributees,
within six (6) months from the date of death but in no event
subsequent to the expiration date of the Option.
13. Adjustments Upon Changes in Capitalization.
If at any time after the date of grant of an Option, the
Company shall by stock dividend, split-up, combination,
reclassification or exchange, or through merger or consolidation
or otherwise, change its shares of Common Stock into a different
number or kind or class of shares or other securities or property,
then the number of shares covered by such Option and the price per
share thereof shall be proportionately adjusted for any such
change by the Committee, whose determination thereon shall be
conclusive. In the event that a fraction of a share results from
the foregoing adjustment, said fraction shall be eliminated and
the price per share of the remaining shares subject to the Option
adjusted accordingly.
14. Vesting of Rights Under Options.
Nothing contained in the Plan or in any resolution adopted or
to be adopted by the Committee or the shareholders of the Company
shall constitute the vesting of any rights under the Option. The
vesting of such rights shall take place only when a written Option
Agreement, substantially in the form of the Incentive Stock Option
Agreement attached hereto as Exhibit A or the Non-Incentive Stock
Option Agreement attached hereto as Exhibit B, shall be duly
executed and delivered by and on behalf of the Company and the
person to whom the Option shall be granted.
15. Withholding Taxes.
Whenever under the Plan shares are to be issued in satisfaction
of the exercise of Options granted thereunder, the Company shall
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have the right to require the recipient to remit to the Company an
amount sufficient to satisfy federal, state and local withholding
tax requirements prior to the delivery of any certificate or
certificates for such shares.
16. Termination and Amendment.
The Plan, which was originally adopted by the Board of
Directors on March 20, 1993, and approved by the shareholders of
the Company on April 26, 1993, and amended by the Board of
Directors on March 25, 1995, subject to approval by the
Shareholders of the Company on June 5, 1995, shall terminate on
March 19, 2003, and no Option shall be granted under the Plan
after such date. The Board of Directors may at any time prior to
such date terminate the Plan or make such modifications or
amendments thereto as it shall deem advisable provided, however,
that, without first obtaining shareholder approval:
(i) no increase shall be made in the aggregate
number of shares which may be issued under the
Plan;
(ii) no termination, modification or amendment shall
materially adversely affect the rights of a
holder of an Option previously granted under the
Plan;
(iii) no modification shall be made to the
requirements of eligibility for participation in
the Plan; and
(iv) no material increase shall be made in the
benefits accruing to participants under the
Plan.
Exhibit B
THE WELLCARE MANAGEMENT GROUP, INC.
NON-INCENTIVE STOCK OPTION AGREEMENT
TO: JOHN E. OTT, MD
We are pleased to notify you that by the determination of the
Compensation Committee (hereinafter called the "Committee") a non-incentive
stock option to purchase Thirty-Five Thousand (35,000)
shares of the Common Stock of The WellCare Management Group, Inc.
(hereinafter called the "Company"), at a price of $12.625 per
share, has this 1st day of June 1996 been granted to you under the
Company's 1993 Incentive and Non-Incentive Stock Option Plan, as
amended (hereinafter called the "Plan"). This option may be
exercised only upon the terms and conditions set forth below.
1. Purpose of Option.
The purpose of the Plan under which this non-incentive stock
option has been granted is to further the growth and development
of the Company and its direct and indirect subsidiaries by
encouraging key employees, directors, consultants, agents,
independent contractors and other persons who contribute and are
expected to contribute materially to the Company's success to
obtain a proprietary interest in the Company through the ownership
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of stock, thereby providing such persons with an added incentive
to promote the best interests of the Company, and affording the
Company a means of attracting to its service persons of
outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this non-incentive stock option agreement
will indicate your acceptance of and your willingness to be bound
by its terms; it imposes no obligation upon you to purchase any of
the shares subject to the option. Your obligation to purchase
shares can arise only upon your exercise of the option in the
manner set forth in Section 4 hereof.
3. When Option May Be Exercised.
The option granted you hereunder may not be exercised for a
period of six (6) months from the date of its grant by the
Committee as set forth above. Thereafter, this option shall be
exercisable as follows:
(i) at the end of one year from the date of grant,
up to 50% of the total shares subject to the
option; and
(ii) at the end of two years from the date of grant, up
to 100% of the total shares subject to the option.
This option shall become immediately exercisable in full upon a
Change of Control of the Company (as defined below) or upon notice
of termination of employment without cause pursuant to Section 4.3
of your employment agreement dated the date hereof. For purposes
hereof, a "Change of Control" of the Company shall mean such time
as:
(i) Any Person or "group" (within the meaning of Section
13(d) (3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than the Principal Shareholders or
The 1818 Fund II, L.P., is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of capital stock
of the Company, entitling such Person or Persons to exercise
50% or more of the total votes entitled to be cast at a regular
or special meeting, or by action by written consent, of
shareholders of the Company (the term "beneficial owner" shall
be determined in accordance with Rule 13d-3, promulgated by the
Securities Exchange Commission under the Exchange Act);
(ii) A majority of the Board shall consist of Persons other
than Continuing Directors. The term "Continuing Director"
shall mean any member of the Board on the Effective Date and
any other member of the Board shall be recommended or elected
to succeed or become a Continuing Director by a majority of
Continuing Directors who are then members of the Board.
(iii) The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or
similar transaction, in each case, with respect to which all or
substantially all the Persons who were the respective
beneficial owners of the outstanding shares of capital stock of
the Company immediately prior to such recapitalization,
reorganization, merger or consolidation, beneficially own,
directly or indirectly, less than 50% of the combined voting
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power of the then outstanding shares of capital stock of the
Company resulting from such recapitalization, reorganization,
merger, consolidation or similar transaction;
(iv) The shareholders of the Company shall have approved of
the sale or other disposition of all or substantially all the
assets of the Company in one transaction or in a series of
related transactions;
(v) Immediately after any merger, consolidation,
recapitalization or similar transaction, the Principal
Shareholders (A) shall have increased the aggregate percentage
of the outstanding shares of capital stock of the Company they
beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity
surviving such transaction is a corporation, the Principal
Shareholders' ownership in the new entity shall have increased
by 10% or more of their aggregate percentage of ownership of
the Company immediately prior to the transaction) and (B) shall
be the beneficial owners directly or indirectly, of outstanding
shares of stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or
more of the total voting power of shares of capital stock of
the Company (or the surviving Person in such transaction) and,
in anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have
incurred or issued additional Indebtedness such that the total
Indebtedness so incurred or issued equals at least 50% of the
consideration payable in such transaction; provided, however,
that any such transaction shall not be considered a Change in
Control if the holders of Notes shall have participated therein
on no less a pari passu basis (assuming conversion of all such
holders' Notes into Conversion Shares) with the Principal
Shareholders;
(vi) The shareholders of the Company approve any
transaction (or if no such approval is required, upon the
occurrence of any transaction) the result of which is that the
Common Stock shall no longer be required to be registered under
Section 12 of the Exchange Act and that the holders of shares
of Common Stock do not receive common stock of the Person
surviving such transaction that is required to be registered
under Section 12 of the Exchange Act;
(vii) The Company ceases to be the beneficial owner,
directly or indirectly, of the outstanding shares of capital
stock of WellCare HMO, entitling the Company to exercise 50% or
more of the total votes entitled to be cast at a regular or
special meeting, or by action by written consent of the
shareholders of WellCare HMO; or
(viii) The shareholders of WellCare HMO shall have
approved of the sale or other disposition of all or
substantially all the assets of WellCare HMO in one transaction
or a series of transaction.
For purposes of this Agreement (a) "Conversion Shares" shall
mean the Common Stock issued or issuable upon the conversion of
the Notes; (b) "Indebtedness" shall mean as to any Person (i) all
obligations of such Person for borrowed money (including without
limitation, reimbursement and all other obligations with respect
to surety bonds, letters of credit and bankers' acceptances,
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<PAGE>83
whether or not matured), (ii) all obligations evidenced by notes,
bonds, debentures or similar instruments, (iii) all obligations to
pay the deferred purchase price of property or services, except
trade accounts payable and accrued liabilities arising in the
ordinary course of business, (iv) all interest rate and currency
swaps and similar agreements under which payments are obligated to
be made, whether periodically or upon the happening of a
contingency, (v) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property),
(vi) all obligations under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (vii) all
indebtedness secured by any lien on any property or asset owned or
held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is non-recourse
to the credit of that Person, and (viii) any contingent obligation
of the foregoing; (c) "Notes" shall mean the 6.0% Subordinated
Convertible Notes due December 31, 2002 of the Company; (d)
"Person" shall mean any individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature;
and (e) "Principal Shareholders" shall mean Edward A. Ullmann and
Robert W. Morey.
This option may not be exercised for less than ten (10) shares
at any one time (or the remaining shares then purchasable if less
than ten) and expires at the end of five (5) years from the date
of grant whether or not it has been duly exercised, unless sooner
terminated as provided in Section 5.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices signifying
your election to exercise the option. The notice must state the
number of shares of Common Stock as to which your option is being
exercised, must contain a statement by you (in a form acceptable
to the Company) that such shares are being acquired by you for
investment and not with a view to their distribution or resale
(unless a registration statement covering the shares purchasable
has been declared effective by the Securities and Exchange
Commission) and must be accompanied by cash or check to the order
of the Company for the full purchase price of the shares being
purchased, plus such amount, if any, as is required for
withholding taxes. No share shall be issued until full payment
therefor has been made.
If notice of the exercise of this option is given by a person
or persons other than you, the Company may require, as a condition
to the exercise of this option, the submission to the Company of
appropriate proof of the right of such person or persons to
exercise this option.
Certificates for shares of the Common Stock so purchased will
be issued as soon as practicable. The Company, however, shall not
be required to issue or deliver a certificate for any shares until
it has complied with all requirements of the Securities Act of
1933, the Securities Exchange Act of 1934, any stock exchange on
which the Company's Common Stock may then be listed and all
applicable state laws in connection with the issuance or sale of
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<PAGE>84
such shares or the listing of such shares on said exchange. Until
the issuance of the certificate for such shares, you or such other
person as may be entitled to exercise this option, shall have none
of the rights of a shareholder with respect to shares subject to
this option.
5. Termination of Employment.
If your employment with the Company (or a subsidiary thereof)
is terminated for any reason, this option shall immediately lapse
and expire; provided, however, if such termination shall be due to
your death or disability, you (or your estate, your legatee or
legatees under your Last Will, or your personal representatives or
distributees) shall be entitled to exercise this option within six
(6) months of the date of termination, but only to the extent
exercisable at the date of termination and in no event after the
expiration date of this option.
6. Nontransferability of Option.
This option shall not be transferable except by Last Will or
the laws of descent and distribution, and may be exercised during
your lifetime only by you.
7. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the
Company shall, by stock dividend, split-up, combination,
reclassification or exchange, or through merger or consolidation,
or otherwise, change its shares of Common Stock into a different
number or kind or class of shares or other securities or property,
then the number of shares covered by this option and the price of
each such share shall be proportionately adjusted for any such
change by the Committee whose determination shall be conclusive.
Any fraction of a share resulting from any adjustment shall be
eliminated and the price per share of the remaining shares subject
to this option adjusted accordingly.
8. Subject to Terms of the Plan.
This non-incentive stock option agreement shall be subject in
all respects to the terms and conditions of the Plan and in the
event of any question or controversy relating to the terms of the
Plan, the decision of the Committee shall be conclusive.
9. Tax Status.
This option does not qualify as an "incentive stock option"
under the provisions of Section 422 of the Internal Revenue Code
of 1986, as amended, and the income tax implications of your
receipt of a non-incentive stock option and your exercise of such
an option should be discussed with your tax counsel.
Sincerely yours,
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Edward A. Ullmann
Name: Edward A. Ullmann
Title: President
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<PAGE>85
Agreed to and accepted this 8th day of July, 1996.
/s/ John E. Ott, M.D.
Signature of Optionee
Exhibit B
THE WELLCARE MANAGEMENT GROUP, INC.
NON-INCENTIVE STOCK OPTION AGREEMENT
TO: JOHN E. OTT, MD
We are pleased to notify you that by the determination of the
Compensation Committee (hereinafter called the "Committee") a non-incentive
stock option to purchase Five Thousand (5,000) shares of
the Common Stock of The WellCare Management Group, Inc.
(hereinafter called the "Company"), at a price of $12.625 per
share, has this 1st day of June 1996 been granted to you under the
Company's 1993 Incentive and Non-Incentive Stock Option Plan, as
amended (hereinafter called the "Plan"). This option may be
exercised only upon the terms and conditions set forth below.
1. Purpose of Option.
The purpose of the Plan under which this non-incentive stock
option has been granted is to further the growth and development
of the Company and its direct and indirect subsidiaries by
encouraging key employees, directors, consultants, agents,
independent contractors and other persons who contribute and are
expected to contribute materially to the Company's success to
obtain a proprietary interest in the Company through the ownership
of stock, thereby providing such persons with an added incentive
to promote the best interests of the Company, and affording the
Company a means of attracting to its service persons of
outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this non-incentive stock option agreement
will indicate your acceptance of and your willingness to be bound
by its terms; it imposes no obligation upon you to purchase any of
the shares subject to the option. Your obligation to purchase
shares can arise only upon your exercise of the option in the
manner set forth in Section 4 hereof.
3. When Option May Be Exercised.
The option granted you hereunder may not be exercised for a
period of six (6) months from the date of its grant by the
Committee as set forth above. Thereafter, this option shall be
exercisable as follows:
(i) at the end of one year from the date of grant,
up to 50% of the total shares subject to the
option; and
(ii) at the end of two years from the date of grant, up
to 100% of the total shares subject to the option.
This option shall become immediately exercisable in full upon a
Change of Control of the Company (as defined below) or upon notice
of termination of employment without cause pursuant to Section 4.3
of your employment agreement dated the date hereof. For purposes
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hereof, a "Change of Control" of the Company shall mean such time
as:
(i) Any Person or "group" (within the meaning of Section
13(d) (3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than the Principal Shareholders or
The 1818 Fund II, L.P., is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of capital stock
of the Company, entitling such Person or Persons to exercise
50% or more of the total votes entitled to be cast at a regular
or special meeting, or by action by written consent, of
shareholders of the Company (the term "beneficial owner" shall
be determined in accordance with Rule 13d-3, promulgated by the
Securities Exchange Commission under the Exchange Act);
(ii) A majority of the Board shall consist of Persons other
than Continuing Directors. The term "Continuing Director"
shall mean any member of the Board on the Effective Date and
any other member of the Board shall be recommended or elected
to succeed or become a Continuing Director by a majority of
Continuing Directors who are then members of the Board.
(iii) The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or
similar transaction, in each case, with respect to which all or
substantially all the Persons who were the respective
beneficial owners of the outstanding shares of capital stock of
the Company immediately prior to such recapitalization,
reorganization, merger or consolidation, beneficially own,
directly or indirectly, less than 50% of the combined voting
power of the then outstanding shares of capital stock of the
Company resulting from such recapitalization, reorganization,
merger, consolidation or similar transaction;
(iv) The shareholders of the Company shall have approved of
the sale or other disposition of all or substantially all the
assets of the Company in one transaction or in a series of
related transactions;
(v) Immediately after any merger, consolidation,
recapitalization or similar transaction, the Principal
Shareholders (A) shall have increased the aggregate percentage
of the outstanding shares of capital stock of the Company they
beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity
surviving such transaction is a corporation, the Principal
Shareholders' ownership in the new entity shall have increased
by 10% or more of their aggregate percentage of ownership of
the Company immediately prior to the transaction) and (B) shall
be the beneficial owners directly or indirectly, of outstanding
shares of stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or
more of the total voting power of shares of capital stock of
the Company (or the surviving Person in such transaction) and,
in anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have
incurred or issued additional Indebtedness such that the total
Indebtedness so incurred or issued equals at least 50% of the
consideration payable in such transaction; provided, however,
that any such transaction shall not be considered a Change in
Control if the holders of Notes shall have participated therein
on no less a pari passu basis (assuming conversion of all such
<PAGE>
<PAGE>87
holders' Notes into Conversion Shares) with the Principal
Shareholders;
(vi) The shareholders of the Company approve any
transaction (or if no such approval is required, upon the
occurrence of any transaction) the result of which is that the
Common Stock shall no longer be required to be registered under
Section 12 of the Exchange Act and that the holders of shares
of Common Stock do not receive common stock of the Person
surviving such transaction that is required to be registered
under Section 12 of the Exchange Act;
(vii) The Company ceases to be the beneficial owner,
directly or indirectly, of the outstanding shares of capital
stock of WellCare HMO, entitling the Company to exercise 50% or
more of the total votes entitled to be cast at a regular or
special meeting, or by action by written consent of the
shareholders of WellCare HMO; or
(viii) The shareholders of WellCare HMO shall have
approved of the sale or other disposition of all or
substantially all the assets of WellCare HMO in one transaction
or a series of transaction.
For purposes of this Agreement (a) "Conversion Shares" shall
mean the Common Stock issued or issuable upon the conversion of
the Notes; (b) "Indebtedness" shall mean as to any Person (i) all
obligations of such Person for borrowed money (including without
limitation, reimbursement and all other obligations with respect
to surety bonds, letters of credit and bankers' acceptances,
whether or not matured), (ii) all obligations evidenced by notes,
bonds, debentures or similar instruments, (iii) all obligations to
pay the deferred purchase price of property or services, except
trade accounts payable and accrued liabilities arising in the
ordinary course of business, (iv) all interest rate and currency
swaps and similar agreements under which payments are obligated to
be made, whether periodically or upon the happening of a
contingency, (v) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property),
(vi) all obligations under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (vii) all
indebtedness secured by any lien on any property or asset owned or
held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is non-recourse
to the credit of that Person, and (viii) any contingent obligation
of the foregoing; (c) "Notes" shall mean the 6.0% Subordinated
Convertible Notes due December 31, 2002 of the Company; (d)
"Person" shall mean any individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature;
and (e) "Principal Shareholders" shall mean Edward A. Ullmann and
Robert W. Morey.
This option may not be exercised for less than ten (10) shares
at any one time (or the remaining shares then purchasable if less
than ten) and expires at the end of five (5) years from the date
of grant whether or not it has been duly exercised, unless sooner
terminated as provided in Section 5.
<PAGE>
<PAGE>88
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices signifying
your election to exercise the option. The notice must state the
number of shares of Common Stock as to which your option is being
exercised, must contain a statement by you (in a form acceptable
to the Company) that such shares are being acquired by you for
investment and not with a view to their distribution or resale
(unless a registration statement covering the shares purchasable
has been declared effective by the Securities and Exchange
Commission) and must be accompanied by cash or check to the order
of the Company for the full purchase price of the shares being
purchased, plus such amount, if any, as is required for
withholding taxes. No share shall be issued until full payment
therefor has been made.
If notice of the exercise of this option is given by a person
or persons other than you, the Company may require, as a condition
to the exercise of this option, the submission to the Company of
appropriate proof of the right of such person or persons to
exercise this option.
Certificates for shares of the Common Stock so purchased will
be issued as soon as practicable. The Company, however, shall not
be required to issue or deliver a certificate for any shares until
it has complied with all requirements of the Securities Act of
1933, the Securities Exchange Act of 1934, any stock exchange on
which the Company's Common Stock may then be listed and all
applicable state laws in connection with the issuance or sale of
such shares or the listing of such shares on said exchange. Until
the issuance of the certificate for such shares, you or such other
person as may be entitled to exercise this option, shall have none
of the rights of a shareholder with respect to shares subject to
this option.
5. Termination of Employment.
If your employment with the Company (or a subsidiary thereof)
is terminated for any reason, this option shall immediately lapse
and expire; provided, however, if such termination shall be due to
your death or disability, you (or your estate, your legatee or
legatees under your Last Will, or your personal representatives or
distributees) shall be entitled to exercise this option within six
(6) months of the date of termination, but only to the extent
exercisable at the date of termination and in no event after the
expiration date of this option.
6. Nontransferability of Option.
This option shall not be transferable except by Last Will or
the laws of descent and distribution, and may be exercised during
your lifetime only by you.
7. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the
Company shall, by stock dividend, split-up, combination,
reclassification or exchange, or through merger or consolidation,
or otherwise, change its shares of Common Stock into a different
number or kind or class of shares or other securities or property,
then the number of shares covered by this option and the price of
<PAGE>
<PAGE>89
each such share shall be proportionately adjusted for any such
change by the Committee whose determination shall be conclusive.
Any fraction of a share resulting from any adjustment shall be
eliminated and the price per share of the remaining shares subject
to this option adjusted accordingly.
8. Subject to Terms of the Plan.
This non-incentive stock option agreement shall be subject in
all respects to the terms and conditions of the Plan and in the
event of any question or controversy relating to the terms of the
Plan, the decision of the Committee shall be conclusive.
9. Tax Status.
This option does not qualify as an "incentive stock option"
under the provisions of Section 422 of the Internal Revenue Code
of 1986, as amended, and the income tax implications of your
receipt of a non-incentive stock option and your exercise of such
an option should be discussed with your tax counsel.
Sincerely yours,
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Edward A. Ullmann
Name: Edward A. Ullmann
Title: President
Agreed to and accepted this 8th day of July, 1996.
/s/ John E. Ott, M.D.
Signature of Optionee
<PAGE>
<PAGE>90
[TYPE] EX-11
[DESCRIPTION] STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11 Computation of Net Income Per
Share of Common Stock
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
Computation of Net Income Per Share of Common Stock
(in thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(Loss) income before
income taxes ($4,889) $3,598 ($4,843) $6,437
Provision for income taxes (1,955) 1,475 (1,937) 2,639
Net (loss) income ($2,934) $2,123 ($2,906) $3,798
Weighted average number of
common and common equivalent
shares outstanding 6,298 6,243 6,294 6,239
Net (loss) income per share ($0.47) $0.34 ($0.46) $0.61
<PAGE>
<PAGE>91
[TYPE] EX-27
[DESCRIPTION] FINANCIAL DATA SCHEDULE
27 Financial Data Schedule
[ARTICLE]
[LEGEND]
This schedule contains summary financial information extracted
from the Consolidated Balance Sheet of The WellCare Management
Group, Inc. and Subsidiaries as of June 30, 1996 and the related
Statement of Operations for the six month period ending June 30,
1996, and is qualified in it's entirety by reference to such
financial statements.
[CIK] -0- If this is a co-registered
FDS, the co-registrant'ts CIK
[NAME] -0- Is this is a co-registrants, the co-
registrant's name
[MULTIPLIER] 1,000 Identifies units of data. Applies to
all monetray values except per share
data. Default is 1.
[CURRENCY] US Dollars Identifies currency of financial data.
Default is US Dollars.
[PERIOD-TYPE] 6 mos Reporting period type (e.g.
3- MOS, 6-MOS, YEAR)
[FISCAL-YEAR-END] DEC-31-1996 Dec-31-1996 Registrant's
fiscal year end (e.g. DEC 31-1995)
[PERIOD-START] JAN-01-1996 Start of reporting period (e.g. JAN-01-1995)
[PERIOD-END] JUN-30-1996 End of reporting period (e.g. DEC-31-1995)
<EXCHANGE RATE> -0- Identifies multiplier of
currency for financial data
that yields US Dollars. Default is 1.
[CASH] 6,692 Cash and cash items.
[SECURITIES] 3,751 Marketable securities.
[RECEIVABLES] 13,189 Notes and accounts receivable - trade.
[ALLOWANCES] 1,950 Allowances for doubtful accounts.
[INVENTORY] -0- Inventory.
[CURRENT-ASSETS] 42,689 Total current assets.
[PP&E] 16,986 Property, plant and equipment.
[DEPRECIATION] 4,425 Accumulated depreciation.
[TOTAL-ASSETS] 80,241 Total assets.
<CURRENT-LIABILILITIES> 24,433 Total current liabilities.
[BONDS] 30,665 Bonds, Mortgages and similar debt.
[PREFERRED-MANDATORY] -0- Preferred stock - mandatory redemption.
[PREFERRED] -0- Preferred stock - no mandatory redemption.
[COMMON] 63 Common stock.
<PAGE>92
[OTHER-SE] 29,082 Other shareholders' equity.
<TOTAL-LIABILITY-AND-
EQUITY> 80,241 Total liabilities and stockholders' equity.
[SALES] 79,763 Net sales of tangible products.
[TOTAL-REVENUES] 82,760 Total revenues.
[CGS] -0- Cost of tangible goods sold.
[TOTAL-COSTS] 68,393 Total costs and expenses applicable to sales
and revenues.
[OTHER-EXPENSES] 19,210 Other costs and expenses.
[LOSS-PROVISION] 784 Provision for doubtful accounts and notes.
[INTEREST-EXPENSE] 1,109 Interest and amortization of debt discount.
[INCOME-PRETAX] (4,843) Income before taxes and other items.
[INCOME-TAX] (1,937) Income tax expense.
[INCOME-CONTINUING] (2,906) Income/loss continuing operations.
[DISCONTINUED] -0- Discontinued operations.
[EXTRAORDINARY] -0- Extraordinary items.
[CHANGES] -0- Cumulative effect - changes
in accounting principles.
[NET-INCOME] (2,906) Net income or loss.
[EPS-PRIMARY] (.46) Earnings per share - primary.
[EPS-DILUTED] (.46) Earnings per share - fully diluted.
